WBP Residential Advisory provides strategic property advice through a team of qualified and experienced Advocates, who will navigate you through the time consuming and sometimes daunting property investment and purchasing process.

WBP Residential Advisors are:

• Experienced property professionals
• Experts in price and value trends
• Independent and working for you
• Well connected with extensive networks and resources

WBP Buyer Advocates will:

• Save you time and money with our efficient property search process
• Help you identify your specific requirements
• Navigate you towards suitable opportunities
• Help you take advantage of current market conditions
• Source both on- and off- market opportunities to ensure your property criteria is met
• Provide strategic advice to help you achieve your purchasing goals
• Represent you and allow you to buy with confidence

The process:

1. Obligation-free service needs assessment
2. Identification and analysis of your individual requirements and goals
3. Research on-and off-market opportunities that meet your requirements
4. Opportunity assessment and due diligence
5. Auction and negotiation representation

We have been hearing for months about how the market is due for a correction, and yet time and time again it chalks up more gains. Coming out of a deep recession, it is not surprising to see abnormal gains in the indexes, but this climb seems to be without pause. That should give you pause. It is very possible that short sellers are just gearing up for another swing. If the short sellers allow the market to continue to climb, particularly if it does so on low volume, then they could stand to make greater profits in a correction. Unemployment is still high, consumer confidence low, and Fed policy changes loom.
The odds of at least a mild correction seem fairly likely given the economic uncertainty that still resides. The short sellers may seem to be on retreat right now, but they could just be waiting to take a bigger chunk of profits. Learn more about how  The Tax Club and las vegas bankruptcy attorneys can help you and your friends.

The principle behind this is fairly simple – you borrow a large lump sum to repay your creditors and are then left with one creditor and one monthly payment. These monthly payments may be lower than the sum you are currently paying, but still you make the repayments for a much longer period.
If your goal is to reduce interest rates and lower your monthly payments, avoid bankruptcy, consolidate your bills and have one monthly payment, or simply get out of debt the fastest way possible, then a debt consolidation loan could provide the answer.

Consolidation loans can give you a fresh start, allowing you to consolidate all your loans into one – so you can easy to manage payment, and in most cases at a lower rate of interest.
With a debt consolidation loan you can borrow up to 125% of your property value in some cases. A debt consolidation loan is a cheap loan on your home security. It frees the spare capital (or equity) in your home to your store card and other debts.

There are also disadvantages to repay a debt consolidation loan, such as could pay more over a longer period. May entail additional costs for setting up the secure loan.You will be left with only one creditor – this can make it difficult to negotiate, your further problems with the repayment of your loans you loan. If consolidate all have the interest added at the start you can actually pay interest twice. The interest for the first loan and the interest charged for the consolidation.

We’d like to thank Miss Sue Lang VEC on this amazing article.

If you want your investment property to be commercial, do your homework first. Familiarize yourself with the zoning laws and the different uses that are allowable for the building or buildings you have in mind. If the allowable uses are the types of businesses that are struggling, it may not be wise to invest there. Another strategy that ties into this though, is that the area may be open to re-zoning. If the desired use is not currently acceptable yet can realistically succeed based on similar business models, then re-zoning should definitely be a viable option here.

Residential investments are simpler and easier to determine if they can be profitable. The first course of action you should take is to see if there are a lot of residential rental units for sale in any one particular area. If there are, then one can assume that they are not turning a livable profit for the owner. If they were, they probably wouldn’t be up for sale. You need to find an area where these units, or even house rentals for that matter, are hard to come by.

If you find an area such as this, chances are good that your profits would be as well. Keep in mind that the real estate market fluctuates more or less in sync with the job market. If the town in question is getting an economic boost because of a new company that just moved in, the time is right for investing in residential rentals. If said company is moving in because of a savvy commercial deal that you yourself helped broker, then you are officially in the big leagues.

We’d like to thank Miss Sue Lang on this great article.

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Real estate is a big business and everyone seems to want to invest in real estate. You keep hearing a lot of stories about how people made a quick buck by investing in real estate. There are stories about people who made $50000 in a fortnight by making the right kind of investment in real estate. Every now and then, newspapers keep coming up with statistics about the appreciation in the real estate prices. There seems a mad rush for investing in real estate (and this gets even bigger when the mortgage interest rates are falling). However, not everyone has the time, money and expertise to be able to profitably invest in real estate. So what does one do? Is there any other option?

Yes, there is another way of investing in real estate and that is through Real Estate Investment Trust. Real Estate Investment Trust is an organisation that invests in real estate as a full fledged business. By investing in a Real Estate Investment Trust, you can become part of the real estate investment party and enjoy profits (of course, the assumption here is that the Real Estate Investment Trust is good and professionally managed).

Investing in Real Estate Investment Trust is very easy too. You can just buy Real Estate Investment Trust shares which trade on all major exchanges. There are certain laws governing the Real Estate Investment Trusts that help them avoiding the tax at corporate levels e.g. it is mandated that Real Estate Investment Trust’s portfolio has 75 percent of investment in real estate. Moreover, 75% of the income of Real Estate Investment Trust must be from rents or mortgage interest. There are various types of Real Estate Investment Trusts. Some Real Estate Investment Trusts own properties themselves and hence feed on the rental income from those properties. Some others indulge in providing only mortgage loans or go for mortgage backed securities. Then there are Real Estate Investment Trusts which do both i.e. rental focussed investments and mortgage based investments.

There are a number of Real Estate Investment Trusts operating in the market and a lot of these Real Estate Investment Trusts are doing good business. By investing in Real Estate Investment Trust you are basically investing in real estate without actually buying a property yourself. This is one easy way of investing in real estate (and much safer too). You must surely evaluate this option for your real estate investments.
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There are many who are interested in getting hold of a holiday resort in one of the best holiday destination as they will be able to earn good amount of revenue with the passage of time. In fact the revenue is the main factor behind the decision by the people to get hold of the resort as they are also looking out of active investment wherein the money should definitely double in such a way that you should be able to get regular income without any faults. Also you might be looking for a fully functional resort that provides all the required modern facilities in the right way as you are spending your hard earned money to get hold of one. You should try approaching a reputed real estate agent in the country as they might be having the required holds in getting the task completed within the specified time frame. Also you will be able to get the best deal within the shortest time frame wherein you need not have to worry about moving to the losses. It is true that there are many resorts for sales and people are moving with the step as they might not be having the required fund to function it correctly. If you are strong enough you can definitely proceed further in the right manner.About the Author; Robert Mecc has years of experience in Real estate businesses. He suggests CST properties an leading Australian Commercial Real Estate and Business agency. If you are looking to invest in property http://www.cstproperties.com/ or Restaurants for sale http://www.cstproperties.com/ please visit cstproperties.com for details.

