Tax, Wealth, and Risk Management Graduate Program Blog

Professor William Byrnes (Texas A&M University School of Law)

Posts Tagged ‘Investing’

Is Art an Alternative Investment that Beats Inflation? What Reliable Data Shows Over the Short and Long Term.

Posted by William Byrnes on July 7, 2026


By Professor William Byrnes, Texas A&M University School of Law, and founder of the Wealth Management graduate program. This is the first part of a multi-part series regarding art from the perspective of investment and taxation.

For generations, high-net-worth families have viewed art collections as something to personally admire and display for social or status reasons. But the value of art as a tangible, movable asset was not lost on them. A robust art collection represented family wealth that served as a stable asset buffer, such as the custody of gold bars (without the weight), and could be passed to grandchildren with estate tax mitigation through favorable valuation.

Over the past two decades, however, art has been increasingly viewed through a more sophisticated financial lens: as an alternative asset class that can complement a diversified investment portfolio.[1] For example, an art-focused investment fund platform was established in 2001 that successfully launched eight art investment funds.[2]

This shift is not merely anecdotal. Family offices, wealth managers, private banks, and sophisticated investors now routinely include fine art and other collectibles (which, from a U.S. tax perspective, includes fine art) as a potential investment to mix with private equity, real estate, and venture capital strategies. These discussions are straightforward. Investors seek hard assets that may provide diversification benefits, are not necessarily correlated with public equity markets, and can preserve value during periods of inflation or market uncertainty. A Deloitte 2025 survey found that 40 percent of younger collectors (millennials and Gen Z) reported owning an art collection, and 98 percent consider these art holdings part of their overall wealth management strategy.

Yet investing in art differs fundamentally from investing in stocks, bonds, mutual funds, or real estate. Unlike publicly traded securities, art lacks standardized valuation pricing (e.g., financial ratios, EPS), transparent reporting (many sales are private or the buyer is anonymous), and liquid secondary markets (a role that auction houses, galleries, and art fairs vie for). This article surveys several reliable return-on-art financial studies that help investors considering art as an asset class understand both the opportunities and the unique risks.

Recent Market Sales Data

Fine Art Market Size

The premier fine art fair, Art Basel, and UBS co-publish the Art Market Report 2026, now in its tenth edition, authored by the fine art market specialist economist Dr. Clare McAndrew.[3] After two years of market contraction, Dr. McAndrew’s data showed that total fine art sales rose four percent in 2025 to $59.6 billion, based on 41.5 million transactions.[4] U.S. sales, she found, grew five percent to reach $26 billion, representing 44 percent of total global sales revenue. Yet, she cautions that the art market is subject to geopolitical tensions, tariff uncertainty, and economic volatility, which may suppress sellers’ willingness to dispose of their valuable artworks or limit cross-border sales.[5]

Personalized Experience for High-Value Goods

Online art sales revenue, which spiked to 25 percent during the COVID pandemic, has fallen to 15 percent of the market.[6] Moreover, online sales for auction houses focus on the middle and lower price ranges, with almost two-thirds of sales generated by artworks priced at less than $50,000, representing the $5,000 to $50,000 range. While the modern economy transforms into digital business models, high-value goods, and high net wealth individuals purchasing them overwhelmingly close a sale 87 percent in person, after inspection and human interaction.[7]

Bank of America’s U.S. Art Market Report of 2026 reported that from 2023 through 2025, the substantial growth in auction volume of Sotheby’s, Christie’s, and Philips in New York is driven by artworks priced under $50,000, the lower end of the price spectrum, which comprised 61.3 percent of total lots sold.[8] The BOA 2026 report found that the big three auction houses experienced a broad flight to quality in fine art sales of Modern, Post-War, and Impressionist artists, with other categories experiencing sharp price corrections.[9]

Historical Investment Return Data?

