How to choose a wealth advisory services firm to meet your needs

Norman M. Boone, founder and president, Mosaic Financial Partners Inc.

When choosing a wealth advisory firm to partner with, there are a number of characteristics you should look for to ensure the firm is well equipped to address your unique needs, says Norman M. Boone, founder and president of Mosaic Financial Partners Inc.

“With so many firms out there, it can be difficult to identify the right one for you,” Boone says. “You should expect a lot from your wealth advisory firm, and knowing what to look for can help you make the right choice.”

Smart Business spoke with Boone about the keys to choosing a wealth advisory firm.

What are some key characteristics when seeking a wealth advisory firm?

Professional success is based on a firm caring about its clients, being sensitive to their needs and concerns, providing a high level of expertise and doing what it says it’s going to do. A wealth advisory firm should empower clients by providing them with financial education to help them feel more comfortable and allow them to make better-informed financial decisions.

You want a firm that is willing to commit to being a fiduciary — always putting the needs of its clients first. Independent firms are beholden only to their clients and have no other loyalties. How the firm is compensated is important. Fee-only firms are paid only for their advice and service. They avoid the potential conflicts of interest of receiving commissions, referral fees and the like.

Look for a firm that you trust and respect, and that trusts and respects you and your needs. The firm should aggressively honor the confidentiality of its clients. You should have a relationship with a team of people at the firm, not just one person, so you can benefit more from their collective expertise. Look for a firm that is large enough to bring the necessary resources to bear, yet is still small enough to remember that its members work for you.

Your wealth advisory firm should stay in the forefront of technology development to be equipped to meet your needs. It also should be committed to its employees, providing a good work environment and building the professional capabilities of staff with ongoing education and training.

How important is transparency?

Transparency creates the basis for trust. The firm and its members should be willing to answer any and all of your questions. In addition, objective, unbiased and personalized advice should be the foundation of every client relationship.

The firm also should offer a fully customized investment policy statement for every client providing a unique ‘road map’ for how that client’s money is to be managed. An investment process works best when it is disciplined, thoughtful, strategic, tax- and cost-sensitive, and well diversified. The investment world is constantly changing, and it’s important for a firm to stay ahead of the curve, choosing an independent course that reflects the best research and thinking of its members.

How should a firm tackle financial planning?

Financial advice shouldn’t just be about investments. Financial planning should be the underpinning of how the firm serves its clients. Financial planning is a lifelong process — as your circumstances change, plans should be updated. Good advice must be given within the context of your total circumstances and specific needs. When other expertise is required, it is the firm’s responsibility to recommend other professionals who are able to meet those needs.

Should a wealth advisory firm’s actions go beyond financial planning?

Your advisory firm should respect the importance and distinctiveness of the many pieces of your life, while embracing how those pieces fit together. The firm should answer your calls promptly and always be thinking about how they can serve you better.

Your financial adviser can and should be your partner — always sensitive to your particular needs and concerns while giving you the best advice for your circumstances in the framework of the current laws and world context. If you don’t trust them and look forward to receiving their advice, you may want to look for a different adviser.

Norman M. Boone is founder and president of Mosaic Financial Partners Inc. Reach him at (415) 788-1952 or [email protected]

Social media: Stay up to date on financial news by visiting Mosaic Financial Partners Inc.’s Facebook page.

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

U.S. firms less optimistic, but will still invest in China: survey

WASHINGTON, Wed Oct 10, 2012 – Many U.S. companies are less optimistic about doing business in China even though sales there are still rising, and most of those firms are planning to increase investment, according to an annual survey of business executives released on Wednesday.

“The China market continues to deliver sales growth and profitability for U.S. companies, but rising costs, increasing competition, and persistent market access and regulatory barriers are tempering the optimism of U.S. companies doing business with China,” the U.S.-China Business Council said.

Forty-five percent of the 111 companies surveyed said they were less optimistic than three years ago about the business environment in China, compared to 26 percent that were more optimistic and 29 percent that were unchanged in their view.

