10 Ways to Improve Your Finances Before Year-End - Bloomberg

10 Ways to Improve Your Finances Before Year-End

By Ben Steverman - Dec 12, 2011 11:43 AM ET

 

• http://www.bloomberg.com/money-gallery/2011-12-12/10-ways-to-improve-your-finances-before-year-end.html#slide8 

Reevaluate Risk

Chris Walters, executive vice president at CitizensTrust, is using the end of the year to discuss with clients how many risky assets, such as stocks, they can handle in their portfolios. In this market, "clients are getting bounced all over the place," he says. "If it's really stressing them out, then do they need to pull back?" One problem is the uncertainty in the financial and geopolitical outlook. "If it's driving you crazy now, it's going to drive you crazy in six months too," he says.

YOUR PRACTICE: Tap shrinks, coaches to avoid estate battles | Reuters

http://in.reuters.com/article/2011/10/31/wealth-familydynamics-idINN1E79R0K320111031

YOUR PRACTICE: Tap shrinks, coaches to avoid estate battles

Mon Oct 31, 2011 9:21pm IST

*50 percent of advisers fail to keep wealth, study says

*Some firms hiring psychologists to address problems

By Jessica Toonkel

Oct 31 (Reuters)-- A few years ago, wealth adviser Chris Walters found himself in an impossible situation. After a client died, he had to divide the estate between two ex-wives, one widow and four children, each of whom felt they hadn't received a fair share.

"It was highly contentious and was one of those situations that could have been avoided had there been some legwork earlier on," Walters said.

The psychological aspects of wealth management aren't exactly taught in Adviser 101 and wealth managers too often tiptoe around topics that could be controversial.

But frank discussions about who gets what, how family businesses will to be run and other financial decisions are key if the family wants to keep its wealth, and advisers are increasingly making these discussions a vital part of their practice.

U.S. Bank's Ascent Private Capital Management, for one, has hired a psychologist to address "family dynamics issues."

The new private wealth business, which is targeting clients with at least $25 million in assets, expects will bring on more counselors as it expands, said Mark Jordahl, president of U.S. Bancorp Wealth Management Group.

"We really think having a psychologist on staff will differentiate us," he said.

DAUNTING ODDS

Whenever multiple generations are dealing with significant assets, advisers have to navigate complicated relationships. The complexities are often compounded by blended families and family-owned businesses.

"Estate planning is always a potentially contentious situation, that's why trust companies exist," said Walters, president of CitizensTrust, the private banking arm of Pasadena, California-based Citizens Business Bank, which has $1.7 billion in assets under management.

Avoiding controversial topics exacerbates future problems, he said.

"They are so focused on the math, that they miss some of the issues," he said. "You can have the best investment management plan in the world, but it can all be for naught if the family can't agree on a plan."

The odds of a wealthy family being able to make their money last from generation to generation are daunting.

Seventy percent of wealthy families fail to sustain their level of assets for two to three generations, according to the Institute for Preparing Heirs, which trains advisers on how to deal with wealth transfer issues.

This is often because the family does not agree or have a plan on how it will manage its wealth, advisers said.

And for advisers, the mere existence of generational wealth can be a business killer. Fifty percent of client assets leave a financial adviser when there is a transfer of wealth from one generation to the next, according to a PricewaterhouseCoopers' 2011 Global Private Banking and Wealth Management Survey.

MISSION STATEMENT

Broaching the topic of what clients are going to do with their money when they pass is delicate. And it isn't exactly easy to suggest that a family go see a counselor.

For his part, Walters doesn't tell a family that he thinks they may need a family psychologist outright. Instead, he tries to illustrate how such resources have helped other families in similar situations.

For example, if Walters has a family that can't agree about how the family business will be run after the first generation passes, he will often say something like, "we had another family in this situation and they met with a family coach to figure things out, and that really helped."

GenSpring Family Offices, which services families with at least $25 million in investable assets, has clients take a survey to assess each member's goals and relationships to money. Then the family together creates a "mission statement" on to handle the wealth, said Daisy Medici, director of governance at GenSpring.

"That way if somewhere down the line a family member decides he or she wants to do something else with the money, the family can say 'that's not in the mission statement," she said.

