Archive for the ‘Wealth Management’ Category
Posted by William Byrnes on July 13, 2011
Treasury Secretary Timothy Geithner sparked outrage when he suggested at a recent House Ways and Means subcommittee meeting that “Congress has to revisit this basic question about whether it makes sense for us as a country to allow certain businesses to choose whether they’re treated as corporations for tax purposes or not.” Geithner’s comments about pass-through entities evoked a sweeping gasp from millions of small business owners who could become virtually non-competitive if subject to a double tax regime. Behind client referrals, professional referrals were the second biggest producer. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous Advisor’s Journal coverage of the Obama administration’s budget and tax proposals, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC-11-41) & Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01).
For in-depth analysis of S corporation taxation, see Advisor’s Main Library: B—Corporation’s Election Under Subchapter S.
Posted in Wealth Management | Tagged: Barack Obama, Obama administration, Small business, tax, Timothy Geithner, United States, United States House Committee on Small Business, United States Secretary of the Treasury | Leave a Comment »
Posted by William Byrnes on July 12, 2011
Advisors understand that referrals from existing clients are their best source for new business, but what else is working, and how effective are other methods being used by advisors to generate new business? A recently released survey provides us with a laundry list of approaches used by advisors to solicit new clients and gauges the productiveness of their marketing efforts. The survey, which polled 262 financial advisors in November and December of 2010, found that client referrals are still the top way advisors generated new business. Behind client referrals, professional referrals were the second biggest producer. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Wealth Management | Tagged: Business, Business and Economy, Canada, Certified Financial Planner, Financial adviser, financial planning, Financial services, Investment | Leave a Comment »
Posted by William Byrnes on July 11, 2011
If you have small business clients who are struggling with back taxes and/or tax liens, you can tell them help is on the way. The IRS is offering assistance for both individuals and small businesses that are struggling to “meet their tax obligations, without adding unnecessary burden to [the] taxpayers.” The new program includes a number of features discussed in today’s Advanced Markets Journal. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Taxation, Wealth Management | Tagged: accounting, Business, Internal Revenue Service, IRS, Small business, tax, Tax lien, TurboTax | Leave a Comment »
Posted by William Byrnes on May 6, 2011
Not according to a recent U.S. Government Accountability Office (GAO) report which found that annualized returns on a variety of funds with the same target date vary wildly—some with gains as high as 28% and others with losses of up to 31%. Target date funds, which “are designed to provide an age-appropriate asset allocation for plan participants over time,” are essentially an investment advisor substitute. But, unlike a personal financial advisor, target date funds can’t take into consideration the individualized needs of investors and don’t offer investors the level of disclosure that’s mandated of registered investment advisors. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of target date funds in Advisor’s Journal, see Are Target-Date Funds Failing (CC 09-35), Missing the Target? (CC 07-59), & The Automatic IRA Act of 2010: Boon for Advisors? (CC 10-56).
Posted in Wealth Management | Tagged: Asset allocation, Boon, Business, Exchange-traded fund, Funds, Investing, Mutual fund, Target date fund | Leave a Comment »
Posted by William Byrnes on May 5, 2011
Summit Business Media today announced that it has assembled a “dream team” of wealth management, financial planning and advanced sales professional reference experts to expand the content and scope of Advanced Markets AdvisorFX, the primary online source of practice-building and client-management tools for financial advisors and insurance professionals.
Advisors can try Advanced Markets AdvisorFX FREE for 15 days by going to http://www.advisorfxinfo.com and clicking on the “Free Trial” button to get started.
Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, noted thatAdvanced Markets AdvisorFX’s editorial advisory panel is comprised of experts from the international wealth management team at Thomas Jefferson Law School in San Diego led by Prof. William H. Byrnes, Associate Dean. He added, “Prof. Byrnes and his team bring enormous technical expertise as well as broad insights into the larger trends driving client decisions on tax, investment and wealth management strategies.”
Prof. Byrnes is a former Coopers & Lybrand expert in international law who has consulted for foreign governments as well as Fortune 1000 insurance and institutional investment companies. Other members of his team include:
• Robert Bloink, former Senior Attorney in the IRS Office of Chief Counsel and an expert in sophisticated wealth transfer techniques;
• George Mentz, a licensed attorney, MBA, and financial planner who was formerly a Senior Financial Planner and Wealth Manager for an international Wall Street firm;
• Don Goode, an insurance professional and former partner of Potomac West, where he lent active support to the first agent in the history of the insurance industry ever to receive more than $100 million in a single calendar year;
• Mike Rodman, three-time winner of “Top of the Table,” the Million Dollar Round Table’s highest honor, and founder of Advanced Planning Services, a premier advanced sales and advanced underwriting organization; and
• Robert Stuchiner, former Senior Vice President in charge of marketing and strategy for the AIG Affluent Markets Group.
Advanced Markets AdvisorFX’s unique content is designed to give users resources to attract new clients, grow their business and serve more markets. The content menu includes:
• The Advanced Underwriter Service (formerly from Dearborn Financial);
• The Advanced Sales and Reference Service (National Underwriter);
• Concepts and Client Illustrations from Don Cady’s classic estate planning, employee benefits and business planning Field Guides;
• Tax Facts on Insurance and Employee Benefits as well as Tax Facts on Investments, the largest circulation works of their kind in the insurance industry;
• Advisor FYI – daily headlines from media coverage of financial and estate planning issues;
• Advisor’s Journal – lengthy analysis and roadmap guidance on critical taxation and estate planning issues; and
• White papers on major legislation such as the Tax Relief Act of 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Pension Act of 2010 and others.
About Summit Business Media
Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events. Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services. Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.
Summit employs nearly 400 employees in ten offices across the United States.
Posted in Wealth Management | Tagged: American International Group, Don Goode, Financial planner, Financial services, Million Dollar Round Table, Summit Business Media, United State, Vice president | Leave a Comment »
Posted by William Byrnes on May 4, 2011
Advisors choose a hybrid practice model for several client and business oriented reasons. Is a hybrid practice—one allowing you to “conduct both advisory and brokerage business”—right for you? A recently released white paper can help you “understand the considerations [you]… face when choosing the hybrid practice model… and assess the potential benefits and trade-offs that come with the different hybrid choices.” Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of advisor and broker-dealer business in Advisor’s Journal, see Firms Selling Private Placements Face Increased Scrutiny (CC 11-32).
Posted in Wealth Management | Tagged: Business, Electric vehicle, hybrid, Hybrid vehicle, Sport utility vehicle, Subscription business model, Toyota, Toyota Prius | Leave a Comment »
Posted by William Byrnes on May 3, 2011
The SEC recently considered a proposal that would prohibit incentive-based compensation practices that may encourage inappropriate risk.
The proposal arises from Section 956 of the Dodd-Frank Act, which requires the SEC along with six other financial regulators to jointly adopt regulations or guidelines governing the incentive-based compensation arrangements of certain financial institutions. These institutions include broker-dealers and investment advisers with $1 billion or more of assets.
In particular, the Dodd-Frank Act calls upon the regulators to do two things: Read the analysis at AdvisorFYI
Posted in Compliance, Wealth Management | Tagged: Broker-dealer, Business, Dodd–Frank Wall Street Reform and Consumer Protection Act, Financial institution, Financial regulation, Financial services, Incentive, United States | Leave a Comment »
Posted by William Byrnes on April 27, 2011
A growing number of consumers are opting for pre-packaged, low-cost portfolio managers. Portfolio-to-go companies can, at least nominally, provide many of the same services as full-service brokerage firms, since the companies are registered as either investment advisors or broker-dealers. And minimal overhead and services allow them to offer those services without the “high” price tag at brick-and-mortar institutions.
Portfolios-to-go have exploded in popularity recently, bringing in over $3 billion in assets over the past three years. Read this two-page article by linking to AdvisorOne – a National Underwriters Summit Business open-access original content wealth management news portal.
Posted in Wealth Management | Tagged: Brokerage firm, Brokerages, Business, Financial services, Investing, Investment Services, TD Ameritrade, U.S. Securities and Exchange Commission | Leave a Comment »
Posted by William Byrnes on April 26, 2011
FINRA and the SEC are actively examining private placements and the firms that sell them. If the regulators believe that something is amiss, they won’t hesitate to impose severe fines on everyone involved in the sale.
FINRA has issued sanctions against two firms and seven individual principals of those firms. FINRA accuses them of causing significant investor losses by failing to conduct a reasonable investigation before offering the private placements for sale to investors.
Read this two-page article by linking to AdvisorOne – a National Underwriters Summit Business open-access original content wealth management news portal.
Posted in Compliance, Wealth Management | Tagged: Business, Canada, Company, Financial Industry Regulatory Authority, law, Private placement, Security, U.S. Securities and Exchange Commission | Leave a Comment »
Posted by William Byrnes on April 25, 2011
If you’re one of the two out of three financial professionals who are out of the social media loop, you could be missing opportunities to boost your advisory business. Although the SEC and FINRA are cracking down on firms for social media misuse, there’s still a wealth of untapped marketing potential for advisors brave enough forge into this new territory.
Social media sites like Facebook, Twitter, and LinkedIn can be used to build opportunities – if you know how to use them to the best of your advantage. Clara Shih, author of The Facebook Era, believes that social media marketing, with training and best practices, can be a formula for success. Shih offers tips to help advisors gain success by using social media as a tool to grow their advisory business by connecting with prospective clients and strengthening existing client relationships.
Read this two-page article by linking to AdvisorOne – a National Underwriters Summit Business open-access original content wealth management news portal.
Posted in Wealth Management | Tagged: AdvisorOne, Business, Clara Shih, Facebook, Financial Industry Regulatory Authority, LinkedIn, Social media, Twitter | 1 Comment »
Posted by William Byrnes on April 13, 2011
The Federal Reserve may consider downsizing its original plan to purchase $600 billion in Treasury bonds over fear that inflation could be driven to dangerous levels by the revitalized economy. Quantitative easing—the purchase of Treasuries by the central bank—is intended to raise the price of Treasuries, which should lower long-term interest rates and provide banks with cash to lend to their customers. The expectation is that lower long-term rates will encourage home refis and boost corporate investments and expansion, which, it is hoped, will created new jobs. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of quantitative easing in Advisor’s Journal, see Fed to Purchase $600 Billion in Treasuries in Move to Stimulate Economy (CC 10-94).
Posted in Wealth Management | Tagged: Central bank, Economic, Federal Reserve System, FederalReserve, Government, Quantitative easing, United States Department of the Treasury, United States Treasury security | Leave a Comment »
Posted by William Byrnes on April 12, 2011
Now more than ever, clients and potential clients are concerned about how they’re going to continue to enjoy the lifestyle they’ve grown accustomed to pre-retirement. Most clients are still looking for the same basic retirement advice from their advisors—advice on how to define and meet their retirement goals.
