Archive for February, 2012

America’s Best: Barron’s Annual Listing of the Top 1,000 Financial Advisors

Barron’s annual listing of the top 1,000 financial advisors. Their single biggest recommendation: Buy dividend stocks.

Perhaps the most common investment theme among America’s top advisors is their love of blue-chip stocks that pay hefty dividends. It’s easy to see why. While 10-year Treasury bonds are paying less than 2%, advisors can snap up shares of General Electric, with a dividend yield of 3.5%, Merck, paying 4.3%, or AT&T, at 5.9%. And if the stock market moves up, there’s the added kicker of capital gains.

Count top advisor Edwin Rodriguez Jr. of New Orleans among the believers. “You have to go where the income is coming from,” he says. “I sound like a broken record, but it’s high-quality dividend-paying stocks.”

Shawn Fowler of Denver is another big fan. “Ninety-five percent of everything we buy pays us in some form of dividends or interest,” he says. “We’re paid while we wait, and we buy quality.” Some advisors are adding to the mix with carefully chosen municipal bonds, which can deliver tax-equivalent yields of 4.4% a year, and Master Limited Partnerships, some with yields as high as 9%.

MLPs, which are publicly traded limited partnerships that operate in the energy industry and other natural-resource fields, combine the tax advantages of partnerships with the liquidity of stocks. Most of them pay out the majority of their cash flows as dividends.

“When you’ve seen such a massive decline in income in fixed-income portfolios, anything that can supplement income has become relatively more appealing,” says Mike Ryan, chief investment strategist for UBS Wealth Management.

One way or another, the 1,000 advisors on our annual list have managed to thrive in these tricky conditions. The exclusive listing shows the leading advisors in each of the 50 states plus the District of Columbia. You will also find stories about the No. 1 advisors in each state and D.C.

[stextbox id=”info”]Link: 2012 Top Rankings: State by State[/stextbox]

Fully 20 of those 51 are new to the top spots, such as California’s Steve Lockshin, of Convergent Wealth Advisors, Florida’s Ami Forte, of Morgan Stanley Smith Barney, and Connecticut’s John Rafal, of Essex Financial Services.

The listing is based on assets under management, revenue the advisors generate for their firms and the quality of their practices. Investment performance isn’t explicitly a criterion, because the advisors’ clients differ widely in their goals, but most of the advisors have been attracting lots of new business through referrals, a clear sign of customer satisfaction.

This is the largest of several advisor listings that Barron’s compiles each year. In it, the number of advisors we rank for each state is based on the size of the state. By contrast, our widely followed Top 100 listing, out in April, disregards state boundaries.

THE TYPICAL PROFILE of a Top 1,000 advisor hasn’t changed much since last year’s ranking. They average 52 years old, have been in the investment business for 25 years and have been with their current firm for 19 years. Their typical account size is $11 million, representing almost half the net worth of the typical client. On average, the Top 1,000 advisors require an account to have a minimum of $3 million, though that varies greatly from state to state and advisor to advisor.

The Top 1,000 advisors usually work in a team, averaging about eight people, two of whom share ownership of the business.

Since the crash of 2008, assets have migrated to the best advisors. The Top 1,000’s assets under management increased 10% last year, and they have seen their assets grow an average of 14% in each of the past five years. Some of that is due to investment gains, and some is due to attracting new accounts and fresh money from existing clients.

Many top advisors this year are optimistic about corporate America. Historically high cash levels and low debt, combined with a continued recovery, bode well for U.S. stocks, says Sandra Dalton of UBS, a top advisor in Boise, Idaho.

“I believe we’re in the beginning of the start of a long-term bull market,” says Dalton. “Investors will be surprised, but they really will get growth.”

And now, before investors have caught on, is the time to find great values, argues Colorado’s Fowler, an advisor at Morgan Stanley. Many solid companies are trading at just 60% to 65% of their long-term averages, he says.

Especially blunt is John Moore, who runs his own shop in Albuquerque, N.M. Based purely on the numbers, “it’s time to back up the truck and load it up with stocks,” he says.

THE FACT THAT SO MANY GOOD STOCKS are in the sale bin these days reflects investors’ continued wariness of equities in general, and persuading them to take worthwhile risks has been one of advisors’ main challenges.

It’s taken some coaxing to get more conservative clients off the sidelines, says Wells Fargo Advisors’ Steven Hefter, of Deerfield, Ill. “If it were up to them, they’d be in T-bills.”

