Networking is key to growth when it comes to business development. Women business owners, however,  face unique challenges, especially in a rapidly growing, male-dominated energy industry.

In a recent survey conducted by First Commonwealth Bank® and Campos Inc. of 125 local women-led businesses, more than 47 percent of respondents said business development was their greatest need.

“Based on this percentage, it shows that there is a significant opportunity for women to better understand how to network and successfully grow their businesses through these unique relationships,” says Megan A. White, Vice President and Regional Manager at First Commonwealth Bank.

Smart Business spoke with White about how women in business, particularly within the energy industry, can tackle business development.

What challenges do women face with developing their businesses?

In the same Campos survey, 67 percent of respondents said they seek business advice and guidance from peers and colleagues.

However, the challenge for many women is that they do not know who to network with for business advice beyond their peers and colleagues, and sometimes need help getting outside of their industry. When they expand to other industries, such as education, finance or government, it helps them build a solid network and creates many opportunities for developing their business.

How can women build networks that become their center of influence?

One way to create a networking system to benefit your business is to reach out to business professionals — your banker, attorney and accountant — who each have networks that you can plug into.

People often have tunnel vision, thinking a banker only does loans and deposits, but a good banker who wants to see your business grow and succeed can help with all your business needs, and connects you to community leaders or business owners.

A banker, along with the network of other professionals, can open doors, make introductions and be your strongest advocate.

With the energy industry’s growth, what’s important for women to understand about business development in this arena?

According to Rigzone, which provides oil and gas industry news and information, in the first quarter of this year, more women than men entered the oil and gas industry. Locally, many women operate in leadership positions within the manufacturing and service industries related to oil and gas. People may think of the energy industry as male-dominated, but it’s an avenue for women to build leadership roles and own companies within the industry.

Like many, when I first started to develop contacts within the energy industry, as a woman I thought there might be hurdles to overcome. However, in general, everybody within the industry is very welcoming, which helps you learn the network, and a lot of women already operate within the space.

Women shouldn’t hold back, assuming they may have a hard time, when they actually have a skewed perception of the industry. It’s also short-sighted to assume their company may not tie into the energy industry because they’re just thinking of the wells, pads and drilling. That’s not really looking at what the industry can do, or what your business can do for the industry.

Is there still a ‘boy’s club’ mentality in the energy industry?

Not as much. We do have a lot of room to grow, quite frankly, but there are women’s organizations that help with that. For example, the Women’s Energy Network, which was primarily Texas-oriented, formed an Appalachia chapter in 2011 that focuses on Pennsylvania, Ohio and West Virginia.

Women in the energy industry are being proactive. They want to get together to form a team and network within themselves, as well as being able to work together to become an industry force.

Business is still very much relationship driven. Yes, you need to have a competitive product and know what you’re doing in your industry. But in order to grow with other companies in your market area, it’s important to understand what each industry is doing and how you can work with others, or create something that makes your market stronger.

Megan A. White is a vice president and regional manager at First Commonwealth Bank. Reach her at (724) 836-6694 or mwhite@fcbanking.com.

Call (800) 711-BANK (2265) or visit fcbanking.com/womenfirst for resources specific to women in business, local events and more.

Insights Wealth Management is brought to you by First Commonwealth Bank

Published in Pittsburgh

Business succession often fails because business owners failed to plan, not because of a failure of the plan itself. But once a succession plan is established, it requires periodic review because tax laws change, goals change, dreams change and outcomes change.

“Often I find a business, particularly when it’s closely held, is one of the biggest assets of a family. So you’ve got to treat it that way,” says Rick Applegate, President of First Commonwealth Financial Advisors. “People get so close to their business that they forget, or fail to, look at it objectively.”

Smart Business spoke with Applegate about what to consider with business succession.

Why do business transfers to another generation often fail?

Assuring continuity is vital, but it doesn’t always mean that a second generation can assure success. A business succession strategy needs to take into account the business owner, the buyer, key employees and, most importantly, the clients.

Many times, owners of a closely held family business want to be ‘fair’ to all their children. So, a sibling who hasn’t been involved gets an interest equal to that of the sibling who has worked in the company for many years. Fairness has nothing to do with a successful business succession. Work out some other way, such as taking out a life insurance policy on yourself to benefit the uninvolved son or daughter.

How does a defensible business valuation help?

