Friday, June 18, 2021

JPMorgan Adds Sprice to Chase

Nutmeg, the British digital investment service, chose its name because the spice, like wealth and investment management services, was once rare but now is readily available. JPMorgan is acquiring Nutmeg – which it already works with on active ETFs – as it prepares to launch Chase as a digital bank in the UK. 

Nutmeg’s sales pitch:

We’ve got rid of all the aspects that made the wealth management industry unpopular. We don’t charge a premium for the illusion of a personal relationship. We don’t use confusing benchmarks that bear no resemblance to reality. We don’t use technical jargon. We don’t lump all your money together. We don’t charge high fees to pay for our huge sales force. We don’t hit you with sneaky charges. We don’t keep you in the dark over where you’re invested – or how your funds are performing.

 Check out Nutmeg’s admirably clear and accessible website. Well designed and well worded.

Monday, June 14, 2021

Investing's Enormous Generation Gap

From "Your father’s stock market is never coming back,” Fortune’s  readable guide to how the Fidelity-generation’s investing differs from that of Robinhood’s youngsters. (Though not a Fortune subscriber, I was able to access the article here.) 

Jerry [father] spent three decades saving and investing, prudently, and dutifully. He and Nancy have accumulated $1.2 million—for them it’s all the money in the world. Took them their entire lives.

Aiden [son] made $800,000 in the past 12 months, starting with the $25,000 his grandfather left him. He did it from a phone, knowing virtually nothing about the instruments he traded.

 Will this century’s Roaring ‘20s investors see their wealth disappear as dramatically as it did in the last century? Will NFTs really take over from ETFs? 

Thursday, June 03, 2021

The Ivory Tower Tax Act

 I don't care for the name, but I do like the concepts behind Senator Cotton's new tax proposal on certain university endowments.  

Wouldn't it be simpler and more fair to just eliminate nonprofit status for all endowment funds?

Wednesday, May 26, 2021

Who’s Killing Our Verbs?

The first verb to go was “give.” Estate planners helped by describing formal transfers of family assets as “gifting” rather than “giving.” 

Now “bequeath” is endangered. See this blog post on dynastic trusts: "Today’s record levels of economic inequality are infecting our future as the top 0.01% bequest vast wealth to their descendants."

Tuesday, May 25, 2021

The End of Cold Calling

Few business people answer phone calls until they’ve been robotically screened, and personal phone conversations have fallen out of fashion. Small wonder, then, that BofA’s Merrill announced its brokers-in-training will no longer be required to make cold calls.  (Attempt to make, that is – fewer than 2 percent of people who are cold called even answer the phone.)

Merrill instead will encourage young advisers to go prospecting on LinkedIn. Brace yourselves, LinkedIn members!

Full disclosure: The other day your obedient blogger actually did receive a cold call, not from a wirehouse but, surprisingly, from Fisher Investments.

Wednesday, May 19, 2021

Cryptocurrency Scams are Surging

 Losses from cryptocurrency-related investment scams increased tenfold over the last 12 months, according to the Federal Trade Commission. The Internet accelerates the losses, warns Michelle Singletary in The Washington Post: 

[C]ryptocurrency enthusiasts have a great command over social media platforms, enabling them to relentlessly plug the investment, which is pushing up prices. Scammers know that many people suffer from “FOMO,” or the fear of missing out. This is the kryptonite for unsophisticated investors.

 Victims tend to be young: Adults 20 to 49 were more than five times more likely than older age groups to report losing money on cryptocurrency investment scams. Because self-directed IRAs are lightly regulated, they’re a popular scam vehicle.

Tuesday, May 18, 2021

Will Bankers Get Back Into Suits?

Upscale men’s fashion, The Wall Street Journal points out, has lately veered toward jogging pants and sneakers. As movers and shakers return to their headquarters, could boardrooms begin to look like Zoom gatherings?

