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Don’t Let Clients Fret Over “Anti 1%” Measures

By Miriam Rozen June 9, 2015

Given how frequently the topic surfaces in the media these days, advisors should be ready to discuss inequality, and potential government responses to it, with clients.

Recent polls underscore the growing debate about inequalities in wealth and income. Commenting on UBS and PricewaterhouseCoopers’ 2015 Billionaires report, issued in late May, UBS’ global ultra-high-net-worth chief, Josef Stadler, said, “We currently live in an age of opportunity and accelerated wealth creation, similar to the Gilded Age of the late 19th and early 20th centuries, when entrepreneurship in the U.S. and Europe drove the first wave of innovation in modern history.”

But Stadler noted that wealth generation is cyclical, and the last few decades represent an upswing. A swing in the other direction could follow — even as governments swing into action to redress already-waning disparities. A poll by The New York Times and CBS suggests that more than half of Americans want the government to take action to make the rich less rich and the poor less poor.

Todd Kesterson runs the family-office group at the Miami-based accounting firm Kaufman Rossin. “It’s slowly been creeping up on us,” he says of government measures to narrow the wealth gap.

His clients have noted indications of the likelihood of government action to redistribute the financial pie. Examples include the provision of Dodd-Frank that requires some private family offices to register as RIAs, tax-increase proposals under consideration in many state legislatures and stricter IRS rules for family limited partnerships. “These are definitely having an impact, and we expect more such changes in the future,” says Kesterson, whose group advises on about $7 billion.

Ross Gerber witnesses income disparities on the streets of Los Angeles every day. “There are many more poor people and many more rich people,” says Gerber, whose Santa Monica, California-based firm, Gerber Kawasaki Wealth & Investment Management, manages $361 million. Personally, Gerber wants governments to spend on education as a brake on poverty. But he tells his rich clients to abandon California for income-tax-free states such as Nevada, Florida and Texas.

Pro Patria

But in general, advisors should work to keep clients from panicking about things that may not come to pass, says Dryden Pence, chief investment officer of Pence Wealth Management in Newport Beach, Calif., which manages $1.3 billion. In particular, he recommends that clients thinking of leaving the country take careful stock.

Ross Gerber

“People may not like our taxation system or what happens to it in the future,” he says. “But when you look at the big picture, we have a stability premium with the U.S. dollar because we have rule of law, respect for property rights and a militarily stable government.”

Pence admits “other countries may have more liberal taxation policies,” but they aren’t as stable as many more-expensive places to live, including the U.S. “Venue shopping with your money just to get a good tax deal is not a good deal when a government collapses,” he says.