“For Good and Evil: The Impact of Taxes On the Course of Civilization” by Charles Adams

Today being March 15th, let’s celebrate “Tax Day” for corporations in America by taking a look at a wonderful book on the impact of taxation on throughout recorded history.

Charles Adams’ book helps us understand why historical events happened and offers many lessons to us today. Some simply are facinating:

• The Rosetta Stone’s words were literally written in stone to memorialize tax exemption for priests and were found in all temples.
• Egyptians taxed cooking oil at 20% and scribes “made regular inspections of all kitchens to make sure wives were not using free drippings in place of the taxed oil they were required to use.”
• Queen Elizabeth I once said, “To tax and to be loved is not given to man.” She chose to be loved by her subjects and “to accept what revenue they were willing to give her.” No oaths, no inquisitions, and no coercion. Yet when the need arose, she was given the tax money to defeat the Spanish Armada and position England to become a superpower.
• The Spanish Empire collapsed for the same reason as Rome: farmers were taxed heavily and civil servants were tax exempt. So farmers naturally quit farming to take government jobs.

You’ll also see why the power to tax and the power to spend should not be held by the same branch of government be it the King, the Parliament, or the Congress. For instance, Queen Elizabeth had the power to spend money on the army and navy but only Parliament could authorize new taxes.

This book should be required reading for all Congressmen. Why keep making the same tax policy mistakes which have plagued countries in the past?

Harvey Mackay On How to Have a Happier Office (and Home)

In this insightful article, best-selling author Harvey Mackay explains how his “10 Commandments for the Office” will make you feel better at the end of a day. Your challenge is to live these principles out yourself and encourage your staff to do the same. Consider sending this list to your clients as well. Whether a big business or a home-based business, these “10 Commandments” will help them run a happier and more productive business.

10 Commandments for the Office

By Harvey Mackay

It’s just business as usual, day in and day out. The fast lane gets faster. Competition for business and jobs gets meaner. The world gets smaller every day. You’ve dealt with a hundred co-workers, customers, vendors, and the irritating kid who works at the lunch counter. It’s time to go home and unwind.

The traffic jam gives you an opportunity to replay some of the day’s encounters. Regrettably, you wish you would have handled a few things quite differently. How can you make tomorrow better?

My mother always told me, “You don’t have to like everybody, but you do need to learn to get along.”

Over the years, I’ve developed a list, a “Ten Commandments for the Office,” which makes my commute home a little less guilt-ridden. Better yet, it’s improved my commute to the office. If I follow my own advice, I won’t have to spend my time apologizing for what I should have done in the first place. Try it out.

1. Be respectful. This includes respect for other people’s property, ideas and time. Frankly, this commandment should about cover everything. If you are respectful of others, you can usually work out most issues – even if it’s agreeing to disagree. An added bonus is that when you treat others with respect, they are more inclined to return the favor.

2. Follow through. If you promise to do something, do it. No ifs, buts or maybes. No excuses, no whining. You are only as good as your word. There will always be a place in this world for the person who says, “I’ll take care of it.” And then does it.

3. Think before you speak. Don’t say whatever is on your mind, unless you want your mindless thoughts to come back to haunt you. Those ghosts can rise up years later, just when that promotion looks so promising. And while we’re on the topic, remember that how you say something is as important as what you say.

4. Help out. So what if it’s not in your job description. If you have an opportunity to be useful, jump at it. Even if the rewards are not in the form of a paycheck, your co-workers will remember who helped them when they needed it. Taking on a little extra work – or a lot – shows that you are a team player, an employee worth watching.

5. Learn something new every day. It could be a new skill. Maybe the latest developments in your industry. Or just the name of a person you see daily at the copy machine. You have millions of brain cells just waiting to work for you!

6. Pay attention. If you go directly to your cubicle and barricade yourself all day, you’re missing important developments in your workplace. Not the gossipy events, of course, but the really good stuff – new procedures, new ideas and so on. This commandment also covers those occasions when the value of your input depends on your familiarity with the situation at hand. In short, always keep your antennae up!

7. Ignore pettiness. Rise above it, or you will be dragged down with it. There will always be someone who will make a mountain out of a molehill. It better not be you.

8. Be patient. Not to be confused with tolerating incompetence, this commandment covers a multitude of situations.; Someone misunderstood you. A job is taking longer than you planned. You are missing every traffic light. What will you gain by losing your cool? I’m not a patient guy by nature, so I’ve really had to work at this one. If I can do it, you can too!