Fashion guru Andrew Weitz sees suits making a comeback, although the pants may have elastic waistbands. Others have doubts. Except for court appearances and campaign speeches, men’s suits may soon be a memory. 

For a sign of the times, check out Jamie Dimon's interview for the WSJ CEO Council Summit – definitely a suit-up occasion, you would think. The WSJ editor wears jacket and tie. Dimon, the nation’s pre-eminent banker, sports a black pullover shirt, designer jeans and elegant loafers. 

You know he’s dressed up because he’s not wearing sneakers.

David Swensen: Successful Old Investors Should Think Young

The late David Swensen realized individual investors would gain nothing but trouble if they tried to imitate the strategies he applied to Yale’s endowment. Instead, he said, they should simply go passive and cut costs. “[T]he most sensible approach is to come up with specific asset allocation targets that you can implement with low-cost, passively managed index funds and rebalance regularly. You'll end up beating the overwhelming majority of participants in the financial markets.

Swensen didn’t think much of paying investment advisers, and he questioned the conventional wisdom that investors must become more  conservative as they age. If elderly investors have ample funds, Swensen argued, they shouldn’t be investing for themselves. They should be investing, fairly boldly, for their young and middle-aged heirs. 

Kiplingers recently offered a  cautious version of the same advice.

Monday, May 10, 2021

Sad news

 David Swenson has died:

He was younger than I am!

Click here for the collection of posts about Mr. Swenson.

Wednesday, May 05, 2021

The Marvelous Multimillionaires’ Tax Loss Machine


The actual components will be fancier than shown above, but you can bet tax practitioners are hard at work on mechanisms to offset tax on substantial capital gains. Early descriptions of president Biden't tax plans include a top income tax rate of over 40 percent, and that rate also would apply to capital gain realized by taxpayers who are income millionaires. Also vulnerable, nonmillionaires who realize once-in-a-lifetime gains that push their income into seven figures. If stepped-up basis is altered so that gains over $l million are taxed at death, inheritances would be diminished by what amounts to a junior-varsity estate tax.

For estates of the genuinely rich, the Tax Foundation estimates  the tax on gains plus the usual federal estate tax would produce a combined tax rate of 61%. The usual reliable sources think such a punishing blow is unlikely to become reality.

Meanwhile, wealth holders seek defensive measures. The Marvelous Multimillionaires Tax Loss Machine should help a lot. A Wharton study estimates the IRS  could receive 90% less revenue than expected from the proposed tax increases.

Tuesday, April 20, 2021

Tasty Taxes

The Old Farmer's Almanac says that in biblical times, people paid their taxes with herbs such as anise, and in medieval Europe, some used honey to pay their taxes. Since I live in New England, I'm sending the IRS a crate of lobster and clam chowder. I'll let you know how it goes.

When Trust Services Included Immortality

 From an April 1959 issue of The New Yorker:

[An old post that seemed worth repeating.]

Sunday, April 18, 2021

Tech Influences Investing

Here in the early 2020’s, social media and apps offering free trades are reshaping the investment scene. Economist Robert Shiller in the Times sees it as deja vu all over again: "Early in the 1920s, people played the market as a grand game, abetted by technological innovation and new mass media.”

The high tech? The stock ticker. "In 1923 the Trans-Lux company came out with the 'movie ticker' — a large illuminated screen showing rapidly changing stock prices.” No longer were stocks dull certificates that rich uncles kept in their safe deposit boxes. Anyone could go to a brokerage and watch stock prices soar and dive in almost real time. The Money Game was on!

The new  media was radio. "The world entered homes electronically, giving people an immediate sense of the possibility of new technologies and access to a global narrative about financial success.”

From September, 1919 to September, 1929, Shiller estimates, stocks returned an inflation-adjusted average of 20 percent a year. After that.... 

With stocks having already returned an average of 12 percent, after inflation, over the ten years ending March 2021, it’s hard to believe investors have six or eight years of 20 percent returns to look forward to.  “We shouldn’t be surprised,” writes Shiller, "if uncomfortable feelings about the market grow to unmanageable proportions."