InvestmentNews: Ed, you’ve been a proponent of Roth conversions for quite some time. Overall, do you still think it makes sense to convert?

Mr. Slott: It’s one of the biggest practice-building opportunities for any adviser right now, and any adviser that’s not addressing this is making a huge mistake.

I’m not necessarily saying to do a Roth or not to do a Roth, but remember, in 2010, every client with a 401(k), a 403(b), an [individual retirement account], any sort of retirement account like that that has an eligible rollover distribution is a Roth conversion candidate, regardless of income. So this opens the floodgates for Roth conversions, and if your clients aren’t getting this information from you, chances are, they’re getting it from somewhere else, because they’re all interested.

Most people are worried about what’s going on in the government — probably see tax rates’ going much higher. I believe tax rates will go through the roof, just taking into account everything that’s going on. But here’s the big opportunity for advisers: As the president said, there’s a deficit of trust among clients who are unhappy and looking for advisers who can give them this type of advice. The floodgates are open.

And another important point is that the floodgates are open for a whole new crowd of clients — high-net-worth, high-income clients who never qualified for a Roth before, and those people are looking for advice on whether to convert or not. And I think that’s probably a place to start.

People with the largest IRAs are probably the best candidates for a conversion for estate-planning reasons if they have the money to pay the tax. They don’t need the money for a long time; that’s a key.

Need is a key requirement, not so much age. For example, someone converting after the age of 70 years is not converting for himself or herself, because the cost versus the benefit in the life expectancy is probably not worth it; they’re probably converting for the next generation or for grandchildren.

For estate-planning purposes — if you don’t need the money and you want to pass it on — it’s almost a slam-dunk, especially if you have clients like mine who are over 701/2 and hate required distributions. All of my clients who are taking required distributions are being forced to take money they don’t need, pay tax on it and add it to their existing income. So now all the other items on their tax return start to cost more. They start to phase out their exemptions, deductions, credits — all the tax benefits that tend to phase out when your income increases.

The thing those clients like about a Roth conversion is that once you pay the tax, Roth IRAs have no required minimum distributions. Once the conversion is done, the people who don’t need the money can just let that Roth IRA grow for the rest of their lives. And if they have a spouse, they can leave it to the spouse, who can also roll it over to his or her own Roth IRA and let that grow for years uneroded by taxes. Then it will pass to beneficiaries — at some point, it’s going to pass to a non-spouse beneficiary — and they will have to take required minimum distributions, but only after the death of the Roth IRA owner and the spouse if the spouse is the beneficiary. And even then, the required distributions they take will be tax-free.

Since conversions are a great way to transfer wealth, especially if the client doesn’t need the money, many wealthy or high-income people who didn’t qualify before are looking for this information now. And the more money a person has, the more they hate taxes. That’s just the golden rule. They see what’s going on and realize that they’re going to be hit with any tax increases first, and it might pay to bite the bullet now at relatively low rates. I believe we’re in probably the lowest tax rates we’ll ever see in our lifetime, just looking historically. And values are relatively low. So it’s almost a double sale on Roth IRAs — rates are low, and values are low.

And I’m not talking about values’ being low because of the stock market — they are low because of that; some of them are still depressed — but low in relation to the values that they will be in 20, 30 or 40years with growth that will never be taxed again.

I would also target people who have named a trust as their IRA beneficiary. Most people who have named a trust probably did it because they had large IRAs worth, say, $5 million or $10 million. The reason somebody names a trust is because they don’t want a $5 million IRA going to a 16-year-old.

Now, with a traditional IRA, when the required minimum distributions go to the trust after death, they may end up getting trapped, and a lot of these trusts are discretionary trusts where the trustee has discretion and may not pay out the required amount to the trust beneficiaries and accumulate the funds in the trust. Well, when that happens, they get hit with the highest tax rates in the land, trust tax rates, and that’s a big hit. For example, in 2010, an individual wouldn’t hit the top rate, 35%, until taxable income exceeds $373,650, but a trust hits that rate after just $11,200 of income. So most trusts are going to get walloped with taxes under that scenario.

A great planning move for these people would be to convert their IRA now to a Roth IRA. They probably couldn’t before, because of the income limits. I would say to those people, especially if that IRA’s going to a trust and you’re going to lose, say, 40% a year just in accumulations in a trust, [that] you make that a Roth IRA. Yes, there are required distributions after death, but the accumulations will not be taxed in the trust, because Roth IRA distributions after death will be tax-free. It removes the trust tax problem, and a lot of these people can’t stand that extra tax hit.

There’s one group on the estate-planning side where I think it really pays — those who don’t need the money, have the money to pay the tax and want to pass funds over to their children or grandchildren income-tax-free. A conversion also reduces their estate because if they convert, say, a $10 million IRA and they end up paying, say, $3 to $4 million of tax, that tax reduces their estate as well, so less money will be taken in estate tax, whatever that tax will be.

That’s one group that I think is a slam-dunk on the Roth conversion.

InvestmentNews: Dave, what makes sense and what doesn’t make sense about Roth conversions?

Mr. Loeper: I’d agree with Ed that it’s a slam-dunk if all your clients are people who have money coming out of their ears that they have no use for, and regardless of what the markets do in the future, you know that they’re going to have plenty of resources. It’s also a slam-dunk if all your clients are worried about estate issues.

But I’m not sure such people represent the preponderance of the client base of most advisers. And there’s a lot of uncertainty about what most people have to deal with.

Future income tax [rates] likely will be higher; I think that’s a pretty common consensus. A lot of times, we look at it from the perspective of somebody who’s young, [for whom] compounding over many years will make up for the immediate tax bite. We had already mentioned how people hate the costly RMDs that are associated with tax-deferred accounts. Beneficiaries, as Ed mentioned, might be in a position to have very high ordinary income tax rates applied to the benefits that they get. After all, the government has been very good to us over its entire existence, and it’s going to honor its promise for tax-free treatment forever, and there’s no chance of that ever being repealed.

