UHNW Most Loyal Clients, Study Says
Ultra-high-net-worth investors are the most satisfied with their advisors of any group and a full 60% would move with their advisor if he or she left his or her current firm, according to a new study.

While 60% would move with the advisor, 40% would stay with the firm because they value the safety and brand name of the company, according to Spectrem Group's third-quarter report, Relationships with Advisors

Among ultra-high-net-worth investors, those with $5 million to $25 million in investable assets, 80% are satisfied with their advisors, compared to 76% of millionaires (those with $1 million to $5 million) and 66% of the mass affluent (those with less than $1 million).

Among those who have developed a financial plan with their advisor, 95% are satisfied or very satisfied with the plan. An additional 68% say they would recommend their advisor to a family member or friend.

The report said this is understandable since high-net-worth investors receive the highest levels of service from their advisors.
While 68% of the nearly 500 respondents surveyed-76% were either retired or semi-retired-say they feel professional registrations and licenses, such as CFP and CFA, are important, 99% say honesty and trustworthiness are the most important characteristics in an advisor.

At the same time, only half of ultra-high-net-worth investors have considered tax advantaged strategies with their advisors, a situation that may change in the future as tax considerations become increasingly critical, according to Spectrem.

Although they are satisfied with their advisors' work, the ultra wealthy still control 43% of their investments without professional help, the survey shows, and another third of the assets are controlled by the investor with the help of an advisor. The majority, 68%, use only one advisor while 27% use two.

It seems the ultra-wealthy are satisfied with what they pay their advisor, as 67% say they are comfortable with the fees they pay and an almost identical number, 66%, say they prefer fees for advice rather than paying commissions on product sales. For those paying fees, 60% want to pay a fixed fee for services rendered, as opposed to paying a percentage of assets under management.
-Karen DeMasters

Congress Mulls Derivatives Tax Changes
(Bloomberg News) U.S. lawmakers seeking to overhaul the Internal Revenue Code are examining how derivatives and other financial products can be used to exploit the tax system.

Financial instruments, including exchange-traded notes and options, are susceptible to manipulation, according to a report by the nonpartisan Joint Committee on Taxation. Taxpayers can structure transactions to defer income, accelerate deductible losses and take advantage of lower capital gains rates.

"Because our system of taxation has no basis in the reality of economics, sophisticated taxpayers are free to choose a tax treatment that minimizes their taxes, and choose they do," said David Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York, at a joint hearing of the House Ways and Means and Senate Finance committees in Washington in December.

Another witness at the hearing, Alex Raskolnikov, a professor at Columbia Law School, said the tax treatment of financial products must be overhauled and can't be changed piecemeal.

"Derivatives have been used to game every aspect of our tax system," he said.

The session was the second joint hearing of the two tax-writing panels since 1940. The first, on treatment of debt and equity, was held in July. The hearing is part of discussions on a tax-code overhaul. Ways and Means Chairman Dave Camp, a Michigan Republican, wants to restructure the code to reduce the corporate and individual rates to 25% without lowering tax collections.

Achieving that goal will require eliminating tax breaks or changing underlying tax rules, such as the way derivatives are taxed.

Camp said at the hearing that he hoped to resolve some of the murkiness surrounding financial instruments. "Today's marketplace features a wide array of products that can result in different tax or financial accounting treatment of economically similar products, including debt, equity, mixtures of the two and financial derivatives," he said.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said that new financial instruments may lead to "mischief."

"They aren't fair to taxpayers who can't afford those high-priced lawyers and accountants," he said.