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Longer Life Expectancies Raise the Bar on Pensions article by Mark Miller

New life-expectancy projections will accelerate de-risking strategies among plan sponsors, including lump-sum offers.

Americans are living longer. That’s good news for people–but it’s creating challenges in the world of traditional defined-benefit pensions.

American men are living an average of two years longer than they were in 2000 (the last time the tables were revised), and women are getting an additional 2.4 years of life, according to new mortality projections from the Society of Actuaries (SOA). The SOA is the official keeper of the mortality tables used to calculate the value of future pension obligations, and longer lives mean greater cost for plan sponsors.

Those new tables, released last month, will give employers additional reasons to “de-risk” their pension plans by offering lump-sum buyouts to retirees and former workers, or transfer their obligations to private insurance companies by buying huge group annuities to pay out benefits. That, in turn, will force workers and retirees to make some tough decisions about their benefits.

The SOA projections are updated periodically, and they are used by plan sponsors and regulators to measure the cost of pension plan benefits. The new projections utilized data from about 2 million participants in pension plans over a five-year period, plus the SOA’s own projections of anticipated future mortality improvement.

The projection is based only on one slice of the American population–workers receiving pensions, but it does reflect a broader trend. Average life expectancy in the United States rose by almost eight years from 1978 to 2011, to 78.7 years, according to the Organization for Economic Cooperation and Development (OECD).

According to the SOA, the gains reflect several factors: decades of improved access to health care, notably Medicare and Medicaid for the elderly, disabled, and poor; the discovery and availability of antibiotics and immunizations; clean water supply and waste removal; and the rapid rate of growth in the general standard of living.

“Access to health care and technology have played a large role,” says Dale Hall, the SOA’s managing director of research.

Clarifying the Longevity Data

Numbers like these often are cited to justify a range of retirement-related policy ideas–cutting entitlement spending, encouraging people to work longer, or delaying Social Security benefits. So before we continue, a few words of clarification about what the SOA projections mean–and what they don’t mean.

First, the gains in longevity aren’t evenly distributed among the population. Along with the gender gap, the SOA data show that higher-income white-collar workers outlive blue-collar workers (see table). Other research also points to a sizable longevity gap by educational attainment and race.

chart 1And in a global context, it’s worth noting that the U.S. is no gold medalist in the longevity Olympics. The OECD reported last year that the average life expectancy among its member nations is now higher, at 80.1 years, than the U.S. average. (The OECD comprises most of the world’s major economic powers, including the United States.)

Longevity gains from age 65 are even more telling, because they wash out deaths due to infant mortality as well as most violent and accidental deaths. Here, Americans are near the bottom of the ranking of 34 OECD member countries. The only countries with smaller gains in longevity from age 65 over the past 50 years were Iceland, Hungary, Denmark, Greece, Turkey, Mexico, and the Slovak Republic.

Implications for Pensions

The new SOA projections underscore the need for retirees to focus on longevity risk as they set goals for retirement saving and withdrawal rates. And, when considering the numbers, it’s important to remember that the mortality data simply reflects averages; many of us–especially women–can expect to beat those numbers.

But the new SOA projections also will have direct implications for defined-benefit pensions. Maintaining pension plans will become more expensive for plan sponsors, because the longer life spans will require them to increase projected future costs on their balance sheets. The value of payouts will rise anywhere from 4% to 8%, depending on the age of the annuitant (see table).

chart 2“It raises the bar,” says Rick Jones, a senior partner at Aon Hewitt, the employee benefit consulting firm. “We think the audit community will require plan sponsors to consider the new mortality tables at the end of 2014.” The new SOA projections also will be adopted over the next few years by federal regulatory agencies that oversee pensions and will require plan sponsors to increase funding levels to meet expected rising obligations.

That, in turn, likely will accelerate a major trend among plan sponsors to adopt de-risking strategies. Sometimes, that simply means reducing equity exposure in plan portfolios. But it also can mean offering lump-sum buyouts to retirees and former workers, or transferring their obligations to private insurance companies by buying huge group annuities to pay out benefits.

Deciding whether to accept a lump-sum offer is a highly personal decision. A key factor is how healthy you think you are in relation to the rest of the population. If you think you’ll beat the averages, a lifetime of pension income will always beat the lump sum. The bigger picture of your retirement assets also matters; some people decide to take lump-sum deals when they have other guaranteed income streams, such as a spouse’s pension or high Social Security benefits.

Others think they can do better by taking the lump sum and investing the proceeds. That’s possible, but it needs to be weighed against the risks of withdrawing too much, market setbacks, or living far beyond the actuarial averages. And “doing better” on a risk-adjusted basis means you would have to consistently beat the rate used to calculate the lump sum by investing in nearly risk-free investments–certificates of deposit and Treasuries–since the pension income stream you would receive is guaranteed, with the exception of failed plans.

Another factor: New mortality projections may boost the value of lump-sum offers. The Internal Revenue Service will adopt tables within the next few years–2016 at the earliest–that govern the minimums required for lump-sum distributions. Those tables will be based on the SOA tables. That prospect likely will motivate some plan sponsors to offer lump-sum deals now, while they are less expensive.

