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Older Women and Challenges of Wealth

NYT article by Fran Hawthorne

women n wealth_During her 35-year marriage, Jill DeVaney earned significantly less than her husband, a television executive, but always handled the family finances. So when the couple divorced in 2012, splitting assets worth “several million dollars,” she said, “I knew where the money was.”

Now a semiretired interior designer in Chicago, Ms. DeVaney, 63, has hired a financial advisory firm that specializes in female clients, bought a three-bedroom townhouse and a Porsche, and traveled frequently with her daughter, Britt, 25. “I think I’ve got 25 more good years,” she said with a laugh.

As a woman nearing retirement age with substantial assets, Ms. DeVaney has plenty of company. In part that trend is thanks to gains made in her generation, when barriers to higher education, prestigious professions and credit began to fall, and to demographic factors like older baby boomer women outliving their husbands.

Nearly one million women in 2007 had assets of at least $2 million, a number comparable to the 1.3 million men at that level, according to estimates in the Internal Revenue Service’s Winter 2012 Statistics of Income Bulletin, which does not have such figures from earlier periods. The women in this group tended to be older than the men; nearly 80 percent were 50 or older versus fewer than 70 percent of men.

To some degree, this lucky group shares the same concerns as wealthy older people of both sexes throughout history, including complex investment choices and the risk of financial swindles. But some of the challenges and circumstances represent uncharted territory.

“We don’t have a lot of women role models who are older than us,” said Caren R. Levine, 55, a financial planner in Philadelphia with MassMutual Financial Group.

The proportion of women 65 and older who were divorced tripled to 12 percent in 2008 from 4 percent in 1980, according to “The Gray Divorce Revolution,” a 2013 report by Susan L. Brown and I-Fen Lin, sociologists at Bowling Green State University in Ohio. For younger wives who are raising children, divorce often leads to worse economic straits. But women like Ms. DeVaney — whose children are grown, who have substantial marital assets to split and who have stayed informed about those finances — may find consolation in being in sole control of six- and seven-figure settlements.

For boomer-age women who stay married, there could be a double inheritance: from their thrifty, Depression-raised parents and from their husbands.

Yet since women’s life expectancy is typically around five years more than men’s, according to United States census data, “by definition, their wealth has to last longer,” said Judy Slotkin, a New York metropolitan area market executive at U.S. Trust.

The Employee Benefit Research Institute in Washington estimated last year that just to have a 50-50 chance of covering future health costs, a 65-year-old man would need at least $65,000 in savings, while a woman the same age would need $86,000.

If they outlive their partners, moreover, women may need to hire caretakers. These same women are likely to have already devoted years to caring for their parents, spouses, other less wealthy relatives and so-called boomerang children who return home after college if they cannot find jobs.

“Women are generally seen as the caretakers in the world, and it certainly falls on high-net-worth women because they have the resources,” said Molly McCormack, a senior wealth management adviser at TIAA-CREF.

Even for the rich, such obligations can be a financial burden as well as an emotional one. Although Medicare may cover most medical costs for older adults, that still leaves expenses like co-payments and home health aides, in addition to the caretaker’s travel and lost work time.

Ms. DeVaney estimated that she spent $1,250 a month on food, medical care, classes and other expenses for her daughter during the year and a half that Britt lived with her while trying to establish an acting career. Britt DeVaney now has her own apartment and plans to attend law school.

Because the rise of women in business ranks is still recent, wealthy women face a lingering perception that they are sweet old things who don’t understand money — whether the attitude comes from financial swindlers, greedy suitors or well-meaning male relatives.

“It is not uncommon for family members to come to the ‘assistance’ of widows” whose husbands always handled the finances, said Renee Hanson, a Phoenix-based planner with the financial-planning firm Ameriprise. In recent years, she has helped two Arizona women, one in her 50s and the other in her 60s, take control of seven-figure inheritances that a son and a brother had stepped in to try to manage.

Jean Setzfand, AARP’s vice president for financial security, said even a 77-year-old retired nuclear physicist in Virginia was fooled three times by phishing links sent from friends’ hacked email addresses. “I don’t know if women tend to communicate more with friends and are more susceptible to clicking on bad links,” Ms. Setzfand said.

But the caricature of the financially ignorant grandma is disappearing, said Terry Savage, a financial columnist and co-author of “The New Love Deal,” a book about the money issues in romantic relationships. “I don’t think that applies to the woman today who’s reached age 50 and made her own money,” she said.

