Forty percent of Gen Yers — 18- to 30-year-olds — say they will “never feel comfortable investing in the stock market,” according to a study from MFS Investment Management that was reported in The Wall Street Journal on Sunday.

Yet for all that pessimism, Gen Y is heavily invested in the market, as Journal columnist Carolyn T. Geer points out. Thanks to a six-year-old law that offers companies incentives for automatically enrolling employees in 401(k) plans, the number of twenty-somethings who are investing in stocks has grown.

The law, signed by President George W. Bush in 2006, most affected workers who were newest to the workforce, often Gen Yers. According to the Investment Company Institute and Employee Benefit Research Institute, which examined the portfolios of 23 million individuals with 401(k)s, the percentage of twenty-somethings with 80 percent or more of their 401(k) funds in the stock market grew from 55.3 percent in 2000 to 60 percent in 2010.

Generation Y encompasses 77 million Americans who have combined earning power of $1 trillion, according to MFS Investment Management. Saving is currently not a priority for a large portion of Gen Yers — 38 percent say they live from paycheck to paycheck.

Investing young, however, is key. Reuters reports:

According to data from Baltimore-based fund shop T. Rowe Price, if one saver puts away $500 a month from ages 21 to 30 and enjoys a 7 percent annual return, she will end up with almost a million bucks at age 65. That handily beats another saver who waits for that level of return until age 31 yet contributes all the way to 65, despite putting up $150,000 more than the first investor.

“Whether wealth is transferred to Gen Y from older generations or they generate it themselves, it is a demographic imperative that the financial services industry embraces younger investors,” William Finnegan, senior managing director of U.S. retail marketing for MFS, stated in the MFS study.

Source:  Huffingtonpost.com

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/headlines/generation-y

Here are four of them:

1. Zynga (ZNGA)

Social gaming firm Zynga is responsible for 12% of Facebook’s revenue through its titles like FarmVille and Mafia Wars. This accounted for roughly $444 million last year, with Facebook’s revenue totaling $3.7 billion. Facebook makes money through Zynga by taking a 30% cut of each virtual good transaction, as well as through advertising.

There are both risks and rewards to Facebook’s relationship with Zynga. The social network’s revenue could be adversely affected if Zynga decides not to feature its games on the Facebook platform. Zynga has recently tried to shift from what some have criticized as its over-reliance on Facebook to mobile-based games.

Shares of Zynga were rising 15.6% in late morning trading on Thursday to $12.27.

2. Fusion.io (FIO)

Enterprise storage company Fusion.io counts Facebook as one of its largest customers. The company’s technology powers about 80% of Facebook’s servers, and the social network comprised nearly half of its revenue last year.

But Fusion.io also warned in its own S-1 filing last year that revenue from Facebook will “decline significantly” during the three months ending June 30, 2011, as the company finishes rolling out its infrastructure.

Apple (AAPL) is another large customer for Fusion.io, not surprising considering the company’s chief scientist is Apple co-founder Steve Wozniak.

Shares of Fusion.io were increasing 0.9% to $22.46 on Thursday.

3. Snap Interactive (STVI)

Snap Interactive makes applications for Facebook’s platform, such as social dating and location-based programs. Their core data app, called Are You Interested?  integrates with a users’ Facebook profile, while WhoIsNear is a Foursquare-like geo-location app.

The only publicly traded Facebook app developer besides Zynga, Snap recently hired a new CFO in November who is a former exec from Warner Music.

4. Digital Realty Trust (DLR)

Facebook has leased nearly all of its data center space from several providers including Digital Realty Trust. The social network spends roughly $30 million a year on leases with DLR, but could rely less on the company in the future as it builds its own data centers.

Shares of DLR have surged over 30% in the last 12 months as the company capitalizes on increased demand for data centers. Other customers include Google (GOOG), Microsoft (MSFT) and Yahoo! (YHOO).

Source:  Forbes

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/news/four-companies

Wegelin helped Americans hide more than $1.2 billion in assets and evade U.S. taxes, according to an indictment filed yesterday in federal court in New York. The new charges expand on earlier ones filed Jan. 3 against three bankers at Wegelin’s Zurich branch accused of conspiring to help U.S. clients cheat on their taxes.

Prosecutors said that from 2002 to 2011, more than 100 U.S. taxpayers conspired with Wegelin, Zurich bankers Michael Berlinka, Urs Frei and Roger Keller, and others. The bank held more than $1.2 billion in assets not declared to the Internal Revenue Service, according to the indictment.