Clients’ wariness isn’t just a legacy of the 2008 crash: These days, they’re bombarded with news about Europe’s debt crisis, the U.S. deficit and global volatility.

“With this onslaught of bad news, we all ought to be under the couch in a fetal position,” says John Rafal, in Essex, Conn. “But the world is not coming to an end, and there are investments that are doing well.”

These profiles will help you find those opportunities.

— Article by Steve Garmhausen

2012 Top Rankings: State by State

Here are America’s best financial advisors, organized by state. The rankings are based on data provided by over 4,000 of the nation’s most productive advisors. Factors included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work.Investment performance isn’t an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment-picking abilities. A ranking of “N” denotes “not ranked that year”.

Source:  Barron’s

Posted by Steven Maimes, The Trust Advisor.


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Grand Jury Convened in MF Global Case

Federal prosecutors in Chicago convened a grand jury last year to investigate potential wrongdoing surrounding the collapse of MF Global and the disappearance of customer money from the commodities firm once run by Jon S. Corzine, according to a regulatory filing.

The CME Group, the exchange operator and for-profit regulator of MF Global and other commodities brokerage firms, disclosed in its annual report on Tuesday that it had received two subpoenas related to the defunct brokerage firm: one from a federal grand jury in Chicago and another from the Commodity Futures Trading Commission, the federal regulator heading up the investigation.

The grand jury in Chicago issued the subpoena to CME on Nov. 1, the day after MF Global filed for bankruptcy. The subpoena from the futures commission came on Nov. 3.

More recently, the trustee overseeing efforts to recover customer money sought documents from the CME Group, according to the filing, which did not detail the extent of the request. The trustee, James W. Giddens, sent the request on Jan. 31.

The Federal Bureau of Investigation and federal prosecutors in New York are also examining how the firm misused more than a billion dollars of customer money, which has not been recovered. The scope of the investigation encompasses billions of dollars in wire transfers in the days before the firm’s downfall, dozens of witnesses, and tens of thousands of e-mails and documents.

While the existence of a grand jury represents the seriousness of the case, it does not indicate wrongdoing or imminent charges. The grand jury determines whether charges can be brought. And it is unclear what shape the investigators’ case is taking or who they might be pursuing.

No one at MF Global, including Mr. Corzine, a former Democratic governor of New Jersey, has been accused of wrongdoing.

The CME Group, which also has not been accused of any wrongdoing, was simply asked “to produce information and witnesses in connection with the authorities’ investigation of the matter,” the exchange said in its annual report.

CME has been criticized for how it responded to the crisis at MF Global. Officials at CME, charged with oversight of MF Global’s operations, left the firm’s headquarters early on Oct. 28 as the situation was spiraling out of control and before receiving assurances that customer money was safe. MF Global filed for bankruptcy on Oct. 31.

Mr. Giddens and regulators have since traced nearly all of the customer cash transfers in the weeks before MF Global collapsed. The money passed through a battery of financial players, including major banks like JPMorgan Chase, in addition to trading partners and exchanges.

A spokeswoman for the CME Group declined to comment.

Source:  Dealbook NYT

Posted by Steven Maimes, The Trust Advisor.


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14 Reasons Why Start-Up Advisor Technology May or May Not Be Worth the Risk

When buying new technology, advisors have the option of buying straight from entrepreneurial start-ups and bypassing what the mature tech conglomerates have to offer.

Some advisors love the innovation and the ability to challenge the status quo. Do you?
Read the rest of this entry »

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Often There’s More Life After Death for Celebrities

Not every estate can be Michael Jackson’s in terms of raw earning power, but that doesn’t mean advisors should let death separate them from their top clients’ interests.

Between Whitney Houston’s posthumous record sales and the annual release of Forbes’ top-earning dead celebrities list, a lot of advisors are reconsidering when the client relationship ends.

Houston, for example, sold an extra million records and song downloads the day the world realized she was dead and her estate is probably entitled to around 20% of that revenue.

And Michael Jackson is still earning $170 million a year, which makes him the second-biggest earner in the music industry two years after his funeral.

“Many celebrities continue to generate income long after their deaths, thanks to books, recordings or even the use of their likeness to sell products,” says Long Island estate administrator Steven Adler.

You might not have a star on your client list, but the principles apply if they have more conventional commercial interests.

Elizabeth Taylor, for example, is earning most of her posthumous income from the perfume she launched 20 years ago.

