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Estate Planning Mistakes Every Boomer Should Avoid

Fox Business “The Boomer” by Casey Dowd

EstatePlanningWhen planning for retirement, boomers need to consider two scenarios: what happens to their estate when they die, and what happens to the estate if they live but aren’t healthy and need to rely on others for assistance on a permanent basis.

Creating an estate plan can help protect boomers’ assets and make sure their wishes are played out in the event of death or if they become disabled and need long-term care and support.

David Cutner, partner at Lamson & Cutner, attorneys for the elderly and disabled offered the following tips for both estate planning and long-term care for boomers:

Boomer: Why should I hire an elder law attorney?

Cutner: Most seniors today ignore the greatest financial risk they are facing — the ruinous costs of long-term care.  According to the U.S. Department of Health, 70% of our population over the age of 65 will need some type of long-term care, and more than 40% will need nursing home care for some period of time.

Most people don’t have insurance coverage for this risk (note that Medicare doesn’t cover long-term care), and, if care is needed, their life’s savings will be rapidly depleted and their homes may end up in jeopardy as well if they need it to finance their costs.

Fortunately, solutions are available to protect assets and income, while accessing long-term care benefits under government programs such as Medicaid.  An elder law attorney will have the knowledge and experience to provide the advice that you need, and will be able to implement proper and reliable strategies to achieve your goals in this area.  It just makes sense at least to have a consultation with an elder law attorney to learn about your options and correct any mistakes you may have made along the way.

Boomer: What makes up a well-designed estate plan?

Cutner: A lot of people worry or wonder about estate taxes, but with the federal exemption now over $5 million, the truth is that only about one-tenth of 1% (0.1%) of estates pays federal estate tax.

However, having a well-designed estate plan still makes a lot of sense to make sure that your assets are passed on in the most efficient way to your beneficiaries and avoid conflicts among your heirs and to minimize court costs and proceedings (probate or administration).

At the same time, I believe that a well-designed estate plan must take into account the financial risks of health care that may be needed, especially long-term care. Otherwise, you could wind up with no assets in the estate, and it won’t matter how good your estate plan was.  Your Elder Law planning will avoid or minimize these risks, resulting in a larger estate in most cases. The legal documents used to implement your elder law plan (typically one or more trusts) are also your estate planning documents — they help protect your assets from the ruinous costs of long-term care during your lifetime, and they provide for distribution of those assets according to your wishes at the time of your death.

Boomer: What are some common long-term care mistakes and how can I avoid them?

Cutner: The list of possible mistakes is a long one:

1) Don’t tie up your money in long-term investments where you have no liquidity, or have to pay a penalty to get your money back (e.g., annuities).

2) If you are considering long-term care insurance, make sure that the benefits are adequate, that you have an inflation rider and that you can afford the premium (including any likely increases in premium over time). You don’t want to find that you do not have sufficient cash flows to cover gaps in coverage, and then have to rapidly deplete your assets to supplement your insurance.

3) Make sure that you have proper and adequate advance directives in place, i.e., power of attorney and health care proxy.  Be aware that “standard forms” downloaded from the Internet may not be valid, or may lack an adequate scope of powers.  The alternative is likely to be an expensive and frustrating guardianship proceeding in court.

4) Poor management of your real estate, e.g., life estates or reverse mortgages can have unfortunate consequences in some cases.

5) Failing to take advantage of possible penalty-free transfers when applying for government benefits such as Medicaid, and spending down on private pay home or nursing home care.  Most people believe that they must spend down their life’s savings before they can apply for Medicaid, but this is simply not true.

6) Don’t stay in an investment that should be sold to diversify just because you don’t want to pay capital gains taxes. Taxes should always be considered but a good investment strategy must consider the risk of staying in one or two investments that could lose value, especially if you may need funds for your long-term care needs.

Boomer: What are the top estate planning mistakes and how can I avoid them?

Cutner: Most mistakes can be avoided, but here’s a look at a few common ones:

1) Failing to plan for liabilities and expenses that can be foreseen — particularly long-term care.

2) Failing to update beneficiary designations on bank accounts, investment accounts, retirement accounts, and insurance policies.  Don’t just “set it and forget it.”

3) Failing to take steps to avoid conflicts and potential litigation among heirs and family members.  A Trust or Will that makes your intentions clear about excluding, as well as including, certain people as beneficiaries can be very helpful.

