Remind clients that inherited stocks aren’t keepsakes

No adviser thinks it is easy to talk clients into selling beloved stocks that are disrupting the balance of their portfolios.

That is one of reason why Ross Gerber, despite his spouse’s occasional objection due to its dilapidated state, likes keeping at his home the desk on which his grandfather used to evaluate stock investments.

“It’s falling apart,” says Gerber, co-founder, president and chief executive of Santa Monica, Calif.-based Gerber Kawasaki Wealth and Investment Management.
But the desk serves as the perfect prop for Gerber to use with clients who hold on too long to inherited equity assets that overweight their portfolios.

Keep the keepsakes from your family members such as a desk, a favorite pot, a painting or the house, he tells clients.

But, at the same time, recognize that inherited stock shares aren’t equivalent to those keepsakes in terms of sentimentality, Gerber says.

Instead, stock holdings should be evaluated in purely financial terms.

“You are not violating your family code if you sell those,” Gerber tells clients, including even his own mother.

“The reason why your parents or grandparents left you the money is to take care of your wealth,” he tells clients.

In his own family’s example, “Grandpa would have been really upset to see one of us squander away our inheritance,” Gerber says.

Instead, his grandfather was a stock picker who believed in selling when circumstances dictated that as the wisest move.

Tax rules allow recipients of inherited stocks to receive those on a stepped-up basis, wiping out years of capital gains’ tax liabilities. So selling inherited stocks often makes sense, and that is certainly the case when it dominates a client’s portfolio.

Joseph Birkofer, a CFP and the principal of Legacy Asset Management in Houston, also often contends with clients’ resistance about selling stocks that are dominating their portfolios. But he typically finds that those loyalties are based on his clients’ regional commitment to the energy industry.

“I had a client tell me once, ‘As long as I see cars on the road, I want to own my Exxon stock,” Birkofer says.

When he fails to persuade clients that those concentrations pose a threat, he relies on advisers in his office who devise inexpensive ways using ETFs to hedge clients’ investments in the energy industry.

“There are any number of ways these days, and they are not expensive,” Birkofer says.

This story is part of a 30-30 series on ways to build a better portfolio.

By Miriam Rozen