9. A good attitude is up to you. It takes a lot for the world to come to an end, so don’t act like it’s happening every day. Be encouraging, be cheerful. Refuse to be brought down by minor – or major – setbacks. Bad attitudes are contagious. The good news is that positive attitudes are catching, too.

10. Do your best. Like commandment #1, this should also cover just about everything. No one can ask you to do more.

It’s important to decide early on how you will conduct yourself. Then, when a crisis erupts or challenge arises, you won’t have to think twice about the right thing to do. I’ve always said that perfect practice makes perfect. These rules are no exception. And just for the record, these commandments work outside the office too.

Mackay’s Moral: Some rules are made not to be broken.

Harvey Mackay’s latest book might help someone you know get hired for the job they really want.  “Use Your Head to Get Your Foot in the Door: Job Search Secrets No One Else Will Tell You”

Advisor Marketing Giving Away Great Information

Richard Emmons explains how financial advisors can improve their marketing by giving away high quality and free information.

httpv://www.youtube.com/watch?v=54r49YIOm_k

Investment Lessons from Warren Buffett

In a previous article, we looked at Warren Buffett’s Berkshire Hathaway’s annual shareholder letter and drew some marketing lessons for financial advisors. Now let’s look at the shareholder letter and draw some lessons on how to invest your client’s money.

Now let’s review the letter again and get some investment insights from it. In the very first paragraph, he touts fabulous results for the past year:

Our gain in net worth during 2009 was $21.8 billion, which increased the per-share book value of both our Class A and Class B stock by 19.8%. Over the last 45 years (that is, since present management took over) book value has grown from $19 to $84,487, a rate of 20.3% compounded annually.*

I realize that past performance is no guarantee of future performance, but 20.3% for 45 years! Let’s be thankful Berkshire is a public company so we can watch what Warren Buffett does and learn from a master. The Wall Street Journal aptly summarized results and investment philosophy:

On Saturday, Mr. Buffett’s Berkshire Hathaway reported that net earnings rocketed 61% last year to $5,193 per share, while book value jumped 20% to a record high. Berkshire’s Class A shares, which slumped to nearly $70,000 last year, have rebounded to $120,000.

Those bets on GE and Goldman? They’ve made billions so far. And anyone who took Mr. Buffett’s advice and invested in the stock market in October 2008, even through a simple index fund, is up about 25%.

This is nothing new, of course. Anyone who held a $10,000 stake in Berkshire Hathaway at the start of 1965 has about $80 million today.

How does he do it? Mr. Buffett explained his beliefs to new investors in his letter to stockholders Saturday:

Stay liquid. “We will never become dependent on the kindness of strangers,” he wrote. “We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.”

Buy when everyone else is selling. “We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend … Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.”

Don’t buy when everyone else is buying. “Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance,” Mr. Buffett wrote. The obvious corollary is to be patient. You can only buy when everyone else is selling if you have held your fire when everyone was buying.

Value, value, value. “In the end, what counts in investing is what you pay for a business-through the purchase of a small piece of it in the stock market-and what that business earns in the succeeding decade or two.”

Don’t get suckered by big growth stories. Mr. Buffett reminded investors that he and Berkshire Vice Chairman Charlie Munger “avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be.”

Most investors who bet on the auto industry in 1910, planes in 1930 or TV makers in 1950 ended up losing their shirts, even though the products really did change the world. “Dramatic growth” doesn’t always lead to high profit margins and returns on capital. China, anyone?

Understand what you own. “Investors who buy and sell based upon media or analyst commentary are not for us,” Mr. Buffett wrote.

“We want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it’s one that follows policies with which they concur.”

Defense beats offense. “Though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the eleven years during which it delivered negative results. In other words, our defense has been better than our offense, and that’s likely to continue.” All timely advice from Mr. Buffett for turbulent times.

Source: http://online.wsj.com/article/SB10001424052748704089904575093603081648166.html?mod=WSJ_hp_editorsPicks

A 2008 academic study of Berkshire over a 30-year period attempted to uncover the secret of Warren Buffett’s success. And recommended just imitating a winning investment strategy.

Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway

Gerald S. Martin, American University – Kogod School of Business

John Puthenpurackal, University of Nevada, Las Vegas – Department of Finance

April 15, 2008

Abstract:

We analyze Berkshire Hathaway’s equity portfolio over the 1976 to 2006 period and explore potential explanations for its superior performance. Contrary to popular belief, we find Berkshire Hathaway invests primarily in large-cap growth rather than “value” stocks.

