Bainco Overview and Wealth Strategies Presentation

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  • 1. Trust. Service. Performance.
  • 2. For over 20 years Bainco has built a practice by putting client needs first , and providing unbiased, thoughtful wealth strategies that meet their unique objectives.
    • OUR FIRM
    • OUR TEAM
    • KEY CAPABILITIES
    • Registered Investment Advisor firm founded in 1987
    • Specializing in individualized money management and planning for the complexities of wealth
    • ~80 families; current minimum to establish a relationship $5 million
    • Partners have an average of 20+ years industry experience
    • Internal team of experienced equity investment professionals has average tenure at Bainco of 15+ years*
    • Expertise includes CFAs, MBAs, and CFPs as well as FINRA Series licenses
    • Investment strategy and management
    • Proprietary private investment program
    • Wealth services focusing on after-tax results: estate/income tax plan; with generational asset value protection, risk management; charitable gifting
    *Investment professionals include four Portfolio Managers and Research Director **5 year period, accounts meeting Bainco’s minimum account size standard
  • 3. Clients choose Bainco because we take responsibility for the comprehensive alignment of their financial goals, giving each the individual attention and objective advice that is essential for long-term success.
    • Bainco strives to establish a lifetime partnership with each client
    • Using an objective, transparent approach, Bainco answers only to clients
    • Senior partners invest similarly to its clients
    • Each client works with a team of four dedicated professionals to assist in all aspects of their wealth management and planning:
      • Lead Portfolio Manager, Co-Portfolio Manager, Certified Financial Planner, Portfolio Manager Associate
    • Low ratio of only 25-30 clients for each Portfolio Manager
    • Bainco prides itself on responsiveness to client requests, initiation of strategies, and execution of investment tactics
    • Bainco’s orientation is toward long-term growth with below average volatility
    • Each account is individually managed to maximize after-tax returns
    • In addition to investing in public markets, Bainco occasionally invests in, and provides client access to, private investments
    • TRUST
    • SERVICE
    • PERFORMANCE
  • 4. Bainco Client Profiles Client Profiles Working with a diverse client base gives us unique insight into many different businesses, domestic and international trends, and financial situations. This knowledge augments our skills in tailoring investments to a wide variety of estate, tax, and lifestyle planning needs. We have found this perspective to be invaluable to our analysis of specific investment ideas on behalf of our clients. Members of the Bainco family range from heads of major law firms and corporations to successful entrepreneurs in industries such as technology, transportation, biotechnology, engineering, retailing, and advertising. The diversity of our client base is a significant benefit for members of the Bainco family, affording access to alternative investments, board seats, business referrals, and a wide range of other intellectual sharing opportunities. Members of the Bainco Family include:
    • Serial entrepreneur and venture capitalist who has co-founded five successful technology companies
    • Managing partner of a major New England based law firm
    • CEO of a health services company bought out by one of the world’s major pharmaceutical companies
    • World renowned author and academic
    • Former CEO of a major international advertising concern
    • Several respected doctors in the Boston community
    • Former business leaders of one of the world’s most successful telecommunications equipment companies
    • Young husband and wife co-founders of leading apparel company
    • President of a California fuel service company
    • Owner of a New England based, privately held, multimillion-dollar infrastructure engineering and construction firm
    • Founder and CEO of multiple companies in the global transit industry
    • Medical telecommunications company founders with substantial international investments
    • Former principal owner of a preferred Los Angeles hotel
    • One of the founders of a publicly traded clean energy company now serving in public office
    • General counsel for leading West Coast publicly traded biotech company
    • CEO of publicly traded software company
    • Co-founders of a semiconductor equipment company
    • Members of family appearing on the Forbes 400 list of world’s wealthiest families
  • 5. “ Bainco is like a family extension for me.” “ I have complete confidence in Bainco, and that lets me sleep easier.” “ Bainco does a great job of holding clients’ hands and really explaining things. I know we’re in it together.” “ I want someone who will manage my money like it’s their own, and I looked my Bainco team in the eye and established trust pretty quickly .” “ The support system is great; I know I can just pick up the phone any time and get what I need.” “ There is no cookie cutter approach at Bainco; it is a very, very personal experience .” “ We like the people best, and the responsiveness of the service. There’s no need to follow-up and worry about the details, the service is fantastic, and good performance is just the cherry on top of an excellent experience.”