Even for families who don't get along, having these kinds of clear strategies can be helpful, she said.

"We had one family who had a lot of problems and we said to them, 'look you have to just do these meetings, come up with a plan and stick to it. But you don't have to go out and have dinner after,'" she said. "And that worked."

GETTING HELP

For financial advisers who don't have the time or expertise to handle complicated family issues, there are places to turn.

In addition to a two-day training course for financial advisers on how to handle family issues, The Institute for Preparing Heirs is putting together a family coach registry advisers can use to tap experts on matters like dealing with blended families, said Diane Doolin, founding director of the Institute for Preparing Heirs.

The registry will be up by year-end and will start with 50 family coaches. The coaches are not psychologists but have experience with these issues, she said.

At least one bank believes having psychologists on staff will help it win ultra high-net-worth clients.

U.S. Bank's Ascent has hired Amy Zehnder as its "wealth dynamics consultant." Zehnder, who works with a variety of clients -- including high-net-worth families in private practice, said that the main challenge is just getting people to talk about money.

When an adviser refers a family to Zehnder she will generally work with them once a month for 12 to 18 months. She tries to get families to understand each member's differences and she helps them design a plan on which they can agree.

As part of the process, Zehnder, along with the adviser, will meet with each family member for four to six hours individually.

The price tag depends on the level of assets the client has with the bank. For investors who don't work with the bank such a financial-psychological program can cost between $200,000 and $250,000, she said.

Of course, not all advisers believe a staff psychologist is necessary, as long as you have professionals that you can refer a family to when needed.

"I have worked with over 200 families since I came to GenSpring and there have been only three times I have had to refer them to a counselor," Medici said. (Reporting by Jessica Toonkel; Editing by Chelsea Emery)

http://online.wsj.com/article/SB10001424053111904106704576583011082262384.html

October 4, 2011, 4:04 p.m. ET

ADVISER ALERT

News for Brokers, Wealth Managers And Their Clients

Pushing for the Full Picture

Once in a while, sometimes years into the relationship, one of Chris Walters's clients will mention holding an investment Mr. Walters didn't know existed.

Clients may withhold information out of distrust or forgetfulness—and some advisers don't probe too hard "for fear of overstepping their role," says Mr. Walters, the head of CitizensTrust, the wealth-management unit of Citizens Business Bank, Ontario, Calif.

But advisers can do a better job if they know all the facts. And by asking more questions, Mr. Walters and other financial pros say they win clients' loyalty and a shot at becoming the "quarterback" among a client's multiple advisers.

Clients like advisers who take a broad view, says Rob Clarfeld of Clarfeld Financial Advisors in Tarrytown, N.Y. "You're the only one looking at things in a holistic way."

Still, some clients are hesitant to be fully open. Kurt Rozman of Rozman Wealth Management in Brookfield, Wis., tries this strategy on them: He asks in detail about their goals and talks about how having a complete picture of their financial lives will help to get them there.

Seeking Income Solutions

Income strategies such as annuities and systematic-withdrawal plans are attracting a bigger share of assets rolled over from 401(k)s and other employer-sponsored retirement plans, a Spectrem Group Inc. study found.

This year, about 10% of rolled-over assets went into an income strategy, up from about 4% in 2000, Spectrem says.

Of the money that went into income strategies in 2011, 43% went into systematic-withdrawal plans, where a financial firm provides periodic payments from an investor's portfolio.

Some 31% went into annuities; 22% went into a structured portfolio, primarily fixed income; and 4% went into other solutions.

Written by Dow Jones Newswires writers Thomas Coyle (thomas.coyle@dowjones.com) and Daisy Maxey (daisy.maxey@dowjones.com).