Understand what you’re trying to do — are you selling to family members, on the open market or to internal employees? One of the first things a buyer wants to know is the cost, so you need a supportable valuation to put a price on the business.

Even if you’re not selling, a business valuation is helpful. If the company hasn’t been properly valued at your death, the IRS will value it as highly as possible to collect more tax when your estate executioners sell or transfer the business.

It’s important to bring in appropriate professionals like attorneys, tax accountants, financial planners, etc. People who are closely vested in their business almost always think it’s worth more than it is. Professionals can help guide you to a reasonable valuation, including picking the best methodology.

What else should you take into account?

You need to think about who would be interested in buying your business. It might be difficult to sell in the open market. Family members could be disinterested. So, employees may be an option. Employee stock ownership plans have tremendous tax benefits to the prospective seller. Today’s low interest rates also easily allow a stock transfer with a bank loan. Again, qualified professionals can help with sale contract language and other matters.

In addition, you might not have the option of active, thoughtful selling. Plans must weigh what happens if there’s financial hardship, injury, disability or even death. Business succession planning should go hand-in-hand with your estate planning.

When family members are under duress, you don’t want them scrambling with business operations or estate matters. Leaving the business to your uninvolved spouse may be a terrible position to put him or her in. And it can hurt the value if they end up having a liquidation sale.

Use the plan to put your successors in the best position. Ask who is key to the continued success of the business. Do you need to give key employees part ownership or incentives to stay?

How can the right financing help with the plan’s execution?

There are different ways to sell a business. Prospective owners often utilize life insurance purchased under an agreement of sale because it makes the outcome a known entity. This is particularly useful when the buyer is paying through installments. If the business owner dies in the transition period, the life insurance awards funds to pay for the remainder of the company.

There are a lot of details to wrap up with business succession. Even after a sale, the right parties must be notified so previous owners or survivors aren’t liable for the unemployment tax filings, tax returns, business credit cards, etc. With help from experienced professionals, your plan can anticipate and respond to ensure the business continues after you’re gone.

Rick Applegate, CFP®, AIFA®, ChFC®, CLU®, is the president of First Commonwealth Financial Advisors. Reach him at (724) 933-4529 or rapplegate@fcbanking.com.

Insights Wealth Management is brought to you by First Commonwealth Bank

Published in Pittsburgh

Business owners and corporate executives tend to overinvest in their businesses, often ending up with a large portion of their wealth at risk to the fortunes of one company. However difficult, these owners need to diversify their financial assets to better survive periods of stress. The rules of prudent investing tell us that any more than 10 percent of one’s wealth invested in any one company is too much.

“Diversifying is not natural to individuals so closely connected to one business, but it can be a serious risk to their underlying wealth and the financial health of their entire family,” says Nina M. Baranchuk, CFA, Senior Vice President and Chief Investment Officer at First Commonwealth Advisors.

Smart Business spoke with Baranchuk about how to structure portfolios to diversify or offset these concentrated risks.

Why do corporate executives or business owners need to diversify?

Even regular employees get a company paycheck and buy company stock in the 401(k) or the employee stock purchase plan, so the concentration risks for all employees can be severe. Senior executives often accumulate additional large holdings of company stock and options as part of their compensation.

A business owner’s company may also be a disproportionately large part of his or her portfolio as well. An owner bears the risk of the entity and any economic, competitive or regulatory forces that might impact it. Like putting all your chips on red, there are serious consequences to holding so much ‘concentrated’ wealth if things don’t go well. In addition, these holdings can be illiquid — there is no easy exit under times of stress.

How should business owners construct their passive investment portfolios?

In some cases, it may not be possible to diversify much. If an owner can take cash out of the business, he or she should work with a qualified portfolio adviser to ensure that all of his or her passive investments are built to complement or offset the risk. A qualified adviser can craft a portfolio that helps to mitigate your specific concentration risks and manage your overall exposures.

For example, a local Pittsburgh businessperson might be concentrated in a steel or metal fabrication business. So, he or she would share exposure to the fates of this or other industries as well their end markets in the U.S. or overseas. He or she also may have significant risks to things like geography, interest rates, significant product input costs, etc.

You can easily have issues of exposure based on subtle or indirect connections. Some risks to a firm are really in your supply chain or the financial health of a customer’s industry. Maybe you have one or two dominant clients that represent a large percentage of your revenue stream. Geographical risks loom large for some companies as well.