InvestmentNews: Hmm, sounds like a little sarcasm there.

Mr. Loeper: We know how much it will cost to convert — that’s certainly something you can calculate — and we have the ability to model what the future values and goals of the client will be, so the question you have to ask yourself is: Of these things that are Roth benefits, which are certain, and which have some uncertainty?

The only thing we really know with certainty is what the costs are today. Future income tax rates might change, tax-free compounding over many years may not be a benefit, and all the other things are subject to some amount of uncertainty. Now, how much that all adds up to be depends on the unique client case, and every client is completely unique.

If you care about your clients, you have to be really careful about the assumptions that go into these analyses.

You should be particularly wary of an analysis of conversion in isolation of other goals and other assets or those that assume that the client is going to be in the exact same tax bracket and pay the same rate every year for the rest of his or her life. There’s no chance of that occurring, and you shouldn’t rely on a tool that’s assuming that. Also, avoid any tool that’s ignoring the risks and excesses of extreme markets — the markets are highly uncertain, and they always are, despite what many people might say. And then, also, just looking at everything from a marginal tax rate, because the reality is, [if] you’ve got somebody who has a $100,000 required minimum distribution coming out and they’ve got an $80,000 spending need, it’s not all going to be taxed at the marginal rate; their effective rate’s going to be much lower.

So you should take a step back and objectively understand, first, that the decision to convert an IRA — and again, I’m not talking about somebody who is deciding between an after-tax decision to go to an IRA or an after-tax decision to go to a Roth; in that case, it’s a no-brainer, go for the option of getting tax-free — means that you’re with certainty paying a tax now that you have the choice to avoid.

Now, that could certainly make sense, but there’s some hope associated with that. You would do that under the assumption that markets are going to treat you well enough that you wouldn’t need that money at some later date. Once you give the money to the government, you have no chance of getting it back.

Also, while we’re all looking at this assumption that tax rates are certain to go higher, there are some things like the fair tax — in essence a national sales tax — being discussed and getting some momentum. In 1999, when Clinton was in office, you would have never guessed that we’d be paying low capital gains rates on dividends from stocks. So it’s an erroneous assumption to say that there’s no chance that such changes can occur.

I am just a little bit suspicious that Capitol Hill wouldn’t be tempted to cease the tax-exempt status when there are thousands of millionaires that are not paying any taxes.

InvestmentNews: Dave, let’s look at the case study you provided about a couple in Virginia.

Mr. Loeper: I chose Virginia because that’s where I live, and it has a moderate state income tax rate.

And this might be somewhat typical of a fairly common client. They’re 66 years old, they’ve got $1million in IRAs and $378,000 in taxable assets — which is about the amount of the tax bill in connection with converting the IRA to a Roth.

The couple has a lifestyle need of being able to spend $90,000 a year net after taxes, adjusted for inflation. They are fortunate enough to be on a government pension, from which they’re getting $75,000 a year in non-inflation-adjusted pension benefits.

They have an estate goal of leaving behind $1 million. We’re going to plan on a life expectancy of 96, which is the 80% percentile of the spouse. We’re going to use a 60/40 allocation, which is our balanced allocation. We’re going to assume 1% advisory fees and investment expenses combined, 20% annual turnover, and then on any taxable assets that might exist, we’re going to realize 80% of the gains as long-term.

Most important, when we run the Monte Carlo simulation on this, we’re going to calculate dynamic taxes. That means that for this 30-year plan, we’re going to calculate 30,000 tax returns, 1,000 simulations, and each year, we’re going to calculate what the taxes would be in each individual year, based on forced RMDs, based on market behavior and all that stuff, which is much more realistic than assuming a fixed rate.

As for the confidence level — and this is not considering what beneficiaries would have to pay — we see that the regular IRA actually has 82% confidence versus 73% for the Roth, but of course, taxes are still owed on the portion that’s left in the IRA.

InvestmentNews: What does 82% confidence versus 73% mean?

Mr. Loeper: The percentage of the trials that exceeded that $1million estate goal and provide the $90,000 net inflation-adjusted spending need after tax.

And of course, any Monte Carlo simulation you run is only as good as the assumptions that go into it. This is based off of our capital market assumptions.

If you don’t like our capital market assumptions, I reran the analysis using 637 historical 30 year periods, and it happened to be the same intersection for probability for the Roth conversion.

I’ve taken the Roth conversion percentile outcomes distributions versus the regular IRA, and RMDs are indeed going to create some taxation, and force some excess money beyond the spending desires and spending goals of the client. And we see throughout the distribution, there’s a fair amount in taxable assets that end up getting distributed at low confidence levels. As we start going down through the distribution towards higher confidence levels; even at the 75th percentile, we see some taxable assets.

Now, we don’t know what the beneficiaries’ tax rates will be, but I can back in to calculate the tax rates that are needed to be at parity with the certainty of writing that check for $380,000 to the government in 2010 or 2011 that I don’t have to do and I have the option to do later if I’m making so much money that I don’t need it.

It’s very unlikely that the government is going to have a negative tax rate, like the fifth and zero percentile; your beneficiaries are not going to get your IRA assets and on top of that get a contribution from the government. So clearly, if you’re in very, very positive markets for this client’s set of goals, there’s a huge benefit of it. It’s also very unlikely that your beneficiaries are going to be at a 7.88% tax rate.

Understand that all those benefits, though, were at three to 28 times the goal that the client actually had. When you start working towards the middle of the distribution and downward, you discover that the tax rates have to be pretty darn high to make writing a check this year to the government make sense. At the 75th percentile, the beneficiaries would have to be at almost a 62% tax rate, and even at the median, at the 50th percentile, they’d have to be at a 34% — not marginal but blended — tax rate. And once again, here you’re at a goal that is already at two times the goal that they wanted to leave behind.

The one problem in all this analysis is the assumption that the plan is never going to change.

The odds are very high that the plan indeed is going to need to change. In fact, in the course of the next five years, there’s about a 68% chance that the plan will either become overfunded or underfunded, drifting into needless sacrifice. If the client’s got an extra $1 million or $2 million around, they might change their goals. Similarly, if they become underfunded, their goals might change too. We would argue that it should be your job to keep the client on track and adequately funded for the goals they personally value, and what choices they have amongst those goals.

