New York Financial Planner - NYC Financial Advisor

What's the Real Story with Inflation Lately?

2012-02-06T20:45:41Z

Part of what is allowing the Federal Reserve to continue promising an endless period of low interest rates is the fact that – or at least they claim – we aren’t yet experiencing any inflation here in the US. I get the logic: the big pitfall of keeping rates so low for so long is inflation but with an economy that is barely growing, we can ignore inflation for now (or even cry deflation) and continue the path to devaluing the dollar for greater short-term economic benefits. Perhaps the reason why Bernanke isn’t so concerned is that if banks actually start deploying capital at some point the Fed should be able to drain liquidity fast enough to cut inflation before it became a serious problem. However, whether or not the Fed can actually do that is a much bigger question mark than some people realize.

]]> I might first point out that the Fed seems to be totally disconnected from what the actual level of inflation is. The Fed focuses on the PCE (personal consumption expenditures index) for inflation. They use this measure over the CPI because the PCE assumes substitution – basically that you’ll switch from filet mignon to chicken nuggets if the prices get too high. However they ultimately arrive at these inflation figures, most non-academics seem to think they are manipulated. Prices on things middle class consumers purchase have been rising by 5-7% per year, perhaps more on commodities like food and energy which the Fed also conveniently excludes from their statistics.

While it is nearly impossible to argue that we aren’t experiencing inflation in service prices, food prices, or fuel prices, what keeps inflation stats contained to some extent is the crippled housing market. Unwinding this huge bubble fueled by excessive debt keeps the inflation readings low because this massive sector of our economy is still down and out. However, most people don’t feel the downward pressure on inflation caused by the housing market because the average person stays in their home for years at a time. The rising price of filling up a gas tank or a rising health-care premium matters much more to the average person than a tick up or down in a home’s appraised value.

In an article from the Journal of Indexes, Harvard professor George Bates also notes that a sudden revaluation of Chinese currency could breed inflation rather quickly. As the largest importer of Chinese goods, the US would become a big beneficiary of that inflation in a hurry.

Perhaps this morning’s (2/3/11) upbeat jobs data and stock market rally will cause the Fed to push up interest rates well before the 2014 target they have set. Once economic growth seems to be on a sustainable path, the Fed should quit messing with the market and embrace a strong dollar and rising rates. These are signs of economic recovery!

As always, feel free to e-mail me with any questions or concerns.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

Between the Lines: Interesting Reading from First Allied Asset Management

2012-01-18T18:55:25Z

This post from The Wall Street Journal’s The Source blog provides a brief overview of the current natural gas production boom in the U.S. and why Europe is unlikely to benefit from it any time soon. In short, the infrastructure necessary to export the gas will take several years at a minimum to build out and environmental concerns are likely to keep a similar production boom from occurring in Europe. The inability to export is likely to keep domestic natural gas prices depressed for the foreseeable future. “In the U.K. last week, politicians hailed the good news as utilities cut a meager 5 percent from their customers’ sky-high gas bills. Meanwhile, in the U.S., natural gas has become so abundant and the price so low that a company in Texas was burning the stuff off as a waste product.”

]]> • Commodities suffered last year amid global growth concerns, but investor sentiment appears to be reversing course. Speculators increased wagers on rising commodities to the highest level since November 2011 as money managers expanded combined net-long positions across 18 U.S. futures and options by 7.2 percent to 719,991 contracts in the week ended January 10, Commodity Futures Trading Commission data show. Money flow also improved, as Cambridge, Massachusetts-based EPFR Global reported that investors put $537 million into commodity funds in the week ended January 11. It was the first inflow in four weeks and the biggest since November 23. Finally, Goldman Sachs reiterated an “overweight” recommendation on commodities over the next 12 months, predicting a 15 percent gain in the widely followed S&P GSCI Enhanced Commodity Index.

• Much of the news surrounding Europe's sovereign debt crisis has focused on austerity measures and reducing rising debt levels. However, an equally important factor that hasn't received as much attention is stimulating growth and investment in new technologies. Italy's new prime minister is one of the new leaders in Europe who has been more vocal that austerity alone will not help the continent. For Europe to return to its competitive position in the world economy, it must focus as much on growth and employment as austerity.

• Goldman Sachs analysts said copper, oil and gold may rally in 2012 as economic growth in the U.S. and China offsets the impact of a European recession. They maintained a forecast for commodities to climb 15 percent. Three-month copper on the London Metal Exchange may gain to $9,500 per metric ton in 12 months, Brent crude may rise to $127.50 per barrel and gold may climb to $1,940 an ounce, they said.

• Economist Jim O’Neill discounts the view that China’s growth slowdown will cause a hard landing, following reports of 8.9 percent Q4 growth in China — higher than consensus expectations of 26 economists surveyed by Bloomberg. He reminds us that if China can maintain growth of at least 7.5 percent throughout this decade, it will contribute more to world growth than the U.S. and Europe combined.

--
Craig Columbus
First Allied Asset Management

Reproduced by:
Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

Craig Columbus is the Chief Market Strategist for First Allied Asset Management. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities, Inc. and First Allied Advisory Services, Inc., including the First Allied Select, Private Client Services, VIP and Elite programs. The First Allied Asset Management individuals that provide investment management and advisory services are not associated persons with any broker/dealer.

Special Commentary: The Jobs Report

2011-12-07T19:06:19Z

The U.S. Labor Department reported on Friday that the U.S. economy added 120,000 jobs in November, roughly in line with expectations. The economy has now produced 100,000 or more jobs five months in a row – the first time that has happened since April 2006. But to make sense of jobs data, it’s important to understand the differences between the two main data sets, both of which can be “noisy” and subject to some pretty substantial revisions and adjustment factors. The number of jobs created or lost is revealed by the nonfarm payroll report, which is a survey of employers.