A portfolio built to offset these risks might exclude many other holdings in the industrial arena and overinvest in industries that often do well when industrials/metals do not — think consumer-purchase staples like food and household products or utilities.

What’s another example of offsetting your risk?

One family we worked with had made its wealth in the real estate business — owning everything from apartment complexes to high-rises. Our analytic work found that two good offsets for these holdings were private equity and financial stocks. Thus invested, whatever happens to interest rates, private equity and financials will react in opposition to the direction of real estate, counteracting one of its most impactful environmental factors.

What should executives consider?

While many executives have limited ability to divest their options or stock, they should certainly not invest their 401(k) in the company stock or buy additional shares. Remember that the executives at Enron and WorldCom went down together, along with their options, pensions, paychecks and other compensation.

In this world of heightened competitive and financial risks, no business is immune from potentially negative outcomes. We urge our clients to make sure they have done everything possible to ensure their family’s financial health by planning for worst-case scenarios.

Nina M. Baranchuk, CFA, is a senior vice president and chief investment officer at First Commonwealth Advisors. Reach her at (412) 690-4596 or nbaranchuk@fcbanking.com.

To learn more, call (855) ASK-4-FCA, or visit ask4fca.com.

Insights Wealth Management is brought to you by First Commonwealth Bank

Published in Pittsburgh

Whether you are looking to manage your own assets, control how your assets are distributed after your death, plan for incapacity or enable your business to continue uninterrupted should something happen to you, trusts can help you accomplish your estate planning goals. By establishing a trust, you ensure that the assets gathered during your life will not disappear because of the inexperience or inability of beneficiaries. A byproduct of that is the peace of mind that comes from knowing your loved ones will continue to be financially protected.

“One of the benefits of a trust is that it’s established based on the unique needs and objectives of the individual and the individual’s family, and tailored to meet those needs,” says Susan L. Nelson, CTFA, Senior Trust Executive and Senior Vice President at First Commonwealth Advisors.

Smart Business spoke with Nelson about the benefits and management of trusts.

What are the different types of trusts?

There are many types of trusts, the most basic being the revocable and irrevocable.  The type of trust you use will depend on what you are trying to accomplish. A revocable trust, often referred to as a living trust, allows the individual establishing the trust to remain in control of the assets and allows them to change the beneficiary, the trustee, the trust terms and even end the trust. The grantor can use the trust for investment management, bill paying, tax planning and avoidance of probate. It can continue on in the event of incapacity, providing seamless financial management for the grantor, and can continue on after death for the benefit of others. Once the grantor dies, the trust becomes irrevocable.

An irrevocable trust is where the grantor gives complete control to an independent trustee who manages the assets for the grantor and beneficiaries. You cannot easily change or revoke this type of trust. It’s frequently used to minimize potential estate taxes by reducing the taxable estate of the grantor because the assets transferred to this trust, plus any future appreciation, are removed from the grantor’s gross estate. Additionally, property transferred through an irrevocable trust will avoid probate and may be protected from future creditors.

What are the benefits of trusts?

Some benefits are:

  • Continuous financial management in the event of incapacity.

  • Professional investment management.

  • Financial privacy — a trust isn’t public like a will.

  • Probate avoidance with no lapse in asset protection and investments — probate can take a year or more, depending on the complexity.

  • Asset management for inheritances.

  • Creditor protection for heirs. If a beneficiary is going through bankruptcy, money in the trust cannot be touched.

Trusts can provide lifetime financial protection for a surviving spouse or disabled child, an inheritance for children from an earlier marriage, can minimize estate taxes and provide a future legacy for charity. Trusts can be used in order to protect, preserve and transfer wealth for the benefit of individuals, families and organizations. While trusts can be used for myriad circumstances, they are not for everyone. Discuss the advantages and benefits of a trust for your situation with a financial adviser.

How should a trust be managed?

Every trust is based on your needs and objectives. When setting up the trust, determine what you’re trying to accomplish so you and your financial adviser can decide how to reach those objectives. One of the first things looked at are tax implications and how to reduce pain points. Providing for future beneficiaries should also be examined. After the trust is established, you’ll need to meet periodically to discuss the investment portfolio and life changes to be certain the trust still meets your needs.

Why choose a professional trustee?

