Monday, February 28, 2011

Chaloner Arcedeckne's Most Excellent Venice Souvenir

Chaloner Arcedeckne was the son of Andrew Arcedeckne, attorney general in Jamaica back when we, too, were a British colony. Not many years after his father's death in 1763, Chaloner set off on the Grand Tour. In Venice he purchased two canal scenes by Francesco Guardi. Below is "Venice, a View of the Rialto Bridge from the Fondamenta del Carbon.”

"Chaloner Arcedeckne." The names cries out to be googled. Turns out the family had Irish roots. "Arcedeckne" is pronounced "Archdeacon."

Chaloner oversaw the family sugar estates in Jamaica through a resident agent, and in the 1780s served as a Member of Parliament. After 1790 he seems to have retired to ceremonial posts, such as High Sheriff of Suffolk. Presumably that left him ample time to admire his paintings.

In July Sotheby's hopes to sell this Guardi for over $30 million.

Now what were you telling your clients about art as investment?

Saturday, February 26, 2011

Billions in Unclaimed Life Insurance and Other Property

No need to look under sofa cushions to find lost money. Paul Sullivan's Wealth Matters column spotlights unclaimed life insurance proceeds. By one guesstimate, well over $1 billion nationwide is waiting to be claimed.

That's nothing, relatively speaking. Unclaimed property of all sorts, ranging from safe deposit valuables to old paychecks and dividends, adds up to $33 billion or so.

How hard do payers look for potential payees? Not very, judging from this Marketwatch item. With a smidgen of due diligence the Walt Disney Co. might have found an address for Angelina Jolie. Somebody at Apple probably knows Steve Jobs.

Death, followed by amateur executorship, explains why much of the $33 billion in lost property remains unclaimed. A diligent bank executor doesn't work for free, but occasionally a trust department may find as much as it charges.

Know of any good examples? Send them along to Jim Gust.

Friday, February 25, 2011

On This Day in 1913 . . .

I wasn't in that good a mood even before my iMac issued this reminder:

The Case of the Disentailed Estate

Fitzroy Somerset led the Household Cavalry at the Battle of Waterloo. In later years, as Lord Raglan, he commanded the British forces in the Crimea. Despite a few mishaps (if only the Light Brigade had not charged!) Raglan's admirers presented him with Cefntilla, a 350-acre estate.

Last year, the fifth Lord Raglan (also named Fitzroy) died, succeeded by his brother. The brother's son, Arthur Somerset, is next in line for the title. But he won't get Cefntilla.

Seems a previous Lord Raglan (number three) had disentailed the estate. Therefore the elderly fifth Lord Raglan was free to change his will. Six months before his death last year, He disinherited his nephew Arthur and left Cefntilla to another nephew.

The fifth Lord Raglan was noted for owning two 1933 Bugattis, one for racing and the other for show. This is one of them:

Thursday, February 24, 2011

Where's Your Home? There’s an App for That

Federal income and estate taxes don't hurt too much, at least until 2013. Tax advisers and their wealthy clients are turning their attention to state and city levies.

When someone has a place in Manhattan – the Bronx or Staten Island, too – and homes elsewhere, avoiding New York City income tax calls for careful counting and scheduling. See In City Often? Tax Man Asks Some for Tally.

Fortunately, the Times reports, attorney Timothy Noonan is working on an iPhone app, using GPS, to help his clients monitor their limited allowance of "New York days."

The app could come in handy for state inheritance or estate tax purposes, too. Can't live too much of the year in a high-tax state if one wants to die domiciled in Florida.

Wednesday, February 23, 2011

“The World’s Local Bank”

Print advertising by major wealth management enterprises is picking up. The last two issues of The New York Times Sunday Magazine included messages from First Republic, Northern Trust, BNY Mellon and T. Rowe Price. Plus HSBC, which grabbed readers with an irresistible headline:
$1.6 billion is hidden down the back of U. S. sofas.
Can't vouch for the statistic. (In the U.K., the comparable sofa treasure is estimated to be the equivalent to $92 million or so.) Still, why quibble over a great attention-grabber?