4) Downloading a will from a legal software company online and signing the document without consulting an attorney.  These forms may not comply with the law of your state, and a computer program cannot provide you with proper advice.

5) Transfers of real estate during lifetime, rather than through wills or trusts, may result in high capital gains taxes that could have been avoided.

Source:  foxbusiness.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/headlines/estate-planning-mistakes-2 ‎


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Inc. Magazine Names Innovest One of the Fastest Growing Private Companies in America

Press Release

Inc. Magazine, an online and print publication aimed at entrepreneurs and business owners, released its thirty-third annual Inc. 500|5000 list of fastest growing private companies in America. This marks the third year that Innovest has ranked as one of the fastest growing private companies in the United States.

From 2006 through 2011, Innovest’s revenue grew at a compound annual growth rate of almost 30%. As a leader in the trust and wealth management technology market, Innovest’s systems process over 4 million payments per year and accounts for assets with an aggregate market value of more than $425 billion.

Innovest provides modern-era solutions to banks, trust companies, and other financial institutions. The platform empowers Innovest’s clients to acquire new customers and assets, invest customers’ assets effectively, manage trust and investment portfolios efficiently, and flexibly report results back to its customers.

Since 2012, Innovest has added significantly to both its product offerings and client list. A full-service payment solutions platform is now available as well as a fulfillment services division handling a full range of print capabilities. Together, these two offerings greatly enhance Innovest’s clients’ ability to address the industry’s increasing focus on income distribution as Baby Boomers retire. Custody, mobile applications, an investment policy statement generation tool, and CRM are also among the list of product expansions that are now available to Innovest customers.

“We are very excited to again join other successful companies on the 2014 Inc. 500|5000 list of fastest growing private companies in America,” said William Thomas, Innovest’s chief executive officer. “At Innovest, we are committed to providing innovative solutions for forward-thinking financial professionals. It is our goal to empower our clients with the tools and technologies they need to successfully grow their business.”

About Innovest

Innovest is a leading provider of financial technology solutions delivered to forward thinking trust, wealth management, and retirement professionals. Innovest’s solutions empower its clients to acquire new customers, invest assets effectively, manage trust and investment portfolios efficiently, and flexibly report results to customers. Innovest has over $425 billion in assets under administration on its trust and wealth management platform, processes more than 4 million payments annually and provides fulfillment services for more than 10 million documents including checks, advices, and tax forms each year. For more information about Innovest, visit http://www.innovestsystems.com.

Source:  prweb.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/innovest-3

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LPL Financial Welcomes Financial Advocacy Network and its Four Member Independent Advisor Practices to Broker-Dealer and RIA Custodial Platform

Press Release

LPL-BasketNewly Launched Independent Hybrid RIA Group to Leverage Broad Range of Experience Among Member Independent Advisor Practices

LPL Financial LLC, the nation’s largest independent broker/dealer, an RIA custodian, and a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ: LPLA), today announced that Financial Advocacy Network (FAN) has joined the LPL Financial broker-dealer and RIA custodial platform. The advisors of FAN, a newly launched independent hybrid RIA group that supports four independent financial advisory practices with a total of 13 financial advisors, have a total of approximately $450 million of advisory and brokerage client assets, as of April 15, 2014.

Based in the Washington, DC, area, FAN was co-founded by veteran financial advisor Chris Cox, along with his wife Amy Fernicola Williard, who serves as the group’s compliance officer, and Marty Sullens, the group’s head of business development. FAN’s mission is to empower experienced fee- and commission-based financial advisory practices that seek to be independent, but do not desire to be alone. Towards this end, FAN provides a comprehensive array of compliance supervision services, as well as back and middle office support to independent advisors, designed to enable them to maximize their focus on client relationships.

In addition, FAN seeks to leverage the broad range of intellectual capital and financial advisory experience available among its members to create a network for sharing ideas, capabilities, best practices and business growth opportunities. FAN expects to expand each member advisory practice’s financial advisory capabilities in areas such as asset management, investment research, insurance solutions, and retirement planning, while also providing its member practices with support in areas such as training, recruiting and succession planning.