That’s the kind of business that many high-net-worth people are likely to build and leave behind.

“Most non-celebrities will not have potential income after death from songs or movies,” notes Adler.

However, “They very well might from a business or other investments they had contributed to during their lifetime.”

Income is income and trust is king

The fact is, no matter how your clients made their money, if there’s any chance that even a portion of it will outlive them, it will go on drawing income well after they’re dead.

At least, it has that potential, provided that it’s managed properly.

The stars have their agents and management companies to make sure their copyrights and royalties are taken care of. Your clients’ heirs have you to invest the liquid assets.

Provided, of course, that you’ve convinced them that you’re still the right person for the job.

Historical studies show that a disturbing 86% of advisors fail to keep the assets when a client dies — often because there’s just no deep relationship there.

Naturally, moving the assets into a trust avoids estate tax issues and gives your client more say in how they’re used to enrich loved ones or favored causes.

The liquid assets are easy enough to assign to a directed trust, where a particular advisor is named to oversee how they’re invested.

Otherwise, there’s no guarantee that the current advisor will remain affiliated with the assets unless management rights are assigned in advance.

That’s an easy conversation to have with your clients while they’re still alive, and trust officers tell me that advisors who have that conversation usually get what they want.

Beyond that point, advisors need to know who the successor trustees will be and establish a working relationship now.

Of all the business professionals a wealthy family works with, the trustee is the least likely to be replaced when the next generation of clients takes over.

This is especially important when the money was originally made in Hollywood, the music industry or some other field where intellectual property rights continue.

For better or worse, celebrities generally appoint a relative or colleague to oversee the publishing rights and other “intangibles.”

This intellectual property is then handed back to the agent to manage, which usually works out all right.

However, estate planners who work with successful creative types stress that the more you can put in writing in the estate plan, the better.

If the current agents and business managers are doing a good job, make sure they can’t be removed just because the heirs think they can do the heavy lifting on their own.

And given the complexities of evaluating patents, trademarks and copyrights — much less image licensing rights — urge clients in these fields to appoint a corporate trustee with experience in these matters.

Tighten up the intangibles

Thanks to modern technology, these “intangibles” can generate a lot of money in ways that previous generations could not have imagined.

Marilyn Monroe, for example, didn’t own any intellectual property but her own image and her name.

But her estate raked in $27 million last year — three times as much as deceased Beatle George Harrison, who still makes money every time someone buys his records or covers one of his songs.

The secret is licensing and adaptation rights. Perfume companies are paying big bucks to reedit Marilyn’s archival “footage” into all-new commercials, and the musical based on her life is moving toward Broadway.

As we’ve been saying for awhile, if modern editing techniques can theoretically let a digitized Steve Jobs “appear” at a future MacWorld, dead celebrities can go on acting, singing and pitching products.

Those revenue streams need to be at least considered in the estate plan, even if — like Marilyn — there’s no way to effectively profit from the “property” for decades to come.

And even if you don’t have any celebrity clients, they still have diaries, scrapbooks, even Facebook accounts that may never be worth money, but the executor should know how they should be disposed.

Remember, true superstars are rare even beyond the grave. Only 15 dead celebrities earned more than $6 million last year.

There are a lot more conventional mega-millionaires and billionaires whose liquid assets will generate a lot more money for decades to come, if not forever.

But treat them like stars and get the best deal for their children, and you may cash your own share of the paychecks for a long time to come.

Scott Martin, senior editor, the Trust Advisor. Steven Maimes contributed to the research.


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For Cruise Deals, the Time Is Now

After the Costa Concordia ran aground, cruise lines are bending over backward to win passengers back — even if it means selling luxury berths at a loss.

It’s crunch time for the cruise industry. Following the Costa Concordia disaster, bookings plunged 15% in one week, right when the peak “wave” season was starting.

The two biggest companies — Royal Carribean as well as Carnival, which runs Costa Cruises — have already warned Wall Street that they’re losing hundreds of millions of dollars.

About a third of all cruises are reserved during the first three months of the year, a time the industry refers to as wave season.

And with the cruise companies halting all marketing activities while the news channels were blasting footage of the Concordia running aground off the Italian coast, they had to grab every opportunity to recoup their losses and remind the public that their safety records are otherwise flawless.

Online offers jumped 60%, offering not only cabin upgrades but full balconies for the same price as an ocean-view room.

And the deals are still out there, the travel gurus say.

