In the News

June Grasso and Charlie Pellett interviewing Marc Lane.

Thursday, December 27, 2001

Bloomberg Radio

June: He's the nationally recognized expert on entrepreneurship and a counsel and a financial planner for some of the country's most successful entrepreneurs. He has written several books and he is also a person who has made many speeches and was twice recipient of the Illinois State Bar Association's prestigious Lincoln award. Thanks so much for being here, Marc.

: My pleasure, June. Nice being with you.

June: Well, where are the rich putting their money? Can you tell us in a few sentences or is it going to take longer?

: Well, I can give you the short version or the long version. I suppose the rich are putting their money where they've always put their money. They don't get scared away like the rest of us.

June: So that would be in what?

: Well, they are making money as entrepreneurs. They are making money in the stock market. Believe it or not, they are making money in special situation equity deals that many of the rest of us can't get into. But they're making money because they have the right attitude. They have a long-term view, they don't get scared easily, and they have the strength to wait it out.

June: But don't they also have the money to wait it out, whereas the average person may not have?

: The strength is both financial and psychological.

Charlie Pellett: I'm very curious about how your business is doing in all of this. There are many high-net worth individuals who have seen dramatic declines in their portfolios, and presumably it's not affecting their lifestyle - or is it? And are you seeing any significant decline in either inquiries or new business?

: We're actually seeing an increase in new business and inquiries. Our clients are sticking with the program. They have diversified, counterbalanced portfolios. They understand that historically, when there have been recessions, you wait it out, and a year down the S&P tends to be 19 to 20 % higher than it was when the recession began. They have the confidence and comfort that by getting involved in quality situations and waiting it out, that they'll be in good shape and there are deep pockets of value.

June: Tell us in these times of adversity, what is the best place for the rich to put their money and for the average investor to put their money?

: Okay, well I think the philosophy probably should be about the same because you only make money if you have a long-term view. If you're expecting to get in and out, you know, it's the luck of the draw, it's a crap shoot. We're not in that business, and we discourage people from taking those kinds of risks. So what you're really doing on the stock side is getting involved in conservative, dividends - paying growth stocks and you are diversifying among industries and sectors and you are placing your bets not on stocks, but on companies. That's what we tell clients: you're not buying a stock, you're buying a company. But at the same time you have to have a significant fixed-income component within your portfolio to serve as a buffer against stock market volatility and to insure that there's a 'A gimme'. Historically dividends have represented perhaps a third or more of total returns within most stock portfolios - dividends and interest on bonds that go a long way toward evening out the rough spots.

Charlie: Marc, a question specifically about dividends: we have seen a number of big well-known companies, - one immediate example is Ford that just slashed its dividend in half from 30 cents a share down to 15 cents a share. Conversely though, this week we had a couple of companies raising their dividends. One of the ones that also comes to mind is General Electric, raising its dividends by 13 percent. Any thoughts about the merits of buying a stock specifically for the dividend?

: I think it's one factor. We look at consistency of dividends over the long term as an important predictor of what stock price is likely to do. Prospectively, even if dividends go up a little bit every quarter and a company is able to maintain the dividend, you know it can't play with smoke and mirrors very long. This is really then out of earnings, and if we can see that happening quarter after quarter, a funny thing happens. If we assume the stock market is efficient, eventually price will reflect that dividend yield. And over time you will see price appreciation. But in the meantime, strategically, if you manage a portfolio for total return, the dividend becomes an important component of what you're after.

June: Do you have an easier time because your dealing with wealthy clients who don't have to worry as much as the average Joe, or Jane, about income and mortgages, and car payments and all the things that make life interesting?

: I suppose it's a function of how recent their wealth is. If they've been at this long enough, then they understand that the business cycle was not repealed after all. This will come around, it will go around. If, on the other hand, their money is relatively recent, they need to be educated, they understand that we are doing the right things for the right reasons. Over time that will be vindicated.

Charlie: Marc, a question which I suppose may involve a diplomatic answer. Have you ever had any clients that have come to you, very rich people who perhaps maybe have such an attitude, that you wouldn't like to have as a client or doesn't that happen at all with your type of clients?

: Oh, sure it does. And I think it's important in any financial advisory relationship that the chemistry be there. And you know, we fit our clients, just as our clients fit us. We want to make sure that not only can we substantively add value. We want to make sure that the relationship is going to be a healthy and constructive one.