At the same time, 89 percent, the highest ever in the seven-year history of the business group’s member survey, said they made a profit in China in 2011 and two-thirds said their revenues grew by at least 10 percent.

The survey comes amid growing U.S. frustration that many parts of China’s economy remain off-limit to foreign investment 11 years after it joined the World Trade Organization. China also is preparing for a once-in-a-decade leadership change that could keep any new economic openings on hold for a while.

It was taken before the House of Representatives Intelligence Committee urged American companies on Monday to avoid doing business with China’s leading telecoms equipment manufacturers, Huawei Technologies Co. and ZTE Corp. because of security concerns.

The panel’s recommendation has raised fears of possible Chinese retaliation against U.S. firms.

While two-thirds of survey respondents said they planned to increase investment in China in the next 12 months, 17 percent said they had halted or delayed investment plans.

How a dividend stock strategy fits into the current market and for the long haul

Sonia Mintun, Vice President, Portfolio Manager, Ancora Advisors LLC

Dividends have accounted for 40 percent of total returns in the market since 1940. Some investors are concerned about recent stock price increases, but there still is room to invest in dividend-paying stocks, especially for the long term, says Sonia Mintun, vice president and portfolio manager at Ancora Advisors LLC.

“For the long term and at current valuations, particularly given historically low payout ratios, dividend-paying stocks can see strong relative and absolute performance. The outlook is enhanced by near all-time low U.S. Treasury yields and the Federal Reserve’s extended dovish position on interest rates,” she says.

Although the upcoming election and global economic environment are areas for concern, Mintun says an emphasis on high-quality dividend-paying stocks at low valuations should cushion investors from volatility and provide real returns over the long term.

Smart Business spoke with Mintun about the current stock market and how dividend-paying stocks remain a smart investment.

With the recent run-up in equities, is the dividend-paying strategy overvalued or a crowded trade?

Over the last year or more, the dividend theme has been the popular trade and the market has run up. There are a number of ways to evaluate if the market — and therefore dividend-paying stocks — is overvalued. You can examine whether it is trading at lower-than-average yields, or higher-than-average valuation ratios such as price-to-earnings (P/E), price-to-book (P/B) or price-to-cash flow.

The current market’s value is dependent on an investor’s time frame and risk tolerance. Is it overvalued for the next several months? It is possible we could see some pullback, but looking over the long term, it is our view that dividend stocks are not overvalued. The trailing P/E ratio of the S&P 500 index is around 14, which is lower than its historical norm and nowhere near where it was during the tech bubble when P/E ratios were closer to 50. While you can argue that the economic growth outlook is sluggish, companies have become operationally leaner, which has helped boost profit margins. They have better positioned their balance sheets by refinancing debt at extraordinarily low interest rates and have historically high cash levels. Lastly, with regard to dividend payers in particular, yields are at close to seven-year highs, while payout ratios are low, suggesting current yields are well supported by earnings. So overall, our opinion is that dividend-paying stocks remain attractive for long-term investors, especially in comparison to fixed-income yields.

What sectors have performed better and may be perceived as overvalued?

Defensive sectors such as consumer staples, health care and utilities have attracted a lot of capital and could be perceived as overvalued. Their P/E multiples compared to the overall market are trading at premiums to their five-year averages, but it is not a significant premium. Utilities, for example, are the most correlated sector, with 10-year treasury yields that have an 80 percent correlation since 1990. If you think that rates are going to stay low for some period, utilities may not be overvalued based upon the five-year averages.

What dividend-paying sectors have underperformed?

Economically sensitive stocks, such as energy, industrials and materials, have fared the worst, largely due to fears about slower growth in emerging markets and from concerns in Europe. However, many stocks in these sectors are trading at attractive discounts to their historical valuation ratios. They have ample cash on their books, generate consistent cash flows and could see improving profitability with higher commodity prices and demand if global stimulus takes hold.

What impact will the potential tax changes have on dividend-paying stocks?