Stanford Business School researchers, examining data from the auction database BASI (Blouin Art Sales Index) from 1972 until 2010, concluded that art, as an asset class, generated an average annual return of 6.5 percent (though the BASI reported 10 percent).[10] These same economists computed a risk ratio, known as the Sharpe Ratio, based on 20,538 paintings repeatedly sold between 1972 and 2010, and determined that the Sharpe Ratio for art is 0.04, rather than the previously reported 0.24, compared with 0.30 for U.S. equities over the same period.[11]

However, in 2010, Deloitte published a report based on several academic and institutional studies spanning 30 years, finding that art prices rose above inflation for other goods but were highly sensitive to economic slowdowns when demand dropped sharply.[12] The Deloitte study looked back over 10 years and found that the compounded annual return for art was 4.15 percent versus only 0.5 percent for all equities (recall the 2008 financial crisis).[13] A Morgan Stanley study concluded after the financial crisis that blue-chip fine art maintained returns during inflationary pressures.[14]

Two more academic studies found that art’s annual real return from 1951 to 2007 was 4 percent, noting that it beat bonds but trailed equities.[15] An analysis of the financial sales data over 60 years (1957 – 2016) showed a 6.24 percent nominal return, similar to the Stanford study finding.[16] From 2000 to 2025, the MM Continental Art Price Indices for the Americas, tracking auction sales of over 43,000 artworks by nearly 8,000 artists globally, using data from Sotheby’s, Christie’s and Phillips, found that art delivered a 4.4 percent CAGR.[17]

Looking back over 50 years as a long-term investment holding, Deloitte’s 2025 report found that art’s cumulative annual return of 9.06 percent was comparable to equities’ 9.56 percent. This Deloitte study, using the Mei Moses All Art Index, concluded that the 10-year look-back risk favored art, not equities, at 13.8 percent to 20 percent.[18] However, over 50 years, the risk substantially converged until favoring equities, 17.8 percent to 17.2 percent. In 2024, Morgan Stanley began including art in its capital markets analysis and estimated that art would deliver 4.9 percent annual returns over seven- and 20-year horizons.[19]   

Is Art An Accepted Investment Asset?

In its 2025 Art & Finance Report, Deloitte, based on extensive annual surveying, found 76 percent of collectors support integrating art into wealth management offerings.[20] 37 percent stated that they were collecting art for its own sake, driven by emotional, aesthetic, and cultural value, not with an investment outlook.[21] Yet, when Deloitte factored in age, the firm found that 98 percent of younger collectors consider their art holdings as part of their overall wealth management strategy. Moreover, 40 percent of the younger collectors, millennials and Gen Z, reported owning an art collection, compared to only 17 percent of baby boomers and Generation X.

Why Are Investors Turning to Art?

The appeal of art as an investment begins with scarcity. A publicly traded company can issue additional shares. Governments can issue additional debt. An established artist, however, can only create a finite body of work.

Scarcity, combined with growing global wealth and the interests of millennials/Gen Z, has assisted long-term value appreciation for many categories of art. High-net-worth individuals increasingly compete for works by established artists, while museums, corporations, and international collectors add additional demand.

Art also offers a psychological benefit that few financial assets can match. A share certificate or brokerage statement provides little emotional value. A painting displayed in a home, office, or building, can generate daily personal enjoyment, generate external social and wealth status, and simultaneously serve as a tangible investment. For many investors, that combination of personal enjoyment and potential value appreciation, or at least maintaining value in relation to inflation, creates a compelling proposition.

Opaque Valuation

But artists, artworks, and art trends present opaque valuation challenges for investment forecasting. A substantial portion, 77 percent, of sales revenue for 2025 was derived from private collectors.[22] When adding sales to art advisors and interior designers who act on behalf of private collectors, individuals account for 87 percent of fine art revenue. Many first-time collectors start off at lower price points through smaller galleries.[23]

Robust, transparent market data related to emerging artists or art trends is lacking. Time consuming substantial personal research, and reliance on curator expertise (without the legal fiduciary duties), is required if seeking to be first in on an art trend and identifying emerging artists that allow upside value growth. Determining value often requires appraisals, auction comparisons, gallery sales data, and inevitably, professional judgment.

