financial physics 101 ver 2014

Financial Physics 101: Converting Solids to Liquidity

Burnett Marus, RFC®

Burnett Marus Associates Richardson, Texas

A presentation on recognizing, managing and converting tangible assets into capital assets

How Do You Determine a Client’s Net Worth?

Stocks, Mutual FundsBonds, CDs, Treasury Bills, CashCSV of Life Insurance, AnnuitiesReal Estate (residence, vacation homes)Real Estate investments, REITs, LPsValue of businessTangible assets

Why Learn About Tangibles?

“As advisers scramble to get their hands on money held in bank, brokerage or mutual fund accounts, many are overlooking a bigger part of the wealth market: illiquid assets.”

“Experts say the market for illiquid wealth represents an untapped reserve of assets. Advisors who learn how to identify and manage such assets stand to make a killing.”

“The rest, or $7.4 TRILLION was held in illiquid assets.”


This is what you may miss when you have a policy of “having the client come to our office only”. This client simply stated that he was an artist.

Not visiting a client’s residence eliminates a vital source of intelligence about your client’s lifestyle, visible assets and what is important to the client besides stocks, bonds, mutual funds and annuities.

Antique chair

Sculpture

Oriental rug

Steinway piano

ArtArt


Many software programs that are designed for gathering financial planning data do not have categories for tangible assets owned by a client. The listing is usually titled “other”.

Advisors ask about stocks, bonds, mutual funds, REITs, cash value of insurance, assets in pension plans, equity value of real estate, CD’s, T-Bills, bonds, income from rental properties and expected inheritances of similar assets.

Few advisors ask if the client has accumulated art, rare coins, rare stamps, antiques, oriental rugs, antique silver or jewelry. This is where potentially thousands of dollars of assets are “hidden in plain sight”.


But I do have a huge art collection. Glenn Danzig and I would travel to different towns and buy original art. I’ve got all the hand-to-paper first appearances of Ghost Rider. I also have original art by H.R. Giger whom I’ve met a couple times in Switzerland. It’s all stacked up and sitting there. It’s not hanging on anything.

Stuff MagazineFebruary 2007

Jesse James, custom motorcycle builder, TV star, celebrity, married to actor Sandra Bullock (Ms. Congeniality, Speed) … and art collector.

A Few Other Famous Collectors

Nicole Kidman – actor – CoinsCharles Schwab – finance- Contemporary ArtPrince Rainier of Monaco – StampsSteve Martin- comedian – ArtJay Leno – comedian – Cars and MotorcyclesBuddy Ebsen – actor – CoinsDavid Bowie – musician – ArtBill Gates – computers – ArtGreg Bingham – NFL football – CoinsAnatoly Karpov – chess champion – StampsElizabeth Taylor – actor – JewelryEli Broad – SunAmerica founder - Art


It’s a major asset source for wealthy clientsBetter planning for estate tax purposesProtect clients from investment predatorsUtilize strategies such as charitable giving, trusts for highly appreciated assetsBecome a more complete advisor to your clientsDifferentiate your practice from your competitorsConvert illiquid assets into additional capital sources for retirement planning or income producing assets


Example: A 74-year old attorney had a collection of rare coins that he has

owned for 30 years. At age 44, when he started collecting, it was a interesting hobby for him. At age 74, he no longer was active in the hobby. His advisor contacted us and wanted to know what to do with “a bunch of old coins”. A local dealer offered $75,000 for the collection. We reviewed the list of coins and met with the client at his office in Detroit. The coins were consigned to a major rare coin firm in California and realized over $235,000 at auction. The proceeds from the client’s long-time hobby were converted into additional income-producing retirement assets.


In the March 2004 issue of the Bloomberg Wealth Manager, the role of tangible assets as contributions to charitable organizations is examined as alternatives to depleted stock portfolios.


Many other charities are becoming more flexible about the kinds of gifts they will accept. Although real estate is the most popular type of non-cash gift, charities are receptive to a wide range of collectibles, including jewelry, antique cars, coin or stamp collections and musical instruments.

From a tax perspective, making gifts of art and collectibles is especially beneficial now. While the Jobs and Growth Tax Relief Reconciliation Act of 2003 lower the long-term capital-gains rate to 15% for sales of appreciated stocks, bonds, and real estate, it left the rate for tangible personal property at 28%. By donating valuable assets such as art, clients can avoid paying this capital-gains tax and take a charitable income tax deduction.


“…according to the report, is that of the $500,000 to $1 million crowd, 23% were seeking more tangible assets such as gold or real estate.”