Workers offered lump sums now might want to wait for a better deal down the road. But there’s a caveat: The value of future offers also will be affected by interest rates, which are at historic lows. Higher interest rates would be reflected in higher discount rates, which are used to calculate lump-sum values, and lower payouts. Wilshire Consulting has estimated that a 50-basis-point jump in rates would offset the payout increases generated by the new mortality tables.

Although lump-sum buyouts are take-it-or-leave it deals, there could be additional buyout windows down the road in many cases, as sponsors work to reduce their pension obligations.

- Mark Miller is a retirement columnist and author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work, and Living. The views expressed in this article do not necessarily reflect the views of


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Merrill And Morgan Battle In ‘Wealth Manage’ War

NY Post article by John Aidan Byrne

mlIt’s the battle of the bulges.

As Merrill Lynch and Morgan Stanley trade blows to dominate the lucrative multitrillion-dollar wealth-management industry, Merrill has cleared a new hurdle this month and was propelled into first place by several analysts.

“I think Merrill Lynch is a gem,” CLSA industry analyst Mike Mayo told The Post. “When I look at Merrill Lynch, I look at its nice and improving profits, which is a credit to the firm. And Merrill has a higher pretax margin — which we all monitor— than Morgan.”

It’s a war between Merrill and Morgan, says Alois Pirker of Aite Group. “Merrill clearly has a leg up right now,” he said.

In other battle statistics, Mayo has concluded that Merrill’s “thundering herd” of 14,000 financial advisers has the best-performing team in town.

But Morgan Stanley’s larger 16,000-plus army of advisers has been trying to play catch-up with its closest adversary, he admitted, and is closing the gap, especially on its services and banking products.

And two other ambitious dynamos — third-place Wells Fargo Advisors and No. 4 UBS Wealth Management Americas — are nipping at their heels.

For the two biggest, the most striking statistic is the huge haul of client assets they manage. Merrill and Morgan, reinventions after the 2008 financial crisis, now control sprawling empires of $2 trillion each. In jaw-dropping global terms, that’s equivalent to the 2.1 percent growth in the G20’s combined gross domestic product those wealthy nations recently agreed to deliver by 2018.

There’s no debate on another highly emotional blood number. Merrill is now No. 1 over Morgan Stanley in broker productivity. Merrill reported record third-quarter productivity of $1.1 million compared with Morgan Stanley’s average annualized revenue per representative of $932,000.

Deep in the trenches, Rebecca Rothstein, a Merrill Lynch financial adviser in Beverly Hills, Calif., is aware of the battle cry. Rothstein, who caters to entertainment industry clients and other wealthy investors, said her experience at Merrill has been extraordinary.

Rothstein is in the elite ranks, managing just under $4 billion. Her decision to bolt Morgan with an 11-person team in late 2012 is at the core of why some analysts say Morgan is still playing catch-up.

“When we moved from Morgan, it was really because we were missing the lending piece of the business,” Rothstein said. “Now Morgan has gotten better at it — but they are still not as good as Merrill.”

Morgan Stanley has its own sweet spot — aided by wealth management, third-quarter net income almost doubled — and it has poached prime talent from Merrill.

“As our CEO, James Gorman, has made clear on many occasions, we don’t particularly care how we stack up against Merrill Lynch, Wells Fargo or anyone else on random metrics,” Morgan Stanley spokesman James Wiggins said.

Wiggins, citing Cerulli Associates, added that the firm leads in fee-based managed accounts with a 19.8 percent market share, vs. 15 percent for Merrill Lynch, 10.6 percent for Wells and 8.6 percent for UBS.

Merrill spokeswoman Susan McCabe asserted, “Our financial results, by every measure, show that we are a leader in the industry and that we are headed in the right direction.”


Posted by:  Steven Maimes, The Trust Advisor


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Houston Wealth Management Firm Must Pay $3.8 Million To Retirees

Reuters news by Suzanne Barlyn

A Houston-based wealth management firm must pay more than $3.8 million to a group of 19 ExxonMobil retirees who said the company mismanaged their investments and misled them about its trading strategy, according to a securities arbitration ruling.

uscaThe ruling by a panel of three Financial Industry Regulatory Authority arbitrators found USCA Capital Advisors LLC liable in the case, along with its brokerage and investment advisory units, according to a ruling dated Monday.

The decision includes $853,000 in punitive damages, a rare type of sanction that arbitrators impose to punish and deter improper conduct, lawyers say. The panel did not give reasons for its decision, as is customary.

“We are shocked,” said Patrick Mendenhall, chief executive of USCA Capital Advisors. He blamed, in part, a change to FINRA’s arbitration rules that allows investors to opt for a panel that does not include an arbitrator who is affiliated with the securities industry. The arbitrators “seemed somewhat confused” about basic industry knowledge, Mendenhall said.

Financial advisers in the Houston area often target ExxonMobil retirees, said Thomas Fulkerson, a Houston-based lawyer who represented the investors. The oil company has a large campus and other operations in the area.

