Trading Update: Wolves on Wall Street

December 31, 2013 § Leave a comment

I don’t know about you, but when I finished watching Martin Scorsese’s “The Wolf of Wall Street” movie about Jordan Belfort, portrayed by Leonardo DiCaprio, yesterday afternoon in the local theater, I wanted to go home and take a shower.

I thought that Christina Prousalis McDowell’s open letter to the LA Weekly probably stated it best when she wrote:

“So here’s the deal.  You people (Scorsese and DiCaprio) are dangerous.  Your film is a reckless attempt at continuing to pretend that these sorts of schemes are entertaining, even as the country is reeling from yet another round of Wall Street scandals.  We want to get lost in what?  These phony financiers’ fun sexcapades and coke binges?  Come on, we know the truth.  This kind of behavior brought America to its knees.”

If you’d like to read entire letter, the link is:  http://blogs.laweekly.com/informer/2013/12/wolf_of_wall_street_prousalis.php

Prousalis is the daughter of Tom Prousalis, a man implicated by Jordan Belfort in a pump and dump penny stock scheme.

What struck me the most, as we were leaving the theater were the comments of many of the other viewers who believe that the kind of behavior exhibited in this movie were reflective of the actions of most “Wall Streeters”.

In my over 30 years of experience as an investor, as a President & CEO of three nationally known fiduciary trust companies, as an officer with two large “Wall Street” firms, as a registered investment advisor representative and as a partner with HighTower, the shenanigans portrayed in this movie constitute a rare exception, rather than the normal state of play on Wall Street.

HighTower’s philosophical etiology lies in its partners’ belief that our clients are entitled to much better than “traditional” Wall Street firms have offered and certainly, far, far better than that portrayed in “The Wolf of Wall Street.”  Joanne and I just celebrated our 5th Anniversary as early partners in HighTower.   We have never “looked back” and have enjoyed the rather incredible growth within HighTower from being early partners in a start-up firm to now being members of a “leading edge” thought leader in the financial services industry.

Hightower is, quite simply, the anti-thesis of what the “Wolf on Wall Street” represented.  HighTower is first, and foremost, focused on our clients.  We have, at several critical junctures over the past several years, remained true to our fundamental concept that we do not need to become “product manufacturers” which would immediately create the potential for a conflict of interest with our clients.  Within our group, we have steadfastly resisted the allure of taking on commission-based accounts, in spite of HighTower’s ability to do so.  All of our accounts are fee-for-service based upon assets under management, placing us squarely on the same side of the table as our clients.  Our primary objective is to grow the value of those accounts, on a risk-adjusted basis.

We have adopted some fundamental principles that Wall Street firms owned, initially:  “Take care of your clients and everything else will take care of itself.”  “Control your risk and protect your balance sheet.”  “Use leverage (margin) sparingly for while it enhances gains, it can significantly magnify losses.”

As a firm, even stating our current number of offices, employees, and assets under management is a challenge because of our rapid growth.

At the end of this, our 5th year as HighTower partners, Mike, Joanne, and I would simply like to say thank you.  Thank you for your confidence and faith in us to act as stewards in the protection and growth of your wealth.  Thank you for your confidence in a firm which we are incredibly proud of, both on our local and on a national level.  Thank you for your understanding that we conduct our business in a manner which is focused on your needs as opposed to our own.  Lastly, thank you for telling your friends and neighbors that there are firms within the financial services industry that are “good” and that it is a very small minority who act like the “wolves.”  That you know of a team that is focused on the needs of their clients, that enjoys a broad based research platform which includes sell-side and independent sources of macro, market, sector, and company specific information, that enjoys the independence to construct portfolios for the benefit of our individual clients and that is not conflicted by the needs and demands of conflicted profit centers within the firm, as many Wall Street firms are.

So, thank you for the opportunity to serve you in 2013.  We are looking forward to a healthy and prosperous 2014.

Best regards,

Curt Lyman

Joanne Robin

Mike Robinson

P.S. Keep an eye on your email, we’ll be sending our 2014 “primer” out within the next few days.