Following the recent financial crisis, your affluent clients are more likely to gravitate to conservative investment strategies that will preserve their hard-earned principle. But many of them are not clear on the risks of that strategy—they aren’t aware of the opportunities they’re missing.
You can help them reach the retirement they want and find the level of risk appropriate to their long-term goals. Here’s a breakdown of their values and priorities and how you can appeal to them. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of high net worth investors in Advisor’s Journal, see High Net Worth Clients: How to Find Them, How to Service Them (CC 10-07).
For in-depth analysis of investment planning for affluent clients, see Advisor’s Main Library: Investment Planning.
Posted in Wealth Management | Tagged: Business, Certified Financial Planner, Financial adviser, Financial services, Investing, Investment Advisor, Retirement, United States | Leave a Comment »
Posted by William Byrnes on April 9, 2011
Is hedge fund investment without capital gains or estate taxation possible for your high net worth clients? Yes, through the medium of private placement life insurance (“PPLI”). Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of topics relevant to estate planning for high net worth clients in Advisor’s Journal, see High Net Worth Clients: How to Find Them, How to Service Them (CC 10-07).
For in-depth analysis of state tax laws that are favorable for PPLI purposes, see Advisor’s Main Library: Estate Planning and the State Premium Tax.
Posted in Insurance, Retirement Planning, Taxation, Wealth Management | Tagged: Business, estate planning, Funds, Hedge fund, Inheritance tax, Investing, Net worth, Private placement life insurance | Leave a Comment »
Posted by William Byrnes on March 16, 2011
Merrill Lynch has agreed to pay a $10 million penalty to the Securities and Exchange Commission (SEC) to settle charges that Merrill used information about customer trades to trade on its own behalf—in violation of its customers’ confidences.
According to the SEC, Merrill Lynch operated a proprietary trading desk—its “Equity Strategy Desk” (ESD)—from 2003 to 2005. The desk traded solely on the firm’s account and did not have any responsibility for customer orders.
The SEC says that, although Merrill represented to customers that their trading information would be kept on a need-to-know basis, the ESD had access to and used institutional customers’ information when executing trades on Merrill’s behalf.
The activity that resulted in the SEC investigation is known as “tailgating”—related to the illegal act of “front running.” Front running is the practice of executing proprietary trades using information about pending customer trades to the broker’s advantage. Tailgating is similar to front running, except that the broker executes its own trade after executing the related customer trades.
Read the full analysis at AdvisorFX – sign up for a no obligation free subscription to all the services including AUS, ASRS, the Journal, Presentation Aids, Soft Skills. amongst others.
Posted in Compliance, Wealth Management | Tagged: Bank of America, Business, Customer, Information, Merrill Lynch, Proprietary trading, Trading strategy, U.S. Securities and Exchange Commission | 1 Comment »
Posted by William Byrnes on March 15, 2011
According the FCIC report, in the late 90s, AIG leveraged its superior credit rating—its “most valuable asset”—to branch out beyond standard insurance products and become a major over-the-counter derivatives dealer. Through its subsidiary AIG Financial Products, AIG eventually amassed a derivatives portfolio with $2.7 trillion in notional value.
A significant portion of AIG’s derivatives business was devoted to credit default swaps (CDS’s) that “insured” debt held by financial firms and institutional investors. A CDS is a contract under which the party writing the CDS agrees to reimburse the party purchasing protection if there is a default on the underlying debt. In exchange, the party purchasing protection makes a series of payments to the issuer of the CDS—essentially premium payments.
AIG’s credit protection business grew rapidly, swelling from $20 billion in 2002 to $211 billion in 2005 and $533 billion in 2007.
Although insurance policies and CDS’s are similar, crucial differences between the two played a critical role in the crisis. An insurance company is obligated to set aside reserves to balance against potential losses; but a credit default swap, not being an insurance policy, is not subject to a reserve requirement. As a result, AIG was not required to put up collateral when it issued hundreds of billions in CDS’s. What the company did do, however, was promise to post collateral if its credit rating was downgraded.
Read the entire analysis by linking to AdvisorFX ! Sing up for the no obligation free trial – with full access to Advanced Underwriting Service, the Presentation Aids, Soft Skill Tools, Calculators, and Daily Journal.
Posted in Wealth Management | Tagged: AIG, American International Group, Business, Credit default swap, Derivatives, Financial institution, Goldman Sachs, insurance | Leave a Comment »
Posted by William Byrnes on March 14, 2011
Is a state law trust that is established as an investment trust to hold interests in an LLC, which has the power to vary its investments, classified as an investment trust?
Example:
LLC is organized under the laws of State as a limited liability company and is treated as a partnership for federal tax purposes. LLC will acquire, hold and manage a portfolio of investments. The governing document of LLC permits the managers of LLC to sell assets in the portfolio and acquire new assets.
LLC will issue two classes of interests: common interests and manager interests. Holders of common interests and holders of manager interests have different rights to the income, deductions, credits, losses, and distributions of LLC. Manager interests will be held by a select group of investors who are also responsible for managing LLC. The common interests of LLC will be held by Trust.
Trust is organized under the laws of State as a trust. The governing documents for Trust provide that Trust is only permitted to hold common interests in LLC. Trust will issue trust certificates and each certificate will entitle the holder to all the income, gain, profit, deductions, credits, losses, and distributions associated with one common interest in LLC. The governing documents for Trust indicate that Trust is a trust for federal tax purposes.
First, the Treasury Regulations provide that a “business entity” is an entity recognized for federal tax purposes that is not properly classified as a trust under or otherwise subject to special treatment under the Code. [1]
In addition, an arrangement will be treated as a trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit. [2]
There are arrangements that are known as trusts because legal title to property is conveyed to trustees for the benefit of beneficiaries, but which are not classified as trusts for purposes of the Code because they are not simply arrangements to protect or conserve the property for the beneficiaries. These trusts, which are often known as business or commercial trusts, generally are created by the beneficiaries simply as a device to carry on a profit making business which normally would have been carried on through business organizations that are classified as corporations or partnerships (business entities) under the Code. [3]
Moreover, an “investment” trust will not be classified as a trust if there is a power under the trust agreement to vary the investments of the certificate holders. [4] An investment trust with a single class of ownership interests, representing undivided beneficial interests in the assets of the trust, will be classified as a trust if there is no power to vary the investments of the certificate holders.
The essential nature of an arrangement, whatever its form, as shown by the objects attained and the manner of their attainment, is what controls the classification of the arrangement as a trust.[5] In determining the character of an arrangement, the managerial powers of all parties to an arrangement will be combined in order to arrive at the full amount of permitted managerial activity and its object. [6]
Going back to our example, to determine whether Trust is an investment trust for tax purposes, it is appropriate to consider the nature and purpose of Trust. Trust is holding the interests in LLC for the purpose of providing investors with the benefits of the managed investments of LLC. These investment activities would result in Trust failing to be classified as a trust if Trust were permitted to engage in those activities directly. Because the nature and purpose of Trust under this arrangement is to vary the investments of the certificate holders, Trust is likely a business entity for federal tax purposes and not an investment trust.
Restated, a state law trust that is established as an investment trust to hold interests in an LLC partnership, that has the power to vary its investments, is generally not classified as a trust for federal tax purposes.
Tomorrow’s blogticle will discuss relevant topics to wealth managers in 2011.
We invite your opinions and comments by posting them below, or by calling the Panel of Experts.
[1] Treasury Regulations § 301.7701-2(a).
[2] Treasury Regulations § 301.7701-4(a).
[3] Treasury Regulations § 301.7701-4(b).
[4] Treasury Regulations § 301.7701-4(c); See also Comm’r v. North American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942).
[5] Morrissey v. Comm’r, 296 U.S. 344 (1935).
[6] See Comm’r v. Chase Nat’l Bank, 122 F. 2d 540 (2d Cir. 1941).
Posted in Wealth Management | Tagged: Business, Investment, Investment trust, law, Limited liability company, Morrissey, Treasury Regulations, United States | Leave a Comment »
Posted by William Byrnes on February 23, 2011
Despite Congress’s best efforts after the recent economic meltdown, a cadre of Wall Street’s biggest banks still dominates the derivatives markets, leaving some observers wondering whether the transparency the Act was supposed to bring was just a well-intentioned but overly optimistic dream.
The Dodd-Frank Wall Street Reform Act (Act) gave the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) extensive new authority over participants in the derivatives and swaps markets. But the transparency and equity many hoped the Act would bring to the markets is bottlenecked in the agencies charged with implementing the legislation.
The CFTC was scheduled to consider conflict of interest rules for swap execution facilities, derivatives clearing organizations and designated contract markets at their January 13, 2011 meeting, but disagreement about the scope of the rules resulted in the items being nixed from consideration at the meeting.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Dodd-Frank Act in Advisor’s Journal, see Dodd-Frank Wall Street Reform and Consumer Protection Act (CC 10-35) and Wall Street Reform Act Mandates Study of Financial Planning Industry (CC 10-73).
Posted in Wealth Management | Tagged: Business, Commodity Futures Trading Commission, Derivatives market, Dodd–Frank Wall Street Reform and Consumer Protection Act, Market, Securities and Exchange Commission, U.S. Securities and Exchange Commission, Wall Street | Leave a Comment »
Posted by William Byrnes on February 21, 2011
The Securities and Exchange Commission (SEC) submitted to Congress a staff study recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisers — no less stringent than currently applied to investment advisers under the Investment Advisers Act of 1940– when those financial professionals provide personalized investment advice about securities to retail investors.
Section 913 of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required SEC to conduct a study to evaluate:
- The effectiveness of existing legal or regulatory standards of care (imposed by current authorities) for providing personalized investment advice and recommendations about securities to retail customers; and
- Whether there are legal or regulatory gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for providing personalized investment advice about securities to such customers that should be addressed by rule or statute.
In the study, the SEC notes that investment advisers and broker-dealers are regulated extensively under different regulatory regimes. But, the study claims, many retail investors do not understand and are confused by the roles played by investment advisers and broker-dealers. The study finds that “many investors are also confused by the standards of care that apply to investment advisers and broker-dealers” when providing personalized investment advice about securities. Read the analysis at http://www.advisorfyi.com/2011/01/new-dodd-frank-study-calls-for-stringent-standards/
Posted in Uncategorized, Wealth Management | Tagged: Broker-dealer, Dodd–Frank Wall Street Reform and Consumer Protection Act, Investment, Investment Advisers Act of 1940, Regulation, Standard of care, U.S. Securities and Exchange Commission, United States Congress | Leave a Comment »
Posted by William Byrnes on February 19, 2011
The Wall Street Journal has recently noted that significant withdrawal of funds from municipal bonds throughout the country totaled over $4 billion in a one week period. [1] According to some estimates, the withdrawal accounts for only one tenth of one percent of the overall muni bond market. [2] Yet, the numbers are record breaking. The withdrawal is the largest from the muni bond market since last November, reports the Wall Street Journal.