Steve Pirigyi, Executive Vice President of Business Development at LPL Financial, said, “We are very pleased to welcome Chris Cox and all the independent advisors in Financial Advocacy Network to LPL Financial. Their objective to nurture a broad range of capabilities among FAN’s independent advisors, and then share their common intellectual capital, is a forward-thinking innovation on the advisor group business model, and we are pleased to work with them to help facilitate their vision. We are proud they have recognized that LPL Financial’s combination of flexibility, support and regulatory expertise can help enable the group to move forward. We’re excited to serve as their partner for enabling growth and success for the future.”

FAN’s member advisory practices serve a range of clients across the country, including mass-affluent and high net worth individuals and institutions. Its member independent advisor practices include The Monitor Group, of Rockville, MD, of which Mr. Cox is also a principal financial advisor; Wenger Financial Services, of Newport News, VA; Legacy Wealth Management, of Mt. Pleasant, SC; and Newcorp Wealth Strategies, of Atlanta, GA. All four affiliated practices conduct their fee-based advisory business through FAN’s registered investment advisory (RIA) firm, Maryland Financial Group, Inc.

Mr. Cox, co-founder of FAN and Managing Principal of The Monitor Group, said, “I am very excited by our launch of Financial Advocacy Network, which will enable each of our members to operate as independent advisors while maximizing their capabilities to grow, succeed and learn from one another. As an industry leader in the independent advisor space we feel LPL Financial understands the independent advisor business model like no other partner or potential partner we encountered, and they have been extremely supportive of our vision for our member practices, our network and the independent financial advice industry’s future.”

About Financial Advocacy Network

Financial Advocacy Network (FAN) is a community of entrepreneurial, independent advisors brought together by the desire to achieve exceptional practice management, access high quality resources and engage in a culture of shared knowledge and experience to enhance individual practices and the overall success and value of their businesses. Based [in the Washington, DC, region/Rockville, MD], FAN currently includes The Monitor Group, of Rockville, MD; Wenger Financial Services, of Newport News, VA; Legacy Wealth Management, of Mt. Pleasant, SC; and Newcorp Wealth Strategies, of Atlanta, GA. FAN members conduct their fee-based advisory business through Maryland Financial Group (MFG), an RIA owned by FAN. FAN was founded by Christopher Lee Cox, a financial advisor since 1997; his wife, Amy Fernicola Williard; and Marty Sullens. In total, FAN has approximately $450 million of assets, as of April 15, 2014.

About LPL Financial

LPL Financial, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ: LPLA), is the nation’s largest independent broker/dealer (based on total revenues, Financial Planning magazine, June 1996-2014), an RIA custodian, and an independent consultant to retirement plans. LPL Financial offers proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 13,700 financial advisors and approximately 720 financial institutions. In addition, LPL Financial supports approximately 4,500 financial advisors licensed with insurance companies by providing customized clearing, advisory platforms and technology solutions. LPL Financial and its affiliates have more than 3,000 employees with primary offices in Boston, Charlotte, and San Diego. For more information, please visit http://www.lpl.com.

Source: investor.lpl.com 

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/lpl-financial-4

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Triad Advisors Launches Triad Hybrid Solutions Providing Benefits of RIA Firm Ownership for Independent Advisors, Without the Same Regulatory Complexity and Costs

triadNew Platform Provides Streamlined Regulatory and Compliance Processes, Scalable Growth Tools, and Multi-Custodial Experience to Independent Fee- and Commission-Based Advisors

Triad Advisors, Inc. today announced the launch of Triad Hybrid Solutions, a new Registered Investment Advisory (RIA) entity serving fee- and commission-based independent financial advisors.  As part of this announcement, the company stated that Michael C. Bryan, Senior Vice President, Advisory Services, will serve as CEO of Triad Hybrid Solutions.

The new RIA primarily targets comparatively small to mid-sized independent advisors seeking the most advantageous attributes of owning their own RIA firms while offloading growing regulatory complexity and costs to a proven industry expert. In addition, Triad Hybrid Solutions offers IARs the maximum flexibility of custodial partners typically associated only with RIA firm ownership.  Triad Hybrid Solutions will enable its affiliated independent advisors to utilize multiple leading custodians including Charles Schwab & Co., Fidelity Institutional Wealth Services, and National Financial Services, LLC.  Further custodial partnerships with top providers are anticipated later this year.

