Name a Corporate Trustee – But How Big?

The New York Times' latest Wealth Section includes a welcome column on living trusts (if you ignore the sidebar claiming that revocable trusts must file annual tax returns) as well as a plug for naming a corporate trustee in order to avoid family dissension.

The plug comes with a caution from attorney William D. Zabel: Don't name a local bank.

Why does Zabel think trustors should go big bank? He feels hometown banks, attorneys and accountants are tempted to favor some family members over others. The Times offers as example a situation where an out-of-state son-in-law and his wife have spent years battling "the locals" and her hometown siblings.

Small town trust departments aren't always ideal, but the services of megabanks also have bitter critics. On balance, isn't a capable hometown bank a reasonable choice for nonbillionaires?

Some Go Downmarket, Some Go Up

Goldman Sachs has been catering to investors with at least ten million and preferably fifty. Now Goldman is expanding its adviser forces and targeting lesser wealth. Hard to imagine a Goldman robo adviser, but we may see one.

Meanwhile, Merrill Lynch hopes to move up into Goldman's traditional market. Merrill's new effort will include the services of specialists in estate planning and family counseling – areas once associated with Bank of America's U.S. Trust unit.

Which wealth management giant is on the right track? Possibly both. Vast numbers of Boomers are reaching their retirement decade with a million or two or three. At the same time, the relatively small number of the really rich is growing, and becoming really richer.

Competition to serve both groups must be fierce, as I realized when strolling the streets of Portsmouth the other day. Our fair city has scores and scores of restaurants and gift shops for tourists. We also appear to have at least as many wealth management firms, plus assorted hedge funds and socially-conscious institutional investors.

Upmarket condos. full of wealth management prospects,
 have replaced aged warehouses on Portsmouth's waterfront.

Hoping to make money from people with money? You are not alone.

Should Impact Investors Shun “a Solid Return”?

In his Wealth Matters column, Paul Sullivan defines impact investing as "a movement that aims to force social change by minimizing or eliminating investors’ exposure to companies that harm the world and achieve a solid return."

Impact investors can't be that masochistic. Perhaps Sullivan meant "while still achieving a solid return." (Remember the days when The New York Times had copy editors?) 

Still, the definition is couched in unnecessarily negative terms. Why not call impact investing "a movement that aims to maximize investors' exposure to companies that improve the world"?

As the column suggests, the popular meaning of "impact investing"  has become fuzzy. Narrowly defined, impact investors are those who deploy significant sums to start or back socially desirable projects or efforts. Defined more broadly, as wealth management marketers have been quick to do, impact investors are merely today's equivalent of socially conscious investors. 

The old-timers, however, might shudder at the idea of labeling Exxon an impact investment, even if the oil company does have a diverse board. 

The Case Against Actively Managed Funds,1953

Sixty-five years ago, as now, there were those who believed that mutual fund managers failed to earn  their keep.

This example comes from a review of Louis Engel's How to Buy Stocks. in the  April 20, 1953 edition of The New York Times:

[F]rom 1937 to 1950, fourteen of the biggest and best known mutual funds whose assets were wholly invested in common stocks showed a net gain on their holdings of only 2.2 per cent…. In contrast, the Standard & Poor’s index for ninety representative stocks showed an increase during this same period of 4.1 per cent.

Conservation Easements, Real and Syndicated

Million-dollar houses keep sprouting up in the seaside village your obedient blogger calls home, but remnants of our rural past remain, thanks in part to conservation easements.

With easements, landowners can retain basic ownership while giving up, say, development or subdivision rights. In a hot real estate market such as ours, giving up such rights often leads to a drastic reduction in the property's market value. If the landowner donates the easement to a qualified entity, the reduction in value may be claimed as a charitable deduction.

Yet no good idea, it seems, goes unplundered. The Wall Street Journal reports on "the opaque world of syndicated conservation easements, transactions giving some investors tax breaks worth more than the amount they originally invested in the property."

In a syndicated easement, the organizer recruits investors who buy a piece of a partnership. The organizer identifies property, buys it, makes the donation and then parcels out the deduction. The syndicated deals are particularly popular in the Southeast, and their backers say they efficiently promote conservation by getting tax deductions to people who have the income to use them.

The key, critics say, is often an inflated and unrealistic appraisal and a relatively small network of advisers and charities supporting the transactions. The disclosures identified just 38 appraisers involved in the 552 deals.

According to IRS data, investors in syndicated conservation easements reap tax deductions averaging about 4 times their original investment.  Some do even better.

Too good to last?

Tomorrow's Wealth Manager?

Amazon's Alexa is the voice that empowers our voices. We can summon news or music, order shampoo or groceries, turn on the lights….

The next step seems inevitable:

Alexa, what's my equities to fixed income ratio today? 

Today your ETF portfolio is 87 percent equities and 13 percent fixed income.

Alexa, rebalance to 80 percent equities, 20 percent fixed.

Rebalancing done. I've sent the trade details to your phone. 

Can Alexa take over the personal investing business without the ability to offer investment advice?  Sure. Millennial passive investors may see that disability as a plus.