Over the period the portfolio beat the benchmarks in 27 out of 31 years, on average exceeding the S&P 500 Index by 11.14%, the value-weighted index of all stocks by 10.92%, and a Fama and French characteristic-based portfolio by 8.56% per year. Although beating the market in all but four years can statistically happen due to chance, incorporating the magnitude by which the portfolio beats the market makes a luck explanation extremely unlikely even after taking into account ex-post selection bias.

We find that Berkshire Hathaway’s portfolio is concentrated in relatively few stocks with the top five holdings averaging 73% of the portfolio value. While increased volatility is normally associated with higher concentration we show the volatility of the portfolio is driven by large positive returns and not downside risk. The market appears to under-react to the news of a Berkshire Hathaway stock investment since a hypothetical portfolio that mimics the investments at the beginning of the following month after they are publicly disclosed also earns significantly positive abnormal returns of 10.75% over the S&P 500 Index.

Our evidence suggests the Berkshire Hathaway triumvirates of Warren Buffett, Charles Munger, and Lou Simpson posses’ investment skill unlikely to be explained by Efficient Market Theory.

Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=806246&rec=1&srcabs=1005564

To be blunt about it, Warren Buffett demolished the Efficient Market Theory.

You can read the rest of the study if you like. Time is short so let’s look at the Wall Street Journal’s summary from a 3/1/2010 report:

It might not be practical to buy all of Buffett’s holdings. He owns 40 stocks and many of them are tiny positions. Here are two other approaches investors can take:

Slightly speculative: Buy the stocks Buffett is increasing his positions in. The idea is you can get in at prices similar to Buffett and it might be the stocks he feels most strongly about right now.

This past quarter:

Republic Services (RSG): Buffett increased his holdings by 129%
Iron Mountain (IRM): Increased by 108%
Beckton Dickinson (BDX): Increased by 25%
Walmart (WMT): Increased by 3.2%
Wells Fargo (WFC): Increased by 2.2%
The blog Market Folly summarizes the increases and decreases here.

The “Buffett Aristocrats”: The S&P publishes a list of its dividend aristocrats – stocks that have increased their dividends for more than 25 years in a row. Buffett owns a basket of these, which I call the Buffett Aristocrats. These might be solid plays both for the income (since you can feel comfortable that they will probably increase, or at least keep, their dividends in the future) and capital appreciation (all of these companies have done well over time and, besides, Buffett likes them):

BDX – has increased its dividend for 37 years in a row. 1.9% dividend

KO – 47 years – 3.3% yield

LOW – 47 years – 1.5%

*PG – 53 years – 2.8%

WMT – 35 years – 2%

*XOM – 27 years – 2.6%

*JNJ – 47 years – 3.1%

* Buffett reduced his position this past quarter

Source: http://blogs.wsj.com/financial-adviser/2010/03/01/introducing-the-buffett-aristocrats/

Well there you have it. Go and do likewise!

Advisor Compliance and the Madoff whistle-blower’s book: ‘No One Would Listen’ by Harry Markopolos

More light has been shed on the Bernie Madoff Ponzi scheme with the publication of “No One Would Listen.” This book focuses it’s ire on the SEC who completely missed the Madoff Ponzi despite being warned in advance and in time to prevent billions of dollars in losses.

This writer agreed with Harry Markopolos’s conclusion that “we shouldn’t trust the government.”

Writes Andrew Fitzgerald:

My wife had the Today Show on this morning to which I usually don’t pay any attention, but Matt Lauer was interviewing Harry Markopolos who I had seen interviewed before on Frontline. Markopolos was a competing trader tasked with figuring out Madoff’s secret to such great returns. He said that he conclusively determined his operation to be a fraud in 30 minutes and over the next several years informed the SEC four separate times. He said that the big problem with the SEC was that they’re staffed with lawyers who don’t know anything about money and investigating. I remember in the Frontline piece he said that it would have been easy enough for the SEC to contact every broker on the NYSE and find that none had ever placed a trade for Madoff.

The great parts of his interview this morning were when Lauer questioned him about his fears of being threatened by Madoff. Markopolos said that he bought a gun and if he were personally threatened by Madoff he planned to kill him since, “it was either him or me.” Lauer looks at him quizzically asking how he would explain that to law enforcement. Markopolos, who doesn’t exactly look like a Charles Bronson vigilante, said “well I’d hope not to get caught. I certainly had some good Army training, and it was really him or me. I had a family to protect. The government wasn’t protecting me; they were not doing their jobs, and I felt forced into a rather difficult moral dilemma.” Lauer ends the interview by asking him what lessons should investors learn from this mess. He answers, “don’t trust your government.”