But even if tax rates and goals were knowable in advance with certainty, just the market uncertainty alone means that conversion may be highly advantageous or merely a push or fairly detrimental — all depending on how bad the markets are.

The biggest Roth advantage usually exists when outcomes far exceed the goals that any client might have in really outstanding markets. For many, I would argue that there’s no need to rush to write that check. You can convert later, when some of the uncertainty of time has passed. You don’t want to be in a position of regretting having written that giant check and then having a need for that money.

InvestmentNews: So in essence, what you’re saying is that maybe it’s not such a great idea for most moderately wealthy people to convert or, at best, to just wait a while and see if conversion makes sense. Ed, how do you respond to that?

Mr. Slott: I do a lot of consumer seminars, and it seems that the people who come out for these events, especially now, are those who have $1 million or more in an IRA. There are a lot more of them out there than most people think, and maybe I tend to attract them.

But one of the misconceptions that most people have is that it’s all or nothing. People say, “Should I convert or shouldn’t I?” Well, a lot of people might be in the middle somewhere and should do partial conversions.

It’s important for advisers to mention that to clients: You don’t have to convert everything, even this year. Yes, it’s true; whatever you convert this year gives you a two-year deal, which lets you hold on to money for quite a long time. You include half the conversion income in 2011, the other half in 2012.

Mr. Loeper: At higher tax rates in 2012.

Mr. Slott: Right.

Mr. Loeper: It’s not really free financing. The government is mortgaging future tax revenue to get [revenue] now. And they’re making it sound like it’s free financing for half the tax bill, but they’re going to make up more than they’re paying on government bonds when the new tax rates kick in next year.

InvestmentNews: Ed, what are the other benefits to converting all or in part now?

Mr. Slott: Well, the other thing David pointed out, which I agree with, is that clients approaching age 701/2 will be forced to take this money anyway — maybe not as much. But the problem with required minimum distributions, you almost can’t change your mind at that point, because required minimum distributions cannot be converted. And some clients aren’t aware of that, even now, for a couple of reasons: First, they just don’t know the rule exists, and second, required minimum distributions for 2009 were waived, but they’re back now. So you still see some clients that want to convert now and convert it all after 701/2.

So once they hit 701/2, they have to first take their required distribution — and they can’t convert that money — so then if they want to convert, they actually have to take more money out to convert. So a lot of them should really look at this decision before hitting 701/2. In the 60s is a sweet spot for this, just looking ahead, that you’re going to be forced to take this money at higher rates anyway.

But the partial conversion is not a bad way to hedge your bets. You know, do a little in “10, “11 and “12, and little by little, get something into tax-free territory.

InvestmentNews: Wouldn’t this be something you would want to ease clients into? Ed, even your very wealthy clients probably would rather not go through all this and then have you say, “Oh, by the way, before you leave, you have to cut a check for $3 million.”

Mr. Slott: Well, yeah, it’s a lot of money, but you can actually work the estimated tax rules and the two-year deal to hold on to your money for a long time.

For example, let’s say you converted in January or do so now; you really don’t have to come up with any money for that conversion until April 15, 2012. You can hold on to your money for over two years, so whatever you earn on that, it’s like the government’s giving everybody — for a limited time — an interest-free loan to build a tax-free savings account. And as David said, yes, the rates kick in at “11 and “12, but you really don’t have to start paying the estimates. By April 15, 2012, you’ll owe the tax bill on the first half in “11, and then you’ll get into regular estimates for the next year. But you’re really holding on to a lot of that money for longer than most people think.

InvestmentNews: If a client decides to go the partial route, what would be the best way to approach it? What assets do you convert first?

Mr. Slott: What David said is right; it’s a client-by-client scenario.

Again, I go back to my three core questions: When, what and where? When do you think you’re going to need that money? If the client needs the money within five years of conversion, then generally they are not a conversion candidate. In fact, if they’re already thinking about when they can spend it, conversion is not for them. The power of the Roth is in the long-term tax-free compounding.

The “what” concerns what they think future tax rates will be. If they truly are convinced that they’ll be taxed at a lower rate in retirement, then conversion is not for them.

And finally, there’s the where — meaning: Where will the money come from to pay the tax? Nobody should go broke converting, so that’s where partial conversion comes in.

Then there are other items on a tax return to consider. I had one large client who lost a bundle to [Bernard] Madoff. Thanks to new rules that allow the deduction of those Madoff losses, my client — who still has $6 million in an IRA that [Mr.] Madoff didn’t get his hands on — can convert that money tax-free because of the losses he is able to deduct.

That’s an extreme situation, of course, but many other people have had a rough time, such as businesspeople who have had losses in their S [corporations], who may have situations that can reduce the cost of conversion. Again, that’s where partials may come in.

Another great thing to remember is the Roth re-characterization, which lets you undo any change. Anyone who converts this year has all the way up to Oct. 15, 2011, to change their mind for any reason at all and re-characterize or reverse all or part of the conversion to bring it right back to the point where you pay the lowest amount of tax.

For example, if any of someone’s 15% tax bracket is going unused, you should be able to throw in at least enough Roth conversion income to use up the bracket allowance, because it’s really a bargain.

InvestmentNews: David, tell us how you think advisers should approach partial conversions in terms of which assets go first. What would you do? How would you handle it?

Mr. Loeper: If you take a look at the [case study] analysis [available at InvestmentNews.com/rothira], we could have analyzed converting half of it. But all that would have done — throughout the probability distribution — would be to have lowered, at the fifth and 25th percentile, for example, the effective negative tax rate that they have to have if the markets are zooming. It would have been a bit more detrimental than it would have needed to have been at the 75th or 95th percentile, so there was a cost to it. And there is cost. There’s a lot of uncertainty that you’re dealing with.

Now, that’s not to say that I’m always against conversion or partial conversion; I’m not at all. But there are other things you can do to impact your tax bite — for example, putting your fixed-income investments in your tax-deferred accounts that will be subject to [taxation as] ordinary income, whether they’re in your taxable account or tax-deferred. Plus, in theory at least, because we normally assume equity returns are going to be higher, that will minimize the amount of RMDs that you’re going to be forced to make in future years.