Potential art collectors and investors read the anecdotal stories about paintings purchased for a few thousand dollars (e.g., at an estate sale, a secondhand store, or directly from an ‘unknown’ artist) that later sold for millions. It happens, and these stories attract headlines. But actual investors realize these are limited exceptions, like an angel-round investment in private equity that generates a 30x return on an earlier-than-expected exit.

Blue-chip artists whose works are regularly sold through major auction houses operate in a vastly different, data-available market than emerging artists selling through regional galleries or online platforms. Returns vary dramatically depending on timing (e.g., the adage that the death of a popular artist leads to wealthy family members with a remaining supply of finished works), the artist’s reputation as seen through a public lens, provenance, art trends, and broader economic conditions.

Inevitably, successfully earning returns for art investments requires extensive research. Yet this statement is just as true for any investment. But the data sought is different. Investors should investigate factors such as an artist’s exhibition history, gallery representation, collector base, museum exposure, auction results, and critical reception.

Also, before the purchase of a high-value artwork, an investor needs provenance diligence, which is like obtaining ‘clean title’ in real estate. The documented ownership history of a classic fine artwork is particularly important. Incomplete provenance records create legal risks of prior theft and expropriation. Moreover, the fine art market has struggled with forgeries and attribution disputes. Thus, artwork authentication is critical but adds to the transaction’s costs.

Diversification Benefits?

One of the strongest arguments collectors and curators make for art ownership is tangible asset diversification, as previously discussed. Traditional portfolios are heavily influenced by stock and bond market performance. Art values are often driven by different factors, including collector demand, cultural trends, museum exhibitions, and artist recognition. Because these drivers differ from those affecting public securities, art may provide disjunctive portfolio diversification benefits.

However, investors should avoid viewing art as a substitute for a properly diversified investment portfolio. Art is probably best approached as a complementary asset within a holding of alternative assets. It is well known that financial advisors recommend alternative assets without liquid markets, which occupy only a modest percentage of an investor’s overall portfolio.

Liquidity, Transaction Costs, and Time Horizon

The greatest challenge for art versus traditional public equities is liquidity. Art may require weeks, months, or even years to sell at an acceptable price. The liquidity challenge is not insurmountable. Selling closely held businesses, partnership interests, and collectibles also face this challenge. Finding a buyer often involves galleries, dealers, private brokers, auction houses, or collector networks, which may incur high transaction costs. Seller commissions, auction fees, insurance expenses, transportation costs, and storage fees can materially reduce the net return. Thus, art as an investment asset needs to be balanced with a longer time horizon for realization than many conventional investments.

[1] Arthur Korteweg, Roman Kräussl, and Patrick Verwijmeren, Is Art a Good Investment? Insights (Stanford Business, October 21, 2013), available at https://www.gsb.stanford.edu/insights/research-art-good-investment.

[2] See The Fine Art Group, Art Investment, at https://www.fineartgroup.com/services/art-investment.

[3] Dr. Clare McAndrew, The Art Basel and UBS Art Market Report 2026 by Arts Economics, at 19, 35 (Art Basel and UBS 2026), available at https://theartmarket.artbasel.com. Art Economics is exclusively focused on the fine and decorative art market for private and institutional clients.

[4] See also Investing in Art: A Growing Asset Class, Insights (Citron Cooperman, Aug. 4, 2025).

[5] Dr. Clare McAndrew, The Art Basel and UBS Art Market Report 2026 by Arts Economics, at 25, (Art Basel and UBS 2026), available at https://theartmarket.artbasel.com.

[6] Dr. Clare McAndrew, The Art Basel and UBS Art Market Report 2026 by Arts Economics, at 30, (Art Basel and UBS 2026), available at https://theartmarket.artbasel.com.

[7] How High–Net Worth Consumers Shop For Luxury Goods: New Research Shows Just 10% Do So Exclusively Online, Anna Perling, Forbes, Apr. 22, 2026, available at https://www.forbes.com/sites/forbes-personal-shopper/article/how-high-net-worth-consumers-shop-for-luxury-goods/.

