Thursday, January 31, 2008

Inheritance, as the BBC Sees It

Over in Merry England, Nigella Dawson, a TV chef, says she's leaving nothing to her kids: "I am determined that my children should have no financial security." Her estate-planning stance inspired the BBC News Magazine to take a look at inheritance:

Two tidbits:
[S]ays Professor David Blanchflower, inheriting money early in life makes you more likely to run a business and be self-employed. The correlation continues even into middle age.

"You need money to start a business so if you haven't got it, that prevents you," he says.

Economist Dr Nick Bloom has studied the management of family firms where the father passes the business on to the eldest son.

"We looked at 5,000 companies and we found that around a third of medium-sized manufacturing firms were family owned. In about half of them the eldest son was the CEO. They are very badly managed."

The BBC article also touches on the idea of recycling death-tax revenues to create "citizens' inheritances." What 25-year-old wouldn't like to receive a state grant big enough to pay off his or her student loans?

Tuesday, January 29, 2008

Women and Estate Planning

One of our daughters says this was too good not to pass on. Waddaya think?
Dan was a single guy living at home with his father and working in the family business. When he found out he was going to inherit a fortune when his sickly father died, he decided he needed a wife with which to share his fortune.

One evening at an investment meeting he spotted the most beautiful woman he had ever seen.

Her natural beauty took his breath away. "I may look like just an ordinary man," he said to her. But in just a few years, my father will die, and I'll inherit 20 million dollars."

Impressed, the woman obtained his business card and three days later, she became his stepmother.

Women are so much better at estate planning than men.
Hoping for something serious on the subject? You might start at the Women's Financial Network on Muriel Siebert's web site, where a comprehensive-looking course on estate planning begins here.

Monday, January 28, 2008

Client contact during market turmoil

When the markets are up, when client accounts are growing smartly, calling with good news is easy. During periods of "downside volatility," on the other hand, making that contact is probably even more important. Here's a piece from Financial Planning on how to handle the task.

I'd like to suggest that this might be a particularly good time to put Merrill Anderson's Financial Planning Ideas 2008 to work for you. As it happens, in this edition we devote three pages to the the topic of portfolio volatility; the first page is pictured above.

To learn more, send an email to with "FPI 08" in the subject line.

Friday, January 25, 2008

One Yacht leads to Another

The ugliest yacht in the world? On his Wealth Report blog, Robert Frank notes that some think the megayacht Sigma, still under construction, could take the title.

Bet we could endure a cruise on Sigma when she's finished. Still, Mr. Frank has a point. To bespeak Old Money, yachts need a traditional look.

Google came up with a good example, the vintage yacht Chanticleer.

A few years ago Chanticleer was offered for sale to settle the estate of Frances Langford, the old-time singer/actress. Members of the Greatest Generation remember Langford fondly from her U.S.O. tours of WWII battlegrounds with Bob Hope. As you'll read in this Boston Whaler's log of an August, 2001 cruise on Georgian Bay, her glamor endured:
On my way back to the boat I stop at Wally's Gas Dock, where the rather famous yacht CHANTICLEER is fueling. We have seen this boat cruising many times in our previous visits to this area. A beautiful 110-foot Burger motor yacht, CHANTICLEER has just arrived from a month long trip from her home port of Jensen Beach, Florida. The owner is on board, in fact she is having lunch on the fantail. Still looking like Hollywood, 88-year-old former movie star Francis Langford is wearing sunglasses, a white sweater, and a gold lamé hair covering as she enjoys her noon meal, prepared by her cook and served by her steward on the screened-in aft deck of the gleaming yacht. Married to outboard engine pioneer Ole Evinrude (who died in 1987), she and the big yacht have been annual visitors here every summer for decades. As soon as they finish fueling they're off to their anchorage at the tiny twin islets they own in The Pool, a beautiful spot in the extreme northeast end of Baie Finn. It is quite a sight to see her and her famous CHANTICLEER. What a way to go! I hope I am still game for cruising when I am 88-years old.
Readers in the yachting crowd know all about Burger yachts. For the rest of us, the history of the family-founded company is set forth here. There's enough drama to fill a succession-planning seminar. After assorted trials and tribulations, the luxury tax on yachts killed Burger in 1990.

