In recent years, the president and congressional leaders have threatened tax hikes continuously.  At the end of 2012,  most speculated that dividend and capital gains taxes would skyrocket.  While new health care taxes will hit business owners and retirees hard, the dividend and capital gains tax hikes were stopped by the Congress at the last minute. These tax hikes plus the ObamaCare taxes could have increased the cost of selling a company by more than 50%. With that being said, the government now has a short-term influx of tax payments.  It is speculated that the higher tax revenue receipts were generated  from the last minute tax-avoidance sales.   For example, companies such as Current TV were probably sold at the last minute in December 2012 to avoid major spikes in capital gains taxes.

In the meantime, the S & P 500 companies are still doing 40-50 percent of their business offshore. These US companies doing business offshore are reinvesting much of  their profits outside of the US to target the global customers which represent over 90 percent of the world’s buyers outside of the USA.

The point of this article is that the government should not get to excited about a one-time mass influx  of capital gains  and income taxes for 2012. These temporary flows of tax payments are because people are trying to avoid taxes and not  necessarily because the domestic economy is doing better.

And don’t forget, every 5-6 years, retirees and now baby boomers are “GOING TO CASH” particularly when the stock market is reaching new highs.  Not only is it a strategy, but licensed professionals are required to advise retirees about their time horizon and suitability as they get older. This means that retirees with savings  must sell some stocks or capital assets to generate income.  Moreover, the global investor follows value too and will move out of the USA when things get into technical bubble range for the DOW and S&P.

In the end, there are many US companies citizens that are still carrying forward major losses over the last 3 years along  with many working families that are under water with their house value.

In closing, the only way to solve the fiscal problems would be to use the 4FP “Four Fold Path”.   1) Grow the Economy and Tax Payments 2) Create a Fair Tax System which Incentivizes Productivity 3) Reduce Spending, Corruption and Waste 4) Augment Global Investment into Your Country Though a Fair Regulatory and Tax System.

In the end, keep a keen eye out for big shots at Goldman Sachs or other banks to start putting their clients into some cash if the Dow hits 15500. Even Time Magazine says, “Don’t Fight The Fed but Be Afraid”.

With all of the being said, I may recommend a few companies related to taxes, tax strategy,  and credit.  Intuit (NASDAQ:INTU), Paychex (NASDAQ:PAYX), Equifax (NYSE:EFX)

 

Lawyer  and Counselor  George Mentz, JD, MBA, CILS, CWM  is a world recognized management consulting commentator and award winning professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us  *No counseling, tax investment or legal advice provided herein.  Please consult with a licensed professional in your jurisdiction before making any important career, financial or legal decision.  All rights reserved by George Mentz, Esq.

The other day, a reporter asked a politician how to collect more money with lower taxes. Of course, there is a very simple answer to this childish riddle. With 95% of the worlds population outside of the United States, there must be economic development in the USA to bring companies, jobs, and capital into your jurisdiction. Whether you are President Obama, Paul Ryan, Joe Biden, or Mitt Romney, there are eternal truths about tax policy that can make or break a government budget, businesses, and families. Just like states compete for new business, so should the United States. With the USA corporate tax rates being the highest in the world, this reduces the number of businesses and people doing business within the US jurisdiction.

As the old sage says, “60% of nothing is still nothing”. So, if you raise taxes, less people participate. Even with higher rates, you get less. But with competitive rates, you always get more. Examples are Walmart, Target, Amazon or other. Water always flows to where there is the least friction, and the same holds true for businesses.

In todays global marketplace, there are businesses from around the world running to special jurisdictions to establish headquarters or offices within these economic hubs of freedom. Thus, money and tax dollars flow freely where the fees are fair, reasonable and are for mutual benefit of the business and society.

Authors: George Mentz and Benjamin Terner

The Securities and Exchange Commission (SEC) recently adopted rules that require advisers to hedge funds and other private funds to register with the SEC. The new rules also establish exemptions from SEC registration and reporting requirements for certain advisers, and reallocate regulatory responsibility.

The rules adopted by the SEC implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding investment advisers, including those that advise hedge funds.

The rules provide for a transitional exemption period so that private advisers, including hedge fund and private equity fund advisers, who are required to register should do so by March 30, 2012. However, certain rules regarding exemptions for venture capital fund and certain private fund advisers are effective July 21, 2011.