To help wealthy women prepare for the long term, two pieces of advice are almost universal: Buy long-term care insurance and shift enough assets into an annuity or another financial product to provide a steady income stream roughly equal to expected expenses.

In addition, these women can optimize Social Security payments by coordinating with spouses on how and when each claims benefits. Such women can probably afford to delay taking Social Security payouts until they reach the maximum amount at age 70, assuming they are in good health, said Anna M. Rappaport, president of a retirement consulting firm in Chicago and a past president of the Society of Actuaries.

“As you get older, you may have more cognitive problems,” she added, “so put into place a structure that requires less managing.” One suggestion is to pay off the mortgage early.

Perhaps surprisingly, many experts say that the longer life span does not necessarily mean women should use a different investment strategy than men. That is because “asset allocation should align with a person’s values, goals and risk tolerance” more than longevity, said Ms. Hanson of Ameriprise.

Especially if a woman has an annuity to guarantee some income, Ms. Setzfand of AARP said, “that should give you a little more sense of security so that you should become almost more risk-loving,” although usually older investors are urged to minimize risk.

Like Ms. DeVaney, many women get help in managing these hefty sums from professional advisers who specialize in female clients. These advisers can, for example, caution women in the throes of a new romance by suggesting legal protections like prenuptial agreements, trusts for their children and documents specifying the amount each partner will contribute toward maintaining their household.

Of course, the picture is not all bleak. Not only does money itself buy some happiness, but the women also bring the strengths that helped them build their wealth.

“This group of women are trailblazers,” Ms. Slotkin said. “They’ve become forces as business owners in their communities, they’ve accumulated wisdom along the way, and they’re determined to use that wisdom.”


Posted by:  Steven Maimes, The Trust Advisor



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LegalZoom Products Will be Sold at a Discount Through Sam’s Club

ABA Journal news by Debra Cassens Weiss

Sams_Club_signSam’s Club members will be able to get “exclusive savings” on LegalZoom products under a partnership announced last week between the discount retailer and the legal-document company.

The companies plan to develop “multiple legal solutions” for Sam’s Club members, but initially members will have a couple options, according to a LegalZoom press release and spokesperson Johanna Namir. They are:

• A “suite of estate planning products,” priced at $299, that includes a will or living trust, a power of attorney and a living will. Also included are a year of unlimited revisions and independent attorney consultations of up to a half hour each for personal first-time legal matters. The attorneys will review any documents under a 10-page limit. Additional legal work would be done at a discount of 25 percent off the lawyer’s regular rate.

• A discount of up to 25 percent on other LegalZoom products. The discount varies based on the Sam’s Club membership tier. Business and Savings members receive a 20 percent discount, while Plus members receive a 25 percent discount. There is no need to purchase the estate-planning bundle to receive this discount.

Though the LegalZoom products are available to all Sam’s Club members, they were among three products touted as beneficial to business members in this press release and an article by Entrepreneur. Sam’s Club will also partner with Aetna to offer private health care exchanges in 18 states that are an alternative to the public exchanges. And the retailer is partnering with Execupay to offer savings on payroll services.


Posted by:  Steven Maimes, The Trust Advisor

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Wealthfront Closes A Big New Round As Competitors Crowd The Wealth Management Market

TechCrunch article by Jonathan Shieber

The automated wealth management firms (known as “robo-advisors”) that are bringing algorithmically enhanced services to the stodgy world of retirement planning are gearing up to go Terminator as competition intensifies.


In what’s sure to be the first shot in a salvo of big new rounds for these (no-longer) startups, Palo Alto, Calif.-based Wealthfront has raised roughly $70 million in a new round of financing, according to people familiar with the company’s plans. The new financing comes just six months after the company closed a $35 million round in April. There was no word on whether the new financing morphs Wealthfront into the mythical, billion-dollar “unicorn” status, but it should put the company in the “uni” range at least.

The timing of the round is auspicious. The boomer behemoth of wealth management and financial services, Charles Schwab & Co., just announced that it was going to offer its own version of the robo-advisor called Intelligent Portfolios. While some of the early startup entrants into the market are skeptical of the quality of Schwab’s product (namely the algorithms), it’s a big move that both validates the market for a broader consumer audience and announces that Schwab isn’t going to go gently into its good night of irrelevance or cede its pole position as one of the top consumer wealth management firms.

