Living Trusts

You’ve heard you might need a Living Trust and have no idea what it is or how it could be of benefit. Relax; you are not alone.

The trust world can be very intimidating and complex with its own confusing acronyms. So instead of delving deep into that world, I’ll speak to three benefits of a Living Trust. Please know that your advisor can work individually with you to help determine if you and your family can benefit from one.

First, it provides continuity. Initially, you control and manage the assets in your trust. Should you become incompetent, incapacitated or die, your Successor Trustee can step in immediately to manage the assets as you have instructed. This prevents unnecessary court involvement, saving time and expense. And, it allows for quick intervention, minimizing interruption of asset management for you or your heirs.

Second, it provides privacy. At the time of your death the assets will be managed or distributed as you have directed and are shielded from public view. This is different from a will which at death is probated and becomes a public document. Therefore, anyone can go to the courthouse, pay a fee and get a copy of a probated will. A Living Trust will never become a public document.

Third, it avoids probate. This saves time, court expense and involvement, and shields it from public view as discussed. Since a trust never “dies,” it isn’t subject to probate and the associated time consuming court involvement and expense.

Although these are not the only reasons to utilize a Living Trust, they are important ones. Please call us if you would like more information.

Michael E. Bruder, CFP®, CTFA
Senior Financial Advisor
Senior Trust Advisor

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E-Mail Security

We have all read countless stories about the ever-present threat of identity theft. We all know by now that we should shred confidential documents instead of tossing them, intact, into the recycling bin. We dutifully avoid releasing personal information to strange people. We guard our social security numbers. What about e-mail communications, though?

It is easy to forget that e-mail is rarely a secure communications medium. A few moments of your time can save you hours and hours of frustration later if your identity is stolen. Here are a few tips:

• Never open unsolicited e-mails.
• Never use links in e-mails to go to other sites. Instead, use the web address you know to access the vendor’s site.
• Use anti-virus and firewall software. Regularly run virus scans on your computer.
• Never send confidential information via e-mail.

The last bullet point is very important. We have received e-mails from clients that contained account numbers, dates of birth, and social security numbers. While we may ask you in an e-mail to send the information, we also ask that you call us with it. Please do not hit “reply.”

In turn, we will not e-mail similar information to you. We will call you with the information. For your convenience, we sometimes e-mail account documents to you. We will remove account numbers and other confidential information from the document before sending the information to you. We take the security of your information very seriously.

Cristy Freeman, AAMS®
Senior Operations Associate

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Dividend Discount Model

Part of my job here at Parsec is to perform due diligence on the securities we cover, and I was just in the middle of reading up on Colgate when I thought to myself, “How can I possibly put this off for a little while longer? I know! I’ll write something for the blog.” I think I’ll talk about a little term people in the investment biz love to throw around – “undervalued” (and its sinister twin, “overvalued”).

I’m currently in the midst of studying for Level II of the CFA exam (I believe Dante includes this in the ninth circle of hell) which focuses heavily on security valuation. I’ve noticed that the answer to just about every question is, “discount the future cash flows.” The basic premise is that a security (or a company, or a capital project) should be worth the present value of its future cash flows. Present value means that, thanks to inflation, a dollar ten years from now will be worth a lot less than a dollar today. I guess that’s why my mom could ride a bus, see a movie, eat a hot dog, and buy her first house for just a nickel way back when. Therefore, a security (let’s take a dividend-paying stock, for example) should be worth something equivalent to all of its future cash flows (i.e., dividends) adjusted to today’s value.

How in the world do you calculate this, you wonder? Until recently, I thought it was a matter of going to the Bloomberg terminal and typing in a few commands. Thanks to my exam prep, I have learned that it can actually be calculated with something called a “pencil.” There are many ways to calculate fair value, one of which involves the dividend discount model, or DDM. The DDM requires several inputs, among them our good friend beta, swirls them all around and spits out a price. If the price (also called intrinsic value or fair value) is higher than the security’s current market price, the stock is undervalued. That means that the value of its future dividends in today’s world is higher than what you’d pay for it in the market. It’s like finding a pair of Manolos on Ebay for $100 when you know they retail for a good $400 more (I am still kicking myself with my cheap Payless shoes for letting those slip away). Conversely, if the DDM gives you an intrinsic value lower than the current market price, the security is overvalued. As with any mathematical model, the output is only as good as the input, and the resulting value estimation is sensitive to changes in any of several assumptions (EPS and dividend growth rates, beta, the market risk premium, etc.).

