Voices: Lyle Wolberg, on Extending the Fiduciary Standard

President Obama backs DOJ plan to impose stricter standards on brokers who advise on retirement investments


Voices is an occasional column that allows wealth managers to address issues of interest to the advisory community. Lyle Wolberg is partner and senior adviser at Telemus Capital in Southfield, Mich.

Changes are afoot in the retirement account investment arena. President Obama has asked the Department of Labor to develop stricter standards for brokers and others who advise clients on retirement investments.

To Read the Full article click here.


Posted by Wall Street Journal, see the original article here.

Tax Extender Bill Passed by House and Senate

The Senate has finally acted on the Bill that the House passed earlier in the month to extend many taxpayer friendly income tax provisions which previously expired at the end of 2013. Unfortunately, the extension will only have a two week shelf life and therefore will expire again on December 31, 2014. The President is expected to sign the bill into law before the end of this week.
Due to how long it took for Congress to act on these extensions, it is most likely that the start of the tax season and the date in which tax returns can start to be filed with the IRS will be extended to late January or early February (similar to last year when Congress also allowed politics to delay implementation of needed tax legislation).
Many of the favorable business related provisions can be applied without the need for transitional application rules. However, individual provisions including the ability for those over 70 to take tax free distributions from individual retirement accounts for charitable purposes will need special rules given that most taxpayers have already taken their annual required minimum distributions (RMDs) for 2014.
Below is a summary of the provisions applicable to individuals that are part of the Senate Bill. In addition to the provisions listed below, there are also over 30 provisions related specifically to businesses.
• Tax credit for purchasing health care insurance
• Tax deduction for expenses of elementary and secondary school teachers
• Exclusion from gross income of imputed income from the discharge of indebtedness for a principal residence
• Equalization of the exclusion from gross income for employer-provided commuter transit and parking benefits
• Tax deduction for mortgage insurance premiums
• Tax deduction for state and local general sales taxes in lieu of state and local income taxes
• Tax deduction for contributions of capital gain real property made for conservation purposes
• Deduction from gross income for qualified tuition and related expenses
• Tax-free distributions from individual retirement accounts (IRAs) for charitable purposes
• Tax credit for residential energy efficiency improvements
• Tax credit for energy efficient new homes
• Tax credit for energy efficient appliances
• Increased expensing allowance for business property including computer software and depreciation of qualified real property
• Additional (bonus) depreciation of business assets and the election to accelerate the alternative minimum tax (AMT) credit in lieu of bonus depreciation

Please contact your advisor or tax professional to discuss how these provisions may apply to your particular situation or circumstances.

Scams Spread In Wake of Ebola Fears

This piece was posted on November 6th, 2014 on http://freep.com by Ziati Meyer, Detroit Free Press Staff Writer. Telemus Capital Partner and Senior Advisor, Lyle Wolberg, comments on how to react to the current Ebola situation.
(This Opinion piece presents the opinions of the author. It does not necessarily reflect the views of Telemus Capital, LLC)

Scams Spread In Wake of Ebola Fears

Hey, have I got a stock tip for you! It’ll make you millions of dollars in no time.

There’s this drug company that has discovered a cure for Ebola —

Stop right there. It’s a scam.

Experts are warning the public not to fall for get-rich-quick schemes like this, or for pitches by fly-by-night charities, claiming to aid Ebola victims.

The North American Securities Administrators Association found about 1,200 websites included “Ebola” in the domain name — from hotebolastocks.com and ebolafutures.com to ebolainvesting.com and fundsforebola.com — and about 15% of the organizations have identified as suspicious.

“What the scammers are looking for is to convince people they’re going to make a lot of money in a short period of time. Our thought on this is if it’s too good to be true, it probably is,” said Lyle Wolberg, partner and senior adviser at Telemus Capital in Southfield.

“Scammers rely on the fact that emotions and money usually are tied together and the greed factor is big part of these get-rich-quick cons.”