Not to worry, the story has a happy ending. For a shorter version with photos, see the Timeline. Here's one of the new Burger yachts:

Wednesday, January 23, 2008

Trust-Fees Ruling Causes Pain

In The Wall Street Journal's Tax Report, Tom Herman covers the Supreme Court decision limiting trust fees and offers some statistics:
The case has drawn especially close attention because trusts -- and the amount of assets they hold under management -- have proliferated rapidly in recent decades as Americans have grown increasingly prosperous. . . .

There are nearly four million estates and trusts that outsource $10.2 billion a year for legal, accounting, tax reporting and asset management, and that pay trustees an additional $4 billion for their asset-management services, according to Eileen Sherr, tax technical manager at the American Institute of Certified Public Accountants in Washington.

Monday, January 21, 2008

Long-Term Investors Should Skip Dessert

How to avoid instant gratification and learn patience, from The New York Times:
[P]eople often crave certain things after they see them. For example, a nearby dessert cart can prompt a diner to start hungering for a slice of pie.

But a new study in The Journal of Consumer Research suggests that “appetitive stimuli” can also make people more impulsive in unrelated areas. In one experiment, college students in Toronto were shown either pictures of desserts or pictures of nature, then offered a choice between a lottery ticket with a small, fast payout and one with a slightly larger but deferred payout. Those who had seen desserts preferred the first, and those who had seen nature preferred the second.

In a variation, students were shown pictures and then offered choices between what the study called “virtues” and “vices”: a bookstore coupon versus a movie ticket, or an apartment close to work versus one with a good view. In four out of five cases, the dessert group preferred the “vices” and the nature group preferred the “virtues.”

“People exposed to these stimuli think more of the short term than the long term,” said Xiuping Li, the study’s author.

Friday, January 18, 2008

How Not to Win New Clients

Marketers have trashed the term "luxury" so thoroughly that it ought to be retired. Yesterday's Wealth Report cites a speech on the subject by Andrew Sacks.

Those who aspire to delivering luxury-level goods and services should start by respecting their customers, Sacks told a gathering of hoteliers in Monaco.
One way to add value, Mr. Sacks said, is to give more away. Even though wealthy guests can well afford it, don’t charge them for Internet use, bottled water, shoe shines, or laundry service.
On NPR this morning, Bob Sullivan, author of Gotcha Capitalism, discussed the epidemic of nickel-and-diming (more accurately, five-spot and ten-bucking) that has broken out at hotels and airlines and spread, alas, to banks.

From hotels to cell phone bills, companies attach a barrage of hidden, extra charges. One reason is the Internet. Online shopping permits consumers to comparison shop for bargains. So companies are countering low prices with hefty fees. So if a $99 room is snagged at a nice hotel via, then the hotel tends to attach a "resort fee" for towels at the pool or removing something from the mini-bar – even it [sic] put back 60 seconds later.

Some banks now make more from fees than interest, Sullivan asserted. And he wasn't referring to basic fees for checking accounts or trust service. For a link to his radio interview, go here.

Multimillionaires are accustomed to paying generously for superior services. But I bet even Warren Buffett hates to be nickeled-and-dimed.

Thursday, January 17, 2008

The 2% haircut

Chief Justice John Roberts, writing for a unanimous Supreme Court, holds that the 2% floor applies to the deduction for trust investment expenses. This decision validates the IRS Regs. issued last year on the subject, and likely means that trustees will now have to itemize their fee and break out the portion attributable to investment expense. The AMT may come into play as well.
UPDATE: Some commentators have noted that the Court's decision does not mandate or endorse the trustee fee unbundling, and IRS might soften its stance in response to criticism at their public hearing. On the other hand, they could offer a simple safe harbor to be used in the absence of explicitly unbundled fees, such as 50% of the trustee's fee is presumed to be for investment advice.

