Obstacles To Location Optimization edit
Monday, August 11, 2014 01:31

Tags: behavioral finance | client communication | client education | investment management | investment strategies | Tax Management | Tax-efficient investing

Location optimization can be a great tool in portfolio management. Location optimization, in basic terms, is locating specific types of investments in specific types of accounts to minimize taxes. The tax reduction "prize" is huge. IRAs can be used to postpone ordinary tax on current income. Taxable accounts can achieve tax deferral (until a sale) at capital gain rates or tax avoidance (basis step-up at death). Roth IRAs can maximize tax-free compounding on high return investments. 

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To apply location optimization, you and the client must want to reduce taxes. This is a no-brainer, right? It should be, but it's not. There are three obstacles:
  • Client perception
  • Advisor-client communication 
  • Advisor workload
Clients can have difficulty with location optimization. This is because the client's individual accounts will not each hold the same investments. Therefore, each account will perform differently than the others. Will your client be ok with her IRA showing a lower performance number than her taxable account? This can be a very real concern for many clients. 
Because of the performance disparity between accounts, the advisor must report returns at the portfolio level and train clients to only look at portfolio returns and not individual account level returns. This takes time and patience to change client perspectives and can only be achieved by communicating the significant benefits from location optimization.  
Finally, advisors must be willing to do the work (and invest in the software necessary) to implement location optimization.  
Is the reward knowing that the clients will be better served? Can providing this service actually increase your business? The answer is both. Location optimization can save your clients taxes and differentiate you from the competition. You just need to overcome the obstacles. 
UHNWIs' Growing Need For Help With Self-Directed IRAs Spawns A Niche; Our Expert Gets A 4.7-Star Rating On A Webinar About This Esoteric, Fun, And Lucrative Niche edit
Tuesday, July 22, 2014 10:46

Tags: alternative investments | high net worth | IRA | retirement income

The popularity of alternative investments has sparked an increase in the use of self-directed IRAs by high-net-worth individuals who want to diversify beyond securities and invest in private deals. And, since most HNWIs and UHWNWIs have a big chunk of their wealth tied up in IRAs, it makes sense that sophisticated investors are disciovering the possibility trapping higher tax-deferred returns in self-directed IRAs invested in private offerings and need help from an advisor with expertise in this arcane field.

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Private deals are and will always be a great haven to sleazy operators, and RIAs must consciously steer clients clear of any notion that a self-directed IRA is a way to get rich quick. However, self-directed IRAs can be invested in real estate, start-ups, and precious metals, as well as oddball deals like livestock and third-world currencies. So HNWIs and UHWNIs are seeking help in increasing numbers with investing their IRAs in a friend's string of car washes, laundromat, or a venture manufacturing drill bits designed for use in The Rockies. 
I invested some of my IRA money in a private investment at the suggestion of an advisor and I'm very glad I did. So I have some personal experience in this somewhat estoric area and attiorney Mat Sorensen's presentation made me realize this is a fun and, possibly, lucrative niche for advisors.


Mathew Sorensen, a partner with the law firm of Kyler Kohler Ostermiller & Sorensen, LLP in Phoenix, spells out the legal ins-and-outs of self-directed IRAs that advisors must know about at an A4A webinar.
“There is a lot of pent-up demand for self-directed IRAs, and there is a lot of bad information out there. Custodians that handle these accounts are dying for advisors who understand the rules (governing self-directed IRAs),” Sorensen says.
Working With Trustees
Under Internal Revenue Service rules, investors must place the assets of a self-directed IRA with a qualified trustee, or custodian. Among firms that take custody of alternative IRA assets, the big names are Millennium Trust Co. and Pensco Trust. Trust Company of American does some of this as well and there are many others. The role of the custodian is to keep records, file IRS reports, issue client statements. Organzing as a trust company is a simpler, less expensive form of business in the U.S. So all of the IRA custodians do business as trust companies and not broiker dealers. I am sure Mat will chime in with details as to why. 
The custodian may offer a range of investment choices to the account owner, but does not provide financial guidance. As a result, Sorensen says some custodians maintain lists of financial advisors to recommend to their retail clients, many of whom are high-net-worth investors. If you already custody assets at one of these firms, make sure you're on the company's advisor listing.
Understanding the IRS Restrictions
Some advisors may shy away from alternatives because of a perception that IRS rules are complex and difficult to comply with.  Sorensen says the rules get complex but not hard to follow.
The basic principal is that retirement funds are granted tax-free status to encourage people to save for their retirement years, and they should not be used for personal benefit otherwise. So the IRS spells out four restrictions:
·      Collectibles (except for certain coins that meet precious metals criteria)
·      Life Insurance
·      S Corp Stock
·      Prohibited Transactions (restricts who your IRA account can transact with)
In its simplest form, the Prohibited Transactions rule prevents account owners from engaging in transactions such as purchases, sales, leases, or exchanges with their own companies, employees, spouse, children, or parents, or with any company in which these persons have an ownership stake of 50% or more. Account owners may, however, engage in transactions with siblings, aunts, uncles, and cousins.
Account owners may leverage transactions with loans, but only if the owner does not guarantee the loan.
The bottom line is that any investment or transaction must be strictly intended as an investment. For instance, if you buy raw land, you cannot then go hunt on that land. Or allow your father to do so. If you invest in a vacation rental property, you cannot stay there, and neither can your children.
These areas can get pretty tricky. For instance, if you use funds in a self-directed IRA to buy stock in a company and you are a member of the board, you may need to prove that the purchase did not grant you more power to dictate your own compensation. What if your spouse is an employee of a start-up company that you want to invest in?
You can’t sidestep these rules by simply having an asset transferred from your spouse, parent, or other prohibited person to a friend, then purchase it from them. That’s called a “step transaction” and the IRS will disregard the middleman.
Penalties Can Be Steep
If a prohibited transaction occurs, the IRS will “distribute” the entire IRA account as of the date of the violation. That means the entire account becomes subject to taxes and distribution rules, which include a 10% penalty for those under 59½ years of age.
Your other retirement accounts will not be affected.
Other Tax Considerations
Transactions conducted through a self-directed IRA are subject to additional taxes under certain circumstances, primarily UBIT (Unrelated Business Income Tax) and UDFIT (Unrelated Debt Financing Income Tax).
UBIT is triggered by investments in private companies such as LLCs or Limited Partnerships that don’t pay corporate taxes, such as restaurants, tech start-ups, and businesses that sell goods and services. This can also apply to real estate development, construction, or active investment (i.e. “flipping” property). Exceptions to the UBIT include interest income, dividend income, royalty income, rental income, and most capital gains.
UDFIT is triggered by leveraging IRA transactions with debt, because borrowed funds did not originate as retirement account money. For a simplified example, if you buy property with 50% retirement funds and 50% loaned funds and sell it later at a profit, half of the gain will be taxable.
For more details and strategies, view the entire webinar at Advisors4Advisors.