Venture investors can sense that the wealth management industry has been slow to adopt new technologies and have been throwing money at the sector accordingly. Investments in personal finance and wealth management companies have already raised over half a billion dollars this year and the pace of investment seems to be holding steady, according to CrunchBase.

With the new financing, the pressure is on other companies in the space like Betterment, SigFig and PersonalCapital to raise significant rounds of their own. Most of these startups have also raised significant investment rounds this year, but as with the lending space earlier, the large rounds will probably continue to come.

Since 2011, Wealthfront has had phenomenal growth, reaching $1 billion in assets under management in less than two-and-a-half years. In a blog post when Wealthfront surpassed the billion-dollar threshold, chief executive Adam Nash attributed the company’s success to the millennial investor. Nash writes:

There are over 90 million Millennials in the US with an aggregate net worth of more than $2 trillion; by 2018 that is expected to grow to $7 trillion. This generation has a very different set of expectations about what they want from an investment service.

Millennials grew up with software and expect services to be delivered online. They don’t have the patience to have to talk to someone to complete their transactions. They lived through two market crashes and are highly cynical about the claim that you (or anyone) can outperform the market. They have been nickel-and-dimed through a wide variety of services, and they value simple, transparent, low-cost services.

Nash then related a story that Charles Schwab, the eponymous founder of Charles Schwab & Co., told Wealthfront co-founder Andy Rachleff about the parallels between the two businesses. Schwab started with a client base in their 20s and 30s and that the brokerage grew as investors’ aged. Today, “Schwab has grown with the baby boomer generation to $2.3 trillion in client assets,” Nash writes. It took Schwab six years to reach $1 billion in assets. Nash wrote that he thinks Wealthfront is riding a bullet train instead of the baby boomers’ “Peace Train”.

A Wealthfront spokesperson declined to comment.


Posted by:  Steven Maimes, The Trust Advisor

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Schwab to Offer Free Robo-Advice

Reuters news by Jed Horowitz

schwabCharles Schwab Corp confirmed on Monday that it will introduce free automated investment plans picked by computer algorithms in the first quarter of 2015.

The program, to be marketed as Schwab Intelligent Portfolios to retail investors and independent investment advisers, will create portfolios of exchange-traded funds managed by Schwab and other providers.

In foregoing management and transaction fees, Schwab intends to be “disruptive” to competitors, company officials said in a conference call. Most automated investment programs charge about 0.25 percent of the money that clients invest. Traditional brokerage firms, including Schwab and competitors such as Bank of America’s Merrill Lynch and Morgan Stanley, typically charge 1 percent or more of clients’ invested assets in advisory programs.

Clients can open robo-accounts with a minimum of $5,000. Investments are allocated by computer algorithm to some 20 asset classes ranging from U.S. stocks and bonds to commodities and emerging markets securities.

The program is aimed at neophyte investors as well as “fee-sensitive” experienced investors, Schwab Chief Executive Walt Bettinger said on a conference call.

The firm will prosper through fees from managing and servicing underlying ETFs and from investing client cash in portfolios for itself, executives said, and is not concerned about losing clients who pay fees and commissions to the new program.

Betterment, one of the oldest robo-advisers, sent alarms through the brokerage world two weeks ago by going upscale and extending its automated investment program to registered investment advisers (RIAs) who manage money for wealthy investors. Fidelity Investments will refer RIAs who want to test digital investing to the program.

Schwab has the clout, prestige and expense-control expertise to offer a similar program to its 7,000 RIAs without need of a partner, Bettinger said.

Officials at Betterment did not return calls for comment.

A Fidelity spokeswoman said the company has received a “surge of interest” from RIAs interested in Betterment and plans to build on its current strategic alliance offering.

Bettinger said Schwab’s “intelligent portfolios” threaten discount competitors and full-service brokerage giants “across the entire market.”

“We are not threatened by robo-advisers,” Paul Hatch, a group managing director in charge of advisory programs at UBS AG’s U.S. brokerage arm told a conference of mutual fund salesmen last week. Wealthy people have complex financial planning needs that only humans can understand, he said.

But Eric Lordi, who helps run investment programs for Barclays PLC’s wealth and asset management arm in the U.S., said at the same conference that large firms shouldn’t ignore Fidelity’s role in collecting assets for Betterment. “No one five years ago knew what Betterment was and now it goes upscale,” he said.