Institutional fiduciaries are pros at what they do, have professionals on staff with years of experience, and are on the cutting edge of regulatory and tax law changes.  They may be the best option for reliability, experience, responsiveness, neutrality and arms-length objectivity with beneficiaries, objective investment guidance, convenience and consistency over time. An institutional fiduciary doesn’t age or die.

Susan L. Nelson, CTFA, is a senior trust executive and senior vice president at First Commonwealth Advisors. Reach her at (724) 832-6062 or snelson@fcbanking.com.

Follow up: To learn more, call (855) ASK-4-FCA, or visit ask4fca.com.

 

Insights Wealth Management is brought to you by First Commonwealth Bank

Published in National

Health savings accounts (HSAs) are a savings vehicle increasingly being used to offset health care costs and improve awareness when utilizing health care simply because there is additional skin in the game. Further, HSAs provide potential savings and accumulation of assets that work well with long-term financial planning.

“HSAs encourage us to be better consumers, plan ahead and consider the ramifications of health care, as it applies to your long-term financial plan,” says Michael Bartolini, President and CEO of First Commonwealth Insurance Agency.

“It might be a very good opportunity to save more tax-deferred and tax-free money, depending on your situation,” says Nancy Kunz, Lead Financial Planner at First Commonwealth Financial Advisors.

Smart Business spoke with Bartolini and Kunz about how health savings accounts operate and where they fit in with your financial planning.

How does an HSA work in conjunction with your health insurance?

Many people are going to a high-deductible health care plan that has premium savings as a result of the larger upfront deductible. The idea is to shift those premium savings to an HSA, which can be used to pay for unreimbursed medical expenses on a pre-tax basis. The list of applicable expenses is long and includes dental, vision, long-term care insurance premiums, home improvements for medically necessary conditions, etc.

An HSA does not have to be provided by an employer; it can be set up on an individual basis. You also are able to accumulate funds year after year, with the idea of using those dollars against future medical expenses.

The current annual contribution limits, which tend to increase, are $6,450 for a family or $3,250 for an individual. If you are over the age of 50, you are able to contribute an additional $1,000.

How does this differ from a flexible spending account?

Typically provided by employers, a flexible spending account (FSA) works on a pre-tax basis for many of the same unreimbursed medical expenses, but the money does not roll over to the following year. If the monies that are in the FSA are not spent by the end of the calendar year, they are lost. Unlike an HSA, all monies you plan to contribute to the FSA throughout the year are available as soon as you sign up, whereas only the actual contributions are available in an HSA.

How does an HSA help you better manage health care expenses?

When something hits your pocket or you have a new cost, it causes you to be more responsible and a better consumer. If you have to pay $2,000 first with the high-deductible health plan, you’re going to be more mindful of where you go for health care expenses, including which hospital or provider you choose for a procedure.

The economics of health care don’t follow traditional economics where you choose wisely based on price points and/or quality. What one provider may charge for an MRI versus what another provider charges could be very different, but you’re not likely to care if it’s a $10 or $15 copay. We don’t have the mindset that even if insurance companies are paying, so are we — one way or another.

HSAs and high-deductible health plans with their greater level of upfront deductible  pushes consumers to exert more energy to pick up the phone and find out what a procedure costs. In addition, many health insurance carrier websites are starting to populate this kind of transparent data to show provider price points.

How does an HSA fit into your overall financial plan?

An HSA can act as another retirement vehicle, especially if you start young enough to accumulate funds without having to — or choosing not to — use those dollars against medical expenses. Once you’ve reached age 65, HSA funds can be used without penalty for any purpose. An HSA also will follow you wherever you go; it’s not tied to an employer.

Many people have reached their maximum on 401(k) or IRA contributions, so depending on your age and health needs, this may be an option to look at seriously for tax benefits and long-range financial planning.

Michael Bartolini is president and CEO at First Commonwealth Insurance Agency. Reach him at (724) 349-6028 or michael.bartolini@fcfins.com.

Nancy Kunz, CFP®, ChFC®, CLU®, is lead financial planner at First Commonwealth Financial Advisors. Reach her at (412) 562-3232 or nkunz@fcbanking.com.

Insights Wealth Management  is brought to you by First Commonwealth Bank

 

 

Published in National

Two-thirds of businesses experienced some type of attempted or actual payment fraud in 2011, according to recent industry surveys, and more than 25 percent of banks are reporting a rise in attempted fraud incidents. Although not all attempts result in financial loss, when they do it’s typically around $20,000.

