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Two New Books Address the Practice of Wealth Management


 

 

Wealth is an intriguing and divisive topic in politics and financial planning today.

As a result, discussions about wealth, what it is, how to measure it and how to attain it has become a popular topic among advisors who are all contorting themselves into finding new ways to present what is really a fairly standard problem in American life.  The problem with wealth is that you are wealthy or you are not.  And if not, how do you become wealthy? The more salient topic is how much wealth is enough?

The second question seems silly since in a hyper-consumer society, the answer for many people is that it is never enough to have enough money. But that answer is trite. As pointed out in these two books—Tailored Wealth Management by wealth manager Niall J. Gannon; and Personal Financial Planning for Executives and Entrepreneurs by The Colony Group—financial success can be defined in many ways, while becoming more wealthy is easier to achieve than becoming fantastically wealthy.

These books center on how to manage complex financial decisions. The Colony Group’s approach is designed for senior executive management and their estates. Gannon’s focus is more on wealth creation and its management, while the Colony Group’s book is for top executives who have already been hired into highly compensated executive positions, complete with a full array of compensation alternatives.

The Benefits of Original Analysis

Gannon provides some good insights based on his original data analysis. He especially challenges the view that stock prices are random and that stocks prices revert to their means. One interesting area deals with an analysis of the Efficient Valuation Hypothesis. This hypothesis states that a stock’s future price cues off of its beginning-of-period earnings yield. This is especially valid in forecasting.

Niall Gannon

He also challenges the conventional wisdom about asset allocation.  While very important, allocation decisions must be paired with choosing quality assets, regardless of asset class. The decision also depends on how PE ratios are calculated, economic risk (e.g. default risk in high yield bonds), and even by the type of investor (individuals, family offices) making the investments.

For the larger audience, Gannon’s book follows the well-publicized financial snapshot of today’s American middle class.  Over the last 40 years, median wages have stagnated, while incomes of the richest 0.1% have increased 300% and the incomes of the top 0.001% (the 2,300 richest Americans), by more than 600%. The net worth of the wealthiest 0.1% of Americans almost equals that of the bottom 90% combined, according to Robert Reich. The important book by French economist Thomas Pinketty, Capital in the Twenty-First Century, also shows this wealth gap is an anti-democratic engine in most developed Western nations.

Working Americans are at the short end of this political-economic stock, but as Gannon notes, working Americans can retain more of their money by following some simple steps. He recommends that investors start investing early. That is simple enough since the impact of compound investment returns is huge over an investor’s 30 or 40 years lifetime. He also recommends living below your means, saving more, staying within your comfort range when investing, and knowing the impact of taxes on taxable and non-taxable accounts.  Inflation and paying high advisory and fund fees, and portfolio turnover rates also detract from creating wealth. Building a retirement account depends on maximizing savings and growth rates and then accounting for taxes. What’s left is your portfolio.

Gannon works with high net worth families and he is seeing more attention being paid towards charitable giving.  To families with the means to bequeath millions to their heirs, he says “You can be great at anything. Breathe in the gratitude of what was given to you; then own and be proud of what you did with it.”  He provides some good advice on philanthropic strategies and caveats. He also notes that gifting has a smaller tax bite than paying estate taxes, so it pays to plan ahead.

Gannon also discusses who should be on a portfolio management team (advisor, tax attorney, insurance professional, foundation manager or self-directed) and what to look for in each role.

Top Executive and Entrepreneur Financial Planning

C-suite executives and entrepreneurs are the focus of the 10 contributors from the Colony Group’s book, Personal Financial Planning for Executives and Entrepreneurs. C-suite executives have more financial and career planning variables to manage, such as implementing financial, tax, philanthropic, estate and equity-based compensation plans. And since there are many moving parts in wealth financial planning, there is no cookie-cutter formula for many circumstances.  

Instead, this book presents scenarios, so readers can see the situation and then evaluate the possible options. For example, the chapter on negotiating employment agreements tells executives to consider compensation deals, including your title, duties, expense reimbursement,  issues related to intellectual property, dispute resolution protocols, reporting structure, severance, changes of control and total compensation.  When receiving a golden parachute, for instance, the offer could include a “cut-back” or a gross-up that all have tax implications.

The chapter on non-qualified stock, appreciation rights and other deferred compensation plans are especially important since the authors say many executives are intimidated by the legalese. That is a big mistake, especially since the options translate into real money in certain circumstances, each with long- and short-term ramifications. These types of stock offerings can be held in ESOPs, NSOs, taxable accounts and qualified plans, but the executive also must consider the best way to finance some of these purchases, where to put the proceeds and how long to hold the stock.

Since executives are subject to insider trading rules, care must be taken to be aware of Rule 10b5-1 trading plans and their tax and legal provisions covering highly appreciated securities. Other chapters in this thorough book cover estate and investment planning, dealing with future expenses, charitable giving, tax planning and the role of insurance.  The process of selecting and evaluating the difference types of investment advisors and their certifications is also detailed.

To make the dense topics more palatable, the authors use a fictional couple in different situations. All this makes this is a solid, practical book for senior executives and entrepreneurs who want to preserve and manage their wealth.

 

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Chuck Epstein

Chuck Epstein

Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry.

He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial.

He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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