Posted by:  Steven Maimes, The Trust Advisor


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From Life Insurance Agents To Wealth Managers

Forbes article by Russ Alan Prince 

adviseThere was a time when life insurance agents provided life insurance, investment advisors provided money management, accountants did tax work, attorneys did legal work and so on and so forth.

But, for certain types of wealthy clients, that time has passed. “Over the past few decades there’s been a pronounced trend toward the melding of functions when it comes to servicing wealthy clients,” says Hannah Shaw Grove, an expert on the high-net-worth markets and a founder of Private Wealth magazine. “Professionals like accountants or life insurance producers who have strong client relationships leverage that proximity and trust to help them expand into other service areas, provide more comprehensive solutions to their clients and develop a more profitable business model. In essence, it is the process of becoming a wealth manager.”

Wealth management is the consultative process of meeting the needs and wants of affluent clients by providing the appropriate financial services and products. Wealth management, done well, is about problem solving. It addresses the often-interconnected concerns and issues of wealthy individuals and families and delivers integrated financial solutions. It’s a holistic orientation that is in high demand by the affluent.

“Strong client relationships are important for all wealth managers and mandatory for those who are new to the business model” according to Grove. “Building rapport, in combination with broad-based and insightful assessments, makes it easier to spot opportunities for better, more inclusive service and problem-solving.”

Furthermore, most of these wealth managers are structured to tap the capabilities and proficiencies of other professionals and organizations. They recognize that they can’t be expert at all forms of planning and services and have constructively aligned themselves with the appropriate resources to build best-in-class solutions.

High-caliber life insurance agents are one type of professional that has been able to successfully transition from providing a narrow scope of services to delivering a spectrum of planning and investment expertise. There is an elite group of sophisticated life insurance producers who are now operating as wealth management practitioners.

When empirically evaluating life insurance agents against those agents that have adopted a wealth management approach, the latter are significantly more successful on a number of key metrics. In one study, we evaluated the businesses and practices of 316 high-end life insurance agents who were all statistically matched with respect to the amount of life insurance they wrote. About 20 percent of the sample was comprised of agents-turned-wealth managers and the differences in their practices were dramatic. After transitioning to wealth management, the amount of life insurance they wrote on an annualized basis increased by more than 35 percent, within two years they were responsible for between $50 and $100 million in investable assets and they were more than four times as likely to get client referrals.

“There’s no shortage of evidence that a wealth management approach is good for both the client and the practitioner,” confirms Grove. “High-net-worth clients want a wealth management experience that transcends individual products and services and the professionals who are sensitive to those preferences are likely to benefit. Insurance agents, in particular, are a natural fit with the financial elite because they understand the complex aspects of multigenerational wealth and how to orchestrate an intricate long-term planning process to achieve goals.”


Posted by:  Steven Maimes, The Trust Advisor



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Winner Declared in South Dakota Best Trust Company Face off

From MarketWatch

Citi, Guggenheim Not “Too Big To Fail” after an independent trust company beats giants in ranking of best client service in South Dakota. Wealth Advisors Trust Company ranked #1 in trust client service per the recent poll.

Money center banks and blue-ribbon wealth management complexes are out of favor as investment advisors and family offices seek partners in the trust haven state of South Dakota they can count on to keep their clients’ interests in mind.

According to a recent poll of readers of trade publication The Trust Advisor, advisors feel more comfortable working with Wealth Advisors Trust Company than any of the 13 other South Dakota-chartered options provided. With an aggregate score of 82.4%, nearly twice as many Trust Advisor readers know Wealth Advisors Trust Company and feel favorably about the company than expressed similar opinions about either Guggenheim Trust (an affiliate of global investment bank Guggenheim Partners) or Citicorp SD (an operating unit of Citigroup Inc.).  Wealth Advisors Trust Company was ranked #1 in best trust company client service per the recent poll.

“It’s extremely rewarding to hear that despite some of the biggest marketing budgets on the planet arrayed against us, advisors still know our reputation and seek us out,” says Christopher Holtby, a director at Wealth Advisors Trust Company. “Those who know South Dakota as a leading destination for trust accounts are evidently aware that not all vendors here are created equal.”

