Trovena Releases October 2012 Edition of Trust Connection

Posted on October 4th, 2012 No Comments

One of the leading wealth management firms in the U.S., Trovena LLC, has now released the October edition of the Trust Connection and this month’s report explains the importance of trusts and how to choose a trust and trustee.

The report breaks down the trust options that a person has into the following: Individual trustee, a bank’s trust department, and an Independent Trust Company.

The report further goes into detail to discuss the advantages of each and what options you have if you choose a trustee. Trustee options include: Agent for trustee, co-trustee, forever trustee, and interim trustee.

In order to read the full report, follow this link, Trust Connection.

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Trovena Releases September 2012 Edition of Trust Connection

Posted on September 12th, 2012 No Comments

Trovena LLC, has now released the September 2012 Edition of the Trust Connection, a monthly report on trust news and information, and this month focuses on the asset protection.

In order to fully explain to readers what asset protection is, the newsletter goes into the process of asset protection and the statutory requirements that a trust must meet. Beyond just these requirements, the newsletter details state law variations, statute of limitations, statutory exceptions, torts, fraudulent transfer standard and bankruptcy considerations.

The newsletter goes on to discuss the states that allow ‘self settled asset protection trusts’ and these include: South Dakota, Rhode Island, Oklahoma, Missouri, Hawaii, Alaska, Colorado, Nevada, New Hampshire, Tennessee, Utah, Virginia, Wyoming, and Delaware.

For a full version of the report, click here: Trust Connection

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Trovena Releases August 2012 Edition of Trust Connection

Posted on August 16th, 2012 No Comments

Trovena LLC, a leading wealth management firm, has recently released the August 2012 edition of the Trust Connection: A Monthly Report on Trust News and Information. This month’s newsletter discusses legitimate methods that families can use in order to leverage the current tax exemption while waiting for Congress to create a permanent estate tax.

Two of these methods include the use of limited partnership (LP) or limited liability company (LLC) and how to successfully establish this leverage and avoid any challenges with the IRS. The article states that “The entity should be already in existence or formed for a legitimate and significant non-tax or business purposes.”

The newsletter further discusses how the entity must be operated, managed and how to time the transfer of your funds. The article ends with a conclusion stating that “the use of FLPs and LLCs as a way to leverage the estate tax exemption may become even more popular if the exemption reverts to $1 million. Recent cases show that in the right circumstances they are effective options.”

In order to read the full article, click here: Trust Connection August 2012.

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Trovena, LLC Releases Third Quarter Newsletter 2012

Posted on July 25th, 2012 No Comments

Trovena, LLC has now posted their Third Quarter newsletter for 2012 in order to discuss tax rewards on stock options, how one should guard against ‘skimmers,’ how to start harvesting gains, likely consequences of a Greek default, and IRA options faced by widows.

For more information on these topics, please click here: Trovena Newsletter

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The Morgan Report Q2 2012: SEAL Teams, Psychology, & Stocks

Posted on July 16th, 2012 No Comments

This quarter’s theme started with the book The Red Circle: My Life in the Navy SEAL Sniper Corps and How I Trained America’s Deadliest Marksmen, written by a friend of mine, Brandon Webb. In an attempt to improve the effectiveness of his sniper students, Brandon brought in Lanny Bassham, an Olympic gold medalist and world champion marksman, to help improve sniper performance and increase graduation rates. Bassham wrote a book, With Winning in Mind: The Mental Management System, and then I came across The Psychology of Wealth: Understand Your Relationship with Money and Achieve Prosperity, a book by Charles Richards.

These authors come from diverse backgrounds and professions, but their emphasis is singular: the mind is the most important aspect of success, whether you’re pushing your body to unbearable limits, hitting the target when everything’s on the line, or making investment decisions with your hard-earned money. Interestingly, all three authors recognize the importance of understanding how the subconscious and conscious minds interact, and how that dynamic often causes us to short-circuit effective decision-making, resulting in bad outcomes.

Most people’s relationship with their money is dysfunctional. That, at least, is Richards’ assertion after interviewing countless investors and financial advisors for his book. He believes our sense of intrinsic worth propels us to achieve goals and is tied to our perceptions and relationship to money. Many of these attitudes toward wealth occur as a result of conditioning and programming when we’re growing up. Often, at the heart of a person’s relationship with money is a strong fear of losing it.