However, the trouble seems to have started well before Meredith Whitney appeared on “60 Minutes” in late December of last year when she call for the future “collapse” of the muni bond market. In her opinion, the state and local governments will be forced to default on obligations made to bond holders because the governmental entities are quickly running out of liquidity. Nevertheless, the muni bond numbers reflect the ”10th straight week of outflows, which total roughly $20.6 billion.” [3]
Whitney though may have created in the muni bond market what is now known as Gladwell’s “Tipping Point”. Read the full analysis at AdvisorFYI
Posted in Wealth Management | Tagged: 60 Minutes, Bonds, Business, Investing, Meredith Whitney, Municipal bond, Stocks and Bonds, Wall Street Journal | Leave a Comment »
Posted by William Byrnes on December 8, 2010
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Buzz about the Financial Industry Regulatory Authority, Inc. (FINRA) taking responsibility for regulation of investment advisers has been circulating for a couple of years now—but the talk is suddenly sounding less like gossip and a lot more like a plan. Last week, FINRA’s chief executive, Richard Ketchum, sent a letter to the SEC touting the benefits of appointing a self-regulatory organization (SRO) to oversee advisors. Although Ketchum’s letter does not directly ask the SEC to cede some of its regulatory authority over advisers to FINRA, hints abound.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed earlier this year, mandates an SEC study of its investment advisor examinations and whether delegation of advisor regulation to an SRO would improve examinations. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of FINRA in Advisor’s Journal, see FINRA Proposes Eliminating Industry Insiders from Arbitration Panels (CC 10-80).
We invite your questions and comments by posting them below, or by calling the Panel of Experts.
Posted in Compliance, Wealth Management | Tagged: Business, Chairman, Financial adviser, Financial Industry Regulatory Authority, Investor, Regulation, U.S. Securities and Exchange Commission, United States | Leave a Comment »
Posted by William Byrnes on December 6, 2010
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The Wall Street Reform Act1—signed into law by President Obama on July 21, 2010— grants the SEC the power to impose a fiduciary duty on broker-dealers. Although the SEC has not yet moved to apply the fiduciary standard—already applicable to registered investment advisors—to broker-dealers, both sides of the argument have made their voices heard, commissioning studies and sending volleys of comments to the SEC.
Holding broker-dealers to a higher standard would seem, at first glance, to be a positive for their customers. But a November 1, 2010, Securities Industry and Financial Markets Association (SIFMA) commissioned study calls into question whether applying a fiduciary standard of conduct to all brokerage activities would help investors. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the fiduciary standard of conduct in Advisor’s Journal, see What You Don’t Know Yet Might Hurt You: A Broker’s Duties under the Financial Reform Act (CC 10 40).
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Wealth Management | Tagged: Broker-dealer, Consumer Federation of America, Fiduciary, Financial adviser, Registered Investment Advisor, Securities Industry and Financial Markets Association, U.S. Securities and Exchange Commission, Wall Street | Leave a Comment »
Posted by William Byrnes on December 3, 2010
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Wealth Managers Employment Opportunities
In 2008, Cap Gemini reported that wealth management firms will sharply increase hiring because of the impending retirement, from 2010-2020, of “baby-boomer” wealth managers. Over the coming decade, wealth management firms will have substantially more client opportunities because the pool of high-net-worth individuals (HNWI) globally, and their assets, continue to grow steadily, and because half of HNWIs do not have a wealth manager.
Half of HNWIs Do Not Have a Wealth Manager
According to Oliver Wyman, only 50% of HNWI assets are professionally managed. An unprecedented amount of retiring boomers who had not previously used a wealth manager now require one to transition their asset portfolios to income ones, plan succession, and balance potential medical care needs. Wealth management firms therefore have a pool of approximately five million (and expanding) new client opportunities.
Increasing Wealth Manager Salaries and Bonuses
The San Diego Business Journal reported in 2009 that wealth management salaries held steady in the midst of the great recession, ranging from USD150,000 to USD400,000. Even more exciting, Cap Gemini reported that “bidding wars among firms for top advisors are not uncommon” and packages will include “bonuses equaling two or three times the payouts from just a few years ago”. Reuters reports that brokerage firms offer sometimes triple an adviser’s fees and commission over the previous year, whereas private bankers receive one to two times their previous year’s salary and bonus to move. (See Private banks battling for advisers to super-rich)
Significant Wealth Manager Hiring to Begin Working January 2011
Reuters reports that “Wells, he said, is looking outside the private banking world in its bid to add 150 new recruits. Citi has looked to Goldman Sachs Private Wealth Management as well as Barclays Wealth, a Barclays unit built from a business acquired from Lehman Brothers. Citi has said it aims to double its private banker ranks to about 260 within three years.”
Posted in Wealth Management | Tagged: Barclays Wealth, Capgemini, Financial services, High net worth individual, Lehman Brothers, Oliver Wyman, Private wealth management, San Diego Business Journal, Wealth Management | Leave a Comment »
Posted by William Byrnes on December 2, 2010
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According to a recent report by Javelin Strategy and Research (California); “[a]lthough the recent ‘Great Recession’ has caused millions of Americans to tighten their belts financially, nearly one out of five consumers are financial sleepwalkers”—those who do not manage their personal finances. [1] That’s right; at least 20% of Americans are not currently using wealth managers to manage their personal finances. The report states that the rate is more than double that of 2009. [2] This presents a vast opportunity for wealth managers to expand their market share.
The United States Department of Labor project that personal financial advisors are estimated to grow by 30 percent over the 2008–18 period. “Growing numbers of advisors will be needed to assist the millions of workers expected to retire in the next 10 years.” [3] Further, “[a]s more members of the large baby boom generation reach their peak years of retirement savings, personal investments are expected to increase and more people will seek the help of experts.” [4]
Moreover, there is a trend in corporate America to replace “traditional pension plans with retirement savings programs, so more individuals are managing their own retirements than in the past,” creating additional opportunity for wealth managers. [5] In addition, as medical technology continues to advance and people on average, live longer, the need for additional financial planning arises.
The average compensation for wealth managers is around $89,920 to $110,130 for those marketing insurance products and services as well as other financial investments. [6] New York has the most wealth managers in terms of total numbers. [7] In addition, New York wealth managers made on average $146,460, the most from any state. [8] Read the entire article at AdvisorFYI.
For previous blogticles covering the wealth management industry, see the series beginning The Future of Wealth Management
Posted in Wealth Management | Tagged: California, Finance, Financial services, New York, Pension, United States, United States Department of Labor, Wealth, wealth management financial planning | Leave a Comment »
Posted by William Byrnes on November 12, 2010
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Charitable contributions offer an opportunity to do good in the community while reaping tax benefits, but the tax benefit of a charitable contribution can be jeopardized by poor planning. Especially challenging can be the structuring of contributions by complex trusts as illustrated by the recently released IRS ruling, ILM 201042023.
There, a trust’s charitable contribution deduction was limited to the trust’s basis in the property; a deduction was not permitted for unrealized appreciation of the donated property. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the benefits of charitable giving, see Use Charitable Giving to Enhance Family Business Succession Planning (CC 10-76).
For in-depth analysis of the use of charitable giving in estate planning, see Advisor’s Main Library: F�Estate Planning Through Charitable Contributions.
Posted in Taxation, Wealth Management | Tagged: Charitable contribution, Charitable organization, Donation, estate planning, Internal Revenue Service, tax, Tax deduction, Trust law | Leave a Comment »
Posted by William Byrnes on November 9, 2010
Fee disclosure rules for 401(k) plans were expected out of the Department of Labor in early 2011, but the Department beat its own estimates, releasing a final rule on plan fee disclosures on October 14, 2010. The rules impose significant disclosure requirements that are important for everyone associated with self-directed employee retirement plans, including employees and their advisors and plan fiduciaries.
The new rules apply to plan years beginning after November 1, 2011. Although plan administrators have over a year to comply with the new requirements, the disclosure requirements are very extensive—the release that includes the regulations is over 150 pages long—and will require significant action on the part of most plan fiduciaries, so time is of the essence. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of 401(k) retirement plans, see Advisor’s Main Library: Section 17.5 401(k) Plans.
Posted in Wealth Management | Tagged: 401(k), Business, Employment, Fee, Human Resources, Labor Department, Pension, United States Department of Labor | Leave a Comment »
Posted by William Byrnes on November 8, 2010
The IRS’s latest split dollar rulings is a cautionary tale that, despite its happy ending, illustrates the danger lurking at every corner of the split-dollar life insurance regulations. The ruling shows that, despite otherwise meticulous adherence to the tax code and regulations, a split-dollar arrangement can fail for lack of filing a simple annual statement with the IRS. In PLR 201041006, the IRS considered a charity’s request to grant the charity an extension to make a required filing under the split-dollar regulations.
The taxpayer in the case is a charity (Charity) that ran a split-dollar life insurance program for its high-level employees. Not having any expertise with SDPs, Charity hired a company to revise its SDP. On the consultant’s recommendation, Charity entered into a new SDP. The new SDP was entered into after the Treasury issued final regulations under §§1.61-22 and 1.7872-15, which can carry adverse tax consequences for both parties to a split-dollar arrangement.
Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of IRS split-dollar rulings in Advisor’s Journal, see Modification of Split-Dollar Arrangement Not a Material Change to Underlying Life Insurance Contract (CC 08-17) and Notice 2007-34 Explains Application of Section 409A to Split-dollar Life Insurance Arrangements (CC 07-18).
For in-depth analysis of split-dollar life insurance, see Advisor’s Main Library: Section 15.2 Split-Dollar.
Posted in Insurance, Taxation, Wealth Management | Leave a Comment »
Posted by William Byrnes on October 18, 2010
Life insurance-based estate planning strategies for high-net-worth clients with estate liquidity issues run into the problem that premiums may be so high as to exhaust the client’s annual gift tax exclusion and lifetime exemption, resulting in unwanted gift tax exposure. One way advanced planners have dealt with the gift tax problem of high premiums is through the use of a grantor retained annuity trust (GRAT). But the U.S. House recently passed a bill—H.R.4849, the Small Business and Infrastructure Jobs Tax Act of 2010—that would severely curtail the use of GRATs, so the utility of this technique may soon be eliminated.