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Advance Financial Planning Protects You From Making Poor Decisions During Times of Grief

December 10, 2013 § Leave a comment

The loss of a spouse or other important person in your life is a time for grief and reflection. It is definitely not a time to make major decisions, financial or otherwise.

“People are usually in shock for six months to a year. They don’t think straight or fathom what’s happening during that time,” says Dr. Loretto J. Maldonado, PhD PA, a clinical psychologist and grief counselor based in the Palm Beaches area. “Everything changes – your routine, your friends, sometimes even where you live. You are vulnerable and alone, and you don’t know who to trust.”

From the wealthy residents of gated communities such as Boca West, Admirals Cove, BallenIsles, Mirasol, Bear’s Club, Ibis, Old Palm, Old Marsh, Frenchman’s Creek, and Frenchman’s Reserve, a very large amount of assets often change hands at these times.  Managing that wealth can add extra stress, especially if children from prior marriages are involved. Proper financial planning is the key to avoiding additional stress and conflict with interested parties.

At times of grief you are at your most vulnerable, and scam artists know that. Some lowlifes actually read the obituary pages and then call widows and widowers and try to sell them an investment or some other deal. Unfortunately many such schemes and cons are very successful.

At these times it’s also important to deal logically with family members who want to help with financial matters, well-meaning or not. Sympathy does not substitute for professional experience. According to Maldonado, “When other family members give you financial advice it can be confusing and misleading.”

Widows are especially vulnerable, because very often the deceased husband handled all the finances. “There are many women whose husbands have not prepared them for financial concerns, especially among second marriages,” Maldonado says. “I see a lot of women come to therapy because they spent their personal assets when they were married and now the children from a previous marriage are taking over everything.”

The best way to deal with this difficult time in life is to prepare for it, so that you are not faced with as many difficult decisions. Here are some steps to take before you find yourself on your own:

Communicate about finances

Both spouses should know where all the financial paperwork is located and should understand every account as well as wills, trusts, mortgages and insurance documents.

Agree on a plan

Discuss and then put in writing (not just in a will) your intentions regarding money after either spouse is gone. Which assets should go to children or other family members, and which assets will remain with the surviving spouse?

Secure the plan

Set up a trust ahead of time and take other steps to ensure that your spouse’s wishes will be carried out.

Work with a wealth manager

“You need a financial planner who talks not just about investing, but about your life situation,” Maldonado says. “Work now with a financial planner who will deal with the human factor as well as the financial issues during a time of crisis.”

Curtis Lyman, a HighTower partner and registered financial advisor in Palm Beach Gardens, Florida who is also a licensed attorney and former trust company founder and president, believes that having an experienced financial advisor on your side before a crisis strikes is of great benefit. The advisor can plan ahead for the situation, is not going through this emotional stress and is therefore thinking clearly on your behalf.

Divorce Can Be Costly, Especially For Wealthy Palm Beach Residents

December 10, 2013 § Leave a comment

Marriage is complicated and divorce is expensive, both financially and emotionally. Add a second (or third) marriage and issues can quickly spiral out of control.

Multiple marriages are common in wealthy communities like Boca Raton, Palm Beach, Palm Beach Gardens, and Jupiter. The gated communities of PGA National, BallenIsles, Mirasol, Bear’s Club, Ibis and Frenchman’s Creek are filled with complex family situations. A divorce can upset financial and social relationships in unexpected ways.

As a NY licensed attorney with a history of having tried some high profile matrimonial and custody cases, I have never seen a divorce case that was not expensive financially, emotionally or both.  As a financial advisor, I have seen firsthand, the devastation that a “knock down” fight can wreak on a family’s finances. And it’s much easier to get a divorce today than even a decade ago.

Most country club communities in the Palm Beaches region are very tightly knit, and a divorce affects not just your family but also your extended “country club” family. One client and his wife had lived in a gated community for 15 years and participated in many clubhouse events, including golf tournaments. When they divorced, the man’s golfing buddies rallied around him, and the other wives defended her. However, they each received fewer and fewer social invitations, and eventually both moved to different communities.

