As the holiday season approaches, our thoughts naturally turn to the people, relationships, causes, and activities that provide the most meaning in our lives. This year, reflecting on what we’re thankful for is especially important after months of a brutal and often ugly political race for the White House, marked by negativity and divisiveness. Yet, no matter our individual political beliefs, as Americans, we come together and remain one people bound by a common goal: to thrive in a democracy that provides the freedom to pursue the lifestyle we desire for ourselves, our families, and our businesses.
At Planned Financial Services, we remain grateful for the opportunity to serve you and your family in pursuit of the individual Return on Life® you seek by providing relevant, unbiased, and actionable advice. And effective January 1, 2017, we look forward to providing even greater flexibility in serving your needs as we complete our transition to a full-service Registered Investment Advisor (RIA). Below we discuss what this means to you and your family or business, and provide an update on team happenings, year-end tax deadlines, and our expectations for the post-election markets and economy.
PFS Transitions to Full-Service RIA in January 2017
Effective January 1, 2017, Planned Financial Services will transition from its current dual Registered Investment Advisor (RIA) registration with LPL Financial to serve as a full-service SEC-registered RIA. This business structure will enable us to unify trading and registered investment advisory fees, ensuring that clients who joined us as a result of a past acquisition, as well as new clients joining us in the future, enjoy the same high level of service, access, and advice from our award-winning team. Please note that LPL will remain the current custodian for your account assets, and there will be no change to your current advisory account number(s).
Recently, we provided all advisory services clients with new account agreements reflecting our new business structure as well as all required disclosure forms. We want to thank each of you for your part in helping us update these agreements in an expeditious manner. We’re very excited about how our transition to a full-service RIA will benefit you and your family by providing:
- Greater flexibility in serving your needs, including the ability to custody assets at multiple custodians, as necessary, and based on your needs and circumstances
- The ability to invest more in our business and technology capabilities over time, and gain increased flexibility with regard to how we report on your investments and financial planning goals
- Access to a broader range of investment options
In recent months, your PFS team has been recognized by several organizations for customer service, retirement planning expertise, and business growth.
- Smart Business 2016 Customer Service Awards - Planned Financial Services (PFS) was selected as an honoree for The 2016 Customer Service Awards and was recognized amongst its peers at the Power Players of Cleveland luncheon on November 3, 2016. Presented by Smart Business magazine, The 2016 Customer Service Awards recognizes 25 organizations in the Cleveland area that have demonstrated their commitment to delivering world-class customer service – both internally and externally. The program serves to raise awareness of the importance of customer service in the business world and to share best practices from those who strive to do it best.
- 401 Top Retirement Plan Advisers - Frank Fantozzi was recently named among the 401 Top Retirement Plan Advisers. The list, produced by financial services publication Financial Times in collaboration with Ignites Research, recognizes the top financial advisors who specialize in serving defined contribution (DC) retirement plans. Advisors were chosen based on several criteria, including the amount of DC plan assets under advisement, and growth and specialization in DC plan business, among other factors.
The Weatherhead 100 - For the fifth time, Planned Financial Services was named a Weatherhead 100 Upstart company, which recognizes the 100 fastest-growing companies in Northeast Ohio. The Weatherhead 100 was established to celebrate the strength and spirit of entrepreneurship and to recognize the elite companies headquartered in the region. This year’s winners were evaluated on revenue growth from 2011 to 2015 and were listed in a special issue of Community Leader Magazine. PFS will be honored among its peers and other professionals at the Weatherhead 100 awards ceremony on Thursday, December 1, 2016 in Cleveland.
Please visit our online Newsroom to learn more about these and other recent PFS awards.
The Alzheimer’s Tsunami: Preparing for the Worst
On November 9, 2016, we hosted a complimentary educational seminar: The Alzheimer’s Tsunami: Preparing for the Worst, for clients, friends, and their guests at Corporate College East in Warrensville Heights, Ohio. Those attending gained a better understanding of how to prepare physically, emotionally, and financially should a loved one be diagnosed with Alzheimer’s or a related form of dementia.
If you were unable to join us, but have questions or concerns about the financial implications of Alzheimer’s and related forms of dementia on your family and loved ones, please don’t hesitate to reach out to us. This is an area we’re very passionate about. For more than 22 years, we’ve helped families grappling with the worry, stress, and often difficult decisions that accompany a dementia diagnosis. Our goal is to replace worry with confidence through proactive planning in these and other important areas:
- Review your estate planning documents to ensure all necessary legal documents are in place, including estate planning and powers of attorney
- Develop strategies to help protect your (or your loved one’s) income and financial assets
- Develop a long-term care strategy aligned with your (or your loved one’s) care goals and lifestyle preferences
- Test multiple financial scenarios using sophisticated planning and risk analysis software, enabling confident decisions about the future you desire
- Coordinate our advice with your legal advisors
Reminder: Year-end Tax Deadlines
As year-end quickly approaches, so do important 2016 tax planning deadlines. The following checklist can help you simplify and manage these critical deadlines.