  • 6. Financial Strategy Design
  • 7. Bainco manages assets in an integrated financial context, designing a financial strategy that is customized to reflect each client’s individual situation.
    • FINANCIAL STRATEGY DESIGN
    • INVESTMENT POLICY STATEMENT
    • The financial strategy is led by the Certified Financial Planner and Portfolio Managers, and undertaken with the client . The client’s other advisors are consulted when appropriate.
    • This consulting process yields a completely individualized allocation strategy which consider assets across a client’s entire wealth base, and addresses their risk tolerance and historical downside risk assessment
    • The financial strategy is honed into a detailed Investment Policy Statement (IPS) that integrates each client’s business and personal aspirations:
      • Sources of wealth, measure of wealth
      • Liquidity constraints and cash-flow needs
      • Liabilities
      • Long-term asset allocation strategy
      • Tax issues
      • Generational wealth intentions
      • Charitable inclinations
      • Other wealth planning strategies needed
  • 8. Each client’s individual asset allocation strategy is formalized in a written Investment Policy Statement which is reviewed with clients as their lives change and market conditions evolve. Client Asset Allocation Investment Policy Statement Liquidity Needs Client Objectives Tax Situation Investment Period Risk Tolerance Rate of Return Objective Cash Flow Needs Asset Constraints Other Investments
  • 9. Wealth Planning Strategies for Preservation
  • 10. Charitable, Income Tax, and Intergenerational Wealth Strategies are fully integrated with each client’s Investment Objectives ESTATE PLAN CONSULTATION INCOME TAX CONSULTATION CHARITABLE GIFT PLANNING ADDITIONAL CONSULTATION SERVICES
    • Review existing estate plan documents and discuss the significant benefits of an estate plan
    • Review family goals for transferring wealth to future generations
    • Develop a one-page Estate Plan Distribution Flow Chart
    • Review existing tax laws and discuss how they apply to current holdings
    • Periodically consult and coordinate investment and income tax strategies with client’s income tax advisors
    • Well planned charitable gifting offers potential advantages for both the donor and their philanthropic beneficiary:
      • Increase the amount available to support clients’ chosen causes
      • Turn low cost basis stock into a life long annuity and philanthropic asset
      • Reduce current income tax through charitable deductions
      • Manage asset taxation and cash flow by utilizing different charitable gift giving structures
    • Cash-flow planning
    • Debt consolidation
    • Insurance and risk management
    • Education, retirement, and stock option planning
    • Low cost basis stock planning
  • 11. We take a genuine interest in the complexity of wealth , applying expertise and creativity to simplify our clients’ financial lives CLIENT ISSUE BAINCO’S APPROACH AND SOLUTION A significant carry forward net operating loss on a client tax return During a review of a new client’s Federal tax return we noticed that the client had a significant NOL carry-forward on her return. Additionally, with the client’s liquid non-retirement assets dwindling due to cash flow requirements, we recommended, after review with the client’s accountant, and helped the client move $675,000 from her regular IRA assets into a Roth IRA. This was done on a Federal-tax free basis and allows for tax-free withdrawals from her Roth IRA to meet life-style needs and allows for tax –free growth for the assets in her new Roth IRA. New client had multiple managers and was literally buried in paper After a thorough review of stacks of unopened mail, boxes full of old statements, and holdings in multiple accounts we recommended and implemented a consolidation of accounts to one custodian, provided on-line access to those accounts to review trade confirmations, tax information and account holdings on a real-time basis, and set up a client filing system in their home. Maximizing the potential of a large block of a single restricted stock potential and oversee the paperwork associated with future sales We developed and helped the client implement a plan that sets criteria for future sales and manages the administration behind each restricted stock sale. With the client, Bainco wrote and set-up an automated on-line 10b5-1 trading plan for insiders. The plan denotes future sales criteria and allows Bainco to coordinate and assist with restricted stock filings to the SEC and the specific stock exchange, obtain legal opinion of counsel ensuring the execution of future sales, and provides a solution for acquiring a loan against restricted stock A desire to better understand options for utilizing highly appreciated assets to achieve charitable and income goals as stated in their IPS We coordinated the drafting of a Charitable Remainder Trust (CRUT) with the client’s attorney, followed through with the client as it related to the transfer of the asset into the CRUT. We then sold the asset in the CRUT with no capital gains tax implications, coordinated with the client’s accountant the creation of a large itemized tax deduction that reduced their projected high tax liability for that year, and created a lifetime income stream back the donor (which further acted as a salary replacement given they had just retired). The remainder will flow into a family named donor advised fund that their children will meet periodically in the future to determine how the remaining principal should be gifted. Discuss with a client’s 3 adult children and 10 grandchildren how family money was earned and how to maximize its potential. We coordinated the drafting of a Family Limited Partnership (FLP) such that the parents remain a 1% GP (thereby having a veto right over decisions made by LP’s), the adult children are responsible for finding, analyzing and making illiquid private investments in the FLP (originally funded with $5 million and today has more then doubled in value). Based on various structures Bainco recommended (A GRAT and a SCIN) the eventual gift tax liability of moving $5million (now over $10 million) of assets down 1 and 2 generations was under $400,000.
