Tuesday, December 27, 2005

Looks like a Happy New Year for trust marketers!

Trusts are trendy, according to Rachel Emma Silverman's article in the Christmas Eve edition of The Wall Street Journal.

Assets in personal trusts nearly doubled from 1998 through 2004, soaring to $1.19 trillion.

And that estimate may be low. Corporate trustees alone held more than $1 trillion in personal trusts last year, according to the American Bankers Association.

Driving the trend to trusts, Silverman writes, are the Baby Boomers, now reaching an age when thoughts of wealth-preservation and estate planning begin to be thought.

Not only are more trusts being set up, more are likely to last an heir's lifetime:
Traditionally, many parents would leave money to their children either directly, or would create short-term trusts that would pay out when the kids reached specific ages -- say, some disbursed when a child reaches 25 years old, then more at 30, then 35 -- after which point, the trusts would dissolve.

But in recent years, more lawyers have advised parents to leave gifts or inheritances, even small ones, in long-term trusts. The idea is that money left in trust for as long as possible is safer -- from creditors, divorcing spouses and estate taxes -- than money given outright.
As more trusts last longer, Silverman notes, they have become more flexible. Corporate trustees will be challenged to redefine the role of trustee: no longer merely working for the heirs but working with them.

Tuesday, December 20, 2005

Here We Come A-Gifting

In the Holiday Spirit, we come bearing gifts, chosen in the knowledge that it's the thought that counts.

For active portfolio managers, who keep forgetting that hyperactive turnover usually leads to underperformance, a relaxing mug of hot mulled cider.

For indexers, who need a way to keep awake while their passive portfolios outperform most actively-managed funds, a Starbucks Gift Certificate.

For hedge fund honchos, who know it's "positive returns or perish," a year's supply of 100-proof Alpha (take only as directed).

For tax practitioners, the prospect of a new round of Tax Reform. (And you can bet that Congress, once again, will make a glorious mess of it.)

For trust and wealth-management marketers, a new batch of HNW Hot Buttons. ready to be pushed.

To all, best wishes for a Christmas that is Merry, a Hannakuh that is Blessed, a Yule that is Wicked Cool!

Tuesday, December 13, 2005

Rich kids need to be carefully taught

As noticed in the preceding posts, Sir Tom Hunter and Mr. Andrew Carnegie advise the New Rich to give their billions away, not heap it upon their kids.

Not all wealthy parents like that advice. What's more, even the few millions one might leave to a son or daughter as a modest life endowment could easily look like making-whoopee money to an untutored young person.

Hence the growing emphasis on helping ultra-high-net-worth parents teach their potential heirs to be self reliant and financially literate. For a discussion of this subject recently commissioned by Northern Trust, see Preparing Children for a Life of Wealth.

This week, by the way, Northern's web site announces a nice honor. Private Banking International magazine has selected Northern Trust as the winner of the Outstanding Private Bank—The Americas Award 2005.

Saturday, December 10, 2005

Tom Hunter: “almost accidental philanthropist”

Andrew Carnegie (see preceding post) has a new disciple — and a Scot, to boot!

Alan Cowell profiles Tom Hunter in today's New York Times:
When Tom Hunter says he plans to get serious about something, he seems to mean it. Earlier this year, after touring Africa with former President Bill Clinton , Mr. Hunter - now Sir Tom - resolved to get serious about philanthropy for a continent in turmoil. The result? A promise of $100 million, ponied up for projects to wrest Africans from poverty - not bad for a man of 44 who started off his business career with borrowed money, selling sneakers.
Son of a greengrocer, Hunter borrowed from his family to start a chain of sneakers stores. Seven years ago he cashed in, selling his Sports Division chain for a considerable fortune.
When they first became rich, in 1998, Sir Tom said, he and his wife, Marion, formed a charitable trust because it was "tax efficient," making him almost an accidental philanthropist. Then, becoming frustrated with some of his early giving in Scotland, he turned for advice to Vartan Gregorian, the president of the Carnegie Corporation of New York, a choice of guru that reflected his reverence for the Scottish-born forefather of American philanthropy, Andrew Carnegie.