Monday, April 12, 2021

CEOs Have Lucrative Coattails

 CEOs of the largest US corporations made more than ever last year, The Wall Street Journal estimates. Even corporate chieftains who took salary cuts when the coronavirus erupted tended to make up the difference through growth in the equity portion of their compensation. 

When CEO's do better financially, so do their immediate subordinates. Public corporations must report the compensation of the five most highly compensated executives. These summaries indicate that even those at the bottom of the five-exec totem pole have little cause for complaint.

Last year, to cite a few more or less random examples, number five at Verizon enjoyed total compensation of $7.8 million. At Pfizer, $8.9 million. Citi, $9.4 million.  Compensation for the number ones at those companies ranged from $19 million to $23 million. 

For the top tier of the wealth management business, all this new wealth indicates a bright future. Unless it's too generous to last. The Wall Street Journal notes that shareholders at some companies aren't happy with current compensation levels:

About 1 in 6 companies holding shareholder votes since Sept. 1 have gotten less than 70% support for say-on-pay votes, according to an analysis of S&P 500 companies by Equilar. Among the same companies last year, by contrast, about 1 in 12 had such stiff opposition.

Although only advisory, a poor showing in a say-on-pay vote often prompts boards to restructure pay packages—or more.
If CEO pay gets pressured, so will the compensation of those riding their coattails. 

Monday, March 29, 2021

Is the Stock Market Rigged? Is Rain Wet?

More than 50 percent of U.S. investors believe the stock market is rigged, according to a Bankrate survey. When you look at the wild price swings of a stock like ViacomCBS, exacerbated by massive trades that backfired on a family hedge fund and shook the investment banking world, the obvious question arises:

Why isn’t it 100 percent? 

Saturday, March 13, 2021

How to Raise Taxes?

Here’s The Washington Post’s wish list for revenue-raising tax reform. A number of the comments are enlightening. A few offer comic relief. Like, "Wealthy people who set up Trusts need to be reigned in.” (Not to be confused with Meghan and Harry, who needed to be reigned out.)

Tuesday, March 09, 2021

Maybe the 2020’s Won’t Roar ’til 2024

Energized by hope that COVID 19 vaccines will be plentiful by summer, the exuberant stock market is already looking beyond the pandemic. Too hasty? 

A Yale professor who has studied pandemics believes the end of this one is not yet nigh. "Given what we can learn from history," Dr. Nicholas A. Christakis warns, "I don’t think people should just imagine that we’re going to rapidly and easily return to normal.” 

Even if we achieve herd immunity this year, the good times won’t roll.
If you look all the preceding centuries of epidemics, then it’s clear that we’re going to have an intermediate period in which we come to terms with the pandemic’s psychological, social, and economic toll. I think that will last through 2023, approximately. We need to recover from the terrible shock of this experience. Millions of businesses have closed. Millions of Americans are out of work. Millions of children have missed significant amounts of school. Millions of people have lost family members to the virus. Many will have chronic disabilities from contracting it. We need to come to terms with all of these things, which will take time.
Christakis expects that "sometime in 2024 — the timing isn’t precise — we’ll enter the post-pandemic period. And I think that’s going to feel a little like the Roaring Twenties in the last century.”

If so, all investment managers and financial advisers have to do is help wealthholders survive another two years or so. Then, party on!

Thursday, March 04, 2021

Provenance, Provenance, Provenance!

This painting, just sold at Christie's in London, practically gushes provenance. Borrowed from the French, the word serves the art world as a posh term for "a record of ownership of a work of art or an antique, used as a guide to authenticity or quality." 

Though this artist wasn't a big name in the art world, he was a big name. Winston Churchill painted Tower of the Koutoubia Mosque after the 1943 Casablanca Conference and gave it to Franklin D. Roosevelt.  In 2011 Brad Pitt bought the painting from a dealer and gave it to the seller, Angelina Jolie.