There’s also reputation risk and extra work when somebody gets account information and starts utilizing it in an inappropriate manner, says Ted Sheerer, Senior Vice President and Group Manager of Cash Management at First Commonwealth Bank.

“Companies need to understand the risks and take them seriously,” he says. “It may cost a little bit and make things slightly less convenient, but they need to do everything necessary to protect their financial assets. They need to take proactive steps and not wait until a loss occurs.”

Smart Business spoke with Sheerer about guarding against corporate financial fraud.

Why has financial fraud increased?

Fraud has increased primarily because of technology — from software that makes it easy to create authentic-looking checks to phishing scams, viruses and malware that can compromise a network and PCs. A company’s financial assets could be more vulnerable today than ever. However, there are ways to substantially reduce risk.

What are some examples of financial fraud?

If a company’s account and routing numbers get compromised, they can become exposed to individuals generating fraudulent checks.  Some businesses, through the utilization of Positive Pay, which matches check issue data, including payee line, with items presented to the bank, can catch this with no financial loss. The bank alerts the business regarding items that do not match, and offers the opportunity to pay or return those checks. Unfortunately, many others wait until they experience a loss before taking steps to implement Positive Pay.

A more current example is corporate account takeover, where a company’s network or specific PCs get infected with a virus or malware, somebody obtains access to the system and then performs keystroke logging. The fraudster can then sometimes capture the necessary credentials to get into the business’s online banking.

How should fraud education be handled?

You can educate employees, especially those conducting company financial transactions, by using the knowledge of your IT staff. If you don’t have an in-house IT staff or want to supplement this education, work with your bank to see if it offers any security or fraud seminars. You also can find local and regional fraud awareness seminars through professional organizations.

How can you prevent or mitigate fraud?

To minimize the potential of check fraud, companies can incorporate security features into their check stock, store checks and digital signatures in a secure environment, segregate financial duties, reconcile accounts regularly, and utilize Positive Pay with payee line protection. If something doesn’t match, the bank alerts the business customer who decides to pay or return it.

With increased electronic fraud, which includes Automated Clearing House (ACH) transactions and wire transfers, it’s important to have ACH block and filter. This stops unauthorized transactions from hitting accounts. Companies should also ask if their bank offers malware detection and/or account takeover detection software. This is sometimes provided for free.

Some other preventative measures are to:

  • Understand procedures around user authentication and limit users to those who absolutely need access.

  • Establish dual verification for any outbound electronic transactions.

  • Have dedicated PCs used only for online banking services.

  • Change passwords regularly, don’t share or write down logins, and routinely update anti-virus and malware protection software.

What’s the priority with fraud prevention?

The priorities should be Positive Pay, ACH block and filter, and then everything the organization can do to protect its network.

Many businesses don’t take the necessary preventative steps. Only when companies seriously understand the risks can they partner with their bank to combat financial fraud.

Ted Sheerer is a senior vice president, group manager of Cash Management at First Commonwealth Bank. Reach him at (412) 690-2213 or tsheerer@fcbanking.com.

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Published in National

Estate planning is important for everyone. But in the case of a business owner, not giving serious consideration to what could happen to your business could potentially shut it down entirely, thereby eliminating your family’s income at a time when it is critical.

“It’s important that business owners understand that their plan only works the way it’s set up to work if the circumstances that originally determined the nature of the plan remain the same,” says Carly Fagan Neals, J.D., senior trust officer and vice president at First Commonwealth Advisors. “So if there are changes in the business structure, goals or family structure, they have to be communicated to the adviser — the accountant, the lawyer, whoever put the plan in place.

“A business owner has to take an active role in making sure the plan still works because only he or she knows the facts as they are today,” she says.

Smart Business spoke with Neals about how a succession plan is thoughtfully created in conjunction with your estate plan and what factors need to be coordinated and reviewed.

Is there a good time to begin planning?

Every individual should have a will, a financial power of attorney and a health care power of attorney/living will. As soon as you have assets or children it’s imperative to plan because otherwise your assets don’t get to where they need to go and your heirs don’t necessarily get cared for the way you’d want. For many, this can occur at an early age.

What’s involved with establishing long-term goals and determining succession risks?

Every person’s long-term goals are different, and they often evolve and change. So continually question how you can accomplish what you need to, such as passing the business on when you retire or providing for your family in the event of your death or incapacitation.

