Dissatisfied with the depth and breadth of the advice from their prior investment management firm, a high net worth couple hired us to address their planning needs. In typical fashion, their portfolio was split between stocks and bonds. The stock allocation consisted of many individual securities and, at the client's request, several mutual funds. A number of positions had significant unrealized gains. Their portfolio also contained small exposures to non-traditional asset classes through vehicles sponsored by their former investment management firm.

The immediate financial driver for the couple was a desire to buy a more expensive residence but keep their existing residence for a couple of years while the children finished high school. Together, we identified the planning issues confronting them:

  1. At what price did a new house threaten their financial security?
  2. What was the best way to raise the cash necessary to buy the new residence?
  3. How was cash flow to be managed during this period of dual home ownership?
  4. How would they develop and maintain an appropriate investment allocation through the two-year period and beyond?

After inquiring into financing options with our mortgage industry contacts and projecting cash flow, income tax and wealth effects of various alternative strategies, we formulated our recommendations.

First, we provided the client with the maximum home price advisable given their situation; the offer was made and accepted. Next, we arranged mortgages on both residences at a loan-to-value ratio that kept interest rates and financing costs to a minimum. To raise cash, we recommended the sale of individual stock positions that took advantage of loss positions and the client's additional tax deductions but kept the portfolio's character intact. With this strategy we were able to raise considerable cash without adding significantly to the client's tax bill or distorting their investment portfolio.

Finally, we recommended redeeming tax-inefficient investments (e.g., a multi-strategy hedge fund-of-funds) in the client's personal accounts for re-allocation to retirement accounts. This had the effect of trading liquidity in a retirement account (which was less important at this point) for liquidity in their personal accounts (very important for the next two years).