“This is the perfect time to book a cruise this year,” said Paul Iacono, cruise specialist with Travel Experts.

Iacono says that as the headlines fade from public memory, the deals for March through July “will dry up quickly.”

Look for flash sales and stealth discounts

Right now, some of the best deals are being offered in short, last-minute sales bursts right before a cruise or through unadvertised rate cuts. To find them, you can check online agencies like Travelocity, the cruise lines’ own Web sites, which regularly highlights significant deals.

Earlier this month, Royal Caribbean listed on its Web site a five-day Presidents’ Day sale. Through May 16, Norway-based Hurtigruten is offering 20% off many 12-day sailings (nearly 40 departures) to repeat passengers who have sailed for at least three days in the past three years.

There are a few long-term “repositioning” cruises out there as the lines move ships away from the bad reputation of the Mediterranean routes and into waters that haven’t seen a navigation disaster like this in generations. After all, the ships themselves are state-of-the-art and the Caribbean, North Sea, Alaska and Spain are as popular as ever.

Promotions are especially plentiful for European cruises, which took a harder hit to bookings than those in North America did, and where high airfares are forcing cruise lines to offer discounts in order to lure American travelers across the Atlantic.

But the euro is cheap and among the major cruise lines, prices for European trips are down about 12% in dollar terms compared with last year.

Azamara Club Cruises is offering $1,000 in airfare credit for two passengers booking ocean-view, veranda or club continent suites on European voyages, and $2,000 in airfare credit to customers booking its top suites.

And several cruise lines have quietly introduced so-called “resident rates,” which offer discounts to customers who live in certain states.

Look for online deals on your own or work with an agent who specializes in cruises to figure out how much you’ll actually save on a particular cruise.

There are plenty of last-minute opportunities for those interested in a quick Caribbean getaway.

A seven-night cruise on Carnival Dream, one of the newest Fun Ships, from Port Canaveral to the eastern Caribbean (Nassau, St Thomas and St. Maarten) was as low as $449 or $64 a person a night for an inside cabin, including free upgrades, according to Travelocity.

Step up to luxury

Luxury lines continue to slash rates and add perks to get travelers to trade up.

Seabourn, for instance, has introduced a “signature package of benefits,” including savings of up to 50%, suite upgrades, $1,000 in shipboard credit for premium suites and complimentary pre- or post-cruise hotel stays for guests.

And Crystal Cruises said that starting next month, it would stop charging extra for fine wines, premium spirits and gratuities for housekeeping, bar and dining staff.

With 10-day Miami-to-Lisbon cruises starting at $136 per person per day, the danger is that you might get addicted to the high-end travel now that it’s selling for 70% off — and next year, it’s almost certain that you’ll never see a ticket that cheap again.

Posted by Steven Maimes, The Trust Advisor.



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3 Ways Advisors Get More Business Using Google

Local search advertising can be highly effective because it allows advisors to tailor their brand messages very precisely to fit what prospects in their area are looking for.

As the Web grows, more people are submitting geographically constrained searches to sites like Google to find local businesses and filter out everything else.

Typical local search queries include not only information about “what” someone is searching for — keywords, a business category, or the name of a product — but also “where” information like a street address, city name or zip code.

Examples of local searches include “Chicago hotels,” “cabs in the 02129 area” and “advisors in Manhattan.”

Local search sites are primarily supported by advertising from businesses that wish to be prominently featured when users search for their services in specific locations.

As a result, advisors don’t need to spend a lot to capture prospects who may be interested in their services, but are too far away to ever become long-term clients.

Local search gives any firm a competitive advantage. Here are three ways to get started:

1. Create and update local profiles

Claim and enhance your local profiles on search engines and other directories such as: Google Places, Yellow Pages and the chambers of commerce.

If you don’t claim your profile and at least make sure the contact information is correct, you will significantly hurt a prospect’s ability to find your firm. The more information you include in your profile, the higher the chances of your firm showing up in relevant search queries.

For example, we read of one firm that was failing to capture any traction on local search because Google had it listed as a CPA. Yelp had it listed as an insurance office and Bing had it listed with the wrong address.

None of the listings had the right phone number for the firm. Search engines will rank firms that have consistent contact information around the web higher than those that don’t.

2. Focus on SEO

A lot of advisors are scared off by the term SEO, but what it really boils down to is search engine optimization: making sure that your website contains key words that prospects may use to search for you.