If your long-term goals involve transferring the business to some specific person, constantly re-evaluate whether that person is able and willing. What training and education might be necessary? When do you start transferring the business, and is it in a monetary sense or just voting stock? And if you’re retiring, how and when do you phase yourself out?

What are some strategies for success?

Ensure there’s sufficient insurance on the owner’s life or the necessary liquidity for all situations, and hands-on training and education for whoever is taking over the business. Also, is a spouse with power of attorney making business decisions? Do you want it to work that way? Be aware of the capabilities and willingness of those you name to have this authority.

Estate and succession plans need to work in tandem. For example, company stock may be a very large asset of the estate, but you need to know how that stock will be used to provide the surviving spouse with the necessary cash flow. Does your business successor need a life insurance policy on you to buy the stock so the resulting cash can go into a trust for your spouse?

Regularly work with your advisers to analyze the possible tax consequences of any transfer or proposed transfer. You don’t want to trigger a big gain or loss as a result of a transfer without planning for it.

Finally, a business succession plan needs to take into account the business’s operating structure. Whether it’s a corporation, LLC or partnership, how will the business run during the period when the transfer is taking place? It can be a matter of signatory authority on bank accounts, being able to order inventory, or having someone authorized to sign for accounts payable or receivable to keep daily operations going.

How should you monitor these plans?

Any time there’s a change — in business operations, key employees, family dynamics, goals, etc. — communicate it with the people who helped put the plans in place. Even without changes, it doesn’t hurt to talk to your advisers annually, or at minimum every few years. Even though you may not meet with your accountant or lawyer every year, if you’re working with an investment manager or wealth adviser doing regular performance reviews, a good adviser will ask the questions necessary to help determine whether it’s time to go back and get in front of your other advisers including your accountant and/or lawyer.

Carly Fagan Neals, J.D., is a senior trust officer and vice president at First Commonwealth Advisors. Reach her at (412) 690-2131 or cneals@fcbanking.com.

 

WEBSITE: To learn more about succession planning, visit ask4fca.com.

 

Insights Wealth Management  is brought to you by First Commonwealth Bank

 

Published in National

When Congress passed the American Taxpayer Relief Act, it came with just enough time to give a clearer picture of expectations for the year ahead.

“There was a lot of anxiety and uncertainty in the last quarter of the past year as the deadline got closer and people had no idea what to do about their tax planning,” says Rick Applegate, president and CEO of First Commonwealth Financial Advisors.

Smart Business spoke with Applegate about the changes and how they impact your tax and financial planning.

What are some of the tax law changes? 

The act avoided higher ordinary income tax rates for most Americans, but higher-income earners — $400,000 per year for single filers or $450,000 per year if married and filing jointly — will have their tax rate revert back to 39.6 percent, the highest ordinary income tax rate in this country before the tax reductions instituted by President George W. Bush. This impacts approximately 1 to 1.5 percent of Americans.

The biggest overall impact is the 2 percent increase in the payroll tax back to 6.2 percent, which might slow the economy’s growth rate in the first six months of 2013. In the year ahead, the Social Security tax tops out at incomes of $113,700 — therefore, an individual could pay up to an additional $2,274 and a working couple even more. It’s estimated that the 2 percent increased payroll tax will generate about $125 billion for the Social Security system, but that’s money that reduces discretionary consumer spending, which has otherwise helped to drive a U.S. economic recovery.

Another notable change is the 5 percent increase in capital gains and dividend rates for higher-income earners to 20 percent. This increase was not as bad as it could have been — capital gains rates on dividends were scheduled to go to ordinary income tax rates, which could have been as high as that top income tax bracket of 39.6 percent.

Investment income also gets the new Medicare surtax of 3.8 percent tacked on for anyone making more than $200,000, or $250,000 if married and filing jointly. It’s not a killer, but people at these income levels who rely on investment income will pay.

Some other changes are:

  • Estate tax exemptions and rates. Congress extended the $5 million exemption and adjusted it for future inflation, and upped the top estate tax rate to 40 percent.

  • Permanently indexing the Alternative Minimum Tax to inflation. This fixed the problem where more and more middle-class Americans were paying a tax originally meant to catch high-income earners who used deductions and loopholes to avoid paying any taxes.

  • Reinstituting phase-outs of certain deductions for those with higher incomes.

If anyone was a winner in the tax bill, at large, it was people with educational loans and families trying to pay for college. The act extended certain credits and deductions for qualified taxpayers.

