Monday, January 31, 2011

Bayou (Strike one!) Madoff (Strike Two!)

Before the owners of the NY Mets invested big-time with Bernie Madoff and made handsome fictitious profits, they entrusted millions to, yes, our old friend Sam Israel and his Ponzi scheme.

Why is truth so implausible compared with fiction?

Fred Wilpon and Saul Katz may have to give back their Madoff "profits." Will they also have to fork over additional millions?

Any Air Force Brass On Your Client List?

You might gain a few more Air Force clients with this aviator wing desk.

Too flashy for the Trust Department, alas. But if you're an RIA near an air base and your office furnishings need an upgrade . . . .

Saturday, January 29, 2011

How to Name a Charitable Foundation

Much information about private charitable foundations can be gleaned on the Internet, including the recipients of grants. That can lead to awkward moments, writes Paul Sullivan in his Wealth Matters column. Solution: Donors should avoid naming foundations after themselves and route inquiries through a lawyer or adviser.

Friday, January 28, 2011

How Many Millionaires Are There?

If you include residential real estate in computing net worth, the number of millionaires around the world exceeds the population of Australia. See More Millionaires than Australians.

See also the other articles in The Economist's report on global leaders. Although some of the material is familiar, you'll read about wealth going "tribal" and a top wealth-holder seeking therapy at Tiger 21.

Wednesday, January 26, 2011

Risky Chinese Stocks

Hot little Chinese companies use "reverse mergers" to gain listings on Amex or Nasdaq. They may generate great numbers, thanks to U.S. auditors who outsource their work or look the other way. Hence this advice from The New Yorker's James Surowiecki: Don't Enter the Dragon.
[I]nvestors in small Chinese stocks today are very much like the foreigners who poured money into U.S. railroads in the nineteenth century. Then investors anxious to cash in on the railway boom proved to be easy targets for self-dealers and outright swindlers, and foreigners in particular struggled to get good information about what was happening to their investments. *** Yet, because the railways offered—and sometimes delivered—the prospect of enormous wealth, the money kept flowing. Today, the same is true. China’s boom is real enough, and so it’s possible for investors in small Chinese stocks to believe that they’re heeding Deng Xiaoping’s famous admonition “To get rich is glorious.” Unfortunately, many of them are just proving the truth of another famous adage: “There’s a sucker born every minute.”

They Fired the Bank Trustee . . .

After three unsuccessful attempts a money manager won a seat on a board that oversees trust funds for a town here on the New Hampshire seacoast. The board then decided to fire TD Bank as investment manager. (I'm only guessing, but the town trust funds probably didn't fare much better in the Great Recession than, say, Harvard's endowment.)

Luckily, the new board member was willing to step in and do a better job. He'd even do it without pay, save for a custodial fee.

What could possibly go wrong? Quite a bit, judging from this article.

Folks who serve on town boards hereabouts are not usually financial sophisticates. Because folks serving in similar positions in other parts of the country may not be either, consider this post a cautionary tale.

Monday, January 24, 2011

Did You Hear the One About Retirement Investing?

Last weekend brought us Prairie Home Companion's annual Joke Show:
How can you defend yourself when a bunch of clowns attack?

Go for the juggler!
Not to be outdone, The New York Times suggested a way to avoid coming up short when investing for retirement. As the article (much read on the Times web site) points out, the stock market's Lost Decade hit hardest at those near retirement age. The bigger your stock portfolio, the greater your dollar loss when its value doesn't keep growing as "average returns" led you to expect.

Solution? The Times offered this advice from William Bernstein:
What the wise person does is save a large amount of money when they are young.
Simple, isn't it? Accumulate several million before age 40 (doable if you were one of Google's original employees) and you can get out of the market.

Must have been a real thigh-slapper for young couples struggling to pay off college loans and mortgages.