Business Students to Invest Real Money

http://www.redlandsdailyfacts.com/ci_17703205

Tax Worries Coloring Investment Decisions - WSJ.com

http://online.wsj.com/article/SB10001424052748703418004575455533507633368.html

Worries Over Tax Hikes Coloring Business Decisions

By JOHN D. MCKINNON, BEN LEVISOHN And JUSTIN LAHART

The uncertainty over looming tax increases is starting to affect both investing and corporate decision-making.
The economy remains the biggest factor in many investors' and businesses' decisions. But worries over whether Congress will extend some of the expiring Bush-era tax breaks are emerging as another important one.
Stock prices of utilities, for example, recently have appeared to be factoring in the possibility of significantly higher dividend taxes next year, several analysts say. Some companies are pumping up dividend payments this year to beat the possible 2011 tax increase, and their shares have rallied.
Small-business owners say unease about tax policy, along with the economy, has led them to hold off on hiring and investment. And many advisers are encouraging well-to-do clients to sell appreciated assets to avoid higher capital-gains taxes.
Congress hasn't decided how to address the tax cuts from the George W. Bush administration, which are set to expire Dec. 31. President Barack Obama proposes to allow taxes on dividends and capital gains to rise to 20% from the current 15% for higher earners, defined as families with incomes of more than $250,000.

But many congressional Democrats want to let dividend tax rates, along with ordinary income rates, rise next year for higher earners to as much as 39.6%.
A senior House aide said late last month that Democratic leaders hadn't decided yet whether to end the current rates on dividends and capital gains for higher earners, or to extend them for everyone. Republicans are largely united in calling for a complete extension, although House GOP Leader John Boehner on Sunday signaled a measure of flexibility. If Congress takes no action, investment taxes would go up virtually across the board.
The broadest impact of higher investment taxes could come on financial markets. But analysts and economists differ over the likely effect.
A July analysis by Barclays Capital suggested that increasing taxes on investment income, as many Democrats advocate, could trim about 9% off the S&P 500 index. Talley Leger, vice president of U.S. portfolio strategy for Barclays Capital, called it "a potential headwind for stocks for the next couple of years."
A 2005 study by three economists at the Federal Reserve, looking back at the market response to the 2003 Bush tax cuts on dividends, concluded there wasn't a significant impact on overall stock values.
Alan Auerbach, a professor at the University of California at Berkeley who also has studied the effect of the Bush tax cuts, said the evidence suggested that repealing the changes probably would produce a "small negative effect" on financial markets.
Citigroup Global Markets forecasts that if all the proposals to raise dividend tax rates take effect for higher earners, investors could pay an additional $39 billion in taxes in 2013.
"That's a big effect, and probably a bit bigger than some market participants believe," said Steven Wieting, U.S. economist at Citigroup Global Markets.
There are signs that tax concerns have been affecting a range of transactions on the ground. Analysts say spreads between utility-stock dividend yields and yields on some other securities recently have reflected expectations of a top dividend tax rate in the low-30% range.
"The stocks could initially fall if dividend tax rates reset to marginal rates, but we don't think it will be permanent," said Dan Eggers, a utility equity research analyst at Credit Suisse Group in New York.
Some companies are squeezing in big dividends before year's end. In anticipation of its conversion to a real-estate investment trust, Weyerhaeuser Co. plans a $5.6 billion accumulated-earnings dividend payout this year, most of it in the form of stock. Pharmaceutical company Warner Chilcott PLC has arranged to borrow more than $2 billion to make an extraordinary dividend payment of $8.50 a share to shareholders.
While dividends are getting most of the attention, wealthy investors also are facing big incentives to realize capital gains by selling assets.
"We advise people that if they have gains to take or oversize positions that need to be diversified, sell them before the end of the year, rather than wait and pay higher taxes," said Sam Katzman, chief investment officer at Constellation Wealth Advisors in New York.

Small-business owners, especially older ones, also face tax incentives to sell soon.
"If someone is planning on selling a business, they should do it now," said Chris Walters, an executive vice president based in Pasadena, Calif., at CitizensTrust, the wealth management arm of Citizens Business Bank.