]]> The unemployment rate fell to 8.6 percent (or 13.3 million Americans) in November from 9 percent the prior month and is at the lowest level since March of 2009. The unemployment rate comes from the Bureau of Labor Statistics’ Household Survey, which has published significantly more positive readings this fall, more optimistic than payrolls report over the last three months. Interestingly, the two data sets also diverged during the summer, but in the opposite direction with payrolls showing a brighter picture. Eventually, we can likely expect the two surveys to come closer together over longer time intervals, giving us a more consistent picture of the U.S. labor market.

What does this mean for you? One statistic I find encouraging from the Household Survey is that the number of long-term unemployed (more than six months) appears to have peaked. By no means are we out of the woods yet on jobs, but I think the U.S. economic data — whether it’s consumer confidence, manufacturing, corporate earnings, or retail sales — is trending in the right direction. U.S. stock market valuations appear pretty reasonable, even cheap by some measures. American business has demonstrated it can capture consistent profits with even modest 2 percent economic growth.

Risks to 2012 growth include some form of European crack-up (although exports to the Eurozone only represent a little more than 1 percent of the U.S. total), the pending expiration of the Bush tax cuts, and whether Congress decides to extend the Social Security tax cut and long-term unemployment benefits. But for now, markets can breathe a sigh of relief that the November jobs report do not look like they will not derail a Santa Claus rally!

--
Craig Columbus
First Allied Asset Management

Reproduced by:
Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

The European Sovereign Debt Crisis - Market Commentary from First Allied Asset Management

2011-12-01T18:46:51Z

Blowout Black Friday retail sales sent stocks higher on Monday by nearly 3 percent on light volume, reversing a seven-day stock losing streak. Bond markets in Italy and Spain were the key negative culprits as yields on both countries’ debt breached the dangerous 7 percent level – crippling funding costs that previously pushed both Ireland and Greece into seeking bailout packages. The markets clearly sense that the size of Europe’s revised rescue fund is still inadequate to address the region’s dual sovereign debt and banking crises. Contagion has now reached the core of Europe. Optimistic policy statements out of Europe have been able to consistently generate rallies for 18 months, but I sense that this time we really are at the end game and painful specifics will finally be required.

]]> With the heat turned up, Germany’s Chancellor Angela Merkel tried to thread the needle – talking in grand, but very vague terms about the economic and political benefits of European federalism while putting the brakes on the notion of joint Eurobonds (which would “mutualize” the Eurozone’s debts). She also pushed back against the notion of expanding the role of the European Central Bank (ECB) as “lender of last resort,” citing inflation concerns.

Germany’s constitutional court has warned Merkel that any further integration would likely overstep German law, and her own Christian Democratic Union (CDU) party appears to finally be suffering from bailout fatigue – to say nothing of the German people, who answered the call for sacrifice under Merkel’s predecessor, Helmut Kohl, only to feel betrayed by southern European profligacy. Merkel has back-tracked on hardline stances several times in the past, however, and there is enormous pressure on the Germans to save the Eurozone.

The good news is that meaningful political and labor market reforms finally have at least a fighting chance in Italy and Spain. Silvio Berlusconi and his clownish fourth government are finally gone from the stage in Italy, replaced by technocrat and finance expert, Mario Monti. Monti quickly surrounded himself with a cadre of capable academics and financiers. Whether Monti possesses the requisite political skills to negotiate byzantine Italian politics has yet to be seen. Berlusconi’s Northern League still controls the upper-house of Italian politics after all. But the bond market distress seems to have given Monti the brief leverage to push for unpopular measures.

Spain’s Socialist Prime Minister, Jose Luis Zapatero, is also out after seven-plus years, replaced by the center-right People’s Party (PP) candidate, Mariano Rajoy. You may recall that Jose Maria Aznar, a close ally of George W. Bush in the war against terror, was the previous PP leader. Zapatero was inexcusably slow to acknowledge that Spain’s banking sector was awash in bad construction loans.

Both Monti and Rajoy have mandates for reform, and austerity in Ireland seems to be showing signs of real progress. Leaders in Spain and Italy are both now essentially saying, “We are getting our house in order. Just give us a little breathing room by helping to bring yields down.” I would watch for Merkel to attempt to sell the German people on a temporary or emergency expansion of the ECB’s powers and of the leveraged firepower/first loss guarantees of the proposed European Financial Stability Facility (EFSF) bailout fund – in exchange for much stronger governance and control over Europe’s national finances.

Instead of buying the bonds of Greece, Italy, etc. in the secondary market, the EFSF could provide insurance guarantees (up to perhaps 30 percent) to make the debt more attractive to investors, or the EFSF may issue its own bonds through a special purpose vehicle (borrowing at a lower rate) to then purchase troubling sovereign debt or issue more insurance. In either scenario, it would enable European authorities to do more with less through “leverage.”

The ball is in the Germans’ court. We need to keep a close eye on the make-or-break December 9 summit of Europe’s leaders to see if a “new, radically transformed Europe” can emerge. I will also be watching the U.S. jobs report on Friday, always the most important economic release of the month, and also to see if the S&P 500 can regain its technically important 50-day moving average around 1205.

Craig Columbus
First Allied Asset Management

Reproduced by:
Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

Between the lines: Market Commentary from Craig Columbus

2011-11-16T20:14:27Z

Below is this week's market commentary from Craig Columbus, our chief economist. This week's selected articles mostly pertain to Europe as that has dominated US trading/markets over the past few weeks.