To illustrate this technique while it remains open, let’s assume you have an unmarried client, Max, who owns a number of restaurant franchises. His estate will be worth about $12 million, most of which is tied up in his franchises and other illiquid investments. Max’s estate will need around $6 million in liquid death benefit to cover the pending estate tax liability. Read today’s article in your Advisor’s Journal at GRAT Strategy (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of the topic of the use of GRATs, see Advisor’s Main Library Section 4. Estate Planning Techniques J—Grantor Retained Annuity Trusts
We invite your questions and comments by posting them below, or by calling the Panel of Experts.
Posted in Estate Tax, Taxation, Wealth Management | Tagged: Charitable organization, estate planning, gift tax, Grantor Retained Annuity Trust, Inheritance tax, law, Small business, United States | Leave a Comment »
Posted by William Byrnes on October 15, 2010
Many clients with employer-provided retirement accounts can now convert their accounts to Roth accounts thanks to the Small Business Jobs and Credit Act of 2010, H.R. 5297—which was signed into law by President Obama on Monday, September 27. The Act allows 401(k), 403(b), and governmental 457(b)participants to roll all, or a portion, of their account balances into an employer-provided Roth account. Converting from a traditional to a Roth account can have substantial tax benefits for your clients. But because of the complexity of the decision whether to convert, most clients will need their advisor’s assistance when deciding whether to convert their accounts.
For an analysis of the impact of the extension of the Roth Conversion Window, see Advisor’s Journal Small Business Bill Extends the Roth Conversion Window.
For previous coverage in Advisor’s Journal, see Liberalized IRA to Roth IRA Conversion Rules in 2010
For in-depth analysis of the topic of Roth IRAs, see Advisor’s Main Library Section 17.1 IRAs, SEPs and Simple Plans G—Roth IRAs
We invite your questions and comments by posting them in our blog AdvisorFYI, or by calling the Panel of Experts.
Posted in Taxation, Wealth Management | Tagged: 401(k), 403(b), Barack Obama, Home, Individual Retirement Account, Personal Finance, Retirement, Roth IRA | 1 Comment »
Posted by William Byrnes on October 13, 2010
This month, the Congressional Research Service released an overview of qualified tuitions programs, giving us an opportunity to revisit the tax-advantaged nature of these accounts for higher education.
The primary advantage of qualified tuition programs—typically referred to as 529 plans—is the tax savings they provide. Although there is no federal income tax deduction for contributions to a 529 plan, accounts appreciate federal income tax free and distributions can be taken tax free to pay qualified higher education expenses (QHEE). In addition to federal tax benefits, a partial to full state income tax deduction for plan contributions is offered by twenty-six states. But because 529 plan accounts are intended to be used to pay higher education expenses, distributions of account appreciation that are not used to pay QHEE are subject to a penalty that varies from state to state.
For an analysis of Pre-Paid Tuition Plans, College Savings Plans, pointing out your role as the trusted advisor, see our article in AdvisorFX Advisor’s Journal.
For in-depth analysis of the topic of education savings accounts, see Advisor’s Main Library Section 50.1 Planning For Education Costs
From a tax perspective see Tax Facts Q 810. What is an Education Savings Account?
Posted in Taxation, Wealth Management | Tagged: 529 plan, Congressional Research Service, Coverdell Education Savings Account, Higher education, tax, Tax advantage, Tax deduction, United States | Leave a Comment »
Posted by William Byrnes on September 29, 2010
Expanding employment opportunities
In 2008, Cap Gemini reported that wealth management firms will sharply increase hiring because of the impending retirement, from 2010-2020, of “baby-boomer” wealth managers. New employment opportunities will also be created by expanding opportunities within the wealth management market. Over the coming decade, wealth management firms will have substantially more client opportunities because the pool of high-net-worth individuals (HNWI) globally, and their assets, continue to grow steadily, and because half of HNWIs do not have a wealth manager.
Half of HNWIs not receiving advice
According to Oliver Wyman, only 50% of HNWI assets are professionally managed. An unprecedented amount of retiring boomers who had not previously used a wealth manager now require one to transition their asset portfolios to income ones, plan succession, and balance potential medical care needs. Wealth management firms therefore have a pool of approximately five million (and expanding) new client opportunities.
Oliver Wyman reports that the new generation of HNWIs is predominantly (70%) self-generated wealth; through entrepreneurship or executive compensation. These HNWIs consider it normal business practice to seek outside expertise and are more likely to leverage wealth managers.
Senior staff salaries and jobs
The San Diego Business Journal reported in 2009 that wealth management salaries held steady in the midst of the crisis, ranging from USD150,000 to USD400,000. Even more exciting, Cap Gemini reported that “bidding wars among firms for top advisors are not uncommon” and packages will include “bonuses equaling two or three times the payouts from just a few years ago”. Reuters reports that brokerage firms offer sometimes triple an adviser’s fees and commission over the previous year, whereas private bankers receive one to two times their previous year’s salary and bonus to move. (See Private banks battling for advisers to super-rich) Reuters reports that “Wells, he said, is looking outside the private banking world in its bid to add 150 new recruits. Citi has looked to Goldman Sachs Private Wealth Management as well as Barclays Wealth, a Barclays unit built from a business acquired from Lehman Brothers. Citi has said it aims to double its private banker ranks to about 260 within three years.”
For my complete analysis in my September article of Offshore Investment magazine – read it online – Wealth Management Employment in the Coming Decade
Posted in Wealth Management | Tagged: Baby boomer, Business, Capgemini, Financial services, High net worth individual, Investing, Lehman Brothers, Oliver Wyman, San Diego Business Journal, Wealth Management | Leave a Comment »
Posted by William Byrnes on August 23, 2010
Why is this Topic Important to Financial Professionals? This article will examine factors that either increase or decrease the desirability of any one of the fifty states in regards to the formation of a corporation. Clients want a business climate that is economically efficient. A financial professional should be able to provide clients at least a cursory explanation of the company law and tax differences among the states.
Please read my blogticle at Advisor FYI The Best and Worst States to Incorporate a Business
Posted in Taxation, Wealth Management | Tagged: business planning, incorporation | Leave a Comment »
Posted by William Byrnes on July 14, 2010
National Underwriters Establishes Go-To Service for Producers
Effective this summer, in order to embrace the changing landscape of the greatest wealth transfer in global history, National Underwriter/Summit Business Media is honored to announce that the renown professor, author, and financial services industry analyst William Byrnes will lead our financial advisory publications. In an interview William Byrnes stated that “I will leverage community-comment blogging with innovative multimedia to deliver daily strategies for insurance producers and financial service regulatory updates for risk managers. National Underwriters’ Advanced Underwriter Service®(AUS®) will emerge as the dominant go-to strategy service for the insurance/financial planning industry.”
When asked how he intends to effectively connect AUS® strategic information with the needs of producers, Byrnes replied, “Through direct engagement with producers’ burning questions via the new AUS® Advisor blog, through my editorial panel of connected industry experts and enterprise-wide subscribers, and through feedback from the elected production leaders from the over 50,000 chartered wealth managers of the American Academy of Financial Management®. National Underwriters will proactively educate the AUS subscribers about developing insurance and wealth management advisory strategies and sales techniques before the subscribers’ competitors hear about them via industry word of mouth.”
William Byrnes’ Background
Byrnes continued, “I have a lot of experience delivering cutting edge information to professionals seeking to better serve their clients and win business from the competition. About twenty years ago, Dr. George Mentz and I pioneered residential executive training, and soon thereafter online degrees, for wealth managers seeking to become top producers. Over time we trained these industry leading wealth managers with our executive programs for the likes of EuroMoney-Institutional Investor, IIR, and the Society of Trust and Estate Practitioners. We even managed for the first time ever that the American Bar Association acquiesced to an online wealth management oriented graduate law degree being granted to both lawyers and non-lawyers alike by an accredited law school in the USA.”
“And in terms of executing multi-media publishing, I’ve written and edited 10 books and treatises and 17 chapters for best-of-class publishers like Lexis-Nexis, Wolters Kluwer, Thomson-Reuters, and Oxford University Press, whereas Dr. Mentz focused on wealth management techniques and soft skills books distributed international via the 120-country membership of the American Academy of Financial Management. I have published my multi-media textbooks online since 1998!”
New Community-Collaborative Technology
When asked how he transitioned from practitioner to education-pioneer, Byrnes reminisced “I never imagined when I was an associate director of international tax of the big 6 audit firm Coopers & Lybrand, now known as PwC, that I would move from serving high net wealth families to helping wealth managers better serve their clients via my role as the Associate Dean of an ABA accredited law school, Thomas Jefferson. This year Thomas Jefferson School of Law will open its new $130 million dollar state-of-the-technology new campus in San Diego that will be able deliver via innovative ways interactive training and education to wealth managers across the nation, and the globe. Over the coming year I will combine the cutting-edge technology of Thomas Jefferson law school, my online training expertise, and the National Underwriters best-of-class information services to deliver real-time fresh strategy and sales approaches to AUS subscribers, with followup webinars and training where subscriber interests warrants.”
Delivering the Competitive Advantage to Producers
Byrnes added, “National Underwriters/Summit Business Media wants to deliver an information service that will place its subscribers in a better competitive advantage.” To this end National Underwriters has allowed me to assemble the industry’s finest editorial team in Investment Advisory, Wealth Management, and Risk Management. I already have commitments from the two well known industry experts, investment-advisory attorney Robert Bloink, and the chair of the American Academy of Financial Management®, Dr. George Mentz, who will underpin this team”.
Robert Bloink’s Background
“I think it is critical for National Underwriters subscribers to know that Robert Bloink, one of two underpinning editorial team members, put in force in excess of $2B of longevity pegged portfolios for the insurance industry’s producers in the past five years. Robert Bloink’s insurance practice incorporates sophisticated wealth transfer techniques, as well as counseling institutions in the context of their insurance portfolios and other mortality based exposures. His success proves that he really has an unparalleled knowledge of the advanced insurance markets.”
“And in terms of risk management editorial expertise, I previously met Robert Bloink when he had just finished serving as Senior Attorney in the IRS Office of Chief Counsel, Large and Mid-Sized Business Division, where he litigated many cases in the U.S. Tax Court, served as Liaison Counsel for the Offshore Compliance Technical Assistance Program, coordinated examination programs audit teams on the development of issues for large corporate taxpayers and taught continuing education seminars to Senior Revenue Agents involved in Large Case Exams. In his governmental capacity, Mr. Bloink became recognized as an expert in the taxation of financial structured products, and was responsible for the IRS’ first FSA addressing variable forward contracts. Mr. Bloink’s core competencies led to his involvement in prosecuting some of the biggest corporate tax shelters in the history or our country.”