Local search adds geographically specific key words and phrases like “Boston insurance agent” or “Chicago Gen X/Y advisor.”

Keywords are vital to increasing your rankings on search engines. If your firm has more than one location, I would suggest creating a separate page on your site for each office.

3.  Be visual

The Google Places pages and other search engines have started showing photos in their local search results. Videos and pictures of your advisors, FAQ videos, and pictures of your office will make your firm more appealing by giving prospects a feel for your firm right from the start.

Visuals also improve your overall search rankings and help increase the number of people that will click on your ad and convert to your website.

Competition is already heating up among search engines to attract prospects who are looking for local businesses.

Advisory firms with strong local rankings are best positioned to capitalize on this opportunity, but it’s still anybody’s game.

You might also be interested in …

The Definitive Guide to Billing on Held-Away Assets (Interactive E-Book)

The Definitive Guide to Account Aggregation (Interactive E-Book)

What Does Data Aggregation Do For You? (On-Demand Video)

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Top 9 Most Disliked U.S. Companies According to Harris Interactive’s Annual Reputation Poll

Harris Interactive asked 17,000 people to identify the country’s most visible companies and then rate each on a number of attributes, including emotional appeal, products and services, social responsibility, vision and leadership, workplace environment and financial performance.


Scores of 55–64 denotes a “poor” reputation, 50–54 “very poor” and below 50 “critical.”

Companies with scores below 50 “risk remaining viable,” according to Harris. Among previous sub-50 performers were Enron, Adelphia and WorldCom, all now defunct.

Financial companies scored the lowest.

Here are the Top 9 Most Disliked U.S. Companies:

1. AIG (AIG)

Scored 46.18. It thus held on to the dubious honor of being the lowest of the low; even its score dropped from its “critical” 47.77 last year.


Scored 47.57. The company dropped from third place last year, and entered “critical” territory after seeing its RQ score fall by 6.33 points.


Scored 49.85. It suffered the biggest decline in RQ score, falling by 9.08 points and dropping three spots from last year.

4. BP (BP)

Scored 53.5, an improvement over last year, when the oil producer was in “critical” territory, second from the bottom. Harris said BP was one of three companies in “reputation rehab,” having gained strongly in social responsibility and emotional appeal.


Scored 54.84. The company took one of the biggest hits to reputation, dropping by 6.31 points from its 2011 score.


Scored 55.95. The company climbed two rungs from its fourth-place position last year.


Scored 57.14. Rupert Murdoch’s conglomerate is new to the RQ study; it was not ranked in last year’s study, which came out before the hacking scandal in Britain erupted into public view.


Scored 59.1,  dropping it three places from its 2011 ranking. Though not a big bad bank, anyone that’s dealt with a cable company’s customer service isn’t surprised.


Scored 59.5, well off its “fair” 66.15 score last year, when it held the 45th spot.


Sources: and

Posted by Steven Maimes, The Trust Advisor.




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Adopt Your Girlfriend as Your Daughter Asset Protection Plan Shocks Planning Community

Estate planners call “Adopt Your Girlfriend as Your Daughter” strategy to shield John Goodman’s assets from creditors bizarre. His lawyers say they have lost confidence in Bessemer Trust’s ability  to manage Goodman’s children’s money after the girlfriend-daughter was added as a trust beneficiary. Others say that relationship now legally amounts to incest.

Depending on who you talk to, Palm Beach air conditioner tycoon John Goodman was either brilliantly expanding the frontier of traditional estate planning or hastening the end of western civilization when he adopted his 42-year-old girlfriend as his daughter and heir.

A dig into the details shows that while the move was way outside the box, it represents a remarkable response to a difficult and arguably unique situation.

Goodman is already facing 2010 drunk driving manslaughter charges that could put him away for the next three decades, so in that respect he’s past trying to protect his public image.

But with the court talking about starting the trial in the immediate future, his lawyers shifted to locking down his more tangible interests, including support for his girlfriend and control of a family trust reportedly worth $300 million.

After all, if the trial goes badly, his time as a free man will be extremely limited.

“It should be obvious to everyone that at the present time Mr. Goodman’s continued availability to ensure that the trust’s assets grow and continue to provide benefits for his children is uncertain,” explains Daniel Bachi of West Palm Beach law firm Sellars, Marion & Bachi.

Cutting through the hype

When the media heard that the lawyers had decided to have Goodman adopt romantic companion Heather Hutchins — barely six years younger than he is — it unleashed a frenzy of misconceptions about how trusts actually work.