Where Is the ECB Printing Press?
In my opinion, John Mauldin has done some of the best writing on the European debt crisis because he focuses on the deep, underlying structural issues rather than on the pronouncements of Europe’s leaders. Take, for example, the fact that few have reported that the “voluntary” haircut on Greek bonds only applies to private reditors: “Greece has been told that they can write off 50 percent of their debt held by private entities, but not that owed to the IMF, ECB, or other public entities. This means something more like a 20-30 percent haircut on total debt. Sean Egan suggests that eventually Greece will write off closer to 90 percent.”

]]> He also explains, “European regulators allowed their banks to leverage up to 450 to 1 on their capital, on the theory that sovereign nations in an enlightened Europe could not default, and therefore no reserves need to be kept for investing in government debt.”

Markets have rallied again on the political headlines that Prime Minister Silvio Berlusconi is leaving and the patchwork Italian Parliament appears ready to approve additional austerity. And while the skilled technocratic successor Mario Monti is likely an upgrade, the likelihood of his ability to get things done with the Italian Parliament is very uncertain. Nor does Monti come to power by popular election. And as Mauldin indicates, European Central Bank purchases have been the only real support propping up Italian debt markets.

The European Central Bank purchases are complex — the mechanics, the legality and the politics. Mauldin illustrates some of the complexity, “The path of least resistance, and I use that term guardedly, is for the ECB to find its printing press. Perhaps they can borrow one from Bernanke. Yes, I know they are buying sovereign debt now, but they are sterilizing it, meaning they sell euro paper to offset the monetary base effects (large oversimplification, I know).” Many believe that despite Germany’s strong objections to devaluing the euro, that is ultimately where the Europeans are headed in an attempt to grow their way out of the crisis.

Europe’s Banks Found Safety of Bonds a Costly Illusion

A piece by The New York Times’ Liz Alderman and Susanne Craig illustrates the changing face of risk. Sovereign debt of developing nations, once seen as a less risky investment vehicle, is now a toxic asset infecting many bank balance sheets.

The Times says banks are racing to reduce their exposure, “European banks face tens and possibly hundreds of billions of dollars in losses on loans to nations that use the euro. Worried about even greater losses if the crisis worsens, the banks have been scrambling to reduce their holdings of an investment that, like triple-A-rated subprime mortgage bonds, was once thought to be bulletproof.”

Alderman and Craig explain how European sovereign debt became the new subprime: “Banks had further incentive to overlook the perils of individual euro zone countries because of the fees they earned for underwriting sovereign debt sold to other investors. Since 2005, several dozen banks in Europe and the United States have earned $1.1 billion in fees from selling bonds for European governments, according to Thomson Reuters and Freeman Consulting Service.”

I agree completely with the authors that European regulators bear much of the blame for not requiring banks to set aside capital for sovereign defaults and encouraging financial institutions to load up on risky government debt.

Swallowing Austerity Turns Into Irish Way as Strikes Grip South

Bloomberg’s Finbarr Flynn explores why austerity in Ireland has not produced the social unrest it has in other indebted Eurozone nations. First off, Ireland maintains a viable export economy for growth and markets have viewed the Kenny government’s measures as credible: “Yields on Irish bonds maturing in 2020, which soared to a high of 15.5 percent in July, are now down to 8.12 percent. That’s compared with 6.81 percent for similar Italian debt, 13 percent for Portugal and 31.1 percent for Greek bonds.”

Flynn says Irish notions of collective responsibility are also at work. “Analysts suggest a mix of reasons behind the Irish willingness to accept austerity. Some, such as Hughes at KBC, say it’s partly because many Irish accept they fueled the boom and bust, by pushing up property prices and seeking pay raises that contributed to the country’s loss of competitiveness.”

Finally, he says, “Other analysts point to unions agreeing to work with the government and a lot disgruntled Irish leaving the country.” Many of the most disillusioned have simply left the country, suppressing the size of any protest movement. I think it’s important to recognize the different political climate in Ireland versus Greece and Italy.

Hungary: The Next European Crisis

The Wall Street Journal’s MarketBeat blog describes the growing refinancing risks for Hungary, not a member of the Eurozone although often mentioned as a prospective one. MarketBeat’s Mark Gongloff expresses crisis fatigue: “I know what you’re thinking: We don’t quite have enough terrifying sovereign-debt meltdowns to worry about, am I right? It’s so boring, only having to worry about Greece and Italy and Portugal and Spain and Ireland and France and Austria. And the United States.”

Gongloff points to the latest bond auctions, off most of radars: “Hungary’s auction had a bid-to-cover ratio of just 1.0, and it had to pay a 6.79 percent yield to move the debt. Galloping Goulash, Batman, that’s harsh. That’s almost what Italy is currently paying to borrow for 10 years.” One more hotspot to add our global macro risk list!

American Migration Reaches Record Low

A component of this country’s labor woes is the lack the mobility due to negative housing equity — and the data backs its up. The New York Times’ Economix blog reports, “From spring 2010 to spring 2011, just 11.6 percent of the people moved residences, the lowest rate since the government began keeping track of migration in 1948. The difference between that rate and the 2009 rate of 12.5 percent was not statistically significant, but it was a far cry from its heights in the mid-20th century. From 1951-52, for example, 20.3 percent of Americans moved.”

And then there was this stat that California Governor Jerry Brown would probably not find encouraging: Of the 6.7 million people who moved between states, the most common migration was from California to Texas (68,959 movers)!

