15% cap gain aint too bad–I diversify 'em at any age just about–and besides, what if the guy needed more income? Or, was worried about the stock?  I’m the last one to defend Jones–but buy and hold philosophy can blow up in your face just as well.

Plus, many CPA's THINK they know it all and that all decisions are based upon or around tax decisions.  Needless to say, that's why they are CPA's and NOT investment advisors.

EDJ gives NO training on these types of issues.  I've posted about this before. 

The IR who just stepped down off of his beer truck route to manage other peoples money hasn't a clue about the consequences of selling a long term holding that has capital gains.  In fact some of the people I went through training with were surprised to learn that the mere fact of switching funds within the same fund family will trigger a tax event.  If they thought about it at all, (which most don't) they thought it applied only when changing from one fund family to another.  Ignorance is no excuse for harming the client.

Regarding your client, if the tax hit is substantial and it didn't occur too long ago, you might be able to get the trade reversed and the client made whole.  I had this situation occur in another BD where the greedy rep sold a long term holding.  The CPA hit the fan and the clients attorney went to the supervisor threatening a lawsuit. 

[quote=zacko]15% cap gain aint too bad--I diversify 'em at any age just about--and besides, what if the guy needed more income? Or, was worried about the stock?  I'm the last one to defend Jones--but buy and hold philosophy can blow up in your face just as well.[/quote]

True it depends on what the investment was and what the client's needs are.  However, at the age of 89, possibly the client intended to pass that asset through his estate.  If that was the case, then the client's estate just lost the value of a step up at death.  

The issue is that inexperienced advisors either don't know to ask these questions or just ignore their fiscal duties and are blinded by the big "commish" (to quote Dirk who has thankfully dissapeared).  Unfortunately, Jones has many inexperienced advisors who have never gone much beyond the doorknocking stage of business. Some of those guys have been reps for many years and are big producers.

The supervision and trade review, at least at the time I was there, was a joke. 

10 years ago I included tax preparation in my business (has helped bring over millions from prospects and clients) and it still amazes me to glance over account statements from ML, SB, EJ, Etc.,and see all the short term trading that zaps the clients at their highest bracket. In the end many are left with a 3-5% after tax gain (if that), but paid tons in fees and commissions. Scary.

Stok

A sell discipline is more important than a buy discipline.  If
that sell discipline is a good one, it will prevent a significant
amount of market value declines in client portfolios in both the short
run and the long run.  This produces short term gains, more in
some years, less in others.  If the strategy is a good one, the
performance far out-ways the tax tail wagging the portfolio dog.



I flipped 180 degrees on this issue a few years back, and who conviced
me?  One of my largest client and TTEE of a couple large
charitable trusts…and a CPA.



Just a thought.

I am sick and tired of CPAs bitching and crying about capital gains taxes.  If you really think about it, our job is to give people the biggest capital gains tax problem they've ever had.  It's nice to look at those gains on paper, but they aren't real, and they don't mean sh*t until you book 'em.  I tell my clients, "If you're paying an assload of capital gains tax, there's only one reason;  you made an even bigger assload of money.   Would you rather be booking yet another $3000 loss for yet another calendar year?" 

Capital gains taxes (especially long term) are very, very low from a historical perspective at present.  There's a hell of a lot worse things people in our profession can do to clients other than actually making them money.  If I have a CPA complain about capital gains to one of my clients, that's the last conversation he'll be having with them.  I'll have the client fire his/her sorry ass, and move along to someone who appreciates just how difficult our job really is. 

He owned the stock for 20 years and he’s 89 years old?  What idiot would sell that?  How stupid when his heirs could inherit it at a stepped up cost basis.  Put a stop on it if you are worried or buy some puts…anything but sell it.  The broker just needed the commission.  I am not defending CPAs.  I have one bitching to me today about VLO and MMP as if I control when they issue the schedule K9 but this is a slam dunk hold. How could anyone argue otherwise.

For younger (than 89) clients that are holding big positions with very
low basis I have found charitable lead and remainder trusts to be good
vehicles.  They solve a multitude of issues, and provides an
attorney referral source some business.  Just make sure they have
charitable intent and get the attorney to take the raines.

Every situation is different and it's hard to judge without all the facts...But, when your ONLY viable option to make money consists of generating a commission via a transaction, it's a strike against you. 

What would a trust company (either at bank or broker have done)?  I think they would be selling at least some every year...doubtful they would unload it all at once.  That's what I would probably do as well.  Reduce the exposure over a period of time.  an 89 year old in good health could easily see another 5 years or longer.  But when your at Jones and on the neverending treadmill of "how much revenue did you generate today?"...well you saw what happened.

[quote=Soothsayer]

I am sick and tired of CPAs bitching and crying about capital gains taxes.  If you really think about it, our job is to give people the biggest capital gains tax problem they've ever had.  It's nice to look at those gains on paper, but they aren't real, and they don't mean sh*t until you book 'em.  I tell my clients, "If you're paying an assload of capital gains tax, there's only one reason;  you made an even bigger assload of money.   Would you rather be booking yet another $3000 loss for yet another calendar year?" 