I felt the whole interview had a great libertarian ring to it, with our government budget going to no good purpose except possibly training a would-be vigilante and the regulatory agency being warned repeatedly about the greatest private fraud in American history to no effect. Source: http://www.lewrockwell.com/blog/lewrw/archives/52150.html

You can see Harry Markopolos interviewed on this 8 minute segment from yesterday’s Today Show.

Visit msnbc.com for breaking news, world news, and news about the economy

Here’s a book excerpt from the Today Show’s website:

Harry Markopolos on investigating one of the biggest frauds in history

TODAY books, updated 7:01 a.m. PT, Mon., March. 1, 2010

Harry Markopolos is the whistle-blower who uncovered Bernie Madoff’s Ponzi scheme 10 years before the rest of the world learned of the biggest financial crime in history. While a lot has been written about Madoff’s scam, few actually know the dramatic details of how Markopolos and a small group of sleuths went about investigating the fraud that reached around the globe. In “No One Would Listen,” Markopolos shares his story. An excerpt.

On the morning of December 11, 2008, a New York real estate developer on a JetBlue flight from New York to Los Angeles was watching CNBC on the small seat-back television. A crawl across the bottom of the screen reported that Bernard Madoff, a legendary Wall Street figure and the former chairman of NASDAQ had been arrested for running the largest Ponzi scheme in history. The developer sat silently for several seconds, absorbing that news. No, that couldn’t be right, he thought, but the message streamed across the screen again. Turning to his wife, he said that he knew that she wasn’t going to believe what he was about to tell her, but apparently Bernie Madoff was a crook and the millions of dollars that they had invested with him were lost. He was right — she didn’t believe him. Instead, she waved off the thought. “That’s not possible,” she said, and returned to the magazine she was reading.

The stunned developer stood up and walked to the rear of the plane, where the flight attendants had gathered in the galley. “Excuse me,” he said politely, “but I’m going to be leaving now. So would you please open the door for me? And don’t worry — I won’t need a parachute.”

At about 5:15 that December afternoon, I was at the local dojo in my small New England town watching my five-year-old twin boys trying to master the basic movements of karate. It had been a gloomy day. Rain continued intermittently, and there was a storm in the air. I noticed there were several voice mails on my cell phone. That’s curious, I thought; I hadn’t felt it vibrate. I stepped into the foyer to retrieve the messages. The first one was from a good friend named Dave Henry, who was managing a considerable amount of money as chief investment officer of DKH Investments in Boston. “Harry,” his message said clearly, “Madoff is in federal custody for running a Ponzi scheme. He’s under arrest in New York. Call me.” My heart started racing. The second message was also from a close friend, Andre Mehta, a super-quant who is a managing director of alternative investments at Cambridge Associates, a consultant to pension plans and endowments. I could hear the excitement in Andre’s voice as he said, “You were right. The news is hitting. Madoff’s under arrest. It looks like he was running a huge Ponzi scheme. It’s all over Bloomberg. Call me and I’ll read it to you. Congratulations.”

I was staggered. For several years I’d been living under a death sentence, terrified that my pursuit of Madoff would put my family and me in jeopardy. Billions of dollars were at stake, and apparently some of that money belonged to the Russian mafia and the drug cartels — people who would kill to protect their investments. And I knew all about Peter Scannell, a Boston whistleblower who had been beaten nearly to death with a brick simply for complaining about a million-dollar market-timing scam. So I wouldn’t start my car without first checking under the chassis and in the wheel wells. At night I walked away from shadows and I slept with a loaded gun nearby; and suddenly, instantly and unexpectedly, it was over. Finally, it was over. They’d gotten Madoff. I raised my fist high in the air and screamed to myself, “Yes!” My family was safe. Then I collapsed over a wooden railing. I had to grab hold of it to prevent myself from falling. I could barely breathe. In less time than the snap of my fingers I had gone from being supercharged with energy to being completely drained.

The first thing I wanted to do was return those calls. I needed to know every detail. It was only when I tried to punch in the numbers that I discovered how badly my hand was shaking. I called Dave back and he told me that the media was reporting that Bernie Madoff had confessed to his two sons that his multibillion-dollar investment firm was a complete fraud. There were no investments, he had told them; there never had been. Instead, for more than two decades, he had been running the largest Ponzi scheme in history. His sons had immediately informed the Federal Bureau of Investigation (FBI), and agents had shown up at Madoff’s apartment early that morning and arrested him. They’d taken him out in handcuffs. It looked like many thousands of people had lost billions of dollars.

