Hartford Business Journal

www.HartfordBusiness.com • February 11, 2019 • Hartford Business Journal 13 FOCUS state and people who will no longer need to pay the levy, whose progressive tax rate in 2019 starts at 7.8 percent for people with estates worth between $3.6 million and $4.1 million, and peaks at $663,000 plus 12 percent of the excess over estates worth $10.1 million. To put it in perspective, take the 2018 fiscal year, when Connecticut's estate and gift tax raised $223.7 mil- lion in revenue. The exemption level that year was $2.6 million, but if the future $11.2 million exemption level had applied, the state would have missed out on at least $65.1 million in tax revenue. That's because at least 599 estates worth between $2.6 and $10 million would have been able to avoid the tax, ac- cording to the Connecticut Department of Revenue Services' latest annual report. The state Office of Policy and Manage- ment projects the higher exemption will cost the state $193 million in death tax revenue over the next four years. Estate, gift tax debate It's difficult to determine the exact impact the estate and gift tax has on people's decision to retire in Connecticut or move elsewhere, but local wealth man- agement executives say it does weigh on the minds of their wealthiest clients. And the tax has become a hot-but- ton political issue. During the 2018 gubernatorial cam- paign, Republican candidate and for- mer financial executive Bob Stefanows- ki said the state needed to eliminate the estate and gift tax in Connecticut, which is one of 14 states and the Dis- trict of Columbia that assesses it. The state's largest business lobby, the Connecticut Business & Industry Asso- ciation, and the Commission on Fiscal Stability and Economic Growth, have also advocated for eliminating the tax. "It is certainly better, but our larger concern is the non-competitive nature of it," said Joe Brennan, CEO and presi- dent of CBIA, adding that real estate brokers in Fairfield County have re- ported the tax drives people out of the state. "The problem is, even though it's impacting a smaller group of people, it could have an effect on our economy." Meanwhile, in Washington, D.C., three Republican Senators — includ- ing Senate Majority Leader Mitch McConnell and Sen. Chuck Grassley — recently introduced legislation that would repeal the federal estate tax. Gov. Ned Lamont is currently review- ing Connecticut's estate and gift tax, ac- cording to his spokeswoman. Lamont's current stance, however, will soon be fleshed out in his first proposed state budget, which is due later this month. Lamont did say on the campaign trail last year, that Connecticut could not afford losing estate and gift tax revenue, according to media reports. Although some House and Senate Democrats support maintaining the estate and gift tax, it's not entirely a par- tisan issue. Democratic Sens. Alex Berg- stein, of Greenwich, and Will Haskell, of Westport, both from Connecticut's wealthy Gold Coast, last month proposed a bill that would eliminate the estate and gift tax in Connecticut. >> Asset Transfer continued CT's estate and gift tax Connecticut's progressive estate and gift tax in fiscal 2019 only impacts estates worth over $3.6 million. Here's a breakdown of the tax's rates and wealth brackets. Aggregate amount of CT gift or estate Tax rate Not over $3.6M None Over $3.6M but not over $4.1M 7.8% of the excess over $3.6M Over $4.1M but not over $5.1M $39,000 plus 8.4% of the excess over $4.1M Over $5.1M but not over $6.1M $123,000 plus 10% of the excess over $5.1M Over $6.1M but not over $7.1M $223,000 plus 10.4% of the excess over $6.1M Over $7.1M but not over $8.1M $327,000 plus 10.8% of the excess over $7.1M Over $8.1M but not over $9.1M $435,000 plus 11.2% of the excess over $8.1M Over $9.1M but not over $10.1M $547,000 plus 11.6% of the excess over $9.1M Over $10.1M $663,000 plus 12% of the excess over $10.1M Source: Connecticut Department of Revenue Services Fiscal Year 2017-18 Annual Report Wealth management firms seek next-generation workforce By Joe Cooper jcooper@hartfordbusiness.com W ith the advisor popula- tion rapidly aging, about a third of the nation's wealth management workforce is expected to retire over the next decade, according to global accounting firm Deloitte. About 43 percent of U.S. financial advisors are ages 55 or older, Deloitte says, which means the in- dustry will need to hire almost 240,000 advisors through 2025 to maintain current service levels. That's a concern because gradu- ation rates are low at wirehouse training pro- grams, the report says. As of the first quarter of 2018, Con- necticut had more than 14,800 people working in financial investment activities, including those in portfolio management or investment advice, according to the state Department of Labor (DOL). To groom the next-generation workforce, some wealth management firms have launched their own in- ternship programs, while other firms, especially those with aging owners, are simply looking to exit the busi- ness, experts say. Farmington's Connecticut Wealth Management has implemented an internship pro- gram in recent years focused on recruiting recent college gradu- ates, said CEO Kevin Leahy. "We are told that there isn't an adequate replace- ment of new advi- sors coming into the industry," he said. "We've been lucky in that our ef- forts to hire folks have been successful." Leahy says many aging wealth management companies without a succession plan are looking to either merge or be acquired by another firm. Connecticut Wealth Manage- ment is actually looking to buy, and is currently in negotiations to acquire a Connecticut-based firm that has several retiring advisors. "We are certainly not going to ac- quire businesses just to get bigger, but in the right instance we are going to consider the opportunities," he said. Waterbury's Webster Investments says it's also focused on hiring the next generation of advisors, having launched an internship program 15- plus years ago to prevent workforce gaps. Since then, Webster, which manages $2.3 billion in local assets, has hired more than 30 interns to full-time positions, said John Olerio, director of Webster Investments. Of Webster's 55 total advisors, 12 came from its internship program. The company in January also pro- moted seven financial associates to financial consultants. "We realized quite some time ago internship programming and robust junior programs are needed to groom and develop talented individuals interested in the wealth management field," Olerio said. Kevin Leahy, CEO, Connecticut Wealth Management John Olerio, Director, Webster Investments Wealth transfer creates opportunities, threats for CT advisory firms As America and Connecticut undergoes a major asset transfer boom in the coming years, wealth management firms say the trend represents both a threat and opportu- nity to their business. The state's more friendly estate and gift tax exemption, they say, could help encourage more so-called members of "Generation One" to retire in Connecticut, which would allow wealth management firms to retain older clients and, ideally, their children, who will inherit estates tied to liquid assets, privately held businesses, real estate and other lifelong investments. However, younger people, including those in their 20s and 30s, are manag- ing their port- folios at an earlier age and demanding a new slate of services that include remote planning, web-based products and a management team with both young and tenured advisors. Wealth management firms must adapt to those changing needs or risk losing the next-genera- tion of investors, advisors say. "If you build relationships with the second or third generation, it's going to create a whole new legacy of clients that kind of starts over," says Robert Laraia, founding partner of West Hartford's Northstar Wealth Partners. Robert Laraia, Founding Partner, Northstar Wealth Partners

• Cover