Craig Columbus
Advanced Equities Asset Management, Inc.

Reproduced by:
Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

Retirement 2.0

2011-11-15T21:35:45Z

The latest trend in retirement is, well, not retiring at all. Retirement itself is no longer the goal. The goal seems to be adapting to a lower key phase of life and making sure each individual or family is prepared to deal with the personal and financial issues which apply to them. Despite the dozens of articles I’ve read which aim to teach advisors about what the ‘new retirement’ looks like, the more telling sign for me is listening to what my clients are saying. Frankly, they don’t even like saying the word retirement because it makes them feel old, unable, disconnected, etc.

]]> Part of the shift in thinking, which has really been ongoing for the past two decades, is the recession. Both portfolio returns and the predictability of portfolio returns have seemingly disappeared. That fact alone has caused people to feel that their funds are continuously at risk. If they choose to pull their money out of stocks and bonds and put it into the seemingly safer fixed and insured instruments offered by banks, they will get a whopping return of around 1% per year or perhaps less.

The other part of the shift in thinking is that corporations and government to some extent no longer offer loaded retirement packages which include hundreds of thousands if not millions of dollars in payouts to those who dedicate 20-30 years of time to the same organization. Frankly, I’m glad this realization has finally set in. Corporations and governments simply cannot afford the promises of yesteryear and continuing to pay them out will cause more good firms to go under and/or need bailouts. The country needs a reality check and defined-benefit pensions, especially in the corporate sector, will likely continue to disappear.

So what is the new reality? Well, during primary working years it means two-income households, 30-40 year careers instead of 20-30, and greater levels of saving and investment throughout. The great ‘retirement shift’ doesn’t happen at a specific age, rather, once the individual or family has attained enough savings that, combined with social security and Medicare, they can afford to live a lower-key, less stressful lifestyle. In many cases this still means holding down a job, but maybe not as many hours or not as high-paying a position as was previously needed.

There are many products and strategies out there designed to deal with this massive planning need. Financial planning software can help provide a comprehensive view of one’s financial life and better identify vulnerabilities. Insurance companies have rolled out many products which can help mitigate longevity risks and offer guarantees in places where people need them.

The financial advisor’s role in Retirement 2.0 isn’t so much helping the client to gather and then distribute a precise dollar amount, but helping them feel comfortable with all the what-ifs that are to come. Those include an inability to work, a potential need to help aging parents, rising healthcare costs, increasing life expectancy, high inflation, etc. Each person has an individualized list of things that keep him or her up at night and that is what the advisor needs to understand. So maybe we can explain Retirement 2.0 as a shift away from the generic and towards highly individualized advice, something skilled financial advisors should already be used to.

As always, feel free to reach me with any questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Advisors & Social Media

2011-08-10T22:20:49Z

At this point most people in sales and relationship-oriented businesses realize that social media IS the future when it comes to improving brand image and marketing products and services. If not already as important as print and e-mail advertising, your social media profiles are quickly gaining traction. Plus, I feel they’re a much stickier medium for communicating since most people engage their social media outlets daily. Unfortunately for us in the financial advising community, social media within our industry is a grey area and has remained so for years. Advisors are genuinely getting fed up at this point and it seems financial regulators are gradually starting to cave in.

]]> In the July edition of Research magazine, Chad Bockius, CEO of Socialware is interviewed. Socialware provides financial service firms with software and services to support their business growth using social media. While there is a variety of software currently available which attempts to achieve the goal of overseeing social media, Socialware was recently adopted by both Smith Barney (a large financial services firm) and American Portfolio Services (an independent broker/dealer). That’s huge news.

In the interview, Bockius states that many advisors around the country are already using social media-- even where it may be violating the rules and regs of firms. The message regulators are receiving lately is that the demand for organized policy regarding social media is immensely strong—so strong that some advisors have mentioned leaving their current firms if other firms become the first to allow social media. It makes sense: why stick to old fashioned marketing methods such as mailers, seminars, etc, when technology allows us to sit behind a computer and effectively portray our brands to our exact target audiences.

Bockius believes that the adoption of social media software by a wirehouse firm (wirehouses generally have the most stringent compliance rules) will not only cause other large firms to adopt similar policies but it will rush them to do so because of lost business they will incur if certain firms begin using social media years before the rest.

It is noted in the interview that the software attempts to smoothly integrate core compliance goals including archiving and supervising activity, both necessary for FINRA compliance and getting this software wider adaptability within our industry. Socialware allows all content created on the major social networks to be archived, handling one of the major compliance concerns. It also has the capability of monitoring activity in real-time, using quarantining services for messages, another major concern of the regulators.

Bockius believes FINRA will come out later this year with additional clarity on social media. Advisors, myself included, hope this is the case. It ultimately will benefit our industry as a whole if we can obtain new and younger clients using modern marketing techniques.

As always, feel free to e-mail me with any questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Couples & Money: Reconciling Differences

2011-06-21T18:27:21Z

There was a good piece in this month’s edition of Financial Advisor magazine written by Roy Diliberto about couples and how they deal with money. It’s no secret that an inability to discuss and understand attitudes about money causes many relationships to ultimately fall apart. The reason has nothing to do with the inherent property of money which is simply an object which helps us obtain things and acts as an exchange agent for goods and services. The more important focus is on one’s personal relationship with money, often dating back to their childhoods. Think about yourself for a minute—how was money introduced to you as a child and how have those attitudes and feelings shaped your relationship with money today? The classic example would be depression era parents who watched much of their savings disappear in the 1930’s. That sort of experience lasts a lifetime and more than likely impacts the way future generations are raised. If you grew up watching your Dad stash cash under the mattress and perhaps make you feel guilty about spending, you may pass some of those qualities down to your kids. However, if you grew up in a financially comfortable surrounding you may have been taught not to focus or discuss money, rather to focus on personal enrichment and building strong relationships with your peers. Perhaps money then becomes more of an afterthought for you and not on the forefront of your mind. Neither attitude is right or wrong: just different. The problems arise when these childhood experiences aren’t properly disclosed or discussed with those who matter.