June: We hope our relationship with you is going to be a healthy and constructive one over the next 45 minutes and to do that we need our listeners to call in. The number is 1-800-971-1130. If you'd like to ask any question of Marc, who has quite a lot of experience in the area, 1-800-971-1130. All your questions will be answered and we will be here to do that as time goes on and we are going to do that right after we listen to what is happening on the roadways. It is coming upon 8:15, and that means it is time to check traffic and weather.

<Commercial Break>

Charlie: Welcome back to the Bloomberg Money Show. Glad you are with us. Friday night. New York, New York. 800-971-1130. We welcome your calls tonight as we talk about the rich. Where are they putting their money? And our guest for the hour, Marc Lane, an attorney, financial planner, and chairman of Marc J. Lane & Company. And we welcome your calls on the Bloomberg Money Show at 800-971-1130. Charlie Pellett and June Grasso. Marc Lane are you all set to take some calls from our listeners?

: Yes, sir.

Charlie: All right, let us go to the phones. Andy from Manhattan. Andy, Good Evening and welcome. You are on the Bloomberg Money Show.

Caller/Question: How are you doing tonight?

Charlie: Okay, how are you?

Caller/Question: I was just wondering what you consider the definition of rich to be?

Charlie: Rich in spirit, or rich in a million dollars in the bank, what's the answer?

: I guess the answer depends upon the purpose for which the question is being asked. Within our firm, for example, - and this is not necessarily an indicator of much else, - we suggest that clients have a million dollars in investable assets before they can really take full advantage of our comprehensive legal and financial planning services. Not that we turn away people with lesser dollars, but at some point there are threshholds below which you're not really fully equipped to take advantage of the most sophisticated planning strategies. For our limited purpose, that's our test.

June: Andy, what do you consider rich?

Caller/Question: I don't know, that's why I'm asking. You say a million dollars in investable assets. Is that liquid, or would that have to be liquidated to be put into your firm?

: It need not be liquidated. The approach should not be to liquidate. There are a lot of firms that would, for the ease of their administrative efficiency, encourage liquidation. At that point, of course, you're going to have taxes, transaction costs, and all the rest. You have to be very cautious about jumping to a firm that encourages liquidation for the sake of its own operational approach.

Charlie: So I bring my assets to Marc Lane and then what approximately would be the annual fee, if there is one, either on a percentage basis or a transaction basis? What sorts of fees am I looking at for you to manage my money?

: Well, you're kind to ask and I appreciate the plug. Our firm is a law firm, and so far as I know, we are the only law firm in the country that has a comprehensive financial services capability, including an NASD broker-dealer. So our approach tends to be a holistic one where we assist clients with their tax planning, their estate planning, tuition planning for their kids and grandchildren, retirement planning, compensation planning. As well as investment and insurance planning. Each of those services has a different compensation approach, so it's really a mix and match. It depends on what the clients needs are.

June: Thanks so much for your call, Andy. Let's go to Lisa from Jersey City. You're on the Bloomberg Money Show Lisa. Good evening.

Caller/Question: Hi, Marc. How are you?

: I'm good, Lisa. How are you?

Caller/Question: Oh, I'm fine, thank you. I'll ask just a quick one. I wanted to check with you on investing in Asia Pacific. I generally hear that this is an emerging market. It also has got some strong economies. Now I'm pretty young and resilient, so I got some time on my side. So I thought I'd be a little more aggressive, and with my company's 401K program, I asked to put the bulk of my savings into an Asia Pacific index fund. But this thing over the past three years has consistently lost money, and it doesn't really make much sense to me. I was wondering if you could comment about it.

: I'll try. When I hear you putting the bulk of your money in any one thing, I get a little squeamish. Foreign markets will not necessarily outperform the US market. However, there's likely to be a rotation where different markets will have their day in the sun at different times. So there is an advantage in having some exposure to foreign markets. However, as for the bulk of it, no, I wouldn't. I don't know if I would necessarily recommend to anybody that they have an undue concentration in a specific geographic locale. I would also be sensitive as to what kind of companies you're looking at within that market. Are these developed countries, are these seasoned companies, are they developing countries, third world countries? So there is a whole mix of company sizes and maturities, as well as economies, you need to be concerned about. Just making a kind of an assumption as to a geographic range doesn't tell us nearly enough. What you want to have is a diversified portfolio that takes advantage of all different kinds of opportunities and has the effect of counterbalancing risks. That's what this is about.

Caller/Question: Then can I ask what companies it does hold, the companies and the countries they are investing in?

