Stating the Obvious

Once again, an article on Bloomberg.com has inspired today’s topic – women matter.

I know, it seems obvious, but this has been a recurring theme in the press lately. I have read several articles in financial industry magazines about how advisors can attract more female clients. One article actually said there was more to it than just putting out fresh flowers in the office. And this is news?

It’s a well-intentioned article, but it just seems a little ridiculous. I’m not denying that there are differences between the genders, but I tend to believe that everyone appreciates a financial advisor who listens, asks valid questions, treats them respectfully, and makes them feel valued, regardless of gender. I would certainly hope that advisors treat all of their clients this way – I know we endeavor to do so in our practice.

The article on Bloomberg.com that caught my eye was also female-centric, but it was about a Dutch private equity fund founded by three women. The fund invests in companies with a balance of male and female top executives, citing research by McKinsey & Co. that found companies with the highest percentage of women directors made a 41% greater return on equity than companies with all-male boards. What I found especially interesting was that the fund is not doing this to “serve the cause of women,” as one of the founders said, but because they think companies with gender-balanced management perform better on average, a belief that is backed by more than one study.

I have to admit I am pleased to see greater efforts being made to include women, whether it’s as potential clients or as vital members of a company’s senior management. Women have something to offer! Who knew?

Sarah DerGarabedian, CFA
Director of Research

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More Questions to Ask

Harli’s prior blog post covered some good steps on what you should be considering when hiring a Financial Advisor. An important part of that is having an understanding of the investments that your Advisor recommends when implementing your portfolio. Once you’ve agreed to an asset allocation – how do you go about buying into that allocation?

One important item to understand here is whether or not the Advisor receives compensation for recommending certain investments. At Parsec, we are a fee-only firm which means our sole revenue source is our percentage fee based on the assets we manage for a client. This means we do not receive any compensation through the investments we purchase or sell on a client’s behalf. Other Advisory Firms or Brokers can receive up-front commissions or ongoing annual revenues that vary based on the type of investment they purchase for clients, and we feel this adds an unnecessary bias during the investment selection process.

Along with the importance of knowing if your Advisor is paid based on what they recommend is also knowing how much that investment costs you overall. If you purchase a mutual fund or exchange traded fund within your portfolio you should get a good understanding of their expense ratios to know what that fund costs you on an ongoing basis, and how do their costs impact their performance net of all fees and costs.

At Parsec, we try to limit the overall cost of client investments by tracking the mutual fund costs charged by the investments we recommend. For clients with a larger account size we may buy individual stocks for a large portion of their equity allocation and thus we remove the layer of fund manager costs. Clients will pay a transaction fee to buy or sell the individual stock, but there is no mutual fund expense on those assets – just our annual fee of assets under management.

If when interviewing an advisor you feel like you don’t have a full understanding of the costs of the advice you will receive, or the costs of the investments that will be purchased for you, then ask more questions! If you feel like you aren’t getting an honest answer then that should be a good sign to keep looking around.

Travis Boyer, CFA
Financial Advisor

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Update Through 8/31/2013

as of August 30, 2013        
                                      Total Return
Index 12 months YTD QTD August
Stocks        
Russell 3000 20.32% 16.95% 2.54% -2.79%
S&P 500 18.69% 16.15% 2.04% -2.90%
DJ Industrial Average 16.13% 15.02% -0.15% -4.11%
Nasdaq Composite 18.97% 19.95% 5.76% -0.82%
Russell 2000 26.28% 20.03% 3.60% -3.18%
EAFE Index 19.42% 8.70% 3.99% -1.27%
         
Bonds        
Barclays US Aggregate -2.47% -2.81% n/a -0.51%
Barclays Intermediate US Gov/Credit -1.12% -1.73% n/a -0.20%
Barclays Municipal  -4.11% -5.46% n/a -2.55%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $107.65    $107.33
Natural Gas    $3.58    $3.42
Gold    $1,395.80    $1,361.60
Euro    $1.32    $1.32

Mark A. Lewis
Director of Operations

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How Do You Choose a Financial Advisor?

Clients of Parsec have already gone through the process of interviewing and hiring a financial advisor. Other readers of this blog may not have done that, but may be thinking about it. How do you go about finding the right advisor?

 

You may choose to use a list of prepared questions to thoroughly understand the scope of the engagement and the advisor’s qualifications. Or you may just want to sit down and talk with the advisor to get a gut feeling about whether the two of you would see eye-to-eye.  Many people receive a recommendation from a trusted family member or friend and that helps make the decision.  When you hire a financial advisor it’s important to find the right fit for you, and to hire someone who is competent and trustworthy.  Ultimately it’s up to you to make this determination.

 

At Parsec we believe that credentials are one important way that you can determine if an advisor is competent.  Experience is important too, which is why we have our newer advisors working in a team structure, led by some of the most experienced and successful advisors in the firm. Philosophy and discipline is also something that we highly value, as that ends up being the driver to the advice that a client receives.