Some are hesitating, hoping for higher prices in the future. And business owners who sell now can face risks, because of the way such deals may be structured. Chris Hesse, head of the tax practice at LeMaster Daniels in Spokane, Wash., said a client in his early 60s sold his remaining shares in a business in a 10-year installment deal, and chose to pay all the tax at once this year, in anticipation of higher rates in the future. That looks like a smart strategy—unless the buyer can't make the future payments.
The prospect of higher taxes in 2011 and beyond also could be weighing on business owners' operational decision-making. In its July survey of small-business owners, the National Federation of Independent Business found that 22% of small businesses said the most important problem they faced was taxes, up from 19% a year earlier. More businesses—29%—identified poor sales as their No. 1 problem, but that was down from 34% a year earlier.
Democrats say that less than 3% of small-business owners would be affected by changes in tax rates for high earners. Republicans counter that the changes would affect roughly half of all such income, possibly more.
"It's like deer in the headlights. Nobody is doing much of anything about expanding or hiring or investing in new equipment," said Ken Keith, owner of Kasbar Inc., a Winston-Salem, N.C., accounting firm that works with small businesses.
Target Plastics Inc., a Salem, Ore., maker of custom plastic products, used to have seven employees, but now it has only two full-time workers, with an additional person working half-time, said owner Melissa Hescock.
"I've basically cut back because of the amount of taxes," Ms. Hescock said, including recent state increases and anticipated future federal boosts. "I have fewer people doing more work."
Write to John D. McKinnon at john.mckinnon@wsj.com and Justin Lahart at justin.lahart@wsj.com

Counterintuitive Asset Allocation

WSJ Blogs- http://blogs.wsj.com/financial-adviser/2010/06/14/voices-chris-walters-on-counterintuitive-asset-allocation/

VOICES: Chris Walters, On Counterintuitive Asset Allocation

In theory, wealth advisers thoroughly interview clients before creating a strategic asset allocation, in order to ensure the resulting asset mix corresponds to a client’s financial goals and risk preferences. But I recently reviewed a number of asset allocations that were appropriate from an age perspective but questionable from a standpoint of the clients’ situation or inclinations.

Take the case of a couple in their early eighties with no heirs; he a retired economist, she a former university professor. Ordinarily, older investors are advised to maintain a relatively modest risk in their portfolio. However, this couple was confident that they had more money than they could ever spend, and did not require significant investment income. Their goal was to build as large an investment portfolio as possible to bequeath to a charity. They understood that this entailed assuming greater risk, but felt that if their $5 million portfolio lost even half its value, their quality of life would not be endangered.

The upside of assuming greater risk was that their favored charity might ultimately receive a larger bequest. The couple was willing to take that chance. Our team helped the couple create an investment portfolio diversified across a range of equities and other risk assets, with only a small allocation to fixed income.

Another example of counter-intuitive asset allocation is a 38-year-old man who had $15 million in investable assets due to the sale of a family business, and was looking for a new entrepreneurial opportunity. On previous advice, he had $15-million spread across a 70-30 blend of equities to fixed income, assuming that this allocation was appropriate based on his age. I observed that this would be appropriate for most people below the age of 40, but asked the young man to consider what might happen in the case of a severe market downturn.

I also pointed out that since he was intent upon assuming a high level of risk in a new entrepreneurial endeavor, it didn’t make sense for him to take on relatively high risk in both his investment portfolio and his new initiative. My team constructed a portfolio that contained risk assets, including hedge funds, but had ample fixed-income exposure and liquidity.

Then there was the couple, in their early sixties, with financial assets of $2.2 million spread across a 401(k) account and personal savings. They planned to retire in four years. Their aggregated asset allocation was divided almost equally between equities and fixed income, in order to help ensure that their assets could offset the impact of inflation over a lifespan that might extend another two or three decades.

However, the couple was concerned that the cash stream produced by this asset allocation, along with Social Security, would not generate the level of income they desired. They were also apprehensive that a significant equities market downturn at this point in their life would leave them with even less ability to generate income.

All About Investing in 'Muni' Bonds - MarketWatch

http://www.marketwatch.com/story/all-about-investing-in-muni-bonds-2010-03-20-1946440