Triad Hybrid Solutions expects to attract investment advisors of RIAs that deal with multiple state registrations, those who do not have the desire to dedicate staff and resources to RIA maintenance, or breakaways from wirehouses who may prefer an established structure. The association with Triad’s well-known broker/dealer also gives financial professionals the ability to offer products and services in a true hybrid business model serving clients on either a fee or commission basis.

Additionally, Triad Hybrid Solutions will offer the benefits of customized, end-to-end practice management support through industry-leading third party providers, all delivered at a cost that smaller RIA firms would be unlikely to afford.  This includes top-of-the-line resources such as Advent Software’s Black Diamond portfolio management and performance reporting technology as well as Salesforce.com’s customer relationship management (CRM) solutions.

Michael C. Bryan, Senior Vice President, Advisory Services, said, “Triad Hybrid Solutions meets a rapidly growing demand among an overlooked yet sizable segment of the independent advisor population. Advisors can leverage our extensive experience in the hybrid space, access industry-leading tools, and take comfort in knowing we manage the significant challenges of compliance and regulatory changes. Advisors are free to grow their own businesses with confidence.”

Nathan M. Stibbs, Senior Vice President, National Business Development, said, “For years, Triad Advisors has been a pioneer in providing hybrid independent fee- and commission-based financial advisors with the most accommodating structures for successfully pursuing their individual business models. The rollout of Triad Hybrid Solutions presents an important new offering in the broad range of our capabilities and reinforces our well-established leadership position in the industry.”

About Triad Advisors:

Headquartered in Atlanta, GA, Triad Advisors, Inc. is a national, independent broker-dealer and multi-custodial SEC-Registered Investment Advisor (RIA) that is an early pioneer and continued leader in the Hybrid RIA marketplace.  The company provides a comprehensive platform of products, trading and technology systems, as well as customized wealth management and practice management solutions to over 550 advisors nationwide, the majority of whom operate their own Hybrid RIA firms.

Recognized as one of the most successful and fastest growing independent broker-dealers in the industry (including being named the leading broker-dealer for Hybrid RIAs from 2009-2012 by Investment Advisor Magazine), the company was created expressly around the vision that independent financial advisors are best served when they are empowered with the capability to seamlessly integrate fee and commission-based services for their end clients.  Triad Advisors is a wholly-owned subsidiary of Ladenburg Thalmann Financial Services Inc. (NYSE MKT: LTS). For more information, please visit www.triad-advisors.com.

Source:  PR Newswire

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/triad-advisors


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Anna Nicole Smith’s Daughter Loses Fight For Marshall Millions

Forbes article by Daniel Fisher

Anna Nicole Smith

Anna Nicole Smith

A federal judge has ended the last chance for Dannielynn Birkhead — better known as the daughter of Anna Nicole Smith — to collect tens of millions of dollars from the estate of E. Pierce Marshall, the son of Anna Nicole’s billionaire husband, J. Howard Marshall II.

In an order today expressing regret over the outcome, U.S. District Judge David O. Carter dismissed as moot the attempt by Birkhead’s lawyers to win sanctions from the Marshall family over the delays and obfuscation tactics of the deceased heir and his lawyers in the long-running battle over the Marshall fortune. Carter last year indicated he might award more than $40 million in sanctions for behavior he described as “too pervasive and too egregious to be ignored.”

Carter noted he was one of the few people still alive who has been directly involved in the case over its 20-year span, which included a precedent-setting ruling from the U.S. Supreme Court, and he said the record shows Marshall and his lawyers had “a distinct disinterest in rules or ethics.” But Birkhead’s lawyers failed to provide sufficient evidence of actual damages for him to award sanctions, the judge said.

The Court is not immune to the equitable pleas from Vickie Lynn’s estate. It is tempting to invoke the broad doctrines of discretion, equity, and inherent powers to follow the pull of one’s heart and one’s conscience. But the powers granted to the federal courts are not all encompassing… The Court also must consider the very real concerns attendant in sanctioning Pierce Marshall, who is deceased and therefore cannot be present, cannot attend the hearing, and cannot answer for himself the allegations against him.