It was exactly as I had warned the government of the United States approximately $55 billion earlier. And as I stood in the lobby of that dojo, my sense of relief was replaced by a new concern. The piles of documents I had in my possession would destroy reputations, end careers, and perhaps even bring down the entire Securities and Exchange Commission (SEC), the government’s Wall Street watchdog — unless, of course, the government got to those documents before I could get them published. I grabbed my kids and raced home.

My name is Harry Markopolos. It’s Greek. I’m a Chartered Financial Analyst and Certified Fraud Examiner, which makes me a proud Greek geek. And this, then, is the complete story of how my team failed to stop the greatest financial crime in history, Bernie Madoff’s Ponzi scheme. For the previous nine years I had been working secretly with three highly motivated men who worked in various positions in the financial industry to bring the Bernie Madoff fraud to the attention of the SEC. We had invested countless hours and risked our lives, and had saved no one — although eventually, after Madoff’s collapse, we would succeed in exposing the SEC as one of this nation’s most incompetent financial regulators.

For example, it was well known that Madoff operated his legitimate broker-dealer business on the 18th and 19th floors of the Lipstick Building on New York’s East Side. But what was not generally known was that his money management company, the fraud, was located on the 17th floor of that building. Months after Madoff’s collapse, the FBI would reveal to my team that based on our 2005 submission providing evidence that Madoff was running a Ponzi scheme, the SEC finally launched an investigation — but that its crack investigative team during the two-year-long investigation “never even figured out there was a 17th floor.” I had provided all the evidence they needed to close down Madoff — and they couldn’t find an entire floor. Instead they issued three technical deficiency notices of minor violations to Madoff’s broker-dealer arm. Now, that really is setting a pretty low bar for other government agencies to beat. But sadly, all of this nation’s financial regulators — the Federal Reserve Bank, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision — are at best incompetent and at worst captive to the companies they are supposed to regulate. As I would later testify before Congress, “The SEC roars like a mouse and bites like a flea.” In retrospect, considering how much I have learned since then, and how much my team has learned, that probably was inaccurate: I was being too kind. Tens of thousands of lives have been changed forever because of the SEC’s failure. Countless people who relied on that agency for the promised protection have lost more than can ever be recovered. In some cases people lost everything they owned. And truthfully, the SEC didn’t even need to conduct an extensive investigation. My team had given them everything they needed. With the materials we submitted, it would have taken investigators no more than the time it took to ask Madoff three questions for his fraud to be discovered and his operation to be shut down. The magnitude of this Ponzi scheme is matched only by the willful blindness of the SEC to investigate Madoff.

Excerpted from “No One Would Listen,” by Harry Markopolos. Copyright (c) 2010, reprinted with permission from Wiley.

Source: http://today.msnbc.msn.com/id/35606057/ns/today-today_books/

You can read a 10-year timeline at Amazon.com: No One Would Listen: A True Financial Thriller

Conclusions? Yes, you need to follow your compliance departments directives. No, your clients should not trust the government to protect their interests. And if any investment seems too good to be true, it probably is and you shouldn’t invest your clients money in it.

Marketing Lessons from Warren Buffett

Warren Buffet released Berkshire Hathaway’s annual shareholder letter on Saturday. Let’s look at this letter and draw some marketing lessons for financial advisors.

Create an Event. Warren Buffett receives tons of free publicity before, during, and after his eagerly anticipated letter to shareholders is released each year.

What can a financial advisor do? Every April 15th, taxpayers line up at the post office to file their income taxes. You can provide them with hot coffee and cookies. Be sure to tip off your local newspaper about this special “tax relief” effort. Or perhaps there’s an annual charity auction in your town. Donate a free pair of hearing aids and say that “My clients say I’m a good listener and appreciate hearing my financial advice. Let me help someone become a better listener this year.”

Do your event every year and you’ll get lots of publicity from it.

Be Consistent. Warren Buffett writes this shareholder letter every year. Not just in the good years. And he always presents an image of consistent, Midwestern, and reliable investing. You can’t change your branding message and targeted clientele very often or you’ll appear to be appeal to everyone and noone at the same time. Here’s how a blogger for the Wall Street Journal describes this,

Every few years, critics say Warren Buffett has lost his touch. He’s too old and too old-fashioned, they claim. He doesn’t get it anymore. This time he’s wrong.

It happened during the dotcom bubble, when Mr. Buffett was mocked for refusing to join the party. And it happened again last year. As the Dow tumbled below 7,000, Mr. Buffett came under fire for having jumped into the crisis too early and too boldly, making big bets on Goldman Sachs and General Electric during the fall of 2008, and urging the public to plunge into shares.