Money from all over America has migrated to South Dakota to take advantage of the state’s top-tier trust code and tax environment, beckoning dozens of wealth management firms and banks based elsewhere to follow. However, unlike rivals coming in from other states, Wealth Advisors Trust Company was chartered right in Pierre and still headquarters all its operations within South Dakota’s borders.

The company has also cultivated a culture of independence (creating the SmartIRA™) and service (lowest trust officer to beneficiary ratio in the industry) that contrasts strongly against the monolithic and profit-driven models that many of its cross-border competitors pursue. With no in-house wealth management unit and no products to cross-sell into trust accounts, Wealth Advisors Trust Company is content to administer personal trusts, letting introducing advisors go on managing the underlying assets for long-term clients. This alignment of interests creates better outcomes for trust grantors, beneficiaries, their advisors and, if the poll results are any guide, the trust officers themselves.

“Advisors know that when they prosper, we thrive,” Holtby says. “I’d like to see Citi make that kind of statement. But then again, Citi evidently isn’t the first name advisors think of when they think about firms in South Dakota they’d like to partner with.”


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Inside Wall Street’s New Tug of War

From Slate – article by Linette Lopez

advisorThe financial crisis did curious things to Wall Street. Firms were gone overnight, once-powerful CEOs were never heard from again, and a whole new regime of power reorganized itself from the chaos.

This is the kind of environment in which typically buttoned up trade publications write headlines like the following: “How Merrill Lynch’s divorce of its own $2.5-billion team shows just how fed up the wirehouse is with RIA-bound breakaways.”

The “wirehouses” are big Wall Street firms. An “RIA” is a Registered Investment Advisor. And that headline is about a Wall Street firm kicking a $2.5 billion team out the door—allegedly for not telling their clients to buy into a hedge fund the firm was pushing.

Now the team in question can strike out on its own, something a lot of teams are doing these days for better or worse. Wealth management—once considered the boring part of Wall Street’s business—has become incredibly profitable. Big banks that doubled down on it after the crisis, like Morgan Stanley, are reaping the rewards.

But they’re also losing bodies to these “breakaways”—the independent channel—which will have increased by an estimated 15,000 people from 2007 to 2017 while big banks, regional banks and others will have seen their head counts shrink by the thousands.

So as you see, what we have here is a good old-fashioned debate about the best way to run money.

“While the [independent] adviser may initially be attracted by a higher payout,” said Gary Kaminsky, the Vice-Chairman of Morgan Stanley Wealth Management,  “It’s never been clear how that benefits the client.”

What Kaminsky and Morgan Stanley are clear on is what they can provide—an “open architecture” format where their experienced portfolio managers can advise their clients on whatever products they want, the ability to design products, and access to an investment bank.

It’s a mix that’s been working for Morgan Stanley. Since the financial crisis the bank now has $2 trillion assets under management in its wealth management division. In the third quarter net revenues were up to $3.8 billion from $3.5 billion at the same time the year before.

“If we assume that institutional securities businesses should trade at roughly 10x earnings, that implies MS’s wealth and asset management business trades at a several turn discount to peers,” said a recent report by UBS. “Separately, we believe MS has a far stronger WM franchise and brand than the regional brokers and actually should command a premium.”

This has made Morgan Stanley the envy of the Street—and even Goldman Sachs, more identified with its trading culture, is getting into the game.

“At the end of the day advisers who have tried the independent route find they spend the bulk of their time on operations, HR etc.,” Kaminsky added. “When they leave the full service world they are disappointed.”

It’s true, the challenges of running a business while also running a portfolio can be daunting, but advisers that have left say that the independence to manage their businesses the way they like, the freedom to invest the way they like, and of course—the economics are better for them.

“The opportunity to maintain more of the revenue and balance your own profits & losses. Your net payout is not determined by corporate structure, rather how well you manage your growth and expenses With payouts ranging anywhere from 85% to 100% depending on your business structure, the independent model has far greater potential upside,” said Guy Adami, Chief Market Strategist at Private Adviser Group.

Private Advisor Group represents a sort of middle ground. It’s a network of advisors that pool resources and support to create a community.

This is an idea that’s catching on quickly. Instead of striking out on your own entirely as an independent, you join up with a firm that helps you with the back and middle ends of your office—with your marketing, with your business model, with financing and getting a good price on investment products.

Dynasty Financial Partners, an emerging powerhouse in this space, handles everything from vendor relationships and oversees expenses for members of its networks. It will find a member’s office, set up their website, and take care of issues regarding succession.