The decision ends a case which, aside from its celebrity quotient, triggered broad changes in bankruptcy law. Under the 2011 decision Stern v. Marshall, bankruptcy courts were largely precluded from issuing judgments of the sort that Anna Nicole Smith — formal name: Vickie Lynn Marshall — won after filing for bankruptcy in California. In her case, a judge awarded $475 million he said she was entitled to due to E. Pierce Marshall’s improper interference with his father’s estate. But a Texas probate court had previously rejected such claims, and the Supreme Court held that decision binding on the bankruptcy court.

Celebrity lawyer Phil Boesch, who represented Anna Nicole’s estate, sought sanctions because Marshall’s delaying tactics cost him the opportunity to win a judgment in California before the Texas court handed down its ruling. But Carter said too much time has passed for that argument to succeed.

Time spent litigating the relationship between Vickie Lynn and J. Howard has extended for nearly five times the length of their relationship and nearly twenty times the length of their marriage. It is neither reasonable nor practical to go forward.

“All of us who knew Pierce wish he was here with us to see the outcome of this case,” said G. Eric Brunstad, Jr., a Dechert partner and attorney for the Marshall family.  “Pierce was a conscientious and honest man of great integrity.  The family is in complete agreement with Judge Carter that it is time to put an end to this litigation.”

Maybe not complete agreement. In his ruling, Carter said Marshall and his earlier legal team supplied false testimony, attempted to manipulate a sitting federal judge, destroyed documents, ignored discovery requests and wilfully disobeyed court orders. He had particular criticism for attorney Edwin Hunter, who represented the Marshall family holding company, saying his “conduct was perjurious, obfuscating, and execrable.” Hunter previously settled with Anna Nicole’s estate, the judge said, meaning Dannielynn likely received something from the litigation.

Pierce died in 2006. His estate is still tangled in a dispute with the Internal Revenue Service over more than $100 million in taxes the government says it is owed because of questionable estate-planning moves. That case, too, involves a potentially precedent-setting question of whether the heirs can be forced to pay tax penalties that J. Howard incurred by making excessive gifts during his lifetime, which had the effect of making him insolvent.

Marshall’s fortune stems from a 14% interest in Koch Industries that he obtained in the 1950s. He married Vickie Lynn in June, 1994 and died 13 months later. She filed for bankruptcy the following year in California. Pierce, in a maneuver he probably later regretted, sued her for defamation for suggesting he’d used forgery and fraud to gain control of his father’s assets. The bankruptcy judge dismissed his case but awarded Vickie Lynn $475 million on a countersuit accusing Pierce of interfering in her inheritance. That judgment was reversed in 2011 after going to the U.S. Supreme Court twice.

Source:  forbes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/anna-nicole-smith


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Morgan Stanley Reaches $4.2M Settlement, Witnesses $4.5M Fine

By Zacks Equity Research  

Morgan Stanley has been hit with a double whammy. While the bank has agreed to enter into a $4.2 million settlement with the client services associates, it has also been ordered by a Financial Industry Regulatory Authority (FINRA) arbitration panel to pay $4.5 million to Citigroup Inc’s Banamex unit.

In the first case, the leading investment broker was accused of wrongly denying overtime payment to the client services associates. The second case by Banamex, pertains to the firm using a family trust account fund to repay third-party loans without its authorization.

Three client services associates Philips Amador, Sylvester Cetina and Joann Sunkett in the retail brokerage branches indicted Morgan Stanley of violating federal and state labor laws in 2011 when it did not pay them for the extra time worked after 40 hours a week.  This $4.2 million settlement finally ends the three-year old litigation.

Again, in the other case filed by Banamex in 2012, a FINRA arbitration panel found Morgan Stanley guilty. A banking unit of Morgan Stanley held and managed the trust account of a family, of which Banamex was a trustee. However, Morgan Stanley improperly used the trust’s money for paying off third-party loans.

Notably, another big bank, JPMorgan Chase & Co. has been sued by an Indianapolis church over fraud and mismanaging of church trust accounts.

For a reputed financial institution like Morgan Stanley, this ongoing spate of settlements and accusations could adversely impact credibility.

Source:   zacks.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/morgan-stanley-reaches


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Your 401(k) Is Healthy. So Maybe You Are, Too

NYT article by Matt Richtel

401kBefore you suggest that friends or family members start to exercise or improve their diets, you might first want to ask a question: Are they saving for retirement?

What do retirement savings have to do with physical health? A new study from the journal Psychological Science finds that people who are good at planning their financial future are more likely to take steps to improve their physical health — and then actually become healthier.