Indeed, Sir Tom likes to quote Andrew Carnegie, saying, "He who dies thus rich dies disgraced." He matches that adage with a public vow of his own, made in a recent speech: "I would leave this world as we came into it, with nothing. My family and kids would be well looked after but would not be burdened by the challenge of managing phenomenal wealth." ("My kids like to debate that," he added.)
Sir Tom has plenty of room for more philanthropy before he gets to "nothing." He ranked sixty-ninth on last spring's Sunday Times Rich List.

Friday, December 09, 2005

How to keep wealthy clients alive and happy

Money sometimes does make people happy, according to Syracuse professor Arthur Brooks writing in The Wall Street Journal.
According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are "very happy" than people in the bottom fifth, and only about half as likely to say they are "not too happy."

There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was "very happy" in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of "consumerism" explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others . . . .
In large, sudden doses, unfortunately, money can make people dead. A December 5 New York Times article reports on the short, unhappy lives of Mack W. Metcalf, a Kentucky forklift driver, and his estranged second wife, Virginia Merida, the daughter of a drug dealer.

Five years ago, Metcalf and Merida met wealth head on, sharing a $34 million lottery jackpot.
Years of blue-collar struggle and ramshackle apartment life gave way almost overnight to limitless leisure, big houses and lavish toys. Mr. Metcalf bought a Mount Vernon-like estate in southern Kentucky, stocking it with horses and vintage cars. Ms. Merida bought a Mercedes-Benz and a modernistic mansion overlooking the Ohio River, surrounding herself with stray cats.
Three years later, Metcalf was dead of complications relating to alcoholism. On the day before Thanksgiving, Merida's decomposing body was found; authorities suspect death by drug overdose. Only hint of a silver lining: $500,000 was salvaged to create a trust fund for Metcalf's daughter by his first marriage.

Wealth acquired more conventionally isn't necessarily fatal but, as Ruth Marcus writes in the Washington Post, the wretched excesses of the new Gilded Age are not a pretty sight:
Washington, of course, has always had its moneyed denizens . . . . What's different about Washington in this latest Gilded Age is the amount of money sloshing around this city -- this region, actually -- and the ostentatious display thereof . . .

The result is a strange version of increasing income inequality . . .The wretched excesses of the former American University president and his wife, for instance, can be attributed in part to their constant proximity to wealthy donors and immersion in Washington's social scene. If everyone else is having their drivers take them to the luncheon with the ambassador's wife, how could Nancy Ladner drive her own car -- even if it was a black 2003 Infiniti Q45? If everyone else has a private chef, why not have yours create a 13-course dinner to celebrate your son's engagement? Why not start with White Truffle & Porcini Egg Custard & American Sturgeon Caviar?

Back in the original Gilded Age, one of the most passionate critics of wretched excess was Andrew Carnegie. Above and beyond the "competence" needed to live in independence and comfort, Carnegie believed wealth should be used for the public good. This charitable work, he insisted, should be done during the wealth-builder's lifetime, not by bequest:
Knowledge of the results of [charitable] legacies bequeathed is not calculated to inspire the brightest hopes of much posthumous good being accomplished. The cases are not few in which the real object sought by the testator is not attained, nor are they few in which his real wishes are thwarted. In many cases the bequests are so used as to become only monuments of his folly.
Professor Brooks tells us why you should take Carnegie's point seriously: "Donating money (and time) is one of the best ways to buy happiness."
People who donate to charity are 40% more likely to say they are "very happy" than non-donors. Psychologists have even tested whether charity makes people happy using randomized, controlled experiments -- the same procedure used for testing pharmaceuticals, except that, instead of administering a drug to one group and a placebo to the other, researchers randomly assign one group to act charitably toward another. The results are clear: Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity -- empirical evidence that it is indeed more blessed to give than to receive.
Ready to help your clients help themselves to happiness? Then get to work on those charitable trusts, family foundations and donor-advised funds!