So here’s my advice: Put your equities in your taxable accounts, where you can at least get favorable capital gains treatment, even though the dividend treatment’s going away.

I would definitely concur that if a client faces a reasonable probability of being forced into excess RMDs, taking advantage of making withdrawals from taxable accounts to support a lifestyle need now, in doing a conversion, a partial conversion, to capitalize on a 15% tax rate, then it makes sense again.

In each client case, therefore, it’s always a matter of minimizing taxes that you can avoid with certainty and exploiting low tax rates, as well as tax location benefits for asset classes — something you can also control. I can’t control what future tax rates are going to be, though.

Mr. Slott: And that’s one of the benefits of a Roth. You’re using known values.

One thing that the conversion does is remove the uncertainty of what future tax rates will be. I mean, whatever you’re paying now, it’s a known value, and that’s why a lot of these calculators that people are using really don’t help until you have better numbers, because the biggest input item is future tax rates. I have people who get their own solution by putting in a low tax rate and then say, “Oh, maybe I shouldn’t convert.” Other times, they put in a high tax rate and say, “Oh, I had better convert.” So you won’t have those numbers.

The best way to do it, like I said before, is probably try a conversion now; you really have nothing to lose, because it can be re-characterized up to Oct. 15, 2011. That’s over a year away, so by that time, you’ll have more-accurate numbers.

Maybe there’s potential appreciation that happens right now in the Roth. Let’s say you have $100,000, and by Oct. 15, it’s up to $150,000; you still only owe tax on the $100,000.

InvestmentNews: David, are Financeware clients asking about how to make the conversion decision?

Mr. Loeper: I’m really surprised at how much common sense most people have. I think most of the clients recognize that there’s not really a rush to do it; they’ve got a free option to do it sometime in the future. If I say, “I’ve run the analysis, and it doesn’t make sense for you to write a big check,” that’s what they wanted to hear. And for the goals that they value, it is oftentimes the right decision.

InvestmentNews: Aren’t these a hard sell for advisers? If clients walk into an adviser’s office and are told all about this Roth conversion, they’ll think the adviser looks pretty smart. But as soon as they are told to cut a check for $30,000, they’ll think the adviser looks a little less smart.

Mr. Slott: I would never say it’s a hard sell, because it shouldn’t be any sell. You know, the adviser’s neutral on this. The adviser doesn’t get a cut of everybody who does a Roth.

But I’ve got to tell you, on the other side, I have clients who know that they might have to write a check now, but what they get for that, their future tax rate, at least on Roths, will be 0%. You can’t beat a 0% tax rate.

Mr. Loeper: The tools that a lot of advisers are using are assuming certainty about something that’s uncertain.

InvestmentNews: Speaking of tools, David, could you identify some tools that might be helpful?

Mr. Loeper: No commercials here, but I haven’t seen one that I would trust for an analysis.

People are confused; they don’t know what the answer is. What the industry is doing — and Wall Street has a reputation for this — is exploiting action. They want movement, and they can exploit action and get movement by creating misleading tools that cause action. Whether that action is in the client’s best interest or not is highly in doubt, but there are many tools that can make very convincing presentations to get people to part with their money, and that’s what a lot of the industry is about, unfortunately.

Mr. Slott: Roth conversion discussions should be done as a service to clients, and maybe even to prospect for new clients, but based on good information that you’re going to do an analysis and address that to the benefit of the client.

There are those clients who just don’t want to have to pay any tax when they’re in their 70s or 80s; maybe they’re retired and don’t have income coming in. That’s the last time they want to have to suffer maybe a higher rate, and some of them are willing to pay some money now [in order to avoid that].

InvestmentNews: Aside from converting existing IRAs to a Roth, will you discuss the strategy of making non-deductible traditional IRA contributions and then converting those to a Roth?

Mr. Slott: To me, that’s a no-brainer. I did that myself. I put $6,000 in a non-deductible IRA and converted it to a Roth. To me, that’s just moving the money from one pocket to the other, and it’s tax-free in the other pocket. There’s absolutely no cost to doing that.

Mr. Loeper: If you’re going to pay taxes on the additional amount, it’s a no-brainer to stick it in a Roth or use a Roth 401(k). However, if you’re not maximizing what you can deduct, it all depends on your individual situation. In a paper I wrote on this topic, I gave an example of a 30-year-old who will not be in a particularly high or particularly low tax bracket in retirement, but [considering] the lifestyle cost of making a non-deductible contribution when he could avoid taxation and have more money working tax-deferred, it was actually beneficial for him to not make a Roth contribution. So it depends on the client.

In general, things that you can control with certainty, like not paying taxes now, is something that you should not ignore and just not jump on the bandwagon because some tool was designed to generate action.

Mr. Slott: For most clients, David’s argument makes sense if that extra savings is invested, but most clients, you know, while you’re doing their taxes, they’re talking about where they’re going to spend the refund. So most of that money that’s generated by the extra deduction is spent, and if it’s spent, to me, it’s wasted in that analysis.

InvestmentNews: Do you have any other thoughts on anything we’ve said thus far? Is there anything you want to add that we didn’t cover?

Mr. Slott: We talked about a no-brainer for estate planning, but I also think it’s a no-brainer for very young people. They have very small IRAs, very low tax brackets, or they’re just starting out. It’s very good to start out with Roth IRAs [because of] compounding over time. The greatest moneymaking asset anyone can posses is time. I did it for my own daughters as teenagers, opened Roth IRAs. It’s a great thing to mention to clients for their kids and grandkids if they have a little side income on a job. You know, that really adds up over time.

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The phrase “separately managed account” describes accounts that are handled by a portfolio manager inside the firm or independent investment advisors as well as an administrator. They tend to act a lot like mutual funds. Customers pay a flat rate to a money manager to manage the investment. The difference between a SMA and a mutual fund is that the person who invests in a mutual fund purchases shares in a company that owns the investment. In a SMA arrangement, the investor actually owns the investment. If a comparable account is opened using a money management firm without a brokerage firm acting as an intermediary, it is referred to as a separately managed account.

SMAs emerged in the 1970s in response to clients’ desire to obtain needs that were not meet by the framework of traditional mutual funds. The clients wanted the ability to choose professional managers, customized portfolios, objective investment guidance for a set fee, tax efficiency and flexibility.