Wednesday, January 16, 2008

Hedge Fund Performance, 2007

Although they took in almost $195 billion in new money, many and perhaps most hedge funds struggled last year. Average reported return: about 10%.

A lot of mutual funds, and not a few private investors, did much better. What's more, many hedgers don't report their returns, so the actual median return may well be less than 10%.

On the other hand, The Wall Street Journal reports John Paulson bet against subprime mortgages so skillfully that two of his hedge funds recorded 2007 returns of 350% and (yes!) 590%.

For that achievement Mr. Paulson made some $3 billion last year. As comments to this Wealth Report posting indicate, not everybody's sure he earned it.

Monday, January 14, 2008

Financial Advisers Roll Up Their Sleeves

Dealing with the toxic fumes from the sub-prime mess could be Job One for investment advisers this year. That's the message from this Dow Jones Practice Management column:
Typically, the bulk of financial advisors rely on sophisticated research reports, automated software and third-party money managers to monitor and invest their clients' portfolios. In recent months, however, many advisors have begun manually digging into the smallest details of their clients' holdings to ferret out any lurking exposure to subprime investments.

Diligence in scouring portfolios for subprime exposure can be a tedious diversion from normal business. But advisors who do so can win the loyalty of clients - and an additional share of their assets. And those who don't search for subprime exposure may end up alienating clients should problems emerge.

Because losses from the subprime meltdown are often indirect - say, when a construction company posts a loss on the back of slowing new home sales - some advisors are using painstaking methods to reevaluate every sliver of a client's portfolio.

The often laborious work includes drilling down into mutual fund holdings, vetting individual bonds and keeping tabs on the ratings of over-extended municipal bond insurers. In some cases, the job even includes scrutinizing typically ultra-safe money market funds.

Totally off topic

The Althouse blog is 4 years old today. Law Prof Ann Althouse, who teaches Con Law and Federal Courts at the U of Wisconsin, Madison, has posted an average of 7 posts a day every day during her blog's life. Makes me wonder about the workload of law professors, but her blog is always rewarding.

Friday, January 11, 2008

Can Rich Kids Acquire a Work Ethic?

Inspired by a recent article in New York magazine, this post to the WSJ blog The Juggle attracted a lot of comments.

Check out the comments on the New York magazine article, too. All too often, it seems, a "funder's" life is not a happy one.

Where the Millions Are

Each year Phoenix Marketing International Research tallies up the number of millionaire households by state. For 2007 the top ten states with the most millionaires are led, as usual, by California.

New Jersey takes the blue ribbon for density of millionaires. Knock on a random sampling of 14 front doors in the Garden State, and you're likely to find at least one household with a seven-figure net worth.

You'll find a spreadsheet with the complete survey results for the last three years here.

Wednesday, January 09, 2008

$5 Million? That's Rich!

Spectrem Group surveyed a bunch of affluent households, asking the householders how much it took to be rich. Today's Wealth Report blog reports that most of the respondents thought they'd need at least $5 million. A third, more realistically, believed at least $25 million and maybe even $100 million would be required.

Much depends, of course, on whether you want a yacht and a jet.

The survey is a highlight of Spectrem's new web site, Millionaire Corner.

Sunday, January 06, 2008

Quinn on Brokers, Advisers

As we've mentioned, a new study suggests most investors don't care whether they're dealing with a broker or an RIA. (And most are happy with whichever choice they made.)
Jane Bryant Quinn believes investors should heed the broker-adviser distinction for cost reasons as well for the presence or absence of fiduciary restraints. You can read her column here.

“There are no corporate citizens left in New Haven except Yale”

In Private Cash Sets Agenda for Urban Infrastructure, the New York Times looks at the mismatch in spending between the City of New Haven and Yale University. As noted earlier on the blog, Yale has become rich beyond the dreams of avarice, and so is renovating buildings with a small portion of the money.

Yale now spends more than $400 million annually on its renaissance, nearly six times its outlays for construction and renovation in the mid-1990s. New Haven, by contrast, budgeted $137 million in the current fiscal year for all its capital projects, including those subsidized by state and federal governments. That is less than twice the amount budgeted in the mid-’90s.

