Furman Is Expected to Lead Economic Advisers

Filipinos with American fathers should have a path to U.S. citizenship.

Room for Debate asks: Is it healthy to keep our bodies and homes squeaky clean, or should we relax a bit?

Wealth Matters: Advisers Caution Against Hasty Decisions in Advance of Tax Changes

But financial advisers say that in their rush to do something this year, investors may end up with regrets.

“Any time you make a decision purely for tax reasons, it has a way of coming back and biting you,” said Mag Black-Scott, chief executive of Beverly Hills Wealth Management. “Could you be at a 43 percent tax on dividends instead of 15 percent? The straight answer is yes, of course you could. But what if that doesn’t happen? What if they increase just slightly?”

Various proposals are on the table, but the taxes the wealthy say they worry most about are an increase in the capital gains rate to 20 percent from 15 percent, which would affect investments like stocks and second homes; an increase in the 15 percent tax on dividends; and a limitation on deductions, which would effectively increase the tax bill. For the truly wealthy, there is also the question of what will happen to estate and gift taxes.

In addition, the health care law sets a 3.8 percent Medicare tax on investment income for individuals with more than $200,000 in annual income (and couples with more than $250,000). Taking taxes on capital gains as an example, Ms. Black-Scott, who started her career at Morgan Stanley in the late 1970s, said people needed to remember that the rates were 28 percent when Ronald Reagan was president. “If they go from 15 to 20 percent, is it really that bad?” she asked. “You need to say, ‘Do I like the stock?’ If you do, why would you get rid of it?”

Here is a look at some of the top areas where short-term decisions based solely on taxes could end up hindering long-term investment goals.

APPRECIATED STOCK Many people have large holdings in a single stock, often the result of working for a company for many years. And the stock may have appreciated significantly over that time. But if they are selling now solely for tax reasons, advisers say they shouldn’t. The stock may continue to do well and more than compensate for increased capital gains.

But there is an upside to an increase in the capital gains rate: wealthier clients may finally be pushed to diversify their holdings. “If you have 75 percent of your wealth in one stock, then it’s a really appropriate time to think about this,” said Timothy R. Lee, managing director of Monument Wealth Management. If the increased tax rate “is a motivating factor for some people, O.K. Letting go of that control and the pride that goes with it is a really difficult decision.”

Selling stock now may also make sense when it is in the form of stock options set to expire early next year. “Do you want to take the risk the price will drop in January?” asked Melissa Labant, director of the tax team at the American Institute of Certified Public Accountants. “What if we have a fiscal cliff or a change in the markets? If you’re comfortable, do it now.”

Some investors may also fear that higher taxes will drive all stocks down. Patrick S. Boyle, investment strategist at Bessemer Trust, said there was no historical link between tax increases and stock market performance.

In the most recent three tax increases, he says, “the market has actually gone up in the six months before and after.” He added: “It’s not that tax rates aren’t important. They are. It’s just that there are so many other things going on that are more important than tax policy.”

MUNICIPAL BONDS Bonds sold to finance state and local government projects are tax-free now and will be tax-free next year. That is no reason to load up on them.

Tax-free municipal bonds have always been attractive to people in higher-income tax brackets. Now, advisers fear that individuals just above the $200,000 threshold, people who say they do not feel wealthy but will probably be paying higher taxes on their income and investments, will try to offset that increase by moving more of their investments into municipal bonds.

Beth Gamel, a certified public accountant and executive vice president at Pillar Financial Advisers, imagined a case where people in higher tax brackets, thinking they were acting rationally, sold stocks this year to take advantage of the lower capital gains rates and then, to avoid higher taxes next year, put all or some of that money into municipal bonds. Maybe they outsmart the tax man, but they do so at risk to their retirement.

“It will be very difficult for them to reach their long-term goals,” she said, “because the yield on muni bonds is lower than stocks over time.”

Or as Will Braman, chief investment officer of Ballentine Partners, said of this trade-off: “It’s not about minimizing the taxes but maximizing the after-tax returns.”

He suggested that people use their deductions to reduce what is owed from taxable securities.

Wealth Matters: When Advisers Change Jobs, Ask Questions

Whatever the reason, the transition often seems opaque to clients — the people whose money gives these advisers’ businesses value. But most probably don’t care too much as long as they get the same service and their statements arrive on time.

But a transaction this week got me thinking about the obligations advisers have to their clients when they move and how their handling of that process can offer insight into their character.

Seth Glickenhaus, who has worked on Wall Street since 1934 and started his first firm in 1938, has decided to sell his advisory firm, Glickenhaus & Company, to Marvin Schwartz, the team leader of six advisers called the Straus Group at Neuberger Berman.

Mr. Glickenhaus, who got his first job in finance from Herbert Salomon, one of the original Salomon brothers, is 98. With his eyesight failing and his step slowing, he said it was finally time to retire.

“I love being a money manager,” he said. “If I didn’t have certain obvious handicaps, I’d still be working at it. But I don’t think it’s fair to manage other people’s money when you think your handicaps could impair your ability.”

He had been concerned about finding a good home for his clients, who have entrusted him with over $900 million to manage. He has spent this past week contacting clients to tell them about his departure and why he picked Mr. Schwartz.

“I’ve admired him and used many of his ideas,” Mr. Glickenhaus said. “It was very hard to find someone with a similar investment policy. Most people in money management are interested in the fees they get and the commissions and don’t do an outstanding job.”

Mr. Schwartz, 72, whose group manages $11 billion, said he did not take the transition for granted. Mr. Glickenhaus’s clients are free to go elsewhere. But he said he and his team would be working hard over the next 90 days to meet with them and explain why they should move their accounts to Neuberger Berman.

“One of the challenges is to understand the mentality of an investor who entrusts a majority, if not all, of their invested assets with one person to manage over a long period of time,” Mr. Schwartz said. “I think it’s important to recognize that the new manager doesn’t have an attitude of coming in with a strong broom and instituting major change. Change should be instituted slowly, to the extent that there is change.”

That this transition of client accounts between firms is amicable is not the norm. Just ask people whose adviser has left one firm to go another and found themselves on the receiving end of a flurry of sweet-talking calls from the old and new firms.

“It’s a question of growing importance because there is a lot of moving of the deck chairs, partly in the brokerage industry,” said Stephen Horan, head of the private wealth practice at the CFA Institute, an association of investment professionals. “The situation creates a really interesting opportunity to gauge one of the things clients say is most important to them about their adviser, and that’s ‘What is the commitment to ethics?’ ”

Mr. Horan said that the increased movement of advisers over the last several years had been largely driven by the decline in the public’s opinion of many big Wall Street firms. Some advisers have decided they could be more successful at a boutique firm, on their own or, at the very least, at another big firm with a better reputation.

I decided to call three firms whose model is based on inducing advisers to leave established brokerage firms to join them and ask them how they look to smooth out transitions. All three were started, or began to grow, after the financial crash of 2008, and their goals are to become large enough that clients can get the advantages of a big brokerage house but with a wider variety of investment choices.

I wanted to know what clients could glean from how their advisers changed firms.

Moving has become so common that the industry has a set of guidelines called the broker protocol that is meant to govern the process and cut down on the number of lawsuits between firms.