  • 12.
    • Sources of Wealth
    • C. was an officer and an early stage employee of a high tech company that was eventually sold to XYZ Networks (XYZ).
    • Real estate assets currently include a home and an investment property. The O’s own the properties jointly (NC and Maine) with a combined value of nearly $2.5 million (no debt). They sold their previous residence in New Hampshire valued at over $2.0 million. C. has other assets totaling approximately $9.1 million. These include Bainco managed assets of approx $6.7 million, two retirement accounts totaling nearly $100,000, loan receivables of approximately $500,000, a venture capital investment of $940,000 (going to $1.0 commitment), a $500,000 real estate investment, and other personal assets of $400,000. Estimated total net worth is approximately $12 million.
    • Measure of Wealth
    • They feel their wealth is substantial and their objective is to preserve and grow it. From their asset base, they need to provide significant income and cash flow.
    • Stage of Life
    • They have three children ages 9, 17, and 23. (K. age 9, D. age 17 and C. age 23). One of C.’s main objectives is to keep his family in their current lifestyle. C. has expressed a desire to diversify his investment holdings and coordinate his financial affairs.
    • Return Objectives
    • Their objective is preservation of wealth, generation of current income, and have their assets act as an inflation hedge - principal growth would be a bonus. In order to meet their return objectives, C. should pursue a total return approach. An essential part of this approach involved the diversification of the concentrated position in XYZ, an appropriate asset allocation and the repositioning of a significant amount of cash.
    • Risk Tolerance
    • Despite C.’s entrepreneurial background and his long-term investment horizon, he currently remains a cautious investor with a significant cash position. We would characterize C. as having a desire to move toward a more balanced portfolio that incorporates his need for monthly cash flow, inflationary hedge and some long term growth.
    • Time Horizon
    • Their investment time horizon is long. The first horizon extends through both of their lifetimes. The second horizon will begin when the assets presumably pass to their children.
    • Liquidity Constraints
    • Current cash flow parameters indicate approximately $25,000 per month for living expenses. Funding of 529 educational plans (to be discussed) required $220,000 and may require future contributions. They may consider funding a donor-advised charitable gift fund which will require a transfer of assets (to be discussed).
    Sample Investment Policy Statement A
  • 13.
    • Taxes
    • C. is expected to be in a low Federal income tax bracket due to significant carry forward losses and limited taxable income. Any Federal taxable income is projected to be at the AMT rate (26%/28%). Further, New Hampshire has a state income tax rate of nearly 5% on interest and dividends only. Bainco will manage the portfolio in a tax sensitive manner and will periodically coordinate taxable investment activity with the client’s accountant.
    • Recommended Asset Allocation
    • We recommend the following for assets excluding real estate:
    • Target Projected
    • Allocation Post-Tax Return
    • Equities 50% 9.0%
    • Covered Calls 10% 9.0%
    • Fixed Income 20% 5.0%
    • Private Equity 10% 20.0%
    • Cash 10% 2.5%
    • TOTAL 100%* 8.0% (weighted and rounded)
    • *Real estate equity, when added to target allocation, could represent up to 20-25% of total net worth in an acceptable financial plan recommendation.
    • Financial Planning
    • Over time, Bainco will review the following financial planning topics with the O.’s:
      • Review Estate Plan documents and note gifting structures that will allow the O.’s to continue to control the assets, while giving up future appreciation (i.e. an FLP).