The investors filed the case in 2013, seeking total damages of more than $12 million. They said they had entrusted USCA with their retirement savings based on the firm’s promises about how it would protect, manage and grow their accounts.

Each of the investors had attended a presentation by USCA’s registered investment advisory arm, USCA RIA, LLC, Fulkerson said. Advisers told the investors that their program, the “Total Return” model, would increase their S&P 500 gains while reducing the risks of trading equities.

Some of the investors believed that a computer program would run the trading. Others believed the firm would track computerized results and use the information to trade.

The actual approach, however, was a series of judgment calls, Fulkerson said. “It was basically ‘put your finger into the wind and sense the direction of the wind, then make a decision on what you want to do,’” he said.

Mendenhall, USCA’s chief, said the investors’ allegations were “fabricated” and prompted by a disgruntled, former employee. The claims focused on a single strategy and ignored that all but two of the investors’ overall portfolios were profitable, Mendenhall said.


Posted by:  Steven Maimes, The Trust Advisor


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Estate Tax Provisions For Married Couples in Recent Wills, Trusts May Be Obsolete

The Woodlands Villager article by Kirk R. Wilson, J.D., LL.M.

EstateTaxAs the result of recent major tax law changes, the tax planning provisions incorporated into wills and trusts created for married couples only a few years ago are now, in many cases, obsolete.

The first big change was a dramatic increase in the estate tax exemption. The federal government assesses a 40 percent estate tax on the portion of a decedent’s estate that exceeds his or her unused federal estate tax exclusion amount.

Over the past decade, this exemption has increased from $600,000 to $5 million indexed for inflation, so that the exclusion in 2014 is $5,340,000. This nine-fold increase in the exemption removes many formerly taxable estates from the reach of the estate tax.

The second big change was an amendment to the Internal Revenue Code adding a new option, commonly referred to as “portability.” made permanent in 2012, that allows a surviving spouse to inherit the deceased spouse’s unused estate tax exemption. Before this change, a surviving spouse’s only option was to have the decedent’s assets flow into a trust, commonly referred to as a “bypass trust” or “tax exclusion trust,” established under the terms of the decedent’s will or the parties’ living trust, to capture and preserve the first spouse’s exemption.

Without such a trust, at the surviving spouse’s death, only the survivor’s estate tax exemption would be available to shield the spouses’ remaining estate from estate tax. The first spouse’s exemption would have been lost. Now, however, the surviving spouse can directly inherit the first spouse’s exemption, giving the surviving spouse a double exemption of up to $10,680,000 without creating a bypass trust.

The third major change is the increase in income tax rates, including a new 3.8 percent Medicare investment surtax, for high income taxpayers that are now on parity with the top estate tax rate — 40 percent.

Taken together, these changes have created a “seismic shift” in the estate planning arena. The common practice in prior years of mandating the creation of a “bypass trust” at a first spouse’s death is now, in many cases, no longer the best planning option. If portability will allow the parties’ estate to escape taxation, mandating the creation of a bypass trust will provide no estate tax benefit, but it may well generate a future income tax liability that would have been avoided if the bypass trust had not been created.

This is because assets with a low income tax basis receive an automatic “step up” to their fair market value at the owner’s death, but assets placed in a bypass trust do not receive a stepped-up basis at the surviving spouse’s later death. If the assets in that trust have appreciated in value after the first spouse’s death, that appreciation will be taxed at the capital gain rate when those assets are sold. This income tax on the capital gain could have been avoided if portability had been elected and the bypass trust had not been created.

As a result of these changes, the best planning option under the new law for couples with estates under $10 million, in most cases, is to give the surviving spouse the flexibility to elect portability or, alternatively, to fund a bypass trust, thereby deferring the decision as to which option is most advantageous until after the first spouse’s death. This decision can then be made in consultation with the survivor’s attorney and CPA based on the value of the estate and the status of the tax laws at that time.

Finally, there has been a recent development regarding portability. In order to elect portability, a surviving spouse must file a simplified estate tax return listing the assets of the estate within nine months following the first spouse’s death. However, the IRS has just announced that if the first spouse died in 2011, 2012 or 2013, the portability filing date has been extended to December 31, 2014. This will allow a person whose spouse died during those years to still elect portability and double his or her estate tax exemption amount, which will shield an estate of $10.6 million from estate tax at the survivor’s later death.


Posted by:  Steven Maimes, The Trust Advisor



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How I Started My Own Wealth Management Firm

Cosmopolitan article by Heather Wood Rudulph

Elle Kaplan

Elle Kaplan

Elle Kaplan learned the importance of understanding money after a tragedy left her mother overwhelmed by the family’s finances.

Elle Kaplan grew up dreaming of becoming a doctor, or maybe a writer. But when a family tragedy left her mother consumed by her new financial responsibilities, it opened Kaplan’s eyes to the importance of financial literacy. She spent more than 10 years working on Wall Street — as a broker, investment banker, trader, and financial analyst — before starting her own asset management company.