For one thing, Goodman is not trying to hide his money from the parents of the young man whose car he hit two years ago.

The assets in the trust were transferred in 1991, so the notion that Goodman was trying defraud a civil suit 20 years down the road is vanishingly remote.

In any event, while the trust is currently run under Delaware law, it’s not an “asset protection” trust in any way, shape or form. Goodman is not a beneficiary or the trustee, so he has neither ownership nor control.

He’s signed affidavits to that effect.

The bottom line here is that naming Hutchins as his third “child” doesn’t add a layer of protection from lawsuits — it’s not Goodman’s money any more and hasn’t been for a long time.

And Hutchins isn’t immediately going to get $100 million or even $70 million to play with. She’s now a beneficiary entitled to draw on the income, but not the trustee.

That income stream allows Goodman to provide for her and her two young children from a previous marriage, without antagonizing rich relatives who might balk at carving out a big piece of the family fortune for the girlfriend.

Under a separate agreement, Hutchins agreed that only $10 million of the trust’s principal would ever pass on to her children. Subsequent amendments whittled her interest down even further, to $5 million.

So adopting Hutchins takes care of her if Goodman goes to jail. But there’s an even bigger game afoot here waiting to play out.

Fighting the trustee, not the plaintiffs

Goodman’s lawyers frame the decision to adopt Hutchins as a way to give her official status in the eyes of Bessemer Trust, which has been running the trust since 2009.

As far as they’re concerned, Bessemer failed to live up to its promises to accept Goodman’s direction on how the “special” holdings in the trust — including his house and the $14 million polo club that turned him into a pillar of Florida society — should be managed.

“Bessemer agreed to keep the management team that had grown and protected these holdings in place for many years,” lawyer Bachi explains.

“Instead, Bessemer took steps to change management of these holdings, which have significant financial and intangible value to the children.”

Goodman named himself and two business associates as obvious choices with “experience with the management of such special assets.”

However, ex-wife Carroll objected to the appointment, leaving Bessemer with the headache that many trust companies that accept “alternative” assets like private equity and real estate know so well.

While the trustee tries to maintain an iron curtain between the grantor and the operations of the trust itself, the fact remains that the grantor is often uniquely qualified to manage the assets to their best potential.

As it is, Goodman’s ongoing relationship with the polo club is now being used in arguments that he’s been secretly running the trust to his own enrichment all along, no matter what the trust documents say.

If that were the case, those assets may be exposed to legal action no matter how many children he adopts.

That’s where adopting his girlfriend as a legal child-beneficiary may give him a chance to keep his polo club and run it too — even if he ends up in jail.

Hutchins apparently knows how Goodman wants the club to operate. As beneficiary, Bessemer has to take her interests and informed opinions seriously.

And in return for her input, she gets at least $500,000 a year from the trust.

“The contract provides funds to take care of Ms. Hutchins and her family and to compensate her for the large undertaking of overseeing such a complex and closely held family business,” Bachi explains.

As for the incest argument, it only legally applies to blood relatives.

Besides, if Goodman goes to jail, it will only matter on occasional conjugal visits anyway.

Scott Martin, senior editor, The Trust Advisor. Jerry Cooper and Steven Maimes contributed to the research.


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Bonds Backed by Mortgages Regain Allure

Some Wall Street investors made money as the mortgage market boomed, while others profited when it fell apart.

Having reaped big gains during both of those turns, Greg Lippmann, a former star trader at Deutsche Bank, is now catching the next upswing — buying the same securities built from mortgages that he bet against before the financial crisis erupted.

Mr. Lippmann is joined by other big-money investors — mutual funds like Fidelity as well as hedge funds — in riding a wave of interest in the same complex loan pools that nearly washed away the financial system.

The attraction is the price. Some mortgage bonds are so cheap that even in the worst forecasts, with home prices falling as much as 10 percent and foreclosures rising, investors say they can still make money.

“Given its significant underperformance in 2011, we believe the product is as cheap to broader markets as it has been in a long time,” Mr. Lippmann, whose portfolio is heavy with subprime mortgage securities, wrote in a recent letter to investors.

More broadly, the nascent recovery in the mortgage bond market supports a view that the housing slump may have bottomed out. Sales of existing homes are picking up. State and federal authorities have reached a $26 billion settlement with the big banks that is expected to provide some mortgage relief. And the Federal Reserve Bank of New York has been able to auction off billions of dollars of mortgage securities that it acquired as part of the financial crisis bailouts.

