New York Financial Planner - NYC Financial Advisor

Are Exchange-Traded Funds Really Ruining the Market?

2012-05-17T19:39:32Z

In my opinion, no, that’s ridiculous. As I wrote in my book back in 2007, I believe ETFs are one of the best financial innovations to hit the market in decades, perhaps since the mutual fund made its debut. ETFs allow investors to own broad, diversified portfolios at low annual costs. That’s what mutual funds offered back in the day but people ultimately realized that some fund expenses weren’t so low and the performance wasn’t so hot. I believe ETFs offer a solid way to own a passive portfolio which covers a broad cross-section of the market. Couple that with the fact that they are transparent, trade on exchanges like stocks, and are tax-efficient. Now to clarify, when I refer to ETFs, I am referring to large, popular indexes such as the S&P 500* which do not employ leverage. Please read on to hear some professional opinions about how ETFs may have contributed to market volatility:

]]> In late 2011 Eileen Rominger, the SEC’s director of the Division of Investment Management testified to a Senate panel about ETF-related issues. The major issues she covered were about the adequacy of investor disclosure, liquidity levels and transparency of the underlying instruments in which exchange-traded products invest. She also said her staff was looking into the correlation between market volatility and the recent surge in popularity of exchange-traded products. While the findings of that research are yet to surface, Scott Burns, the director ETF Research at Morningstar commented that if the SEC is looking at the same data they are, they won’t find anything substantive about ETFs affecting market volatility. In fact, the majority of panelists at the Senate hearing agreed that many other market factors far outweigh ETFs when it comes to contributing to market volatility.

I also watched an interview between Scott Burns and Leland Clemons, a managing director at iShares, about ETFs and market volatility. Clemons was in agreement that macroeconomic factors including Europe and heightened uncertainty about the US economy were bigger factors contributing to market volatility than the prevalence of ETFs. Clemons goes into detail about the average trading volume of the underlying holdings of the major ETFs and how, on a daily basis, it’s still a very tiny number. The example he gave was the S&P 500 ETF accounting for 1% of the average trading volume of its underlying holdings. He argues that wouldn’t be the sort of factor that would explain a huge jump in volatility. Not to mention, there are both buys and sells (or creations and redemptions) each day – which would act to neutralize the effects that 1% had on market volatility.

If I had to summarize the findings of the many experts that I’ve heard speak on this topic over the past few months, the agreement is that leveraged and inverse-leveraged ETFs are producing more of the problems in the market than regular buy-and-hold ETFs which retail investors have been embracing.** And those problems aren’t all related to volatility, they are often related to the bleeding effect which that leverage has on the performance of those funds over longer period of time. All of these things are under regulatory review but many think the findings won’t be anything near the dramatic rhetoric which calls ETFs ‘financial instruments of mass destruction.’ In the end, investors want to find answers, in this case, someone or something to blame for the enhanced market volatility. Time will tell but in the short run, let’s not knock too hard on a product which has served well for investors.

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

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 S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding) with each stock's weight in the index proportionate to its market value.

**An exchange-traded fund that uses financial derivatives and debt to amplify the returns of an underlying index is referred to as a leveraged or inverse-leveraged ETF. These funds do not amplify the annual returns of an index; instead they follow the daily changes.

Equity-based ETFs are subject to risks similar to those of stocks; fixed income ETFs are subject to risks similar to those of bonds. Investment returns will fluctuate and are subject to market volatility. Shares may be worth more or less than their original cost when sold.

Although exchange-traded funds are designed to provide investment results that generally correspond to the price and yield performance of their respective underlying indexes, the trusts may not be able to exactly replicate the performance of the indexes because of trust expenses and other factors.

Investing in mutual funds involves risk, including possible loss of principle.

Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain a prospectus, which contains this and other information about a fund, you may contact your investment representative or call the investment company directly. Please read the prospectus carefully before investing or sending money.

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.

Understanding the SIMPLE IRA Plan

2012-05-08T21:28:53Z

In the world of small business retirement plans, there are many options. Some plans give the employer sole authority to make contributions, others are contributed to by employees only, and some are a hybrid of the two in which employees make contributions and employers can make matching payments or make random contributions to the plan. The SIMPLE IRA is an interesting option for small and mid-sized businesses (up to 100 employees) which allows a mix of employer and employee contributions. Some would say IRA plans like the SIMPLE are becoming obsolete as the 401k vehicle has become more flexible but that’s not entirely true. 401k plans still have more onerous rules on business owners in terms of tax reporting requirements and the fairness surrounding contribution levels. For that reason many people stick with plans like the SIMPLE IRA which have lower contributions limits but are easy to administer and achieve the goal of socking away tax-deferred funds for retirement.

]]> In a nutshell, SIMPLE IRA plans allow employees to make salary reduction contributions (if they wish) and employers have the option of making matching contributions OR a non-elective contribution. All of the contributions are made directly into the plan.

The SIMPLE IRA is established by filling out the appropriate form, generally Form 5305-SIMPLE or Form 5304-SIMPLE. The difference between these two forms is that the 5305 limits the employees to one financial institution whereas the 5304 allows each employee to use a different financial institution if they so desire. In most cases, even when the 5304 is selected, the same financial institution is used for most employees, the reason being that it makes life easier for the person who has to do payroll and send matching or non-elective contributions to that firm. Sending checks to 10 different places presents operational difficulty and probably wouldn’t achieve all that much since most fund companies offer at least a basic lineup of stock and bond funds.