Financial Advisor’s Question #1 for Clients Who Are Holding Tangible Assets:

“ Is there enough life insurance to cover the taxes on the appreciated value of the tangible asset that would eliminate the necessity of liquidating the asset against the wishes of the beneficiaries or the best interest of the estate?”

Key Questions



“ Have you created any legal instruments to convey these assets to your heirs in the most tax advantaged method in the event of your death?”

Key Questions



“ Have you advised your heirs about the procedures, methods and sources to use to properly evaluate and liquidate these assets for the maximum benefit to the estate?”

Key Questions



“ Have you considered liquidating part or all of these tangible assets and use the proceeds to provide additional funds for retirement or income needs?”

Key Questions

1992 Restatement (Third) of Trusts: Prudent Investor Rule

Directed at private trusts subject to state lawPublished in 1992 (actually adopted 1990)Follows trend established by ERISA with regard to current investment theory and practices

1992 Restatement (Third) of Trusts: Prudent Investor Rule

Five Investment Principles

Sound diversification fundamental to risk management.Risk and return are so related that trustees have duty concerning levels of risk appropriate for the trust. The 1992 Restatement creates the expectation trustees will consider the entire universe of investment opportunities and does not authorize a trustee to ignore any particular class or type of investment in constructing a portfolio. Trustees have duty to avoid unjustified expenses.The fiduciary duty of impartiality among beneficiaries requires balance of producing income and protecting purchasing power.Following ERISA, the Uniform Management of Institution Funds Acts and the Uniform Trustee Powers Act, The Prudent Investor Rule encourages the delegation of investment responsibilities to specialists.

Tangibles: The Basics

Industrial Based Tangibles

Gold BullionSilver BullionPlatinum BullionGemstones (Rubies, emeralds, etc.)Diamonds

Collector Based Tangibles

Rare CoinsRare StampsAntique FurnitureArtClassic AutosRare WineRare Booksetc, etc.

Picasso - $65,000

photo: Christie’s, New York

George IV Cooler - $7,000

George III Jug - $4,500

George IV Vase - $7,000

photo: Sotheby’s

Diamond and Sapphire

Necklace - $700,000

photo: Christie’s, New York

1901 Colt Revolver - $9,000

photo: Bonham and Butterfield

Features: Industrial Based Tangibles

Market Domain: Industry is end user. Photography, medicine, electronics, jewelry, manufacturing, space technologySupply Characteristics: Increasing but at a diminishing rate.Unique Qualities: None. Quantitative basis for valuations. Per ounce, per carat.

Features: Collector Based Tangibles

Market Domain: Collector is the end userSupply Characteristics: Fixed, yet diminishing due to loss of items by natural disaster (flood, fire, earthquake)Unique Qualities: Many, qualitative basis for valuation.

Key Investor Considerations

Size of Legitimate MarketAvailability of ExpertiseEntry Level of InvestmentPortability, Maintenance and StorabilityLong Term Performance History

20th Century Modern Art

“Dogstarman” by

John Chamberlain

$45,000photo: Christie’s, New York

20th Century Art

Tangible Investment Characteristics

Supply and Demand CyclicalLong TermGrowth OrientedTax Deferred

1967 Shelby GT500 Fastback

photo: Barrett-Jackson Auctions2007 Auction Price Realized: $189,000

Market Participants

DealersCollectorsInvestorsMuseumsBrokerage FirmsCorporations

Data Sources

Independent Pricing GuidesAuction Catalogs with prices realizedIndependent Appraisal ServicesSpecialty Publications

Liquidation Methods

Wholesale: Larger spreads between retail and wholesale. Fast but can be costly.Auction: Fees can be negotiated. Preferred method. Auctioneer is paid for results. Private Sale: Usually between wholesale and auction. Problem with settlement unless brokered.

Auctions: The Basics

The 5 major auction houses in rare coins were:

Rare Coin Auctions: The Big Five

Dallas, TX

Beverly Hills, CA

Wolfeboro, NH

New York, NY

Irvine, CA

In 2007, Stack’s and ANR merged resulting in 4 major rare coin auction houses:

Rare Coin Auctions: The Big Four

Dallas, TX

Beverly Hills, CA

Wolfeboro, NH

New York, NY

Irvine, CA

In 2009, Superior Galleries closed their coin auction division leaving 3 major houses:

Rare Coin Auctions: The Big Three

Dallas, TX

Wolfeboro, NH

New York, NY

Irvine, CA

The major auction houses are:

Collectible Auctions: The Majors

Collectible Auctions: Specialists

Commemorative Self-Winding and Minute-Repeating Chronometer Wristwatch" Patek Philippe, Genève, "Officier Répétitions Minutes," No. 1904075, case No. 2833920, Ref. 5029 R. Made in a limited edition of 10 examples in 1997 to commemorate the inauguration of the new Patek Philippe manufactory in Geneva. Very fine and extremely rare, minute-repeating, self-winding, 18K pink gold gentleman's chronometer wristwatch with an 18K pink gold Patek Philippe buckle. Accompanied by a special leather fitted presentation box, the attestation of the "Bureau Officiel de l'Etat pour le contrôle facultatif des montres de Genève", a medal commemorating the opening of Patek Philippe's new watchmaking center in Geneva, and a certificate.