How do investment advice and tax considerations go hand-in-hand?

You don’t want your investments to be ruled by tax decisions — you want investments to be made based on the projected economics of the deal and its potential returns.

That’s why it’s an adviser’s job to get people past their fears and emotions, and focus on making money. If investors can’t get past it themselves, they should sit down with a trained adviser who has a perspective on why there are always opportunities out there.

What are some strategies that can add value in the year ahead?

The average investor shouldn’t be too intimidated by these adjustments because, by and large, they mostly impact those in very high-income brackets. High-income earners may benefit from tax-exempt income from municipal bonds, tax deferrals like low-cost annuities, and/or decreasing their ordinary income by deferring more taxable income today into a retirement plan.

Until Congress permanently deals with the debt ceiling, headline volatility will likely be a fact of life. However, we still think that 2013 will be a fairly good year for the stock market. We would advise taking advantage of market declines that are likely to occur and to buy into opportunities such as the emerging markets. Investors shouldn’t let headlines make decisions; smart investors take advantage of market dips because, long-term, the stock market offers good value.

Rick Applegate is the President and CEO of First Commonwealth Financial Advisors. Reach him at (724) 933-4529 or rapplegate@fcbanking.com.

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Published in National

Some people are in denial about their personal finances, thinking that they’ll get to it one of these days.

“You need to have a lot of discipline around your finances because getting into financial shape is tough,” says Jeanine Fallon, Senior Vice President and Market Executive, First Commonwealth Bank®. “It requires focus, planning and a lot of sweat, but the end result is a happier and more fulfilled life.”

Smart Business spoke with Fallon about taking control of your debt and spending habits.

How should you assess your debt situation? 

Look at your current obligations by gathering monthly statements and listing loans and debt. Think about the creditor and your balances, interest rates and payments. Total all payments and divide your gross income by the debt to find your debt to income ratio. The target should be around 36 percent, but those with high disposable income can go a few percent higher. Then, use your partnership with a lender you trust to create a solid financial plan.

It’s also helpful to pull your credit report three times per year from annualcreditreport.com because not all credit reports are free.

What are some warning signs your finances are heading out of control?

Some warning signs are if you have no emergency fund, typically three to six months of your income, to fall back on; you experience stress when thinking about your debt; you don’t know what you owe; and/or you continually charge more on your credit cards than you can pay back.

How can a debt consolidation loan help?

Consolidation loans don’t reduce your debt but can reduce your payments. You take your debt and consolidate it into one big loan to simplify your payment and tracking. Your banker will help you decide on a secured loan or an unsecured loan, the right term to quickly pay off your debt without creating hardship, and choosing between a term loan or line of credit. Keep the end number in mind, which is what you’re paying back with principal and interest.

What are some best practices to help stay debt free?

Even if you consolidate your debt, it’s important to take steps to ensure you don’t end up right back in the same financial bind you were in before. Manage your expenses by establishing a budget. Keep a spending diary of every penny you spend for at least a month — similar to a food diary when on a diet. When looking at your funds, break it into percentages:

• Foundation expenses, such as shelter, groceries and transportation, should be 45 percent of your take-home income.

• Include 15 percent for fun, vacation, dinner, clothes or whatever your passion is.

• Typically at least 25 percent is used for taxes.

• Keep about 15 percent for savings — 10 percent for retirement and 5 percent for emergency or big-ticket items.

Then, manage, reduce and eliminate debt. It is important to make wise decisions when assuming new debt by using good debt to improve your net worth. Tie savings and spending plans with what’s important to helping you to live with a purpose. For example, if vacation time away with your extended family is important to you, yet you own a huge, expensive house, your financial obligations may not be in line with your values. Also, prepare for life events by taking a disciplined approach to building up the money you put into your retirement plan as well as your emergency fund. Ultimately, if you don’t change the way that you’re spending money when you experience significant life changes, it can cause hardship in the end.

Jeanine Fallon is a senior vice president and market executive at First Commonwealth Bank. Reach her at (412) 886-2540 or JFallon@fcbanking.com.

For a debt consolidation calculator, visit http://www.fcbanking.com/planning/calculators.html?CALCULATORID=PC10&TEMPLATE_ID=www.fcbanking.com_1.