: Yes, I think when you talk about a 401K plan, what you're really talking about is selecting some accounts which are quasi-mutual funds, essentially. And even for people who are looking to invest outside the U.S., not within qualified plans, generally individual investors are wise to look at mutual funds or the equivalent, because they will have the intelligence on the ground within those locales. The accounting methods are going to be different. The regulations are going to be different. The tax laws are going to be different. So having somebody locally that really has the ability to look at a company, and understand the context in which it's making money, is going to serve you well. Therefore, I would look at a very high-quality mutual fund as to, however, a very small percentage of your portfolio.

Caller/Question: Ok, I really appreciate that.

Charlie: We appreciate the call. Thank you very much. 800-971-1130. Tonight we welcome your calls on the Bloomberg Money Show. How are we defining rich these days? It's a question Andy was raising. Has the definition changed? How do you think the rich differ in their investing strategies? Let me ask you, if you were to have lunch with a superrich person, I'm talking investors, corporate types, money managers and not a celebrity, is there a single question you might ask about how they accumulated their wealth? The Bloomberg Money Show. It's 8:25. Traffic and weather on the fives. Let's get the very latest now from Kelly Garrett.

<Commercial Break>

June: Welcome back to the Bloomberg Money Show. I'm June Grasso. We're here with Charlie Pellett. Thanks for being here with us on a Friday night. Marc Lane is our guest. He's a financial planner and an attorney. The number to call is 800-971-1130 with any of your questions for him. The question that we have is, how the wealthy invest and whether those not quite so wealthy can do the same. Marc, what do you say to mutual funds? Do you think they are a good idea or do you prefer that your client invest in individual stock?

: I think that mutual funds have their place. I think they do best for niche types of investments. We talked, for example, about foreign investing. I think they are a very attractive vehicle for foreign investing. They are also a very logical way to diversify a portfolio, where the dollars are fairly modest. For larger accounts, however, I'm not a fan. I'm not a fan because the tax inefficiency associated with the mutual fund has investors pick up tax liabilities when they did not necessarily enjoy the economic run-up of the fund. And when mutual funds go through their quarterly window-dressing, they need to buy and sell securities, which may have tax consequences to the investors. And, of course, funds report their performance on a pretax basis. The tax attributes and tax costs flow through to the investor. Further, the operating expense ratio and costs associated with mutual funds, even no-load funds, are largely avoidable through individually managed securities. And accounts that are fairly decently sized have the ability to do that. And, really, to target specific asset classes and sectors and industries, whereas mutual funds may have gaps and overlaps within industries, leaving you either underexposed to a given opportunity or overexposed to a given risk.

June: All right, so that is the answer for the rich. But the not-so-rich who don't have the time?

: Yes, the not-so-rich, and I'm not so sure exactly where not-so-rich comes in. But I would say that, for example, if somebody had under $100,000 to invest, mutual funds. I would select probably a high-quality mutual fund family. That would be a decent way to involve themselves in the market.

June: We are going to involve ourselves in more of your calls at 1-800-971-1130, 1-800-971-1130. Any questions you have through 9:00 o'clock for Marc J. Lane, who is a financial advisor, as well as an attorney, that is going to be coming up, right after we hear about weather and traffic on the fives.

<Commercial Break>

Charlie: Welcome back to the Bloomberg Money Show. I hope you enjoyed a profitable trading week. Yes, we were down on the week. Welcome back. Charlie Pellett and June Grasso. 800-971-1130. I'm giving you the number because I've got questions. Tell us about your investment strategies as we head into the new year. How would you invest like the rich? And how are we defining rich? Our guest for the hour is Marc Lane, an attorney and financial planner. Also the chairman of Marc J. Lane and Company, and he is spending the hour with us. Marc, I'm glad that you are with us, and are you ready to take some more calls from our listeners?

: My pleasure, Charlie.

Charlie: All right, let us continue now, and let us go to Grant. Grant from Newark, New Jersey. Good evening and welcome. You are on the Bloomberg Money Show.

Question: Good evening, gentlemen. Marc, I'm going to put you in the hot seat. I love telecoms and we've had a rough week in the telecoms. What would you tell me to do going forward?

: Well, I'm going to be a one note sounder here. My attitude always is one of diversification. It would not be my favorite category. Although we are very much involved in private equity telecom deals, and I think those can be very attractive, but as far as the market is concerned, I'm afraid it's a little pricey for me still.

Charlie: After all, the way we've seen these telecom stocks get beaten down so far, they are still pricey?

: Afraid so.

Charlie: Grant, what's your opinion?

Caller/Question: Well, I was just curious. One of the most heavily traded was GX over the week. Does he think it's going to make it? Is it something that we look at or we don't look at?