She founded LexION Capital Management LLC with the goal of helping women like her mother, her mother’s friends, and every woman who ever felt confused or intimidated by money. “Economic power can change women’s lives,” she says. Here’s how it changed hers.

I grew up outside of Chicago as one of four kids. We were a pretty traditional family with a working father and a stay-at-home mom. When I was in college, my father fell into a deep coma. My mother was grief-stricken and overwhelmed, but particularly overwhelmed with the family finances. She was a genius but didn’t know anything about money or even where the savings, life insurance, and retirement accounts were. I desperately wanted to help her. As a college junior, I started to do research to find if there was a place where she could go for financial advice that was as safe as a doctor — somewhere that would do no harm. I found that no such place existed.

Looking at the way personal savings and investments were handled on Wall Street at the time, I discovered only one model: the brokerage model. Their job is to sell you something in the best interests of themselves, rather than in the client’s best interests. It’s like seeing a pharmaceutical rep instead of a doctor.

I had this dream to build a place to help her and women like her. As women, we are just as smart and as capable as men, but we do face unique challenges. Namely, we are paid less and we live longer. I found a gaping hole in the finance industry that I wanted to fill.

My career path was forever changed. I was an English and chemistry major at the University of Michigan, but I decided that when I finished college, I would move to New York City and get a job on Wall Street. I didn’t even know what Wall Street was or what that meant. But I was going to figure it out.

I was 22 years old, and I moved to New York with $200 in my pocket, which felt like a lot of money at first. I slept on the floor of a one-bedroom apartment in Westchester and I had to take the train in every day. It was $20 each way, which was a very significant expenditure. I started to do the math on everything. I knew a yogurt at the corner bodega would cost me $1.25 and it could serve as breakfast and lunch. I knew how many train rides I could afford before I needed to get a job.

Right away I began temping. I worked at a couple of media places and a couple of law firms doing administrative work — sitting in conference rooms answering phones, bringing coffee, sorting mail.

I applied to a lot of Wall Street firms, and I was rejected by a lot of Wall Street firms. They weren’t interviews and then rejections — it was just, “We’re not interested in meeting you” rejections that would come as form letters. Or if I followed up with a call, they would say, “We’ll keep your résumé on file.” This went on for months.

Then I got my break. One of the headhunting agencies I signed up with offered to send me on jobs on Wall Street, which I thought might be my way in. I didn’t realize they would only be sending me on receptionist and administrative assistant jobs. I went back to them and said there must be some misunderstanding. I want to interview for professional jobs. The woman in charge said things like, “You need a major attitude adjustment,” “Come back when you have an MBA,” “No one is going to take you seriously,” “You can’t possibly think anyone will hire you?”

With that, I went off to my next interview to be a receptionist at a private equity firm. I was so broke that I bought a suit and I tucked the tags in just in case I needed to return it. The man I interviewed with saw my A average in chemistry and English, and he said that he thought I might be bored answering phones. There was a job opening as an analyst, and he offered it to me. The headhunter who scolded me on my attitude ended up making a much bigger commission because I got the higher-paying analyst job.

I was so broke that I bought a suit and I tucked the tags in just in case I needed to return it.

Wall Street titles are generic. An analyst is an entry-level professional investment-banking role where you do things like comparable analysis. For example, if one company were considering acquiring another company and they both manufactured candy, I would look at all of the comparable companies in the candy industry, come up with a process for them to price the acquisition, and supply as much research as possible. I was often terrified. I was a public-school gal surrounded by a lot of people with fancy degrees. I definitely felt like a fish out of water.

I was at that private equity firm for about three years when a bigger investment bank acquired them. I was then able to move into a role as a private banking associate. In this new job, I was part of a team that had an equity — another word for stock — portfolio for high-earning individuals. I would meet with clients on the phone as part of a team and discuss why we were investing in certain things and how it fit into their investments. There was a lot of learning what I think is a very confusing language — the language of Wall Street — and distilling it down so that it is understandable.

By now I felt I had developed skills and I was learning more every day — and I was no longer tucking in suit tags. It was a much more confident place. During my five years at the investment bank, I enrolled in the executive MBA program at Columbia University, which the company paid for in exchange for me working full time in addition to going to school full time.

Those were not fun years. It was so busy I remember feeling like if I couldn’t microwave food in 30 seconds or less, I couldn’t eat dinner. It meant really not having time to date or see my friends. It was a lot of sacrifice, but I really wanted that degree. And it was far and away the most responsible way to go to school because I didn’t have to incur any debt.

After I graduated with my MBA, I took a job on the trading floor with another bank. I traded commodities derivatives and fixed income in New York and London. I would work with clients — large institutions or even governments of different countries — and price the items they wanted to trade. I would price the transactions for them and then execute the financial details. There was a lot of pressure and stress. It’s fast-paced and very mathematical. My chemistry background has been very useful to me. Finance is very much about mathematical formulas.

I had to ask another guy to stop yelling out pejorative words that describe women every time he got upset.