We each have our own jobs.  The CPA is trying to manage the client's taxes and other related financial issues.  We are trying to grow the client's assets among other things.   Other things that "I" counsel my clients on are estate planning, transfer of wealth, charitable giving, goal planning and funding.  These issues are also tax related so we need to pay attention to those factors.  It isn't a war between you and the CPA. You are supposed to work in conjunction with the client's other advisors.  If all you are is a product pusher and your only concern is about the 'assload' of gain that you can generate, then you are not providing your client a full service.  

You are right in that the tax tail shouldn't wag the portfolio.  BUT you need to pay attention to all parts of the hound.

Capital gains taxes (especially long term) are very, very low from a historical perspective at present. 

That's easy for you to say......you aren't the one having to come up with the money to pay those taxes.  Especially in the case of the original poster, where there may not have been a need to sell the stock and take a tax hit. 

There's a hell of a lot worse things people in our profession can do to clients other than actually making them money.  If I have a CPA complain about capital gains to one of my clients, that's the last conversation he'll be having with them.  I'll have the client fire his/her sorry ass, and move along to someone who appreciates just how difficult our job really is. 

If you want to test the trust level of the client between their CPA and their Stock Broker, go ahead.  I imagine you will lose.  Like I said it isn't a war.  I have found if you work WITH the CPA and Attorney you will have a happier client and maybe even get some referrals from the other professionals.  You might even be able to educate them on just how difficult our job is too.

Looney–For the record, I had three situations in 2005 where I “tested” the relationship between the CPA, client, and myself.  I made a very couscious decision to stand up for myself and my principles in representing clients.  I finally got tired of being railroaded by “professionals” who I regarded as arrogant and foolish.  The final score:  Sooth 3, Crappy CPAs 0.

The way I see it, you build bridges where you can, but if a CPA is railroading you behind your back, you have to defend your work and your advice…babbling looney assumes you have the ability to talk with the person’s tax person before every move you recommend. In our business, it is just not realistic. Now if you are selling 500K of GE at age 83 and in poor health and have held it for 40 years and gains of several hundred thousand…you better be talking with their tax advisor.

JonesIR,

So are you agreeing that one of your own did something wrong?  Why would somesone from the firm that always does what is in the client's best interest, do something as foolish as what has been described?

Could it be that this person is inexperienced, lack of local supervison ...

I want to go back to what was posted by the origianl poster to clarify my stand on this issue in a less combative way.  Revealer said the gentleman was 89 years old.  He didn't say he was 89 years old with a ventilator jammed down his throat and on his deathbed.  He could very well live for another 5, 6, or 7 years.  I think one really has to decide if you want to tie up capital for that long because you don't want to pay capital gains tax.  Looney said, "Easy for you to say; you're not paying the tax."  At the time of the sale, set aside 15% of the proceeds, buy a short-term CD, and be prepared to pay the tax.

Another point:  The LT capital gains rate is 15% today.  You get a step-up in basis upon death as of today.  Last time I checked, there is an election coming up in 2008.  It is far from certain that either one of these factors is a constant.  Never, ever underestimate legislative risk.

Revealer stated there was a "large" capital gain.  As we all know, words like "large" and "small" are very, very relative in our business.  What stock was sold?  He didn't say.  Was it some dog like ConAgra?  Or something that's been in the ditch for several years like Bristol Myers?  Remember, if the stock retreated just 15.1% from its present value, then you screwed up.  Don't assume in a rather frothy market that the stock will continue to appreciate in value.  I don't care what stock it is. 

Rightway mentioned a very grown-up solution, the CRT.  But in my experience, those are for more sophisitcated and younger clients with estate tax problems as opposed to 89-year-olds doing business with Jones.  The bottom lines is that I'm in agreement with Zacko on this one.  A systematic sale would probably be the most prudent and defensive thing to do for a client in this situation.  And if the CPA wouldn't go along with that, I'd have a discussion with him/her with everything that I just covered in this post.  And if they don't acknowledge my point of view, and can't come up with a sound, objective argument of their own as to why that is not a prudent thing to do other than the fact that they think they are the captain of my boat, then it is game on.  My conviction in my beliefs and advice is ironclad, and I would not be afraid to make my case to the clients.  And finally, I have just short of 20 years of sales experience, and their CPA probably does not.  I like my chances.....  

Quality post, Soothsayer…

Well, Sooth, I must say I agree with everything you said in your most recent post, especially since you didn't refer to the capital gains as an "assload" of money .  

Quality advice is something that comes with experience and education.  Unfortunately, many younger hungry brokers and  like those at EDJ that are under the gun to produce, tend to skimp on the quality of advice that our clients deserve and go for the sale. I guess my point in responding to the original poster was in my frustration at the poor training and lack of any real comprehensive method of looking at a client's portfolio that was endemic at Jones... at least from my personal experiences.

Reminds me of a client I had many years ago: 89 years old and only bought

30 years bonds.

30 YEAR bonds. Sorry, one too many drinks.