FA-IQ reached out to advisors to ask: How do municipal bonds factor into the asset allocation suggestions that you give your clients?
Jim Pratt-Heaney, founding partner of Coastal Bridge Advisors. Westport, Connecticut-based Pratt-Heaney has been in the industry for more than 30 years and has $2.85 billion in client assets.
“Since I primarily deal with ultra-high-net-worth and high-net-worth clients, municipal bonds continue to play a key role in my asset allocation recommendations.
Of late, there has been a historic sell-off in munis and the opportunity there may prove even greater in the future."
Gerald Goldberg, chief executive officer and co-founder of GYL Financial Synergies. West Hartford, Connecticut-based Goldberg has been in the industry for 26 years and has about $9 billion in client assets.
For clients’ taxable assets, municipal bonds may be a good option because the interest is typically exempt from federal and, in some certain cases, state and local taxes as well.
When making a recommendation as to whether a client should invest in municipal bonds, we first calculate the tax-equivalent yield to compare the returns between a tax-free investment and a taxable one for the client to see if it makes sense for them.
It is important to note that while clients often want to maximize the tax-free income they receive, for those who reside in smaller states, we will often recommend investing in a municipal bond portfolio that is national in nature with a preference for bonds in their state. While that may result in a little bit of a give up of the tax efficiency of the bond portfolio, it helps to reduce diversification risk that may exist if they were only to invest in bonds issued by municipalities within their state.”
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