December 31st marks the deadline for:
Gifts and Charitable Contributions:
- Making tax-year 2016 charitable contributions (cash and non-cash)
- Gifting to family members (up to $14,000 per individual free of gift or estate tax)
- Making an IRA Qualified Charitable Distribution (QCD); taxpayers must be age 70 ½ or older
Investments and Retirement Accounts:
- Tax harvesting: selling stocks or listed options to realize a gain or loss
- Contributing the maximum to qualified retirement accounts (401(k), 403(b), etc.)
- Completing a Roth conversion
- Taking Required Minimum Distributions (RMDs) if you are age 70 ½ or over
Employment and Medical Expenses:
- Deferring bonuses or self-employment income into 2017
- Rolling over FSA balances in employer-sponsored plans
- “Bunching” qualified out-of-pocket health care services, medical procedures, or equipment for itemizing 2016 medical expenses (qualified expenses must exceed 10% of AGI for taxpayers under age 65; 7.5% for taxpayers age 65+)
- Avoiding tax penalties by adjusting withholding or estimated tax payments to make up for any shortfall
Given President-elect Trump’s goal to lower income taxes, especially targeting capital gains and the Obamacare surtax, any opportunity you have to defer taxable income into 2017, and accelerate deductions into 2016, should be considered in light of the possible fruition of these events. Your PFS team is always available to provide guidance on these and other tax and investment planning considerations, or answer questions you may have about strategies appropriate for your needs and situation.
Post-election Economic Outlook 2016
**Donald Trump, the winner of a recent hotly contested presidential campaign will be inaugurated as the 45th president of the United States on Friday, January 20, 2017. The transition to a Republican presidency and Trump’s rejection of politics as usual, which drew so many voters, naturally lead to questions about his impact on the economy and markets. The following is a high-level overview of our thoughts on how a Trump presidency may impact the economy and financial markets in the coming months.
- ECONOMY - While the election results have not changed our long-term outlook for the U.S. economy. We will continue to monitor many important economic indicators, including the Five Forecasters, the Current Conditions Index, as well as the Recession Watch Dashboard, and will keep you updated in the event of any changes to our views. It’s important to understand that elections do not in and of themselves cause recessions. Policies can, however, and we need to wait to see which policies Trump moves forward with and the details of those policies. Our Recession Watch Dashboard continues to point to an overall low risk of recession within the next year.
Trade has been a major theme in this election, yet a president’s ability to impact trade directly and immediately is somewhat limited. Trump has been outspoken in favor renegotiating NAFTA terms and has been opposed to the TransPacific Partnership (TPP), which has little chance of passing. The Trump victory raises some concern across foreign markets about U.S. trade.
- FED - We do not believe the election results have changed the Fed’s outlook. Furthermore, we believe the Fed is much less sensitive to financial markets than most people think. As it stands, we believe the Fed is on course to increase rates at its December meeting, with another 2-3 increases in 2017. It would take a major market disruption or a change in the economic fundamentals for the Fed to alter this course.
- EQUITIES & FIXED INCOME - Just as an election does not cause a recession, it does not cause a bear (or bull) market. Government policies alone do not change the market’s long-term trend, although they are a factor. Shorter term, elections are rarely a harbinger for a sell-off, and when they have been, the election has not been the primary cause. In election years since 1952, the S&P 500 has returned an average of 2.5% in November and December and has been higher 75% of the time. From Election Day until Inauguration Day, the S&P 500 has averaged a gain of 1.0% and has been higher 69% of the time. The median return jumps to 3.0% because of a nearly 20% drop in 2008 that skews the average return, but 2008 returns were fundamentally driven by the recession, not Obama’s election. The bottom line is some near-term volatility is likely, but a massive sell-off absent an economic recession has never happened in the period between the election and inauguration.
There doesn’t appear to be much of a difference in equity performance over the short term. Since the election in 1952, the final two months of the year have returned 2.6% when a Republican wins and 2.4% when a Democrat wins. Looking at the largest drops the final two months of an election year in 2000 (Republican victory) and 2008 (Democratic victory) stand out, as the S&P 500 dropped 7.6% and 6.8%, respectively. Both times the economy was either in a recession (2008) or about to fall into a recession (2000) – which greatly contributed to the equity weakness. With the end of the earnings recession, improving consumer confidence, and the best quarterly GDP print in two years – we presently have an improving economic backdrop, which should help contain any large downside moves in equities for the rest of 2016.