[8] 2026 U.S. Art Market Report, Bank of America, in association with ArtTactic, at 17, https://www.privatebank.bankofamerica.com/content/dam/ust/articles/pdf/US-Art-Market-Report.pdf.

[9] 2026 U.S. Art Market Report, Bank of America, in association with ArtTactic, at 24, https://www.privatebank.bankofamerica.com/content/dam/ust/articles/pdf/US-Art-Market-Report.pdf.

[10] Arthur Korteweg, Roman Kräussl, and Patrick Verwijmeren, Is Art a Good Investment? Insights (Stanford Business, October 21, 2013), available at https://www.gsb.stanford.edu/insights/research-art-good-investment.

[11] Arthur Korteweg, Roman Kräussl, and Patrick Verwijmeren, Is Art a Good Investment? Insights (Stanford Business, October 21, 2013), available at https://www.gsb.stanford.edu/insights/research-art-good-investment.

[12] Why should art be considered an asset class? Adriano di Torcello, Deloitte Luxembourg (2010), available at https://www.deloitte.com/lu/en/services/consulting-financial/research/art-as-investment.html.

[13] Why should art be considered an asset class? Adriano di Torcello, Deloitte Luxembourg (2010), available at https://www.deloitte.com/lu/en/services/consulting-financial/research/art-as-investment.html.

[14] Reviewing Art as an Asset Class and Its Historical and Potential Returns, Global Investment Committee, March 27, 2025, available at https://advisor.morganstanley.com/the-davis-yost-group/documents/field/d/da/davis-yost-group/Research_Reviewing_Art_as_an_Asset_Class.pdf.

[15] Renneboog, L D R & Spaenjers, C 2009, Buying Beauty: On Prices and Returns in the Art Market, Center Discussion Paper, vol. 2009-15, Finance, Tilburg, available at https://repository.tilburguniversity.edu/bitstreams/311df4f3-ec07-4d7d-8569-39965eafb044/download. See also, Rachel Campbell, Art as a Financial Investment, The Journal of Alternative Investments, Spring 2008, 10(4) 64 – 81, DOI: 10.3905/jai.2008.705533 (using the Mei Moses, acquired in 2016 by Sotheby’s, and Art Market Research art indices as the two most widely quoted indicators of art market performance).

[16] Updated investment data analysis by Prof. Luc Renneboog, Investing in Art: Returns, Risks, and Market Dynamics Over Six Decades, May 22, 2025, https://financialforum.be/en/bfw-digitaal/investing-in-art-returns-risks-and-market-dynamics-over-six-decades. The dataset includes 2,874,652 auction records of paintings by 155,156 artists, with a median nominal price of $4,000.

[17] Art & Finance Report 2025, Deloitte 399 (2025).

[18] Also see, Demystifying Art Indices, Morgan Stanley (Feb. 9, 2026), https://www.morganstanley.com/articles/art-market-indexes.

[19] Reviewing Art as an Asset Class and Its Historical and Potential Returns, at 5, Global Investment Committee, March 27, 2025, available at https://advisor.morganstanley.com/the-davis-yost-group/documents/field/d/da/davis-yost-group/Research_Reviewing_Art_as_an_Asset_Class.pdf.

[20] Art & Finance Report 2025, Deloitte 193 (2025), http://www2 .deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-art-finance-report.pdf

[21] Art & Finance Report 2025, Deloitte 194 (2025), http://www2 .deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-art-finance-report.pdf

[22] Dr. Clare McAndrew, The Art Basel and UBS Art Market Report 2026 by Arts Economics, at 98, (Art Basel and UBS 2026), available at https://theartmarket.artbasel.com.

[23] Dr. Clare McAndrew, The Art Basel and UBS Art Market Report 2026 by Arts Economics, at 94, (Art Basel and UBS 2026), available at https://theartmarket.artbasel.com.

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My Cambridge Plenary Presentation: Why is $5.5 Trillion of U.S. AUM Exempt from the BSA’s AML, CIP & SAR Rules?