Check out the graphs accompanying the Times article. See also the comments to a related blog post.
Although the magic of compounding may turn into black magic when market values fall, compounding does work wonders when the market booms. Ask those who retired in 1999, a time when long-term investors could scarcely believe their good fortune.

But those lucky retirees then had to suffer through the Lost Decade, unless they had cashed out. So maybe they weren't so lucky. And those who unluckily retired at the end of the Lost Decade have already seen their net worth grow significantly if they stayed invested.

Moral: wealth fluctuates. Whether you run your own business or invest in shares of a lot of businesses, your net worth will keep changing. What J. Paul Getty said about billionaires applies to mere High Net Worth Individuals as well.

Friday, January 21, 2011

Learn "Estate Management" From Mrs. Astor's Butler

Remember Christopher Ely, Brooke Astor's devoted butler? The Wall Street Journal (subscription) tells us that he's now dean of a proposed Estate Management Studies Program. Aspiring "private service professionals" will be able to learn from the master at Dorothy Hamilton's French Culinary Institute, a branch of her International Culinary Center. Here's the press release.

Thursday, January 20, 2011

R. I. Estate Tax Sending the Wealthy to Florida?

Citing a recent study, Rhode Islander Alan G. Hassenfeld, a director of Hasbro Inc., charges that Rhode Island's stiff estate tax is driving the wealthy away. Before 2009, Rhode Island taxed estates over $675,000. The current exemption ($850,000, indexed for inflation) isn't much kinder. Even so, in The Wealth Report Robert Frank writes that he finds the study unpersuasive.

Do stiff income taxes encourage the rich to hit the road? As The New York Times notes, a number of states are wrestling with that question.

Here in New Hampshire we attract retirees despite levying income tax on their dividends and interest (but not on paychecks). Our lack of sales tax or estate tax must be sufficient to ease the income-tax pain.

Monday, January 17, 2011

Why Some Private Bankers Go To the Ballet

The wink-and-nod aspects of international private banking are going (yuck) public.
The Guardian has published extracts from Treasure Islands: Tax Havens and the Men Who Stole the World by Nicholas Shaxson, In the first installment we learn that really private bankers don't sit around waiting for money to come in seeking shelter:

My bank never once had a client walk through the door. The bankers and their clients go on big-game hunting trips, or to the ballet in Budapest. That is where it happens.

Wikileaks, not content with embarrassing U.S. diplomats and stirring up trouble in Tunesia, now threatens to release details of thousands of offshore accounts. The Swiss bank accounts belonged to more than 2,000 American, European and Asian individuals and multinational companies, according to former Swiss banker Rudolf Elmer. Among the seekers of shelter were politicians, business leaders, celebrities, organized crime leaders and "three major financial institutions."

Will all this unwelcome transparency make global private banking a duller business going forward? Maybe not. Remember the words of John Maynard Keynes:
The avoidance of taxes is the only intellectual pursuit that carries any reward.
Marketing yacht loans and grantor retained annuity trusts doesn't exactly create an adrenalin rush. Sometimes I'm sorry the racy aspects of private banking are off limits.

Sunday, January 16, 2011

“Expert Networking” or Bribe to Blab?

Al Lewis in Sunday Journal leans toward the latter view:

Bob calls people-in-the-know at publicly traded companies. He says, "Hey, wanna do consulting?"

What kind of consulting? "Oh, you know. Just handing over corporate secrets. Easy money."

Bob then calls hedge funds: "Hey, wanna buy some stock tips?"

Hedge-fund managers have wealthy clients who pay them a premium to beat the market. And what better way to beat the market than to fix the market?

Insider trading? Nah. This is "expert networking."

* * *

It would be comforting to write off Bob as a cynical urban myth. But Bob is not only a real person, he likely represents an entire industry.

Last week, 32-year-old Bob Nguyen, of Stockton, Calif., pleaded guilty to fraud charges in a Manhattan federal court.

