At the end of every calendar year, tax, investment and succession planning are topics of intense interest for wealth management teams and their high-net-worth clients. With a hurting economy that's sucker-punched investment portfolios and a new presidential administration taking office next month that has pledged to repeal many of the Bush tax cuts, advisors and their clients have a particularly long list of topics to discuss.
For banks working to build their wealth management practices, helping people navigate today's economic and political tumult is a prime opportunity to prove themselves to clients and potential clients, and perhaps earn a lifetime of loyalty. It's also important to remember that the world of wealth management for high-net-worth clients is a word-of-mouth business. Being viewed as a trusted advisor is crucial in these difficult times while poor advice - or no advice - may prompt a client to jump ship to a competitor, says Shari Levitan, an attorney and chair of Holland + Knight Law's New England private wealth services practice. "Everybody's down but if you're not so down as badly as the people who aren't getting good advice, you look pretty good," she says.
First of all, take the economy. Even in bad times there are smart wealth management strategies, and Levitan says banks should proactively discuss the "benefits" of this down economy with clients. The greatest opportunities exist around gifting stock, real estate and other assets to children and grandchildren. With asset values depressed and interest rates low, there are opportunities to pass assets to children and grandchildren, who can enjoy the asset appreciation in the years ahead. "This is an opportunity in the midst of the perfect storm of bad asset values," Levitan says. "There is a silver lining, which is to look at low asset values as an opportunity that won't exist when asset values come back up."
Now is a perfect time for wealth management teams to educate clients around estate freezing techniques, says Richard Watson, who is a business succession planning strategist with Wells Fargo Private Bank in Newport Beach, CA. Broadly speaking, an estate freeze is an asset management strategy that allows an estate owner to transfer assets to his or her beneficiaries with minimal tax consequences. In most estate freezes, the estate owner transfers assets, usually common stock, to a company in exchange for preferred shares. Because preferred shares issued to the estate owner are non-growth securities, the owner will not incur future capital gains taxes on these instruments. The company then issues new common stock to the beneficiaries - the children and grandchildren for instance - at market value so that no capital gain exists.
Every family's details vary, but the point is that passing assets to heirs is best to do when asset values have dipped-and that's the state of the market today - an insight that wealth management teams can pass along to clients. "Because asset values are down it's a wonderful opportunity to at least consider certain types of estate-freezing techniques," Watson says.
On the tax-planning front, the landscape is changing significantly. President-elect Barack Obama has said he will repeal the Bush Administration tax cuts for the wealthiest two percent of families. In addition, Obama has said he plans to raise the capital gains tax, which currently stands at 15 percent, to 20 percent for couples making more than $250,000 and single filers with incomes greater than $200,000. "Because of the election, if you're contemplating selling a portion of an asset that you think might qualify for capital gains, you might want to do that now before rates change," Watson says.
On a cautionary note, wealth management advisors need to be delicate in how they pitch ideas and advice to clients in today's environment, and not appear to be simply "selling" themselves to their clients, says Robert Ellis, a senior analyst in Boston-based research firm Celent's securities and investments group.