And even if there were a major Ebola breakthrough about to rock the pharmaceutical world you wouldn’t find out about via your junk folder.

“There are laws and regulations regarding insider trading. If an established company has a cure for some sort of disease, they’re going to publish that as soon as possible to get their stock price to go up. It’s not going to be a secret inside spam or an e-mail alert from a stranger,” Wolberg said.

Attorneys general in several states have issued warnings about scammers exploiting the public’s fear — or greed.

For example, in Illinois, people are getting offers for $29 “surplus personal protection kits,” which purport to protect people from contracting Ebola, particularly emergency responders.

In August, the U.S. Food and Drug Administration warned against buying supplements, alleging they protect those who take them from contracting Ebola to help cure it in those already infected.

Fake charities are popping up, too. Charity Navigator has found hundreds of them, so it’s advising would-be donors to give money only to vetted, known not-for-profits that are helping Ebola victims.

According to president and CEO Ken Berger, con artists use the vast expanse — distance and information — between the U.S. and west Africa to get people to open their wallets, plus the speed by which the illness spreads add a time element for them to pressure potential suckers to give without researching the charities first.

“Avoid telemarketers, crowdfunding sites, social media and e-mails. It’s the Wild West out there,” Berger said Oct. 31. “Just because something says Ebola or someone says they’re appealing for funds for someone suffering, err on the side of caution. … The scammers and thieves know the American public is the most generous in world and whenever there’s a disaster or crisis, millions and millions, sometimes tens of millions are being raise, so there’s a huge bucket of money. A lot of times, people give on impulse based on a photo or a story someone tells. They know it’s an opportunity to exploit the event.”

Contact Zlati Meyer: 313-223-4439 or zmeyer@freepress.com. Follow her on Twitter @ZlatiMeyer.

How to avoid Ebola scams

■ Think logically. If it were such an amazing stock tip, why would you be finding out about it via spam?

■ If it is a good information source, beware of insider trading issues.

■ Don’t open any e-mails with the word “Ebola” in the subject line, as it could contain malware.

■ Don’t suckered by a sad photo or story.

■ Report any Ebola treatment claims to the FDA.

■ Verify a charity by looking it up on www.charitynavigator.org or www.charitywatch.org or give only to well-established charities.

■ Don’t give your credit card information to any telemarketer claiming to be calling on behalf of a charity for Ebola victims.

Source: Free Press research

We Sold Our Business. Now What Do We Do?

Thinking Ahead

Tens of thousands of privately owned small businesses are expected to change hands in the next decades as Baby Boom business owners retire. They’re left with a wealth management challenge: how to invest the proceeds and plan for the new money in their estates. Crain’s Wealth asked David Post, partner and investment committee chair at Detroit-based Telemus Capital, LLC, to run through a typical scenario for readers.

The story A 60-year-old couple with three grown children and four grandchildren sells its California-based auto supply business to a regional company for $8 million. The sale is structured as an installment sale with $5 million paid up front and $3 million deferred and paid in three equal installments over the next three years.

The taxes: After paying capital gains tax of $1.65 million on the initial $5 million payment, the Smiths have net proceeds of $3.35 from the first leg of the installment sale.

Their existing estate: The Smiths were diligent over the years and the modest home they bought 20 years ago is now worth $1 million. They have contributed to a retirement plan, accumulated a nice nest egg, and paid for their kid’s college educations. With the net proceeds from the initial installment sale the Smiths now have just over $5 million to invest. Their only meaningful expenses are the payments on their $200,000 mortgage, a couple of vacations a year, and spoiling their young grandchildren.

The Smiths shared with their financial advisor very clear objectives:

• They want to retire and not worry that they would ever need to work again.
• They want to help provide educational expenses for their grandchildren.
• They are willing to take enough risk to allow the portfolio to grow over the next few decades.