We believe the following sectors would likely benefit under a Trump administration:
- Biotech and Pharmaceuticals - Although Trump has stated his desire to repeal the ACA and has favored drug re-importation from other countries, controlling drug prices is unlikely to be as high of a priority for him as it would have been for Clinton. As a result, biotech and pharmaceutical companies may get a bump. We believe the market may have overreacted to perceived policy risk and we continue to favor the healthcare sector, which has historically performed well after elections.
Energy - Trump is likely to be positive for fossil fuels. He has promised less regulation on drilling, along with expansion of drilling areas. The segment of the industrials sector that services the energy sector may also benefit.
Financials - The Trump administration is likely to be easier on financial regulation than Clinton would have been. Trump has indicated he would like to roll back financial regulations, including the Dodd-Frank legislation enacted as a result of the financial crisis. Trump has also suggested bringing back Glass-Steagall, which would separate traditional banking from investment banking, a move we see as very unlikely.
- THE DOLLAR, BONDS, AND DEBT - Trump’s policies are likely to be relatively negative for the U.S. dollar. His comments on renegotiating U.S. debt held by foreigners may limit the attractiveness of bonds to foreign investors. We saw an initial Treasury rally as stocks sold off overnight on November 9, 2016, but yields have since moved higher. We expect there may continue to be additional volatility as markets digest the news, but we broadly believe markets may be pricing in a rise in deficit spending, which is pushing yields higher; though continuation of low rates overseas is an offsetting factor, potentially keeping rates somewhat range bound over the near-term.
Trump had mentioned last spring the possibility of renegotiating our debt and paying back less than the full amount if the economy were to falter. This idea, if implemented, would almost certainly lead to a debt downgrade. However, he backed away from this idea a few days after he floated it. More realistically, Trump has signaled higher deficit spending. While deficit spending was a contributing factor to the U.S. debt downgrade by S&P in August of 2011, it wasn’t the only reason. The main driver of the downgrade was the debt ceiling crisis, as Republicans demanded a deficit reduction package before they were willing to join Democrats in raising the debt ceiling. Divided government and partisan politics led to months of debate and an eleventh-hour deal that avoided a default. With Republicans keeping control of the Senate and the House, a fight over the debt ceiling that could threaten the U.S. credit rating is unlikely.
COMMODITIES - Gold can thrive in chaotic environments and the uncertainty surrounding Trump’s policies could offer some support to the commodity. When discussing oil, it is important to remember that oil stocks and crude oil can have very different performance, even though investors often expect similar returns. Trump’s victory is likely a positive for oil stocks, especially in the short run. He has promised reduced regulations on oil and gas production, which would improve profitability of existing projects and may result in a very marginal increase in U.S. production. Note, this may be a negative for energy prices.
VOLATILITY - We expect that market volatility will likely increase. Equity markets have experienced abnormally low volatility recently, in part because of central bank intervention. As those interventions decrease, volatility should increase. However, we view that increase as a healthy aspect of equity markets. The degree to which the election results impact volatility will depend a great deal on which policies are actually enacted as a result of the changes in Washington.
Your team at Planned Financial Services will continue to provide you with relevant market and economic insights as the presidential transition progresses. While change can be unsettling, it’s also inevitable. That’s why a well-formulated plan and a long-term focus is so critical to not only weathering varying market cycles, conditions, and challenges, but avoiding the temptation to adopt a herd mentality or make decisions based on emotions—both of which can easily derail your strategy as you pursue your life plans. Your Return on Life® is always our top priority and we remain committed to providing you with the education, advice, and insight required to retain a long-term perspective and focus on your individual goals.
We wish you and your family very Happy Holidays! and thank you for your continued trust in your dedicated PFS team. If you need additional help or someone you know needs our advice, remember, we’re only a phone call away at 440.740.0130. We are always honored to help our clients’ friends and business associates take greater control of their future with the guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide.
Real People. Real Answers.
Health, Happiness, and Good Fortune,
President & Founder
CPA, MT, PFS, CDFA, AIF
Planned Financial Services,
Registered Investment Advisor
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and cannot be invested into directly. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. Because of its narrow focus, investing in a single sector, such as energy or manufacturing, will be subject to greater volatility than investing more broadly across many sectors and companies.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
**Research source: LPL Financial November 2016.
The articles in this publication were developed by a third-party publisher.