A potential dividend tax increase has concerned some investors about owning dividend-yielding stocks. In 2001 and 2003, dividend tax cuts were put into place that reduced the dividend tax rate to 15 percent from 35 percent. These cuts are set to expire at the end of this year unless Congress extends them or passes new legislation. If no legislation is passed, taxes return to a top marginal rate of 39.6 percent. This tax increase may be a short-term negative for stocks and high-yielding stocks.

However, history has shown that tax increases do not have a long-term negative effect on dividend-paying stocks, as stocks typically recover after six months or so following an increase. This may be because an estimated 50 percent of equity held is owned by tax-exempt entities — such as qualified plans, foundations and foreign investors — all of which are somewhat indifferent on taxes. In addition, when tax increases are anticipated, it has typically not been problematic over the long term. For example, beginning in 2013, a new Medicare contribution tax of 3.5 percent will be imposed on investment income. This proposed tax increase has had minimal effect on the stock market so far.

What is the long-term outlook for dividend-paying stocks?

Longer-term dividend-paying stocks remain an attractive option for risk-averse, equity-oriented investors. Dividends provide a cushion during poor equity markets and are relatively stable over time. Consequently, by being less volatile and being more disciplined with capital because of the dividend policy, dividend-paying companies have outperformed non-dividend-paying companies for more than 80 years. Additionally, with dividend payout ratios near historical lows and weighty cash balances, companies may return more cash to shareholders in a low-growth environment. Given today’s low interest rates and continued global economic turbulence, we see dividend paying stocks as attractive now and for the long term.

Sonia Mintun is a vice president as well as an Investment Advisor Representative of Ancora Advisors LLC (an SEC Registered Investment Advisor). In addition, she is also a Registered Representative of Ancora Securities, Inc. (Member FINRA/SIPC).  Reach her at (216) 593-5066 or [email protected]

Insights Wealth Management & Investments is brought to you by Ancora

Job-creating foreign investment in U.S. lags, investment group says

WASHINGTON, Thu May 10, 2012 – Foreign investment in the United States is ebbing and beefing it up is critical for economic growth as each job at a foreign company’s U.S. unit supports three others, the Organization for International Investment said on Thursday.

A complex U.S. tax code and increasing global competition are curbing business development here by foreign companies. That trend is worrisome because foreign firms generally pay salaries to U.S. workers that exceed the industry average. This type of foreign investment, in turn, drives up employment and consumer spending.

“The global investment pie around the world has been getting larger, but our slice of that pie has been getting smaller as well as the share of GDP that foreign investment in the U.S. represents,” Nancy McLernon, president and chief executive officer of the OFII, told Reuters in an interview.

Based in Washington, the OFII is a 21-year-old nonprofit business association representing about 160 U.S. companies with foreign parents.

In its first study of the ripple effects of foreign investment in the United States, the OFII said U.S. subsidiaries account for 21 million jobs directly and indirectly – or 12.2 percent of total employment. The OFII study, conducted by PricewaterhouseCoopers LLP, is scheduled for release later on Thursday.

Every dollar paid directly by foreign companies’ U.S. units supports an added $2 in total U.S. compensation to supply-chain workers and companies that benefit from paycheck spending.

But the United States attracted just about 17 percent of global investment in 2009, down sharply from over 41 percent in 1999, McLernon said, citing another OFII study in October.

With unemployment still above 8 percent, the study drives home what the United States is losing out on, she added.

Macquarie eyes $2 billion North American infrastructure fund: sources

NEW YORK, Mon Apr 2, 2012 – Australia’s Macquarie Group Ltd., the world’s largest manager of infrastructure assets, is preparing to raise a $2 billion infrastructure fund in 2012, its third focused on the United States and Canada, people familiar with the matter said.

Macquarie, which has averaged gross internal rates of return of more than 20 percent in its North American infrastructure investments, is planning to start fundraising this year, as its second $1.6 billion North American infrastructure fund was fully invested, the people said.

Macquarie declined to comment.