While there is not a definitive answer on whether SMAs are more beneficial than other portfolio types, they do have tax advantages. The mutual fund investor is taxed on any net capital gains earned by the portfolio. This tax liability reduces the investor’s return. In this situation, the gains considered to be unearned because the portfolio is owned by a brokerage firm. Because the assets in an SMA are owned by the investor, the gains are earned. The investor can ask the investment manager to sell securities to manipulate capital gains or losses for tax planning reasons.

Separately managed accounts are popular with affluent investors. Their popularity increased after the 2008 market decline. The increase has in demand has triggered the evolution of the SMA. One change is the creation of the unified management account. This connects several managers and tactics to an individual investor‘s account. These accounts let investors select a group of managers that have the superior capital and operating efficiency than accounts that are a part of a fund structure or SMA.

A semi-annual event, the UVIC brings together professional investors with scholars, students and the investing public for a discussion of the trends and developments that are integral to the field. During the conference, we honor the best investment practitioners, while sharing and analyzing the best investment practices.

At the Investing Conference held on November 10 and 11 of this year, discussion centered on the relationship between political change and the investing climate. The conference featured panels and speakers, as well as interviews with George Tenet, Managing Director at Allen & Company and former Director of the CIA, and Liaquat Ahamed, author of Lords of Finance: The Bankers Who Broke the World. Speakers and panel participants explored a variety of topics, including:

-The instruments and manifestations of government influence on the investment climate, and the behavioral foundations that motivate this influence.

- How political change in major economies affects classic approaches to investing, as well as short, medium and long-term asset returns

- The recommended investment strategies given current and projected trends of political change

Conference highlights included the panels “Macro Economy: Fiscal and Monetary Environment” and Investing in this Environment,” both moderated by Tom Keene, as well as lectures delivered by Vince Reinhart, Paul Singer, Steve Galbraith, Peter Fisher and Kyle Bass.

The University of Virginia Conference is hosted by the Darden School of Business in the fall and held at the Abbott Center Auditorium, while the McIntire School of Commerce hosts the UVIC in the spring. The University of Virginia Investment Management Company (UVIMCO), in conjunction with the CFA Institute and several other organizations, plans and organizes the conference.

By Lisa Shidler
March 7, 2010 6:01 am ET
Twenty years ago, investment adviser Greg Merlino woudn’t take on clients unless they had at least $250,000 of investible assets. For one young man, however, he made an exception, and it turned out to be one of the best decisions he ever made.

“If I told him he didn’t meet my ideal situation, he never would have grown into this great client,” Mr. Merlino said. “I thought this guy would be successful, but I didn’t think he’d turn into the type of client he is now.”

Many advisers don’t market their services to younger people, because working with them is not as profitable as handling money for middle-age and older individuals. Those advisers who do relax guidelines on minimum assets often put young clients through a rigorous screening process and establish different fee structures and protocols to make sure they can still make money while satisfying their clients’ expectations. The hope is that these customers will thrive financially and eventually can be treated like other clients.

To determine whether a young client has the potential to increase his or her net worth substantially, pre-screening is a must, said Brian Peardon, a wealth adviser at Harrison Financial Group, which manages $200 million in assets. His firm turns away younger clients who don’t want to be coached and who don’t meet savings requirements.

SUPER SAVERS

Evan Shear, a certified financial planner and branch manager for The CrossleyShear Group, which manages $300 million, sets aside his firm’s $200,000 minimum requirement for younger clients if they are willing to save about 20% of their earnings a year.

“My view is [that] someone who is 30 and has the ability to put that money away will be one of my best clients by the time they’re 50,” he said.

Advisers who do take a chance say their young clients are open to being coached.

“Ultimately, they follow our advice to the T more so than clients of other age groups,” said David Hefty, chief executive of Cornerstone Wealth Management, which manages $125 million in assets. “They’re more engaged in terms of wanting to build the financial plan and follow the plan.”

Still, Mr. Hefty concedes that taking on these younger clients often means spending extra time with them, dealing with such matters as student loans, tax-planning, mortgage-financing and estate-planning issues.

Accepting the fact that these clients may take more of an adviser’s time also means accepting the fact that advisers may not earn much profit from these clients in the near term, said Chris Michalak, a principal at Moneta Group, which manages $7.2 billion in assets.

‘ONE RELATIONSHIP’

Mr. Michalak said his firm takes on young clients, regardless of the size of their investible assets, if they are the children of older clients. “If they’re the children of current clients, there’s not a lot we can do,” he said. “We tend to look at the family as one relationship.”

“Some years, it’ll be extremely profitable, and some years, you’ll lose money with these relationships,” he said.

Mr. Peardon said the only way his firm can devote attention to these younger clients is to develop a less costly way to serve them. While his firm offers its younger clients the same services it does the older ones, it has discovered that most of the former prefer e-mail and demand fewer office visits, which reduces the firm’s costs.

“We’ve been able to reduce the time and money so that everything is operating more efficiently and we can get a profit from this age range,” he said.

Mr. Merlino offers clients who don’t meet the firm’s minimum-assets guideline a pared-down version of a financial plan, which ordinarily costs up to $8,000, and charges commissions rather than asset management fees.

Having a cost-effective system of working with younger clients is essential, agrees Don DeWaay, founder and chief executive of DeWaay Capital Management, a registered investment advisory firm, and DeWaay Financial Network, a broker-dealer. The two firms manage $900 million in assets.

His firm’s younger advisers build their practices by working with younger clients.

“The problem with younger clients is [that] seasoned advisers don’t have the time or interest to work with these people,” he said. “These young investors aren’t getting compromised by working with younger advisers, because they have backup from more seasoned advisers.”

NOT THEIR DAD

Younger advisers also often have more in common with younger clients, said Justin Smith, 29, an adviser with Jonathan Smith & Co., which manages $23 million in assets. The firm belongs to his father, but he oversees the younger clients.

“I can sit down and have this conversation with them, and they don’t feel like it’s their dad telling them what to do,” he said. “I tend to enjoy it. I know if we can get these clients thinking like they should about markets and investments, they’re going to be our easiest clients in 10 to 15 years.”

One adviser who targets younger customers said he has reaped unexpected dividends from his relationship with them.

“When I decided to go into this market segment, I was reading in books that it’s hard to make a living in this segment,” said Lyman Jackson, president of Jackson Financial Management, which oversees $12 million. “And certainly there’s a lot of truth to that.”