Mat Sorensen’s average rating by webinar participants was 4.7.


These were the comments left by attendees at this sparse summer session:

“Great presenter. He could have used more time for specifics.”
“This was an excellent webinar. Thank you.”
“This is such a great topic and important in our five-tier tax system.”
“Very interesting subject.”
“Very well done. He was knowledgeable and he tailored his presentation to what we needed to learn (benefits and pitfalls) about self-directed IRAs.”
“Great job!”

“Very interesting and timely as this is a popular topic today. Many pitfalls were discussed that can render the idea of real estate and other investments in an IRA useless if not set up properly.”


Every Asset Class Was Up In The First Half Of 2014 -- First Time In 20 Years edit
Thursday, July 10, 2014 12:02

What’s next? In my mid-year commentary, I deconstruct a market climate that, despite my dire predictions, has thrived in the first half of 2014.


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Which asset classes will continue to deliver strong returns (momentum) and which will not (reversals, also known as regressions to the mean). We’ve already seen reversals in U.S. economic sectors. I’d like to hear your thoughts – your forecasts.  As Yogi Berra said “The future ain’t what it used to be.”


Please see my Market Commentary.


Why Economist Ed Yardeni Is A Mensch; Plus, Good News For Fritz Fans, As Our Intrepid Guru Gets A 4.8 Rating Again From A4A Members edit
Wednesday, July 09, 2014 15:09

Tags: Fritz Meyer

Good news, Fritz fans. Monthly Fritz Meyer webinars once a quarter will now run 100-minutes in length and be eligible for two professional education credits for CFPs, ChFCs, CLUs, PACE-registered, CPAs (live sessions only), EAs, and state-licensed insurance professionals.

Fritz, who again received a 4.8-star rating out of five, continues to confound skeptics by once again this month receiving superlative ratings and reviews, despite the impossible challenge of speaking before hundreds of independent advisors every month for as much as 100-minutes about investing — the very subject upon which this audience of independent professionals sustains their livelihood.
Fritz began doing webinars on A4A about 45 months ago, and as we approach a four-year anniversary I want to credit economist Ed Yardeni with recommending that Fritz and I get together. Yardeni is a wonderful guy as well as a world-class economic analyst.
I had interviewed Ed often when I was a reporter at The Daily News in the 1980s. Our paths crossed again in recent years a couple of times because we're both on Long Island, and we have come close to working together a couple of times. Yardeni is scary-smart.
But my real point is that Ed Yardeni is a mensch. It's one thing to be smart and another to be a good person. 
Fritz has made presentatyions monthly webinars on A4A over for about four years and his work stands up well to the test of time. His following on A4A is growing. His monthly research has become a regular staple at hundreds of RIAs and it all began with an introduction from Ed Yardeni.
Here are attendee comments after Fritz's live session July 8, 2014:
  • Fritz was again full of facts + charts - to back up his realistic/optimistic long-term outlook for stocks + the US economy. He seems to be almost a lone positive voice in the investment wilderness - where most professional soothsayers have become more + more pessimistic - as the markets continue to climb the proverbial "wall of worry" to more and more market highs.
  • Very helpful segment, but 100 minutes may be too long for the audience to focus.
  • Great

  • Fritz is the best

  • Highlights the same material a little to often in his presentations but in general the information is helpful.

