Monday, February 22, 2010

Taking the bedazzler to a Lamborghini


It's seems like it's only a matter of time before this story becomes a made for Lifetime movie - How many red flags can you spot?
* Florida based money manager (Ding!)
* Clients including over 70 NFL players (Ding!)
* Ameritrade printouts as evidence of "returns" (Ding!)
* Buys his wife a $200k Lamborghini and proceeds to turn it into the Barbie-mobile with pink accessories (Ding!).
Ultimately, the guy is convicted of stealing over $100 million and hangs himself in jail.
Ah, the good old days of 2007.
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In a related story, the few bad apples have really caused excessive over reaction by the regulators in the financial markets. About 3 years ago, a financial advisor needed to have over 100 clients before he or she had to subject themselves to the various regulators. By 2008, that number was cut to 5 and it substantially increased the cost of operations for many small providers. However, the family office - wealth managers with a single wealthy client - could still duck the regulators by having 4 or fewer clients. However, the family wealth manager might be an endangered species if the regulators get their way according to the WSJ....
"Though viewed as an unintended consequence of legislative efforts to protect post-Madoff investors in hedge funds and the like, the proposal could make most single family offices — privately owned investment-advice, financial-management and, in many cases, concierge-service providers to families with typically at least $100 million to manage   more expensive and less private.

More expensive, because as RIAs, single-family offices would have to undergo periodic examinations (that take between two and three weeks a crack), provide demonstrably effective disaster-recovery plans, and appoint chief compliance officers with responsibility for providing exhaustive paper trails of compliance procedures.
Less private, because RIAs have to make assets under management a matter of public record, easily accessible through the SEC or comparable state-level agencies. And a main reason ultra-wealthy families establish family offices is to keep the value of their holdings from prying eyes.
Estimates vary, but there are thought to be around 3,000 single-family offices in the U.S., many of them tucked away in family-owned businesses.
According to several observers and wealth-industry practitioners, making U.S. single-family offices register as investment advisers could spell the entity’s demise, or trigger wholesale expatriation to friendlier jurisdictions."
I find that last comment particularly interesting. Family offices can be located anywhere in today's electronic trading markets. Why subject yourself to increased scrutiny (something the ultra-wealthy abhor) when you can relocate to the Cayman Islands?
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Hmm, should we let the Gov't take over your 401k in exchange for an annuity? Talk about reflex reactions - 4 years ago the Bush Administration wanted to invest Social Security assets in the stock market (a terrible idea for the record) and now ...
"the Treasury and Labor departments are asking for public comment on "the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams."
With all of the issues on our plate, why would you even want to raise this issue? Even if you're just gathering public input, I'd bet that the Teapartiers will have "HANDS OFF MY 401k" signs for sale on the Drudge Report by Friday. There is no appetite for this kind of move right now.
There are a ton of unknowns about the prospective design of a plan - would existing 401k's be grandfathered, maximum or minimum contributions, etc.
You can apparently offer comments via snail mail at:
U.S. Department of Labor, Office of Regulations and Interpretations, Employee Benefits Security Administration, N-5655, 200 Constitution Ave. NW, Washington, DC 20210, Attn: Lifetime Income RFI
I might actually get out the old quill and inkwell.
Cheers!
PS - Sorry for the format issues - blogger gets all screwy when you insert a photo.

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