The financial plan: Let us pretend for a moment that the Smiths situation is happening in real time and that we were selected as their advisor. That being the case, we would first suggest that they establish a 529 College Savings Plan for each grandchild and fund each with $28,000, the maximum annual contribution.

Subsequent contributions to the grandchildrens’ 529 plans would be determined by the individual circumstances of each grandchild and their educational needs. Additional 529 contributions should be funded out of the after-tax proceeds from the next three installment sale payments.

The portfolio: Given the Smiths’ straightforward goals and objectives for their initial $5 million is it $5 million? yes of investible assets, we would suggest the following allocation:

• 30% equities
• 30% alternative assets
• 35% fixed income
• 5% cash

Given the Smiths’ moderate living expenses, as well as the forthcoming $3 million of installment payments, our suggested allocation would provide current income in the range of $175,000 per year, as well as an opportunity for the portfolio to grow in the years ahead. This portfolio allocation, along with expected installment sale proceeds would provide more than sufficient liquidity for the Smiths in case of an emergency. What kind of income are they generating?

The equity allocation: Within the equity sleeve of the portfolio, we would recommend a 55% allocation to international equities and 45% to domestic equities. Given the current stage of the bull market, we would suggest tilting the allocation toward equities with value characteristics, including a very healthy allocation to dividend paying stocks. We would also favor an over- allocation to international equities, with a tilt toward Europe and the Emerging Markets. In the case of Europe, the economy has not yet turned the corner and valuations are attractive. Equity allocations would be spread among large, medium, and small capitalization companies.

As for Emerging Markets, the prospects for long-term economic growth are greater than almost any other market. On the domestic front, we would recommend a tilt toward dividend paying companies with strong balance sheets and energy-related MLPs.

Alternative investment allocation: Our recommendation for the alternative investment sleeve of the portfolio would be to allocate among multi-strategy hedge funds, income producing real estate strategies, and insurance-related assets. Insurance related assets, such as participations in reinsurance, catastrophe bonds, and life settlement contracts are non-correlated to the financial markets. A combination of these alternative investment strategies will provide meaningful portfolio diversification and dampened portfolio volatility (reduce risk).

Our recommendation for the bond portion of the portfolio would be a mix of open and closed-end municipal bond funds combined with credit sensitive taxable bond funds, such as distressed debt and other non-traditional strategies that are more dependent on improving prospects for the economy and the underlying companies rather than changes in interest rates.

Future: The portfolio needs to be regularly rebalanced and, at least on an annual basis, the couple’s risk tolerance should be reassessed. Cognitive bias can be a tricky thing. The couple’s assessment of their risk profile may change substantially in the case of a stock market downturn or life event.

If, after getting to know the Smiths better, we determine that their risk profile is less tolerant than they had assumed, we would use the after-tax proceeds from subsequent installment sale payments to shift the portfolio allocation appropriately.

Posted by Crain’s Detroit Business, see the original article here.

Large Capital Gains and Tax Shock

Whenever you are dealing with a large sales transaction (sale of a business, large stock sale, etc.) taxes are a key driver. This is more true today than ever, due to changes in the tax laws. The impact of higher income on the limitation of tax deductions, the surtax, higher capital gain taxes all resulting in gains being taxed at an effective tax rate of nearly 25% versus 15% not that long ago.

Advance planning can potentially reduce the tax impact by considering tax strategies including: 

         Use of charitable trusts to reduce the overall tax impact and timing of recognition

         Consideration of installment sales to defer taxes

         Family trust sales

         1031 (like-kind exchanges) to defer taxability

         Finally do “deferred sales trusts” make sense and are they viable?

Overarching Takeaways

It is important to understand that these tax deferral strategies are complex and could have significant tax risk if not properly structured. One of today’s hot topics is the “Deferred Sales Trust” transaction which is gaining interest due to the current higher effective tax rates. These trusts need to be considered in light of numerous risks including validity of the trust, the transaction, changing future tax rates, and transaction costs. Essentially these transactions are structured in a way that allows a complete sale with all sales proceeds being realized but allowing the seller to use the installment method to spread out the tax while still knowing that the proceeds are secure.