Posted by William Byrnes on September 8, 2025


William_Byrnes_FINCEN_Revokes_BSA_for_Investment_Advisors_4 Sept_2025Download

primary sources and data referred to within my presentation include:

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The next hot annuity for clients is ?

Posted by William Byrnes on January 20, 2014


As clients have begun to feel the shifting winds with respect to the general economy, the annuity market is now undergoing its own type of evolution.

While products that tie fluctuations in an annuity’s cash surrender value to prevailing market interest rates may have seemed unacceptably risky to most clients just a few months ago, changes in today’s interest rate environment now have clients flocking to find these features.

Annuities with market value adjustment (MVA) features may be the next hot product for clients looking to beat the return on other conservative investment products, so read the full analysis of this emerging trend by Professor William Byrnes and Robert Bloink at Think Advisor !

ThinkAdvisor.com supports the professional growth and vitality of the Investment Advisory community, from RIAs and wealth managers of all kinds, to independent broker-dealer and wirehouse representatives. We provide unparalleled access to the knowledge, information and critical resources they need to succeed at every stage in their career, including professional development, education and certification, industry news and analysis, reference tools and services, and community networking opportunities.

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Indexed Variable Annuities—a VA Product Curveball

Posted by William Byrnes on November 11, 2013


Persistently low interest rates may have created a challenging environment for annuity carriers in recent years, but many clients remain deeply skeptical about the prospect of returning to the more volatile equity markets. Indexed variable annuities (IVAs), while developed to help insurance carriers manage risk more accurately, can represent the perfect solution for these market-shy clients.

IVAs—known to some as structured annuities—offer clients an investment alternative that can provide the stability and many of the product offerings associated with annuity products but also the potential for participation in any equity market gains. However, they also offer substantial downside protection to cushion against potential investment losses.

Read William Byrnes and Robert Bloink’s analysis of indexed variable annuities and how these product offerings may be attractive for certain of your clients at > http://www.thinkadvisor.com/2013/10/14/indexed-variable-annuitiesa-va-product-curveball <

 

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May A Proposed Expansion Of Master Limited Partnerships’ (MLPs) Tax Benefits For “Renewable” Energy Lead To America’s Energy Independence?

Posted by William Byrnes on October 8, 2013


As of June 2013, Master Limited Partnerships (“MLPs”) have reached a market capital of $400 billion, with over 100 MLPs traded on major exchanges.[1]  Generally established as LLCs with advantageous partnership flow through tax treatment, MLPs present attractive return vehicles to attract long term capital to the energy extraction, energy transportation (“midstream”), and most recent, energy distribution (“downstream”), markets.  However, MLPs may result in unfavorable tax treatment for investors as well.

The Mertens Federal Income Taxation August 2013 Highlight by William Byrnes, Robert Bloink and Theron West examines the tax issues for MLP investors pre- and post- the 1986 Code, imposed MLP investment restrictions, and gradual relaxation thereof.  The Highlight  concludes with an analysis of the April 2013 legislative bi-partisan proposal, the Master Limited Partnership Parity Act, to extend MLP tax treatment to renewable (“green”) energy, and why this proposal is contentious.

Given the continuing Congressional gridlock over deficit reduction and heightened sensitivity of energy industry tax breaks in light of this, even with bipartisan support, renewable energy lobbyists will probably not realize passage this year.   According to J.P. Morgan, “MLP distribution yields have generated 6-7%, and over the past twenty years, capital growth has totaled approximately 8% annually.[2]  Regardless of whether MLPs eventually are expanded to encourage renewable energy investments, for the time being they present an alternative asset class that has the potential to produce high-yield returns, and therefore high investor interest.[3]

See Mertens Highlights at > WestLaw <

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SEC comments muddy the waters in fiduciary standard debate

Posted by William Byrnes on July 29, 2013


The debate over the fiduciary standard that will become applicable to many financial professionals may be coming to a head as the looming deadline for comments on SEC proposals has motivated some advisors to express disapproval over a perceived weakening of the potential standard. Because a heightened fiduciary standard could increase advisors’ compliance costs, while simultaneously increasing consumer confidence in the quality of their advice, it is critical that advisors know the rules of the game.