Expected to sell for perhaps $3 million, the only painting Churchill created during WWII sold for almost four times as much: $11.5 million.

World War II history, Churchill and Roosevelt, Hollywood stars …what more could the unidentified buyer ask?

We Couldn’t Have Said it Better

The great thing about sustainable investing is it can be whatever you want it to be.

                                     – James Mackintosh in The Wall Street Journal 

Investors had no trouble gliding past the death and economic devastation wrought by the pandemic last year to drive the market to record highs. An increasingly healthy economy is what’s making them panic.

                       – Matt Phillips in The New York Times

Wednesday, February 24, 2021

The Law That Made Everybody’s Tax Info Public

 After the Crash of ’29, tycoons like J. P. Morgan, Jr. had more than enough tax write-offs to reduce their income tax to zero. As this old WSJ item reminds us, the resulting public outrage led Congress to take bipartisan action:

Under the Revenue Act of 1934, anyone who filed a federal tax return would also complete another — pink — form, with his or her name, address, income, deductions and total taxes paid. Everything on the pink slips was public information, available to reporters, nosy neighbors or former spouses alike.

 With the pink slips, the theory went, upper-income toffs would be shamed into paying something. But ordinary taxpayers also would have their earnings and tax payments exposed to public view. What would the neighbors think? What if they looked affluent enough to attract kidnappers? (With the kidnapping of the Lindbergh baby still a fresh memory, the latter worry was real.) 

A Pittsburgh glass heir named Raymond Pitcairn led the effort to repeal pink slips. Using know-how gained while lobbying for the repeal of Prohibition, he quickly won the day. The “pink slip” law was repealed less than a year after it passed.

The Supreme Court recently ordered the release of the income tax records of a wealthy serial nontaxpayer. But these days, living rich and tax free is a feat perhaps more admired than condemned.

Friday, February 12, 2021

Christo’s Estate Sale

Together with his late wife, Jeanne Claude, the artist known as Christo liked to wrap extraordinarily large objects. Christo died last year, but a posthumous work, L'Arc de Triomphe, Wrapped, may appear this fall. 

Meanwhile, Sotheby’s is auctioning off the couple’s arty possessions, including this screenprint they acquired from Damian Hirst. 

You can bid on the print, All You Need is Love, through February 18 online, but be prepared to offer more than 24,000 EUR.

Happy Valentine’s Day!

Thursday, February 04, 2021

More Game Stop winners

 The Financial Times reports that the biggest winners in the Game Stop frenzy may have been the market makers, as trading volume reached record levels.  Trading in options has exploded to record levels as well.

I've never been a day trader, I've bought many stocks but I've never sold one.

So far, so good. 

Tuesday, February 02, 2021

A taint on a trust strategy?

 According to an account posted at TaxProfBlog, Jeffrey Epstein made most of his fortune simply be getting billionaires to execute GRATs to save estate and gift taxes.

I am surprised.

Trading as a Team Sport

The new sport of trading stocks has evolved much faster than expected. A legion of bored amateurs, some armed with government stimulus checks, has driven Gamestop and other stocks shorted by hedge funds to ridiculous highs. Trading, the novices have discovered, can be fun. When you get together and make it a team sport, you can batter hedge funds so badly they need financial transfusions.

Pundits are alarmed. If a financial advisor can ignite a flash mob to shake up Wall Street as easily as former president Trump inspired a crowd to storm the Capitol, who or what is safe? (Hey, are they attacking silver? Could they go after Bitcoin?)

History tells us that participants in speculative binges get their comeuppance. This time it may take a while. According to this Axios bulletin, the short sellers have a deep bench. “[B]ig bets are coming in from hedge funds and institutional investors, meaning that the short squeeze has not even begun."

Wednesday, January 27, 2021

Tulip mania returns

 This time it's GameStop.

When short interest goes above 100% of the shares in the hands of the public, trouble is brewing.