“We are entrepreneurs ourselves, serving entrepreneurs,” said Dynasty CEO Shirl Penney, adding that his members get the bonus of being a part of a community of business people working toward a common goal.

As for the clients his members serve, Penney said that they benefit from separating where products are made (inside investment banks) and where they are sold.

That’s something he believes clients are beginning to understand more and more.

“Assets in our industry are only going one way,” said Penney. “And the life blood of our industry is assets.”


Posted by:  Steven Maimes, The Trust Advisor



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Independent RIAs Join Forces to Take On the Big Trust Companies

Institutional Investor article by Andrew Barber     

ria sNational Advisors Trust supports registered investment advisers through a investing consortium that gives them an ownership stake.   

National Advisors Trust Co. keeps building its wealth management footprint by offering registered investment advisers an alternative to traditional trust companies. On September 30 Cornerstone Advisors, an independent RIA headquartered in Bellevue, Washington, announced the launch of Cornerstone Advisors Trust Services with NATC.  The deal brought Overland Park, Kansas–based NATC’s total number of RIA partners to 155.

For NATC president and CEO Jim Combs, this growing base helps prove the validity of a unique business model. “Our concept of shared fiduciary responsibilities allows us to provide undivided loyalty to both the adviser and the trust,” Combs says. “The client looks to us for administration and support, and to the adviser for planning and investment advice, creating a set of checks and balances.”

Founded in 2001 exclusively to serve the clients of independent RIAs on a noncompetitive basis, NATC is owned by its adviser partners. The firm traces its origin back to adviser Tom Bray, who, after spending 20 years building two key relationships, saw those accounts stolen by the bank trust company he had worked with to custody the trust assets.

Using his own time and money, he inspired a group of similarly frustrated RIAs to form NATC; 82 firms signed up to found the chartered federal savings bank as a thrift. Today NATC counts RIAs in 43 states as shareholder-members and is set to exceed $10 billion in assets under advisement by year’s end.

When it comes to tax and estate planning, trust services play a critical role in managing U.S. multigenerational wealth. As of the second quarter of this year, the country’s 25 largest trust companies held more than $17 trillion in assets, the Federal Deposit Insurance Corp. estimates.

For independent advisers, working with traditional trust companies is fraught with risk. By definition a trust is a separate legal entity, and the trustee may have tremendous latitude to interpret the grantor’s wishes by making decisions that include firing the RIA that helped create the trust as a fiduciary. When the trustee is an employee of the trust company itself or of another party that works closely with it, such as a preferred law firm, the chips can be stacked against the adviser of record once the grantor passes away.

The experience of Ray Ferrara, chairman and CEO of ProVise Management Group, is typical. “Like many other advisers in the ’90s, I was always worried about custodians soliciting my clients,” says Ferrara, who founded Clearwater, Florida–based ProVise, a financial planning specialist, in 1986. Today his firm employs 12 financial professionals overseeing a total of $1.14 billion in assets for some 900 families.

Shortly after a leading national trust company took over an account that he had introduced, Ferrara joined the consortium of RIAs that founded NATC. For ProVise the benefits of working with an adviser-owned trust company go well beyond the security of client relationships. “Investors like to have a trustee that is truly independent to manage after they are gone,” Ferrara says, adding that “from a practice management standpoint, the opportunity to share ideas with a large group of peers is invaluable.”

Working as a group is central to the NATC mandate. “We strive to foster a community among our advisers,” notes president and CEO Combs. “Our model is built on providing service and advice to our advisers but also allowing them to share information to improve their individual practices.”

NATC capitalizes on its client-owned structure to provide buying power through scale, thereby reducing advisers’ technology and administrative costs. The advantages of this structure outweigh traditional shareholder perks, according to Jeff Ramsey, COO and chief compliance officer for Lee Financial, a Dallas- based financial planner with $1 billion in assets. Founded in 1975, Lee was among the initial investors that launched NATC.

“Shareholders like our firm are not looking for dividends,” Ramsey says. “We are looking for capital to be redeployed to maximize the value for our customers and our practices.”

As NATC keeps expanding its adviser network, it has broadened its product offerings to compete with national players. In 2013 the firm created National Advisors Trust of South Dakota, which allows adviser partners to use trust services in a state that offers the best asset legal protection and client confidentiality in the U.S. Says ProVise’s Ferrara: “The South Dakota entity definitely provides us with a competitive edge — one that many trust companies do not have, let alone financial planning firms.”