Now it’s time for those critics to sit down for their traditional three course meal: humble pie, their own words and crow. Source: http://online.wsj.com/article/SB10001424052748704089904575093603081648166.html?mod=WSJ_hp_editorsPicks

Keep Your Brand Fresh. Being consistent in your marketing doesn’t mean never change anything. In today’s Heard on the Street column in the Wall Street Journal, Liam Denning writes that

Warren Buffett’s latest shareholder letter can be summed up thusly: This isn’t your father’s Berkshire Hathaway.

The chairman’s letter was billed, in part, as a “freshman orientation session” for Burlington Northern Santa Fe shareholders receiving Berkshire stock in connection with November’s acquisition. Those investors thinking of buying a slice of Mr. Buffett’s genius now that Berkshire’s “B” shares reside in Standard & Poor’s 500-stock index should join the class.

Mr. Buffett says he has lost his earlier distaste for capital-intensive businesses. Like other mature, successful businesses, Berkshire generates so much cash that deploying it all in high-growth investment opportunities is a stretch even for Mr. Buffett.

…Large, utility-like businesses offer what Mr. Buffett calls “decent” returns on a bigger slug of capital than higher-risk, potentially spectacular returns on smaller investments.

Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha,” reckons Berkshire is becoming more of a “widows and orphans” stock, with the investment case resting less on the alchemy of Mr. Buffett’s stock picking. Less exciting, perhaps, but necessary if Berkshire is to carry on after America’s most famous investor hangs up his spurs. Source: http://online.wsj.com/article/SB10001424052748703431604575095743489061252.html?mod=WSJ_Markets_section_Heard#articleTabs%3Darticle

Make it easier for people to do business with you. One of the reasons the shareholder’s letter was a “freshman’s orientation session” was because they added over 100,000 new shareholders during the year.

If you bought an advisor’s book of business you would want to communicate the basics of doing business with you: communication channels. annual reviews, etc. If you added 10 new clients per living trust seminar, you’d have over 100 new clients at the end of the year. Never assume they know the in’s and out’s of doing business with you or how you invest or how you do financial planning.

Berthshire also did a 50 to 1 stock split to lower the share price of the B shares. A lower price means more people can buy a hundred shares. Plus they’ll be added to the S&P 500 in a few months which means people will buy them when they buy the S&P 500 index.

Perhaps you only accept new clients with a minimum of $500,000 of investable assets. You could add a junior planner and lower your minimum to $250,000. This effectively lowers your “price” and makes it easier for more people to do business with you.

White House Sets New Rules on Retirement Accounts

Ronald Reagan once said “the nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’  Yesterday, Vice President Biden issued the “Middle Class Task Force Annual Report” which included planned rule changes aimed at ensuring workers receive objective investment advice for their 401(k)s and IRAs.

Will the new rules really help employees? Only time will tell. Let’s start with what the White House announcement:

Also at today’s event, the Vice President announced that the Department of Labor is proposing new protections for workers with 401(k)s and IRAs. These new protections are an important step in the Administration’s efforts to make the retirement system more secure for middle class workers and families. The regulations will protect workers from conflicts of interest and expand the opportunities for employers to offer workers the expert investment advice they need to make the best possible decisions about how to save their hard-earned wages.

“A secure retirement is essential to workers and the nation’s economy. Along with Social Security and personal savings, secure retirement allows Americans to remain in the middle class when their working days are done. And, the money in the retirement system brings tremendous pools of investment capital, creating jobs and expanding our economy,” said U.S. Deputy Secretary of Labor Seth Harris. “These rules will strengthen America’s private retirement system by ensuring workers get good, objective information. When that happens, workers make the kind of decisions that are good for their families and the nation as the whole.” Source: http://www.whitehouse.gov/the-press-office/vice-president-biden-issues-middle-class-task-force-annual-report

So how will this affect financial advisors? Here’s what the Financial Times had to say:

The new rules would require retirement investment advisers and money managers to either base their advice on computer models that have been certified as independent, or they would prohibit them from suggesting workers to invest in funds with which they are affiliated or from which they receive commissions. Source: http://www.ft.com/cms/s/0/d81ac69a-22f3-11df-a25f-00144feab49a.html?nclick_check=1

This sounds ominous because financial advisors will either need to use independently certified computer models or no longer suggest funds for which they receive commissions. Remember that the rules have been proposed and could change. And they don’t affect all investors. Yet.

The Department of Labor issued a related press release which partly clarifies who would be covered by these proposed rules:

The first of the two rules would ensure workers receive unbiased advice about how to invest in their individual retirement accounts or 401(k) plans. If the rule is adopted, it would put in place safeguards preventing investment advisors from slanting their advice for their own financial benefit. Investment advisors also would be required to disclose their fees, and computer models used to offer advice would have to be certified as objective and unbiased. The department estimates that 2 million workers and 13 million IRA holders would benefit from this rule to the tune of $6 billion.