HSBC is descended from the old Hong Kong and Shanghai Bank, founded in Hong Kong – by a Scot, naturally – in 1865. When the Chinese took over Hong Kong in 1997, HSBC had to reinvent itself. Bolstered by acquisitions including the U.K.'s Midland bank and both Marine Midland and Republic National in the U.S., HSBC now bills itself as "The World's Local Bank."

Check out HSBC's history. And take a look at HSBC Private Banking.

Update: The NY Times reports that Credit Suisse has come under heightened scrutiny of authorities in the United States and Germany over its sale of private banking services that enable tax evasion. The Justice Department has also gone after other banks, the article notes, including "HSBC, one of Britain’s largest lenders, which also offers private banking services in Switzerland and elsewhere."

Tuesday, February 22, 2011

Stay the Course or Go With the New Flow?

Happened upon Ric Edelman's radio show again last Sunday. (He's expanding into TV this spring.) Ric was discussing how to choose an investment adviser. Find somebody whose approach has stood the test of time, he said. When a potential adviser tells you he or she has got the right approach for 2011, ask what advice the adviser was offering in 2006. And 2008.

An adviser stalwart enough to stay the course may be worthy. But marketable? Not so much. When investors seek new advisers, they want a new approach. To catch their attention you have to offer one. BNY Mellon's ads in the last two NY Times Sunday Magazines took that tack:
Staying the course is like navigating a new world with an old map.

The only investors staying the course are those with a broken compass.
Good headlines. And if BNY Mellon's 2006 and 2011 strategies are not consistent, so what? Aldous Huxley would have understood:

Consistency is contrary to nature, contrary to life.
The only completely consistent people are the dead.

How Madoff Worked It

The owners of the New York Mets fed clients and money to Bernie Madoff through a family company, Sterling Equities. This story (in the NY Times sports rather than business section) offers some details.

Why did Madoff operate through "feeders?" In Sterling's case the company staunchly defended Madoff from contact with his clients.

What kind of clients did Madoff want his feeders to turn away? Sophisticated investors. Too nosy.

What annual investment returns did Madoff promise or seem to provide? The Times offers figures from several sources:
  • Sterling's partners: around 18%
  • Larry King's accountant: 10-14%
  • Unidentified client: 9-12%
  • Former Sterling employee investing via 401(k) plan: 12-15%
By the end of 2008 about 90% of Sterling's 401(k) plan was invested with Madoff.

Hard to tell, even now, which banks, clients, feeders and SEC staffers should have recognized what Madoff was up to. What becomes ever clearer is that few wanted to know.

It may have been even worse than we thought.

The housing crash was understated.

Monday, February 21, 2011

Waiting for Tax Reform?

You'll have to wait until 2013 or 2014, according to this dispatch from The Hill's On the Money.

Sunday, February 20, 2011

George Washington, Transportation Visionary

After explaining why he decided not to free his slaves until the death of Martha and disposing of some bank stock, the will of George Washington deals with the fruits of his great dream. He envisioned canals that would enrich Virginia by extending the James and Potomac Rivers into water highways headed west.

Washington's leadership was rewarded with shares in both the Potomac Company and the James River Company. Rather than reap the potential profits, he decided to use the shares to advance education.

The Potomac project failed, dooming Washington's dream of a national university. The James River canal, shown here in 1865, had been surveyed and planned by Washington himself. The project repeatedly went broke and the canal was never finished. After the Civil War much of the completed portion was filled in to become the road bed for trains.

Liberty Hall, recipient of the James River shares, did manage to salvage $20,000. Perhaps as a result, the school still operates, although under a different name.

Happy Birthday, GW!

Related post: George and Martha.

Thursday, February 17, 2011

Visualizing Data Gets Easier

Charts and graphs may sometimes miss the mark or mislead, but turning numbers into visuals is getting easier, writes Chris Wilson in Slate. With Google's new Public Data Explorer, for instance. Check out the other links Wilson offers as well.

An Amish Bernie Madoff?

Good grief!