]]> In Diliberto’s article he encourages financial planners to incorporate some of the questions therapists often ask couples who are having financial issues. Some of those questions are:

• What are your earliest memories about money?
• What are your best and worst memories?
• Was money discussed at the dinner table? If so, in what way?
• What financial expectations did your parents and grandparents have about you?
• What do you hope to do differently from your parents when it comes to teaching attitudes about money to your own children? What would you hope to do the same?

The answers to these questions are undoubtedly very telling. They can also teach an advisor a lot about a clients’ tolerance for risk and investment objectives, perhaps even more than the client even knows about themselves. If there are significant differences to the above questions between couples, it’s good to have them discuss it openly, perhaps with the advisor in the room, maybe without. Building an investment portfolio and doing a budget worksheet will become easier as a result.

Financial advisors certainly aren’t therapists, but given the statistics about how often money causes the demise of relationships, they can have a very big impact on a couple’s relationship. And couples are often surprised that given the thousands of conversations they will have with their spouse, early attitudes about money aren’t one of them.

Another interesting statistic in the article: 71% of Americans admit to keeping secrets or lying to spouses about their money. This often includes having more or less money than your spouse believes, or intentionally creating confusion about that. We don’t know why so many people choose to lie about money—that could involve deeper issues than I care to discuss in this article, be we do know that a lack of communication is the root for many of these financial disputes.

Be open and honest with your spouse about money if you can. It may save you stress (and money) down the road. As always, feel free to reach me with any questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

How Many Financial Advisors does one Need?

2011-06-01T16:09:43Z

Have you ever pondered how many financial professionals you need? I ask because I know that about 1/3rd of my clients work with me and at least one other advisor. Naturally I feel a little competitive and want to know that I’m the ‘lead’ advisor or primary advisory in terms of giving investment advice and financial planning recommendations. More importantly, I want to make sure my clients aren’t doing themselves a disservice by having multiple advisors who don’t communicate with each other. This has me wondering how necessary it is to have multiple advisors. If you do, in what ways are you adding value, and are you perhaps decreasing the likelihood of reaching your longer-term financial goals?

]]> My first observation is that some people have taken the advice of diversifying their investment portfolio and started applying it to their investment professionals as well. I suppose the thought process is that if multiple asset classes reduce risk during a recession than multiple financial advisors will also reduce risk during a recession. The exact opposite may be true: because each of your advisors will manage your portfolio independently, investors will often find they have overlapping exposures with multiple advisors. That could include overexposure to a single stock or a single sector. There may also be a difference of opinions between advisors which causes a totally unbalanced overall portfolio. I think the problem isn’t so much having multiple advisors, rather having a lack of communication and lack of clarity about who’s in charge of what and how often these professionals should speak with one another.

I’ll tell you one of the most common places where this happens: your 401k plan at work. Your retirement plan will often send representatives to meet with you once or twice per year and go over your investment options and things of that sort. Even if they don’t, you probably have a customer service group which you can contact for advice. The discussion of your other accounts and overall tolerance for risk will often not be properly addressed and you may immediately be adding exposure risks which you aren’t aware of. The best thing to do would be to contact your ‘lead advisor’ and share your 401k allocation with him or her. They can then help you make those allocation decisions and factor them into your overall financial plan.

At my firm, we use comprehensive planning software which aggregates data and carefully tracks each of your accounts on a daily basis. With this tracking ability in place, you are always able to view your portfolio allocation and changing net worth, even if some of your assets are held elsewhere. I think it’s important to have an accurate and up-to-date measure of your finances at all times.

My concluding advice here is to make sure you have an appropriate lead advisor. If you only work with one advisor and that person is reasonably competent, you should be set for now. If you do have multiple advisors, try to find the one who is best able to understand your situation and give them a larger share of the work. This person should have the contact information of your other advisors and should be able to contact them to aggregate all of your data and be able to see a ‘big picture’ at all times.

As always, feel free to contact me with any questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Advice for my Bond Market Investors

2011-05-12T20:15:04Z

Bond investors have reason to be frustrated. As it is, they are willing to accept a lower total return than stock market investors by choosing safety and security over risk and return. The Fed has basically punished fixed income investors by keeping interest rates extremely low for a long time. The result is that you can’t simply pull a list of AAA government bonds, go out a few years, and expect a 5% yield to maturity. No sir, not anymore. What you can expect is something closer to 2%, or perhaps less. The more safety you require (think: treasury bonds) the less yield you can expect. I’m finding a great deal of difficulty building a bond portfolio these days which satisfies my bond investors in terms of risk, duration, and yield. The problem is that when I finally create a portfolio with a yield averaging 4%, I find my client is either taking on too much risk, or going out so far that they are locking in rates which they are soon to regret. So what are bond investors to do?

