Archive for December, 2017

What Would Be the Effect of a Reduction in Corporate Taxes?

Posted by Emmett Maguire III, CFA®

According to History, Not Much

Over the past few months, much has been made of tax reform–corporate tax reform in particular–and its implications for markets. The talking heads on CNBC bat around “what if” scenarios like callers on sports radio approaching a trade deadline. As we inch toward approval, consensus opinion has it that lower taxes lead to higher earnings, which will produce higher stock prices. But there is some variability in potential outcomes. If tax reform is approved and the corporate tax rate is lowered, forecasters’ predictions about the outcome range from no effect to materially positive (mid to high single digits in most cases we’ve seen). If not approved, forecasters’ predictions range from no effect on markets to a potential crash1, according to Treasury Secretary Steven Mnuchin.

The problem with all these predictions, beyond not having any way to verify how accurate these forecasters have historically been, is that they cannot be measured for success. They are simply an exploration of various outcomes that could happen in the short term. But does this really matter in the context of a long time horizon?

To answer that question, we set out to examine the history of the top corporate tax rate since 1936 and its effects on public equity returns. As seen below, the tax rate for corporations rose from 15% in 1936 to 52.8% in 1969. From that point, the top tax rate for companies has fallen to 35%, with some plateaus along the way. In the first period, 1936-1969, the average annualized return for the S&P 500 index was 10.6%. From 1970 to 2016, a period of falling corporate tax rates, the average annualized return for the S&P 500 was 10.3%, lower than the rising corporate tax regime.


Historical averages indicate that the direction of corporate tax rates (increasing vs. decreasing) makes little, if any, difference to long-term average returns. But what about the level of taxes? Would that tell a different story? The average tax rate2 over our sample period is 40.8%. Using that to cut the data set into “high tax years” vs. “low tax years”, we then calculated the average calendar year return in those periods. Interestingly, the results were again counterintuitive as seen below.

Source:, FactSet, Lake Street Advisors

Our conclusion, in the context of managing a diversified portfolio designed to achieve the long-term objectives of clients, is that the direction and level of corporate tax rates does not matter to the returns generated from U.S. public equities. While the media hypes up these seemingly important and uncertain events with opinions from a swath of experts, a more informative exercise might be asking why this potential reduction in corporate tax rates would be different from what has happened in the history of corporate taxes.

2Simple average of top corporate tax rate by calendar year


Trusting Your Wealth to a Multi-Family Office

Posted by Jeremy Walla

The Benefits of Working with a Multi-Family Office Wealth Advisory Model for Wealth Management

Wealth comes to people in many ways, but regardless of how it happens, a critical component of your financial future is your team of advisors. There are several paths to choose in assembling that team. In addition to your legal and accounting professionals, there are brokers, investment advisors, multi-family offices, and single family offices to help you protect and grow your wealth.

You want to know you’re getting a comprehensive perspective you can trust, while avoiding the burden of acting as the coordinator of discussions and transactions among your advisors. You might accidentally find yourself taking on a more active role in your wealth management than you would like given other areas of interest.

If you have net assets over $20 million (often classified as ultra-high net worth), you should try to familiarize yourself with the differences between firms and advisory models that are available for you in this higher segment of the market.

Hiring a Multi-Family Office (MFO)

For the ultra-high net worth, an MFO is a logical path beyond the brokerage world’s “investments first” approach toward a more sophisticated, holistic family wealth management strategy.

An MFO is made up of multiple families, and services are typically pre-defined. They can offer “a la carte” investment management, financial planning, household management, or a combination of these services. More importantly, they offer shared experiences that can be an advantage over a single family office silo. Issues impacting one family will be addressed by the MFO, and any other families that could be impacted will benefit from the experience. An MFO advisor is well-positioned to either proactively address issues or at least identify a problem early and implement a solution that draws on the experiences of those applied to other families. MFOs also work closely with a variety of external professionals, so clients have access to an even wider network of advice and expertise, if needed.

Benefits of an MFO over other advisory business models include:

Perceived Versus Actual Needs–How an MFO Can Help You with Blind Spots

Your family may not feel like a business, but as wealth hits higher thresholds, it creates greater complexities that mirror those of a business, requiring you to essentially run that business in addition to your daily life.

An MFO should be able to help ease that burden. MFOs offer a breadth of services and advice that is flexible and can offer enhanced risk management over putting “all your eggs in one basket” with a single family office. A single family office can be expensive and you may feel like you’re running another business. With an MFO, you’ll feel much more like you’ve outsourced, and you won’t need to worry about being nickel-and-dimed for asking questions or spending more time on the phone with your advisor. Even better, your MFO team, along with their professional network, is working for you, serving as your chief financial officer as well as chief operating officer. There’s no substitute for the experience and knowledge of a financial planner, investment advisor, CPA, and estate attorney. An MFO team can help you evaluate existing relationships and guide you through a comprehensive analysis of your overall situation to be sure you choose the best path forward for your financial future.

Regardless of wealth level, everyone seems to worry and struggle with day-to-day management of finances. Don’t spend your time chasing down loose ends when you can entrust those tasks to a team of dedicated experts who will work together to ensure you’re getting the attention and the service you and your family deserve.