 

All of the factors will play a part in your decision-making process. The Certified Financial Board of Standards has a wealth of information regarding how to find a financial advisor. One helpful article on the subject can be found here:  http://letsmakeaplan.org/working-with-a-financial-planner/what-to-ask. This provides some very important questions that you should be asking when interviewing advisors.

 

Parsec welcomes the opportunity to talk to you or any of our client’s family members and friends to answer questions about choosing the right financial advisor.

 

Harli L. Palme, CFA, CFP(R)

Partner

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Market Update through 8/15/13

as of August 15, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 22.51% 18.71% 4.08% -1.33%
S&P 500 20.84% 18.07% 3.73% -1.29%
DJ Industrial Average 17.86% 17.24% 1.78% -2.26%
Nasdaq Composite 20.94% 20.45% 6.20% -0.41%
Russell 2000 29.64% 21.95% 5.26% -1.62%
EAFE Index 23.86% 12.33% 7.46% 2.03%
         
Bonds        
Barclays US Aggregate -1.58% -2.93% n/a -0.64%
Barclays Intermediate US Gov/Credit -0.15% -1.52% n/a -0.38%
Barclays Municipal  -2.52% -4.34% n/a -0.83%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $107.33    $105.03
Natural Gas    $3.42    $3.45
Gold    $1,361.60    $1,312.40
Euro    $1.32    $1.32

Mark A. Lewis

Director of Operations

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North Carolina Tax Law Changes

After months of grappling with members of the state’s legislature, Governor Pat McCrory signed a bill authorizing the most significant changes to North Carolina’s tax code since the 1930s on July 15.

The new tax code reduces both personal and corporate income taxes and eliminates the estate tax. Early estimates indicate that taxpayers across the board will pay less in state taxes once the changes go into effect. Some of the other key provisions of the new law are:

• Deductions for mortgage interest on first homes will be capped at $20,000.
• Charitable contributions will remain fully deductible.
• The child tax credit will continue
• Social Security income will remain exempt from state taxes.
• The corporate tax rate will be cut from the current 6.9 percent to 5 percent by 2015.
• North Carolina’s gas tax will be capped until June 30, 2015.
• A deduction on retirement income is eliminated.
• Starting in 2014, the sales tax holidays for back-to-school and Energy Star products are eliminated.
• The deductibility of the first $50,000 of business income has been eliminated
• Service contracts will be subject to sales taxes
• Electricity will be taxed at a general sales tax rate of 7%
• Amusements, movie tickets, etc will be subject to sales taxes

This is only a small representation of the changes. And this information should not be considered tax advice. Individual situations may vary. And as always, please consult your tax advisor regarding how the laws may affect you.

Tracy H. Allen, CFP®
Financial Advisor

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Market Update through 7/31/13

as of   July 31, 2013
Total Return
Index 12 months YTD QTD July
Stocks
Russell 3000 26.86% 20.31% 5.48% 5.48%
S&P 500 24.99% 19.61% 5.09% 5.09%
DJ Industrial Average 22.36% 19.95% 4.12% 4.12%
Nasdaq Composite 25.41% 20.94% 6.64% 6.64%
Russell 2000 34.78% 23.97% 7.00% 7.00%
EAFE Index 24.27% 10.09% 5.32% 5.32%
Bonds
Barclays US Aggregate -1.91% -2.31% n/a 0.14%
Barclays Intermediate US   Gov/Credit -0.37% -1.15% n/a 0.31%
Barclays Municipal -2.19% -3.54% n/a -0.88%
Current Prior
Commodity/Currency Level Level
Crude Oil  $105.03  $96.56
Natural Gas  $3.45  $3.56
Gold  $1,312.40  $1,223.70
Euro  $1.32  $1.30

Mark A. Lewis

Director of Operations

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Tools to Help You Age in Place

I live in an older neighborhood where most of the homes were built in the mid 1950’s to early 1960’s. There are a few original owners left, though many younger families have arrived in recent years. I love the quirkiness of our HOA-less neighborhood and the cast of characters that reside in it; but best of all, I love the sense of community that exists among us residents. Like the time 70-year-old Dottie bought a bunch of balloons to celebrate Betty’s 90th birthday and Wallace’s concrete gnome that gets redecorated for each holiday. Most recently, there were handmade yard signs up and down the street encouraging Stan as he recovers from major surgery.

One thing I can say about my neighborhood is that our seniors show little desire to move to a retirement community. And this is not unique to Hunterwood. According to a study conducted by AARP, “82 percent of Americans choose to age in place, within the same communities where they have lived. Every community, from rural areas to suburbs to cities, will include significant numbers of older adults.”

Businesses, local governments and non-profits are responding to this new trend. In 2001, in the Beacon Hill neighborhood of Boston, the first “Elder Village” was created by several residents who desired to age in place. Also called intentional communities or virtual retirement communities, these volunteer-based organizations provide services from transportation and grocery delivery to home repairs and dog walking.

