“Munis” Keep Investors Safe

Tax-free municipal bonds can boost any portfolio, but they work especially well with those of high-income investors living in high-tax states such as New York, New Jersey or California.

“If [a client is] in a high tax bracket, tax free bonds should have a role in the clients portfolio,” said Kevin Strauss, CFA and President of Abner, Herrman & Brock (AHB). “An intermediate – maturity investment grade municipal bond portfolio could generate 2.5 percent tax-free returns, which can be the equivalent of generating 5 percent in a high-tax state.”

AHB is a customized investment management firm, based in Jersey City, that works with individuals, families and Registered Investment Advisors (RIAs). The firm’s investment decisions are guided by its investment policy committee, a group of financial professionals with decades of accumulated experience. Most clients hold assets between $1 million and $20 million. The firm, founded in 1981, creates an individual approach for each client and does not sell “packaged” investments, according to Strauss.

Municipal bonds, however, do figure prominently into the firm’s investment strategy. Municipal bonds – or “munis” for short – are debt securities issued by local governments to finance capital expenditures, such as road-building. These bonds are exempt from federal taxes, and also from most state and local taxes.

And AHB knows municipal bonds; almost half of the Jersey City firm’s assets under management are invested in them. This safer, but still profitable, investment in bonds paid off during the 2008 financial crisis, Strauss noted, when stocks entered their downward spiral.

“Stock portfolios went down, but bond portfolios went up,” Strauss said, adding that AHB’s clients weathered the crisis well compared to those investing with other firms, a testament to the company’s foresight. Seeing impending trouble in the financial sector at the time, when they sought investments elsewhere, they placed an emphasis on municipal bond investing.

Strauss did make the observation that younger investors with a higher tolerance for risk might find bonds less than exciting. For those clients, AHB can build a portfolio with a smaller bond presence, focusing on higher-risk, higher-reward stocks. “Really, it is about meeting the client’s goals,” he said.

“It’s critical to have the knowledge of the different investments we could be making as well as the knowledge of what our clients’ objectives are,” Strauss said.

Chasing bonds might seem like a different approach from other wealth management firms, but Strauss explained how AHB’s uniqueness is what attracts clients in the first place. Between creating customized solutions (“competitors sell packages,” Strauss said), and by focusing on client goals rather than abstract benchmarks, he added that the firm can meet investor objectives.
“We just don’t see a lot of direct competition when we’re out speaking to clients or advisors,” he said.

Wealth managers also often turn to AHB because they understand about this firm's.

differentiated approach. Whereas a poor jobs report might spook investors at other firms, AHB conducts much of its own research.

“You can’t rely just on government statistics. You have to do a lot more work than that,” Strauss emphasized. And it is that extra work that allowed Abner, Herrman & Brock, which has tripled in size since 2009, to build strong relationships – not just with individual clients, but with advisors as well.

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