Laurent Spielvogel, playing a French concierge at the Paris hotel George V as if he was born for the part, has a great line in the 1995 movie "French Kiss." He has an interchange with the movie's heroine, a distraught and agitated Kate, played by Meg Ryan:
Kate: Do you speak English?
Concierge: Of course, Madam. This is the George V, not some backpacker's hovel.
This brings us to President Obama and the banks. He is mad (is he really upset, or is it faux anger, posturing to please the electorate?) because (choose one or more): 1) The big banks paid back TARP funds with interest and now want to pay big employee bonuses; or 2) because President Obama himself won't qualify for a bonus; or 3) on account of the fact that the banks got free additional money at the Fed's discount window and are in essence using it to pay bonuses; or 4) because he's mad at Messrs. Timothy Geithner and Larry Summers and is switching to Volckereconomics.
Some think it may have more to do with a Republican getting elected to fill Ted Kennedy's seat. At first blush, the Massachusetts political fallout seems to have little to do with economic policy and more to do with the cost of health care reform; the latter, while related to economic policy, seems more the mantra of President Obama and less that of the aforementioned Geithner and Summers, or am I missing something?
Real anger or political posturing aside, it seems disingenuous to fool with the banks (or, for that matter, with any facet of the economy beginning to show a little color in its cheeks) just as the things seem to be bouncing back a bit. (This is written as the market -- in response mostly I think to the president's bank slam -- has moved southward considerably, close to the negative 10% adjustment mentioned by many pundits.)
At any rate, it does seem, most of the time, as if the president does not in any way understand capitalism. Or maybe he does understand it and doesn't like it. Maybe it's the risk word that upsets him. It's clear that capitalism may not and cannot survive without risk. I don't think that the cautious lawyer inside Barrack Obama likes risk, despite the huge gamble in running for the presidency.
When a nation fiddles too much with its banking structure, the result may be chaos and unreal levels of inflation. TARP is one thing and paybacks are all good, but when the scale, scope and even the ability to innovate are removed from banking and finance (and maybe other companies, too, not far down this same anti-capitalistic road), we may indeed -- in the world of global competition -- begin to look like Spielvogel's backwoods hovel.
The liberals in the U.S. often bemoan our country's poor standing in the rest of the world; however, carping from the foreign intellectual elite may be just a form of jealousy and angst, n'est-ce pas? It's understandable that countries overseas dislike our meddling in other countries, but the unhappiness is less apparent when the meddling benefits them.
I work hard to remain politically neutral in writing this column. In many ways, I was happy that Obama was elected president -- this country needed diversity in its top position, which has since the beginning of the office tilted exclusively to white Protestants (one Catholic), despite a multi-colored and multi-cultural population.
But with the current administration, I worry about over-regulation. As has been pointed out by numerous economists, including First Trust's Brian Wesbury, the Fed and politicos did not catch the real estate bubble despite significant regulation. Why should next time be any different? Bubbles, by their very nature, seem to defy control. It's all part of the risk/reward scenario that is the hallmark of capitalism. It frightens many (including President Obama, I think), but it's more like forest fires to me -- out of the cleansing and ashes comes new and better growth.
Roth mania
The stampede is on! FMOs and investment and insurance companies have begun to bang the drums for the open season on Roth conversions. They've been at it for months now. Some cautions:
Converting to a Roth is not for everyone. The client must be able to pay the tax. It could be 12 months between the time that a financial advisor makes the change from traditional to Roth and the time that the tax is paid by the customer. Make sure there are plans to provide the wherewithal to pay the 2010 tax in 2011 and 2012; otherwise, you will have unhappy customers, and for all the joys of 2010, the following years could be miserable.
For people older than 58, the question is more acute. Don't even think about a conversion if it is going to be a struggle to pay the tax (and by the way, make sure that there is a tax). Many retirees don't have much tax to pay anyway. It would be clearly wrong to Rothelate, say, $200,000 of traditional, when the traditional RMDs, combined with Social Security, resulted in a 15% tax rate or less. In other words, pick your conversions carefully.