The trading floor is the most intense place on Wall Street. What’s culturally acceptable doesn’t apply there. One guy who worked right next to me would get frustrated and take his keyboard and bash it against his desk. Or he would throw his phone so that it broke into tiny pieces. This is loud, disruptive, a little crazy, and frightening, and it’s happening a few feet away from my desk. All the guys would laugh, and then the aggressive guy would call IT and say, “My keyboard isn’t working.” It would just be replaced, no questions asked. I had to ask another guy to stop yelling out pejorative words that describe women every time he got upset. You don’t expect you’ll need to make these types of requests at work. I don’t think it will change until we get more women in finance.

I stayed on the trading floor for two years. Then I went back to private banking to become a financial advisor. Friends and coworkers mocked this move. To them, it seemed like a step back in a financial career. But it was deliberate. I wanted to learn the retail end of finance. I had learned private equity, how to trade, investment banking, and now I wanted to learn how it goes from the client experience. I also knew this job would be a predictable nine-to-five. I met with clients, helped them understand how to invest their money, and my day was over. I started building my company in all of my spare time.

To build a business that’s good enough for my mom, I had to leave behind a lot of the ways Wall Street does business. And this is hard. It would have been much easier to build a brokerage firm where you’re held to a lower standard. But I was committed to being a fiduciary firm. Fiduciary advisors are required by law to act in the best interests of their clients, whereas the same laws do not govern brokers.

Because New York finance was closed by the time I got home from my day job, I started calling firms in California to get some ideas. I would call up anyone who I thought might be helpful — bankers, business owners — and ask for their advice. I then called some of my mom’s friends to see what they would feel comfortable with in terms of investing. I felt I would rather take the long, slow, and deliberate route even if it meant working longer in Wall Street than I had intended. People trust you with their life savings. That’s a huge honor. I wanted to build something worthy of that honor.

During this time, I had two clients ask me to manage their family’s money. These were extremely wealthy families who could afford someone doing this for them. I said no. I didn’t want to take on any private clients until I had my business ready. A third client actually suggested that I start this business that I was very much already thinking of starting and he wanted to own a bit of it. I said, “No, thank you,” to the partnership, but I extended the offer to represent him once I started.

To me, money is the ability to have choices and freedom, and take care of family and causes you care about.

I knew I wanted to own this myself without the help of any bank or any male investor. I was in a position that I could afford to start the firm myself. To me, money is the ability to have choices and freedom, and take care of family and causes you care about. And it’s about options. I invested very well and was now reinvesting in myself.

The first thing I did was build a website, name the company LexION Capital Management, and put everything together from my apartment. I hired a team of administrative help, a web and brand designer, and advisors. After working on it for two years, it was time to quit my job. It wasn’t anything dramatic. I had so much on my mind that it was another thing on my to-do list that day. It’s standard practice on Wall Street that when you give notice for your job, you are escorted out that day. I was finally on my own.

In October 2010, I opened LexION. I invited those three private clients who approached me before to join as well as a select few others. I sent out emails one afternoon and got responses within 28 seconds. Everyone I invited to join joined. I had the reverse curse. I had to staff up and stop accepting clients because it was happening so fast.

I guess I told everyone I knew that I was looking for employees because people showed up. I hired subject-matter experts who analyzed the market from a mathematical standpoint and various support staff as I needed them. I kept a waiting list of people who were interested in becoming my clients. The following summer, in September 2011, I moved the business from my apartment to an office and took on more clients. I’ve had people knocking at my door ever since. I will expand as much as I can to help as many people as I can.

When we started, the minimum investment for clients was $1 million. But my goal was to help my mom, my mom’s friends, and other women. For most Americans, $1 million in savings is impossible. So I decided to lower the standard to $100,000. Historically, only the largest pools of money have been managed this way. I want to disrupt the industry by offering this attainable standard. Every client is someone’s mom or best friend of [a] sister or family member. I have male clients as well, who often come in as part of a family led by a matriarch. We end up helping generations of the same family. They trust us, and I give every client the same level of care whether they are investing $100,000 or $10 million.

Clients come to us, and we get to know their goals. Do they want to save for their kids’ college, for retirement, or do they want to take one really glamorous vacation every year? Then we manage their money on their behalf while they go off and live their lives.

When you’re the CEO, you wear every single hat in the company. I do everything from acting as the company’s spokesperson to emptying the trash. I still meet every client.

My greatest joy is helping my clients. The biggest challenge is already behind me. Taking the time to build my business the right way was difficult at times but worth it. I tell young women all the time to remember that every overnight success story is 10 years of hard work in the making.

I hope to stay on as CEO as LexION and grow it. I want us to become a huge firm that is a household name. We really want to change what all Americans expect from the asset management industry. I also think it’s important to represent women in finance at this level. There is definitely a glass ceiling on Wall Street. There are plenty of women in support roles, but I was often alone as a banker. It bothers me immensely. We are hearing a rallying cry for STEM, which I think is important. But I want there to be a rallying cry for women in finance. Finances have such important implications in every aspect of a woman’s life.

