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- 1. .$0( )14 $0'$0' ($ +( 156 (52105,%.( 19 61 ,&- $ 1';*7$4' 7)),0*610 156 5 10241),65 +$0*,0* "174 ($&+,0* +,.$06+412; 61 1&-; 1$' 19 $460(45 ,0$0&,$. '8,514 .1%$. ,'5 :37,5,6( ,)65 )14 $-( 6 !14- 08(56/(06 16 2165 6+( 1.,'$;5 < THE EVOLUTION OF FINANCIAL INTELLIGENCE WORTH.COM VOLUME 20 | EDITION 06
- 2. I N EVERL EAVE HOME WITHO UT… WHAT’ S ON MY DESK … MY H O B BI E S ARE… Chicago, IL Leading Wealth Advisor Credit Suisse Securities LLC MarkC.Hutchinson,CFA® Director—PrivateBanking How to reach Mark C. Hutchinson Please e-mail me at mark.hutchinson@credit-suisse.com. My brother’s watch Pictures of my daughters and stacks of annual reports Collecting out-of-print books about the stock market—the past can be prologue About Mark C. Hutchinson Mark C. Hutchinson, CFA, director of Private Banking at Credit Suisse Securities, began his career nearly 25 years ago at Lehman Brothers in Chicago and until 2010, was managing director of wealth management at Morgan Stanley Smith Barney. He is an avid collector of Wall Street books, with a private collection comprising of over 2,500 volumes and is a regent of the CFA Institute's Financial Analyst Seminar and past president of the CFA Society of Chicago. He is a graduate of DePaul University and has an MBA degree from the University of Notre Dame. AssetsUnderManagement CompensationMethod $1.5 billion Asset-based fees MinimumFeeforInitialMeeting ProfessionalServicesProvided None required Planning, investment advisory and money management services MinimumNetWorthRequirement AssociationMemberships $5 million CFA Institute LargestClientNetWorth Email Website $8 billion mark.hutchinson@credit-suisse.com www.credit-suisse.com FinancialServicesExperience 24 years Credit Suisse Securities LLC 227 W. Monroe Street, Suite 3100, Chicago, IL 60606 312.345.6828
- 3. R E ACH I N G FO R Y I E L D : I F I T LO O K S TO O G O O D Chicago, IL Leading Wealth Advisor TO B E T R U E … Credit Suisse Securities LLC MarkC.Hutchinson,CFA® Director—PrivateBanking Howhaveyouhelpedyourclients navigate throughthemarkets? ByMarkC.Hutchinson Our practice follows simple princi- someone is offering to lend you money ples to serve current and new clients’ is no reason to borrow it. interests no matter what the market Pay attention to inflation. My conditions. We would counsel investors grandfather Hutchinson was a partner I believe that more money has to make certain their advisors follow in an NYSE member firm. He retired in been lost reaching for yield than these principles: 1970 as a millionaire and was invested at the point of a gun. Buying only Intense client knowledge. To under- completely in bonds. In 1970, $50,000 the highest-yielding stock, bond stand the full complexity of their tax-free income was big money, but or other investment (or even financial profiles, we meet with clients by 1998, his earnings were hardly worse, buying them on margin or regularly, as well as with their spouses, enough to sustain him and his wife. in some sort of leveraged prod- life partners, lawyers, CPAs, etc. It A balanced approach that protected uct) is a formula for disaster. If allows us to become trusted confidants his savings from inflation would have you cannot explain how an invest- so that all manner of issues, including made all the difference in how his ment generates above-market those that might be considered “fam- final years turned out. returns, you probably should not ily only,” can be thoroughly vetted. Be anticipatory and pragmatic in own it. Being a real advocate requires deep equal measures. I believe that waiting With fixed-income products, knowledge—it cannot be done with for all of the evidence to arrive will generating above-market returns only a partial view of the mosaic. In put an investor at a permanent dis- generally happens either through short, the simplicity of trust has an ele- advantage. Taking anticipatory action leverage, credit research or gance that sophistication cannot touch. ahead of time pays, although I am through trading. Always separate Enforce thorough diversification. willing to reverse myself if the evidence the underlying investment return Our job is to keep people wealthy and changes. It is OK be wrong. It is not from the return on leverage. Any- to prevent them from ever having to OK to stay wrong. one can leverage something up. say, “I was once rich.” We make it a Research-driven fundamental You need to ask, “What does the point not to let our clients love things approach. Using the balance sheet business or investment actually that will not love them back. as a starting point for equity and earn?” That exercise was com- Avoid the use of leverage. Using fixed-income research will immedi- pletely ignored by many in the last borrowed money to try to enhance ately separate weak companies from cycle, with disastrous results. As investment returns is generally a bad the strong. In my opinion, if you are the saying goes, if something looks idea. Buying leveraged products and not willing to be a lender and own a too good to be true, it probably is. then leveraging them up even more company’s debt, why would you ever is an even worse idea. Just because want to own its common stock? Credit Suisse Securities LLC 227 W. Monroe Street, Suite 3100, Chicago, IL 60606 312.345.6828