Photo via Wikimedia Commons

How poor tax policy retards the economy

Tech companies have $1 trillion outside the U.S. that they would repatriate if they didn't have to give 35% of  it to the IRS.

Apple computer already forks over 25% of its considerable profits in taxes.  Isn't that enough?  Especially when GE only pays 3.6%?

Wednesday, February 16, 2011

Lies, Damned Lies and . . .


Sometimes charts tell visual fibs. Other times they exaggerate unmercifully.

The chart in the Wealth-X survey we mentioned recently, showing segments of the UHNW market, fits the fib category. Perhaps the boss wanted a pie chart but the chart-maker decided an accurate chart wouldn't look good. So he or she winged it. The Wealth-X chart, on the left below, makes the very rich, those with worths above $100 million, look far more plentiful. The chart on the right shows the correct proportions. (Click on the thumbnails for larger images.)

Far more common are charts that wildly exaggerate the price swings of stocks. Professionals understand the custom. But what about the public? Don't the hyped-up charts make the stock market look more like a trip to the casino than an investment milieu?

Random example: At left below is chart of the 12-month performance of Dell from a recent Nightly Business Report. If you're an impressionable young potential investor, wouldn't you think Dell had gone from riches to rags and back again? At right is a rough attempt to show the same chart with a base line of zero. Pretty dull, but more realistic.

We've all learned to be suspicious of the theory that figures don't lie. Be even more wary of charts purporting to illustrate those figures.

Tuesday, February 15, 2011

Obama calls for estate tax hike

Tax Notes ($) reports that the President's new budget calls for a restoration of the 2009 estate tax regime in 2013, when the December compromise expires.  That means, at a minimum, that the exempt amount falls back to $3.5 million.  It could also mean the end of spousal portability of the estate tax exemption.

But in the Byzantine logic of Congressional scoring, this tax increase is scored as a tax cut!  It would replace the reversion to the even lower $1 million exemption.


Monday, February 14, 2011

Irving Trust's Remarkable Pop Ad

After Earl MacNeill retired from Irving Trust and joined Merrill Anderson, he continued to write a trust periodical for Irving. In print advertising, however, the bank concentrated on commercial services. In 1969, seeking to become a player in mergers and acquisitions, Irving published the amazing ad above.

At the time the artist, Jacqui Morgan, was known for her Electric Circus poster. Commissioning her to do an illustration for a staid old Wall Street bank was a deliberate shocker – as if the Saturday Evening Post decided to buy cover art from Peter Max instead of Norman Rockwell.

Unfortunately, Irving never gained the critical mass to compete with the megabanks. In 1988, after a bitter battle, it was taken over by Bank of New York.

To glimpse the stature Irving enjoyed in earlier times, see the art deco skyscraper at 1 Wall Street that served as its headquarters.

More of Jacqui Morgan's early work can be seen here.

Prospecting for $5-Million Givers

As the Times reiterated yesterday, what makes the new revised federal gift tax so special is the perhaps temporary lifetime exemption of $5 million. Estate planners urge the wealthy to give big now.

Who's likely to heed that advice?

Good prospects probably share two characteristics:

They're relatively New Money. They can give away chunks of their rapidly expanding businesses (like this family-owned lumber company) without affecting their current income or standard of living.

They're Ultra High Net Worth. Even for someone with $30 million or more, putting aside $3-5 million for younger family members is a pretty big deal.

All told, new money and old, Wealth-X estimates the U.S. contains around 55,000 UHNWIs. Half of them have $30-50 million. Almost another third have $50-100 million.

But as Robert Frank pointed out on Wealth Report, the majority of those 55,000 live in just five states: California, New York, Texas, Florida and Illinois.

Saturday, February 12, 2011

Madoff Was No Ponzi

From the Scandal! exhibit at the Museum of American Finance comes this international reply coupon.

Back in the day, Europeans writing to addresses in the U.S. could enclose these prepaid-reply-postage coupons. Because of inflation after World War I, the cost of purchasing the coupons in Italy was less than their value in U.S. postage. That arbitrage opportunity caught the eye of Charles Ponzi.