“Wegelin Bank aided and abetted U.S. taxpayers who were in flagrant violation of the tax code,” Manhattan U.S. Attorney Preet Bharara said in a statement.

The U.S. and Switzerland are in talks to resolve a U.S. probe of offshore tax evasion. Wegelin was one of at least 11 banks under criminal investigation by the Justice Department’s tax division. Wegelin announced on Jan. 27 that it agreed to a sale to Switzerland’s Raiffeisen Group.

Money Laundering

U.S. authorities yesterday also used a civil forfeiture case to seize $16 million in Wegelin’s correspondent account at UBS AG in Stamford, Connecticut. That complaint alleges that Wegelin and other Swiss banks used the account to “launder” undeclared funds for U.S. clients and hide them from the IRS.

Richard Strassberg, a lawyer who represents Wegelin in the U.S., declined to comment.

Bryan Skarlatos, a tax attorney in New York, said the indictment is an important step because it demonstrates the government’s willingness to indict a foreign bank.

“The indictment shows that the U.S. government will indict a Swiss bank if they don’t get cooperation,” said Skarlatos, of Kostelanetz & Fink LLP. “It’s symbolic in that the United States is saying that if a Swiss bank doesn’t cooperate, it will be indicted. It puts pressure on other Swiss banks to cooperate.”

The Swiss must penalize Wegelin in some way for the indictment to have an impact on the bank, said George M. Clarke III, a tax attorney with Miller & Chevalier.

‘Big Question’

“There’s a big question about how this plays out and whether it means anything or whether it’s just a question of the U.S. functionally pounding its chest,” Clarke said. “Wegelin clearly knew this was coming or was preparing for this. Is the U.S. going to get a fine, penalty or restitution, or will this be an indictment in name only?”

Prosecutors said that Wegelin and the three bankers wooed U.S. clients fleeing UBS, the largest Swiss bank. UBS avoided U.S. prosecution in 2009 by admitting it aided tax evasion, paying $780 million and handing over data on 250 accounts. It later disclosed information on about 4,450 more accounts.

By attracting clients leaving UBS, Wegelin opened new undeclared accounts for at least 70 U.S. taxpayers, according to the indictment. Most of those accounts were given an internal code of “BNQ,” indicating the accounts were undeclared.

The effort to woo UBS clients was backed by Wegelin’s senior management, according to the indictment. “Managing Partner A” and “Executive A” supervised videotaped training sessions with client advisers in the Zurich branch to instruct them on selling points for clients fleeing UBS, according to the indictment.

‘Unlike UBS’

The selling points included that Wegelin was “small, discreet, and, unlike UBS, not in the media,” according to the indictment. Wegelin bankers emphasized that because it had no offices in the U.S., it wasn’t subject to law enforcement pressure there, prosecutors said.

Philip West, a former international tax counsel at the Treasury Department, said it was “unfortunate” that the Justice Department and Wegelin couldn’t reach an agreement short of indictment.

“The Justice Department alleged that Switzerland’s oldest bank had tried to capitalize on the misfortunes of UBS and attract the clients UBS was rejecting, and assisting them in doing just what UBS was accused of doing,” West, of Steptoe & Johnson LLP, said in an e-mail. “If true, this would have made any resolution short of indictment very difficult.”

In its Jan. 27 announcement, Wegelin, based in St. Gallen, Switzerland, said its U.S. business, and the risks and responsibilities that go with it, will remain with the current partners. Wegelin didn’t disclose the sale price.

Credit Suisse

Credit Suisse AG, the second-largest Swiss bank, said July 15 that it was a target of a criminal probe by the Justice Department over former cross-border private-banking services to U.S. customers. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts.

The IRS has said 30,000 U.S. taxpayers with offshore accounts have avoided prosecution since 2009 by entering a limited amnesty program, paying back taxes and saying who helped them hide their accounts from authorities. Hundreds of taxpayers in the program have given information to prosecutors that has helped them build criminal cases against bankers and advisers.

The U.S. crackdown against offshore tax evasion has led to criminal charges against at least 21 foreign bankers, advisers and attorneys and at least 40 U.S. taxpayers.

The Wegelin criminal case has been assigned to U.S. District Judge Jed Rakoff.

The criminal case is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan). The forfeiture case is U.S. v. All Funds on Deposit at UBS AG, Account No. 101-WA-358967-000, Held in the Name of Wegelin & Co., U.S. District Court, Southern District of New York (Manhattan).

Source: Businessweek.com

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/headlines/swiss-bank-wegelin

“We expect that substantially all of the net proceeds Mr. Zuckerberg will receive upon such sale will be used to satisfy taxes that he will incur upon his exercise of an outstanding stock option to purchase 120,000,000 shares of our Class B common stock.”