Recent indications that the SEC may deviate from its previously expressed intent to expand the traditional standard applicable to investment advisors, however, represent a curveball for advisors who are not currently subject to a strict fiduciary standard; the outcome once again seems up for grabs.

Today’s bifurcated approach to fiduciary regulation

read the full analysis at LifeHealthPro – http://www.lifehealthpro.com/2013/07/01/sec-comments-muddy-the-waters-in-fiduciary-standar

 

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the new tax strategies book “2013 Tax Facts on Investments” just released

Posted by William Byrnes on December 5, 2012


2013 Tax Facts on Investments in PRINT and E-Book format 2013_tf_on_investments_cover-m_2provides clear, concise answers to often complex tax questions concerning investments. Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2013 Tax Facts on Investments delivers the latest guidance on:

  • Mutual Funds, Unit Trusts, REITs
  • Incentive Stock Options
  • Options & Futures
  • Real Estate
  • Stocks, Bonds
  • Oil & Gas
  • Precious Metals & Collectibles
  • And much more!

Key updates for 2013:

  • New section on captive insurance
  • New section on reverse mortgages
  • Expanded section on ETFs
  • Expanded section on precious metals & collectibles
  • More than 30 new Planning Points, written by practitioners for practitioners, in the following areas:
    • Real Estate
    • Limited Partnerships
    • Stocks
    • Interest and Expenses
    • Options
    • Mutual Funds

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Annuities: They Get No Respect

Posted by William Byrnes on November 17, 2011


We are all aware that annuities have a bad reputation in the media: High fees, high-pressure sales, and unsuitability are the predominating themes.

A recent Securities Litigation & Consulting Group white paper summarizes  the sentiments of the anti-annuity press, commenting that, “[a]nnuities stand out as the investment are most likely to be unsuitable since in virtually every instance, the investor would have been better served by mutual fund or a portfolio of individual stocks.”

Annuities are neither inherently “good” nor “bad.” It follows that rational evaluation of annuities can’t be conducted in a bubble—it must focus on their application.  Herein lays their value and the coup de grâce the industry and individual producers have been awaiting.

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 annuities in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109).

For in-depth analysis of the income taxation of annuities, see Advisor’s Main Library: Section 19.2 Income Taxation of Annuities.

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Pensions Turn to Death Bonds

Posted by William Byrnes on September 28, 2011


It’s a given that most of us want to extend our lives as long as possible. But our ever-increasing life spans can financially strain pension funds and others that are contingent upon us dying to keep their books balanced.

Pension funds face severe longevity risk. If pensioners live longer than expected, payouts from the funds could eclipse the estimated cost of keeping the funds stable. Worldwide, $17 trillion of pension funds – $23 trillion in assets – is exposed to longevity risk.

But the big banks—including Goldman Sachs, JPMorgan Chase, and Deustsche Bank—are coming to the rescue by packaging that longevity risk and selling it to investors; and they’re counting on investors being interested in gambling on death.

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 life insurance contracts in Advisor’s Journal, see IRS Guidance Provides Safe Harbor for Policies Maturing After Age 100 (CC 10-51).

For in-depth analysis of pension plans and other qualified employee plans, see Advisor’s Main Library: O – ERISA – FAQs.

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Pensions Turn to Death Bonds

Posted by William Byrnes on September 8, 2011


It’s a given that most of us want to continue living as long as possible.  Exercising, eating healthy, and taking every precaution available to extend the gift of life to its limits. Nevertheless, even living a longer life is not exempt from the foreseeable strains it creates financially. Increasing life spans can create problems for pension funds and others that depend on us dying to keep their books balanced.

Pension funds are exposed to severe longevity risk. If pensioners live longer than expected, payouts from the funds could exceed the estimated cost of keeping the funds solvent. Worldwide, $17 trillion of pension funds – $23 trillion in assets – is exposed to longevity risk.

