Thanks for Capturing the Losses

[JohnH]

I swear I'm not making this up folks. I honestly considered posting this as a joke of the day, except for the fact that it's true.

I'm going over the paperwork that a client just dropped off and ran across a note from their investment adviser I just HAD to share (after I stopped laughing).

Not surprisingly, in 2008 they had several tens of thousands of losses on mutual fund & stock sales and so we have a sizable capital loss carryforward. Among the written recommendations the investment advisor gave them was the following, word-for-word:

"And remember to use some of the 2008 Long-Term Capital Losses we captured for you against income for last year...that should be very helpful".

So all this time I though a loss was a bad thing, but today I discovered that a loss is something for a savy invesment advisor to CAPTURE in order to be helpful to their client. What's the deal here - are the losses going to get away or somehow escape if they're not captured? I guess I need to learn more about investment advising and forget what I think I know about investing itself.

[RitaB]

You can't make this stuff up

I believe it, John! Had a few myself where the advisor spun it to make himself look like a hero while he's charging hundreds of dollars to "manage" the clients money. I really find it hard to believe that people allow that. I mean, good grief, download an application from a mutual fund, people. Just pick one. Your odds will be better. Total Stock Market. Anything.

Got a lady here, who USED to have one million dollars. She is in her eighties, and the advisor STILL has her investments in VERY aggressive funds. Hey, put some thought into it, man. Read an article once in a while or something.

[JohnH]

That's right. Put the equity portion of your portfolio in the Total Stock Market Index Fund and you have a 100% chance of beating the results of 75% - 90% of all managed funds (depending upon whose research you use). Pretty good odds in my book, and nobody's ever been able to show me a downside yet.

[ChEAr$]

That "investment adviser" (salesman) should be commanded to appear opposite O'Reilly
in the No Spin Zone.

[thomtax]

I swear I'm not making this up folks. I honestly considered posting this as a joke of the day, except for the fact that it's true.

I'm going over the paperwork that a client just dropped off and ran across a note from their investment adviser I just HAD to share (after I stopped laughing).

Not surprisingly, in 2008 they had several tens of thousands of losses on mutual fund & stock sales and so we have a sizable capital loss carryforward. Among the written recommendations the investment advisor gave them was the following, word-for-word:

"And remember to use some of the 2008 Long-Term Capital Losses we captured for you against income for last year...that should be very helpful".

So all this time I though a loss was a bad thing, but today I discovered that a loss is something for a savy invesment advisor to CAPTURE in order to be helpful to their client. What's the deal here - are the losses going to get away or somehow escape if they're not captured? I guess I need to learn more about investment advising and forget what I think I know about investing itself.

John, Here is your chance to extol your virtues of being able to obtain writeoffs for several years to protect them from excessive taxes. That even though their financial advisor has failed them in the past year, you are working to salvage as much as you can.

LT

[RitaB]

Amen, Brother!

That "investment adviser" (salesman) should be commanded to appear opposite O'Reilly
in the No Spin Zone.

I think O'Reilly is a real class act. Sharp as a tack, too.

[RitaB]

Dec 30, 2009

Had an advisor pushing me to figure the tax consequences to my 40-year-old client of cashing her deceased mother's IRA. Mother died August 2008, and the deadline (sorry) to do something was Dec 31, 2009. Suddenly, it was MY problem, even though he had had months to discuss with the client what to do.

Kept pushing my client toward taking 100%, instead of spreading out the distribution. I asked him what could he invest in wirh a non-retirement account that he couldn't invest in wirh a retirement account? Uh....uh...

I told him people BUY IRA's everyday because they are good investments. And why in the world would you be shoving these people into a higher bracket, and at the 12th hour, no less? And what exactly HAVE you been doing these past 15 months that you want me to spend New Years Eve crunching numbers?!

E-mailed the client notes of the conversation with my recommendation to leave as much in the IRA as possible, perhaps move it to someplace where THEY can manage it themselves. I can't wait to see what they decided.

[DaveO]

I have a 97 year old client with $50k of capital loss carryforward most of it in the last 10 years. She thinks her advisor walks on water but in fact she has had her portfolio ravaged by this person.

The advisor also finds a reason to exchange an annuity every other year. Her total value of annuities has fallen by $300k in 10 years with no withdrawals.

[JohnH]

John, Here is your chance to extol your virtues of being able to obtain writeoffs for several years to protect them from excessive taxes. That even though their financial advisor has failed them in the past year, you are working to salvage as much as you can.

LT

Yep, when I read the note, my inner accountant said "what a goofball!" Then the salesperson in me said "Hey, this guy is good - he really knows how to turn a phrase!" I'm trying to figure out how to put myself in the best light when I complete the return and I think you're onto something.