Being single in a couples-oriented environment is awkward. Even more troublesome is the fact that sometimes people begin looking at you as a potential threat to their marriage.

On the financial side, splitting assets should be a simple matter that doesn’t cost too much. Too often, though, one party thinks they have been wronged and wants to punish the other person. If one attorney intentionally inflames the situation, costs can escalate quickly.

The way to head off these potential headaches is to take the time and effort to pre-plan, especially before a second or third marriage ceremony. Here are three basic issues you must address before walking down the aisle:

Manage expectations

The first issue is to gain a clear understanding of the expectations of your new spouse, your children, and others who may be affected by your new relationship. There are ways to structure your estate to provide for your new spouse and distribute assets to your children as well in case of your death, while still preserving estate tax benefits.

Craft a pre-nuptial agreement

Pre-nups are very difficult to break, as long as they are set up correctly. Each party must be represented by a knowledgeable attorney, must give full financial disclosure, and must have equal bargaining power. Pre-nups are emotionally charged. Find an attorney who sees the pre-nup as a way for the parties to establish their respective positions going into the marriage, so that it becomes an experience that strengthens the relationship. Ask your friends for a good attorney, or contact the American Academy of Matrimonial Lawyers.

Plan for death or disability

Providing for your family members when you are no longer in the picture requires a good financial planner and a good attorney. They need to understand current law and make it a priority to regularly review and update your estate plan, always keeping tax issues at the forefront. In one case, a large landowner with two children found out he had only a few months to live. Rather than ensure his estate was set up correctly, he went on a spending and partying binge before winding up in the hospital and dying. His children ended up working for the next 10 years to pay off $20 million in estate tax payments that could have totaled less than $6 million with proper planning.

You can be financially successful yet fail to leave a legacy of success. Marriage and divorce affect every aspect of your life, so plan accordingly and enjoy your success with full confidence in the future.

Demographic Trends Are Taking a Toll on the Economics of Palm Beach Country Club Living (Part 2 of 2)

December 10, 2013 § Leave a comment

Most Palm Beach area country clubs lowered entry fees and annual dues during the economic downturn, so from a financial planning perspective now is a good time to join. Lower costs leave you with more money to invest for your retirement years.

Unfortunately, the economic outlook for country club memberships is not that simple. Major demographic trends are changing the long-term prospects for these luxury communities, and it’s important to take this into account when comparing the communities that dot wealthy Palm Beach County.

Many Palm Beach country clubs offer equity memberships: For a large advance outlay you earn the right to take a share of ownership in the country club once the housing community is filled out. Like any investment, whether you gain or lose on the eventual sale of your shares depends on how well the club does financially. So you need to gauge the economic prospects of each club before deciding which one to join, especially if you are buying an equity membership.

The good news is that demand is starting to rise again for homes in luxury golf communities such as BallenIsles, PGA National, Mirasol, Bear’s Club, Ibis, Old Palm, Frenchman’s Reserve and Frenchman’s Creek in Palm Beach, West Palm Beach, Palm Beach Gardens, Jupiter, Tequesta and other surrounding towns.

“Demand decreased in 2008 but is growing again now. These clubs aren’t struggling like they were,” says Michael Robinson, one of our veteran HighTower financial advisors who was an assistant golf professional at BallenIsles from 1996 to 2003 and now plays at PGA National. “That will place upward pressure on home prices and, eventually, club revenues.”

The bad news is that an aging population has slowed the growth of golf-oriented country clubs and likely will lead to consolidations and even potential failures among Palm Beach County’s famous luxury golf communities.

“As residents age and they can no longer play golf, that has a great impact on the stability of the club,” Michael says. “If your rounds are down, the courses are not generating as much money.”

In addition, members of younger generations are not playing golf as enthusiastically as did their parents. Men and women in their 40s and 50s tend to spend more time with their children and get involved in sports that will improve longevity, such as cycling and tennis.