Charlie: All right, GX. Of course, were talking here about Global Crossing Limited.

: I'm not going to give you an opinion on a specific stock. But I will tell you that PE is lofty in too many categories, that being one of them. I will reciprocate in this respect. I will give you a couple of categories, that I think that will be a little more attractive. It seems to me that if you look at oil stocks today, I think that this price war between OPEC and the Russians is overstated. And I think that current fear that oil is going to drop to ten bucks a barrel appears farfetched, and I think your going to see a fairly decent recovery there. If you can tolerate the politics of it, and you don't have an ethical problem, it's hard to argue with the economics of tobacco. That is certainly a defensive issue. And drugs, notwithstanding this week's volatility, because some of the most prominent drug companies are seeing products coming off patents, and the theory that generics are going to take their place. I think one should have a long- term outlook. And I think that long-term outlook is bright. Again my attitude, is always one of diversification. So it doesn't matter if I'm right or wrong. What matters is that I have a decent asset allocation.

June: All right, Grant, thanks so much for that call. Now, let's go to Steve from Upper Saddle River. Hi, Steve, you're on the Bloomberg Money Show. What's your question?

Caller/Question: I'm asking a question regarding back-load mutual funds. Assuming you are a high net-worth individual in a high-tax state such as New Jersey, my question is this. I would still maintain that if an investor is long-term, which you say you encourage your clients to be long-term - long-term can be 5 to 10 years - I would maintain it that wouldn't someone be better off being involved in an index fund, as an example, a total stock market index fund and perhaps a portion of their portfolio in a total bond index fund? Assuming that high net-worth individuals are there for 5 to 10 years, after you subtract the cost of your advisor fees, as well as taxes, as well as the transaction costs, wouldn't you in the long term almost be better off, if not be better off, in an index fund, both a stock market and bond index as opposed to actively managed?

: Yes, your argument is one that is often made and I don't have any problems with it philosophically, and I think for many people that might be the right answer. However, to the extent you can outperform the indices, to the extent you have special needs in terms of tax efficiency, or where you want to be able to gain a competitive tax advantage vis-a-vis, other investors have the same security, we want to take advantage of certain kind of opportunities that may not necessarily be generally well known, where your advisor has expertise in specific fields that may permit reasonably an outperformance. For many, I think that there are variations on the theme that can counter the generalized approach. But I would say, for many investors, I think an index approach makes a lot of sense.

June: Steve, have you invested in both forms?

Caller/Question: Yes, I have. I've invested both in a bond index fund as well as total stock market. And I will say I have also done my own type act, acting naturally, with respect to stock, and of course, the last year and half or two years, the volatility has been such that I have seen, that between tactical gains and tactical losses, it's kind of hard to actually, I feel like I'm spinning my wheels and treading water, this year, you know?

June: And your children are even crying about it.

Charlie: All right, Steve, thank you very much for the call. Let us continue now. The guest, by the way, is Marc Lane, an attorney and financial planner. Let's continue with your calls now Matt, from Manhattan. Matt, good evening. Welcome, Matt. You are on the Bloomberg Money Show.

Caller/Question: Hi, Marc. I was wondering if you think that family limited partnerships are still in favor as an estate planning tool for a wealthy individual?

: Yes, they continue to be very popular. The IRS continues to attack them with generally unsuccessful results, so long as they're properly structured. For listeners who may not necessarily be familiar with the strategy, what we're talking about here is taking a business and/or a portfolio and dumping it into a partnership, where interests in that partnership can then be transferred or sold to children or grandchildren. And for gift tax purposes those gifts are valued at a discount because the children or grandchildren don't have liquidity and they don't have governance rights. So it's a device for shifting wealth and appreciation to the next generation. It's also a device for saving estate tax. And done well, and in proper circumstances, I think it continues to be a viable strategy among many within the estate planning area.

Charlie: Matt, thank you very much for the call. Coming up more of your calls on the Bloomberg Money Show 800-971-1130. Would love to hear tonight about your definition of rich, some of the strategies you would like to employ. Questions about how the rich invest. We've got some of the answers from Marc Lane, an attorney and financial planner. Also, too, what about my question? If you could have lunch with a superrich person, an investor, a corporate type, a money manager and I specify, not a celebrity, is there a single question you might ask about how they accumulated their wealth?