“But many of these young families have referred us to their parents,” he said. “Just in the first two months of the year, we got two sets of parents referred by younger clients. You start serving other family members if you’re doing a good job for people.”

E-mail Lisa Shidler at lshidler@investmentnews.com.

Hilary Johnson contributed to this story.

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By Jeff Benjamin
March 7, 2010 6:01 am
Advisers who work with clients in their 30s are witnessing something they’ve never seen before from younger investors: high levels of risk aversion.

“I’m talking with a lot more younger clients today who are worried about avoiding losses, and wanting to take the kinds of conservative approaches that have historically been appealing to older folks,” said Clinton Struthers, who advises on $110 million as the owner of Struthers Financial Services.

“It used to be all about “the sky’s the limit’ when it came to advising younger people,” he added. “But now, I see their whole outlook is more conservative as a result of so much uncertainty about the future.”

That caution, as the financial planning community is realizing, is grounded in the general economic turmoil and investing experiences of the past few years.

Any multiple-decade snapshot of the stock market can usually be made to look optimistic, but for most people in their 30s, a personal investing history doesn’t go back much farther than 10 years.

In that time, the financial markets have experienced two very harsh cycles — leaving most investors about where they were a decade ago.

With that in mind, it’s understandable that today’s thirty-somethings might be among the most gun-shy of generations.

Understandable, but not acceptable — at least not if there’s any hope of staying ahead of taxes and inflation.

“The biggest hurdle right now is to get those people in their 30s to step off the sideline and embrace some risk,” said Tim Knepp, chief investment officer at Genworth Financial Asset Management, a firm with $7 billion under management.

Mr. Knepp underscored the recurring theme that is being presented to risk-averse young people across the land: Time is on your side.

“The market pays you to take risks, and 30-year-olds should keep that in mind,” he said. “When you’ve got to make up losses, your greatest risk is not portfolio volatility, it is loss of purchasing power.”

Encouraging younger investors to save as much as they can — and then invest as aggressively as they can stomach — seems to be a standard message throughout much of the financial planning industry these days.

But there are still a variety of ways to execute a plan once the investor is on board.

“For younger people, their biggest asset is their potential income stream, and their capacity to bear risk is very high,” said Neal Ringquist, president of Advisor Software Inc.

“If you’re in your 30s, you could easily be 100% in stocks and afford to lose 40%, and still make it up over your lifetime,” he added.

Advisor Software is a financial technology firm and a registered investment adviser that manages more than $200 million for other financial advisory firms.

Because people in their 30s, in general, are wealthier in income than assets, Mr. Ringquist views salaries as an asset under the resource category of a household balance sheet.

Other examples of resources are real estate and investments.

The other side of the household balance sheet is claims, which are all legal financial liabilities, such as debt.

“We’re looking at the household through a balance sheet to determine a capacity to bear risk, not just risk tolerance,” Mr. Ringquist said.

With that in mind, he is a strong proponent of life insurance and disability insurance, which are rarely considered high priorities among younger investors, especially if they’re single or childless.

“Looking at the household balance sheet leads to certain implications that people might not always realize,” he said. “Because the income stream is the biggest asset, you need to protect anything that might cut into it.”

Not all financial advisers factor in the personal residence as part of an overall financial plan, but managing the cost of a home should be a priority for younger clients, according to Bert Whitehead, president of Cambridge Connection Inc.

“There were a lot of young people who made mistakes in real estate during the run-up,” said Mr. Whitehead, who charges clients he advises a flat or retainer fee.

“People paid too much for the houses they were buying, and then put the rest of their money in stocks or whatever,” he said.

While Mr. Whitehead believes in appropriate use of aggressive, long-term investing strategies for younger investors, he also favors maintaining cash reserves that could be tapped to cover mortgage payments in the event of a job loss or illness.

Taxes are another issue that should be considered early, according to Laurence Greenberg, president of Jefferson National Life Insurance Co.

He recommends low-cost variable annuities once the allocations to traditional qualified retirement plans such as 401(k)s and IRAs have been maxed out.

“The recent dislocation in the markets has made everyone question whether they’ll have enough money when they’re ready to retire,” Mr. Greenberg said. “The best way to make sure you have enough money is to save it, and when saving, there’s nothing more valuable than tax deferral.”

As with any strategy, the key is finding one that works and sticking with it.

That’s something a lot of investors — as well as a lot of financial advisers — have struggled with in the wake of the market’s upheaval.

“One of the benefits of being in your 30s is, virtually any investment strategy can work pretty well because you have so much time,” said Michael Ball, president of Weatherstone Capital Management, which manages $425 million.

“The problem is, people in their 30s are impatient,” he added. “They’ll try something once and if it doesn’t work right away, they just write it off.”

Long-term outlooks and historical performance charts notwithstanding, it ultimately boils down to suitability, and that might be where advisers face their greatest challenge.

“All you can do, as financial advisers, is encourage your clients to be aggressive enough,” said John Diehl, senior vice president of business development at the Hartford Financial Services Group Inc.

“The investment time frame will help determine the asset allocation mix,” he added. “I’d say for people in their 30s, a minimum 80% in equities makes sense, but not if somebody is going to lose sleep.”

E-mail Jeff Benjamin at jbenjamin@investmentnews.com

The Jones family: John, 35, and Jenny, 34, have two children — Jenna, 9, and James, 6.

Income: John, assistant director of human resources at a computer software company, earns $135,000.

Jenny, an accountant at a midsize regional firm, earns $70,000.

Major assets: Residence: single-family house purchased in 2005 for $425,000; now worth $375,000

Retirement funds: John’s 401(k) account, $40,000

Jenny’s 401(k) account, $3,000

College savings: $25,000

Emergency savings: $10,000

Major liabilities: Mortgage balance:

$380,000 (30-year fixed), at 6.5%; monthly payment (plus taxes and insurance), $2,951

Credit cards: Payments of $300 a month on total debt of $15,000

Insurance: John has a term life policy through work with a death benefit of $675,000, for which he contributes $1,200 a year; Jenny has a term life policy (also through work) with a death benefit of $350,000, for which she pays $600 a year.