The research, scholars say, offers a keen insight into the sorts of people who are likely to make short-term sacrifices in the name of a brighter future.

“It suggests that there is something very abstract and fundamental about caring for the future,” said Gretchen Chapman, an editor for the journal and a psychology professor at Rutgers University. “The sort of person who invests in retirement is the sort of person who takes care of their health.”

The results echo previous research showing that some people are more predisposed than others to invest in the future. But much of that work, Dr. Chapman said, has been in the area of addiction — why heroin addicts, say, think differently about future consequences than nonaddicts. And this paper adds another interesting twist: The results come not from a laboratory experiment but from real-world data.

The researchers gleaned the findings from a trove of financial and health information that a midsize industrial laundry company in the Midwest collected from its employees, with their consent. The data was gathered anonymously by a third party and in turn provided to researchers at the Olin Business School at Washington University in St. Louis.

Broadly, the researchers looked at employees’ contributions to their 401(k) plans and compared them against various measures of their health, including blood test results; cholesterol, kidney and iron levels; exercise frequency; and whether they smoked.

First, the measures of about 200 employees were taken to establish a baseline. Then all the employees were told their health results and given instructions on how they might improve. A year later, they were tested again, in some cases more than once.

Employees who contributed regularly to their 401(k) plan were not only more likely to take steps to improve their health but also, in aggregate, had a 27 percent improvement in their blood scores. “Noncontributors continued to suffer health declines,” the paper said. The 401(k) contributors also showed relative improvements in safety behaviors, like seatbelt use.

The paper’s co-author, Lamar Pierce, an associate professor of organization and strategy at Olin, said the findings should inform public policy debates about nutrition and personal finance. Some people, he said, respond well to information and education, but others — like the employees who neither saved nor took care of themselves — may need stronger solutions. “Having a single-pronged policy is not effective,” said Dr. Pierce, whose co-author was a graduate student, Timothy Gubler.

Dr. Pierce said that people who didn’t respond to education might need tougher remedies — such as taxes on sodas to discourage consumption or, in corporate settings, cafeterias that offer only healthy foods.

“If you think health is really critical for productivity or health insurance costs,” he said, “you really need to constrain free choice.” He added, “You have to have mandates.”

Source:  nytimes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/headlines/401k-is-healthy

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Why Have an Annual Investment Review?

Morningstar Advisor article by Susan Chesson

reviewRegularly reviewing the investments you use in client portfolios can be relevant even for advisors with a passive investment philosophy.

Active investment managers–no matter their investment philosophy–live and breathe their investment decisions. Tactical allocators, long-short managers–all must evaluate and re-evaluate the composition of their clients’ portfolios regularly. But for managers with a passive or evidence-based investment philosophy, what type of investment review is relevant?

At our firm, we manage our clients’ assets primarily using asset class funds, and for several of those asset classes, we use institutional mutual funds managed by Dimensional Fund Advisors. Our investment accounts take on no more risk than is deemed necessary, depending on the client’s specific financial picture and investment goals.

We promise our clients transparency, liquidity, and broad diversification using inexpensive investment vehicles (mostly institutional mutual fund classes or exchange-traded funds) and tax-sensitive investment management.

This is expressed clearly in our Investment Policy Statement, provided to each client, where we outline our philosophy:

–Markets are inherently efficient.

–Exposure to risk factors determines investment returns.

–Diversification reduces portfolio risk and increases expected returns.

–Passive portfolio management is less costly, thus increasing expected returns.

Why should a firm like ours even hold an annual investment review? The advisors are neither chasing alpha through selection of active managers, nor are they tactical allocators, adjusting exposure to various sectors depending on economic forecasts.

But even for advisors like us, an annual investment review is important. The goal is to ensure that you are delivering on your promise to your clients–to build thoughtfully constructed portfolios using the best security selections available.

Your investment committee should have at least three senior advisors. For very small practices, consider drawing in additional members from other firms that utilize a similar investment strategy and process. Assign each advisor the task of presenting on either U.S. equity, international equity, or fixed income. Depending on the software and research available to your firm, you may draw data from several sources–Morningstar, research from ETF and fund companies, comparative analysis from your custodian firms or broker-dealers, and perhaps even interviews with mutual fund portfolio managers.