Well, I better get back to my Colgate research. I think it looks undervalued, but I need to do some more analysis. If anyone needs me, I’ll be under my desk discounting future cash flows.

Sarah DerGarabedian
Research and Trading Associate

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IRA Rules for 2009

There is some tax relief for IRA account holders over the age of 70.5 this year. The Worker, Retiree, and Employer Recovery Act, initiated in late 2008, suspended required minimum distributions (RMDs) from IRAs for 2009. This means that the government is not requiring those over the age of 70.5 to withdraw any money from their IRA, thus not forcing a taxable event on the IRA account holder. It also prevents unnecessarily liquidating equities at prices that may be currently low. The suspension only applies to the year 2009.

The temporary allowance of Qualified Charitable Distributions (QCD) from an IRA has been extended through 2009. This law permits IRA account holders over the age of 70.5 to distribute up to $100,000 a year from their IRAs directly to their chosen charity without paying tax on those distributions. For those who would not spend from the IRA otherwise, this essentially eliminates the tax burden of the RMD. Further, it is gets money out of the IRA tax-free, thereby reducing the IRA level and therefore reducing future RMDs and associated taxes.

Things to consider regarding the QCD in 2009, now that RMDs are not mandated:

• If you only want to make a Qualified Charitable Distribution for the sake of eliminating the current RMD tax burden, there is no need to do so in 2009. Donations may be made from other sources.

• If you take the standard deduction on your tax return (do not itemize), there is no tax benefit for charitable contributions. In this case, donating money from the IRA may be appealing to you simply as a means of getting money out of the IRA tax-free.

• If you intend to live off of your IRA investments throughout retirement, these strategies may not make sense for you. Always consult with your tax advisor to see how such scenarios might affect you personally.

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Article in Wall Street Journal, March 20, 2009