      • Discuss asset balancing to take advantage of the federal per person exemption ($1.5 million in 2005 and $2.0 million in 2006). Assets held jointly do “not” take advantage of this estate tax benefit.
      • Monitoring of 529 Education plans.
      • Consider establishing a Fidelity Charitable Gift Fund.
    • Management of Portfolio:
    • Manage the concentrated XYZ position cooperatively and aggressively
      • Sell XYZ to approximately $750k market value over time.
    • Monitor the status of non-managed investments
    • Objective is to create absolute return
    • Build a diversified portfolio of 30-50 positions
    • Create cash flow from dividends, interest, option writing premiums, and capital gains
    • Periodically (monthly?) will send cash flow to client
    • Sell covered calls to develop short term capital gains to create synthetic tax-exempt income
    • Create sufficient appreciation to offset inflation
    • Manage downside risk with sell discipline
    • Coordinate asset transfer and accounting and tax reporting from Alternative Investment Company
    • Develop estate plan efficiency in investment vehicles
    • Fixed income investments short term until interest rates stabilize
    • Occasionally present private deals for C.’s approval
    • Bainco will maintain sufficient cash and utilize the ability to vary cash levels opportunistically
    • Seeking best risk-adjusted returns from sectors when considering macro-economic factors
    • Phase into portfolio decisions made by Bainco Research team
    • Look for 12-24 month holding period time horizon (not currently critical due to loss carry forward)
    • Bainco Management Services Team:
    • Portfolio Manager – Sam Bain
    • Portfolio Manager – Todd Speed
    • Financial Consulting – Robert Katz
    • Portfolio Manager Associate – Jack Piper
  • 14. B Net Estate $59,930,588 Joint Living Trust $18,816,630 Living Trust #2 $6,732,338 Concentrated Stock $1,535,148 Assets Moved Outside of Estate A $9,946,472 FLP Share (LT) $4,000,000 GRAT Shares $4,000,000 Real Estate $14,900,000 Gross Estate $49,984,116 Family Foundation (proj.) $4,698,411 Prog. Estate Tax Exemption $3,000,000 Taxable Estate $42,285,705 Estate Tax (Fed + State) $19,874,281 Available to Children $24,811,424 Direct Gifts $600,000 Review of Beneficiaries Account Child 1 Child 2 Child 3 SCIN 1/3 FLP $1,333,333 $1,333,333 $1,333,333 $4,000,000       Trust 1/3 of $8,270,474 $8,270,474 $8,270,474 $24,811,424       CLAT B $769,778 $769,778 $769,778 $2,309,334       IRA C $322,427 $322,427 $322,427 $967,281       Total $10,696,012 $10,696,012 $10,696,012 Family Foundation (Including CRUT) Direct Gifts $7,368,268 $600,000 A) This Figure does not include CRUT, CLAT, children's FLP ownership, Fidelity Gift Fund, and IRAs. B) Does not include income stream from CLAT C) Does not include income stream from IRA- NIMCRUT Disclaimer: The above is based on information we believe to be accurate. Depicted and actual dollar amounts may vary and significantly affect results.
  • 15. Smith Family Limited Partnership (No gift tax paid) SCIN- 15 year Mrs. Smith Mr. Smith Mr. and Mrs. Smith (33% LP Shares) ($1.67 million) Remain for future gifts Smith Family Limited Partnership (1% GP-EMCO LLC) GRAT-15 year A B C A B C $51,900 Annuity Payments (annual) $98,060 Annuity Payments (Quarterly- $24,515) $2.5 million Contribution $2.5 million Contribution 33% LP Shares $1.67 million 33% LP Shares $1.67 million $2.1 million Remaining Principal $2.4 million Remaining Principal *Assumes 8% rate of return on principal * * C
  • 16. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material is for informational purposes only. Individual tax factors and risk tolerance must be considered when making any investment decision. Past performance does not guarantee future results. For a complete presentation to include our investment management and private deal approach, please contact: Robert Katz, CFP Managing Director, Partner, Wealth Planning Strategies Bainco International Investors 372 Washington Street Wellesley, MA 02481 617-536-0333 main 781-997-5112 direct [email_address] www.bainco.com