Unfortunately, most of the programming and conditioning investors have is tied to their emotions, which is exactly opposite of what they should be doing to preserve their wealth. Investors believe that more data on economic conditions can allow them to predict investment performance. They think research rating systems, such as Morningstar, are a great predictor of fund performance, recent past performance is a great predictor of future performance, and that they’ll be able to time the market when they feel right about getting in or out. Simply put, they think that they, or someone they hire for advice, has a crystal ball and can predict the future. Academically, all these assertions have been shown to be flawed,  yet the search for the perfect predictor continues.

Investment objectives for most individuals and institutions are straightforward. They want to see their wealth grow above inflation, they want to preserve their wealth through volatility, and they often need income as well. My clients don’t want to speculate; they want long-­term wealth.

For this “non-­speculative” type of investing, there are some essential and academically
sound principles to live by:

  • Markets are mostly efficient (Efficient Markets Hypothesis) and provide the best information for pricing
  • Global diversification is essential
  • Markets should be captured broadly at low cost
  • Only three factors have provided a consistent return premium over the risk­free rate:
    • Market: Stocks have higher expected returns than fixed income (bonds)
    • Size: Small company stocks have higher expected returns than large
      company stocks
    • Price: Lower-­priced “value” stocks have higher expected returns than
  • For fixed income, the best estimate for bond maturity is the current yield curve
  • Trading efficiency matter

I bring these points up because recently, a client asked me how he should measure my (Trovena’s) effectiveness. Should we look at recent performance? Should we be looking at how our funds were rated by Morningstar? Should we see how effectively we can time the market?

My answer is, “none of the above.” The best measure of an investment advisor’s effectiveness should be how well he’s capturing and implementing the academically proven investment principles summarized above.

You may not fully understand these principles, but don’t feel bad; most investment advisors don’t understand or implement them well, either. Thankfully, we at Trovena do, and that’s why we feel our clients have a healthier relationship with their investments ­­and our long-­term results back that up.

We provide value that’s unique and compelling from an investment perspective. Since we’re wealth managers, our clients have a need for much more than just advice on investment performance. They look to us for leadership and expertise in tax efficiency, taking care of heirs, asset protection, and charitable issues.

I’ll wrap up this discussion with a quote from Larry Swedrow, a well-­respected investment professional who was commenting on an issue that fits right in with my message:

“However, having these skills (or working with a financial advisor who does) is only a prerequisite for success. They won’t serve you well if you don’t have the patience and discipline required. As Warren Buffett has noted, ‘The most important quality for an investor is temperament, not intellect.’ ”

Q2 2012 Index Review

Sources:,,,,, Dimensional Fund Advisor

Equities were down for the quarter, and the domestic market fared better than its international and emerging counterparts. It’s no secret that much of this has to do with the uncertainty with the EU. It doesn’t appear this uncertainty will disappear tomorrow, but as discussed in my previous quarterly review, the markets are indicating that this is a much less volatile scenario than the 2009 global recession­­ so far. High­-quality bonds with shorter durations held up well for the quarter.

Many investors got nervous and pulled out of the stock market in early June, only to miss the best June performance for the S&P 500 since 1999. So far, 2012 has been a great year to be an investor, with solid returns across all asset classes.

If recent market performance should have little bearing on decisions with respect to portfolio composition, you might ask why we would even want to look at it. That’s a fair question. It’s a matter of transparency. Many advisors are scared when their bets don’t pay off for clients and they may find it easier to cloud their performance relative to the markets, especially given some of the fees and expenses they’re charging.

Since we make no predictions as to short-­term market movements and rely on the academics that have created wealth for investors over time, we have no such concerns and are transparent with regard to our model portfolio performance numbers. You can review them here:­portfolios/.

Looking at recent performance may also provide context. I’ve heard it said that investors have no business being in the stock market unless they have at least a 10­-year time horizon. As a matter of policy, we feel the same. While investors with dysfunctional relationships with their investments might look at the second quarter returns and be emotionally compelled to change things, investors with the right temperament and understanding will instead look at whether or not their portfolios are capturing the principles noted above. Looking at 10-­year and longer performance will provide better insight into the benefits of principles­-based investing.