“There is light at the end of the tunnel,” said Kenneth J. Taubes, the head of United States investment for Pioneer Investments, a global investment manager that owns these securities. “The mortgage crisis is getting behind us, and things are getting back to some semblance of normality.”

That optimism is an about-face from 2006 and 2007, when Mr. Lippmann and others told investors that housing was a bubble ready to burst. On Wall Street, Mr. Lippmann became known as “Bubble Boy,” and one of his traders wore a joking T-shirt that read, “I Shorted Your House.”

His exploits were chronicled in Michael Lewis’s best seller, “The Big Short,” which described him as somewhat brash and crass. He was known for maintaining a sushi spreadsheet, where he ranked the top Japanese restaurants in Manhattan on ambiance, quality and cost.

These days, industry competitors describe Mr. Lippmann, who runs LibreMax Capital, as a more mellow presence. And he is much more positive about the market, telling investors that his fund is reducing its hedge against a potential market crash. Through a spokesman, Mr. Lippmann declined to comment.

Others in the industry are also bullish, pouring money back into mortgage securities. Trading has surged in recent weeks. Prices have risen more than 15 percent in the first two months of 2012, after dropping by as much as 40 percent last year.

“There was a lot of money waiting on the sidelines because yields were starting to look very attractive,” said Jasraj Vaidya, a strategist at Barclays Capital. “Lots of it seems to have come out now.”

Yet the tide could turn again and wipe out investors. Chief among the risks is Europe. The Continent’s banks still hold a significant amount of United States mortgage securities, and if they are forced to sell assets, it could wreak havoc on the market.

Washington is a question mark, too. If banks have to pay for loans they issued under dubious circumstances, it would be a home run for investors, who could receive full payment for a mortgage in a security they bought at a discount. But if borrowers whose houses are worth less than their mortgages are able to reduce principal on a large scale, bond investors could suffer because the securities would be worth even less than they paid.

“As a money manager, you can’t close your eyes to that potential outcome,” said Jeffrey E. Gundlach, a founder of DoubleLine Capital, who has been buying mortgage securities since 2008. “To believe that this time we are really out of the woods and the prices will not drop again is dangerous. People made that argument a year ago.”

The mortgage bond market is a very different creature than it was before the financial crisis. For one, it is much smaller. Very few residential mortgage-backed securities have been issued since the crisis. The market, at $1.3 trillion, is half the size it was at its peak and shrinks by an estimated $10 billion every month.

Despite the limited supply, prices remain cheap, in part because the assets are difficult to value. Hedge funds and big investors use computer systems to analyze the underlying loans and estimate, among other things, how many borrowers will default and how much money can be recovered in a foreclosure.

Take one security, JPALT 2006-S1 1A11, which was built from Alt-A loans, or mortgages that required little documentation verifying a borrower’s income.

On the surface, the numbers are not encouraging. Of the 799 mortgages underpinning the bond, many in foreclosure-heavy California and Florida, about 21 percent are more than 60 days late on payments.

The annual default rate is about 7 percent, and of the homes sold out of foreclosure, investors take a 54 percent hit, according to data from Bloomberg. On average, about 5 percent of the homeowners refinanced their mortgages before they were due over the last 12 months.

That bond recently traded at nearly 70 cents on the dollar.

At that price, even if defaults and the losses increase, an investor can still make more than 5.4 percent, an analysis shows. In a rosier prediction, where defaults drop slightly and the losses on the sale of foreclosed homes stay flat, the bond returns nearly 8.7 percent.

“Price is a wonderful thing,” said Chris Flanagan, an analyst with Bank of America Merrill Lynch. “Yields in this market range anywhere from 4 or 5 percent up to 12 percent.”

With long-term interest rates close to zero, such returns are hard to resist, even for investors who were punished in the housing bust. The American International Group, whose mortgage securities were acquired by the New York Fed in its more than $100 billion bailout in 2008, has been buying back some of those bonds. And a former mortgage team from Lehman Brothers, which went bankrupt in 2008, formed One William Street, a hedge fund that manages more than $3 billion in assets.

As for Mr. Lippmann, his reputation has made it both easier and more difficult to get commitments from investors. Some are impressed by his well-publicized bet against the mortgage market. Others are turned off by his high profile in an industry known for secrecy and discretion.