The investment review process should require each committee member to collect and analyze data on available securities or funds in the assigned asset class, prepare a recommendation for keeping or replacing each security currently in use, and then present to the other committee members. In order to standardize the process, decide in advance what key data on each security should be collected and reviewed, and agree on a standardized format for all members to use.

For example, we have standardized a quantitative table for equity funds that contains:

–the relevant benchmark for the particular sub-asset class

–average market capitalization

–number of holdings

–dividend yield


–prior and expected capital gains distributions

–annual expense ratio

–any short-term redemption fees

–1-, 3- and 5-year total return performance

For fixed-income funds, you may want to collect the following data:

–the relevant benchmark for the fund’s fixed-income style box

–number of holdings

–average credit quality

–average effective duration

–percentage of non-U.S. holdings

–SEC yield

–annual net expense ratio

–1-, 3-, and 5-year performance

It is important to identify tax-efficient funds for tax-sensitive accounts and other funds that may be appropriate only for tax-deferred accounts. It is also important to identify substitutes for each fund in order to maintain the desired asset allocation when harvesting tax losses during the year.

Once the security universe has been identified, proceed to developing the overall ratios of each asset class to the total portfolio for various levels of equity exposure. We start with 100% equities and move down the spectrum to 0% equities in 5% increments. We also construct three types of models for large, medium, and small accounts. Because expense management and minimizing turnover are important to our investment strategy, we control trade size and frequency by assigning smaller portfolios to less complex models, using broader asset class funds or funds of funds. It is key that each account–no matter the size–share similar characteristics as to the ratio of large equities to small, and growth to value tilts. By examining the correlation between funds, you can build consistent portfolios, no matter the size of the investment account.

Once the review is complete, store the minutes and supporting documentation in a shared directory so that analysis and records of committee discussions can easily be located and reviewed. It will also be required for compliance purposes. Once the committee has agreed on the final recommendations, make a presentation to your advisors and determine whether existing accounts will be migrated to the new models immediately, over time, or if the model will just apply to new accounts.

The annual investment review will help you to stay true to your published investment philosophy. It forces you to step back from day-to-day client interaction and portfolio management, and to more closely examine the tenets of your investment philosophy and your current method of implementation. This formal, systematic process is an opportunity to explore other fund options that you may not have considered before and to confirm that funds in your universe are still what you think they are. A committee approach encourages all advisors to openly debate the merits of the analysis and to question the results. Once you have achieved consensus, it enables your advisors to buy in to the final results and help to foster a common understanding of your investment philosophy and its implementation.

Source: morningstar.com 

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/investment-review

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Boston Fed’s Rosengren Calls for Overhaul of Broker-Dealer Regulation

American Banker article by Chris Cumming

broker_dealerBanks that own broker-dealers need to hold more capital to withstand runs and other shocks, the head of the Federal Reserve Bank of Boston said Wednesday.

Eric Rosengren, president of the regional Fed bank, joined the calls of other central bank officials who have argued that the risks of short-term wholesale funding need to be addressed. Broker-dealers’ reliance on unstable, short-term funding – particularly repurchase agreements – leaves them exposed to runs and credit-market freeze-ups, he said.

Rosengren made the suggestion for more capital during a speech on the need to comprehensively reform the regulation of broker-dealers.

Reforms “should include a major re-examination of how broker-dealers are regulated, and an increase in the capital required for any holding company with significant broker-dealer operations,” Rosengren said.

Other reforms Rosengren suggested include requiring broker-dealers to use more long-term funding or limiting what qualifies as acceptable collateral in repo agreements.

He also floated the idea of allowing broker-dealers access to the Fed’s discount window during a crisis – a “complex and likely controversial” suggestion that he acknowledged is unlikely to go anywhere.

Yet the simplest reform would be requiring broker-dealers to hold “significantly more capital than they would if they used stable funding sources,” he said. This would apply to broker-dealers within bank holding companies as well as independent broker-dealers and foreign entities with intermediate holding companies.

“To be sure, policy remedies would have an impact on the profitability of broker-dealers,” he said. “But given recent history, that trade-off may be unavoidable and in the public interest from a financial stability perspective.”