On the technology front, several gadgets, apps and gizmos have surfaced aimed at our aging population. These new technologies go way beyond the Clapper and Life Alert! The camera-less monitoring device, Sonamba, was developed by Durham, NC based pomdevices, LLC. According to the company, “Sonamba periodically sends seniors’ wellbeing status alerts to caregivers and includes senior-oriented Activity of Daily Living Monitoring, Personal Emergency Response, Medication & Calendar Reminders, Social Communications and Games.” Another product, BeClose is an age in place technology that uses wireless sensors placed in the home to track a senior’s well being.

I am sure there are many reasons people opt to age in place, but certainly cost plays a big part in their decision. According to a 2010 study conducted by the National Investment Center for Senior Housing and Care Industry, the average entrance fee for a Continuing Care Retirement Community (CCRC) unit is $249,857. Once you are in, monthly fees for a single occupancy unit will cost $2500 and up each month, depending on the contract type.

The burgeoning Age-in-Place industry is working hard to develop products and services geared toward serving our seniors, and that’s great news for those who want to age-in-place.

Tracy Allen, CFP®
Financial Advisor

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Market Highs: 81 Years Later

Earlier this month (July 8th to be exact) the Dow Jones Industrial Average passed its 81st anniversary of its closing low during the Great Depression. On July 8, 1932 the average closed at 41.22 (that is right, 41.22…I didn’t leave a digit out) which marked the end of an -89.19% decline from its prior peak set on September 3, 1929. Over 81 years later, with many other bear and bull markets in-between, the index is currently at or around a record high level of over 15,500.

Though it is hard to imagine what it was like to be an investor in such a significant downturn, chances are you lived through history’s second worst peak to trough decline. From October 9, 2007 to March 9, 2009 the DJIA index fell -53.78%, which was the worst peak to trough decline since that period over 80 years ago.

Many people, after having experienced this significant decline in recent memory, are acutely worried about when the next bear market will come. A bear market represents a 20% decline from the market’s prior peak level, and a correction represents a greater than 10% decline but less than 20% (which would turn the correction into a bear market). The news media will try to forecast which data point will trigger the next decline — whether it is monetary tightening by the Federal Reserve, slowing economic growth in China, or any number of reasons.

History, as told by the Dow Jones Industrial Average and documented by Crandall, Pierce & Company, suggests that since 1900 there have been 38 corrections and 21 bear markets. That averages out to about a bear market or a correction every 1.9 years. So, will another bear market or correction occur in the future? Our answer is yes, certainly. When will it happen? We don’t know that answer, and we don’t feel that there is a good source to indicate the exact timing of when the next downturn will occur.

So, we encourage clients to pick an asset allocation that fits their situation and one that can sustain them through the next downturn. That way they can remain invested to participate in the following recovery – which has happened 59 times out of the last 59 corrections or bear markets.

Travis Boyer, CFA
Financial Advisor

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What’s the Difference in a 529 Plan and a Custodial Account?

Saving for college is daunting enough as it is, and then you have to worry about whether to save into a 529 Plan or a Custodial account.  Either can be used for education and both have their own benefits and drawbacks. When making a decision about which to use, you’ll want to consider the specific factors of your family situation.

A 529 Plan is tied to the state that sponsors it. Almost every state has a plan and you don’t have to live in the state to use their plan. You can compare the various plans at www.savingforcollege.com.  North Carolina’s plan has Vanguard funds, which are inexpensive, and there is currently a state tax deduction for residents that contribute to the plan up to $5,000 annually.

A custodial account on the other hand can be opened at any brokerage firm. There are no such deductions for contributions.

Comparison of 529 and Custodial Accounts

 

529 Plans

Custodial Accounts

Who Owns the Account?

The adult

The child

Who Controls the Account?

The adult

The adult only until the child’s age of majority

What is the Tax Character?

Investments grow tax-deferred and qualified withdrawals (for education) are withdrawn tax-free; non-qualified withdrawals come with a 10% penalty and a tax on earnings.

Investments are subject to the “kiddie-tax” but otherwise treated as any investment account, no special tax treatment.

What Can the Money Be Used for?

Qualified post-secondary education expenses to avoid the 10% penalty.

Anything that benefits the minor (you usually have to prove this)

Investment Options?

Usually index funds or mutual funds, restricted to the plan’s options

Anything

Can You Change your Mind about Giving the Money to the Minor?

You can change the beneficiary of the account to another member of the family.

No, it belongs to the child always.

 

If you feel confident there will be some qualified post-secondary education expense for your child or her siblings, the 529 plan is tax-friendly and a great choice, but it comes with some serious limitations.  If you want the freedom to use the funds however you want, the custodial account is the way to go.  But beware, the money will become the minor’s when they reach age 21.

Harli Palme, CFP®, CFA

Partner

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