Is This The Market Correction We Have Been Expecting?

The S&P 500 has gone about 1,030 days without a 10% correction, which is the third longest period without such a correction in 25 years. Of course, it is just a matter of time before we get a 10% decline in the broad equity indexes and when it comes it will be healthy for the markets’ continued run up. However, we shouldn’t be paralyzed waiting for stocks to drop – recall that between 1990 through 1997 equities went 2,573 days without a 10% correction and the market doubled in value from the 1997 peak. What makes the lack of such a correction now so surprising is that there has been no dearth of news that might serve as a catalyst for a meaningful market decline. The markets have taken in stride the events in Crimea, the downed passenger plane in Ukraine, escalating violence in the Middle East, concerns about China’s banking system, and ISIS in Iraq; any one of which might have frayed the nerves of investors and caused a wave of selling.

Within a few basis points one way or the other, the broad equity indexes declined 2.7% last week, the largest weekly percentage decline in just over two years. The S&P 500 is now down 3.2% from the July 24th record close. Not yet a 10% correction, but enough to get everyone’s attention. The market first began to slip last week with news of Argentina’s debt default and the ordered recapitalization of Portugal’s Banco Espirito Santo. However, Argentina has become a serial defaulter and the BES news was expected. So, more likely than not, it was economic data that supports an improving economy that was the catalyst for the market drop. In every economic recovery there is a point where good news becomes bad news, because good news provides a reason for Fed accommodation to be lifted. The Fed has been transparent with their intensions; they will continue to reduce and then terminate their bond buying program in October and they will maintain a zero-interest rates policy until such time as economic conditions warrant an increase in rates. Last week’s market drop registered investor fear that rates will rise sooner than otherwise expected.

However, investor concern over higher interest rates will dissipate as they come to the realization that rising interest rates are a sign of real economic improvement. Moreover, even though rates will rise in the months ahead, interest rates are likely to remain historically low. (See the most recent Telemus Quarterly Commentary.) Historically, the equity markets have performed well in rising interest rate environments, as long as the 10-year Treasury remains below 5%. We have very little concern that the 10-year Treasury yield will even approach 5% for years to come. Whether this market downturn will deteriorate to a 10% correction will prove itself over the days and weeks ahead. The cause of a further decline could be increased geopolitical tension or more concern for rising interest rates. However, the geopolitical situation will soften (as it always does) before it rears its ugly head again. As for interest rates, an improving economy will cause rates to rise, but for the right reason.

In the meantime, we continue to take action in client portfolios consistent with our view of the economy, our overall investment strategy, and client risk parameters. We have reduced our interest rate sensitive fixed income exposure and have increased our holdings to credit sensitive area of the bond market. The duration of our fixed income portfolios continues to be less than our benchmark because of our view that interest rates will rise. Global bond yields have actually decreased since the start of the year, so our shorter duration positioning has detracted from performance relative to our Barclays Global Aggregate benchmark. Given the improving economy and the likelihood of rising rates, we will maintain our shorter duration positioning.

Relative to our equity holdings, we continue to overweight international companies because of more favorable valuations than domestic stocks. However, economic growth outside of the US has been harder to come by and Russian sanctions certainly pose a risk to Euroland recovery. However, as the US economy builds strength there will be a spillover effect, which may mitigate some of the impact of Russian sanctions. In addition to last week’s strong GDP report, the existing homes sales number was very promising and the jobs report was decent, though it fell marginally short of expectations. Relative to jobs, the Fed is very focused on wage growth in determining interest rate policy and wage growth is likely to improve as corporate confidence builds and the jobs market tightens. Recent capital spending numbers have improved and M&A is robust, both of which signal strengthening corporate confidence. As always, economic fundamentals will drive the true direction of the markets and monitoring economic metrics will continue to be our focus.

