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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Market Update through 6/30/13

as of June 28, 2013        
  Total Return
Index 12 months YTD QTD June
Stocks        
Russell 3000 21.46% 14.06% 2.69% -1.30%
S&P 500 20.60% 13.82% 2.91% -1.34%
DJ Industrial Average 18.87% 15.20% 2.91% -1.25%
Nasdaq Composite 17.84% 13.42% 4.52% -1.42%
Russell 2000 24.22% 15.86% 3.08% -0.51%
EAFE Index 19.35% 4.53% -0.77% -3.52%
         
Bonds        
Barclays US Aggregate -0.69% -2.44% n/a -1.55%
Barclays Intermediate US Gov/Credit 0.28% -1.45% n/a -1.20%
Barclays Municipal  0.24% -2.69% n/a -2.83%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $96.56    $97.85
Natural Gas    $3.56    $3.73
Gold    $1,223.70    $1,387.30
Euro    $1.30    $1.33

Mark A. Lewis

Director of Operations

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Market Update through 6/15/2013

as of June 14, 2013        
  Total Return
Index 12 months YTD QTD MTD
Stocks        
Russell 3000 24.94% 15.31% 3.82% -0.21%
S&P 500 23.90% 15.21% 4.16% -0.15%
DJ Industrial Average 21.24% 16.42% 4.01% -0.20%
Nasdaq Composite 21.12% 14.05% 5.10% -0.87%
Russell 2000 29.74% 16.26% 3.43% -0.19%
EAFE Index 27.34% 7.65% 2.20% -0.64%
         
Bonds        
Barclays US Aggregate 0.94% -0.98% n/a -0.07%
Barclays Intermediate US Gov/Credit 1.66% -0.26% n/a -0.01%
Barclays Municipal  2.23% -0.93% n/a -1.07%
         
    Current   Prior
Commodity/Currency   Level   Level
         
Crude Oil    $97.85    $91.97
Natural Gas    $3.73    $3.98
Gold    $1,387.30    $1,392.60
Euro    $1.33    $1.29

Mark A. Lewis
Director of Operations

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Understanding Your Portfolio’s Investment Performance

In the days of 24/7 financial news networks it is easy to feel bombarded with market data and confused when it comes to knowing what data is related to your investments. Our “Market Update” posts (as seen below) summarize the most widely quoted market index returns and those we feel are most applicable when it comes to comparing your portfolio’s performance to the overall market.

However, you can’t just take your portfolio’s performance and bump it up next to one of the major index returns to judge how well your accounts are doing (and how well we are doing in managing your assets). This is because our client’s portfolios hold multiple asset classes, so if you compare your overall portfolio to one index you are potentially comparing a globally diversified portfolio to perhaps the S&P 500 (which only tracks performance of large U.S. based companies). Or, if you have a fixed income allocation then you are comparing a portfolio that contains a portion of bond returns to an index of all stock returns.

In your quarterly reports we provide a listing of your net of fees overall portfolio performance, and then we segregate your equity performance and your fixed income performance (if your portfolio holds bonds). Surprisingly enough we find that many firms in our industry do not readily provide this information to clients (along with a detailed fee invoice which we also provide each quarter). Beneath your returns we list the returns of several indices which I will explain below:

Russell 3000 Index: Tracks the returns on 3,000 of the largest publicly traded companies in the U.S.

MSCI EAFE Index:  MSCI is a firm that provides market data, and this index tracks returns of 22 developed nations across the globe, namely in the Europe, Australasia, and Far East (EAFE) regions

S&P 500 Index: Tracks the returns on 500 of the largest publicly traded companies in the U.S.

Barclays Intermediate Govt/Credit Index: Tracks the returns on intermediate-term US government bonds and investment grade corporate bonds

Barclays Muni Bond Index: Tracks the returns on long term bonds issued by U.S. municipal governments

For a client with a 100% equity allocation we feel the most comparable indices are the Russell 3000 and the MSCI EAFE. The Russell 3000 includes the performance of medium and small sized companies as well as large companies (a blend of which we allocate to all portfolios), whereas the S&P 500 only reflects the performance of the largest U.S. companies.

The MSCI EAFE Index is one of the most widely quoted international indices, and generally our portfolios allocate 15-25% of the equity allocation to international companies. The main goal behind this strategy is obtaining global diversification which over time should reduce portfolio risk since U.S. markets don’t always perform the same as international stock markets. You will see lately that international stocks have underperformed relative to U.S. stocks which makes comparing a globally diversified portfolio to a U.S. index look less favorable. However, we believe that over time that the benefits of decreased portfolio volatility outweighs short term performance gaps between U.S. and international stocks.

So, the performance of your overall stock portfolio is really best comparable to a blend of 2 indices, most heavily weighted to the Russell 3000 index but also including the MSCI EAFE index. For clients that hold bonds you should also account for that allocation in your overall return, so you might really be best comparable to a blend of 3 or even 4 of our quoted indices.

We encourage clients to place less importance on watching performance each quarter and to focus more on whether or not their portfolio is structured to meet their financial goals over the next 20, 30, or even 50+ years. But, we also feel it is important to fully disclose this information on a regular basis. If you have any questions about your portfolio performance please feel free to give us a call.

Travis Boyer, CFA
Financial Advisor

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