To conclude, it’s important to be aware of how the unconscious mind may drive our emotions to make bad decisions, resulting in bad outcomes. Many investors use research, data, or “smart” advisors as a proxy and justification to predict near-term events. Successful investors will ensure the “principles to live by” are being implemented with regard to their portfolio. In addition, they should take Warren Buffett’s advice and remember there’s no replacement for temperament, especially during times of volatility.


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How to align advisory services with those of your business and family’s expectations and outcomes?

Posted on July 3rd, 2012 No Comments

It starts with valuation benchmarking, solid collaboration and transparency.

Key issues in valuing private businesses are the investors’ level of economic benefit and likelihood it will continue to grow. Both correlate to the ability of the business to generate distributable profits while minimizing risk. (Think of risk as the price multiple, with a lower risk justifying a higher multiple.)

A disconnect often occurs between passive and direct ownership investment expectations. When an investor’s portfolio is managed, there’s emphasis on equities’ capital appreciation (“growth”) using indexes, such as the S&P, as the benchmark (e.g., buy at $50 and sell at $75 a share for a 50% pre-tax gain). Conversely, most business owners and their advisors tend to focus on taxable yield (profits), giving nominal consideration to risk. Ideally, total return measures yield AND growth.

Let’s examine a real-world situation – a private technology services company we recently valued with $50+million in forecast EBITDA for 2012 with plans for an IPO within 18 months. The purpose of the engagement was incident to the tax advantaged gifting to a Charitable Remainder Trust (“CRT”) with the second benefit of better understanding what the business is and could be worth based on risk metrics.

Examine governance, management and culture. Weaknesses in these factors have greater risk and lower multiples. The three founders and two private equity investors sit on this company’s board. It has no independent advisory board. A proactive advisory board can offer candid advice, which may not be as likely from someone who’s directly employed in or by the business. Stock options and high compensation does not ensure loyalty and may not create a meritocracy culture.

Benchmark industry and market data. Comparing a company’s operational performance to its peer group is of enormous value; yet, this benchmarking seldom occurs. Our analysis found officer and employee incentive compensation could be better aligned with the founders’ vision. The number of employees and turnover were high when compared to industry peers’ annual revenues. Key employees were given excessive compensation in stock options and bonuses. The national VP and regional VPs of sales hadn’t addressed low market penetrations and growth in the Northeast and West Coast.

While the company had favorable financial performance, earning a 10x-plus price multiple on earnings, if management addresses the identified issues, an additional 800 basis points in profit will be achieved, generating an additional $200+ million in value. That’s 4,444x the $45,000 fee for this engagement!

In 2012, clients are faced with finding zero-tax strategies for appreciated assets in a low interest, low yield and relatively low tax rate environment. This includes ESOP formation, selling the business and/or gifting equity. The better question may be, “If the private company investment generates a yield providing excess income beyond family needs and could be professionally managed while the family l maintains control, is it a better option than liquidity through a sale?” The takeaway is that collaborative discussions with legal, tax, insurance, banking and wealth professionals are a wise investment when there is clarity of the family’s and business owner’s vision and that advisor’s services align with it.

Measuring, Creating and Defending Values Since 1954

Business Valuations, Ltd., and Privatus CIO Services, combines hundreds of years of expertise to listen and formulate best-in-class solutions. We resolve the myriad of transitional issues confronting multi-generational families with a stake in asset holding companies, trusts and operating businesses. We believe families are the stewards of their wealth and legacy. Yet, they are often overwhelmed by market uncertainty compounded by conflicting advice and the ever present issues keeping them awake at 2am. So, we bring stability and control to affluent families by measuring, optimizing and protecting equity in private companies, while minimizing taxes through various valuation discounting strategies – our foremost priorities. Working with business owners, family offices and their advisors, we understand trust is earned. We achieve this through independent valuation and advisory services that are not only IRS/Court compliant, but identify business value drivers, so the maximum value can be leveraged while discounts are applied.

Contributed by Guest Blogger:  Carl Sheeler

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Real Estate Momentum Coming to Your Town Soon

Posted on July 3rd, 2012 No Comments

Do you wonder when the housing market will recover in your neighborhood? With a relatively dark cloud hanging over the U.S. housing market since 2007, I look to now as a time when momentum has started in a positive direction. While the media continues gloomy forecasts, housing economists are seeing light.