We understand that short-term downturns in the market can be disquieting, so please feel free to reach out with any questions or concerns.

Telemus Capital, LLC Investment Committee

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client’s specific financial needs and objectives, goals, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.

Password Protection: Keep Your Finances Protected

According to the U.S. Department of Justice, roughly 16.6 million people were victims of some form of identity theft in 2012. That’s about 45,000 people per day that experienced theft of personal information, bank account access, or total identity loss. As business becomes increasingly automated online, the ability to protect one’s identity becomes much more important. Now, more than ever, is a strong password crucial to keeping assets secure.

Read below on how modern password practices can help keep you safe, and how Telemus Capital is working to keep your finances protected.

Password Protection

As a general rule, the most important elements for a secure password are length and uniqueness. A common misconception is that complexity is the key, as many passwords now need a mix of letters, numbers, and symbols. While this works in theory, it’s not necessarily bulletproof.

The more complex a password is, the harder it is to remember. Writing down a password just makes it easier for others to find, and constant resets are easy to exploit for anyone with access to your email. Add to that the sheer number of passwords that need to be memorized for everyday business and maintaining any level of security becomes difficult.

Luckily, password management services, such as LastPass and Dashlane, have sprouted up that will protect all your password and login information behind one master password. Individual accounts retain their security, and you only need to remember a single password to access all of them at once. Just make sure it’s a strong password, or all that extra security goes right out the window.

Beyond Passwords

Unfortunately, just as security practices become more vigilant, hackers are getting more creative. Even the longest and most complex passwords can be cracked; and, as the security catastrophe in 2014 known as heartbleed has shown, hackers are always finding new ways to get at your information.

In response to the growing need for online protection, new security firms have appeared that focus on protecting your online identity. Telemus has partnered with one such company, LifeLock, to ensure the present and future stability of their clients’ finances. LifeLock’s dedicated team of professionals proactively monitors credit and financial data for potential threats, and alerts you the moment any suspicious activity is found.

LifeLock also guarantees that, should the worst come to pass and your identity is stolen, they will spend up to $1 million to hire experts, lawyers, investigators, consultants and whatever else it takes to help your recovery.

Final Thoughts

Success in today’s economy is more than just hard work; it’s about protecting your identity as well. When next looking over the security of your business, make sure that you’re taking all the right steps towards smart and appropriate protection. Even seemingly miniscule precautions can mean all the difference between future security and financial disaster.



Insights Spring 2014

Welcome to the latest edition of our quarterly newsletter Insights. In these informative pieces you’ll hear from us, and others, regarding the current market environment as well as a variety of investment and financial topics.

Read the entire quarterly newsletter here: Insights Spring 2014

David Post Joins Telemus Capital Launches Los Angeles Office

David is a Telemus Partner in the firm’s Los Angeles office. David has over 30 years of experience advising clients on a wide range of financial and investment matters. In addition to working with clients, David serves as Chair of the Telemus Investment Committee, which has the responsibility of establishing the firm’s investment policy, strategy, and implementation.

Prior to joining Telemus, David was the founder, CEO, and Chief Investment Officer of Concentric Capital LLC, a Los Angeles based investment advisory firm that was acquired by Telemus in February 2014. Prior to founding Concentric, David was a Partner and Portfolio Manager at CSI Capital Management, a San Francisco-based investment management firm that he cofounded in 1983.

Over David’s career he has served high net worth individuals and families as well as large institutional clients.

David is a graduate of the University of California, Berkeley with a BA in Social Sciences. David previously served on a number of corporate boards, both public and private, in addition to serving for eight years on the board of the San Francisco General Hospital Foundation. David is married and has two children and two grandsons. Golf, skiing, cycling, art and architecture are David’s interests away from the office.