But the big banks—including Goldman Sachs, JPMorgan Chase, and Deustsche Bank—are coming to the rescue by packaging that longevity risk and selling it to investors; and they’re counting on investors being interested in wagering on your death.

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 life insurance contracts in Advisor’s Journal, see IRS Guidance Provides Safe Harbor for Policies Maturing After Age 100 (CC 10-51).

For in-depth analysis of pension plans and other qualified employee plans, see Advisor’s Main Library: O – ERISA – FAQs.

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FINRA Changes the Rules on How Low-Price Equities Are Traded

Posted by William Byrnes on September 7, 2011


The Financial Industry Regulatory Authority (“FINRA”) has issued a regulatory notice addressing price volatility concerns associated with low-priced equity securities in customer margin and firm proprietary accounts. The notice advises that special attention be given to low-priced equity securities; price volatility is usually associated with low-priced equities because they are inherently volatile.

But what does FINRA consider a“low-price equity,” and what is the impact for you and your clients?

FINRA advises firms to weigh the risks that come with low-priced equity securities before extending credit in strategy-based or portfolio margin accounts. FINRA cautions firms to consider “volatility and concentrated positions in a single customer account and across all customer accounts, as well as the daily volume and market capitalization of each security when imposing ‘house’ maintenance margin requirements.”

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 FINRA-issued guidance in Advisor’s Journal, see Getting Your Feet Wet in the Social Media Market (CC 11-79) & SEC Says “Not So Fast” to Advisor Social Media Marketing (CC 11-40).

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Life Settlements—Savior of Municipal Finance?

Posted by William Byrnes on September 5, 2011


Life settlements provide a unique source of revenue because their returns are not contingent on the market’s success.

But are they still lucrative in comparison to other municipal finance? Rancho Mirage California City Councilman Scott Hines thinks so.

Under Hines’ plan, the city would issue bonds, with most of the issue proceeds being used to finance city projects. The remaining funds would be invested in life settlements with an aggregate face value equal to the face value of the bond issue. Payouts on the life settlements would then be used to pay back bond principal.

Instead of the typical municipal bond financing arrangement, where tax dollars utilized to pay back both principal and interest on an issue, Hines’ plan would leave taxpayers with only a bill for interest payments.

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 life settlements in Advisor’s Journal, see Life Settlement Provider Accused of Falsifying Life Span Reports (CC 11-23).

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Are Portfolios-To-Go Threatening Your Business?

Posted by William Byrnes on August 13, 2011


The value that consumers place on traditional portfolio managers seem to be rapidly changing. 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. Minimal overhead and services allow portfolio managers flexibility to offer those services without the “high” price tag at brick-and-mortar institutions. Portfolios-to-go have seen a surge in popularity recently, bringing in over $3 billion in assets over the past three years. In a world where post-recession fears have almost everyone bargain shopping, are online portfolios-to-go the Walmart of investing, set to dominate the market and phase out traditional wealth managers? Or are these pre-packaged portfolios an opportunity in disguise?

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)

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How Many Basis Points Is the Competition Charging for Advisory Services?

Posted by William Byrnes on August 5, 2011


A recent study has blasted the popular belief that lowering your rate will increase your volume of clients. Likely surprising to most, the truth is that lowering your rates could backfire and decrease your attractiveness to potential clients.

PriceMetrix, Inc., a software firm, published the study, which focused on the needs of wealth management firms and their advisors. They considered data from 380 million transactions conducted between 2007 and 2010. Included in the data pool were 1 million fee-based accounts and 4 million transactional accounts totaling over $850 billion in investment assets.

The results of the study show that advisors are miscalculating the appropriate value of their services—and losing money in the process— averaging $20,000 in lost fees.

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).

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What’s Driving the Increasing Appeal of the RIA Model?