<Commercial Break>

June: You're listening to the Bloomberg Money Show on this Friday evening. Glad you could join us. I'm June Grasso along with Charlie Pellett and our guest, Marc J. Lane. We're going to go right back to the telephones. Albert from New Haven, you're on the Bloomberg Money Show. Albert, good evening. Hi, Albert. Do you have a question? I know you're there, Albert. I can see the light, but we can't hear the question. Albert, are you there? Ok, we found you. Thank goodness. I thought you were lost in New Haven. Ok, what's your question, Albert?

Caller/Question: How much importance would Marc put on long-term health care insurance to protect your assets?

: Well, that's a question that does depend on one's wealth. I think long-term care insurance is critically important for people who cannot otherwise sustain the statistically increasing likelihood that one may need assisted care either at home or within a facility. I'm the founding president of the Illinois Chapter of the National Academy of Elder Law Attorneys. This is something that is near and dear to my heart. So, unless you are in the multi-million dollar category, I would say it's a very wise investment once you get above age, let's say, 55.

Caller/Question: All right. Thank you.

Charlie: Thank you for the call, sir. Let us move along now, and let us continue to see the light. Sandra from Burlington. Sandra, good evening and welcome. You're on the Bloomberg Money Show.

Caller/Question: Good evening, and by the way it's snowing up here in the valley.

Charlie: You know it's funny, cause June and I were talking about that, and I said I promised I would ask you about the snow conditions up there in Vermont. Good skiing?

Caller/Question: I would assume so, cause they said this morning they were using the snow guns up on the mountains. They're about 1200 feet above us. They would certainly be getting some snow, if were getting snow here and it's freezing.

June: You're our link to Vermont, Sandra. You're the caller who doesn't use credit cards, if I recall.

Caller/Question: That's right.

Charlie: Let's get to your question now, please, Sandra.

Caller/ Question: I kind of have two questions. He hit a little bit on it on the trust, earlier. How much legal planning do rich people have, and number 2, how do they live? Do they live below their means a lot? Cause it looks like from my experience preparing taxes, there are a lot of people that are very rich and they don't act it at all.

: Well, maybe that's how they got rich, Sandra.

Caller/Question: I think so.

: There is a school of thought among the very wealthy that you never touch principal, and you live off the income.

Caller/Question: Like the 'Millionaire Next Door.'

: I think there are a lot of secret millionaires. And you know, by the way, 'millionaire' isn't what it use to mean. A very high percentage of folks are, in fact, millionaires. And if you consider the value locked in your home, you may be one out there listening.

Caller/ Question: What do you consider really rich people? How many millions do they have to have to be rich to be in your clientele?

: Sandra, you qualify.

Caller/ Question: What do you mean? I'm not a millionaire.

: You have to have the will to improve your financial situation and then you qualify. It's not a mathematical test.

Caller/ Question: Well, if I multiplied it by ten in less than eight years, I guess I qualify, huh?

: No, you qualify anyway. I'm very entrepreneurial by nature. Our firm imposes no minimums whatsoever.

Caller/ Question: Really! Cause I had one broker who moved to a different firm and he said I'm sorry I can't handle your account if its less than half a million dollars.

: Well, that's a business decision for that broker.

Caller/ Question: So I wondered how often that happens. What do they consider rich enough to bother with?

June: Well, I think it depends on whom you are approaching with that question. Marc, am I right? There are some people who do have rock bottom lines. That they won't go any lower and other people are more open.

: Oh, sure. Typically, you'll find that trust companies, for example, of necessity have to establish certain dollar minimums, because their investment approach involves essentially quasi-mutual funds where, based upon your demographics, they're going to comingle your assets with those of other people similarly situated, and until you have that critical mass, they are unable to do that effectively for you. Our approach, however, is individual portfolio management so we don't have such requirements.

Caller/ Question: So, with your people, do some of your clients, just say come in, and just dump it in your lap and put it into mutual funds.

: Well, we may use mutual funds or we may use individual securities. I have a visceral disinclination to use mutual funds except in the smallest of cases for the reasons that I've articulated. But many times that is the most practical approach. Our firm works on both a discretionary and nondiscretionary basis. That is, clients can entrust to our judgment how the money is invested, or we can tell them how we would do it and seek their approval - yay or nay - as to each trade.

Caller/Question: Can I ask one question?

June: Very quickly, cause we are running out of time.

Caller/Question: Would you approve of an investment strategy that counts on laziness not to sell?

: No, I think you have to have a buy discipline and a sell discipline to do it right.

June: All right. Thank you, Sandra. And I want to thank Marc J. Lane. Thank you so much for being with us. We appreciate your being here, and we welcome you to come back again.

: My pleasure, June. Thanks for the invite. I appreciate it.

Charlie: Thanks again, Marc. Appreciate it.


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