What that means, in dollar terms, is that Facebook founder Mark Zuckerberg may face a tax bill this year of more than $2 billion. The Financial Times puts the figure at $1.5 billion. But if the IPO values the company at the hoped-for $100 billion, his bill could be higher.

Facebook declined comment. But here’s the math. Zuckberberg received the 120 million options in 2005, presumably for being CEO and being, well, Mark Zuckerberg. Those options will be treated as ordinary income, which means he would pay the top federal income tax rate of 35%.

The cost basis for those options is six cents a share. So if the company is valued at $100 billion, and the shares are valued at around $50 each, his gain from the sale would be up to $6 billion. Taxed at 35%, the tax bill would be more than $2 billion. The FT puts a more conservative value on the company for its $1.5 billion total.

What’s more, Zuckerberg would have to pay an additional 10.3 percent for California sate taxes, though he would likely be able to deduct those taxes from his federal bill.

It’s unclear whether the $2 billion would make him America’s biggest taxpayer, since the IRS doesn’t disclose such things. But given that the 400 top earners in the U.S. paid an average of $48 million each in taxes, chances are he’ll be at least one of the biggest taxpayers in 2012 or 2013.

Mr. Zuckerberg’s tax bill will also provide an important counter-point to the notion that the rich pay lower tax rates than the rest of America. That may be true for professional investors and private-equity chiefs, but not for dot-commers and many entrepreneurs.

Source: WSJ Wealth Report

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/news/mark-zuckerberg

“It’s kind of the late arrivals who get excited around the time of the IPO,” said Jason Thomas, chief investment officer of Aspiriant, whose clients on average have about $10 million under management with the Los Angeles-based firm. “Our clients remember the tech bubble very well, and are appropriately skeptical of being the last money in.”

Facebook, the world’s biggest social-networking service, filed yesterday to raise as much as $5 billion in the largest Internet IPO. Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Barclays Plc and Allen & Co. were hired to handle the deal for the Menlo Park, California- based company. The $5 billion figure is a placeholder used to calculate fees and may change.

Based on recent IPOs, investors who are able to buy in at the offering price once it’s determined could be looking at below-average returns if they seek to buy and hold. They may face a large tax bite if they sell into an early run-up in the stock price.

Buying the Hype

Ed Reinhart, 41, holds about 5 percent to 10 percent of his personal portfolio in Facebook after buying shares in 2010 through SharesPost Inc., a secondary market for private-company stock. He said he likes the company’s revenue-growth prospects and isn’t looking to increase his position in the initial offering.

“You don’t want to buy into the hype,” said Reinhart, who lives in Yakima, Washington, and is a managing partner for Capital Advisors Wealth Management, which works with institutional retirement plans. “I think it would be very wise for individual investors to stay back and let some of this steam escape, and see where all of this shakes out.”

SharesPost and SecondMarket Holdings Inc. facilitate transactions in private-company stock for accredited investors. That generally means individuals with assets of greater than $1 million, excluding a primary residence, or those earning more than $200,000 annually. SharesPost has offered transactions in Facebook shares since 2009.

Lockup Periods

Investors holding private-company stock at the time of an IPO generally are not permitted to sell their holdings for a certain period of time after the offering, generally as long as 180 days, according to Tim Sullivan, managing director of SharesPost.

Goldman Sachs in January 2011 halted a planned offering of Facebook shares to U.S. investors on concerns that media attention on the deal could violate rules limiting the marketing of private securities, and instead restricted the offering to non-U.S. investors. That month Facebook said it raised $1.5 billion from Goldman Sachs and related funds along with Digital Sky Technologies.

Some clients of Constellation Wealth Advisors LLC have invested in Facebook through venture-capital funds or the secondary market, said David Arizini, a managing director and partner at the firm in Menlo Park, California, whose investors generally have at least $10 million in investable assets.

Signature, which oversees about $2.1 billion for families, has been invested in private equity and hedge funds that have owned Facebook for a few years, said Andrew Gorczyk, a portfolio manager for the Norfolk, Virginia-based firm. He declined to name the specific firms or funds.

‘Quick Buck’

Most clients haven’t expressed an interest in Facebook, said John Jennings, senior vice president of St. Louis Trust Co., a multifamily office based in St. Louis, which oversees about $3 billion for clients with an average of $75 million under management.

“It’s more exciting than having another muni bond in your portfolio,” Jennings said. “But the way we invest, we’re not going to load up on Facebook and try to make a quick buck.”

