Making money is only half the battle. Hanging onto it can be a challenge, too.
More wealth management firms are opening shop or expanding their operations in Orange County to meet the increasing demand here for asset protection, asset transfer, retirement planning, tax shelter and estate planning by wealthy individuals.
“Once you get to a certain level, you are more concerned about losing it rather than making it,” said Tracy Riddle, vice president and senior financial advisor at Merrill Lynch. Riddle specializes in wealth management and financial planning matters for wealthy individuals.
Employees of technology companies who made millions through stock options, professionals and high-paid executives are generating demand for financial planning professionals in Orange County.
“Despite the fallout in the tech sector, there’s still a strong concentration of wealth in the region,” said Blanche Lark Christerson, wealth planning strategist at Bankers Trust Private Banking.
“It was a well kept secret that Orange County had a lot of wealthy individuals,” said Robert Lotter, chairman and CEO of R.A. Lotter Financial Group, one of the largest independently owned financial planning groups in Southern California. “The secret kind of got out of the bag,” he said.
Citigroup Inc., myCFO Inc., Northern Trust and J.P. Morgan Chase & Co. are among those to open offices in OC to tap into the growing market, while established players such as Wells Fargo and U.S. Trust Co. N.A. are taking this market seriously.
“Orange County is a marketplace that has come onto its own over the last decade,” said Ethan Morgan, vice president of Citigroup Private Bank. “Citigroup has recognized Orange County as a marketplace and has worked hard for a couple of years to set up their office,” he said.
With changing tax laws, wealth planning also has gotten more complicated, Morgan said. “People need to revisit their (financial planners) regularly regarding changing laws,” he said.
For instance, the newest tax changes will phase out the estate tax, but only temporarily.
The tax, which is around 55%, will be reduced until 2009. In 2010, the tax will become zero, but only for one year. And in 2011, the estate tax will return to its current level.
“For years people had talked about repeal and people had deferred doing any planning because they felt that the repeal was around the corner,” said Joel Goldhirsh of Goldhirsh & Goldhirsh, an Irvine-based wealth management and estate-consulting firm. “This shows what a farce this is.”
“It’s really difficult to advise people because there is a very good likelihood that there will be significant changes to this law before the estate tax will be repealed in 2010,” Christerson added.
While the estate tax has been modified, the federal legislation has given some new tax breaks. Beginning Jan. 1, for instance, distributions from so-called section 529 plans for qualified education expenses will be federal income tax free.
Until now, qualified distributions have been taxed at the student’s income tax rate.
Under section 529, parents can invest $20,000 a year for a child’s education. They also have the option of investing $100,000 in one year and then $20,000 a year after five years.
“This is a significant change,” said Riddle. “There are very few things in this world that are tax-free.”
With the creation of new wealth locally and tax law changes nationally, the demand for wealth management services in OC is likely to keep going up.
“Competition continues to increase,” said Cliff Carper, managing director of U.S. Trust. “It’s a great business to be in for the next 15 to 20 years.” n