Supply and Demand: According to NAR chief economist Lawrence Yun , said inventory shortages of homes for sale have been building all year with existing home sales nationally of 4.55 Million in May, 9.6 percent above May 2011. “The normal seasonal upturn in inventory did not occur this spring” he said. There are broad based shortages of inventory in lower price ranges in much of the country with the Northeast and West extremely tight in all price ranges except for the upper end. Total housing inventory of 2.49 Million has trended down from the record in July 2007 of 4.04 Million. Regionally sales in the West are up 3.4 percent, the South is up 7.8 percent, while the Midwest and Northeast are up 6.4 and 3.8 percent respectively.

“The recovery is occurring despite tight credit conditions” Yun said.

International Sales Climb In U.S Market: A recent Realtors report indicates international buyers continue to identify the U.S. as a desirable place to own property and make a profitable investment. Total international sales for the past year ending March 2012 equaled $82.5 billion, up from $66.4 billion in 2011. Notably four states account for 51 percent of the purchases- Florida,California,Texas and Arizona, while buyers from Canada accounts for 24 percent and China 11 percent of the sales. A majority of transactions are all cash.

Affordability for first- time buyers: With the average principal and interest payment for a first time buyer nationally under $800 per month, buyer affordability is very, very high. This first- time home buyer accounted for 37% of all sales in 2011 using savings, gifts, 401k and stocks to access down payments. The Buffini report states that there are as many as 80 million people in the U.S between the age of 20-33, and thus many possible first time homebuyers to spark the Real Estate Momentum.

Distressed Properties/Short Sales: Short sales have increased steadily in 2012 and are expected to continue to rise in 2012. While still distressed sales, this shift toward short sales is a sign of improvement in how the market handles distressed properties and is a trend that is the best interest of homebuyers, homeowners and the communities they live in. An estimated 141,000 short sales will occur in California this year.

If response times of banks decline, demand for short sales could rise, reducing their discount to the market. Stronger prices would make short sales even more attractive to the banks. A cycle like this would help stem the flow of properties into foreclosure.

Good timing: In conclusion I remain optimistic about the Real Estate Market and view the current conditions as a tremendous buying opportunity. Considering the low price levels and the current interest rates gives the appearance of timing.

Contributed by Guest Blogger: Greg Pizza

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Tax Decisions and Trustees

Posted on June 25th, 2012 No Comments

The wealth management professionals of Trovena, LLC, hope to help trustees make decisions that reflect the original plans of a trust’s grantor. Unfortunately, with many tax elections available, trustees can make tax decisions that have negative effects on some of a trust’s beneficiaries, or even on the trust as a whole. Our team is prepared to help you protect the finances of your estate and honor the wishes of your loved ones without putting yourself at risk of financial responsibility for losses. If you have recently been named a trustee, or the grantor of a trust in which you are the trustee has passed away, you may be in need of financial support from a team of qualified professionals.

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Posted on June 22nd, 2012 No Comments

Greek debt contagion and it’s effect on the Eurozone has created a lot of headlines and bears a closer look with regard to your investment strategy. How much exposure to these Eurozone variables do your investments have and what effect will they have on your investment returns?

We work closely with Dimensional Fund Advisors customizing portfolios for individuals, foundations, and retirement plans. The Dimensional Fund Advisors paper (below) indicates three important points for our investors in global portfolios:

1) We have zero exposure to Greek debt

2) A typical global equity strategy has less than 0.25% Greek weightings

3) In a previous decision, Dimensional’s investment committee suspended all Greek equity purchases

This what I mean when I discuss lowering risk through diversification and having a professional advisor assess risk factors. Implementing the best ideas before events occur has been a successful strategy we continue to live by.

For those of you who are not my clients, I encourage you to understand and assess the Eurozone equity and fixed income exposure within your investments.


Morgan H. Smith Jr.

To read the full report on Eurozone & Greece, please click here.

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Estate and Gift Tax Provisions Set to Expire at the End of this Year

Posted on May 24th, 2012 No Comments

Here’s a great story posted to about estate and gift tax provisions that are expiring at the end of 2012. Now is the time to take advantage of the options before they are gone for good. Will you use your credits? Tell us about it in the comments.

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