- Get That Life is a weekly series that reveals how successful, talented, creative women got to where they are now.


Posted by:  Steven Maimes, The Trust Advisor


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Why Aren’t Millennials [Under 35] Saving Money?

The Atlantic article by Bourree Lmnov

millenialsFor one thing, the recession made them hate banks.

I remember one thing very clearly about the times I applied for an apartment with my friends, and eventually with my boyfriend—we always submitted our tax returns and bank statements individually to our broker to avoid addressing a sensitive issue: how much was in our bank accounts. Talking about how much savings one has is probably on par with comparing salaries in terms of social faux pas. That said, it might be motivating, if a bit embarrassing, when your peers have a bigger salary or savings account than you do.

But perhaps for Millennials, as compared to previous generations, this conversation is easy, because the common answer to that question is: zilch. Commiserating about how to work and live in an expensive city while traveling and trying to save money is practically a Millennial pastime.

Earlier this week, The Wall Street Journal reported that adults under 35 have a savings rate of -2 percent, according to Moody’s Analytics. The report said that in 2009, the savings rate of those under 35 was 5.2 percent.

That Americans don’t save enough is certainly true: the U.S. personal savings rate has been plummeting since the early 1980s. For Millennials, their debt makes it even harder to save. A Wells Fargo survey of Millennials reported that 47 percent spend at least half their paychecks relieving various kinds of debt (credit card, mortgage, student loan, etc.). With student loan debt in the U.S. hitting the $1 trillion mark, Pew reports that 37 percent of U.S. households have student debt, with the median debt standing at $13,000.

This is paired with the fact that Millennials are more skeptical than ever of banks—perhaps not surprising for a generation that came of age during the Great Recession and Occupy Wall Street. One study named the financial industry as one least liked by Millennials—with Bank of America and Citigroup being the most hated.

Another study by BNY Mellon and University of Oxford looked at Millennials in 7 countries, and found that their financial literacy is also pretty dismal: Nearly half did not know how pensions worked, and Millennials are twice as likely to turn to their parents for financial advice rather than a bank. Additionally, 59 percent said they have not seen financial products geared towards them.

This mistrust of banks, along with historically low income and investment, is added to the fact that saving money is just really hard—for everyone. It may be that we need to trick ourselves to do it: Harvard economist David Laibson has some suggestions on how to raise the savings rate for those with jobs, namely an opt-out (rather than an opt-in) system that would make it easier for Americans to save.

New companies like LearnVest offer financial planning for young professionals. While there’s still some debate amongst economists about whether a high savings rate is good for the economy, making saving easier is definitely a step in the right direction for Millennials to become more financially stable and a less cheap generation.


Posted by:  Steven Maimes, The Trust Advisor


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Finding, and Battling, Hidden Costs of 401(k) Plans

NYT article by John F. Wasik

401HIDFEES.jpgLike millions of retirees who assumed their companies had taken care of them, Ronald Tussey never thought that his retirement plan might be flawed. He trusted his company so much he kept his money in his 401(k) long after he left.

Having worked as an engineer for 37 years, ultimately at ABB Inc., where he retired 11 years ago, Mr. Tussey said he never paid much attention to the fees in his retirement plan and “assumed the company was looking out for my best interests.”

But after seeing a television program on the negative impact that 401(k) expenses can have on retirement savings, he hired a lawyer, who filed a class-action lawsuit in 2006 against ABB and plan administrators.

Mr. Tussey’s suit became a landmark case that highlighted the sometimes excessive expenses in 401(k) plans. The suit remains largely unresolved today, while Mr. Tussey has become an archetype of an inexperienced litigant caught up in a legal battle far more complex than he ever expected.

“I had no idea about litigation,” Mr. Tussey says. “It was unbelievable.”

Like many employees, Mr. Tussey, now 70, was told that his retirement plan was “free,” even though middlemen were deducting expenses from his savings.

In many retirement plans, a significant amount of future retirees’ funds are devoured by fees. According to a 2012 study published by the progressive think tank Demos, high 401(k) fees can drain $155,000 from an average household over a lifetime. Higher-earning households can lose even more — up to $278,000.

Growing employee resistance, resulting from a greater awareness of plan costs, has resulted in more than 30 lawsuits against 401(k) plans and employers since 2006. Seventeen have been dismissed, but these suits are time-consuming, complex and difficult to litigate. The oldest 401(k) suits, like Mr. Tussey’s, have been winding through courtrooms for the last half-decade.

Despite a federal requirement that plan fees be disclosed and numerous reports on 401(k) plan flaws, few employees question how much they are being charged, much less take their employers to court. As Mr. Tussey learned, time spent on legal proceedings is clearly not on a par with time spent traveling the world, working in the community or taking up a new hobby.

After more than six years of litigation, a federal court in Missouri ruled in March 2012 that ABB and its record keeper, Fidelity Investments, had violated fiduciary duties to the plan and participants and were liable for $37 million.

ABB appealed part of the case, but the United States Court of Appeals for the Eighth Circuit in St. Louis this year upheld the Federal District Court judgment that $13.4 million be awarded to participants.