So you have to look carefully at each club, and the community you would be joining, from a financial planning perspective. If the majority of members are in their 60s, this will put pressure on the financials down the road. Also, some clubs have loosened certain standards, such as attire, or are charging lower membership fees in order to attract the younger generation. But that may make it more difficult to raise prices, and therefore revenues, in the future.

Looking over the cost structures of the northern Palm Beach County clubs, we believe the best deals right now are Ironhorse in West Palm Beach, Jupiter Country Club in Jupiter, Eastpointe Country Club in Palm Beach Gardens, and Turtle Creek in Tequesta.

You can play golf at Turtle Creek for a $5,000 initiation fee and annual dues of $9,400 so the first year is $14,400 for a full golf membership. In comparison, Jonathan’s Landing in Jupiter, a much larger facility, charges a $41,000 entry fee, and annual dues of $12,350, for an initial outlay of $53,350.

There are many reasons prices differ, starting with location. Ironhorse, for instance, is a little off the beaten path compared to the other clubs. And the newer Jupiter Country Club is driven more by home sales presently than by club memberships.

Buying a home, or a second home, in a beautiful Palm Beach retirement community can be a spectacular reward for your hard-earned success. As with any high end purchase, look at it from a retirement planning and wealth management perspective before making your final choice.

Choosing Your Private Country Club in Palm Beach County (Part 1 of 2)

December 10, 2013 § Leave a comment

The Palm Beach region is synonymous with luxury country clubs that boast world-class golf courses. Clubs such as BallenIsles, PGA National, Mirasol, Bear’s Club, Ibis, Old Palm, Frenchman’s Reserve and Frenchman’s Creek are legendary for their golf amenities, and if you plan to buy a home here it’s probably because you love to play golf.

Whether you are relocating permanently or shopping for a second home, buying into a luxury country club community is an expensive choice. While the ultra-wealthy may not be too concerned with club expenses, many successful people who move to the Palm Beaches need to ensure that their decisions do not derail their retirement plans. That’s especially true today, as investment returns remain flat for many pre-retirees.

“North Palm Beach County alone has 23 private country clubs with golf courses” says Michael Robinson of The Lyman Group – HighTower Advisors who was an assistant golf professional at BallenIsles from 1996 to 2003 and now plays at PGA National.

If you are retiring or just want to spend more time on the links here are some factors to consider when choosing among golf communities, from financial planning and lifestyle perspectives.

Count the Courses

Clubs such as Ironhorse in West Palm Beach and Eastpointe Country Club in Palm Beach Gardens have one golf course each, while others have three or four. PGA National has five, offering 90 different holes. Multiple courses give you more variety, making it less likely you’ll get tired of playing the same 18 holes over and over. Of course, the larger clubs tend to cost more as a result.

Factor in Other Activities

Most clubs offer lots of other events and attractions. For instance, Mirasol in Palm Beach Gardens hosts carnivals, game nights, drive-in movies, petting zoos, animal lectures, a kids’ club, summer camps, and golf and tennis tournaments. If you have a big family and these extras are important, you may want to pay more to join a larger club.

Compare Membership Levels

Most clubs offer different levels of involvement, from social memberships that don’t include golf or tennis time to full golf memberships that allow you to play whenever you desire. One way to lower costs is to find a club that offers intermediate memberships that allow you to play a certain amount of golf or to play at specific times or on specific days.

Understand All of the Costs

Many country clubs require a one-time fee that ranges from $65,000 at Old Marsh to $175,000 at Old Palm for a full golf membership; fees are lower for social memberships. Some clubs require an initiation fee only, while some require both an equity buy-in and an initiation fee. Initiation fees are not returned when you leave the community whereas equity fees are returned but may end up higher or lower than your equity buy-in, depending on how the club fares economically. You also must take into account annual dues, trail fees, and the costs of dining and other social activities. Add up all of the costs before comparing clubs.

Look at Your Future Obligation

As you age you may come to a point where you are physically unable to play golf anymore, or an injury may force you to vacate the greens earlier than you thought. If that happens, does the club require you to maintain your golf membership or will you be allowed to downsize to a family or social membership with lower costs?