Chartered Wealth Managers Endorse
“It is also critical for National Underwriters subscribers who serve middle America to know that the editorial team has Dr. George Mentz, chair of the 50,000 affiliated members of the American Academy of Financial Management® (AAFM®), Byrnes said.” In an interview with Dr. Mentz, he stated that “I am excited to introduce our membership of Chartered Wealth Managers to the competitive client advisory strategies of Advanced Underwriter Service® and Tax Facts®.” The AAFM® has endorsed National Underwriters’ Advanced Underwriter Service® as the information service of choice for its board designation CWM®s (Chartered Wealth Manager) in all of its 150 countries of membership.
Panel of Experts
In describing the newly formed editorial team, Byrnes said “To provide AUS® subscriber examples of other experts who will round out various aspects of the new editorial team, let me introduce you to three others, Mike Rodman, Don Goode and Robert Stuchiner. Mike Rodman is a three time qualifier for Top of The Table, MDRT’s highest honor, as well as a four-year member of the International Forum, and the Association of Advanced Underwriters (AALU). Rodman served as past president of NAIFA-San Diego as well as an active member of The Financial Planning Association (FPA), The Society of Financial Service Professionals (SFSP) and The National Association of Independent Life Brokerage Agencies (NAILBA). He founded Advanced Planning Services, Inc. (APS) as “the Premier Advanced Sales and Advanced Underwriting organization” serving the entire industry, including producers, producer groups, and other agencies and carriers, for which it has been a two-time INC 500 winner.”
“Don Goode joined Potomac West, where he was instrumental in building their large case department. Along with his partner, Don successfully designed and negotiated the Power Play program for American General, and most importantly to National Underwriter subscribers, his team lent support to the first agent in the history of the industry to ever receive more than $100mm in a single calendar year. When he stepped down from partner status at Potomac West, Don accepted a one year contract to lead the sales and marketing department for the esteemed Producer’s Group. Thereafter Don Goodman joined the Advanced Planning Division of the public company-Bisys-Potomac where he consistently produced individual policy transactions that were more than 20 times the company average.”
“Robert Stuchiner worked for some of the largest insurance companies, most recently AIG where he was Senior Vice President in charge of market development and strategy for the AIG Affluent Markets Group. He has also worked for consumers of insurance products ranging from large corporations (North American Phillips) to a major law firm (Davis, Polk & Wardwell). Robert Stuchiner has published articles on life insurance products in “Trusts & Estates” magazine as well as “CCH” professional publications. He is a frequent speaker to the insurance industry associations. Robert is the winner of the “National Career Achievement Award” granted by the Lighthouse for the Blind.
Community Calibration
Byrnes concluded the interview stating, “To bring AUS to the next level of becoming the industry’s leader for strategic information, this next six months is going to be about collaboration with AUS subscribers and calibration of the new information service to align to the feedback received from them. John Frey, Head of National Underwriters Institutional Relationships, and I will reach out to establish a focus group of the enterprise-wide subscribers, as well as a focus group of the producers.”
“Via my community-based feedback approach, the subscribers will drive AUS’ topic approach to strategic information, even receiving direct answers to ‘questions for the authors’ so that the producer may better address client questions either in the living room or in the board room. AUS will be a subscriber-focused service, tailored to the needs of the producer to place more product with customers”. Byrnes said that he welcomed feedback from current AUS subscribers and would provide his direct National Underwriters telephone number and email address on the AUS subscriber site.
Posted in Compliance, Courses, Insurance, Taxation, Wealth Management | Tagged: certification, certifications, Compliance, education, estate planning, financial planning, high net wealth, income tax, Online Tax Degree, professional designations, Wealth Management | 3 Comments »
Posted by William Byrnes on April 22, 2010
In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions, and in doing so reviewed the global industry as a whole.[1] But for the periods of global financial crisis, the sector had experienced double-digit annual global growth from the eighties and contributed robustly to local economies and society. Since 1998, the international financial services sector client base has expanded nearly 10% on average during growth years. Even with the dampening caused by the current global crisis, this industry is still projected for healthy growth in the high single digits over the next five years.
During the decade period until 2008, the international pool of high-net-worth individuals (HNWIs) potentially served by AAFM® Chartered Wealth Managers® had more than doubled, to just over 10 million, as had their assets, from $17.4 trillion to between $40 and $50 trillion.[2] By 2007, the average HNWI, excluding primary residences and collectibles, achieved an average of $4 million of worth![3]
The financial recession of 2008 through the first half of 2009 and the corresponding collapse of USA investment banking system temporarily decimated the available high net wealth pool, reducing it to just under nine million holding $33 trillion in assets. Because of their substantial exposure to the USA economy and financial markets, the USA suffered the greatest impact, a loss of 18.5% of its HNWI pool and its overall investable wealth.[4]
Yet by the first quarter 2010 the high net wealth pool has rebounded to near 2007 levels as markets have regained nearly 85% of the lost ground of the past 24 months. In 2009 some residential property markets experienced substantial price rebounds and increases, such as in China, India and Brazil with the top three in China.[5]
Over the next five years financial forecasters expect positive growth exceeding 8% annualized for the assets of high net wealth individuals. In just three years, by 2013, the pool of HNWI clients’ assets will expand by 50% and exceed $50 trillion – accomplishing a decade’s record in one-third the time.[6]
70% of this new wealth is self-generated, either through entrepreneurship or via executive compensation, representing a “new” breed of HNWI versus the inherited wealth clients of the past.[7] These self-generated HNWIs bring new attitudes and requirements to their wealth managers.
This is the first of several update blogticles for the career services course of the International Tax & Financial Services Graduate Program. Prof. William Byrnes
[1] Report on the Economic, Socio-Economic, and Regulatory Impact of the
Tax Savings Directive and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth Office 2004).
[2] Cap Gemini Merrill Lynch World Wealth Report 2008 calculates $40.7 trillion. However, see Oliver Wyman’s The Future of Private Banking: A Wealth of Opportunity? (2008) at 9 wherein using its own wealth model and reliance upon data from the OECD, IMF, WFE, UNECE, national banks and stock exchanges calculates $50 trillion.
[3] A High Net Wealth Individual has at least one million dollars investable assets, excluding the primary residence and collectables.
[4] Cap Gemini Merrill Lynch World Wealth Report 2009, p.2. Note the U.S. is still responsible for nearly 29% of global HNWIs at $2.5 million.
[5] The KnightFrank (Citi Private Bank) Wealth Report 2010 at 7.
[6] Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag. While equity and real estate markets may have declined by January 2009 by as much as 50% of their highest value in OECD countries, HNWI portfolios are spread among other investments without such a sharp plunge. A reliable decline in value estimate for HNW is 25% based upon the decline experienced in Switzerland, which accounts for 28% of the global asset management market. See the report Wealth Management in Switzerland, Swiss Bankers Association (2009) at 8.
[7] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 21
Posted in Uncategorized, Wealth Management | Tagged: certifications, professional designations, wealth management financial planning, wealth management financial planning compliance money laundering | 1 Comment »
Posted by William Byrnes on August 19, 2009
Over the past blogticles, we have been examining a number of financial crimes issues including several for anti money laundering. Now we turn to compliance costs and the dis-connect? Feel free to comment or email me with any burning questions, Professor William Byrnes (www.llmprogram.org), as well as join one of our weekly webcasts.
Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?
In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions.[1] But for periods of global financial crisis, the sector had experienced double-digit annual growth and contributed robustly to the local economy and society. Since 1998, the international financial services sector client base has expanded nearly 10% on average.
In the past decade, the number of global high-net-worth individuals (HNWIs) served by practitioners, such as my able graduates, has doubled to more than 10 million by 2008 (though the global financial crisis has caused a decline to less than 9 million) —and their assets have more than doubled from $17 trillion to $40 trillion though currently just under $33 trillion due to the last twelve month’s financial crisis.[2]
Is The Future For Clients Dim?
Dim? On the contrary! In just four years, the pool of HNWI clients’ assets is projected to grow to nearly $50 trillion. Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag.
The average HNWI, excluding the value of primary residences and collectables, is worth approximately $4 million! HNWI’s continue to leverage offshore skill sets, growing their assets from $5.8 trillion from 1998 to $11 trillion today.[3] That $11 trillion under management represents, at combined fees of just 1%, at least $100 billion to private bank firms offshore, and six times that taking all HNWI assets into account.
Some Financial Centers Spend More on Compliance than Others
39% of Florida banks surveyed reported that private banking accounted for more than 50% of their operating revenues. Florida’s international private banking and wealth management customers predominantly reside, as one would expect, in Latin America and the Caribbean, with 1/3 residing in Europe. South American residents account for 44% of private banking and wealth management customers of Florida’s international banks. Approximately 19% of international private wealth management clients reside in Mexico or Central America, while 4% reside in the Caribbean.
Even though the market has been growing in terms of the available pool of HNW clients, the international banking industry in Florida has been characterized by consolidation and contraction since 2000. The number of foreign bank agencies operating in Florida fell from 38 in 2000 to 31 in 2005.[4] There were 10 Edge Act banks operating in Florida in 2000, but only 7 in 2005. The number of international banking employees (in foreign agencies, Edge Acts and the international divisions of domestic banks chartered in Florida) declined from 4,660 in 2000 to 3,027 in 2005.
Based on a survey of banks significantly engaged in international banking in South Florida, the economics firm based on direct surveys estimated Miami’s international bankers staffing cost for 271 full-time employees of anti-terrorism/anti-money laundering compliance at nearly $25 million in 2005. [5] The average survey respondents indicated that it devoted 2.9 FTE employment positions to BSA/AML compliance in 2002 versus 6.8 FTE positions in 2005. The number of full-time employees devoted to compliance represented 9% of the workforce in 2005. Staff resources devoted to compliance increased by 160% between 2002 and 2005.
So Where is the Dis-Connect?
So if enough money is being spent by some banks, by example in Miami, and this expenditure is even potentially impacting earnings in some regions such as Miami, (as an industry – small institutions are being clobbered compared to their larger brethren), then why are some banks and other financial service providers employees failing in their implementation of AML programs in light of the expenditure? Where is the dis-connect between expenditure and results? Might the expenditure be more about white-washing than about achieving an educated work force? Might throwing money at the problem not be the answer? Or is not enough money flowing to training?