A $1.7 million district court judgment against Fidelity was reversed by the higher court.

Nothing, to date, has been paid to ABB 401(k) plan participants. Lawyers representing the employees want the Supreme Court to review the case.

In the meantime, though, there are lessons here for current and future retirees.

At the heart of the suits are a raft of obscure fees and services that few employees will be able to discern. Unless employers absorb all of the expenses, you must pay the bills for plan record-keeping, administration and fund management.

Most fund expenses not covered by employers are deducted from plan assets — the money pooled for your retirement — and show up in an “expense ratio,” which is expressed as an annual percentage of what you have invested. If your plan charges 1 percent on $100,000 invested, you are paying $1,000 annually in fees.

How much is too much for 401(k) expenses? It depends on the size and complexity of the plan. The Department of Labor’s fee disclosure requirement, which went into effect about two years ago, will tell you how much is being deducted from your savings, but it won’t tell you if that amount is too much.

In the somewhat opaque world of 401(k) expenses, a large plan may be the best deal, but smaller plans can still offer lower expenses if employers shop around. Often only an audit by an independent fiduciary who knows how to compare similar plans can determine whether you are being overcharged.

Jerome J. Schlichter, a St. Louis lawyer who represented Mr. Tussey and plaintiffs in other 401(k) suits, said there were some common elements in plans that could indicate lofty expenses and conflicts.

Even though no extra service may be provided, record keepers may reap higher compensation just because total assets increase from year to year. This number can be hard to find and even tougher to examine. Is your plan’s record-keeping fee fair? You may need an independent consultant — someone with no financial interest in the plan, funds or middlemen — to properly vet this number.

Also look at revenue sharing. This is an often complex arrangement where a fund manager “shares” some of the fees it receives from fund expenses with other service providers, such as brokers. This practice, though declining, is particularly insidious since it provides little or no value to employees. It is derisively referred to as a “kickback” by 401(k) critics.

Expenses, perhaps the largest target for 401(k) suits, can be the easiest to vet because fees can be compared across plans and funds. Does your plan charge a “retail” fund fee? It shouldn’t because 401(k)’s, even small ones, have access to the lowest-cost “institutional” or exchange-traded funds, which charge as little as 0.04 percent annually.

If your fund company offers multiple “share” classes, you will also need to know if you are getting the least expensive class. To get a basic idea, compare your plan with similar 401(k)’s on You can also look up individual fund expenses on

You will also need to see what kinds of funds are in your plan. Is your employer, particularly if it’s a financial services company, offering “in-house” or “proprietary” mutual funds? They may be more expensive than other funds and pose clear conflicts of interest.

And keep an eye out for unnecessary fees that may be eating up your nest egg. These include commissions, also known as “loads,” 12b-1 marketing fees, insurance-related charges, “wrap” fees and transaction expenses.

Even if you are acutely attentive to financial details or can fathom the arcane language of annual plan statements like 5500 forms, this is tough. Except for fund management fees, it’s not easy to spot a blatant overcharge. Mr. Schlichter has found that even in a new era of plan disclosure, most employees “are not aware of these fees and don’t learn much from their plan statements.”

For help, you might want to consult outside resources, like the website Personal Capital. The online money manager has a free 401(k) Fee Analyzer. It will tell you how expenses are affecting your nest egg.

The Department of Labor’s website has a wealth of information on 401(k) fees and disclosure, and you can also find a breakdown of 401(k) expenses at

What if you’ve found that your plan is a rotten deal, but you don’t want to move your money and can’t get your employer to change the plan?

As Mr. Tussey knows, it may be a long, rocky road through the court system, at the end of which you may not reap a penny.

Lawyers representing employees must prove not only that plan participants were charged exorbitant fees or employers showed a clear conflict of interest, but also that employers broke federal law by breaching their fiduciary duty. That’s a legal standard that says employers must do everything in their power to act prudently on behalf of workers. In the case of 401(k) plans, that means finding a reasonable selection of low-cost funds and services.

But the legal landscape may change substantially. In October, the Supreme Court agreed to hear a 401(k) fee case. If the court rules in favor of employees, the floodgates could open for more retirement plan lawsuits.


Posted by:  Steven Maimes, The Trust Advisor


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Never Give Up Control When You Create Your Estate Plan

Forbes article by Mark Eghrari 

estateIn a previous post I noted three things all our clients seek when we ask them to describe their estate planning goals.

One is maintaining family unity. Another is getting the best health care they can afford.

The third is control.

Why is maintaining control such an important consideration?

As people grow older they often experience a greater desire for control. When you think about it, that makes perfect sense. What we often yearn for most is what we feel we have lost (or are losing), and as we age we experience a gradual decrease in fitness, in health, in mental capability, a sense we’re losing a little more control over the lives of our children and grandchildren… so it stands to reason that voluntarily giving up even more control over our lives would be difficult to swallow.

Yet many estate planning strategies do just that – they result in a loss of control over assets, finances, and even decisions.