The rules come on the heels of the financial crisis as legislation to protect consumers was a Congressional prerogative. That’s because generally a significant number of individuals and institutions invest a substantial amount of assets in private funds, such as hedge funds and private equity funds.

However, until the passage of the Dodd-Frank Act, advisers managing those assets were subject to, what some consider, not enough regulatory oversight.

With the Dodd-Frank Act, Congress attempts to close the “regulatory gap” by generally extending the registration requirements under the Investment Advisers Act to the advisers of these funds. The new law also provided the SEC with the ability to require the limited number of advisers to private funds that will not have to register to file reports about their business activities.

It has been the case that for many years advisers to private funds were not required to register with the SEC because of an exemption that applies to advisers with fewer than 15 clients – an exemption that counted each fund as a client, as opposed to each investor in a fund. As a result, some advisers to hedge funds and other private funds have remained outside of the SEC’s regulatory oversight even though those advisers could be managing large sums of money for the benefit of hundreds of investors.

Nevertheless, Title IV of the Dodd-Frank Act eliminated this private adviser exemption. Consequently, many previously unregistered advisers, particularly those to hedge funds and private equity funds, will have to register with the SEC and be subject to its regulatory oversight, rules and examination. This process will come at a great expense to those now under SEC control.

This can be attributed to the fact that these advisers will now be subject to the same registration requirements, regulatory oversight, and other requirements that apply to other SEC-registered investment advisers.

The SEC is also requiring additional information from investment advisers that are required to register with the Commission. Generally these individuals provide information in their registration form that is not only used for registration purposes, but that is used by the SEC in a variety of ways “to support its mission to protect investors.”

To “enhance its ability to oversee investment advisers to private funds”, the SEC is beginning to require advisers to provide additional information about the private funds they manage. The information obtained as a result of these amendments is designed to help the SEC in fulfilling its increased responsibility for private fund advisers arising from the Dodd-Frank Act.

In conclusion, all persons are subject to federal laws and the laws of the SEC. As an example, insider trading (10 B-5) applies to all of us.  The question is whether this is duplication of regulation?  As you know, FINRA regulates their licensed advisors while the SEC also can regulate these advisors.  Also, 3^rd party custodians and administrators are generally regulated by the SEC.  An example of a 3^rd Party would be Schwab or Fidelity which both provide “Institutional & Administrative” services for a fee to hedge funds, money managers and independent RIAs.  While protecting the consumer is a great idea, having 3-4 layers of regulation over the same accounts and securities becomes somewhat cumbersome. On top of that, many states have these same advisors under their supervision and regulation.

While this all sounds confusing, this is just for securities.  When the customer or advisor deals with banking and insurance, these are supervised by other agencies at  both the state and federal levels.

While the concept of Dodd-Frank may be a good idea from a consumer protection point of view, we have to wonder if there will be too many regulators and too little producers.  In sum, this could be the best time in history to start a career in financial compliance.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

As expected, the SEC has delayed implementation of the RIA “switch.” On June 22, the SEC approved rules that will transition thousands of advisors from SEC to state regulation, but the new rules won’t be effective until June 28, 2012, almost a year later than initially expected.

Under the regulatory structure in place prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, investment advisors with $25 million or more in assets under management (AUM) were regulated by the SEC, and those with less than $25 million in AUM were regulated by the states. Dodd-Frank changed the registration threshold so that advisors with between $25 and $100 million in AUM—so-called “midsize advisors”—will be required to withdraw their registration from the SEC and register with state regulators.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the planned switch and in Advisor’s Journal, see Disarray at the SEC is Complicating the “Switch” (CC 11-83), Hedge Funds Must Now Register with the SEC under the New Wall Street Reform Act (CC 10-45) & Dodd-Frank Wall Street Reform and Consumer Protection Act (CC 10-35).

Why is This Topic Important to Wealth Managers? This blogticle presents information concerning international regulatory agreements with regards to insurance contracts. The information is provided for those wealth managers who are subject to New York jurisdictional control as it is intended to keep practitioners up to date and current.

The New York State Insurance Department and the Swiss Financial Market Supervisory Authority (FINMA) have announced that the two agencies have executed a memorandum of understanding (MoU) allowing for closer cooperation between the two regulatory bodies.