- 4. I F YOU D O J U S T O N E T H I N G AFTER READING THIS… Chicago, IL Leading Wealth Advisor Credit Suisse Securities LLC MarkC.Hutchinson,CFA® Director—PrivateBanking Whatpaperwork shouldyoushow youradvisor?Inaword,everything! ByMarkC.Hutchinson If you expect your advisors to provide cates of deposit versus expired letters of real-world, 360-degree advice, they credit or repaid loans? If so, those are need a look at your entire financial funds that can be instantly freed up. picture. One of the biggest advantages Are the beneficiaries of the pension Ask your IRA or pension plan cus- of working with professional advisors plan, IRAs and insurance policies todian to confirm in writing who, is the level of organization they can correct? You really would not want or what, is the beneficiary of your help you achieve in order to understand your former spouse to inherit money account. These assets transfer after your finances. from you, would you? That happens death based upon the instructions The minimum starting point for nec- thousands of times every year due to on file. Confirming periodically that essary paperwork would be the following: the failure to perfect paperwork. the instructions are correct is just Bank statements, brokerage statements, Are all of the accounts properly plain smart. fund of fund statements, hedge fund titled? Setting up a living trust with your If you have set up a trust to be statements, restricted stock/option grant lawyer and failing to transfer assets into the IRA beneficiary, the custodian statements, IRA/pension plan state- it is the equivalent of never setting up the should have that on its system. If ments, wills and trusts, private equity trust. Your estate lawyer would tell you he the beneficiary is your spouse, not partnership statements, life insurance sees it happen regularly. only should the custodian have policies, income tax returns, homeown- Have your wills and trusts been that on file, it is very important ers insurance policies, auto insurance reviewed since their original execu- that you also have contingent policies, umbrella insurance policies, tion? Are your designated executors beneficiaries listed in the event directors and officers liability policies, still the people who you would want that your current beneficiary dies employment contracts, mortgage state- acting in that capacity? Our legal before you do. Most people list ments and loan statements. team suggests that those documents their children or charities as con- What can be done with all of that be reviewed at least every five years. tingent beneficiaries. The conse- paperwork? The first step is to assemble Is your umbrella liability policy, quences of not having contingent all of the information into a consolidated which protects you above and beyond beneficiaries could be that instead balance sheet to create a comprehen- your homeowners and auto insurance of them receiving the funds and sive net-worth statement. Then, on an policies, big enough and with a strong paying the taxes over many years, account-by-account basis, due dili- enough carrier to protect your net they could be required to pay all of gence can be done on your behalf. Due worth in the event of a serious accident the taxes immediately. Beneficiary diligence with a set of statements like or lawsuit? paperwork is simple and easy to this is really where great value can be I could literally go on all day about the amend, but all too often, once maintained—not created so much, but importance of paperwork, but simply executed, it is never revised. maintained. Questions you need to stated it comes down to this: In the ask include: details and in the fine print of your Are the bank deposits at any one investment paperwork lay many key institution in excess of FDIC insurance details that make no difference at all— limits? Are any banks holding certifi- until they make a world of difference. Credit Suisse Securities LLC 227 W. Monroe Street, Suite 3100, Chicago, IL 60606 312.345.6828
- 5. Chicago, IL Leading Wealth Advisor T E L L I N G A TO U T F R O M SOMEONE WITH REAL Credit Suisse Securities LLC INSIGHT MarkC.Hutchinson,CFA® Director—PrivateBanking Whatareimportantquestions to askwhenafriendoracquaintance givesyouaninvestmentidea? ByMarkC.Hutchinson 01 How does the company make money? If it is not profitable now, what will have to change to make the com- shares outright, or where management only has stock options? Stick with the company that has management with equity pany profitable in the future? When exactly ownership. Managers and executives I hope the questions pre- is the company expected to be profitable? who have only upside via stock options The answers to these questions may just and no downside via ownership of common sented here help you as stun you. stock behave very differently than those they have helped my with actual money invested. clients. Having too much information prior to making 02 Is the company fully reporting to the Securities and Exchange Commission? Have you looked at its finan- 06 Are any insiders currently sell- ing stock, or have any insiders an investment is never to your disadvantage. cial statements? recently bought any stock? If you do just one thing after reading this: Start taking notes of the name, 03 How is the stock currently valued? Price-to-earnings ratio, price-to- book ratio, dividend yield? Price to cash 07 Does the company need to raise money anytime soon to carry out its business strategy? If so, that may present price and date when friends give you investment ideas. flow? Priced to infinity with no earnings a better time to invest. Over time, keeping track of or book value? past ideas is one of the 04 How much has the person giving you the idea already invested in 08 What are the risks here in the business, and who are its com- petitors? Does it have a better product or easiest ways to differentiate between a tout with no real insight and someone with this idea—in dollars or as a percentage of a service and is there a big enough market genuine investment insight. portfolio? Did the person just buy in, or is for what it is selling for real wealth to be this merely boasting about an investment created? made years ago that is now going up? This is an important question. 