How's this for starters? "He was savy enough to capture the losses, and now you can be sure I'll keep them in the corral until they're needed. I'll lasso 3 thousand of the little critters and drive them onto your 1040 every year from now until 2025 or so. In the meantime, in the unlikely event your investment genius guy happens to let loose any gains, I'll round up some of those losses and protect you from any tax on those profits as well. But don't hold your breath on that last part." Yipee kay yea!

[Zee]

I swear I'm not making this up folks. I honestly considered posting this as a joke of the day, except for the fact that it's true.

I'm going over the paperwork that a client just dropped off and ran across a note from their investment adviser I just HAD to share (after I stopped laughing).

Not surprisingly, in 2008 they had several tens of thousands of losses on mutual fund & stock sales and so we have a sizable capital loss carryforward. Among the written recommendations the investment advisor gave them was the following, word-for-word:

"And remember to use some of the 2008 Long-Term Capital Losses we captured for you against income for last year...that should be very helpful".

So all this time I though a loss was a bad thing, but today I discovered that a loss is something for a savy invesment advisor to CAPTURE in order to be helpful to their client. What's the deal here - are the losses going to get away or somehow escape if they're not captured? I guess I need to learn more about investment advising and forget what I think I know about investing itself.

I'd suggest that the client ask when the advisor plans on "recapturing" some of the profits.

[thomtax]

Yep, when I read the note, my inner accountant said "what a goofball!" Then the salesperson in me said "Hey, this guy is good - he really knows how to turn a phrase!" I'm trying to figure out how to put myself in the best light when I complete the return and I think you're onto something.

How's this for starters? "He was savy enough to capture the losses, and now you can be sure I'll keep them in the corral until they're needed. I'll lasso 3 thousand of the little critters and drive them onto your 1040 every year from now until 2025 or so. In the meantime, in the unlikely event your investment genius guy happens to let loose any gains, I'll round up some of those losses and protect you from any tax on those profits as well. But don't hold your breath on that last part." Yipee kay yea!

Quite honestly, except for the holding your breath, unfortunately people fall for that - it works. I just found out that I lost a client because the wife thought she should have gotten the full $3000 for their child tax credit. They did not owe that much tax. And although I had explained that they were getting the rest of it in additional child tax credit, she apparently focused in on what she wanted to see. So they went to HR this year, who even charged them $35 just to direct deposit the refund into their own account. When I see things like that, sometimes I wonder why I try. This is the same couple that I cut a real break on the fee a few years before because they were having a hard time taking care of her father and his farm. No good deed goes unpunished.

LT

[veritas]

JohnH

You should like this terminology, "harvesting losses". I have advised clients to sell investments when the market had fallen dramatically. Then moving back in avoiding the wash sale rules. I think it can be a rather astute move.

One client in particular garnered nearly $100k in losses that we used up about a year later when he sold his business with a large capital gain absorbing the entire capital loss.

That being said I don't believe an investment advisor should make such a recommendation without consulting with the clients tax professional.

Having a securities license and being a tax professional can really make sense.

[S T]

Investment Brokers

Don't you know that a large portion of Investment Brokers will not talk with Tax Professionals.

I had a similar situation in 2008 and it cost the Taxpayer a lot of tax dollars due to the Broker creating Wash Sales that adjustments are carrying over in to 2009 and probaably 2010.

Taxpayer could have used a lot of those "created losses" in 2008 to offset another sale of Business Goodwill.

I hate to think of the tracking on this client, and maybe he will find someone else to prepare his return for 2009.

The broker doesn't like me and I can't say I am very fond of the broker either. Taxpayer obviously hasn't made his decision.

Sandy

[veritas]

I do know

So I decided to fight them at their own game.

Over the years they created much grief for me. Boiler plate incorporations and other schemes in order to sell their products for instance.

I love it when those trolls call me and want to meet so I can refer clients to them for investments.

It's fun to hear the dejection in their voices when they find out I have a securities license.

[JohnH]

You should like this terminology, "harvesting losses". I have advised clients to sell investments when the market had fallen dramatically. Then moving back in avoiding the wash sale rules. I think it can be a rather astute move.

One client in particular garnered nearly $100k in losses that we used up about a year later when he sold his business with a large capital gain absorbing the entire capital loss.

That being said I don't believe an investment advisor should make such a recommendation without consulting with the clients tax professional.

Having a securities license and being a tax professional can really make sense.

Veritas: Getting my securities license makes sense in this context. But I'll have to either work on a "fee-only" basis or else keep doing something else to make a living, because I won't make much money selling only term insurance to young people and no-load funds to clients in general. I do understand the concept of strategic selling, but I know the back story and in this case it was a matter of a panicky client and broker working together to do the wrong thing. Looking at how they handled things, I think there are more losses to come, but at least there's a silver lining - the broker (uh, I mean advisor) probably made a nice commission on both sides of the transaction. Somehow I suspect that $600 a year isn't his total compensation, in spite of what the client believes.