The agreement was announced yesterday by New York State Insurance Department Superintendent James Wrynn and Dr. Patrick Raaflaub, CEO of FINMA, the government agency responsible for financial regulation in Switzerland.

“Close cooperation between international regulators is among the most effective ways to regulate global financial services. The Insurance Department is proud to execute this agreement with FINMA because it will allow both regulators to closely cooperate to promote the growth of robust, solvent financial services and markets and safeguard the interests of policyholders, creditors, investors and other stakeholders and the financial services industry as a whole,” Superintendent Wrynn said.

“Financial markets and financial institutions are becoming more and more global. International cooperation between regulators and supervisory authorities is key to meeting these developments. Therefore, FINMA is very satisfied to conclude an MoU with the New York State Insurance Department. This is another important step,” Dr. Raaflaub, CEO of FINMA, said.

Under the MoU, either regulator may request assistance from the other, including obtaining information on a regulated person or entity. Either regulator may provide the other with investigative assistance with respect to companies and persons engaged in the business of insurance.

The New York State Insurance Department has already executed MoUs with insurance regulators in 10 other countries, including Bermuda, China, France, Germany, Japan, and the United Kingdom. The Department is in the process of negotiating agreements with regulators in several other countries.

The New York State Insurance Department currently regulates all insurance business transacted in New York State and is the primary regulator for insurance entities domiciled in New York. Entities regulated by the Department have assets under management in excess of $4 trillion.

Later this year, the Insurance Department will merge with the New York State Banking Department to form the New York State Department of Financial Services. The merger is not expected to affect the regulators’ ability to continue to share information about insurance companies.

The Swiss Financial Market Supervisory Authority (FINMA) is an independent supervisory authority responsible for protecting creditors, investors, and policyholders, as well as ensuring the smooth functioning of financial markets. FINMA’s primary objective is to provide protection for market players and the financial system, as well as the system’s reputation. FINMA reports directly to the Swiss parliament.

Tomorrow’s blogticle will continue to discuss relevant topics related to wealth management.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Why is this Topic Important to Wealth Managers? This topic discusses one of the current trends in the financial services industry of adding additional regulation after the events of the financial crisis. The SEC, along with other agencies, is discussing rules that could have an effect on broker-dealers as well as those companies that employ them. Wealth managers associated with firms involved with the prosed rulemaking should take note.

The SEC recently considered a proposal that would prohibit incentive-based compensation practices that may encourage inappropriate risk.

The proposal arises from Section 956 of the Dodd-Frank Act [1], which requires the SEC along with six other financial regulators to jointly adopt regulations or guidelines governing the incentive-based compensation arrangements of certain financial institutions. These institutions include broker-dealers and investment advisers with $1 billion or more of assets.

In particular, the Dodd-Frank Act calls upon the regulators to do two things:

First, it calls upon the regulators to adopt rules or guidelines that require these financial institutions to disclose the structure of their incentive-based compensation practices so that the regulator can determine whether such compensation is excessive or whether it could lead to material financial loss to the firm.

Second, the Act calls upon the regulators to adopt rules or guidelines that prohibit these financial institutions from offering any incentive-based compensation arrangement that the regulators determine encourages inappropriate risks – either because the compensation is excessive or because it could lead to material financial loss.

Among other things, the rules considered by the SEC would:

(1) Require reports related to incentive-based compensation that the financial institutions would file annually with the Commission.

(2) Prohibit incentive-based compensation arrangements at financial institutions that encourage inappropriate risk taking by providing excessive compensation or that could lead to material financial loss to the firm.

(3) Provide additional requirements for financial institutions with $50 billion or more in assets, including the deferral of the incentive-based compensation of executive officers and the approval of the compensation of those persons within a firm whose job functions give them the ability to expose the firm to a substantial amount of risk.

(4) Require the financial institutions to develop policies and procedures to ensure and monitor compliance with the requirements related to incentive-based compensation. [2]

Some in the industry are concerned that the proposal, if adopted, would lead individuals at covered broker-dealers and investment advisers to become unduly conservative and avoid taking even prudent risks. That prospect is troubling; for while it is appropriate to recognize the potential for excessive risk taking, the rule makers also noted that fact that they must recognize that firms can take too few risks. A regulatory regime that places undue emphasis on reducing the likelihood of bad outcomes is costly if it leads to excessive conservatism. Generally speaking, it is usually the case that for an innovative private sector to spurs economic growth depends on the willingness of enterprises to take risks.