Typically seen as a champion of private investment, the United States lags behind Europe and Australia in the privatization of infrastructure such as roads, tunnels and bridges, according to the Organization for Economic Co-operation and Development, which in a September report called the U.S. infrastructure market “immature.”

Political bickering at state and local levels, multilayered planning bureaucracy, opposition by labor unions and consumer groups to privatization, and a competitive municipal bond market have historically conspired to limit the role of direct private investments in U.S. infrastructure.

Macquarie is betting on a vibrant market for privatized infrastructure assets set to change hands. Of the major U.S. infrastructure deals completed in 2010 and 2011, 64 percent were transactions in the secondary market, according a February report by PricewaterhouseCoopers.

To be sure, Macquarie has also proved successful in bidding for the few new assets on the market. It was behind the largest U.S. infrastructure deals of the last two years — a $2.1 billion project to build and operate commuter rail lines to Denver International Airport and a $1.7 billion upgrade

Massachusetts subpoenas Bank of America documents

BOSTON – Massachusetts securities regulators said on Friday that they were subpoenaing Bank of America for documents to determine if the lender knowingly overvalued assets in certain investment products.

Local investors lost about $150 million in investment vehicles structured by Banc of America Securities LLC, said William Galvin, the state’s top securities regulator.

Now his office is asking the Charlotte, N.C.-based bank to supply documents for its activities involving collateralized loan obligations.

The CLOs include LCM VII Ltd. and Bryn Mawr CLO II Ltd., which were structured by the bank and sold to investors in 2007.

Galvin, who has been especially aggressive in looking into how big banks hurt small investors during the housing crisis and financial crisis, said he wanted to find out if the issuer “was knowingly overvaluing assets in the portfolio to get them off their books and onto investors.”

The news comes one day after Bank of America and other large lenders agreed to a $25 billion settlement over alleged foreclosure abuses.

There was no immediate comment from Bank of America.

The company’s shares were down 1.2 percent at $8.08 in afternoon New York Stock Exchange trading.

Fidelity money fund clients react negatively to SEC proposals

BOSTON – Fidelity Investments, the largest money-market fund manager, recently warned U.S. regulators that more than half of its money fund clients would move all or some of their assets out of the investments if the net asset value of the funds was allowed to fluctuate.

The warning comes as the U.S. Securities and Exchange Commission weighs controversial proposals to add more regulation to the $2.7 trillion money-market fund industry. SEC Commissioner Mary Schapiro has been pushing for more reserves and to do away with the money funds’ fixed $1 net asset value.

The industry vehemently opposes more regulation.

On Tuesday, the Wall Street Journal reported that Federated Investors Inc.  Chief Executive Christopher Donahue plans to sue the SEC if the new regulations interfere with his firms’ ability to do business. Federated manages about $256 billion of money-market fund assets.

Meanwhile, in a February 3 letter to the SEC, Fidelity General Counsel Scott Goebel shared the Boston-based company’s research on how investors might react to potential reforms. Fidelity had $433 billion in money-market fund assets under management at the end of 2011, representing 10.9 million accounts among retail and institutional investors.

Reforms being considered by the SEC “could spark retail and institutional investors to pull significant amounts of assets out of money-market mutual funds, leading to unintended consequences for the financial markets and U.S. economy,” Fidelity said.

How asking the right questions can help you identify the right financial adviser

Patrick Griffin, Senior Vice President, Lorain National Bank

When choosing an investment adviser, many people are quick to hand over their money without asking questions. But failing to ask the right questions can lead to choosing an adviser whose philosophy doesn’t match yours and could cost you money, says Patrick Griffin, senior vice president, Lorain National Bank.

“Too often, the first question people ask an adviser is, ‘What should I buy?’” says Griffin. “What you should be asking is, ‘Who am I doing business with?’ This is the person to whom you are turning over your life savings. You have to ask the right questions to find the best person who fits your comfort level.”

Smart Business spoke with Griffin about the six Ps — profile, philosophy, people, process, performance and price — that can help you identify the right adviser for your needs.