Admittedly, Ponzi's scheme ended badly. But Bernie Madoff's secret method for manufacturing steady, above-average returns from stocks and derivatives lacked even a veneer of plausibility. Do we insult the memory of Ponzi by linking his name to Madoff's?

Two Ads of Spring, 1961

Winter, winter, go away!
Bring on April, bring on May!

Need an early Spring Break? These two ads from the spring of 1961 may help.

Follow Chase Manhattan, today's JPMorgan, to Jungle Gardens in Louisiana, where only the geese are snowy white.

Better still, let First National City, now Citi, lure you to April in Paris.

Friday, February 11, 2011

The Reagan legacy

The view of Robert Samuelson.

Social Network for Rich Kids?

Social networking looms large in the future of business (and nations in the Middle East). But the specifics get tricky. Brokers, for instance, aren't allowed to use Facebook or Twitter to tout investments.

Could wealthy investment clients be attracted to networking sites that function as virtual Tiger 21s? What about rich kids?

Citi's giving the rich-kid idea a try. Will a big old bank succeed in convincing children of UHNWIs that absorbing, sharing and discussing financial information is cool?

$12 billion

That's how much is paid by IRS in bogus claims of the earned income tax credit.  Every year. A 25% error rate.

I believe that $12 billion is  significantly more than the amount expected to be collected by the federal estate tax this year and next.  My quick search showed that in December 2009 the CBO expected federal estate tax collections of $31.7 billion in 2012 (with the then-scheduled $1 million exemption).  The JCT scored the increase to a $5 million exemption as costing $28 billion in 2012, which leaves a net of $3.7 billion to collect.

Think of all the economic activity generated for lawyers and accountants to bring the estate tax down to that $3.7 billion in collections.  Do we get a similar bang for our EITC buck?

Does anyone have a better number for  projected estate tax revenue?

Thursday, February 10, 2011

NY Times on Wealth Management Trends

The Wealth Section in today's New York Times includes

Paul Sullivan on investment advisory service for the not so rich.

David Cay Johnston on estate planning in a time of temporary tax laws.

Deborah Jacobs on how non-probate assets can lead to trouble.

Lynnley Browning on a topic I'm not nearly weaalthy enough to have encountered, private placement life insurance.

Wednesday, February 09, 2011

Why Wall Streeters and Estate Lawyers Make a Bundle

Meant to call attention to this column by Robert Samuelson last year but didn't get around to it.
Most of us are paid based on what we produce or, more realistically, what our employers produce. By contrast, Wall Street compensation levels are tied to the nation's overall wealth.
There's a big difference between annual production and national wealth. In 2007, the year before the crisis, annual production (gross domestic product) equaled almost $14 trillion. In the same year, household wealth was $77 trillion (5.5 times production); that covered the value of homes, vehicles, stocks, bonds and the like ….

People who are trying to protect or expand existing wealth are playing for much higher money stakes than even hardworking and highly skilled producers. That's the main reason they're paid more. Similar percentage changes in production and wealth translate into much larger gains or losses in wealth…. Many lawyers enjoy the same envious position of being paid on the basis of wealth enhancement or protection. They're involved in high-stakes mergers and acquisitions, estate planning, divorces and tax planning. On average, partners in the top 25 law firms earned $1.3 million to $4 million in 2008….

Getting Old? Sail the Atlantic

Photo via

Brit Anthony Smith, 84, has recruited a few old-age pensioners to sail the An-Tiki raft across the Atlantic. Boomers aren't the only ones redefining " act your age!"

Tuesday, February 08, 2011

Boomers: Not Your Grandfather’s Retirees

This 1965 Equitable ad must have been one of the cheeriest ever produced for annuities. Admire the work of Charles Saxon, the New Yorker cartoonist who sketched the foibles he observed in and around New Canaan, Connecticut. Saxon rarely took commercial assignments.

Can you imagine today's Boomers identifying with Saxon's gents in suits? Me neither. The Wall Street Journal ($) surveyed ways that business seeks to accommodate the Boomer wave of retirees. Problem: 60-ish Boomers do not wish to be "accommodated." Not surprising. Their show-biz contemporaries include Sly Stallone, Meryl Streep, Steve Martin and Helen Mirren, none of whom look ready for a long-term-care facility.