Some “Other” Wall Streets Embarrassed

ASHEVILLE, N.C. — Bart Boyer’s financial-planning firm, located at 6 Wall St. here, is a few doors from a custom sandal shop, bead store, New Age church and three restaurants that buy ingredients from local farms.
It is a long way from the Wall Street that has become synonymous to many Americans with reckless greed and pushing the economy off a cliff.
“They’ve caused us a lot of distress, ruined a lot of lives,” says Mr. Boyer, chairman and chief executive of Parsec Financial Management Inc. In the first two months of 2009, the firm’s revenue fell 22% from a year earlier.
Anger over runaway trading, financial engineering and compensation by financial companies has a strong resonance along at least 955 country roads, suburban streets and downtown blocks named Wall Street or something close to that. From Abilene, Texas, to south Los Angeles to Zeeland, Mich., these residents and business are wrestling both with the recession and the ignominy of a truly fallen address. (Never mind that most Wall Street financial firms aren’t literally located on Wall Street, nor is The Wall Street Journal.)
“My father’s always joked: ‘My daughter works on Wall Street,'” says Robin Campbell, owner of Dolce Vita, an eclectic boutique halfway on Asheville’s Wall Street that is stocked with handbags, earrings and wine. “Now he doesn’t joke about that.”
On Wall Streets throughout the country, the dominant view is that their New York cousins deserve their ruined reputation.
“If I ran this restaurant like the bankers ran their business, I would no longer have a job,” says Celinda Knight, manager of the Wall Street Bar & Grill, on East Wall Street in Midland, Texas, childhood home of former President George W. Bush.
“They have no idea what’s going on on the ground,” says Ken Olson, principal of Poko Partners, which has a real-estate project under way to revitalize Norwalk, Conn.’s Wall Street, located in a depressed downtown area. “These are people I don’t know, and that’s part of the problem.”
As for more than $165 million in payouts to an American International Group Inc. unit that crippled the insurer, “it’s absolutely beyond disgusting,” says Mr. Boyer, whose firm’s 1,000 clients include doctors and retirees. Parsec’s assets shrank to $749 million at the end of 2008 from slightly more than $1 billion a year earlier.
Last month, Mr. Boyer sent a letter to President Barack Obama suggesting limits on compensation for bank executives.
Asheville’s Wall Street is a one-way, two-block-long lane in the heart of this small city (pop. 73,875) in the Blue Ridge Mountains, about 690 miles by car from New York. During the late 1800s and early 1900s, Asheville flourished as the Vanderbilts, Henry Ford and other luminaries flocked here for its ostensibly curative mountain air. Enduring signs of that heyday include George Vanderbilt’s Biltmore Estate, now a popular tourist attraction and winery.
Named for a stone wall built to retain a hill in the bustling center of town, the Wall Street in Asheville began as a delivery alley. It evolved into an artery of offices, jewelry stores and other small shops. A Flatiron Building, shaped just like the one in Manhattan, housed offices and shops at one end of the street.
The Great Depression brought an abrupt halt to Asheville’s early boom. A new shopping mall in the 1970s further clobbered downtown. When Barry Olen bought an annex to the Flatiron building in 1978, Wall Street and nearby areas were blighted, full of “sleazy bars and pool halls,” he recalls.
Mr. Olen, who believes AIG employees should turn over their bonuses to “people who lost money from their efforts,” helped gradually transform Wall Street into a bohemian enclave and gathering spot for artists, retired baby boomers and other refugees of faster-moving America.
In 1987, Mr. Boyer moved Parsec from a home office to 6 Wall St., several doors down from shops owned by Mr. Olen and his wife. The street name was part of the attraction to the squat 1892 building. “We thought it would be sort of cute to be on little Wall Street,” Mr. Boyer says.
Parsec grew to 29 employees and has clients in 40 U.S. states. In contrast to former Merrill Lynch & Co. Chairman John Thain’s controversial office renovations, Mr. Boyer says he never spent more than $5,000 decorating his own office.
We shampoo the carpet once in a while,” he notes.
“This is the real Wall Street, right here … the one that’s based in reality and has some foundation in sanity,” says chef Mark Rosenstein, sharpening knives and slicing onions in the Market Place, a restaurant he moved into a 5,000-square-foot renovated space in 1990.
When Mr. Rosenstein hands out his business card while traveling, he is quick to explain that his address is “not quite like ‘that’ Wall Street.” AIG’s bonuses are “unconscionable” and “reward failure,” he adds.
As much as people on “other” Wall Streets want to distance themselves from the one known around the world, they can’t escape its economic reach. In January, Asheville’s unemployment rate hit 8.7%, up from 4.4% a year earlier. Tourism, the area’s most important business, is slowing. Once-red-hot mountain real-estate developments are dormant.
At the Market Place, revenue is down about 25% from a year ago. Mr. Rosenstein has given up his salary and offers a three-course meal for the cut-rate price of $29.
On a recent Saturday morning, Early Girl Eatery owner John Stehling said he and his wife had to cut employee hours and took home less than $30,000 last year after closing another restaurant they owned.
“I’m slavin’ away … just to make ends meet,” he says.

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S&P credit ratings and GE

In case you are curious, only five companies now have the pristine AAA credit rating by S&P. They are: Automatic Data Processing, Exxon Mobil, Johnson and Johnson, Microsoft, and Pfizer.

The headlines today are that S&P cut GE one notch to AA+. Apparently many analysts have breathed a big sigh of relief fearing that S&P might cut deeper to AA or AA-. Nearing the close, the stock is up 13%.

S&P has indicated that if GE Capital were a stand alone company, its credit rating would be A or smack in the middle of the pack of investment grade debt ratings.

Mark A. Lewis

Research & Trading Associate

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Article from Associated Press, Feb 24, 2009