Thursday, December 17, 2020

Millennials Like ETFs

Vanguard's "How America Invests" offers a look at the behavior of five million households that invest with the firm. As you would expect, investors are moving into index funds and away from actively managed products. Some wealthier Vanguard customers are using exchange traded funds to add diversification, but the real fans of ETFs are the young. 

Most households who currently invest in ETFs are “diversifiers,” meaning ETFs make up less than a quarter of their assets. Their ETF investments are in addition to already-diversified mutual fund portfolios. These households tend to be wealthy and long- tenured. However, there's a small but growing group of ETF “enthusiasts,” typically millennials who have been with Vanguard for only three years, who build complete portfolios from ETFs.

Wednesday, December 16, 2020

Two Churned Accounts Cost Merrill Lynch Over $64 Million

 After the rise and fall of Cabletron, the company he co-founded, Craig Benson served a term as governor of New Hampshire. Now, as the result of investment misadventure, he’s the recipient of the largest monetary settlement in that state’s history.

In a claim filed with FINRA, Benson asserted that needless, ill-advised trades by his Merrill Lynch brokers had cost him $50 million. The New Hampshire Department of Securities Regulation launched a probe.

“My account was churned in large part for the benefit of generating commissions that benefited Charles Kenahan, Derm Cavanaugh, but mostly Merrill Lynch,” Benson told CNBC. “I certainly didn’t sign a document and say it’s OK to steal from me."

Apparently Merrill served Benson a full diet of upmarket investments, from IPOs to leveraged and inverse products. The results were so unpalatable that the New Hampshire settlement imposes a $2 million fine on Merrill Lynch and requires the BofA unit to pay Benson restitution of $24.25 million. 

These payments also resolve Benson's FINRA claim, making it the second largest FINRA settlement involving an individual over the last decade or so. The largest?  The $40 million Merrill Lynch was required to pay Robert Levine, Benson's friend and co-founder of Cabletron.

Friday, December 11, 2020

Jabbing the 1%

 Wondering why millions and millions of Red State voters detested the Blue State elite? Here's a clue from the Dow Jones Newswires:

These are the loopholes America's 1% can use to get early access to the COVID-19 vaccine

Actually, the "loopholes" sound too cramped to accommodate the whole 1%. Maybe the 0.1%.

Monday, December 07, 2020

The Bob Dylan solution to the Prince problem

 Reportedly Bob Dylan has sold the rights to all the music he has written.

This will be the subject of Merrill Anderson's January issue of the Investment and Trust Newsletter. Click here to sign up.

Monday, November 23, 2020

If a Four-Day Week is Good Enough for a Trust Company . . .

 The five-day work week is a modern construct. Back in 1871, when The New York Stock Exchange started continuous trading, the floor was open Monday through Saturday. Six years later the Saturday trading session was cut to mornings only, but Saturday morning trading persisted until 1952. 

If the six-day work week could evolve to five days, why not four? A New Zealand trust company has tried the idea – work four days, get paid for five – and the experiment went so well that the change has become permanent.

Now the consequences of Covid 19 have proponents of the four-day week hoping for a large-scale breakthrough

Could it happen? Plenty of employers seem to embrace the idea, at least until they learn they're not supposed to pay 20 percent less for 20 percent less work time. Four days work, five days pay!

Wednesday, November 11, 2020

When a Trust Could Set You Free

The fall issue of "Financial History,” published by the Museum of American Finance, includes an article on the free black businesspeople of antebellum New Orleans and Charleston. 