Consider Long-Term Savings

Consider the interest you may earn on the money you save, not just the lump sum. For instance, annual dues for a golf membership vary from $4,700 at Jupiter Country Club to $25,000 at Bears Club, a difference of $20,300. Over 10 years that adds up to $203,000. But if you invested the $20,300 each year and earned 4% compound annual interest, you would actually end up with $273,676.

My next blog, Part 2, will tackle the prospects of the Palm Beaches country clubs in light of economic and demographic trends, another important factor in choosing which club to join.

South Florida Retirees Are Starved For Portfolio Returns

December 10, 2013 § Leave a comment

While low interest rates may be designed to stimulate spending in corporate America, they are hurting seniors and pre-retirees in Palm Beach County.

Inside the gates of communities in Palm Beach Gardens such as Mirasol, PGA National, BallenIsles, Frenchman’s Creek and Old Palm and in the upscale enclaves of Palm Beach and Jupiter Island, many concerned retirees are feeling the pinch of low interest rates and falling bond values. To compensate, they are forced either to cut back their spending or take on additional portfolio risk in search of higher returns.

The Lyman Group has been working with South Florida’s wealthy families for 30 years. Here is our advice:

  • Don’t underestimate your life expectancy. We often see people who’ve retired too early. Savings that might have been adequate for their parents (who had shorter life expectancies and higher overall rates of return) are not adequate to support a longer life expectancy. Members of the generation now approaching retirement are living an average of seven years longer than their parents, so they need to rethink both the age at which they should retire and how much savings they will need to retire.
  • Understand the fundamentals behind each asset class in which you invest. What are the mechanics and the driving forces underlying each investment? Learn their respective strengths and weaknesses. If you’re not willing or don’t desire to put in the time, hire a professional. Understand also that an advisor is much different than a broker. Advisors are paid to dispense advice and implement that advice. Brokers are paid to sell products. That qualitative difference is too important to ignore, especially in “over-brokered” areas like West Palm Beach and North Palm Beach.
  • Know that higher potential yields generally mean higher investment risks. While this is a generalization, it’s usually true. We can discuss a number of alternatives investments, ranging from real estate to insurance products, which offer higher rates of return.

In the current environment, many asset classes may be overvalued, presenting not enough return for the risks inherent in the investment. We think bonds fall squarely in this category at the moment. After hitting historic lows earlier in the year, bond yields bubbled up on “Fed talk,” driving portfolio values significantly lower in June 2013.

If you don’t know the term “duration,” call us for a clear explanation. It’s a critical concept for the management of your fixed-income portfolio, especially in a rising interest rate environment. We believe the present environment, one of the most challenging in more than 50 years, presents an opportunity for Palm Beach County investors starved for yield to learn more about sophisticated investing.

The Importance of Estate Planning

December 6, 2013 § Leave a comment

A financial services professional with 30 years of experience, Curtis Lyman was the president and CEO of the Raymond James Trust Company and Alpha Wealth Management. He has held positions with Chase Manhattan Bank, Merrill Lynch, and Lehman Brothers. Curtis Lyman now serves as partner and managing director of The Lyman Group at HighTower Advisors, LLC.

Estate planning is important for people who have significant wealth and assets that they plan to leave to descendants and other inheritors. While estate planning used to be necessary only for the very wealthy, middle-class Americans who invest money throughout their lives should consider the necessity of estate planning. An estate plan ensures that valuable assets will go to the intended recipients after one’s death.

Another objective of estate planning is to minimize taxation during the transfer process. In 2013, the United States’ top estate tax rate increased from 35 to 40 percent. Property and ownership laws vary among states, and understanding national and regional regulations is important in estate planning. A will also plays a large role in estate planning.

Failure to proactively and comprehensively plan for the dissemination of an estate after death can cause lengthy legal difficulties for beneficiaries. For more information about estate planning for your needs, contact an experienced financial services professional.