I read this article the other day and thought it relative to the current market situation so I am passing it on in this blog. Hope you find it interesting.
Q: How does this drop compare with others?
A: At its low on Monday, the Standard & Poor’s 500 index was down 52.5 percent from its October 2007 peak. That makes it the third worst bear market since 1929. But the speed of the fall is the real story. In the past, it’s taken 21 months for stocks to fall this far. This time it only took 13 months.
The drop in stocks has also been playing out all around the world.
“The swiftness and the severity of this bear market I think were unprecedented — partly the global nature of it,” said Sam Stovall, chief investment strategist at Standard & Poor’s.
Q: The drop was fast but it still feels like stocks just can’t pull higher. Is this downturn longer than normal?
A: Since 1932, this is the longest time stocks have spent near a market bottom, according to Marc Reinganum, director of quantitative research and senior portfolio manager for Oppenheimer Funds.
Q: What has needed to happen in the past to turn a slumping stock market around?
A: Wall Streets need some source of hope. It could be as simple as one bit of news that acts as a catalyst for a rally. Investors will pounce once they believe the economy is poised to turn higher. But first, pessimism has to be running so high that many investors simply want to walk away.
Because many investors are laying bets for the months ahead they often look beyond the news of the day. So the market can recover well before the economy as a whole.
In the past 60 years, the S&P 500 has hit its low a median five months before the recession has ended and nine months before either corporate earnings have hit bottom or unemployment has peaked, according to S&P.
Q: What are the signs of a bottom?
A: A market bottom can bring punishing drops in prices, heavy trading volume and a large number of stocks that hit new lows. The cathartic sell-off is like a brush fire that drives many investors from the market but clears room for a recovery.
“Bear markets don’t end in whimper. They usually end with a crash,” Stovall said.
Q: What might a recovery look like?
A: That’s the good part. History shows that the rallies coming out of a bear market are far stronger than most advances.
Curtis Teberg, portfolio manager at the Teberg Fund, likens the market’s fall and recovery to a basketball thrown hard at the ground: The ball’s ascent is fastest right after it begins its bounce and its climb slows as it gets higher.
“The biggest bounce will come immediately and whoever is there will get to participate,” he said.
In bear markets since 1932, the S&P has gained an average of 46 percent in the 12 months after stocks hit bottom. The gains range from 21 percent to an incredible 121 percent.
Q: The slide has been so unnerving. Should I even bother to wait for a rebound?
A: Sticking around can pay off for those with the time. In the first year of a recovery investors have recouped an average of 82 percent of what they lost in the entire prior bear market, according to Stovall.
“Unless you believe that the world economy will stop and that all stocks will go to zero, one of these days this bear market will end,” he said.
Nervous investors should decide how soon they need the money. Stocks are for long-term investing. For those who can wait, cashing out at the market’s lows will only lock in the losses.
“It certainly is not the time to say ‘OK, I’m going to put everything in today,'” said Teberg. Instead, he recommends investors put one foot in the market at a time with money they won’t need right away. That way they can take advantage of deals on beaten-down stocks without risking too much at once.
Teberg is less nervous about the market at these levels than when stocks were at their peak in late 2007.
“At some point in time we will again see the market at those levels, which means there is a 100 percent gain for those who are willing to get into the market.” Investors just have to be willing to wait, he said.
“This market has never gone straight up or straight down forever.”

Barbara Gray, CFP®

[Advisor] is a registered investment advisor. This Article is being provided for informational purposes only, does not constitute investment advice and does not necessarily represent the opinions of [Advisor]. Nothing in this Article should be interpreted as implying the performance of any client accounts, or securities recommendations. [Advisor].does not provide any guarantee, express or implied, that the information presented is accurate or timely, and does not contain inadvertent technical or factual inaccuracies. The past performance of securities is no guarantee of their future result. The value of an investment may fall as well as rise, and investors may not receive the full amount of their principal at the time of redemption if asset values have fallen.

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The Story of Beta


You may be familiar with the term beta as it’s used in valuing investments. At the very least, if you’re at all comfortable with the Internet (and I assume you are, as you’re reading this blog) you can look it up and find out that it’s a measure of systematic risk. Great! That’s like my husband telling me that bike part over there is a derailleur. Now I know what it is, but I have no idea what it does or how it works with the rest of the bike (though I do know how to spell it, which is no small accomplishment). You may have even been at a party talking investments with someone (whose returns are “fabulous”) when they start tossing out terms like beta. You find yourself nodding along, silently wishing you could clock the guy with your derailleur.