  • Excellent as always!

  • I like these two hour sessions but think they should be quarterly not monthly

  • A little too long

  • Even though Fritz' wife might disagree,

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    he is a national treasure, as Andy said. We appreciate the incisive nature of Fritz' presentations and his willingness to fight the status quo of Wall Street predictions and promises. Thank you. P.S. Comment on the 2-hour sessions. Since this is a major commitment of time, perhaps a "hard close" after 100 minutes would be more palatable to attendees, particularly those of us on the East Coast as it is now 6:14 p.m. as I write this review. Thanks.


  • I had to shut it down one hour and 34 minutes into the presentation.  Glad I am not on the east coast. Participating in the monthly webinar becomes repetitive. As I was listening to Fritz today I was thinking he could present ongoing updates to items Fritz fields are important and separate that from new ideas that would be relevant to advisors. he may have a little more structure in the presentation. If the audience is mainly investment advisors I would recommend more information pertaining to investments

  • Always love Fritz's presentation

  • Time Time Time.

  • Drinking from a firehose

  • Excellent presentation!

  • Great idea to have 2 hour session each quarter.  Fritz wonderful as usual.

  • The last segment on active style advice and performance is old news.  Need to change subject and instead focus on new investment themes or rebalancing adjustments made for the quarter.

  • Good, but started late and went over time.

  • Very helpful to have the longer time period to cover the extra material.

  • In the future, the 2 hours is great.  Maybe 75 minutes of content and 25 minutes for Q&A.  Lots of great material as always.

  • Great!!! 

  • Really like to feel positive again, and Fritz is providing the info for me to change my sentiment.  Thank you Fritz and Andy.

  • Excellent. 

  • I really liked the 2 hour session. 

  • I don't always have 2 hours but I was able to do it and it was great!

  • Another effective presentation with the data points to counter the conventional wisdom or the main media opinions that many clients are influenced by to the point of evaluating the value of the counsel and direction that are provided.

  • Always Good!

  • Great!!!

  • Excellent because he keeps moving and covers a lot of ground rather than pushing one or two thoughts.

  • Super!

  • Too long but great info.  Don't do this on a Fri

  • This was one of his best...he is a real value to A4A!


75 Ways To Generate Tax-Alpha, A Two-Credit 110-Minute CE Webinar By Bob Keebler, Gets A 4.7 Rating, Rave Reviews From Advisors And Is Available 24/7 edit
Saturday, May 31, 2014 14:06

Tags: A4A News | investment strategies | keebler | Tax-efficient investing | Taxes

75 Ways To Generate Tax-Alpha, a two-credit 110-minute webinar led by Bob Keebler, is getting rave reviews from advisors and is now available 24/7 to A4A members. It’s the first in a two-part series offering a total of four continuing professional education credits to CFPs, CPAs, EAs, CIMCs, ChFC, CLUs, Part 2 will be broadcast live on June 27 and then available on demand on A4A.

The breadth and depth of Keebler’s sessions at the low cost of an Advisors4Advisors membership ($60 a year) makes this a watershed in educating financial professionals. Never before has continuing education of such high quality been so easy and affordable to financial advisors.

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About 1200 advisors pay $60 a year for A4A’s news coverage about wealth management and managing a practice, which comes in the form of these webinars, and A4A membership is growing fast thanks largely to Bob’s collaboration with me on A4A along with Fritz Meyer and other thought leaders.   
Bob received a 4.7 rating from attendees of the live session, despite the quick pace of this tour de force of advanced tax planning. Please rate and comment on the session if you view the replay. Here are all the comments from attendees received after the live session: 
  • It was my first Keebler webcast and it seemed jam packed with information. It may be nice to have a little more in depth coverage of the topics, broken out into different webinars.
  • Very well done!
  • Excellent info...many practical ideas that we can implement with clients
  • Great overview of tax planning strategies.
  • Another super job by Bob in presenting this information to advisers. The session ran almost 2 hours, but it was well worth the time, Bob provided several reminders of both basic and more complex tools and techniques by which to engage in tax management strategies for clients. I agree that having this information will set an adviser apart from his not-so-enlightened peers. Thanks.
  • Too long
  • Very, very good. Could have used more time for more details, but, as long as this is archived, it should be OK
  • This was awesome, loved it. Great job guys. I feel I can add immediate value to my clients.
  • Very good
  • If professionals were the target, there were too many fundamental concepts noted or they or excessively explained. Would not qualify as an intermediate course.
  • Fantastic tax details
  • Excellent
  • Great Program!
  • More, more, more...
  • This could be broken into many series, more than the two offered.
  • Outstanding
  • Maybe the best one yet
  • Very complex topic. I did not know there was so much I did not know.
  • Good
  • It was great. However, it was long and dense. Hard to keep attention that long.
  • On Bob's next....discuss options for individuals with large IRA's (over $2M) and are in or nearing RMD. Always a great one



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