February 2009

Stock Market? What Stock Market?

Author: Paul deVere | Photographer: John Brackett

Have you gone into “stock shock?” Are you trying to figure out what to do with your money, other than deposit it in the Bank of Sealy Posturepedic (under your mattress)? James Lockhart, president of Harbor Light Wealth Management, and Robert Star, the firm’s managing partner, have some suggestions.

“You’ve got to look at all asset classes and all types of investment vehicles. What we’re trying to do is make sure everybody understands that there is a broader platform than what they are being offered and probably what they’ve been told for their entire life,” said Star.

“Wealth management really has very little to do with investments; it has to do with managing wealth, preserving capital, and making investments that aren’t correlated to the stock and bond markets. A large percentage of our business is preserving capital in non-correlated assets,” Lockhart explained.

Those “non-correlated assets” are “Direct Participation Programs” (DPP) in such tangible assets like leased equipment, real estate and energy resources. With a DPP, the investor owns a share of the actual assets of an operating company. Those assets have no relation to that company’s stock or bond values. That is, they are “non-correlated” to the market. In today’s jargon, these assets are Main Street rather than Wall Street. DPP’s used to be available only to those people who had a net worth of $25 million and more. While the investor at Harbor Light still has to meet certain minimum net worth requirements, the entry level has been significantly reduced.

What Lockhart and the other wealth managers at Harbor Light want to do is fulfill what they see as a great need in the Bluffton and Hilton Head market. “It’s teaching this market how not to get life insurance to pay your tax bill when you pass. It is showing other avenues, how to actually turn back the clock and say, ‘Look, I can take my estate and I can benefit my community. I can have the same outcome with my kids, passing my inheritance on, but leaving my assets to people I want to and not the federal government.’ We want to show how you can pass your assets to your local community, college… create a $5 million endowment, pay your church a million when you die to build that new community center. Most people think about money as money. We look at people’s money as their opportunity to leave what they built,” Lockhart said.

Harbor Light Wealth Management is totally independent. The company has no proprietary products, so their investment platform is much broader. “Our strength is offering a plethora of options. We look at everything globally. ‘Stay the course’ is the wrong answer,” Lockhart said. “Our approach is unique, successful. It is all about asset allocation and using the proper instruments. That is the main ingredient.”

“What people need today is a recovery plan. That’s kind of what we’re specializing in right now, showing people that are not our current clients how you recover from this type of environment,” Lockhart explained. Most people are told that recovery could take a long time. “I’m here today. Recovery can begin now,” he said. He recalls a new client coming to him after the client’s stock portfolio had lost a good deal of its value. Lockhart suggested he get out of securities completely. “The client asked me when he should sell. I told him he could use my phone.”

Harbor Light’s total wealth management program includes estate planning, tax planning, investment management, business succession planning and wealth preservation. “When you come to us, it’s not the square peg in the round hole theory. We figure out what exactly makes sense for you in all those planning aspects. We will actually review the estate plan, the trust documents. We work with nationally recognized attorneys to make sure you get a second opinion of your estate plan, on your taxable liabilities,” Lockhart said.

They also work with their in-house CPA, Jim Van Grouw, the director of tax for Harbor Light, who also has a securities license. Lockhart gives an example of a client with a net worth of $1 million who is paying $20,000 to $30,000 in taxes. An immediate change would be a Direct Participation Program in natural gas. That would result in an 85-100 percent deduction on ordinary income, greatly influencing those taxable liabilities.

“We work with the largest natural gas developer in the country. But say something happened to that company. It doesn’t matter. Our clients own what’s in the ground. It’s been sold three or four years out,” Lockhart explained.
Another investment platform that Harbor Light uses is direct participation in private, non-traded REITS (real estate investment trusts). Unlike publicly traded REITS, which are affected by market forces, private REITS provide income over the investment term, usually seven to 10 years.

“We want to be very clear here,” Star said. “Harbor Light is not involved in any way, shape or form with mortgage-backed securities. We have no exposure as a firm to any of that. We’ve been going the opposite direction, getting away from that traditional mold.”

The value of being independent managers is very important to Lockhart and Star. Lockhart comes from the banking side of the financial services industry. Star comes from the securities side, with direct experience on Wall Street. They formed the company when they found they shared the same ideas about how a client can be best served.

“We’re not limited to what corporate believes is most marketable and profitable,” said Star. “Yet we have multi levels of due diligence by our broker firm, Woodbury Financial Services, Inc., and beyond that, independent due diligence firms like Stanger, a firm hired by broker dealers to say whether or not this a fair program. That happens before the program gets to us. We believe in having multiple people looking at the estate plan, multiple eyes for what’s going on.”

Coming full circle to make sure their clients have complete wealth management services, Harbor Light provides an “Account Aggregation System” via the Internet. “Let’s say you have money with us, you have a checking account with a bank, you have an IRA with a broker. We can actually tie all that into one front end platform that will give real time data on all your investments, including what life insurance policies you have. We can upload wills and trusts, deeds to homes, so that everything you need is in one secured file online that has updates of your financial plan. You can actually see how your financial plan is being met with your investments. The platform allows you to log on and see all your accounts and all balances,” Star said. The platform also allows access for the client’s attorney, trustee, CPA and financial advisor, and can be restricted in any way the client wants, he explained.

“We have the highest credentialed firm in this market. We have the technical knowledge of anything that deals with money,” Lockhart said.

The company also serves clients throughout the country. “We do business with people in Pennsylvania, Ohio, Michigan, New York, Illinois. But we have settled here for personal reasons. We’re young; this is a great place to raise a family. Plus, we both have a real passion for true wealth management. We also believed that the high net worth community here was very under-served for high-level planning.”

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