As the Miami marketplace apparently illustrates, in general the compliance and training budgets have reached the deal-breaker point at some banks and in some regions. Thus, rather than it being a quantitative issue of bigger budgets, it is more likely a qualitatively issue, that is, spending either on poorly designed products or on good products but with poor instruction, follow-up, and support. It may be that purchasing decisions are based not on price, but rather are based on how to spend as little labor time as possible to meet a minimum level of information and training sufficient for an employee to appear to be able to implement AML policy. That is, institutions may be spending more to obtain less quality products because the product requires less labor activity time.
By example, some institutions send the high level AML staff for a one or two day workshop at between one and three thousand dollars and now call that staff member an expert. A time-saving approach certainly. But is this a reasonable approach in light of the likely outcomes of such minimal education consisting of little to no follow up, guidance, and academic support? Can a board member, much less a regulator, feel confident that such a staff member is able to exercise the necessary skills gained from the one or two day session to protect the financial institution and public from an money laundering/financial crime incident?
By another example, some financial service provider compliance officers and their advisors will establish a library budget, purchasing a variety of publications. Yet the staff is not trained in knowledge management for the library, that is how to interact with and study such information. Thus, the library collects dust.
White-Washing
Is a two day course sufficient to qualify someone as a certified expert? A one week course even? How long will the regulators allow such white washing to continue, or is it merely an issue of fines when holes are found in the dikes?
[1] Report on the Economic, Socio-Economic, and Regulatory Impact of the Tax Savings Directive and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth Office 2004).
[2] Cap Gemini Merrill Lynch World Wealth Report 2003 through 2008.
[3] Tax Haven Abuses: The Enablers, The Tools and Secrecy” (Sen. Rep., Perm. Sub-Comm. On Investigations, August 1, 2006) and World Wealth Report 2008.
[4] In 2005, however, 7 of the 31 international banks had no deposits booked in Florida, while in 2000 only 2 of the 38 had zero deposits.
[5] It is important to note that these cost estimates only include manpower or staffing costs, and do not include costs such as transaction monitoring software, possible IT investments and services, legal counsel and similar support. The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
Posted in Compliance, Money Laundering, Wealth Management | Tagged: Compliance, Money Laundering, wealth management financial planning compliance money laundering | Leave a Comment »
Posted by William Byrnes on August 3, 2009
Financial service providers are required by the provisions of the USA Patriot Act to make substantial investments in technology (though many in the industry have questioned the effectiveness of these investments in preventing the funding of terrorist groups or other nefarious activities).[1] Senior banking management perceives rising and unpredictable compliance costs that undermine global competitiveness as the most significant threats to the future growth of banking.[2]
Based on the survey of Miami banks significantly engaged in international banking, staffing costs rose to 271 full-time employees of anti-terrorism/anti-money laundering compliance for approximately $25 million in 2005. The average survey respondents indicated that it devoted 2.9 FTE employment positions to BSA/AML compliance in 2002 versus 6.8 FTE positions in 2005. The number of full-time employees devoted to compliance represented 9% of the workforce in 2005. Staff resources devoted to compliance increased by 160% between 2002 and 2005.
The results have been that Miami’s banking industry has been characterized by contraction. The number of foreign bank agencies operating in Florida fell from 38 in 2000 to 31 in 2005, of which 7 did not book any deposits. There were 10 Edge Act banks operating in Florida in 2000, but only 7 in 2005. The number of international banking employees (in foreign agencies, Edge Acts and the international divisions of domestic banks chartered in Florida) declined from 4,660 in 2000 to 3,027 in 2005.
While the cost of AML compliance increased around 71% in North America between 2004 and 2007, it rose 58% globally.[3] By example, in 2003, the UK’s FSA’s Anti-Money Laundering Current Customer Review Cost Benefit Analysis estimated the implementation costs of the AML regime to firms at 152 million pounds sterling, substantial by European standards though paltry by America’s.
In a 2006 Economist Intelligence Unit survey, international senior bank executives were asked about the costs of compliance of government regulation. When asked what changes they expected in the regulatory environment over the coming three to five year, over 91% stated that they expected regulations affecting their institution to grow in complexity and breadth, 88% stated that compliance with industry regulations will become more onerous, and 81% reported that they expect penalties for non-compliance to increase in severity.
On the other hand, perhaps more (or more effective implementation of current) compliance and its resulting governance would have protected against or softened the blow of the systemic iceberg as well as protected against or softened the blow of the most recent investment fraud scandals. And UBS’ level of compliance expenditure neither deterred its activity regarding 52,000[4] USA non-complaint persons, nor its substantial investments in US mortgages leading to write-downs requiring a Swiss government substantial investment to shore up its capital. Certainly, based on the G7 and G20 meetings, as well as the discussions at the World Economic Forum, levels of compliance expenditure, compliance education, and governance will be required to be increased in order to restore institutional confidence.[5]
Based upon HNWI clients moving away from opaque investment firms toward transparent ones, there may be an opportunity for Chartered Wealth Managers advisors members / firms to market to stung HNWIs not just as well rounded advisors, but as trustable compliance and governance oriented advisors, collaborating transparently regarding developing the HNWIs portfolio of opportunities.
Information Tools
Besides the army of lawyers advising regulated firms and the chartered accountants undertaking compliance, anti-fraud, AML, terrorist activity, and qualified intermediary (QI) audits, near and dear to myself, the publications market employment is continuing to grow. Because compliance regulations, costs, and penalties are growing more onerous, all regulated financial service providers and their advisors must purchase some information resource to address the variety of compliance issues encountered regularly.
Moreover, to undertake the role of the ‘trusted advisor’, a sophisticated wealth manager must have a bundle of reliable resources enabling the holistic, international, business partner approach that modern HNWIs and UHNWIs now demand. By example of such information bundle for Chartered Wealth Managers, see the soon to be released online and print version of International Trust & Company Laws, Analysis, and Tax Planning.
Indication of this trend is that the legal, tax and regulatory publishing market has been and is growing consistently. Legal publishing is the largest segment in professional publishing, accounting for approximately 36% of the total market. In 2007, legal publishing revenue was about $10 billion, up 7.5% from $9.3 billion in 2006 and 14.9% from $8.7 billion in 2005. [6] Legal publishers are sparking growth by developing digital tools and software out of their reference book and journal content designed to make it easier for legal professionals to find information and automate mundane tasks.
New online publishing will use mind-mapping technology to educate users about holistic connections amongst ideas, issues, and strategies. Growth in publishing for an industry tends to indicate growth in that industry. By example of such new multimedia information resources see pilot projects as follows:
AML sample: http://amlsample.googlepages.com/
US tax sample: http://cmsove.googlepages.com/
Prof. William Byrnes (www.llmprogram.org)
[1] Standard and Poor’s Industry Surveys: Banking (Dec. 6, 2007).
[2] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[3] KPMG’s Global Anti-Money Laundering Survey 2007.
[4] Agreement was reached between the US and Swiss governments July 31, 2009 for UBS to turn over of the 52,000 names to the IRS. See Wall Street Journal US State Dept: US Pleased, Relieved About UBS Deal July 31, 2009.
[5] See The Future Of Global Financial System, World Economic Forum World Scenario Series (2009) at 22.
[6] Simba Information, Global Legal & Business Publishing 2007-2008 (2007).
Posted in Compliance, Wealth Management | Tagged: wealth management financial planning compliance money laundering | 1 Comment »
Posted by William Byrnes on July 30, 2009
In my last blogticle, I discussed the Winning Strategies of the Holistic Wealth Management Service Model. This one focuses on the winning firms within the wealth management industry.
Because the wealth management sector continues to out or evenly pace other sectors in terms of firms’ and employees’ earnings, certainly in light of the demise of some bonus schemes in the investment management business units, the sector has grown more competitive with new boutique firms entering monthly. Is there room for such increasing competition?
According to the Oliver Wyman Report 2008, only 50% of HNWI assets are professionally managed or advised.[1] Thus, millions of HNWI and families do not yet leverage a private wealth manager’s services! And recall from my earlier blogticles that the global top ten wealth management firms manage less than 20% of high net wealth assets.[2] Three types of firms in the wealth management industry have shown significant growth in the past seven years in capturing client share.
Firstly, investment team boutiques that create and manage internationally oriented transparent investment funds focusing on alternative investments, such as emerging market strategies. These boutiques appeal to both HNWI’s directly, competing with larger institutions, and to the institutions themselves, in collaborative arrangements. The World Economic Forum proposes that future alternative investment classes offering beta return to HNWI portfolios may include:
(1) infrastructure finance,
(2) intangible assets (such as intellectual property),
(3) research and development exposure,
(4) mega-trends,
(5) frontier markets,
(6) distressed assets, and
(7) insurable risk.[3]
Secondly, family office firms employing holistic family business and tax management and lifestyle solutions, sometimes in combination with investment management services, are making great strides in picking up HNW families. 83 US based multi family office firms managed $334 billion, which as of the third quarter of 2008 represented just 19% of total assets under management of the global hedge fund industry.[4] However, because of the 2009 disengagement from ‘opaque’ hedge funds by HNWIs, ‘transparent’ multi family offices will likely have made substantial strides toward closing the assets under management gap.[5]
Thirdly, local and regional banks are successfully expanding HNWI client base against the national brands. Cap Gemini estimates that 2009 will see a 31% HNWI client growth for local/regional banks over 2008. Polling of HNWIs indicates that the risk of institutional and financial markets stability has led them to perceive local and regional banks as comparably safer.[6]
I should mention that compliance advisory service firms that have been established to serve financial service providers have experienced phenomenal income growth from 2002 onward. I will address more about this topic of compliance in my next blogticle.
Professor William Byrnes (www.llmprogram.org)
[1] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 4.
[2] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 11.
[3] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 33.
[4] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 36.
[5] The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.
[6] Cap Gemini Merrill Lynch World Wealth Report 2009 at 24.
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Posted by William Byrnes on July 28, 2009
In my blogticle of July 19th I addressed Wealth Manager Skills Sets Required To Service New-Breed HNWIs. Hereunder I turn to the successful strategies employed by wealth management firms to acquire and retain HNWIs and families.
My forecast for an expanding and robust sector the past years has not been drawn from the conclusion of “what doesn’t kill you makes you stronger”, though I often lecture that “the survivors shall inherit the spoils”. Rather, I have examined the upward trend in expenditures by firms, and the sector as a whole, that allows them to the flexibility to adapt to changing climates and to evolve distinguishing services, such as the “well rounded, trusted advisors” trend required by new-breed HNWIs.