When interviewing a prospective adviser, where do you start?

Start with the profile of the organization with which you are potentially going to do business. How much in assets is it responsible for? How many locations does it have? How many clients does the adviser have, and what other resources are available?

If you’re considering a jack of all trades, explore that person’s capabilities and the resources available for helping you with your portfolio. Also ask how many people are employed in the organization and what their roles are.

Finally, the single biggest question is how will your account be impacted if the person you are working with leaves the company? With a smaller organization, if that person leaves, all of that expertise goes out the door. A larger organization might offer greater continuity.

What does an investor need to know about a potential adviser’s philosophy?

This is the single most important thing investors fail to explore. Or if they do ask, the investment person responds, ‘My philosophy is to make you money.’ However, that’s a goal, not a philosophy. The bigger question is how are you going to make me money? Are you going to take risky positions and jeopardize my money? Are you gong to be ultraconservative and never meet my goals? Advisers should be able to clearly articulate their investment philosophy and how they operate their business.

It’s essential to find an adviser whose philosophy matches yours. If you are risk averse, an adviser who purchases gold is not a good fit. If you’re conservative, find a conservative adviser. If you like speculation, you need an ultra-aggressive investment firm.

What questions should an investor ask about people?

Ask about experience, education, professional designations and licenses. Then ask about structure. How are people’s responsibilities and efforts segregated? Is the person a jack of all trades, or is there a division of labor among selling, investing, researching and administration? Also, ask who you will be dealing with once the account is opened. Will it be the person who opened the account or someone else? How many other clients are they responsible for? If it’s hundreds, are you going to get the attention you need?

What is the next step?

The next step is process. Where is your money going to be invested? What is the process? Too often, advisers simply say you should buy X. But how do they know that if they don’t know what you need?

The first thing a professional should do is a needs assessment. Before recommending anything, that person needs to determine your requirements for liquidity, how much you have on hand, your time horizon, your tax situation and your expectations.

Next is an assessment of risk tolerance. What is your appetite for risk? Are you comfortable if your portfolio fluctuates? Are there any constraints on your investments? What will the asset allocation be? What are you going to invest in, and how much? How often will that allocation be rebalanced? Is the adviser going to buy the portfolio and forget it, or will your account be rebalanced so the original allocation remains consistent?

Finally, ask about the decision-making process. There are thousands of companies and mutual funds, so how will the adviser decide what to buy for your portfolio? And what are the criteria for selling?

What does an investor need to know about performance?

Look at the performance over time of the person managing your money and of the investments because, otherwise, you may be building on short-term anomalies that could send you in the wrong direction.

Second, how is performance communicated? By law, the adviser must send statements, but too many companies rely on that alone. Does the adviser meet with you about performance, or do you have to decipher the statement on your own? Will you receive additional information, such as how your portfolio has performed relative to the indices? If you lost 5 percent, but the market is down 20 percent, your adviser has done a good job of protecting your money.

How important is price?

The first thing people ask is what an adviser charges. Everyone gets paid, so if someone says there is no charge, it should be a red flag.

There are three ways to pay. With transactional fees, you pay every time you buy or sell. With asset-based fees, money managers charge a percentage of the value of the account. With advisory fees, the adviser gets a flat fee for advice but doesn’t do the actual investing.

Also ask about fees that you won’t see that may impact your account, such as withdrawal and redemption fees, fund expenses and bond commissions.

If you are handing over your life savings, you have to overcome the awkwardness of asking questions, because you won’t know something is wrong if you don’t ask.

Patrick Griffin is senior vice president at Lorain National Bank. Reach him at (440) 244-7119 or [email protected]

How market-linked CDs can provide a new solution for today’s market

Tom Schuller, vice president and financial consultant, Associated Bank Investment Services Inc.

Just when many investors were expecting the market to return to a steady growth cycle, they were caught off guard by an unexpected leap in market volatility, accompanied by a substantial decline in interest rates.