Posted by:  Steven Maimes, The Trust Advisor


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Janus Third-Quarter Profit Rises 25% as Bill Gross Joins Firm

Bloomberg News by Mary Childs

Bill Gross stands in front of investment firm Janus Capital Group, Inc. in DenverJanus Capital Group Inc. (JNS), the firm that hired bond legend Bill Gross last month, said profit rose 25 percent in the third quarter as assets rose from a year earlier, boosting fees for managing money.

Net income at Janus increased 25 percent to $40.9 million, or 22 cents a share, from $32.6 million, or 17 cents a share, a year earlier, the Denver-based firm said today in a statement. Earnings matched the 22-cent average estimate of five analysts surveyed by Bloomberg.

Chief Executive Officer Richard M. Weil has raised the firm’s profile in the past month, hiring Pacific Investment Management Co. co-founder Gross and agreeing to buy VelocityShares LLC to expand in exchange-traded products. Customers pulled a net $2.4 billion from Janus’s equity funds in the quarter, while putting in $300 million into the firm’s fixed-income products. Since taking over in 2010, Weil has struggled to stem defections even as he expanded Janus’s fixed-income team and created a multi-asset investing group.

“Bill’s decision to join Janus is reshaping the fixed income landscape across the industry,” Weil and Chief Financial Officer Jennifer McPeek said in the company’s earnings presentation. Gross’s fund “stands to benefit substantially over time across distribution channels and geographies,” and other franchises including asset allocation are also benefiting, according to the presentation.

Surprise Departure

Janus shares, which surged a record 43 percent the day the firm announced Gross was joining, have climbed 15 percent this year, compared with a 3.7 percent decline in the 18-company Standard & Poor’s Index of asset managers and custody banks.

The 70-year-old Gross started managing the Janus Global Unconstrained Bond Fund (JUCIX) this month after surprising executives at Newport Beach, California-based Pimco and its parent Allianz SE with his departure on Sept. 26. He previously managed the world’s biggest bond mutual fund, the $201.6 billion Pimco Total Return Fund. (PTTRX)

The Janus Unconstrained fund, which started in May, received $66.4 million in September, according to Morningstar Inc., and had about $79 million under management at the end of September, according to data compiled by Bloomberg. The fund has lost 0.2 percent in the past month, trailing 76 percent of peers.

The market anticipated $25 billion to $50 billion in new assets after Gross joined, which may be “setting up for possible disappointment,” Citigroup Inc.’s William Katz wrote in a report to clients Oct. 3.

Performance Fees

Janus has about $174.4 billion in assets, mostly in stock funds. Third-quarter revenue climbed 8.9 percent to $237 million as fees for managing investor money rose.

The firm is expanding its presence in exchange-traded products by buying the parent company of VelocityShares, which offers products including exchange-traded funds and notes that track swings in market volatility. Janus agreed to pay at least $30 million for the company.

“With Bill’s arrival and the acquisition of VelocityShares, we have an opportunity to develop future products in the exchange-traded product space,” according to the presentation.


Posted by:  Steven Maimes, The Trust Advisor



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Five Life Insurance Mistakes That Can Haunt You

Forbes article by Deborah L. Jacobs

Mistakes Road SignWith Halloween just around the corner, children’s thoughts turn to candy and costumes. Their parents and grandparents should be focusing on more macabre matters — like the life insurance policies they bought (or are thinking of buying) to secure the financial future of these little ghosts and goblins if a key provider dies.

Though life insurance can serve various purposes, for most people, it is a tool for income replacement — to pay the mortgage or foot the bill for college if the unthinkable happens. Often a term-life policy, which provides a preset death benefit when the insured person dies, is all they need. Premiums for these policies, typically offered for 10- or 15-year terms, have fallen sharply in recent years.

But unfortunately it’s not enough to stuff the policy in a drawer and forget about it. Here are some  potentially costly life insurance pitfalls that could escape your notice.

1. Rate increases. With a level premium, term-life policy, you’re guaranteed that the cost of the plan will not go up during the initial coverage period – for example, 10 or 15 years. But after that, watch out. When the stated period is up, you’re likely to get an invoice for the latest premium that’s many multiples of what you had been paying previously. Somewhere in the policy fine print there’s probably wording that says the policy is renewed automatically if the premium (meaning whatever you’ve been billed) is paid.