Boomers nearing retirement are either wealthy or not – and not solely in the sense of net worth. My father had it right: "Your health is your wealth." Assuming good health, many affluent Boomers will keep busy and keep working.

Forbes' Erika Andersen sees Boomers extending their careers, forcing the young to create their own employment. Martin Zwilling sees a different trend: Boomers are Driving a New Entrepreneurship Boom.

Best strategy for young wealth managers? Treat each Boomer retiree as the individual he or she is. And please don't shout or speak slowly unless asked.

Is a food price bubble coming?

Disquieting news on the Chinese drought.  Plus, unusual cold weather.  Because China has been self sufficient, they haven't made a big impression on global agriculture. As the article makes clear, if China has a food shortage, they have plenty of currency reserves to bid for the price of available wheat and corn.

Sunday, February 06, 2011

Reagan: An American President

Ronald Reagan, born 100 years ago today, wasn't always an especially popular president, as this column notes. But he was remarkable.

Santa once brought me "The Reagan Diaries." This seemed like a suitable occasion to give them a browse.

In his June 29, 1981 entry, Reagan exulted over the 1981 tax cut legislation: "This on top of the budget victory is the greatest pol. win in half a century."

Four and five years later he expresses dutiful support of the 1986 tax reform legislation, but without enthusiasm.

What struck me as I browsed was how even-handed Reagan was in his comments about the Repubs. and the Dems. in Congress. This was a president, after all, who may have had more lunches with Democrat Tip O'Neill than with Republican leaders. Ron as President did not see himself as a Republican or a Democrat (and he had been both). He saw himself as an American President.

To add a timely note to this otherwise off-topic post, here is what Ronald Reagan wrote in his diary on Tuesday, November 1, 1983:
Last night the Repub. Sen. very irresponsibly refused to pass an increase in the debt ceiling which is necessary if we're to borrow & keep the govt. running. *** I sounded off & told them I'd veto every d--n thing they sent down unless they gave us a clean debt ceiling bill. That ended the meeting.

WSJ comment on 1099 repeal

Background from the  Wall Street Journal on the impending repeal of the remarkable expansion of 1099 reportable transactions that was included in Obamacare.  The numbers for this dumb provision never made any sense.  I'd like to see a rigorous review of the CBO projected and actual impact of tax changes over the years.  Their margin of error has been stunning.

Friday, February 04, 2011

Why We Can't Have a Simple Income Tax

What do the following beliefs have in common?

1. If interest on home mortgage loans were not deductible, only Americans who can pay cash would buy housing. All others would rent.

2. If donations to churches, schools and charities were not deductible, Americans would not support churches, schools and charities.

3. If investors seek high returns every year, with little volatility, fund managers such as Sam Israel and Bernard Madoff can produce them.

Each of those statements is (or was) widely believed by people who chose to believe them, even though they don't make sense.

Home ownership represents security to many; anyway, the same number of dwellings would be built whether owned or rented. Churches, schools and charities receive funding from many who don't give a thought to tax deductions. And those high, always positive investment returns – well, you know what happened there.

See why Jim Gust's post about a new round of tax reform doesn't get my hopes up?

If you insist on allowing hope to triumph over experience, see Seven ways to reform a broken tax system. Then follow the link Don Marron provides and read the historical background compiled by Gene Steuerle, who worked on the 1986 tax reform.


Is another round of tax reform coming?

Tax Notes [$] reports that a bill to implement the Deficit Commission's recommendations for eliminating all tax loopholes, allowing for lower tax rates, could be written by March. Hearings to publicize and promote the concept may begin next week.

I hate the word "loophole" in the tax context, there are overtones of inadvertence it in. As if Congress didn't know full well that the loophole was being added to the tax code, it was instead discovered by a wily tax lawyer. Not true for nearly all loopholes.  I like the new phrase "tax earmarks" even less. "Earmarks" are spending commands inserted into legislation without an opportunity for debate or even a vote. Every "tax earmark" was voted on, even if the members of Congress failed to grasp the significance of the measure.