So, what is beta? Well, it’s the Greek letter “b”, which you may remember from college. Not because you took Greek in college, but because your school had a “Greek system” (which is how institutes of higher learning keep you from graduating on time and therefore make more money). As I mentioned earlier, in the context of valuing investments, beta measures systematic risk. Unsystematic risk refers to risk that you can diversify away – industry risk, for example. If you had all your money invested in bank stocks last year, please accept my condolences and go fix yourself a nice, strong drink. If, however, you had a diversified portfolio of financials, consumer goods and services, healthcare, energy, industrials, etc., the returns in sectors such as healthcare and consumer goods would have mitigated (to some degree) the losses in the financial sector. The other type of risk is systematic, or market risk, which cannot be diversified away. Recessions (as we are painfully aware) affect the entire market regardless of business type, industry, and country, and even a properly diversified portfolio cannot escape all risk.


Beta is a number that measures market risk for a particular security. As a baseline, the market has a beta of 1. If a security has a beta of 1, its price is expected to move with the market. If it is less than 1, the price is expected to move less than the market. If it is greater than 1, the price is expected to move more than the market (for example, a beta of 2 indicates a security should move about twice as much as the market).


So now you know what it is and what it measures. The insatiably curious may also want to know how these numbers are derived. For all two of you out there, I will try to make the explanation as short and sweet as possible. Basically, it’s calculated using something called linear regression, which is nothing more than trying to make a straight line out of a bunch of data points that look like buckshot. If you regress the returns of a security against the returns of the overall market, you will get an equation for a line that represents the “best-fit” line through the data points. Beta is the coefficient in the equation that makes it all work.


I hope that was illuminating, and that you haven’t fallen asleep on your keyboard. If you have any questions involving derailleurs, please contact my husband.


Sarah DerGarabedian

Research and Trading Associate



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Fiduciary Services

Parsec Financial is a fiduciary, as such we are required to place the interests of our clients in front of all else.   It is a special role that we play, blending together trust, confidence and responsibility in our obligations to our clients.   Many of our competitors are not fiduciaries because of conflicts of interest, either transactional based compensation or revenue sharing agreements from the products they recommend. 

While we are a fiduciary for all our clients, it is very pertinent to our trust clients and retirement plan trustees.  Trustees come to us for help with the procedural prudence that is necessary for them to control their fiduciary liability and obligations.  

The strength of our service resides in our objectivity.  The Fee-only model allows us to embrace the fiduciary standards.  Our credentialed professionals are here to assist you with all aspects of trust and retirement planning. 

Rick Manske, CFP

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Compliance and the Securities Industry

As the compliance officer for Parsec, it is apparent to me that the compliance officers for Madoff were not doing their job. In 2006 the SEC required every securities firm to name a specific person as Chief Compliance Officer. The CCO is required to monitor the firm’s activities and ensure that the business is complying with the various securities regulations.

We have a software system that monitors all e-mails sent and received by employees which are then archived for record-keeping purposes. We are not allowed to electronically send personal client information which would include social security numbers, date-of-birth, account numbers, etc. The software alerts us to suspect e-mails.

Employee trades are carefully monitored and must be pre-approved before any trades are made. Employees must wait until block trades are finished for clients before executing any trades in their own accounts. Parsec receives statements on all employee accounts, including household members, and trades are double-checked each quarter to ensure compliance.

Portfolios are given specific composites (growth, growth and income or balanced, for example) based on the client’s investment objective, and then must be diversified according to guidelines established by our Investment Policy Committee. Sample portfolios from each advisor are reviewed periodically for compliance. If the portfolio is out-of-balance, the advisor is given a certain timeframe to get the portfolio back in compliance. We screen for stocks that are over a 5% weighting and if there is a reason for the overweight position it must be documented in the client’s electronic data file.

All advertisements and correspondence sent to more than one client must be reviewed and approved and a file is kept on all of those items. If we give statistics or certain facts we must have documentation on file to prove those facts. We also must retain records such as trade confirmations and account statements in order to be able to substantiate the performance figures sent to our clients.

Many other areas are routinely checked and a year-end compliance report is a requirement with documentation and “work papers” on the various testing procedures during the year included. I have attended compliance conferences every year and Parsec also retains a compliance consulting firm. We take this matter seriously and we maintain a culture of compliance. If a Ponzi scheme was going on at Madoff Securities and the compliance officer was unaware, he was a compliance officer in name only.



Barbara Gray, CFP


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