For example, people are often counseled to gift their house to, say, their son. At face value it makes sense: a house you do not own is a house whose value cannot be factored into Medicaid eligibility calculations. But that also means signing away your home: the place you live and love, the place you call your own. Sure, you may still live there… but it’s no longer yours, even if just on paper. You can’t sell it if you want. You can’t take out a reverse mortgage (something I almost always advise against, by the way) if you so choose. You can’t do anything of substance without at best case a signature and worst case permission.

How’s that for feeling like you’ve lost control?

Instead, it’s critically important that you always remain the owner.

Another misconception is that you give up control if you create an irrevocable trust, and that you should be the trustee of your own trust.

Neither is the case when the trust is properly drafted. With an irrevocable trust you can retain control. You remain the owner. You can still have the final say. Sure, in order to make a change to the trust you will need the cooperation of the trustee you named… but you also have the right to change or “fire” that trustee, so in the end it’s a moot point. You don’t need permission because you have the final say.

The trustee serves at your pleasure, and if he or she is not doing what you want, you can play Donald Trump and say, “You’re fired!” and choose another trustee.

A different control issue can arise if you are responsible for caring for an elderly parent. Depending on the parent’s needs – and your current family situation – you could quickly feel you’ve lost control of your own life. Between taking care of your parent, taking care of your children, maintaining a relationship with a spouse or significant other… the pressure and stress often leads to problems at work and problems in relationships. In short, you are forced to wear many hats – but no one can do a good job of wearing all those hats. Something has to give, and that something is often you.

In life, striving to maintain control over your own affairs and decisions is everything. (Notice I didn’t say, “striving to maintain control over other people.” That’s a recipe for disaster.)

Every decision you make, whether personal, financial, or legal, should be designed to maximize your control over your decisions – and your assets.

Don’t give up control; you will never be glad you did.


Posted by:  Steven Maimes, The Trust Advisor


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Robin Williams Leaves Behind $50 Million Estate

Wills, Trusts & Estates Prof Blog post by Gerry W. Beyer

robThe late Robin Williams left behind an estate valued at $50 million to his three children, with his wife Susan Schneider cared for under the terms of a prenuptial agreement.

According to Williams’ legal documents, a financial trust was established for his children.  The full extent of that trust’s disbursement was planned to occur in stages, where his children are to receive the trust property at ages 21, 25 and 30.  His son Zak was also “entitled to distributions of principal in such amounts as the Trustees consider necessary for support, education, and medical care.”

In the remaining months before his death, Williams had put his Napa Valley estate up for sale.  In 2012 he attempted to sell the home for $35 million but was unsuccessful.  In April this year he re-listed the home for a reduced rate.  It is unknown whether Susan will stay at the house under the terms of the prenup or whether she will receive the proceeds of the property if it sold as the will states, “I intend by this will to dispose of all property wherever situated that I am entitled to dispose of by will.”

See Sara Nathan and Martin Dryan, Robin Williams Left His $50 Million Estate to His Three Kids, His Will Reveals.  His Widow Susan Also Gets a Slice of His Fortune—As Couple Signed a Prenup Before Marriage, Mail Online, Nov. 11, 2014.


Posted by:  Steven Maimes, The Trust Advisor


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FolioDynamix Helps Wealth Management Firms Streamline End-of-Year Tax Management Across Client Portfolios

Globe Newswire

folFolioDynamix, a leading provider of wealth management technology and advisory services, announced that its platform delivers the foundation wealth management firms need to effectively manage end-of-year tax considerations across client portfolios.

FolioDynamix provides a full tax optimization toolset as part of its trading and rebalancing solution, giving investment advisors access to the same tools used by institutional investors. In addition, FolioDynamix is offering tax optimization as a turnkey managed service through its FDx Advisors affiliate for firms that are seeking to outsource oversight of this critical function.

With the FolioDynamix platform, financial advisors and portfolio managers are able to leverage a suite of tax-conscious trading tools that help advisors minimize tax consequences for their clients. For example, advisors can harvest losses through quick trading tools, as well as rebalance client portfolios, while preventing short-term gains or wash sale violations – all with the click of a button through an easy-to-use web interface. For ultra-tax-sensitive clients, full risk-adjusted tax optimization rebalancing tools can be leveraged, taking tax management to the next level.

“During end-of-year crunch time, advisors are busier than ever and managing the tax implications of investment decisions across multiple client portfolios can be challenging,” said Joseph Mrak, CEO of FolioDynamix. “The FolioDynamix tax optimizer provides advisors, trust officers and portfolio managers with a framework for decomposing portfolio risk and the tools they need to execute effective tax management actions in line with client objectives. The fact that advisors have access to an industry-leading tax optimization engine within the FolioDynamix wealth management platform gives them the end-to-end visibility they need to deliver better results with greater efficiency.”

About FolioDynamix

FolioDynamix offers the most comprehensive web-based wealth management technology platform for managing the full advisory lifecycle – proposal generation, research, model management, portfolio accounting, trade order management, reporting and performance analytics. Visit


Posted by:  Steven Maimes, The Trust Advisor


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