By example, for ten years I have measured that growing firms increase investment in education and information, and an increase in these two areas support that firm’s growth. On the other hand, firms’ declining revenues, by example through loss of clients and key staff, correlate to a reduction in education and information spending. In the 2008 poll by Robert Half’s Accountemps of 1,000 top companies, 94% offered tuition benefits to their key employees. Naturally, this correlation begs the causation question of whether the decline in spending caused decline of revenues, the other way around, or some other factor caused both.
In support of the winners investing in education that supports a holistic service model approach, this past year Cap Gemeni reported that “While most HNWIs and UHNWIs have relationships with multiple wealth management firms, many clients seek long-term “trusted advisors” who can help them navigate complex topics and strategies.” The trusted advisor must understand the HNWI “in the context of a larger relationship that encompasses personal and family finances as well as business partnerships or estate planning.”
Most importantly for the employing firms of wealth managers, the Oliver Wyman study reinforced what is already generally known in the wealth management / private banking industry: the lifetime contribution value of an average private client under the European onshore model (the Advisory model) is three to four times than that earned from the US Broker/ Dealer model, while the European offshore client model – five times![1]
The new breed HNWI will pay an asset under management (AUM) based fee for the trusted advisors holistic service, but prefers that the wealth manager employ this model dually with performance based fees – lowering the AUM fee but allowing a high blue sky for meeting and exceeding performance objectives.
Winner Wealth Managers
My wealth manager blog audience will not find the “trusted advisor” concept unique, and neither the family office that has gained so much attention amongst training companies the last seven years, as the “new” path forward. This is the way that the most successful wealth managers members’ firms have always provided service to their clients. Competency to offer these services has been assessed via the Walter H. & Dorothy B. Diamond Masters and Doctoral programs, or other professional association examination, such as that of the Chartered Wealth Manager of the American Academy of Financial Management (www.aafm.us).
Also, and more dear to many of my students, Cap Gemeni reported in 2008 that employing qualified talent will sharply increase because of the retirement of the baby boomer wealth manager generation. “Bidding wars among firms for top advisors are not uncommon” and that packages will include “bonuses equaling two or three times the payouts from just a few years ago.” As noted earlier in my blogticles, the industry career newsletter, Jobs in the Money, reports that credentialed professionals with certifications earn over 30% more than their colleagues. Also referring to recent reports from recruiters, financial planner salaries are holding a steady range of $150,000 – $400,000.[2] Based on my survey of recruiters and reports up to July 15, 2009, and our own alumni in the marketplace, this trend has held stable.
I look forward to addressing any comments hereunder. Prof. William Byrnes, Walter H. & Dorothy B. Diamond International Tax & Financial Services Programs (www.llmprogram.org)
[1] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 18.
[2] Headhunter Boils Business Down to Wealth Management San Diego Business Journal March, 23, 2009 at 17.
Acknowledgment of Resources
Though not attached via a citation to a specific fact or thought, the below resources nonetheless were studied in connection with the preparation of this presentation today, and may provide valuable reference for blog readers wanting more information.
IBIS World Industry Report on Central Banking in the US, January 27 2009.
IBIS World Industry Report on Investment Banking & Securities Dealing in the US, December 8, 2008 including recession update of January 5, 2009.
IBIS World Industry Report Commercial Banking in the US, December 4, 2008 including recession update of Jan 9, 2009.
IBIS World Recession Briefing: Economic Crisis: When will it End?, Dr. Richard J. Buczynski and Michael Bright, March 12, 2009.
S&P Industry Survey: Banking, Erik Oja, Dec 11, 2008.
Posted in Wealth Management | Tagged: wealth management financial planning | 1 Comment »
Posted by William Byrnes on July 19, 2009
There is a correlation amongst a firm’s and professional’s economic success, the firm’s regulatory survival, a holistic education with international exposure, and collaborative service models. Servicing modern HNWIs who now demand international elements and risk management for their families and their business interests requires a dynamic ability to obtain economic and regulatory information, understand the clients’ and the markets’ issues and inefficiencies, and create solutions.
As noted in my previous blogticles, steady HNWI high growth continues within the OECD members, but rapid growth in HNWI numbers will continue in the BIC countries of Brazil, India and China, and probably again after the valuation adjustment in Russia/Eastern Europe. The BIC countries, in particular Brazil because of its vast natural commodities base and recent discovery of what is probably the world’s largest offshore oil field, will continue to lead the world in both economic and HNWI growth. Cap Gemini estimates that by 2011 Asia Pacific will overtake North America in HNWI growth, just as China overtook the UK last year in total number of HNWIs. Thus, wealth managers seeking to attract these HNWIs, be in their home country, or in the USA, will evolve to provide services reflective of the needs of these BIC clients, as well as speak their local languages.
The HNWI is seeking the one-stop shop model.[1] The relationship manager must be able to source information and services leveraging a team approach, assimilate the pieces, and communicate it in a collaborative, transparent manner with the HNWI .[2] Wealth mangerss must be able to employ a holistic and collaborative team approach for a HNWI including (1) business, (2) tax, (3) estate, (4) legal, (5) accounting, (6) intra-family governance, (7) philanthropy (8) compliance and (9) lifestyle issues, and communicate operations and solutions to the HNWI and family members.[3] New breed HNWIs want communication by email weekly from their wealth manager. Sophisticated advisors will leverage secure, though inexpensive, video conferences to establish more efficient and effective face time.
By example of collaboration and communication skills, the trusted advisor may need to source compliance and due diligence skill sets from risk management, compliance, legal, and audit team members in order to analyze a multinational business that a HNWI is targeting, synthesize the different jurisdictional regulatory requirements, and communicate effectively the team’s findings to the client via a video conference.
Thus, education in these aforementioned skill sets, leading to a potential employee’s retooling, is a key to competing in today’s wealth management industry and job market. Moreover, ‘soft skills’ such as client communication, and even more relevant in this economic downturn, the ability to counsel through economic and personal stress, will decide for HNWIs who is to become trusted advisors, and who are simply hawking services.[4] A polling by American Academy of Financial Management of its membership found that while communication soft-skills are recognized by wealth managers and by private clients themselves as critical to attracting HNWIs and in choosing their trusted advisors, less than 20% of wealth managers receive any formal soft skill communication education during their graduate education, which mainly focused business or finance (lawyers primarily responded that communication skills training had formed a part of their formal education). MindFrame Persuasion www.mindframepersuasion.com/ is an example of advanced soft skill communication training to establish attraction and connection between trusted advisor and their prospective HNWIs.
In my next blogticle, I will address Winning Strategies of the Holistic Service Model. Prof. William Byrnes (http://www.llmprogram.org)
[1] The Wealth Management Report 2009
Meeting the Expectation of UK High Net Worth Clients JP Morgan at 5.
[2] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 43.
[3] In an interview with Dr. George Mentz, Chairman of the American Academy of Financial Management (www.aafm.us), who is consulted by the Department of Labor’s Bureau of Statistics for Financial Services employment information (http://www.bls.gov/oco/ocos259.htm), he stated that the US wealth management market has seen a commoditization of financial product offering to private clients, thus requiring advisors to distinguish themselves upon other services. Asset protection, estate planning, business issues, Dr. Mentz said, are areas that advisors are now focusing on to attract clients. The Chronicle of Philanthropy reported that 2008 charitable giving did not substantially suffer, and in some cases increased amongst certain groups (112% amongst the 50 most generous US philanthropists).
[4] See The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients, JP Morgan at 11 and the section “Perspective” page 25.
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Posted by William Byrnes on July 18, 2009
From 2006, Cap Gemini’s polling has identified several long term trends that continue to appear to drive a general re-allocation and opportunities for wealth managers to acquire clients.[1] By example of asset re-allocation, in 2006 HNWI clients reached 20% alternative investment diversification for their portfolios, up from just 3% in 2000.[2] HNWIs, and in particular the new breed HNWIs, are increasingly globally informed about investment opportunities and risks. Thus, HNWIs are undertaking their own research of information and expecting a collaborative process with their advisors. HNWI’s are demanding firm’s investment teams develop and use global strategies and products to hedge local risks[3], by example allocating to the continuing emerging markets of BRIC (though 2009 has seen this become BIC).
As to be expected based upon the short term drivers of the recession, recalibration of asset values, failure or quick-sale of numerous global financial institutions, and tremendous investment fraud scandals by prominently respected institutional individuals, 2009 has seen tactical, if not forced, re-allocation. Ellen Kelleher in April reported in the Financial Times that HNWI are commonly dissatisfied with private banks pitching structured products “with high charges and confusing terms”.[4] Citi Private Bank’s survey covering its wealth managers for 2,000 HNWI and UHNWI found that this year almost 90% of their clientele have reduced or substantially reduced their exposure to equities and nearly all have shied from hedge funds, citing transparency and stability as the value drivers of their allocation decision.[5] While in 2008 HNWIs sought income fixed returns, the World Economic Forum proposes that future alternative investment classes offering beta return to HNWI portfolios may include (1) infrastructure finance, (2) intangible assets (such as intellectual property), (3) research and development exposure, (4) mega-trends, (5) frontier markets, (6) distressed assets, and (7) insurable risk.[6]
Since 2006, new breed HNWIs in particular have been trending toward a lack of fidelity to their institutions and migrating sizable allocations of their portfolios to boutique (investment) firms and to multi family office operations.[7] 27% of HNWI surveyed in 2008 by Cap Gemini noted changing wealth mangers or withdrawing assets.[8] In the previous year, Cap Gemini already noted that HNWIs were migrating toward a holistic service approach to their advisement. Nearly 70% of advisors that retained their HNWI leveraged team-based models. American Academy of Financial Management (www.aafm.us) reports that wealth managers not employing an intergrated-service, collaborative approach to their clients’ issues during the recession have experienced tumbling fees as clients transferred to advisors able to address such issues. By example, AAFM reported that few financial advisors pro-actively collaborated to draw into their team recessionary skill sets such as debt renegotiation, cash flow and workout strategies. Scorpio Partnership’s Transforming the Worth of Wealth report found from its surveying that the general feeling amongst financial advisors is that investors are increasingly looking to transfer to service-based smaller boutiques as the economy weakens. In fact, HNWIs are returning to smaller regional and local financial institutions (Cap Gemini reports a 31% increase in their client base).
