Page 24 - Investment Advisor April 2021

RIA LESSONS & LEADERS

By Bernice Napach and Jeff Berman

Creative Planning CEO: Biden’s Capital

Gains Tax Plan Could Kill Model Portfolios

Also, a Schwab report outlines how much RIAs employees get paid.

eter Mallouk, CEO of Creative
Planning, says an increase in the
Pcapital gains tax, which President
Joe Biden is considering, could “dra-
matically change” investment decisions
and “drive a stake through the heart of
model portfolios” many advisors use.
Biden campaigned on a variety of
plans to increase government revenue,
including raising the marginal tax rate
for those earning more than $400,000
from 37% to 39.6% and raising the tax
on long-term capital gains and qualified and then investing the proceeds, Mallouk traditional 60/40 asset allocation model
dividends from 20% to 39.6% for those says. “There will be more demand for “dead,” favoring 70/30 or 80/20 mix.
taxpayers earning more than $1 million. customization that didn’t exist before,” He says that Creative Planning clients
The president has not yet proposed affecting advisors that pitch model port- are holding 20% to 40% of their port-
these and other tax changes as he is folios in particular, he says. folios in foreign stocks, both emerging
focused first on getting the coronavirus “Clients want advisors to work with markets and developed markets, tilting
pandemic under control and provid- the positions they bring to the table. They toward the latter.
ing relief to families, businesses and want advisors to work around the posi-
communities affected by its economic tions they bring, around capital gains.” ESG AND CRYPTO
fallout. But Treasury Secretary Janet Mallouk adds that an increase in capi- Mallouk says environmental, social and
Yellen, in her written responses to ques- tal gains taxes also will bring mergers governance focused investing is becom-
tions for her confirmation hearing, and acquisitions to a halt and affect the ing more mainstream as an increasing
affirmed Biden’s plans to increase the holding periods for private equity funds. number of investors, especially millen-
capital gains tax for wealthy investors The Creative Planning CEO, who has nials, want their investments to match
and tax their unrealized capital gains — expanded the firm from just $34 million their values, but advisors shouldn’t nec-
both designed to “remove biases on the in assets in 2004, when it he took it over, essarily bring up the subject directly.
tax code that favor wealth over work.” to close to $70 billion today, has some Rather, they should “find out what a
At the hearing, Yellen said in response interesting things to say about bonds. client’s goals are.”
to a question about taxing unrealized He says more and more clients are
gains, “capital gains at some point REPLACE 60/40 WITH 70/30 asking about cryptocurrencies, which
should be taxed,” noting that a “mark- OR 80/20? are acquiring an aura of legitimacy that
to-market approach is one method but Investors should hold only enough they didn’t have before. ”The world defi-
not the only method.” bonds to meet their income needs dur- nitely wants there to be a cryptocur-
ing a long-term bear market when they rency they can rely on … [but] “Bitcoin
IMPACT OF HIGHER CAPITAL shouldn’t be selling stocks, according to may or may not be the one that prevails.
GAINS TAXES Mallouk. Bonds are earning next to noth- “Look at AOL or Yahoo or Excite,”
If capital gains taxes are increased for ing now, less than most dividend-paying he says, referring to the once-hot inter-
wealthy investors, advisors will no longer stocks, he says. “Do I really think I will net companies that faded. “It will be
be able to get away with taking the port- earn zero in stocks for the next 10 years?” interesting to see how the government
folio of a new client, converting it to cash In a recent podcast, he declared the regulates it all.”

22 INVESTMENT ADVISOR APRIL 2021 | ThinkAdvisor.com