Conversions can be a great thing -- what could be better than tax-free income in retirement? Not much -- at least not much that I can think of. If a person can stand the additional taxes (and the generous offer by Uncle Sam to spread it over two years), it may be a good idea to do the Roth boogie. Do watch out, though -- if you or a client will have a higher tax bracket in 2011 or 2012, converting may upset the applecart.
Consider using natural gas partnerships like Atlas to provide offsetting tax deductions (not as good as credits, but better than a poke in the eye with a sharp stick) when making Roth conversions. A 85-90% tax deduction could provide some help with the tax load, assuming, of course, that your customer has the money to invest.
Do not fall into the trap of paying taxes out of the IRA that is being converted. While this may earn a commission or fee, it will not be good for the customer and will usually increase costs (which may or may not include penalties) dramatically.
Finally, Indianapolis-based State Life has the ability to convert an annuity (could be an IRA or not, and this doesn't have much to do with Rothiness at all) into a long-term care plan.
Broker's Bookcase
The Million Dollar Financial Advisor, by David J. Mullen, Jr. (AMACOM, 2010). Author Mullen was once a managing director at Merrill Lynch, where he helped over 500 financial advisors become far higher earners than average. He also wrote The Million Dollar Financial Practice.
By detailing the smart career moves and styles of 15 different advisors, David Mullen gives us an overview of successful practitioners of the art and science of financial planning.
Many of the advisors Mullen details are in the billion-dollar asset club and others are on the way.
The Million Dollar Financial Advisor is a compelling read -- the writer has an easy style, and the subject is endlessly fascinating. One thing (among many) that I learned was how to ask for an appointment with a prospect after a seminar or event: Instead of going through the post-event signup approach, try simply saying that you would appreciate a follow-up session so that you may discuss financial planning services.
After reading TMDFA, I feel that many of us, including me, use the wrong words and phrases when prospecting; this book provides most, if not all, of the right words, sentences and phrases.
If you want to learn how some advisors get to the multibillion-dollar level of AUM, read The Million Dollar Financial Advisor. An advisor who manages $3 billion would have a gross income of somewhere in the $2 million to $3 million yearly range, depending on payout.
Does that income range provide any motivation to read this book?
The AMA Handbook of Leadership, edited by Marshall Goldsmith, John Baldoni and Sarah McArthur, collects the wisdom from some of "the foremost thinkers and doers in the field," according to the publisher. I wouldn't argue.
Quinn Mills and Luke Novelli discuss the differences in Asian and Western business executives: "In America, with its longstanding experience with professional business leadership, the most readily available role model for the head of a company is the corporate CEO. In China and Chinese-related businesses, it is the head of the family. In France, it remains the military general. In Japan, it is the consensus builder. In Germany, it is the coalition builder."
R. Roosevelt Thomas, Jr. discusses the election of Barack Obama and how his presidency finally makes "... a giant step in creating a leadership profile that looks like America with respect to race." He discusses the pluralistic nature of President Obama's team, as to race, ethnicity, sex, political affiliation, ideology and so forth.
The editors, by the way, are no slouches -- Marshall Goldsmith is a New York Times best-selling author and one of the world's foremost leadership experts. John Baldoni is an internationally recognized leadership consultant, coach and speaker, while Sarah McArthur is a highly regarded business writer and editor.
Because we are often leaders as well as financial advisors, this book should resonate. Perhaps more importantly, it will help you understand some of the leaders (and their followers) whom you deal with (or wish to).
-- R.H.
This information is intended for financial professionals only, not the general public. This is not a solicitation to buy or sell any specific security. Mr. Hoe may have positions in the securities or other investments discussed.
Richard Hoe, ChFC, CLU, AEP, has been an investment professional for 40 years, and is a registered
representative and investment advisor representative. He is a member of the adjunct faculty at the California Institute of Finance, a graduate school at California Lutheran University. Readers may e-mail Richard Hoe at richardhoe@richardhoe.com.
