Tiny advisory firm faces big challenge managing Powerball winnings

Mackenzie's $270M take will more than double Madden Advisory's AUM; 'a responsibility that we don't take lightly'

Jun 6, 2013 @ 3:39 pm

By Liz Skinner

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((Photo: Bloomberg News))

Talk about a daily double. Madden Advisory Services Inc., the lucky investment adviser to $590 million Powerball Lottery winner Gloria Mackenzie, stands to see its assets under management immediately go up by more than 100% — thanks to its new favorite client.

Ms. Mackenzie, who is 84, elected to take the $371 million lump sum payment before taxes when she collected her winnings Wednesday from the Florida Lottery office. The widow from Zephyrhills, Fla., walked away with about $270 million after paying 25% in federal income taxes. She said she's splitting “this blessing” with her son, Scott.

“It's a tremendous honor and humbling experience for someone to put that trust and confidence in us,” said Harry “Hank” Madden, founder of the firm. “It's a responsibility that we don't take lightly.”

He said the four-person firm, which manages about $203 million in assets, would have to hire more staff and pick up more space in order to meet this new client's needs. They now have three advisers, all of whom are certified financial planners. He declined to go into what percent he'll charge on the assets.

Mr. Madden said such a client has complex planning needs, such as anti-terrorism policies, kidnapping policies, large liability policies, charitable planning and foundations and transfer taxes to consider.

“There are a multitude of issues and the investment side is actually the easiest side to deal with,” said Mr. Madden, who co-hosts a weekly radio show in Jacksonville, Fla., called “Smart Money.”

Tom Fross, owner of Fross & Fross Wealth Management, said a client of that size would be a career changer even for his firm, which manages approximately twice the assets as Madden.

He said his firm would probably charge about 30 basis points for a client that size – which would bring in about $810,000 a year.

Fees at Madden are based on account balances, according to firm's website, which also said fee rates decline as account size increase.

Mr. Fross questioned whether Ms. Mackenzie needed a family office that has dealt before with someone of such astounding wealth.

“Someone like that really needs a family office to take care of them,” Mr. Fross said. “She could hire her own fund manager, basically.”

But he applauded Ms. Mackenzie's first decision, to split the winnings with her son. That move immediately protects that amount from the 40% that her estate will owe in federal estate taxes when she dies. Florida has no estate taxes.

Mr. Madden said that Ms. Mackenzie and her son had a documented agreement to split up any winnings from the $2 ticket purchased from a Publix supermarket. Such an agreement should ward off any gift taxes that would have been due on Mr. Mackenzie's half if she had decided after the numbers were chosen that she would divide the winnings.

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