Wealth Adviser Daily Briefing: Tax Tips for a Down Market

A smart response to the recent stock-market rout is to look for tax strategies to help ease the pain, writes Wall Street Journal tax columnist Laura Saunders ^[1]. "At times of volatility, people should look for tax opportunities they don't ordinarily think of," says Northern Trust chief tax strategist Suzanne Shier. That could include taking losses to offset future gains or converting a pretax individual retirement account to a Roth IRA when asset values–and thus taxes–are lower. Another tip to consider: exercising employee stock options. Workers with nonqualified options, the most common type, usually owe tax on the difference between the options' grant price and the shares' current value when they exercise the options, writes Ms. Saunders. A market decline often lowers this tax cost. Additionally, consider making gifts of stock, since a market decline means the ability to transfer more shares for the same gift-tax cost, which could be zero if gifts are below the annual gifting limit of $14,000 per person per recipient. If a grandparent gives a grandchild shares that have fallen to $14,000 in value, and the stock later rebounds, the law doesn't assess more gift tax.

PLANNING & INVESTING:

Another black eye for exchange-traded notes. Barclays Bank PLC on Friday issued an investor alert about its $547 million iPath S&P GSCI Crude Oil Total Return Index ETN, urging people to "exercise extreme caution" when buying or selling ETNs that are trading at a premium to underlying value, The Wall Street Journal reported ^[2]. The bank said investors buying an ETN at a premium "may experience a significant loss" if they sell when the premium has disappeared. Last week's trading demonstrated that: The premium on the Barclays oil ETN fell from 41% at Tuesday's close to 16% on Thursday. On Thursday, the ETN fell 17% even as oil prices rallied. On Wednesday, a unit of UBS Group AG said it would "mandatorily" redeem two of its ETNs related to energy master limited partnerships amid a sharp selloff in the sector.

Market 'capitulation' is nowhere in sight (so far). There's nothing like a 10% drop in the stock market in the first few days of the year to rev up Wall Street's myth-making machine, but investors should take a moment to winnow fact from fiction, writes Wall Street Journal columnist Jason Zweig.^[3] Myth No. 1, he says, is that individual investors are especially prone to panic. "While some individual investors have undoubtedly been selling, the overall picture suggests patience," he notes. For instance, when stocks fell sharply on Wednesday, individual clients at Fidelity Investments added much more to their accounts than they withdrew. Myth No. 2 is about "capitulation," a frenzy or crescendo of trading that washes out the last sellers and prepares the market to rise. History shows that falling markets tend to hit bottom not with a bang, but with a whimper, writes Mr. Zweig, "so you shouldn't view the volatile trading and fearful mood so far in 2016 as clear signs that stocks can't drop much more."

THE BUSINESS:

Is Wells Fargo's cross-selling prowess fading? Wells Fargo & Co. has regularly touted its ability to sell oodles of products to each of its customers, but in the past year, the firm's much-lauded cross-sell ratio has declined slightly, reports Financial Planning ^[4]. While Wells Fargo still sells more than six products on average to its customers, the company reported that its cross-selling ratio dipped to 6.11 in the fourth quarter from a high of 6.17 a year earlier and hitting its lowest point since 2012, the publication notes. Wells Fargo Chief Executive John Stumpf attributed the drop to a 5.6% increase last quarter in new checkin g-account customers, who generally start with fewer products compared with existing customers. Meanwhile, the drop comes amid regulatory probes ^[5] into whether the bank has pushed its employees too hard to meet sales quotas and not enough to prevent questionable behavior.

Raymond James profits are 'disappointing,' but adviser ranks grow. Looking at his company's most recent earnings results, Raymond James Financial Inc. Chief Executive Paul Reilly had one word, "disappointing," reports Financial Planning ^[6]. Recent market volatility has buffeted earnings and continued volatility could affect the firm's future results, Mr. Reilly said during the company's call with analysts on Thursday. Still, the firm's adviser ranks, including independent and employee channels, have climbed to a record, the publication notes, adding that Mr. Reilly cited that increase, as well as increasing net loans, for his confidence in fu ture growth. The firm reported that its adviser ranks grew to 6,687, up 351 advisers from December 2014 and up 91 from September 2015.

THE PRACTICE:

Some clients need a push to spend money. A financial plan doesn't have to be all about saving; it can also be about spending on things that we can afford that will make us happy, says Albuquerque, N.M.-based adviser Donna Skeels Cygan on WSJ.com's Wealth Adviser ^[7]. She suggests that in a first meeting with a client, a financial adviser ask what makes that person happy and find out what makes the client tick. Then, once an adviser has identified a client's goals, the discussion can move to how to make those goals happen. "The public perception of advisers is that we should focus on the dollars. But we bring so much value to our clients when we go bey ond that," she notes.

Follow Wealth Adviser at WSJ.com on Twitter: @dowjonesadviser^[8]

The Wealth Adviser briefing covers topics of special interest to wealth managers, financial planners and other advisers. It's delivered to subscribers by email each workday morning. If you haven't done so already, you can sign up for it here: http://on.wsj.com/WealthAdviserSignup ^[9].

Please send tips, suggestions or other comments to Michael Wursthorn at michael.wursthorn@wsj.com ^[10] or Wealth editor Karen Damato at karen.damato@wsj.com ^[11].