After the American Revolution, the number of free blacks in Charleston grew. By 1820 some whites found the trend disturbing. "As a result…the state legislature passed a law prohibiting immigration and outlawing manumission. Those slaveholders still wishing to free their slaves would have to adopt more sophisticated, legally intricate estate planning devices in hopes of circumventing the 1820 law."
One universal approach adopted by many owners involved the establishment of a “trusteeship” with the creator of the trust acting as the beneficiary. The beneficiaries could then exercise emancipation rights whenever they chose. William Ellison, a free mulatto and cotton gin manufacturer with family in Charleston, “purchased” his daughter Maria in this manner in 1830. After technically purchasing her, he immediately vested her ownership in trust by “selling” her for “one cent” to Col. McCreight. The trust stipulated that though owned by McCreight, he was to allow her to reside with the Ellison family. Under the trust, William Ellison could emancipate at any time; upon his death, the agreement required that McCreight “secure her emancipation as soon as possible here or in another state.”

Wednesday, October 21, 2020

Art for Our Unhealthy Times

 Six or seven years ago, prankster artist Banksy messed around with a painting by Damien Hirst to create this collaborative work. Today the painting serves as a pointed commentary on our Covid 19 crisis. Art is more than just a financial asset.

Nevertheless, at Sotheby’s October 28th auction of contemporary art, the Banksy-Hirst creation is expected to sell for two or three million. 

Friday, October 16, 2020

From Unmentionable to Unmeaningful

Up until the 1980s, I bet there wasn’t one reference to “wealth” or “rich people” in the  newsletters Merrill Anderson churns out for bank and trust companies. “Wealth” was unspeakable. Those who had managed to hang onto their fortunes during the Depression and World War II didn’t want attention. That meant newsletter articles had to signal their target market with euphemisms: people of means…affluent...with substantial assets…extensive resources.*

In the 1980s a new Boomer financial elite emerged – “If you’ve got it, show it!” William Safire noticed the trend in a 1981 On Language column. The New Money, and those aspiring to it, were talking fancier:
Only fuddy-duddies go to the gym, or to the drugstore, or to Europe; the upscale (formerly hoity-toity) crowd goes to the spa, or to the pharmacy, or to the Continent.


A decade ago, the passé people would say rich while the with-it types would say affluent; now the passé say affluent and the with-its say wealthy….

Wealth was mentionable again! And just it time.  Investment advisers faced a marketing challenge. Index funds had emerged, diminishing the perceived usefulness of active investment management. Advisers were responding by broadening their services – more estate planning, retirement planning, tax planning. Now they needed a term to describe their broader role – something with more pizazz than "financial planning."

Thanks to the renewed acceptability of "wealth," the solution was simple. Investment advisers became wealth managers. By the 1990’s the term “wealth management” had soared in popularity, as  this Google Ngram indicates.

"Wealth management" was a big-tent concept. Brokers offered it, insurance companies spun off wealth management units, bank trust departments hurried to rename themselves. Now, well into the 21st century, familiarity has bred confusion. 

Most people now think wealth means something nice but vague, Yale researchers have found. Who can blame them? Many years of marketing campaigns have told them "wealth is a life well lived," "wealth is peace of mind and happiness."

Only about one person in five, said the researchers, knows that wealth is what you have left after subtracting your debts from your assets. 

* On TV the other day I heard poor children euphemized as “under-resourced kids." 

Sunday, September 20, 2020

The Billionaire Who Gave It All Away. Really!

A number of billionaires have pledged to give their fortunes away, but you know they'll go on living the lush life. 

Not Chuck Feeney, who now lives in a rented San Francisco apartment and is said to own one pair of shoes. Remarkably, reports The Guardian, this billionaire has actually given almost all of it away.

Chuck Feeney has achieved his lifetime ambition: giving away his $8bn fortune while he is still around to see the impact it has made.

For the past 38 years, Feeney, an Irish American who made billions from a duty-free shopping empire, has been making endowments to charities and universities across the world with the goal of “striving for zero … to give it all away”.

This week Feeney, 89, achieved his goal. The Atlantic Philanthropies, the foundation he set up in secret in 1982 and transferred almost all of his wealth to, has finally run out of money.

The head of Feeney's foundation said his boss had once tried to live a life of luxury but it didn’t suit him. “He had nice places [homes] and nice things. He tried it on and it wasn’t for him."