Wednesday, February 29, 2012

The Decline of Life Insurance

Percentage of U.S. adults 
who owned individual life insurance in 1960:

Percentage who owned individual life insurance in 2010:

Those figures come from Prudential's The Life Insurance Coverage Gap. Today's two-income couples may carry insurance if they have dependents. Otherwise, apparently … not so much.

In addition, Prudential acknowledges, the mind-boggling complexity of many life insurance products scares people. Agents may stand a better chance of gaining traction if they lower their sights and sell simple term policies. 

Surely that's not what an insurance company would have suggested back in 1960!

Why Doctors Die Differently

If you subscribe to The Wall Street Journal online, Why Doctors Die Differently is fascinating, as are the 500+ comments to the article.

Monday, February 27, 2012

Two Secrets of Successful Investors

A Finnish study (in Finland all males are tested for intelligence) suggests that high I.Q.'s may lead to better investing. Finns with high I.Q'.s were more diversified, more likely to invest in stocks. See What High I.Q. Investors Do Differently.

An earlier study from The Netherlands spotlights the social intelligence needed to find trustworthy investment advisers. Some investors are not merely scared of investing in stocks – they're afraid they'll wind up with an adviser who rips them off. "Knowing whom to trust, and relying on those who are trustworthy, is itself an aspect of intelligence. [The Netherlander economists] cited research that suggested that investment decisions relied significantly on a part of the brain called the Brodmann area 10. This region of the frontal cortex is believed to be associated with our ability to make inferences about others’ preferences and beliefs based on their actions."

The study found that those with a high level of trust were more likely to invest in stocks and more likely to have diversified their stockholdings.

Friday, February 24, 2012

Think Snow!

Been like Spring here on the Northeast coast, but there's snow up in the ski areas, with more arriving as we write. New England wealth managers, give the ski economy a boost! Head for the slopes this weekend.

As this Chase Manhattan ad from fifty winters ago suggests, you might meet somebody with a nest egg.

Thursday, February 23, 2012

What's This Rauschenberg Worth?

Zero, said the estate of art dealer Ileana Sonnabend on her estate tax return. As Forbes reports, Robert Rauschenberg's collage, "Canyon," features a stuffed bald eagle. Under U.S. law bald eagles cannot be possessed, much less legally sold.

$65 million, says the IRS. The work has "illicit market value." Some Chinese billionaire might figure out a way to buy the work and spirit it away to his remote mountain hideout.

Shouldn't our National Bird be tax exempt?

Wednesday, February 22, 2012

The Chinese Are Coming, The Chinese Are Coming!

As U.S. wealth mangers seek business on the far side of the Pacific, wealthy Chinese are heading in our direction, reports The Wall Street Journal:
A survey published in November found that 60% of about 960,000 Chinese people with assets over 10 million yuan ($1.6 million) were either thinking about emigrating or taking steps to do so. The U.S. was the top destination, followed by Canada, Singapore and Europe….
Want to find Chinese millionaires newly arrived on our shores? Check the expensive seats at Knicks games. You know the Ka-Chings will be eager to see Jeremy Lin.

Friday, February 17, 2012

Can Bankers and Brokers Be Friends?

Like the farmer and the cowboy, bankers and wealth-managing brokers aren't best buddies by nature. Felix Salmon calls attention to the example of Merrill Lynch and its banking parent, BofA. Others in the financial press also took note of John Carney's interview with ex-Merrill-Lyncher Lyle LaMothe.

In days of old, when Merrill Lynch maintained its own line of proprietary mutual funds, some of its brokers chafed under the pressure to sell the generally undistinguished products. Recent pressure to sell BofA products apparently hasn't been welcome, either.

Cross selling has always been attractive in theory, difficult in practice. From the client point of view, buying another product or service from the same vendor makes sense only if that product or service is outstanding in its own right.

Then cross selling becomes easy. Prime example: the success of the formerly small company known as Apple.

Tuesday, February 14, 2012

Alarm Bells For Estate Planners?

Cut the $5.12 million federal estate tax exemption back to $3.5 million. Collect estate tax on funds sheltered in grantor trusts. End the trend to dynasty trusts by limiting the exemption from generation-skipping tax to 90 years.

Those and other taxing ideas in the President's new budget proposal are summarized by Forbes writer Deborah Jacobs: Obama Declares War On Rich Folks And Wealth Advisers.

The budget proposal is widely regarded as a campaign document rather than an action plan. Still ….

Wednesday, February 08, 2012

The Trust Officer As Greek God

If the fiduciary business had a Greek god, who would it be? This 1956 Fiduciary Trust ad nominated Hermes, god of commerce. Some say Hermes was associated with prudence. The ancient Greeks thought he brought good luck. We'll ignore his reputation for thievery and for going all the way with Aphrodite.

Although the illustrator of the ad neglected to give him a shirt, Hermes does have the standard equipment for trust officers of the time – a pipe and an ashtray. Exercising discretion must have been easier with pipe in hand.

Before Hermes took up office work, he helped found the United States of America. You can admire him in the rotunda of the U. S. capitol. The fresco The Apotheosis of Washington shows Hermes handing wealth generated by colonial commerce to Robert Morris, financier of the Revolution.

Related question: Where is Hermes when the modern Greek government needs him?

Monday, February 06, 2012

Lawyers 2, Copywriters 0

The legal boilerplate in this U.S. Trust ad from last fall is longer and more prominent than the body copy. How amusing.

Now comes this HSBC ad in the current New Yorker – with an even heavier overload of boilerplate. No longer so amusing.

The boilerplate warnings seem both unnecessary and misleading. Sure, timberland and shares in foreign companies can lose their value. So did shares in the old GM. No matter how one invests, it can be a cruel, cruel world.

Maybe the regulators should give the ad-making back to the copywriters.

Wednesday, February 01, 2012

How Long Can a Perpetual Trust Last?

How many descendants of your great-great-great-grandparents do you know? Half? A handful? A few? (Personally, I've never met most of my first cousins.)

As more states ease or discard the rule against perpetuities, family trusts are being set up to last for a thousand years or even "forever." Doesn't that stretch the definition of family to the breaking point?

Yes, according to Lawrence W. Waggoner of the University of Michigan Law School.

"Trusts intended to operate for as many as a thousand years or even in perpetuity, typically for the benefit of the settlor’s descendants living from time to time, now and in the future, are all the rage in banking and some estate planning circles," Waggoner writes. In From Here to Eternity, the Folly of Perpetual Trusts, he does the math showing the absurd consequences.

 He shouldn't worry. As life beneficiaries of a "perpetual" trust proliferate from generation to generation, the value of what each beneficiary receives will dwindle, eventually prompting the trust to distribute the few crumbs remaining and terminate. Centuries ago this inevitability was explained by Oliver Wendell Holmes: A great fortune will split "into four handsome properties; each of these into four good inheritances; these, again, into scanty competences…."

Perpetual trusts cannot generate perpetual wealth for heirs whose number multiplies with each generation. In Holmes' day New Englanders knew as much. The secret of perpetual wealth is that each generation must rebuild that wealth.