Friday, January 14, 2011

Secrets of Successful Estate Planning

I didn't know a codicil from a Corvette when I joined The Merrill Anderson Company. Summer courses at what became the National Trust School helped a bit, but my practical knowledge of estate planning was imparted by Earl MacNeill.

Mac taught me that tax planning should never drive estate planning. The first planning step is to help the client decide what, specifically, he or she wants to do with the assets of the estate. The second step is to compare ways of achieving those wants. The third is to choose the most satisfactory ways, taxwise and otherwise. If tax savings conflict with client wants, goodbye tax savings.

Also, Mac frequently urged me to explain "irrevocable." The fancy word has a serious meaning: What's done cannot be undone. An irrevocable gift cannot be called back.

Mac's emphasis on that point must have had a history. Last year (see below) probably wasn't the first time estate lawyers led their wealthy clients to make tax-oriented gifts that the clients later regretted.

Thursday, January 13, 2011

Can I Take Back My Taxable Gift?

Certain hectomillionaires regret have given not wisely but too well last year, reports Deborah L. Jacobs for Forbes:
Many wealthy people got pitches from their estate planning lawyers last year encouraging them to make taxable gifts. It seemed like a good idea at the time.
If … you ignored what lawyers then dubbed a unique "opportunity," you avoided a quandary that’s consuming a lot of airtime this week at the Heckerling Institute on Estate Planning, the annual Super Bowl on the subject sponsored by University of Miami School of Law. The lawyers meeting here in Orlando are in the awkward position of trying to figure out what clients who followed their advice can now do to reverse those 2010 taxable gifts.

Tuesday, January 11, 2011

Investment Management Ads, 1961

January, 1961: The age of Growth Stocks has arrived and the stock market, after catching its breath in 1960, is poised to have another great year.

Here are ads from three leading trust banks of half a century ago. The efforts from Hanover and Bank of New York look strictly "I like Ike." (What's with that sphinx?) Chase's nest egg seems more compatible with JFK and The New Frontier.

Sunday, January 09, 2011

Does Wealth Have a Sexual Orientation?

Northern Trust has formed a new practice to provide investment and fiduciary services to gays and lesbians. Good idea? Not according to star financial adviser Ric Edelman, whose radio show I happened upon Sunday morning. He deems Northern's initiative demeaning to gays.

People not married to their partners may be either gay or straight, Edelman pointed out. Some 40 percent of babies in this country are born to unmarried mothers, and a significant number of these women must have long-term male partners.

True, and some unmarried heterosexual couples are surely affluent. Think especially of high-income earners in various fine or performing arts who seem more comfortable in wedding-free relationships.

The question that counts in financial planning, Edelman contends, is "Married?" rather than "What's your sexual orientation?"

Put it in operatic terms: Imagine a tenor and his girl friend. Now picture an alto and her girl friend. For investment and estate planning purposes, what's the difference?

In principle, Edelman has a point. In practice, I'm not so sure. The old aura of guys-in-a-frat-house still lingers over parts of the investment industry. That aura won't bother the tenor as he arranges trusts and retirement accounts to benefit his female partner. But it might be off-putting to the alto and her partner, and perhaps to tenors who happen to be in same-sex relationships.

From a marketing perspective, I'll side with Northern.

What do you think?

Saturday, January 08, 2011

An Untimely Death

What a strange tax system we have, when we applaud Roger Milliken for dying on time and look critically upon Don Tyson, the chicken tycoon, for dying too late.

Are College Grads Financially Illiterate?

“The average college graduate doesn’t know how to do anything or how to function in the world.”

– David Finney, President of Champlain College

According to Ron Lieber's column in The New York Times, Champlain's students tend toward the geekish. Even so, it's discouraging to encounter yet another example of financial illiteracy among supposedly educated Americans. For assorted reader comments on the column, see this Bucks post. (One comment links to this 1999 article, so scary back then that I still remember it.)

Related posts:
Financial Illiteracy
Are We a Nation of Financial Illiterates?