Insights Wealth Management is brought to you by First Commonwealth Bank

Published in National

With lower lease rates and the Marcellus Shale boom, commercial real estate in the tri-state footprint is looking up. Greg Sipos, senior vice president, corporate banking manager, at First Commonwealth Bank, has been encouraged by recent commercial real estate activity in western Pennsylvania, as well as in Akron, Columbus and Youngstown, Ohio.

“When I say those names, you’re not like, ‘Wow, that’s a great place to go,’ but, you know what, it really is these days,” Sipos said. “They’ve had some real estate growth and nice projects in those markets. It’s well ahead of the rest of the country, and I’m encouraged by the amount of activity in the last six months.”

Smart Business spoke with Sipos about the state of the real estate market and how bankers are getting back to the fundamentals of lending.

How does the current commercial real estate market look?

When you look at this market, there was limited asset appreciation over the years, and the borrowers never overleveraged the way that it happened everywhere else. People built equity in their real estate by normal amortization of loans. So if they had a 15-year loan and they paid it back over 15 years, they built equity in their real estate. Western Pennsylvania has always been known for that, as opposed to the rest of U. S., where asset appreciation was due mostly to the perception of overall growth through demographics. Problems occurred because assets were overleveraged in a lot of ways. Conversely, Pittsburgh went from being one of the worst real estate markets in the country to being one of the best in the span of three years because of the steady equity growth.

The mood is very strong in this area with some game changers. The growth in the Marcellus Shale area and the oil and gas industry in western Pennsylvania has brought strength to the market through all aspects, from multifamily to the retail businesses and hospitality industry. Another thing that’s happened in the central business district, as far as Pittsburgh is concerned, is a lot of large firms headquartered in other cities realized that the rent per square foot in Pittsburgh is much more reasonable than the rent per square foot in Manhattan and other comparable markets. Companies are relocating to the central business district or to Pittsburgh in general because of favorable lease rates.

Hospitality is known as a good indicator for the economic health in commercial real estate. What is the outlook in the tri-state area?

Yes, hospitality is an indicator, and it is doing very well now. Western Pennsylvania had a lot of older product, but now a lot of newer product is coming online around Pittsburgh and in some of these smaller towns. Morningstar, a financial-data firm, reports that — at least for the next three or four years — it’s definitely an industry to lend in.

When banks make a loan for hospitality, they look at what the drivers will be — why will people be coming and staying here. A lot of the hospitality that got into trouble was in resort areas because, during recessionary periods, people tend to forgo vacation. The hotels that are successful are the ones that have many drivers. For example, is it a flagged property? It’s much easier in today’s market to get a loan for a Marriott, a Hilton, a Holiday Inn or a Choice product because of the reservation system. One hospitality loan was recently done in Latrobe, Pa., the home of professional golfer Arnold Palmer. There’s a lot of industrial around, it has a resort element because of Idlewild Park and the Laurel Highlands, it has St. Vincent College, hospitals, and it has Mr. Palmer’s name attached to it, which results in reciprocating agreements between Latrobe and Florida. So there are drivers for occupancy. You don’t want to open up a hotel where you have to bet on tourism or one industry.

How have lending practices changed, and how much emphasis is being placed on equity?

The one thing that’s different now — that hasn’t come back the whole way — is the lending rules were generally much less stringent pre-recession. Post-recession, it’s back to the fundamentals. When you want to buy something, you need to have a down payment for it and you need to have cash flow to repay it.

Banks are requiring down payments. As a business owner, when you are thinking about making that expansion or when you’re thinking about buying a new building, you need to make sure you have the right amount of equity to go into the project. The bank is no longer willing to take the equity risk it was taking pre-recession.

Having equity shows you can afford it and shows your commitment to the project. If you are able to buy real estate without putting equity into it, it’s much easier to walk away. Some people might be interpreting that as unfair, but it’s not really unfair, it’s just the way it’s always been done prior to the years leading up to the recession.

It’s important to remember there are differing ways to find equity. These include:

  • Equity through government programs.

  • Investors on the sidelines looking to invest.

  • Personally guaranteeing loans, a practice people were always comfortable with. Borrowers have to be willing to guarantee the indebtedness, maybe by pledging other equities in other properties as collateral.

Greg Sipos is a senior vice president, corporate banking manager, at First Commonwealth Bank. Reach him at (724) 463-2556 or gsipos@fcbanking.com.

Insights Wealth Management is brought to you by First Commonwealth Bank

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