09 What sort of loss limit does your tipper have on the investment? A 05 How much skin in the game does management of the company have in terms of outright ownership of the hard stop, a mental stop, or no strategy to limit risk whatsoever? common stock? Which choice is better— owning shares of a company where the management owns half of the company's 10 What is the upside on the invest- ment, and what is the expected timeline on that return? Credit Suisse Securities LLC 227 W. Monroe Street, Suite 3100, Chicago, IL 60606 312.345.6828
- 6. Chicago, IL Leading Wealth Advisor Credit Suisse Securities LLC MarkC.Hutchinson,CFA® Director—PrivateBanking HowshouldIinvestalarge, one-timesum ofmoney? ByMarkC.Hutchinson Slowly and carefully. coming into your balance sheet, and knowing that they have not fully When coming into a large sum of make adequate provisions for any invested their funds. money, either through inheritance taxes that might be due. Next, you For example, if based upon your or via a monetization event, it is very should build an adequate cash bal- needs and cash-flow requirements you important that you consider working ance, and then create a comprehensive want to invest equally in stocks and slowly and carefully to get the funds cash-flow analysis that suits your bonds, and invest 2 percent of your invested. It may be a one-time-only lifestyle. Only then should you begin principal to each asset class each event. So if you make mistakes with to think about what sort of asset month, in just over a two-year period the proceeds, a “do over” is just not allocation might work for you. you should create a fully invested port- an option. Generally a two- to three-year time folio. Commit a total of 3 percent of Involving your spouse, children frame is optimal for getting a large your principal each month between and your other trusted advisors at inheritance or monetization proceeds stocks and bonds, and you should get this time can facilitate a better dis- fully invested and diversified into fully invested in about three years. cussion around expectations and your assets of choice. A very large By working slowly and proportion- needs going forward. Do not do this sum might be stretched out another ately each month you can end up with in isolation—involve and inform the couple of years. To be clear, investing the portfolio that suits your own risk- people who matter to you so as to these funds in high-quality, short-term, and-reward characteristics. You can have no misunderstandings. Your fixed income is not a permanent allo- agree in advance to accelerate the children or spouse may have unreal- cation. Instead, think of it as a parking process under certain circumstances— istic expectations that you will need space until the assets are committed but be clear to define those in advance. to temper. Better to do that sooner to higher-return asset classes. Clearly, there are numerous ways rather than later. In the event of a substantial and to invest a large lump sum, but you The plan that may make sense is to prolonged rally in the stock market, do not want to jump the gun and have your financial advisor first do a this strategy may underperform, but chase performance. Invest slowly, thorough analysis of your current given the volatility of the last 10 years, and carefully, because remember: financial situation, post the funds some people may find confidence There are no do overs. Credit Suisse Securities LLC 227 W. Monroe Street, Suite 3100, Chicago, IL 60606 312.345.6828
- 7. W Mark C. Hutchinson, CFA® Director—Private Banking Credit Suisse Securities LLC 227 W. Monroe Street, Suite 3100 Chicago, IL 60606 Tel. 312.345.6828 mark.hutchinson@credit-suisse.com www.credit-suisse.com REPRINTED FROM ® THE EVOLUTION OF FINANCIAL INTELLIGENCE Credit Suisse Securities LLC is featured in Worth® 2012 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this section have completed questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained herein is for informational purposes, and although the list of advisors presented in this section is drawn from sources believed to be reliable and independently reviewed, the accuracy or completeness of this information is not guaranteed. No person or firm listed in this section should be construed as an endorsement by Worth®, and Worth® will not be responsible for the performance, acts or omissions of any such advisor. It should not be assumed that the past performance of any advisors featured in this special section will equal or be an indicator of future performance. Worth®, a Sandow Media publication, is a financial publisher and does not recommend or endorse investment, legal or tax advisors, investment strategies or particular investments. Those seeking specific investment advice should consider a qualified and licensed investment professional. Worth® is a registered trademark of Sandow Media LLC. See About Us for additional program details at http://www.worth.com/index.php/about-worth.