C. Four-body, solid, polished, hinged case back over transparent cover to view the movement, protected winding crown, gold screwed bars, sapphire crystals. D. Matte silver with applied pink gold Breguet numerals, subsidiary seconds dial. Pink gold "Breguet" hands. M. Cal. R 27 PS, stamped with the Seal of Geneva quality mark, rhodium plated, "fausses côtes"decoration, 39 jewels, straight-line lever escapement, free-sprung Gyromax balance adjusted to heat, cold, isochronism and 5 positions.

Estimate: 500,000 USD - 600,000 USD(EUR 380,000 - 460,000)

Collectible Auctions: Specialists

“Internet” sales are conducted weekly and offer many items, both certified and uncertified. The majority of items sold are those that have been rejected for sale in catalog sales or items with problems (slightly damaged, questionable provenance, minor firm certification, etc.) Although there are some firms using the Internet for it’s efficiency, the Internet is more the realm of the untrained bargain-seeker that tends to overpay for less than quality material. It is a wonderful place to sell material, but definitely not the best for acquisition of high quality material.

Professional collectors and dealers prefer the established venue of live auctions to acquire the best material. The large auction houses now have internet bidding available on their live sales, however, internet bidding is closed 24 hours prior to the live auction taking place. The floor bidders take precedent to internet bidders in these cases.

Auctions: Internet Sale

Auction values are generally not guaranteed. The prices realized can be either higher or lower than estimated based on market conditions and activity. However, some of the larger auction houses will guarantee the items to sell at an agreed upon price between the auction house and the consignor.Buying at auction allows knowledgeable buyers to opportunity to acquire material at or below wholesale by purchasing undervalued, high grade items that may currently be out of favor. All collectibles have cyclical performance.Auctions are best utilized during steadily rising markets for liquidationClients selling items may receive advance payments up to 50% of the estimated value on consignments up to two weeks prior to the date of the actual auctionAdvances are charged a nominal interest rate

Auction Values

Evaluating Dealers/Suppliers

Considerations about FirmLegal HistoryFinancial HistoryType of FirmExperience with InvestorsIndustry Memberships of Firm and Principals

Burnett Marus Associates

Recent items liquidated by Burnett Marus Associates

A collection of U.S. rare gold coins for $240,000 sold at auction in California.A 4 ½ lb. gold bar salvaged from the wreck of the Atocha sold for $46,000 at auction in New York.A collection of U.S. rare type coins (copper, nickel, silver and gold) for $225,000 at auction in California.Two 17th century snuff boxes sold for over $15,000 at auction in New York.A major collection of over 28,000 numismatic items liquidated for over $475,000 sold at auction in California.Five U.S. currency notes (face value $3,500) sold for $7,500 sold at auction in Dallas.A small collection of four U.S. stamps sold for $3,700 at auction in New York.A pair of boxed French dueling pistols sold for $20,000 to private collector in Arizona.

How We Work

We provide services as an independent auction agent to represent clients with high value material to the top auction houses and direct dealers.

The client’s timetable for liquidation, type of material and need for confidentiality

are important considerations in order to recommend the correct venue, method of sale and auction firm. Our service eliminates the confusion of contacting a number of different firms each of which has their own agenda in soliciting the client’s business.

We negotiate for the clients at premier auctions conducted by the nation's top

firms in order to help our clients acquire the best prices for their material.

The client’s receive the proceeds directly from the auction houses or direct dealers after the sale according to the terms of the auction consignment agreement.

How We Work

Burnett Marus Associates (BMA) works with the financial advisor and his client as a independent consultant.

Compensation to BMA is typically made by the auction house. This is not

an add-on fee that is charged to the client. In cases where auction is not recommended or suitable for the client, a fee will be charged based on the time and expenses for evaluation services. Such fees will be discussed and agreed upon prior to engagement of services.

Burnett Marus has been active in the financial planning field since 1972 beginning as a professional life agent in the State of Michigan. He began to specialize in tangible investment portfolios in 1975 and formed North American Investment Management Corporation in 1976, serving as President.