Why can't New Haven keep up the spending? The quote in the headline above was buried near the end of the article, but it explains everything. There's no private industry left to tax in the city. Yale itself is a tax-free institution. The middle class left for better schools in the suburbs. Who is supposed to pay the bills? Did industry leave the city because, in effect, the businesses had to pay their own tax bills and Yale's share also? That may be an overstatement, but I can't help but think it was a contributing factor.

I lived in New Haven from 1978 to 1986, when there were more corporate citizens. I had the distinct feeling that the city considered me a resource to be milked, not a customer to be served or a citizen to be respected. High taxes plus high crime plus very low quality public schools plus no voice for middle class families was an unfortunate formula for the city to choose. I was really, really happy to move out. I avoid New Haven whenever I can.

That $400 million in annual construction spending by Yale sounds large in dollar terms, but it amounts to a rounding error in the context of their $22.5 billion endowment. What's more, the article reveals that Yale so likes today's interest rates that about 1/3 of the construction money is borrowed, leaving more to earn tax-free returns!

Saturday, January 05, 2008

Dynasty Trusts: Bequeathing With Strings Attached

Next to attracting crowds like Barack Obama, the trust industry couldn't ask for more than this plug for putting inheritances in trust offered by The New York Times.
Once only for the superrich, dynasty trusts now provide a way for the rest of us to leave money to loved ones, preserve wealth for future generations and even control how an inheritance is used once donors die.
* * *
Complex yet flexible legal documents, trusts can be set up to do just about anything the donor wants — give themselves access to principal, buy real estate, reward good grades and stop payouts to beneficiaries addicted to drugs or alcohol. They can also keep money away from divorcing spouses, creditors and even irresponsible or impressionable beneficiaries. It is also a way to shield money at risk in lawsuits.
Hillary Chura, the Times reporter, doesn't display the knowledge of trusts required of, say, the Merrill Anderson writing staff. Even so, it's a nice endorsement for the notion that trusts make it easer to "orchestrate from the grave."

Friday, January 04, 2008

Broker? Advisor? Investors Couldn't Care Less

"Ignorance may indeed be bliss, as investors typically don't grasp the difference between brokers and financial advisers but are satisfied with the services they receive, a new study has found."

See today's WSJ story. For a link to the study, commissioned by the SEC and conducted by Rand Corp., click here.

Thursday, January 03, 2008

"We Found the Cutest Faux Family Office!"

What do you do with a great marketing strategy? You run with it!

Rachel Silverman of The Wall Street Journal surveys the results in Family Office Hunting:
A family office traditionally was a small company built solely to manage the fortunes of a super-rich family, like the Rockefellers. A dedicated staff not only managed money, it also typically provided a variety of softer services, such as arranging vacations and personal security, and educating family members about their wealth.

But in recent years, as investment firms scramble to serve the growing ranks of very wealthy people, the family-office landscape has gotten crowded. Rich families now face a confusing array of options, ranging from banking behemoths to tiny boutiques and technology startups that are all hoping to cash in on the family-office cachet.
As a marketing aid, the family-office concept is a godsend. This service model shows wealthy families there is more to coping with their wealth than investment management. They need – and should be happy to pay for – a package of coordinated services.

Can these services be provided at full potency by organizations not under family control?

Will the faux-family-office concept self-destruct by moving down-market too fast?

Or will this attractive model for serving wealthy families prove so compelling that it reshapes the financial-services industry?

All comments or theories gratefully received.

James Brown's legacy

James Brown died a year ago, on Christmas Day 2006. His children did not know that his will excluded them in favor a charitable trust. They are challenging the will, alleging undue influence of Brown's advisers, who are also the well-paid trustees of the charitable trust. This one will take many years to resolve.

In the most recent twist, James Brown's unreleased recordings have been locked up until the matter of royalties can be resolved. There are reportedly dozens of unreleased songs stored at Brown's South Carolina estate, as well as an album recorded in California in 2006.