The second rule announced today establishes new guidelines on the disclosure of funding and other financial information to workers participating in multiemployer retirement plans — those collectively bargained by unions and groups of employers. It will ensure transparency by guaranteeing workers can better monitor the financial condition and day-to-day operations of their retirement investments. The rule will go into effect in April 2010. Source: http://www.prnewswire.com/news-releases/us-labor-department-rules-to-improve-retirement-security-announced-as-part-of-white-house-middle-class-task-forces-year-end-report-85499197.html

These rules stem from the Obama Administration’s goal of helping the middle class. Many 401(k)s became 201(k)s and with the stock market bounce might be back to 301(k) level now. Will these rules help? Only time will tell. Are the proposed rules realistic? Let’s end with a quote from a Reuters story:

“Expert advice can be helpful, but that advice must be unbiased and there must be no risk that the adviser will benefit from steering workers to particular investments,” Deputy Labor Secretary Seth Harris said at the event. Source: http://www.reuters.com/article/idUSTRE61P26O20100226

You can watch the 29 minute White House announcement here. The part dealing with retirement account protection is the first 10 minutes.

Advisor Marketing Success with a “Sales Lead Machine”

If you’re a financial advisor getting ready to retire, this post is definitely not for you. Or if you have so many long-time and new clients you can’t imagine squeezing one more client into your crowded schedule, then please ignore this message. Now let me talk to the rest of you out there!

There are lots ways to get more sales leads:

• Yellow page ad
• Radio show
• Walk-in traffic
• Asking clients for referrals

Yet these sources are unpredictable and not really repeatable. Sometimes you get leads when you’re crazy busy. And other times your appointment schedule is getting light and the telephone just won’t ring.

What you need to develop is a “sales lead machine.” You want to create a marketing program which generates a consistent and ongoing stream of prospective clients.

You need to find what works well and what works for you. This can take some testing. Or you can take an existing marketing system and adapt it to your particular practice. Let me give you a few ways I’ve helped clients create a lead machine.

One way is to create a free report and offer it in your advertising. The report can be in the form of a written report such as the “7 Most Common Retirement Planning Mistakes…and How To Avoid Them.” Better yet, you can create an “expert audio CD” which your prospects can listen to in their car. The trick is to offer a physical report so interested parties need to give you call you and provide their mailing address. Get their phone number and email to follow-up to find out if they have any questions about the report. Your report should generate questions in their minds as well as establish you as the expert to provide the answers. When you want to turn on your lead machine, just mail some postcards or run a display ad in your newspaper or a weekly paper directed at senior citizens. You’ll be able to test your ad based on the number of people who call and ask for the report.

My favorite “sales lead machine” is to help advisors put on living trust seminars. Yes, getting your first seminar involves a lot of work including getting your newspaper ads designed and past compliance, choosing a restaurant, and establishing a relationship with an estate planning attorney. Yet the key advantage of buying a sales lead machine is that you avoid all the trial and error of designing ads and creating the tools to make it a system. Yesterday, one advisor held his first 2 seminars and had 14 attendees in the mid-day seminar and another 16 in the evening. Future seminars build on prior seminars because the ads establish the advisor as an estate planning expert. Plus his presentation skills will improve as he commits the presentation to memory and weaves in more of his own war stories.

Let’s break down his sales lead machine and see how it turns leads into clients:

1. Schedule the seminar and confirm the date with the estate planning attorney
2. Book the facility and update the newspaper advertisement
3. Notify your mailing list of the upcoming seminar and run your newspaper ads
4. Hold the seminar and establish yourself as an estate planning expert by educating the attendees.
5. Schedule attendees for initial consultations and assist the attorney through the trust process
6. Assist trust clients through estate planning and gently turn them into financial planning clients….

Now this advisor has scheduled seminars monthly so he’ll generate a steady stream of new clients during the year. Advisor/CPA’s who focus on taxes during the tax season would schedule seminars after April 15th.

Other clients hold elaborate client appreciation dinners in December. Clients get wined and dined and educated by a noted speaker. Of course, they are encouraged to invite a neighboring couple. Get this formula down and you’ll have a very busy January and February!

“Random acts of kindness” might make this world a better place. However, “random acts of marketing” usually waste money and don’t generate consistent leads. For that you need a sales lead machine.