Exemplifying the impact of this trend, Scorpio Partnership reported that the 25 brand name firms surveyed “posted less than 15 per cent growth in clients every three years, on average”. On the other hand, as of the third quarter of 2008, 83 US based multi family office firms managed $334 billion, which at that time represented 19% of total assets under management of the global hedge fund industry.[9] Based on the 2009 disengagement from ‘opaque’ hedge funds by HNWIs, ‘transparent’ multi family offices will likely have made substantial strides toward closing the assets under management gap.[10] When choosing from among wealth managers, HNWI apparently value branding and reputation, but size has lost its importance.[11]
In my next blogticle, I will address the new required skills sets of wealth managers required by new breed HNWIs, at least as we teach them in our wealth managers’ training programs. Prof. William Byrnes (http://www.llmprogram.org)
[1] All the reports cited herein addressing trends amongst HNWIs confirm the original trend recognition by the 2006 Cap Gemini Report.
[2] Cap Gemini World Wealth Report 2006.
[3] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 38.
[4] The Big Money Prefers Smaller Firms, Ellen Kelleher, Financial Times (April 10, 2009).
[5] The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.
[6] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 33.
[7] Show them the Money, Economist Special Report April 2, 2009.
[8] Cap Gemini World Wealth Report 2009.
[9] The Future of the Global Financial System, World Economic Forum’s World Scenario Series (2009) at 36.
[10] The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.
[11] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) and The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan.
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Posted by William Byrnes on July 17, 2009
In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions, and in doing so reviewed the global industry as a whole.[1] But for periods of global financial crisis, the sector had experienced double-digit annual global growth from the eighties and contributed robustly to the local economies and society. Since 1998, the international financial services sector client base has expanded nearly 10% on average. Even with the dampening of current global crisis, this industry is projected to grow in the high single digits.
During this period, the number of HNWI clients have more than doubled, to just over 10 million, as have their assets, from $17.4 trillion to between $40 and $50 trillion.[2] By 2013, the pool of HNWI clients’ assets will grow another 50% to nearly $60 trillion.[3] 70% of this new wealth is self-generated, either through entrepreneurship or via executive level employment, representing a “new” breed of HNWI versus the inherited wealth clients of the past.[4]
Since 1998, while the OECD continues to steadily generate HNWIs and their wealth, the substantial jumps in wealth generated and new HNWsI is and will continue to occur in Asia (China and India) and to a lesser extent in Latin America (Brazil) and the Middle East (GCC). Based on the shifting geo-wealth creation pool, our new breed HNWI is more likely to be of Asian, Middle Eastern, and Latin American nationality, with a very different frame and perspectives from our OECD HNWI. In 2008, China jumped the United Kingdom with the 4th largest number of HNWIs (364,000), while Brazil has climbed over Spain to 10th position (with 131 HNWIs). Cap Gemini estimates Asia Pacific to overtake North America in HNWI growth in just two years.
The average HNWI, excluding the value of primary residences and collectables, is worth more than $4 million! HNWI’s continue to leverage offshore skill sets, growing their assets from $5.8 trillion from 1998 to an estimated $8 to $11 trillion today.[5] That $11 trillion under management represents, at combined fees for all wealth management services of just 1%, approximately $100 billion accrual to wealth management firms and their providers, such as asset management and investment banking business units.[6]
The wealth management industry remains very fragmented, with likely even greater fragmentation on the horizon. The global top ten wealth management firms manage less than 20% of high net wealth assets.[7] 50% of HNWIs do not even leverage the expertise of a wealth manager![8] Thus, this expanding, fragmented client base leaves plenty of room for growth in employment. Currently, the international-offshore financial service industry’s wealth management level employment has probably reached and maintaining 100,000.[9] By example, the AIMR (aka CFA Institute) and the American Academy of Financial Management (http://www.aafm.us) both estimate over one-million employment globally for their segmentation of financial analysts (based on their respective global spread of their 100,000 members each).[10]
The current stability with wealth management employment is in contrast to the instability in investment banking. Investment banking within the USA, including securities dealing, employment has fallen from a high of 156,113 in 2006 to a low of 97,500 in 2008, though is estaimated to be stabalizing this year at 100,425.[11] Financial planning and investment management services are now delivering a larger portion of an institution’s income, up to 12% from 5% in the late 1990s, as investment bank services and trading commissions have correspondingly fallen.[12]
Prof. William Byrnes (http://www.llmprogram.org)
[1] Report on the Economic, Socio-Economic, and Regulatory Impact of the Tax Savings Directive and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth Office 2004).
[2] Cap Gemini Merrill Lynch World Wealth Report 2008 calculates $40.7 trillion. However, see Oliver Wyman’s The Future of Private Banking: A Wealth of Opportunity? (2008) at 9 wherein using its own wealth model and reliance upon data from the OECD, IMF, WFE, UNECE, national banks and stock exchanges calculates $50 trillion.
[3] Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag. While equity and real estate markets may have declined by January 2009 by as much as 50% of their highest value in OECD countries, HNWI portfolios are spread among other investments without such a sharp plunge. A reliable decline in value estimate for HNW is 25% based upon the decline experienced in Switzerland, which accounts for 28% of the global asset management market. See the report Wealth Management in Switzerland, Swiss Bankers Association (2009) at 8.
[4] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 21.
[5] Tax Haven Abuses: The Enablers, The Tools and Secrecy” (Sen. Rep., Perm. Sub-Comm. On Investigations, August 1, 2006) and World Wealth Report 2008 estimate $11 trillion. However, the Oliver Wyman Report which surveyed 25 top firms provides a lower estimate of only $8 Trillion offshore at 16% of HNW assets (see page 3) and the Swiss Bankers Association Wealth Management in Switzerland 2009 report (see page 4) supports this lower estimation. A general survey of literature, by example IMF and World Bank reports, contrasted with data available from the Bank of International Settlements, has been inconclusive.
[6] Note that the $100 billion estimate based upon the $11 trillion base may be an exaggeration of fees earned from offshore HNWI, the application of the 1% fee base is supported by the Senate Report 2008 at page 86, wherein it states that UBS earned $200 million on its $20 billion under management from its 19,000 non-compliant clients (i.e. 1%).
[7] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 11.
[8] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 4.
[9] With regard to the offshore employment estimate, see by example my 2004 Report, and the 2009 Swiss Banking Association report at 10. A survey of reports and articles written up until April 10, 2009 finds that the wealth management industry has NOT suffered the significant job losses as a whole as the financial services industry has. By example, see Headhunter Boils Business Down to Wealth Management San Diego Business Journal March, 23, 2009 at 17 wherein a recruiter states “When times are good, services such as money mangers and financial advisers tend to get overlooked, but in tough times, customers are more inclined to professional help.”
[10] See CFA® annual report regarding its estimate, or the US Department of Labor Bureau of Statistics website (http://www.bls.gov/oco/ocos259.htm) that leverages data from the American Academy of Financial Management .
[11] IBISWorld Industry Report: Investment Banking and Securities Dealing in the US (Dec. 8, 2008) at 7. (Updated Jan 5, 2009).
[12] IBISWorld Industry Report: Investment Banking and Securities Dealing in the US (Dec. 8, 2008) at 9. (Updated Jan 5, 2009).
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Posted by William Byrnes on July 16, 2009
This first short ice-breaker presentation of a multiple part series will serve as a resourceful backdrop upon which to embark upon our exploration of the coming “frame shift”, for those of you familiar with neuro linguistics, regarding what attributes are necessary for a wealth manager to successfully compete and attract high net wealth individuals and families (“HNWIs”) in this coming decade – just six months away. The inevitable conclusion of the intensive research including a survey from 1998 to June 2009 of all industry based reports, both independent, examples including IBIS and S&P, and internal, examples being Merrill Lynch Cap Gemini and JP Morgan, is that this decade has seen a global HNWI requirement shift from what is coined the USA (a.k.a. broker-dealer, transaction-based) model to the European (a.k.a. advisory service, fee-based) model. Basically, HNWIs want a holistic wealth management services approach and are willing to pay for it. If you are tooled for collaborative advisory delivery required by example for family office counsel, you will make more money. If not, well, employment is a Darwinian marketplace.
In the past decade, the number of global high-net-worth individuals (HNWIs) served by practitioners, such as my able graduates, has doubled to more than 10 million by 2008 (though the global financial crisis has caused a decline to less than 9 million) —and their assets have more than doubled from $17 trillion to at least $40 trillion (just under $33 trillion currently as the crisis matures). The average HNWI, excluding primary residences and collectibles, is now worth more than $4 million! In the next four years, the pool of HNWI client assets is projected to grow to nearly $50 trillion. (Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag.)
The new-breed of HNWI are the majority of the nearly double-digit HNWI increasing fold who are no longer being knighted via wealth transfers but instead are earning this status upon developing their own fortune via business and investment acumen. The systemic iceberg that in the first quarter of 2008 gouged our Titanic and lead to the inevitable sinking of many titans of the economy is commonly projected to have completely melted in the first quarter 2010. However, the impact of our Titanic to wealth management is that new-breed trends that first surfaced in 2006, have been accelerated according to the most recent studies (December 2008 through April 2009). These trends now clearly show a lack of institutional fidelity by HNWIs, as well as the desire for strategic allocation that includes leveraging international investments, and finally the demanding of trusted planner relationships that are holistically and dynamically approached.
Moreover, another development that has shaken institutional fidelity both for the government and for HNWI the past year regards the acknowledgement in Congressional testimony (and the subsequent prosecutorial agreement) that UBS had not complied with its qualified intermediary agreement regarding approximately 19,000 (the most recent figure exceeds 52,000) non-tax compliant US HNWIs of its total of 20,000 US HNW clients.[1] It is widely reported that UBS is not the exception as regards this situation. The consequence of the prosecutorial agreement is that inevitably, whether through declaration by UBS or via the latest IRS amnesty program, no less than 19,000 HNWI worth (as of June 2008) $17.9 billion, and by a extrapolation estimate using a rounded multiple range of five to ten, 100,000-200,000 USA HNWIs worth $100 – $200 billion (before taxes, interest, penalties, and tax claw back for last year’s losses) will be swimming ashore over the next twelve months. Based upon Forbes billionaire Igor Olenicoff suit against UBS, this class of HNWIs’ institutional fidelity has been permanently severed.
The good news is that those of you holding the Master and Doctorate from the Walter H. & Dorothy B. Diamond Graduate Program (http://www.llmprogram.org) are the best positioned to compete for these new-breed HNWI. This blog over the coming weeks will examine the frame shift and identify the corresponding opportunities to successfully compete for these HNWI clients. Over the coming weeks, as I post the follow up parts (another ten sections) I will share with you at least two strategies from my out-of-the-box thinking and perspectives that I am known for on your preparation for the new-breed HNWI.
[1] Tax Haven Banks and US Tax Compliance, Staff Report, Permanent Subcommittee On Investigations, United States Senate (2008).
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William Byrnes' Tax, Wealth, and Risk Intelligence 