While some companies go public and do extremely well, the “odds are against you,” as some firms start trading at a high price point and then underperform or fail, said Scott Schermerhorn, chief investment officer at Granite Investment Advisors in Concord, New Hampshire, which manages about $500 million.

Groupon Shares

Shares of Groupon Inc. gained about 31 percent in their first day of trading after the firm’s November IPO, and have since fallen about 22 percent as of Jan. 31, according to data compiled by Bloomberg.

Stocks of companies that held U.S. IPOs in 2011 lost about 1.1 percent on average from their offerings through Jan. 30, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index returned about 5.1 percent over the year through Jan. 30, including reinvestment of dividends.

Shares of Google Inc. jumped 18 percent on their first day of trading after the company went public in August 2004 and have risen more than 500 percent since, Bloomberg data show.

Many investors may already have exposure to Facebook even if they haven’t deliberately acquired shares through the secondary market or a private fund. About 50 mutual funds have reported stakes in the company, according to Chicago-based Morningstar Inc.

Fund Holdings

Funds managed by T. Rowe Price Group Inc. held about $408 million in Facebook at the end of December, according to spokesman Robert Benjamin. Morgan Stanley Institutional Fund Opportunity Portfolio held about 3.7 percent of assets in Facebook as of December, making it the fund’s ninth largest holding, according to the Morgan Stanley website.

Fidelity Contrafund held about $87 million in Facebook’s Class B shares in December, according to the fund’s monthly holdings report. That amounts to about a 12 basis-point allocation for the fund, which had assets of about $73 billion in December, according to spokeswoman Sophie Launay. A basis point is 0.01 percentage point.

People who have a broker may be able to ask for shares and the allocation may be determined by how much business they did at that investment banking or brokerage firm, said Todd Morgan, senior managing director at Los Angeles-based Bel Air Investment Advisors, which manages about $6 billion. Investors trying to obtain shares now may not gain access to a large enough allocation to have an impact on their portfolios, he said.

Allocating Shares

Spokesmen from Morgan Stanley, Goldman Sachs, JPMorgan and Barclays declined to comment on how the firms would allocate any shares of the IPO they receive among customers. A spokeswoman for Allen & Co. didn’t return calls seeking comment.

“We have a systematic approach to IPO allocation that seeks to promote broad participation by investors with a longer- term view,” said Matt Card, a spokesman for Bank of America.

“It is difficult for most investors to access shares at the IPO price,” Kathleen Smith, principal of IPO investment adviser Renaissance Capital LLC, said in an e-mail. “Even the best institutional clients of Wall Street only get a small portion of their order filled at the offering price.”

Interested investors should study Facebook’s financial information in the prospectus, including its growth rate, sales margins and cash on the balance sheet, and wait until the Facebook IPO has begun trading, Smith said. Facebook is considering a valuation of $75 billion to $100 billion, two people with knowledge of the matter said last week.

‘Feeding Frenzy’

“People get caught up in the feeding frenzy that surrounds these opportunities,” said Gerri Walsh, vice president of investor education for the Financial Industry Regulatory Authority, the self regulator for the securities industry. “When a potential IPO is highly publicized and well-covered, people think that any way into that deal might be a legitimate way.”

The U.S. Securities and Exchange Commission in November filed an emergency enforcement action to stop what it said was a fraudulent scheme targeting investors trying to gain access to pre-IPO technology companies such as Facebook and Groupon.

Managers of the Praetorian Global Fund falsely claimed that their fund and related entities owned “shares worth tens of millions of dollars in privately held companies that were expected to soon hold an initial public offering,” according to an SEC statement. The individuals claimed that client funds were held in escrow while in fact they were being transferred to the managers’ personal accounts, the SEC said in the statement.

Outbid on Houses

While investors should be aware of the risks of trying to get a piece of the Facebook action this late in the game, their interest is understandable, said Aspiriant’s Thomas.

“Our Silicon Valley clients have been outbid for houses by Google employees often enough,” Thomas said.

Those who do obtain shares at the offering price and sell into an initial jump could face higher tax rates on their profits. Gains on stocks held one year or less generally are taxed at an individual’s ordinary rate, currently as high as 35 percent, while long-term gains usually are taxed at a maximum levy of 15 percent, according to the U.S. Internal Revenue Service.

“Who knows if it’s going to be the next Google,” said Reinhart, the individual investor. “But even if you bought Google in the first year, you’ve still done well.”

Source: Businessweek.com

Posted by Steven Maimes, The Trust Advisor.

Permalink: http://thetrustadvisor.com/headlines/facebook-ipo