]]> Like nearly everything in the world of investments, there is no perfect answer. If someone tells you there is, they are more than likely omitting some sort of risk factor. But there are a bunch of things fixed income investors can do to bump up their yields a little bit and, at the same time, not go too crazy in terms of taking on more risk. The first suggestion I’d make is ditching US Treasuries. As safe as they are, I think they have been bubbling for a while and I can’t make compelling arguments to keep them. I’m not saying one should sell treasuries because I perceive any risk in the US defaulting on their bonds (I don’t think they will at all) but the upside for treasury investors is, well, non-existent. Even going out 10-20 years doesn’t get you any sort of respectable return. So from a valuation perspective, goodbye treasuries from my fixed income portfolios.

Next move, look into some bonds outside the United States. I understand there are plenty of old-fashioned bond investors who prefer sticking to a lattered portfolio of government and corporate bonds, all issued from within the US and Puerto Rico. That may be because you prefer all bonds which you can understand. It also may be to avoid the risks inherent in foreign bonds including currency risk (for bonds not held in dollars) and political risk. For example, buying European bonds right now, especially in a country like Greece presents an investor with serious risk—you’re not getting a 10% yield for nothing! What I’m talking about is looking into a stable emerging market such as Brazil. You won’t get a killer yield from a country like Brazil but you can get 100-200 basis points (1-2%) over a US government bond with reasonable certainty that you’ll get paid back.

Next, investors should realize that higher interest rates are more than likely coming soon, as in during 2011. Locking into longer term bonds right now to fetch an extra percent is probably not a wise move. That doesn’t mean you need to hold all ultra short-term bonds. There are some bonds, especially within the corporate sectors which are less sensitive to changes in interest rates. You can also slide down the credit scale a little bit to catch that extra yield without going out too many years. That way, when rates move up, you'll have cash to buy new bonds. Despite how obvious this advice may be, there will be plenty of people who mismanage there bond portfolios over the next few years and don't maximize their potential total return.

I’ll throw this out there as a final idea for my fixed income investors. If you’re used to 100% bonds, consider moving 10% of your money into the lowest risk spectrum of equities—think: utilities, blue-chips stocks, etc. The US economy is getting stronger and it’s more than likely stock prices will increase over the next few years. If you want some income and a hedge for higher interest rates, consider adding some conservative equities with high dividend yields to your portfolio. You could also look into stocks which tend to do well when the economy retreats. You may find that you’re adding return to your portfolio without taking on too much more risk. You can revert back to all fixed income if you desire when interest rates move up over the coming years.

As always, feel free to e-mail me with any questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Bonds are subject to a variety of risks, including but not limited to interest rate risk. Government bonds are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and fixed principal.

The Wealth Transfer: Getting Younger Clients

2011-04-15T20:58:41Z

I've given some thought lately to lowering the average age of my clients. It’s an issue most financial advisors deal with when they look through their book of business and realize that most of their largest accounts are people in their 60’s, 70’s and older. In my experience, the reason for that is two-fold: first, older people really do have more money. It’s a combination of demographics (there are currently tons of baby boomers out there controlling trillions of dollars in assets) and the fact that people both come into more money at later ages and, concurrently, become more interested in the management of their assets as they near the distribution phase. The other reason why advisors have a hard time attracting young, wealthy clients is that younger people simply don't focus as much on saving and investing as older folks. Regardless of all the statistics about the time value of money and how much of an advantage a young person would be at later on if they saved more now, it’s simply not how the world works. I have plenty of clients who are in their 20's and 30's, earning well over $100,000 per year who save very little each year, despite my ranting. Granted I work and live in New York City where earning $100,000 makes you, well, poor. The handful of young clients who do max out their 401k and save beyond that will clearly be less stressed later on when life becomes more expensive (think: college tuition) and saving becomes more difficult.

]]> Despite these reasons why it may be easier for an advisor to focus on older clients, a recent article in Investment News cites that nearly twenty billion dollars in revenue is earned annually by advisors from clients under age 50. We're talking about trillions of dollars in assets controlled by Generation X and perhaps even more importantly, Generation Y. Attracting these younger clients involves a learning curve for advisors that requires a different style of marketing and communication, including social media and constant networking in casual environments. This is a learning curve which many older advisors simply won't embrace because they are paralyzed in their old-fashioned marketing and/or earn enough money that they don't need to change. This is where the smart advisors will come in and cater to this market the way they want to be catered to. This may involve Skyping with clients across the country, learning to text faster and more often, and keeping your website and/or blog active and current (eh hem).

Why else might younger investors have less affinity to financial advisors than their parents? How about the intense volatility and lack of total return from the stock market over the past 10 years? A 32 year-old executive in today's world has watched the bursting of the tech bubble and the real estate market collapse since graduating from college. I'm one of them and it’s easy to understand why younger investors hold on tightly to any money which they successfully save. It’s a similar mentality to what our grandparents did who grew up in the 1930's during the Great Depression and were scared of losing any family savings which still existed after the 1929 market collapse. The difference with a person in their 50's is that they had those sweet decades of the 1980's and 1990's when the market gradually increased in value seemingly every year. Some of those investors have had the discipline to reinvest dividends and sit tight during this lost decade of market returns. But some younger investors have decided to stay away. The problem with staying away is that good financial planning involves more than just stocks and bonds; it involves proper estate planning, making tax-smart decisions, and having the right insurance policies in place to protect your family and business. Most of the young people I know haven’t embraced smart financial planning yet.