What would been a challenging task given the tricky statutory language was reportedly made even more challenging because the joint rulemaking, which has required the agencies to coordinate, deliberate and negotiate with seven total financial regulators. [3]

For more coverage on the Dodd-Frank Act, see Advisorfyi: New Dodd-Frank Study Calls for Stringent Standards

Tomorrow’s blogticle will present discussion on planning tips.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] P.L. 111-203.

[2] See Chairman Mary L. Schapiro Opening Statement — SEC Open Meeting: Proposed Rules on Incentive-Based Compensation. U.S. Securities and Exchange Commission. March 2, 2011. http://sec.gov/news/speech/2011/spch030211mls-icomp.htm. Last Accessed March 8, 2011.

[3] See Commissioner Kathleen L. Casey. Commissioner: Statement Regarding Incentive-Based Compensation Rules Pursuant to Section 956 of Dodd-Frank. U.S. Securities and Exchange Commission. March 2, 2011. http://sec.gov/news/speech/2011/spch030211klc-icomp.htm. Last Accessed March 8, 2011.

Why is this Topic Important to Wealth Managers? This topic discusses the new regulatory agency that will have an effect on most life insurance companies doing business in New York.  Because the new regulatory agency will oversee insurance and banking, it is likely that changes in the insurance compliance law are just around the corner.  After the financial crisis of 2008, it appears New York is taking action to prevent future disruptions in the market.  Wealth managers should be aware of the new agency as changes to insurance regulation and compliance are sure to result from the creation of this organization.

New York State is in the process of creating a new Department of Financial Regulation (DFR) which is designed to harnesses the regulatory powers and expertise of the Banking and Insurance Departments, as well as the Consumer Protection Board, by combining the functions of each, to make the State’s oversight of financial services responsive to the 21st century needs of the industry and its consumers.

This new State agency, created pursuant to legislation submitted as part of the 2011-2012 State Executive Budget, consolidates the functions, operations and staff of the Banking and Insurance Departments, along with related segments of the Consumer Protection Board, into a single State agency.

Consolidation of these agencies and activities within a single agency platform is intended to afford the State the ability to unify the State’s regulation of financial services and to more rapidly and capably respond to changing market practices and consumer preferences, thereby ensuring the industry’s continued integrity while shielding consumers from abuses.

In addition to enhancing and refining the State’s regulatory oversight of the industry, the consolidation will provide the State with the opportunity to reduce overall spending with the use of shared services.

The Superintendent of the Department of Financial Regulation will be appointed by the Governor, with the consent of the Senate. The Department’s main offices will be located in Albany and New York City.

The Department’s main responsibilities will be carried out through two major programs: regulation and consumer protection.

Regulation

To ensure the safety and soundness of all regulated entities, the Department will monitor banks, insurance companies and other financial institutions to identify problems and will work with management to promptly solve them.  The Department will carry out this responsibility through annual on-site examinations, regular review of institutional financial reports, and periodic site visits.

Consumer Protection

To ensure that State-chartered banking institutions are complying with State laws and regulations and that no individuals are unfairly denied credit, Department employees will conduct consumer compliance examinations and resolve consumer complaints.  Staff will monitor whether institutions are helping to meet the credit and banking needs of local communities as required by various State laws.

The Department will strive for the fair treatment of insurance policyholders, claimants and the public through the regulation of company claim payments and sales practices, responses to consumer complaints, and the timely review of insurance company denials of coverage.  The Department hopes to promote high standards of industry conduct and competence through testing, oversight, and pre-licensing and enforcing educational standards of licensees.

Furthermore, the Department will proactively educate consumers regarding unscrupulous financial industry practices and products and will advocate on behalf of consumers who have been defrauded or harmed by such abuse.

The State Executive Budget recommends just over a half of a billion dollars in Special Revenue Funds for the Department of Financial Regulation for fiscal year 2011-2012. The Department of Financial Regulation’s operations will be primarily funded through assessments charged to regulated insurance and banking institutions and organizations. The remainder of the Department’s operating budget will be derived from various fees, such as those paid by entities applying for licensure or charter.

Next week’s blogticle will discuss new and exciting planning aspects of 2011.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts

NB: This work or parts thereof originated from previous official Government publication available to the public.

Federal interference in the regulation of the insurance industry could be around the corner, but the states are not going to cede their authority without a fight.

