- Wealth manager Rebecca Rothstein handles $3 billion for celebrities and the ultrarich, and she says her clients are seeing signs of rising taxes and considering big changes in their work and investment lives.
- Rothstein told Business Insider that her older clients are reacting to signs that their taxes are going to rise in the years ahead - a trend that began when President Trump's tax bill limited a key deduction.
- For younger investors, she says it's going to become even more important to take taxes into account. Like many other professionals, Rothstein says she's putting more money into municipal bonds.
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Tax-time anxiety is nothing new, but wealth manager Rebecca Rothstein says her clients are stressing more than ever before.
Rothstein is a regular on lists of the highest-regarded people in her profession, and her firm - RVR Group, which is part of Bank of America Merrill Lynch's private banking and investment unit - manages $3 billion in assets for celebrities and the rich. And she says her clients are anticipating greater taxes on their wealth and investments.
"People are feeling as if, to provide free things, that their overall tax rate is going to continue to go higher," Rothstein said in an exclusive interview with Business Insider.
The main reason is linked to the election, as no matter who wins, they see a trend toward higher rates. Democratic presidential primaries, where candidates are proposing new taxes on wealth and higher taxes on top-level incomes, capital gains, or estate taxes to pay for big expansions in health coverage and tuition-free college.
That has some of her clients in their 50s and 60s are contemplating big changes. She sums up what they're telling her this way:
"'I'm going to stop working, I'm going to sell my assets that have capital gain tax treatment now and pay a lower tax, I'm going to buy municipal bonds and not going to make any taxable income, and that's how I'm going to spend the rest of my days,'" Rothstein said.
Relatively few people can sell major assets and retire that way, but the reaction shows the effects that those sweeping tax changes can have - and how taxes are playing a bigger and bigger role in how people invest their money. Rothstein says that could turn into an issue for younger people as well.
"I do believe that over time, the tax burden on that generation will be even more important in asset allocation than it is today," she said. "There's clearly a march toward higher taxes."
Her clients were already in a bad mood because the Tax Cuts and Jobs Act capped a deduction on state and local taxes they used. So they're seeing higher tax bills as they prepare to file their 2018 returns by the extended deadline of October 15.
Thanks to the increasing focus on taxes, she's already more time focused on her clients' after-tax investment returns than she has at any point in her career.
"We spend more time every single day talking about that than we do anything else," she said.
For Rothstein and many other professionals, that means bigger investments in municipal bonds, which are mostly exempt from federal income taxes. They're used to fund spending by a county, city, or state.
"People use munis to get tax free income and they use them to stabilize the portfolio returns because they don't move around much in price and they're throwing off tax-free income," she said. While the returns from those bonds might not look outstanding at first, they look better when tax implications are considered.
Rothstein said her top priority in choosing muni bonds is making sure her clients will absolutely get their payments, so she only invests in bonds with an A rating or higher.