The dramatic swings in the marketplace seen over the last few months have been fueled by a variety of factors. The political system has been in turmoil as differing factions in Congress and the White House have gone toe to toe on whether to raise the debt ceiling. And, the recent first-ever downgrade of the United States government debt rating resulted in even more uncertainty for investors, says Thomas Schuller, CFP®, a vice president and financial consultant at Associated Investment Services Inc. Add to the mix a fear of defaults in Europe and a continued soft domestic economy with sustained unemployment numbers still near double digits, and investors seem to be running for the exits.

“In these difficult economic times, investors are looking for an opportunity to reduce market volatility and increase the yield of their individual portfolios,” says Schuller. “Market-linked CDs can be the answer to those concerns.”

Smart Business spoke with Schuller about how to determine if market-linked CDs are the right investment vehicle to help meet your financial goals.

What are market-linked CDs?

Market-linked CDs can offer a solution to help investors overcome the unexpected financial and investing hurdles they may currently face. The core characteristic of this unique solution is that it provides clients with a balance between risk and return.

These investments offer a guaranteed return of principal if held to maturity, and the potential for an attractive return above that of traditional CDs and fixed income products. The return is linked to the average performance from a basket of individual common stocks, subject to a capped maximum return.

Market-linked CD products have been experiencing a surge in demand across the country. Historically, investors have been advised to shift their allocation between stocks and bonds to find the proper asset mix. The typical investment advice is to increase bond exposure to reduce risk and increase the equity exposure to increase potential return. Adding a market-linked CD can help resolve these issues.

However, many clients feel like there is no safe place to turn. Current interest rate levels are not high enough to meet their goals, but the alternative of experiencing the value swings of the stock market is equally unappealing.

How do market-linked CDs work?

All bank-issued certificates of deposits provide clients with FDIC insurance and a guaranteed return of principal, if held to maturity. Market-linked CDs enjoy these same principal protection and FDIC insurance features. However, rates of return for market-linked CDs are linked to the average performance of an equity index, or a basket of individual stocks, subject to a capped maximum return.

For example, Associated Bank’s Power CDSM links its interest rate to the average performance of a basket of 10 individual common stocks that include recognizable companies such as 3M, Apple, DuPont, Kraft and Cisco. Market-linked CD offerings are priced monthly, with the capped maximum return finalized on each monthly issue date.

There is a risk that if the underlying basket of stocks does not generate a positive return, based on the conditions of each offering, that the client will receive a zero percent return, but the principal is always guaranteed if held to maturity. Market-linked CDs typically have a maturity range of five to six years.

It is important to also note that market-linked CDs typically have established minimum purchase levels that begin at $5,000 or even $10,000. And as with any investment, clients should always carefully read the term sheet and disclosure before determining whether this is the right product for their needs.

How can someone determine if this is the right solution for their investment needs?

If you are seeking a new solution to help provide a balance between risk and return, market-linked CDs may be an attractive addition to your portfolio. However, they do carry certain risks and may not be appropriate for those who do not have a long-term investment horizon, or for those who need guaranteed income to meet daily living expenses.

A specialist will be able to help you determine if this is the right investment vehicle for you needs.

The Associated Bank Power CD is issued by Associated Bank, N.A. (“AB”), Member FDIC, and is offered through Associated Investment Services, Inc. (“AIS”), Member FINRA and SIPC, d/b/a Associated Investment Services Group in Minnesota. AIS services the brokerage account in which your Associated Bank Power CD investment is held. These products may incur a significant loss of principal if sold or redeemed prior to maturity. AB and AIS are affiliates of Associated Banc-Corp.

Please see term sheet and disclosure for complete details prior to any purchase. This product involves a number of risks and may not be suitable for all clients. If you redeem the Power CD before maturity, you may lose principal. Contact your Associated Investment Services Inc. representative for more information, the current term sheet and disclosures.

Thomas Schuller, CFP® is a vice president and financial consultant with Associated Investment Services Inc. Reach him at (312) 565-4150 or [email protected]