So, I’ve decided on a few different methods of bridging the generation gap in my business. The first and easiest thing for me to do is request meetings with my older client’s children, often people in their 40’s, 30’s, and younger. Creating a relationship with this younger generation will preserve many of my important client relationships, and ensure that the younger generation is making smart moves now to deal with their own futures. The other important thing to do, which I mentioned earlier, is going beyond the typical marketing of seminars and free dinners. That stuff just doesn’t work as well with my generation. Being active on the Web and constantly networking with friends of friends is a must. I think social media is an urgent medium for advisors to connect with Generation Y as well, but being employed in a regulated industry such as financial services makes it exceedingly difficult to do so. Hopefully these policies will become more accommodative as the industry evolves and realizes that social media is here to stay.

As always, feel free to reach me with any questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Making Wise Financial Decisions for Aging Parents

2011-03-23T16:43:29Z

I’ve written at length about the unfortunate ‘trifecta’ which many families face when in their 50’s. This decade is typically when people really start to focus on the reality of retiring one day and having enough money to do so. It’s also a time when kids (if you have them) are in college or are nearing that expense. It’s also a time when elderly parents often need help. Offering help to aging parents isn’t always financial in nature—it can also be an increased need for time and attention which takes mental and financial tolls on you. No matter how you look at it, your 50’s are a time of financial demands, perhaps more so than any other decade. So below I’ve outlined a few financial tips regarding dealing with aging parents which can potentially save you loads of money (and stress) down the road.

]]> • Watch those insurance policies – It’s generally around the time that people’s policies are really becoming valuable that they often stop paying premiums. People in their 70’s and 80’s sometimes decide their kids earn a decent living and they can simply drop their life insurance. If you run some cost/benefit analysis of paying another 10-15 years of premiums vs. what the eventual payout will be, it’s often worth it for the kids to continue making those life insurance payments if their parents aren’t able to do so. Why let the insurance companies win by collecting your premiums and paying out nothing? Keep those policies in force. The same cost/benefit analysis can apply to Medicare supplement programs (i.e. Medigap) and long-term care insurance. Any of these policies can avoid having to drain substantial assets later on in life when you’re grappling with other expenses at the same time. Do a little careful planning today and save yourself a bundle tomorrow.

• Go over your IRA accounts with a smart financial advisor – I’ve seen many cases where elderly people are taking Required Minimum Distributions (RMDs) from their IRA accounts each year. In many cases this, combined with social security, is their only real income. As a result, they are paying tax on their IRA distributions at extremely low rates, often under 15%. If a child inherits that IRA who is in the 35% tax bracket, they will end up paying the government more tax than their parents would have. My point is that it may make more sense for the parent’s to take substantial distributions and utilize the $13,000/person/year gifting ability. This sort of income distribution analysis may be worth going over with your financial advisor.

• Protect the family home – Elderly folks tend to spend through much of their cash. However, it’s a bit more difficult to spend your house since it’s typically an intangible asset. It’s important to plan the succession of that home while your parents are still alive. That may involve transferring the home into a beneficiary’s name while they are still alive to avoid probate issues. If running out of cash is the issue, helping your parents obtain either a home equity line of credit (HELOC) or reverse mortgage prior to them asking you for money may be a good idea. Obviously you’ll want to do your homework carefully—especially in the case of a reverse mortgage because it involves selling all or a portion of your home back to the bank. In some cases the only planning which needs to be done is establishing a trust to maintain family home into the future. This saves the headache of kids arguing over maintenance and repair issues which often come up shortly after home ownership transfers.

Aside from the above tips which may not be totally obvious, it’s also good to make sure parents have a reasonable budget. I’ve noticed a lot of elderly folks run out of money because they take less interest in their money at a time when lots of random and unexpected expenses tend to come up. If your income is coming from a pension, social security, and retirement account distributions, you should be able to accurately predict your income each year. Children should work with their parents to make sure they are living within the framework of their fixed and variable income.

As always, feel free to reach me with any questions.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Uniform Fiduciary Standard: Good or Bad? And for Whom?

2011-02-14T16:36:12Z

The topic of this blog entry may initially seem pertinent only to those within the financial services profession. The reality is quite the opposite. Efforts to create a uniform fiduciary standard are perhaps most significant to the clients, the people who entrust financial professionals to oversee their nest eggs and help make decisions which put people on a forward path to progress in their personal financial lives. The concept of a fiduciary standard basically requires all of those ambiguous financial professionals (most of whom hold themselves out as ‘planners’ and ‘advisors’ to act in the best interests of their clients, a standard which is currently only required for investment advisor representatives, typically abbreviated as IARs. The way the law currently stands stockbrokers (aka registered representatives) are only required to act within a standard of ‘suitability’ when it comes to recommending products and strategies to clients. I don’t think I need to elaborate on the potential for abuses which exist within the ambiguous definition of ‘suitable.’

]]> The SEC believes the implementation of a fiduciary standard is important because the average investor hasn’t a clue about the various roles played by broker/dealer firms and investment advisors. I see it first hand on a regular basis in my own practice. The few clients who do ask specific questions about my professional credentials typically lose interest after I explain my dual registration as both a broker and investment advisor. The issue of wearing multiple hats is confusing to clients, as it is to some advisors as well.

Because a fiduciary standard already exists for investment advisors the compliance requirements for those professionals is clear. The trickier issues tend to come up with brokers who, accidentally or not, frequently impart investment advice to clients without properly disclosing that they aren’t held to the same rigorous compliance requirements. The fact that brokers need only make ‘suitable’ recommendations—that is recommendations which work within the framework of a client’s tolerance for risk and investment objectives—leads to much debate about how compensation (commissions) may direct an advisor’s decision-making rather than product costs, transparency, tax efficiency or any other factors which an advisor should be giving consideration to when choosing a product or strategy. The conflict of interest is clear and the flexibility of how brokers choose to deal with that is something regulators probably want to eliminate.