Concerns:

College and retirement saving. Now that Jenny has returned to work after a five-year hiatus, the Joneses would like to ramp up saving for college and retirement. But the couple is not sure where to invest after the 2008 market crash erased $20,000 from John’s 401(k) account. The market rebound last year has restored about $10,000 of that.

Credit card debt. To landscape and furnish their new home, the Joneses ran up $15,000 in credit card debt. They don’t know whether they are making a sufficient monthly payment on the balance.

Inheritance. Jenny expects to receive a $50,000 inheritance following the death of her grandmother. They don’t know what to do with that money.

Mortgage debt. The couple is also concerned about owing more on their mortgage than their home is worth. They don’t want to move, but have heard about people walking away from “underwater” mortgages.

Ms. Stanzak’s solutions

COLLEGE SAVING

Using a college savings calculator, I ran one scenario for James, assuming that half, or $12,500, of the current college funding dollars are designated for him. To fund 100% of a four-year college — $220,065 — would require monthly contributions of $653 (assuming college costs rising at 6% per year and a 7% return on investment). That’s just for James, and does not include the calculation for Jenna. Funding 100% may not be realistic. As for specific investments, consider Section 529 plans. After-tax contributions to a 529 plan grow tax-deferred, and distributions to pay for the beneficiary’s college costs come out federal-tax- free. Some states offer tax incentives to investors as well.

RETIREMENT SAVING

A good goal would be to maximize their 401(k) contributions — the maximum deferral is $16,500 in 2010 — or to make annual contributions of 10% to 15% of income. The Joneses should consider completing a retirement analysis to determine the appropriate amount to save and invest each year. Also, a complete risk tolerance assessment is needed to determine an asset allocation with which they can be comfortable and which also helps them meet their goals. Their current portfolio provides no diversification. Typically, a diversified portfolio includes cash, fixed income (bonds, CDs), large-cap stocks, small- and mid-cap stocks, international stocks, and often real estate and commodities as a hedge. The couple’s uncertainty after the losses in John’s 401(k) plan suggests that more than 25% should be allocated to cash and fixed income to give the portfolio a more conservative allocation, thus potentially reducing volatility.

CREDIT CARD DEBT

It appears that the $300 a month is the minimum payment. At 12% interest, it would take 368 months — over 30 years — to pay off the cards, and it would cost $14,545 in interest. If they double the payment to $600 a month, it would take 29 months — about 2 years — to pay off the debt, and it would cost $2,347 in interest. But a better option is to use part of Jenny’s $50,000 inheritance to wipe out all credit card debt. In the future, they should use credit cards only for purchases they know they can pay off each month.

INSURANCE

The Joneses should complete a capital-needs analysis to see exactly how the premature death of either spouse would affect the family’s ability to meet expenses. In addition, the analysis would take into account paying off debts such as their mortgage, credit cards and auto loans, as well as college and retirement funding. This needs analysis would determine how much insurance they actually require. At their age, lower-cost term insurance makes sense, but in addition to the group coverage provided to John, he should consider a policy of his own. The group coverage will end if he changes jobs and a personally owned policy can be maintained, regardless of insurability in the future.

EMERGENCY FUND

They Joneses should build up their cash reserves to equal six to 12 months of income. This can be saved in a money market or in short-term CDs.

MORTGAGE DEBT

They would have trouble refinancing, because they owe more than the home’s value. They could pay down some of the loan balance with the inheritance and try refinancing at that time. They’d have to pay $42,500, plus closing costs, to obtain a $337,500 mortgage with 10% in equity in the house. This would use most of the inheritance and is unrealistic in their current situation.

Mr. Henske’s solutions

COLLEGE SAVING

They are behind in their college savings. To be on track, Jenna’s account should have at least $90,000, and James should have $60,000. They’ve got some work to do in adding regularly to these accounts. From an asset allocation perspective, I always like the age-based models, as they take the guesswork out of this important part of the planning process and help prevent taking an emotional approach to the investing process.

RETIREMENT SAVING

Both John and Jenny should max out their 401(k) contributions. If either of their employers has a Roth 401(k) option, they should take advantage of it. Wherever possible, they should convert any traditional IRAs or former employer 401(k) balances to Roth IRAs. Because the couple sustained losses in the ’08 crash and seem to be uncertain about equities, I would recommend a less aggressive portfolio to ease them back; they can always readjust the portfolio as their risk tolerance matures. Here’s my recommendation: 55% equities (half in emerging markets and half in developed markets), consisting of large-cap core (5%), large-cap growth (11%), large-cap value (11%), mid-cap (8%), small-cap (3%) and international (17%); 27% taxable fixed income, divided among Treasury inflation-protected securities (5%), high yield (4%), investment-grade corporate (14%) and international/ foreign fixed income (4%); and 18% alternatives, consisting of global real estate (2%), private equity (2%), commodities (4%) and absolute return (10%).

CREDIT CARD DEBT

It would seem logical for them to use their inheritance to pay off the debt. Clearly, from a rate-of-return standpoint, it makes sense. Another option would be to pay off a portion of the debt from the inheritance and then pay down the balance down at the rate of $500 a month. This would get them in the habit of putting money aside. When the debt is eventually paid off, they can switch these payments into a long-term dollar-cost-averaging investment strategy and make those payments into a balanced mutual fund portfolio.

INSURANCE

John is significantly underinsured. The rule of thumb is to protect 10 to 20 times your income. Based on an annual income of $135,000, there should be a minimum of $1.35 million of life insurance on John. The good news is that assuming he’s healthy, he could probably get a policy for the same cost — with double the amount of coverage — by going outside of his employer’s plan. This would also protect him, should he leave his current employer or if his company were to eliminate its life insurance benefits. Jenny’s coverage should also be doubled, at least. The same strategy of looking outside her company for a policy would let her do so for about the amount she’s paying for her present policy.

EMERGENCY FUND

They need to build adequate reserves of at least 12 months’ living expenses — about $72,000. They can use the $50,000 inheritance and existing $10,000 in emergency savings to get started.

MORTGAGE DEBT

The Jones’ current mortgage rate, 6.5%, is significantly higher than what’s available in the marketplace today. Unfortunately, the home value is currently less than the mortgage outstanding, which will make it highly unlikely that the lender will allow this borrower to refinance. They cannot just walk away from the house without significant consequences, such as having to declare personal bankruptcy, which would affect their ability to get any type of credit for years to come.