LibreMax, made up of several members of Mr. Lippmann’s team from Deutsche Bank, has raised more than $1 billion in a little over a year. His performance has been relatively strong during a period of market turmoil — up 2 percent last year and a little more than 6 percent since beginning operations.

Like his rivals, Mr. Lippmann cites his experience in the housing market — including its boom and bust — as a principal selling point for his fund.

“Because we have a trading history, I think we understand very well how the street works, better than perhaps people who didn’t work in trading before that haven’t had that experience,” he said at a Bloomberg hedge fund conference in 2010.

Source:   NY Times

Posted by Steven Maimes, The Trust Advisor.


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Envestnet to Acquire Tamarac

Combined Firms Offer Broadest Technology Platform, Investment Products and Services to RIAs

Envestnet, Inc. (NYSE: ENV), a leading provider of integrated wealth management solutions for financial advisors, announced today that it has entered into a definitive agreement to acquire Tamarac, Inc., a provider of sophisticated portfolio management technology that enables Registered Investment Advisors (RIAs) to efficiently deliver customized individual account management to their clients. The two firms, with the combination of their technology solutions, breadth of investment products and back-office operation services, are poised to transform the way RIAs deliver scalable, integrated solutions

“While Tamarac has developed industry-leading software for rebalancing, practice management, performance reporting and CRM integration, we value their market position within the independent RIA segment which is core to Envestnet’s growth initiatives. We are eager to leverage Tamarac’s highly sought-after solutions in combination with our integrated wealth management software and advanced portfolio solutions. We welcome the Tamarac organization and look forward to supporting their clients, people, products and their continued development of proven high-end solutions for RIAs,” said Jud Bergman, Chairman, Founder and Chief Executive Officer of Envestnet. “As more advisors look to outsource to an integrated platform, we are uniquely positioned to meet this need–now and well into the future.”

Tamarac was founded in 2000 by current President Clive Matthew Springer and is headquartered in Seattle, Washington. The company currently has relationships with approximately 500 RIA firms , collectively managing over $250 billion in assets.

Tamarac CEO Stuart DePina will join Envestnet as Group President of Envestnet • Tamarac. DePina and his leadership team will continue to focus on integrated solutions for the RIA marketplace. “We are excited to build on the momentum Tamarac has generated with independent RIA’s seeking to streamline their operations through integrated technology and outsourced services. Now that we can leverage Envestnet’s solutions, Tamarac will accelerate many aspects of our strategic initiatives while allowing us to focus on our client’s needs,” DePina said. “We believe the combination of Envestnet • Tamarac will transform the way financial advisors support investors with Advisor Xi, one of the most comprehensive suites of technology and investment solutions available in the industry.”

Envestnet has agreed to acquire Tamarac for $54 million in cash, subject to certain post-closing adjustments. The acquisition is subject to approval by the holders of a majority of Tamarac’s voting securities. Holders of Tamarac’s voting securities, including members of Tamarac’s management, have agreed to vote in favor of approval of the transaction. The transaction is also subject to customary closing conditions, including customer consents, and is expected to be completed by the first half of 2012.

Tamarac did not retain a financial advisor. Sandler O’Neill + Partners, L.P. served as financial advisor to Envestnet. McNaul Ebel Nawrot & Helgren acted as legal counsel to Tamarac and Mayer Brown LLP acted as counsel to Envestnet.

About Envestnet (NYSE: ENV)

Envestnet, Inc. is a leading provider of integrated wealth management software and services to financial advisors. Envestnet is headquartered in Chicago with offices in Boston, Charlotte, Denver, New York, Sunnyvale, and Trivandrum, India. The firm has over $127 billion in total assets served and more than 909,000 investor accounts. (Data includes assets under management or administration and licensing agreements as of 9/30/2011). For more information on Envestnet, Inc. please visit

About Tamarac Inc.

Tamarac provides an integrated, web-based suite of portfolio and client management software for independent advisors and wealth managers. Tamarac has experienced over 50 percent year-over-year revenue growth for the last four years, which has resulted in a rising client base of over 500 RIA firms, collectively managing more than $250 billion in assets. RIAs utilizing Tamarac’s solution range in size from managing less than $10 million in assets to over $10 billion.

[stextbox id=”info”]Can the new Envestnet-Tamarac Godzilla take on the Advent-Black Diamond King Kong?[/stextbox]

Source:   Tamarac Inc.

Posted by Steven Maimes, The Trust Advisor.


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