Wednesday, January 05, 2011

Roger Milliken Avenges Tax on Grandfather's Estate

In 1916, when the federal estate tax was new, Seth Milliken, a co-founder of Milliken & Co., sought to reduce his estate by giving shares of the company to his children. He died in 1920. The IRS insisted the shares were taxable, as gifts in contemplation of death. The legal battle lasted until 1931, when the Supreme Court ruled that the gifts were indeed subject to estate tax.

Last week, Bloomberg reports, Seth's 95-year-old grandson evened the score:

Textile tycoon Roger Milliken ducked the taxman upon his death almost a century after his grandfather lost a landmark legal fight with the U.S. government over sheltering a fortune from the estate tax.

The 95-year-old Milliken, chairman of Milliken & Co., one of the world’s largest closely held textile, chemical, and floor-covering manufacturers, died in a Spartanburg, South Carolina, hospice on Dec. 30, less than 48 hours before a temporarily lapsed federal tax on multimillion-dollar estates was to be reinstated.

Milliken’s fortune now will pass to his heirs with no estate tax.

“The timing of his death surely benefited his heirs and the company,” said Jock Nash, Milliken’s Washington lobbyist on trade issues for 25 years. “His timing was impeccable.”

Tuesday, January 04, 2011

The Man Who Left Millions to Brigadoon

Once in the Highlands, the Highlands of Scotland,
two weary hunters lost their way . . .

The National Trust for Scotland has been struggling financially. Thanks to a reclusive American, William Robert Lindsay, that struggle should be millions of dollars easier. See Love of 'Brigadoon' inspires Vegas tycoon to leave fortune to Scotland.

Lindsay had Scots ancestors but never visited Scotland. (Let's hope he didn't become a decedent without seeing a live production of Lerner and Lowe's glorious musical. The Hollywood version of "Brigadoon" was an abomination.)

Lindsay's earlier gifts to the National Trust for Scotland helped to maintain Culzean Castle, at right.

Lindsay's largess helped fix up Robert Burns' birthplace.
The Birthplace Museum holds its official opening this month.

Monday, January 03, 2011

Brooke Astor's Duplex Sells for a Song

While appealing his conviction for swindling his mother, Brooke Astor's son has run up millions of dollars in legal bills. Perhaps, the NY Post suggests, that's why the Astor estate is willing to sell her Park Avenue duplex for less than half the original asking price of $46 million.

Everything You Need to Remember About 2010

I missed Dave Barry's Year in Review in yesterday's Washington Post magazine. Maybe you missed the Capitol Steps New Year's Eve broadcast. Be sure to check out both.

Sample of Barry's financial coverage:
… the big financial news is the May 6 stock market "Flash Crash." The Dow at one point is down nearly 1,000 points, including a drop of 600 points in five minutes, resulting in what financial analysts say is the largest mass purchase of emergency replacement underwear in Wall Street history. The Securities and Exchange Commission investigates the crash and later issues a 350-page report concluding: "You know that E-Trade baby? In the commercials? With the grown man's voice? That baby is REAL."

Illustration from Dave Barry's Year in Review

Quiz: Stocks in a Flash and in the Long Run

Photo via Wikimedia Commons

Read The New Speed of Money. Then eyeball It's When You Start and When You Finish. Now test your retention with this quick quiz:

1. After the NYSE and NASDAQ, what are the two next largest stock exchanges?

2. How long does it take to complete the average trade, round trip, on NASDAQ?

3. What percent of stock market trading is attributable to high-frequency traders?

4. What's been the median annualized return on stocks over 20-year periods, after adjusting for fees, taxes and inflation?

5. What was the lowest annualized real return on stocks over a 20-year period?

6. What was the highest real return?

1. BATS Exchange and Direct Edge
2. 96 millionths of a second
3. 56
5. -2.0% (1961-1981)
6. 8.4% (1948-1968)