Still, I favor the underlying concept of a flatter income tax larded with far fewer "incentives" to reward the behavior that Congress approves of. 

Was Madoff a “Well-Known” Fraud?

Informative write-up of the Madoff-JPMorgan suit in the NY Times. Two words in the much-quoted e-mail from a risk manager at Chase keep catching my eye:

"[A bank executive] told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme."

The cloud was well-known in June, 2007? So Wall Street was divided between those in the know and those who were clueless? Or was the division between those in the know and those who took pains not to know?

Later in the Times article we glimpse the enormous money movements that seem unremarkable at a big bank. An "unidentified wealthy Chase customer" had introduced Bernie to the bank. In 2001 this customer's account sent Madoff a check for $9 million "on a daily basis." On one day the following year, more than $300 million flowed from Madoff to the customer's account. Remarkably, the cash flow consisted of 318 checks, each made out for exactly $986,301.

Why would some Wall Street bankers wish not to know of Madoff's fraud? The suit by the trustee for Madoff's victims notes that JPMorgan Chase made good money selling derivatives based on Madoff feeder funds.

Sort of like charging for dry cleaning the emperor's new clothes.

Floyd Norris writes, "The evidence in the lawsuit clearly shows that people at JPMorgan Chase saw red flags." But as we learned back in the days of Sam Israel's Bayou funds, some people are color blind.

Wednesday, February 02, 2011

The Will Contest that Changed a City

After the Civil War young Charles Prescott headed West from Portsmouth, New Hampshire, to Erie, Pennsylvania, with his mentor, William Trask. The two men grew rich in retailing.

Fast forward to 1932. Multimillionaire Charles Prescott, age 79, lies dieing in an Erie hospital. Historian Dennis Robinson tells how Prescott apparently seized the moment to make a new will. (A version of Robinson's article appeared in the February 1* Portsmouth Herald.)

Although he survived only a few days at Hamot Hospital, Charles abruptly decided to leave the bulk of his fortune to the Hamot and its sister hospital. His deathbed will was handwritten on a sheet of notepaper -- not by Charles -- and witnessed by his doctor and nurse. In a faint childlike scrawl at the bottom of the page are the letters "C-h-a-r-l" followed by a large "X".

Next to the signature someone has written "his mark". Despite the strange conditions surrounding this will -- which also gave two of Prescott's partners $100,000 each -- it was accepted for probate in Erie Pennsylvania. An earlier will from 1927, granting the bulk of his estate to his sisters in Portsmouth, was thrown out.

Prescott's sisters, Mary and Josie, were not amused. They dispatched a prominent Portsmouth lawyer, Charles Milby Dale, to Erie. Breaking Prescott's will probably wasn't hard: Pennsylvania law specifically barred deathbed wills made in favor of charitable beneficiaries. The Prescott sisters became millionaires.

What did two retired teachers with no visible talent for the high life do with their new fortune? They bought up block after block of dank, disreputable Portsmouth waterfront and razed most of it. Now the area is a waterfront park and entertainment venue that draws tourists from around the world. (Last summer I must have been asked, "Is this the way to Prescott Park?" in at least three foreign accents.)

The philanthropy of the Prescott sisters is remembered with gratitude on the New Hampshire seacoast. Charles provided the wealth; he too deserves to take a bow.

And I'd love to know who appointed or elected that probate judge.

*Whoops! It was the January 31 issue.

“The New Hampshire Trust Advantage”

Just asked Google for the Trust Advisor blog and noticed a link to this ad from Cambridge Trust atop the page.

The headline spins off from "The New Hampshire Advantage." That term is New Hampshire's way of boasting about its refusal to tax consumer purchases or paychecks.

Is the battle among states to win trust business heating up?

Tuesday, February 01, 2011

Not all companies pay the same tax rate

Details here.

Wal-mart pays 34% of profits in taxes, GE just 3.6%. Note that in the accompanying table, those paying high taxes are called "losers" and the tax dodgers are "winners."

Great summation of the problem with the current tax structure.