New Federal Estate Tax: Who it hurts and who it helps

Let’s remember what Milton Friedman said about tax cuts, “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” Is this always true? Not when Congress eliminates the federal estate tax while limiting the step up in basis. Some families will be helped and many others will be hurt.

Read this Wall Street Journal article and learn who is hurt by this change. It could be some of your best clients.

Why No Estate Tax Could Be a Killer

By Laura Saunders, The Wall Street Journal, 2/13/2010

Congress shocked everyone by letting the estate tax lapse on Jan. 1.

Now, here is the real stunner: For many, the lapse actually will raise taxes.

Under last year’s law, estates up to $3.5 million, or $7 million for married couples, were exempt from federal tax. This year that law has been replaced by a fiendishly complex levy raising taxes on the assets of those with little as $1.3 million. It will affect the heirs of at least 50,000 U.S. taxpayers who die this year, whereas the old law affected only about 15,000 estates a year, according to the Tax Policy Center.

“The new system is far worse for many people who have assets between $1.3 million and $3.5 million,” says veteran estate lawyer Ronald Aucutt, of McGuire Woods.

This little-understood facet of the current law was enacted as part of a deal brokered in 2001 with the expectation Congress would never let the estate tax actually expire. It isn’t clear when, or even if, a badly polarized Congress will take up the estate tax this year.

Legal Challenges

If lawmakers do bring back the estate tax, that would bring another set of problems. Reinstatement of the tax retroactive to Jan. 1, which many advocate, will bring legal challenges from wealthy estates that could take years to resolve. But if some version of the old system isn’t reinstated, heirs of smaller estates will suffer.

To see what is at stake, consider how differently this year’s and last year’s regimes treat the same asset held by two fictional widows: Ms. Bentley has total assets of $20 million, while Ms. Subaru’s total is $2 million. Each owns a $110,000 block of the same stock bought for $10,000 years ago. This simplified example uses a block of stock, but its logic applies to all appreciated assets, including houses and land.

Under current law Ms. Bentley and her heirs prosper. If she dies this year and the stock is sold, her heirs will owe only a $15,000 capital-gains tax, whereas last year the same move would have incurred nearly $50,000 in estate tax. By contrast, Ms. Subaru’s heirs would have owed nothing last year because the estate was below the $3.5 million exemption. This year they would owe the same $15,000 capital-gains tax Ms. Bentley’s heirs do.

The reason: Under the old estate tax, assets could be written up to their full value at the death of the owner, and neither widow had to pay capital-gains tax on the $100,000 increase in the stock last year. But current law fully taxes gains while imposing no tax on estates. Quite simply, the demise of the 45% estate tax helps Ms. Bentley and her heirs more than the 15% tax on appreciation hurts them. For Ms. Subaru, the reverse is true.

Winners and Losers

Beth Shapiro Kaufman, an attorney with Caplin & Drysdale, made estimates showing who is better off under last year’s versus this year’s system. She found that heirs of estates with assets totaling between $1.3 and $4.3 million would often have been better off last year, while those with bigger estates will do better this year.

Current law does give some relief to heirs of smaller estates. All estates receive at least $1.3 million of exemption from the tax on appreciation. The executor can “cherry-pick” assets after death and assign the exemption to maximize its value.

But the law is full of traps and demands detailed record keeping. Experts are telling those affected to avoid irrevocable actions, like distributing or selling assets, while the situation remains unresolved.

Some hope that Congress will wind up doing what it did when a similar tax regime was tried in the late 1970s. It was repealed after an uproar, but the estates of those who died while the law was in flux got to choose which system to use.

Such an approach could avoid some ugly family situations. Last December, some wealthy people were kept alive until the estate tax lapsed in January. “But if the tax comes back,” says Mr. Aucutt, “Relatives might be tempted to pull the plug.”

Source: http://online.wsj.com/article/SB10001424052748703630404575053430667449198.html?mod=WSJ_article_RecentColumns

How can Congress solve this problem? I like the solution proposed in the article: let families choose between estate tax systems.

You better keep your clients up to date on what’s happening with the estate tax. Don’t wait for the annual review. And don’t let one of your competitors tell them about it first. You might lose a client.

On the other hand, you’d be doing your competitors’ clients a favor if YOU let them know what’s going on. One way would be to put on free public seminars on estate planning. Establish yourself as your city’s expert on estate planning. Take a look at my estate seminar system and you could be giving your first seminar in 30 days!

Advisor Marketing with Better Business Cards

You want to be remembered and you want to provide a reason for someone to keep your business card. Watch this short video to learn how to improve the effectiveness of your business cards without spending any more money.

httpv://www.youtube.com/watch?v=WQfi7tiGzOQ