Insurance companies take the position that they have no obligation to flag the rate increase for you. It’s up to you to mark your calendar and if you don’t pay bills yourself, to alert the person who does it for you.

When that invoice arrives for the higher premium, you have a few options. You can ask the company to offer you a lower rate, based on your submitting an updated medical history. You can cancel the policy right away. Or you can simply let it lapse, in which case a grace period (for example, 30 days) will probably apply.

2. Affinity groups. Various professional associations offer life insurance to their members at group rates. They save you the trouble of shopping, but the price won’t necessarily be less than what you could find on the open market or through a reputable insurance broker. There is a hidden cost of buying insurance this way, too: In order to maintain the policy, you generally must keep your membership in the group current by paying the organization’s yearly dues. You may find yourself locked into the membership purely to maintain the insurance policy, even if professionally you’re not getting much out of the affiliation.

Another issue is that even if you still like the group, the price of membership may have gone up. Some professional associations (for example, lawyers’ groups) have a graduated dues schedule that correlates with how long you have been out of school. They assume that your salary has gone up to reflect your work experience, though in today’s job market that may not necessarily be the case. So while your insurance premium may remain the same over time, the cost associated with the policy — membership in the affinity group — goes up.

3. Beneficiary designations. This is a document given to an insurance company or financial institution indicating who should inherit certain assets that do not pass under a will or trust — such as retirement accounts and the proceeds of a life insurance policy. You fill out the form when you buy the policy, but can later amend it.

It’s crucial that you keep these forms up-to-date. To change a beneficiary – for example, if you get married or divorced or your spouse dies – make sure to file an amended form. In a case decided by the U.S. Supreme Court in 2013, a widow and an ex-wife battled for five years over which of them was entitled to a life insurance policy worth $124,558.03. The ex-wife won, no doubt after great expense and heartache for both women. And all that because the insured did not change the beneficiary designation on his life insurance policy, either when he got divorced in 1998, or after his subsequent marriage in 2002, or after being diagnosed with a rare form of leukemia from which he ultimately died.

4. Estate tax. If you are both the insured and the policy owner, the proceeds will be considered part of your taxable estate. In that case, those funds are added to everything else you leave behind. If the total is more than the tax-free (“exclusion”) amount and you’ve left it to anyone except your spouse or to a charity, it will be subject to estate tax. The federal rules in a nutshell: For deaths in 2014, the tax-free amount is $5.34 million per person; widows and widowers can add any unused exemption of the spouse who died most recently to their own–it’s called “portability.” State estate tax or inheritance tax (or both) complicates the picture in 19 states plus the District of Columbia.

One way to avoid estate tax on life insurance proceeds is to designate the family member who will receive the proceeds of the policy — say, an adult child — as the owner of the policy. (Note: Minors can’t own the policy directly.) You can give this person the money to pay the premiums by using your yearly $14,000 gift tax exclusion – the amount, in cash or other assets, that you can give every year to each of as many individuals as you want, without incurring gift tax of up to 40%.

If you don’t want beneficiaries to receive the insurance proceeds outright or your heirs are minors, you can set up an irrevocable life insurance trust. Typically the ILIT buys the policy and, when you die, holds the proceeds for whomever you’ve named as beneficiaries.

What if you already own a policy? You can transfer it to the trust. But if you die within three years of making this gift, the proceeds would generally count as part of your estate. A way around that rule is to sell the policy to the trust instead. First you would need to put enough money into the trust to cover the purchase. For a term policy, it would be nominal sum, since the value of the policy is just the cost of that year’s remaining premium.

5. Crummey letters. If you plan to fund an ILIT with annual exclusion gifts, the trust must give the beneficiaries what are called Crummey powers, and the beneficiaries must receive an annual Crummey notice, sent by you or by the trustee at the time you add the gift to the trust. This gives them the right for a limited time (usually 30 or 60 days) to withdraw from the trust the yearly gift attributable to them. Without providing the beneficiaries Crummey powers, your gift to the trust would be considered a future interest (something beneficiaries can’t use right away) rather than a present one and would not qualify for the annual exclusion.

In an estate tax audit, the IRS often asks for these annual Crummey letters. If your heirs can’t produce them, contributions that might have qualified as tax-free gifts could be subject to tax.


Posted by:  Steven Maimes, The Trust Advisor


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