Adopting a uniform fiduciary standard seems almost too obvious in a world where too many financial professionals are greedy and the typical consumer desperately needs solid, sound financial advice to navigate through the intensely complex financial decisions which we all deal with throughout our lives. It seems to me that implementing such a standard would be beneficial to every party involved ranging from the consumers to the financial professionals to the regulators and compliance personnel who constantly deal with ambiguity and uncertainty when it comes to monitoring the behavior of financial professionals. So for me, assuming the implementation of such a standard can be done in a smooth fashion which isn’t too disruptive to everyday business, I’m all for it.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

Organize Your Financial Life Using MoneyCapsules

2010-12-29T20:41:27Z

In the financial planning profession, many advisors focus on investment management. The focus is often so strongly on managing investments that all the other components of financial planning which people want and need are ignored. In today’s post I’d like to discuss MoneyCapsules, a process-oriented strategy devised by an advisor in my office which focuses on careful management of one’s entire financial life. It’s a service many people want but don’t explain clearly enough to their financial advisor to get it right. I’ve seen it first hand: once people get a handle on their full financial picture, anxiety levels decrease and decision making becomes much easier. Find the right payday lender by reviewing the easy payday loan comparison chart.

]]> MoneyCapsules is a service which integrates all of your financial resources into one consolidated picture and identifies areas of strength and weakness. MoneyCapsules is not about helping you select a hot stock, time the market or speculate. It’s about providing a simple framework to help you organize and understand your finances: pre-requisites for making better money decisions.

The MoneyCapsules framework may co-exist with your current financial advisor, family office and brokerage relationships. In fact, it is a useful analytical tool for investors with multiple institutional and advisor relationships. Here’s how it works: First we organize all of your financial information in one place- a personalized, secure Web portal, accessed by computer or smart phone. Link your 401k, IRA, investments, annuities and cash accounts from various institutions to a single Web page, with daily value updates. Next we categorize your financial resources into 8 easy to understand areas of wealth so that you can clearly identify and address financial concerns and/or successes. The final step is making decisions based on proper identification of your needs. The 8 Money Capsules are:

• Cash Reserves / Cash Flow  Seeks to provide cash reserve or cash flow for clients who require liquidity and or monthly income.
• Short-Term Goals  Seeks to provide low volatility investments.
• Long-Term Goals  Seeks to provide long-term capital appreciation by investing in diversified portfolios. Re-fills MoneyCapsule #1.
• Managing the Unexpected  Seeks to provide Asset Protection and Insurance for Disability, Long-Term Care, and Death.
• Income  Seeks to provide income and guaranteed life-time income. Money we can depend on for life.
• Wills, Advanced Directives & Trusts  Seeks to provide for the planned transfer of estate and control of assets, if incapacitated or in case of death.
• Family-Charitable Giving  Seeks to provide tax efficient strategies for transferring assets outside of one’s estate, for lifetime and legacy giving.
• Personal Values / Dreams  Personal values provide a reason for why we do the things we do. These decisions can have an important effect on our money decisions and risk tolerance.

If you’d like more information on the MoneyCapsules concept or would like to schedule a phone or in-person meeting, feel free to contact me.

Russell Bailyn

--
Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

Tax Relief Gives Investors a Break for 2011 & 2012

2010-12-22T15:51:28Z

We’ve been saying in my office for months that Obama would extend the Bush tax cuts. It seemed a given with the unemployment rate stuck near 10% and horror stories circulating about how higher taxes contributed to the lost decade of the 1930’s. Obama, especially now that he has entered the third year of his presidency, seems willing to compromise and unwilling to watch our economy deteriorate further. Perhaps there’s some political motive to his recent mindset but either way I’m relieved to keep those tax rates where they have been for another two years. Below is a recap of the tax relief extension. I figured this would be a good topic for a blog post because tax rules are often dense, and change pretty frequently.

]]> Perhaps the most important thing which is staying the same is the tax rate structure. For the next two years we’ll continue to have 10, 15, 25, 28, 33 and 35% brackets. If you’ll recall, letting the Bush tax cuts expire would have brought us back to marginal rates of 15, 28, 31, 36, and 39.6%. The tax rates on dividends and capital gains will also be extended which was a huge concern for people in my industry. The phase-out of the personal exemption ($3,650 last year) will also be suspended for now, until 2012. The increased standard deduction for married couples is also extended until 2012.

One of the more interesting and potentially stimulative pieces of tax relief we got was a reduction in the employee portion of Social Security taxes from 6.2% to 4.2%. This should amount to a ‘mini pay raise’ for millions of Americans, particularly those younger workers who will more than likely have delayed Social Security payments in the future. Unemployment benefits were also extended for those who are out of work and looking.

For students and parents of students, tax benefits for education have been extended through 2012, including the expanded student loan interest deduction. The American Opportunity Credit will also remain and allows taxpayers below a certain income threshold to deduct tuition payments.

The estate tax, one of the stickiest political issues will proceed as follows: the first $5 million of an estate will be exempt from taxation and each dollar above that will be taxed at 35%.

There’s also a bunch of extensions on energy provisions which were set to expire.

Overall this tax compromise wasn’t what Obama had in mind when he entered the White House. However, with high unemployment and QE2 backfiring to some extent on the Fed, these tax cut extensions are an added form of stimulus which hopefully get this economy the traction it needs.

As always, feel free to contact me with questions about how taxes can affect your individual financial plan. We also have tax professionals in the office that can be of assistance to you this tax season.
Happy holidays!

Russell Bailyn