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Tax - Investment - Estate & Trust
Planning - Audit

My objective is to create tangible financial benefits for my clients. I have found many ways to do this over the years. In the following paragraphs I have provided some representative examples.

Investment Planning Integrated Tax
And Investment Planning

As a financial planner and investment advisor, the most common problem I have found in client portfolios is over exposure to one stock. This often presents the greatest danger to the long-term security of the investor. In some cases I have been successful at getting the client to diversify. Some times I have not. Some examples:

A client in his early seventies owned a significant position in two Swiss drug company stocks. One of the stocks had appreciated significantly over the many years he had owned it. The other he had bought more recently and had depreciated in value over the time he had owned it. These stocks represented a significant percentage of the client’s net worth. This over exposure to just two companies that happed to be in the same industry and headquartered in the same country represented a danger to the client and his younger spouse’s long-term financial security. While the investment risk was the overriding consideration, the fact that this stock would receive a step up in basis upon the client’s death had to be considered.

The client did not want to sell the stock. He had come to the US from Switzerland and had worked as a medical researcher for over 40 years. He liked Swiss drug companies. I convinced him that he should reduce his investment risk and explained that he could do this to a significant extent without any adverse tax ramifications by selling all of the stock that had gone down in value and selling enough of the stock that had gone up so that the loss on the one stock offset the gain on the other stock. This was a few years ago when the capital gains rates were higher than they are today. This was a substantial tax savings. The tax savings convinced my client to sell the stock. Over the next year, the stock he had sold all the shares of declined significantly with no sign of recovery. My client was very appreciative that I had gotten him to sell that stock.

Investment Planning – Inheritance

A woman had inherited a substantial amount of money. She had entrusted a stockbroker with the management of the funds. Her tax preparer was concerned about the number of trades in her brokerage account and suggested she meet with me. After analyzing the account, I determined that the account had been churned resulting in losses in the neighborhood of $250,000, of which approximately $185,000 had been mark ups (the brokerage firms profit on the trades). To add insult to injury, over the 14 months this churning had occurred, the S&P 500 had increased 40%. In addition, the broker had sold my new client very risky 12% private placement bonds, most of which went bankrupt resulting in over $500,000 of lost principal.

I brought in an attorney specializing in securities law. We obtained a $500,000 settlement from the brokerage firm relative to the stock losses. The firm was not responsible for the bonds since the broker was not allowed to sell those bonds through the firm. We were able to recover $400,000 of principal from other 12% bonds that had not defaulted.

Subsequently, I assisted my client with a retirement plan and investment strategy to meet her retirement needs and despite the downturn in the stock market in the first few years of the 2000s, her investment results are ahead of our plan and her retirement is secure.

Investment Planning – Retirement

My clients were looking forward to retiring within a few years if not sooner. In 1999 their broker had them invested 95% in stocks – mostly large cap growth stocks plus some technology funds. On the surface this seemed to make sense since large cap growth stocks had been hot for 4 years in a row and technology stocks were souring. Unfortunately, bubbles are made to pop and by the time this couple had gotten out of the market they had lost over 50% of what they had planned to retire on. Further, when I met them in the early fall of 2003, they were stretching for return by investing in long term bonds and preferred stock -- a dangerous strategy, particularly in a low interest rate environment.

The problem was they did not have an investment strategy and the way their money was invested was inappropriate for several reasons: (1) they had been overly concentrated in stocks considering their proximity to retirement, (2) they should not have invested in technology funds since this was a classic bubble that was bound to pop sooner or later, (3) they should have diversified their equity holdings over 10 different asset classes rather than concentrate solely on one asset class -- large US Growth Stocks, (4) they should not have abandoned the stock market altogether at the bottom of the market, and (5) they should not have tried to increase their return by purchasing long-term bonds and preferred stock or purchasing bonds of lower quality.

I convinced them that they needed to invest a substantial portion of their portfolio in equities if they were going to grow their assets sufficiently so that they could retire. I showed them historic market volatility of various asset allocations and from there led them to zero in on a 50% diversified equity / 50% short-term fixed income portfolio. I educated them as to the importance of avoiding the mistakes listed in the above paragraph.

We agreed on an investment plan (known as an Investment Policy Statement) that I committed to writing and had them sign off on. The Investment Policy Statement included an asset allocation of 50% equities diversified over 10 asset classes, including value, micro cap, and international. The other 50% was allocated entirely to short-term high quality bonds. The objective was to grow the portfolio as quickly as possible while keeping the variation of the portfolio in response to changes in world stock and bond markets within the client’s tolerance. This is critical to prevent the client from abandoning the strategy at the wrong time due to panic over a short-term decline in the portfolio.

Fortunately, I convinced them to get back into the stock market in time to catch the end of the 2003 rally. This was not by design, since I do not recommend trying to time the market. What I do recommend is maintaining an appropriate allocation to equities and riding out the markets ups and downs. My client was very nervous due to all the economic and political events that occurred in 2004. However, I convinced him to hold the course and maintain his equity exposure. The result is we are off to a good start and ahead of plan for building a secure retirement.

Investment Planning – Don’t Chase
What Has Been Hot Recently

I have a client who had a small technology company when she engaged my services towards the end of 1999. Through making some inquiries I found out that she had been investing most of her profits from her business in a technology fund. She was planning to use this money to buy a house within the next twelve months. I suggested that the money she was intending to spend in the next twelve months should be in a money market, certificate of deposit, or possibly a short-term high quality bond fund. I further recommended that to the extent she wanted to invest for the long-term, that a diversified portfolio would be much less risky and likely to produce a much higher long-term rate of return than a fund invested solely in one industry. I also observed that being in a technology business and investing heavily in a technology fund was a further concentration of risk.

She felt that by working in the industry she was close enough to pick up on any problems and then get out of the fund before it went down. Also, the fund she was in had gone up significantly in a short time. Her thinking was -- and this is very common among individual investors – why sell an investment that has done really well? The answer of course is that the rise in tech stocks was a classic bubble and like all bubbles of the past, it would burst – the only question was when. Ultimately, her tech fund declined to a small fraction of what it had been and her business declined as well.