He is considered one of the pioneers in the use of alternative investments, providing his clients and other financial professionals advice on rare coins, stamps, art objects and antique firearms. Under his guidance, over $17,000,000 in rare coins, rare stamps and art objects were included in clients' investment portfolios, in addition to traditional equity investments, from 1976 to 1980.

In 1980, he sold his interest in North American Investment Management and continued in private practice with Burnett Marus Associates, Ltd., as an industry consultant in tangible asset investments.

He developed educational seminars on tangible asset investing for a number of financial organizations including the International Association of Registered Financial Consultants, the International Association of Financial Planning, the Canadian Association of Financial Planners, the National Association of Estate Planners and Councils and the American Society of CLUs and ChFCs.

In 1984, he was awarded the designation of Registered Financial Consultant. Eastern Michigan University conferred upon Mr. Marus their prestigious Alumni Achievement Award in 1986. In 1996, Mr. Marus was named to the "International Who's Who of Professionals".

Principal’s Background

Mr. Marus is known for his dedication to furthering education and service to the financial planning profession. He was previously elected to the National Board of Directors of the International Association of Registered Financial Consultants for three consecutive two-year terms (1990-1995).During his term he helped initiate the association’s expansion of membership to include Taiwan. He was re-elected to the IARFC national board in 2003 serving as treasurer and retired from the board in 2007.

As a member of the Board of Directors of the Dallas-Fort Worth chapter of the International Association for Financial Planning for seven years (1982-1989), Mr. Marus served as the public relations chairman and was host for the association’s television series on financial planning and the managing editor of the association magazine.

In 1981, Mr. Marus accepted the position of President of U.S. Tangible Investment Corporation, the nation's largest rare coin investment firm that worked exclusively with financial advisors, estate attorneys and their clients. Mr. Marus successfully expanded company operations into Canada, Taiwan and Australia. He was named advisor to the first rare U.S. coin fund in Australia in 1986.

He has been a frequent and popular guest on numerous radio and television talk shows in the United States and Canada discussing regulatory issues, investments and advanced retirement planning .


Among the organizations he has spoken for are: The National Convention of the International Association of Registered Financial Consultants; the International Association of Financial Planning, the Canadian Association of Financial Planners, the National Association of Estate Planners and Councils; the American Society of CLUs and ChFCs; IAFP Chapters in Long Island, NY; Detroit, MI; Dallas-Fort Worth, TX; San Antonio, TX; Austin, TX; Houston, TX; El Paso, TX; Quad Cities, IA; Charlotte, NC; Des Moines, IA; Birmingham, AL; New Orleans, LA and Pittsburgh, PA; the National Association of Insurance and Financial Advisors; the 2001, 2002, 2004, 2005 and 2006 Financial Advisors Forum; the British Columbia Chapter and the British Columbia North Chapter of the Canadian Association of Financial Planners; the Iowa Medical Society; Eastern Michigan University; Purdue University and the University of Tulsa.

He has authored a book on investments for financial advisors published in the Fall of 2003. His articles have been published in Financial Planning, Trusts and Estates, The Stanger Register, Ticker Magazine, The Investment Advisor, The New York Sun, The Journal of Personal Finance, The Financial Times (Canada), The Financial Times (London), The Detroit News, The Montreal Gazette, The Vancouver Sun and The Calgary Sun among others. He is on the Editorial Advisory Board of the Journal of Personal Finance as well as being a regular contributing columnist.


Professional Licenses

Registered Financial Consultant® (1984- present)* NASD Series 7, General Securities License NASD Series 63, State Securities License NASD Series 65, Registered Investment Advisor Texas General Lines Insurance License

Established in 2000 to provide tangible asset analysis, strategies and consulting to the financial planning profession.

Principal has over 37 years experience in the financial services industry, specializing in tangible asset investments, financial planning and marketing to HNW clients.

Member of:, International Association of Registered Financial Consultants (IARFC), Society of Financial Service Professionals (SFSP), North American Collectibles Association (NACA), American Numismatic Association (ANA), Federal Law Enforcement Officers Association (FLEOA)

Burnett Marus Associates

For Additional Information:

908 Audelia Road

Suite 200 – 150

Richardson, Texas 75081

Phone/Fax 972-644-6117

E-Mail: [email protected]

www.burnettmarusassociates.com

mailto:[email protected]

Continuing Education Notice

This course has been accepted by the International Association of Registered Financial Consultants for continuing educational credits for RFC ® s. The marks RFC ® and Registered Financial Consultant ® are owned by the International Association of Registered Financial Consultants.

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