March 20, 2010, 7:47 p.m. EDT

All About Investing in 'Muni' Bonds

Municipal bonds, once the purview of the belt-and-suspenders crowd, have gotten a lot more intriguing in the past couple of years.
The worst of the financial crisis has passed, but much of the investment world's angst has been transferred to the government debt markets. Exotic places like Greece and Dubai are facing debt difficulties, but such problems also have become more acute closer to home.
California faces a budget mess. New York is romping through now familiar fiscal follies. Rising pension costs from Phoenix to Pittsburgh are making government books tougher to balance. It all raises the question: Are municipal bonds still a safe, shrewd investment?
Short answer: Yes.
Longer answer: But they aren't the no-brainers they used to be.
"Things have changed, and we really have to do far more due dilligence on issuers than we did in the past," says Chris Walters, executive vice president at CitizensTrust, the wealth-management division of Citizens Business Bank in Pasadena, Calif. "In the old days, everyone was pretty much an investment-grade entity and [general obligation] bonds paid a lot lower yield. That's not the case anymore; everything's gotten more challenging from a risk-management perspective."

California, Detroit Borrowing

Despite the challenge, investors have continued to gobble up municipal-bond offerings. California recently sold $2.5 billion in muni bonds -- $500 million more than it expected to sell. This comes less than a year after the Golden State found itself issuing IOUs in lieu of checks when the state went through one of its periodic budget meltdowns. Fiscally challenged Detroit managed to sell $250 million in bonds this month, even though it hasn't managed to pull together its finances in a timely manner in the past few years.
Investors are being attracted by higher-than-usual yields. California was paying 5.7% on bonds maturing in 2036. Detroit's bonds maturing in 2035 yielded 5.35%. Treasurys expiring in 2040 yield 4.64%, according to Ryan ALM, a market-data firm. Usually, municipal bonds sport yields lower than comparable Treasurys, but things are less-than-usual these days.
One thing that hasn't changed for munis is their tax advantage over Treasurys and other taxable bonds. Interest isn't taxed at the federal level and many states and localities don't tax that income, either.
Investors also believe that despite the nasty headlines, municipal bonds remain sound investments. In the case of California, investors probably see it as the quintessential state that is Too Big To Fail.
That echoes the view of Greece (Germany will step up) and even Dubai World, where the neighboring Emirate of Abu Dhabi has taken steps to assure investors. "The federal government won't let California default any more than the European Union will let Greece default," says Mr. Walters. "And California is far more important to the U.S. than Greece is to the EU."
With the environment shifting, muni-minded investors should consider tweaking their approach. While the last big muni default took place in 1994 when Orange County blew up, smaller municipalities have since failed, including Vallejo, Calif., in 2008.
The muni-bond standard strategy is to "ladder" various munis across, say, 10 years (though a ladder can stretch out even further or be shorter). But that can be a costly endeavor. Often, it's much easier to use funds to build diversification.
Closed-end funds are a popular approach. These funds are available at both the national and state level. California, New York and New Jersey residents have a plethora of such funds to choose from, underscoring their heavy use of the muni-bond markets.
Most bond investors, especially in the muni space, are focused on income, or yield, and many funds, especially in riskier jurisdictions, have handsome yields. But it's important to bear in mind that higher yields are signaling investor concern. No free lunches in the marketplace!
Among state funds, the BlackRock California Municipal Income fund /quotes/zigman/288690/quotes/nls/bfzBFZ+0.80% (BFZ) is currently yielding 7.1%. The Nuveen New York Municipal Value fund /quotes/zigman/236209/quotes/nls/nnyNNY+0.76% (NNY) is yielding 4.4%. In the national fund category, the Pimco Municipal Income fund /quotes/zigman/287029/quotes/nls/pmfPMF+0.12% (PMF) yields 7.4%.

Mutual Funds, Too

Investors also can tap actively managed mutual funds, such as the Nuveen Insured Municipal Bond fund (NMBIX) yielding 4.55% and the shorter-duration focused Oppenheimer Limited Term Municipal Bond fund (OPITX) yielding 4.91%.
In the current environment, with risks relatively higher than usual, Kristopher Burak of Rehmann Financial in Lansing, Mich., recommends focusing on shorter-duration investments.
Mr. Walters echoes the careful approach. He says state general-obligation bonds and state education bonds are among the safer issues because they take priority in terms of government spending, even when a budget isn't in place.
A great resource for investors is the Electronic Municipal Market Access Web site, emma.msrb.org. It's run by the Municipal Securities Rulemaking Board, a government agency charged with watching over the muni-bond industry. The site has educational information as well as market data about recent trades.