Posted by William Byrnes on August 4, 2011


A large majority (86%) of advisors who are with an independent broker-dealer find the idea of life at an independent registered investment advisor (RIA) appealing, according to a Schwab Advisor Services study released on March 29th. And when the advisor knows someone who has already made the switch, the number who like the idea of making a move to the RIA model jumps to 95%.

One significant consideration for advisors considering a switch to an RIA is regulatory. Those who fully transition to the RIA model will dump FINRA for the SEC. But whether that’s an advantage or downside to the transition is open for debate.

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).

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Are the Mass Affluent Missing from Your Client Profile?

Posted by William Byrnes on July 19, 2011


Individuals in the fastest growing class of investors—the mass affluent—need your advice.  According to a recent report, there is a void in representation by financial professionals this group. As a corollary, they lack confidence in their ability to meet their financial goals, making them desirable candidates for professional services.

The mass affluent are investors occupying the upper tier of the mass market—the biggest group of consumers. But “mass affluent” isn’t just a synonym for “upper middle-class”; it is a subset of the upper middle-class with $50,000 to $250,000 in “investable assets.”

Depending on your career trajectory, the mass affluent can be resourceful in establishing the foundation for a successful practice. A majority (55 percent) of the mass affluent believe they will be wealthy one day. Although only a small number of the mass affluent will move into high-net-worth territory, you can get in on the ground floor of the upward career trajectory of those who will. 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).

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SEC Moves to Require Full of Disclosure of Incentive-Based Compensation

Posted by William Byrnes on July 15, 2011


Investment advisors and broker-dealers may be required to disclose their incentive-based compensation programs under proposed rules approved by the Securities and Exchange Commission (SEC) on March 2. The proposed rule is the latest in a series of advisor and broker-dealer reporting rules issued under the mandate of the Dodd-Frank Wall Street Reform Act.

The rapidly increasing compliance obligations for advisory firms and B-Ds has the capability to drastically modify business practices at affected firms. Many will be forced to reconfigure their entire compensation program to comply with the new rules.

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 reporting requirements in Advisor’s Journal, see Advisors Hit with Another Round of SEC Reporting Rules (CC 11-30).

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Congress Set to Nix Tax Strategies Patents

Posted by William Byrnes on July 14, 2011


Want to minimize a high-net-worth client’s transfer tax liability using a GRAT that is at least partly funded with nonqualified stock options? Although the strategy could save your client hundreds of thousands in gift and estate tax liability, recommending it could cost you and your client hundreds of thousands in legal fees.

Why? Recommending that your client use a GRAT funded with nonqualified stock options would violate the SOGRAT patent, U.S. Patent 6,567,790.

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).

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Are All Target Date Funds Created Equal?

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).

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Are Portfolios-to-Go Threatening Full-Service Brokerage and Advisory Firms?

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.

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Appealing to Your Affluent Clients’ Retirement Planning Values

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.

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Tax-Free Hedge Fund Investment: Private Placement Insurance

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.

 

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Change in Muni Bond Market Could Help Producers

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

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House Passes Bill Modernizing Mutual Fund Taxation

Posted by William Byrnes on January 25, 2011


Although overshadowed by the fight over the Obama tax agreement, mutual fund legislation passed the House on December 15.  The Registered investment Company Modernization Act of 2010 (RICM Act), H.R. 4337, was originally passed by the House on September 28, but the Senate amended the bill, forcing a second vote in the House.  The President signed it into law December 22 – Public Law 111-325.

Tax Code provisions governing mutual funds have not had a substantial update since 1986, with some components of the Code relating to mutual funds sitting untouched for sixty or more years. The tax and regulatory landscape has changed significantly in the intervening years, which has left the tax rules for mutual funds sorely in need of updating.

The RICM Act brings the Tax Code’s treatment of mutual funds and other registered investment companies (RICs) up to date by introducing the following provisions to the Tax Code, among others: 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 mutual fund investment in Adviso’rs Journal, see Can Term Life Coupled with a Mutual Fund Investment Replace a Variable Universal Life Policy? (CC 10-77).

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Wealth Management Employment in the Coming Decade

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

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