State legislators fear that “important funds and jobs could be lost if Congress authorizes a federal insurance charter and creates a new bureaucracy to regulate insurance.” According to a letter sent by NCOIL (The National Conference of Insurance Legislators) to every member of the 112th Congress, a federal insurance charter could cost states as much as $16 billion in revenue annually—representing lost fees and taxes generated for the states by insurance business. ….

Although the FIO itself is not given regulatory authority by the Wall Street Reform Act, the studies mandated by the Act may signal that the Feds are interested in expanding their reach into the insurance industry. And, it would be naïve to think that the FIO studies will find that federal regulation of insurance companies is absolutely unnecessary—given the role of insurance companies like AIG in the financial crisis.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Federal Insurance Office in Advisor’s Journal, see The Federal Insurance Office (CC 10-55).

Why is this Topic Important to Wealth Managers? Discusses standards of care study called for by Dodd-Frank legislation.  Presents an overview of the recommendations submitted to Congress. 

Last Friday, Jan. 22, The Securities and Exchange Commission (SEC) submitted to Congress a staff study recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisers — no less stringent than currently applied to investment advisers under the Investment Advisers Act of 1940– when those financial professionals provide personalized investment advice about securities to retail investors. [1]

Section 913 of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required SEC to conduct a study to evaluate: 

• The effectiveness of existing legal or regulatory standards of care (imposed by current authorities) for providing personalized investment advice and recommendations about securities to retail customers; and  
• Whether there are legal or regulatory gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for providing personalized investment advice about securities to such customers that should be addressed by rule or statute. 

In the study, the SEC notes that investment advisers and broker-dealers are regulated extensively under different regulatory regimes. But, the study claims, many retail investors do not understand and are confused by the roles played by investment advisers and broker-dealers. The study finds that “many investors are also confused by the standards of care that apply to investment advisers and broker-dealers” when providing personalized investment advice about securities.

The study further states that “retail investors should not have to parse through legal distinctions to determine” the type of advice they deserve.  Instead, the study notes “retail customers should be protected uniformly when receiving personalized investment advice about securities regardless of whether they choose to work with an investment adviser or a broker-dealer.”

At the same time, the study notes that retail investors should “continue to have access to the various fee structures, account options, and types of advice that investment advisers and broker-dealers provide.”

As a result, the study “recommends that the Commission . . . adopt and implement, with appropriate guidance, the uniform fiduciary standard of conduct for broker-dealers and investment advisers when providing personalized investment advice about securities to retail customers.”  The standard, according to the study, should be “no less stringent than currently applied to investment advisers under [the Investment] Advisers Act.”

The study also “recommends that when broker-dealers and investment advisers are performing the same or substantially similar functions, the Commission should consider whether to harmonize the regulatory protections applicable to such functions. Such harmonization should take into account the best elements of each regime and provide meaningful investor protection.”

The study concludes that the “staff’s recommendations were guided by an effort to establish a uniform standard that provides for the integrity of personalized investment advice given to retail investors. At the same time, the staff’s recommendations are intended to minimize cost and disruption and assure that retail investors continue to have access to various investment products and choice among compensation schemes to pay for advice.”

Tomorrow’s blogticle will discuss 2011 market opportunities for wealth managers.  

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Study on Investment Advisers and Broker-Dealers–As Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Staff of The Securities and Exchange Commission.  January 2011.  http://www.sec.gov/news/studies/2011/913studyfinal.pdf.  Last accessed 1/24/2011.

Buzz about the Financial Industry Regulatory Authority, Inc. (FINRA) taking responsibility for regulation of investment advisers has been circulating for a couple of years now—but the talk is suddenly sounding less like gossip and a lot more like a plan. Last week, FINRA’s chief executive, Richard Ketchum, sent a letter to the SEC touting the benefits of appointing a self-regulatory organization (SRO) to oversee advisors. Although Ketchum’s letter does not directly ask the SEC to cede some of its regulatory authority over advisers to FINRA, hints abound.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed earlier this year, mandates an SEC study of its investment advisor examinations and whether delegation of advisor regulation to an SRO would improve examinations.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA in Advisor’s Journal, see FINRA Proposes Eliminating Industry Insiders from Arbitration Panels (CC 10-80).

We invite your questions and comments by posting them below, or by calling the Panel of Experts.