The speech is just the latest sign that the Fed is turning its attention to the risks posed by companies that rely heavily on wholesale funding. Rosengren noted that Fed Chairman Janet Yellen and Gov. Daniel Tarullo have also suggested that institutions that rely on wholesale funding should have higher capital levels, including perhaps tying capital levels to a bank’s reliance on wholesale funding.

Rosengren’s speech may also signal a more active role for the Fed in pushing reforms to the broker-dealer industry, which is primarily overseen by the Securities and Exchange Commission. Bank holding companies regulated by the Fed, including Bank of America, JPMorgan and Citigroup, own some of the country’s largest broker-dealers, but the SEC is the primary regulator for the industry.

Even though broker-dealers played a significant role in the financial crisis, “the SEC’s capital and liquidity requirements for broker-dealer entities have not materially changed since the crisis – leaving broker-dealers that are not in bank holding companies under a similar regulatory environment as before the crisis,” said Rosengren.

Rosengren delivered his remarks in New York at a conference on the risks of wholesale funding, sponsored by the New York and Boston Feds. Fed officials have said they will make it a priority to address the risks of short-term funding but have yet to give a specific timeline for when they will act.

Rosengren emphasized just how heavy the reliance on wholesale funding has become over the past several decades. Financial institutions now receive only 20% of their funding from traditional depositary sources, meaning checking, savings and time deposits. That ratio was more than 40% in the early 1970s, Rosengren said.

He also argued that the financial crisis showed the danger of over-reliance on repurchase agreements, in which securities held by the borrower serve as a collateral for a loan. The repo market can provide cheap funding when confidence is high, but can lock up when lenders become reluctant to take back the collateral for the loan – as happened in 2008, Rosengren said. This was particularly a problem for money-market funds, which are often forbidden from holding the high-risk securities that often serve as collateral.

“During the financial crisis, we saw that many of those who traditionally lent to broker-dealers feared default by a broker-dealer – and did not want to risk having to take possession of the collateral associated with the repurchase agreement in the event of a default,” he said.

In his public speeches, Rosengren, who has headed the Boston Fed since 2007, has emphasized the vulnerability of nonbank financial institutions and the central role they played in the financial crisis. He has also focused on the need to reform money-market mutual funds, reforms the SEC adopted last month after years of delays. Rosengren said Wednesday that those reforms were an improvement but that he would have liked them to do more to protect against runs on the funds.

Source:  americanbanker.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/overhaul-of-broker-dealer ‎

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High Net Worth Wealth Management Providers

Millionaire Corner article by Kent McDill

triAlmost 20 percent of ultra-high net worth investors get their wealth management services from a bank.

High Net Worth wealth management is most often conducted by financial planning firm or by brokerage firm, according to a Spectrem’s Millionaire Corner study on the wealth management process for the wealthiest investors.

Spectrem’s Millionaire Corner E-zine “Defining Wealth Management” reports that 45 percent of all investors get their wealth management services from a financial planning firm. Brokerage firms get 30 percent of the high net worth wealth management business and 13 percent receive wealth management from a bank.

However, the wealthiest investors tend to lean toward brokerage firms for their wealth management services rather than using a financial planning firm, according to the data.

The E-zine examines investors and their opinions about wealth management from three different wealth segments – Mass Affluent (with a net worth between $100,000 and $1 million Not Including Primary Residence), Millionaire (with a net worth between $1 million and $5 million NIPR), and Ultra High Net Worth (with a net worth between $5 million and $25 million NIPR).

Among the UHNW investors, 35 percent get wealth management services from a financial planning firm and a nearly identical 34 percent get it from a brokerage firm. That is in stark contrast to both Mass Affluent and Millionaire, among which 47 percent and 48 percent, respectively, get their wealth management services from a financial planning firm.

Banks are often not considered places where wealth management services are available, but 19 percent of UHNW investors say they get their wealth management assistance from banks. Only 10 percent of Millionaires get wealth management services from banks.

There are only marginal differences in where male and female investors get their wealth management services. Forty-eight percent of women say they get their wealth management assistance form financial planning firms, while only 42 percent of men do so. Also, 5 percent of women report that accounting firms provide them with wealth management services while only 2 percent of men do.

Men are only slightly more likely to get their wealth management services from brokerage firms (30 percent to 29 percent), banks (13 percent to 12 percent), or mutual fund companies (5 percent to 3 percent).

Source:  millionairecorner.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/high-net-worth-3


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