CFA Institute Wealth Management Conference 2013 notes

This is my report on information that caught my attention at the CFA Institute Wealth Management Conference. You can also read my post on Scott Welch’s presentation about client reporting or participate in the conversation about how to help clients deal with market volatility.

The Hunt for Yield, the Municipal Bond Market, and Crossover Buyers–Cate Long, founder, Multiple-Markets

• Muni market changed after bond insurers blew up in 2007, making underlying credit more important.
• Unfunded pension liabilities now more important to muni bond analysis
• Puerto Rico is almost locked out of the muni market now. Its bonds are owned heavily by single-state funds because of its special tax status as a commonwealth.
• Municipal defaults are more common–36 times more common–than reported by rating agencies.
• EMMA is building a new muni bond market and it’s 10 times better than EDGAR.
• Social media is bursting with #muniland discussions.

2013 Trust and Estate Update for the United States and Canada

Greg A. Rosica, tax partner, Ernst & Young LLP

• Advisors, think about ALL taxes, not just income taxes.
• Interesting factoid: The 35% tax bracket is incredibly narrow for singles–$398,351-$400,000.
• Estate tax’s portability between spouses is a big plus.

Beth Webel, tax partner, PricewaterhouseCoopers LLP

• Canadians hit top tax rates really fast.
• When one spouse is a U.S. citizen and the other is Canadian, taxes are complicated.
• Gifting asset to Canadian spouse can be advantageous for U.S. spouse.
• Canada has no gift tax regime, but it has an attribution regime with rules around income splitting.

Current Trends in Single and Multi-Family Offices

Andrew T. Fay, senior vice president, Fidelity Family Office Services

• About 5,000 family offices exist, many under the radar.
• “I don’t know one family office that walks dogs.”
• The average family office fee is 40 basis points on assets under advisement. Fees start at 75 basis points and go down to 25 basis points. But families don’t like fees calculated in basis points, so some family offices are looking to charge flat fees.
• #1 concern for wealthy family is how to transfer wealth to children and educate them to be socially responsible. Providers aren’t spending enough time on that.
• Family offices typically don’t have scale to offer everything clients want. Therefore, they are outsourcing where the family doesn’t require control.
• Family offices haven’t adapted to the mobile/digital style of younger generation. They don’t want paper and they believe in communities, not committees.
• Investment trends:
  • “Insourcing Private Investments–Outsourcing Public Investments,” which means investing directly in private companies because private equity fees are too rich. Investors take board seats and have a say in the company’s direction.
  • Investors are “barbelling their equity portfolios” for heftier returns. This means  low-beta investing combined with investing in asset classes such as micro caps, small caps, and emerging market stocks.
  • Taking on more risk in fixed income for higher yields.
  • Moving against inflation by minimizing duration to about 2.5 years and investing in asset classes that move up with inflation, such as real estate and broader baskets of commodities.
  • Taking an institutional approach to cash management, laddering it instead of using money markets funds. “Cash management/laddering may offer opportunities for this audience,” said Fay.
• Look at groups such as the Cleveland Area Family Exchange for your networking and marketing.
• Look for trusted people in your community who can make your practice more holistic.
• More family are clubbing up with other families to make direct investments.

Using Digital/Social Platforms in Your Practice Marketing Strategy

April J. Rudin, founder and CEO, The Rudin Group

• I believe that a video recording of this presentation will be available. Watch for it!
• You are almost invisible to the next generation if you’re not on social media.
• Don’t have an intern do your social media.
• Five years ago, digital social was 19% of marketing spend, now it’s 38%.
• There’s no more mass marketing. Now it’s targeted.
• “The person who knows the most about you is Mr. Google.”
• Video is authentic.

Where Credit Is Due: The Case for Alternative Fixed Income in a Low-Return Environment

John Cashwell, managing director, The Blackstone Group/GSO Capital

• Investors need to rethink fixed income investing in terms of the need to 1) generate yield, 2) insulate or protect portfolios if interest rates begin to rise suddenly, which would have a prolonged negative impact on portfolios.
• Consider expanding beyond traditional (core) and extended (core-plus) fixed income strategies to what Cashwell called “alternative credit strategies,” including leveraged loans (also known as senior secured loans), long/short and event-driven credit hedge funds, mezzanine debt, and distressed debt
• Alternative credit strategies are underexploited, with less than $500 billion in assets under management vs. $2.4 trillion in traditional fixed income and $832 billion in extended credit sectors.

Tax Management of Low-Volatility Portfolios

Paul Bouchey, CFA, managing director of research, Parametric Portfolio Associates, got to something I’d been struggling to explain recently: Why do low-volatility strategies outperform? Bouchey explained it’s because of better compounding for the geometric returns. I wish I could show you his graph.

The Behavior Gap

It’s impossible to do justice in words to this presentation by Carl Richards, founder of The Behavior Gap. For a hint, check out his sketch summarizing the conference’s tax presentation.

Catch the best tweets about the conference

The CFA Institute has collected some of the best tweets about the conference.