In terms of the employer contribution portion, the employer must choose one of two options: the first is to match employee contributions up to 3% of compensation. The other option is to make a 2% non-elective contribution for each eligible employee. If the employer chooses the second option, they must make the contribution even if the employee isn’t make salary deferral contributions. Also of interest is the fact that the employee is always 100% vested. This is an IRA plan and once the money goes in, it belongs to the employee.

Contribution Limits

In 2012, the employee portion cannot exceed $11,500. If the employee is over age 50, they can contribute an additional $2,500, capping the employee portion at $14,000. The employer portion works according to the paragraph above. As mentioned above, these ‘low’ contribution limits are one of the downsides to SIMPLE IRA plans. 401k limits are $16,500/year with a $5,500 catch-up allowed for those participants over age 50.*

All things considered, I think the SIMPLE IRA presents a nice product for small and mid-size business owners in that they are very easy to administer and allow the participants to sock away a decent amount of money for retirement. Employees should particularly like these plans because of the mandatory employer contribution portion. This could help you even if you aren’t actively deferring your own salary into the plan. Once your business gets to a place in which you need to defer more dollars and set more limits about who can contribute and when, consider a switch to the 401k plan.

If you have questions about which retirement plan is right for you or your business, please don’t hesitate to e-mail or call 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

*Note: Withdrawals prior to age 59 1/2 may be subject to a 10 percent federal income tax penalty. Upon withdrawal, earnings are taxed as ordinary income.

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.

Featured in Financial Advisor Magazine!

2012-04-13T19:41:50Z

I don't usually blog about my press mentions, but this month I had a pretty cool feature in one of my industry's most prominent publications. Financial Advisor Magazine interviewed me for a story on social media and how advisors are dealing with the opportunities and challenges it presents. As a blogger, I've always been an advocate of using the Internet as a tool for helping advisors grow their business. However, the social media movement takes web marketing opportunities well beyond that of a traditional website or blog. Advisors who follow the new and very specific rules about how to use social media may have a leg up on those who rely strictly on more traditional methods of client acquisition and retention.

]]> 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

Financial Planning: What’s Your Process?

2012-02-09T18:15:41Z

I’ve been in the business for a while at this point. I’ve heard many stories from financial advisors about how they lead initial consultations and what the different methods are which they use to extract vital information from clients. The problem we often face as advisors is that clients offer us a decent amount of ‘hard’ information such as income and expenses but we have a more difficult time getting through to the ‘soft’ information such as a true tolerance for risk, attitudes about money and spending, attitudes about charity and legacy planning, etc. At the end of the day, it’s a relationship that involves trust; the more an advisor understands about the client’s truest feelings, the more they can think through ideas and come up with the best possible solutions for handling one’s financial life. So what’s the solution?

]]> After reviewing many different methods for conducting meetings, I realized that most of the popular fact gathering systems out there do the same things – they capture most of the hard information and use a variety of hypothetical questions to tap into the soft information. For example, some of the soft questions include: if money wasn’t an issue, what would you do with your life for the next 10 years? Another one asks what your earliest childhood memories involving money are. These questions reveal more than a client may realize. The first question gives a clear picture about what the clients goals are, a question they may not answer as clearly if you simply ask them what their goals are. The second question about early childhood memories gets at attitudes about money – something clients often have a difficult time communicating but can be explained largely by what parents teach their kids. For example, many of my wealthier clients are much more reluctant to spend money than my clients who may only have $50K or $100K saved up. Knowing a client’s asset levels doesn’t tell you much at all about their attitudes about spending.

I did a post a few months back about Money Capsules, a system created by an advisor in our office which aims to organize financial priorities, understand the balances and imbalances in your financial life, and make smarter decisions by applying your personal information towards optimizing your financial health. Using this system, the client looks at 7 cards (cash, growth, income, risk, time, giving, and integration) to figure out what is most important and where the financial planning process should start for them. Between those 7 cards you actually end up covering a very wide variety of topics.

Another financial planning formula used by some of the people at our firm (this system is more geared for retirement) aims to categorize spending into ‘above the line’ and ‘below the line,’ with above the line being mandatory expenses and below the line being discretionary spending. This system aims to get all mandatory expenses covered by guaranteed income sources including social security, pensions, and annuities. Anything discretionary can be covered using brokerage accounts and other savings which may fluctuate (similar to how your discretionary spending fluctuates). Using this system you can increase your chances of not outliving your money while keeping a handle on what you need to cut if your investments don’t perform well.

As with most things in the financial planning world, the perfect system will depend on what your needs are. Some clients of mine are purely concerned with performance. They want to own stocks which may outperform the broader market indexes. Other clients aren’t so much worried about performance as they are organizing and understanding all the components of their financial life. They want to know when they need to take withdrawals from retirement accounts, how much tax they will owe, how to gift money to children and grandchildren, when to do that, etc.

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 *231
F: 212-752-7673
rbailyn@premieradvisors.net

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

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