A Message to Our Clients
Contributed by: Judson S. Meinhart, Portfolio Manager
In life there are certainties. Beyond the inevitable events of death and taxes, we have a few other certainties on the horizon:
- We know that there will be a presidential election in November.
- We know the Fed will meet twice in the fourth quarter (November and December).
- We know there will be a Super Bowl played in February.
However, the outcomes of these inevitable events are anything but. The uncertain outcomes to these certain events can only be answered with opinions or speculation.
- Which presidential candidate will win the election?
- When will the Fed raise rates?
- Who will win the Super Bowl?
Unfortunately, no single person or firm knows with 100 percent certainty the answers to these questions. Fortunately for us and our clients, we focus on managing the risk around these uncertain events by taking a comprehensive, disciplined and long-term approach to wealth management. That’s why we place an emphasis on tax efficiency to maximize your bottom line. That’s why we take a thorough, holistic approach to working with you and your family to ensure the greatest chance of success in meeting your financial goals.
To underscore what this means from an investment standpoint, Chief Investment Strategist Nicholas Boyer addresses some of these uncertainties in this quarter’s Market & Economic Update (sorry, no Super Bowl picks). You can also read more about Nick and another new addition to the RKLWM team, Operations Manager Stephanie Etter.
This issue of Insights also includes some timely information on RMDs, or Required Minimum Distributions, for those clients who are age 70½ or will be before the end of 2016. There are some important financial planning opportunities with RMDs, so you’ll want to speak with your advisor about whether an RMD is on your short-term time horizon. Lastly, we have a Thanksgiving-style smorgasbord of odds and ends from our operations and compliance teams, and a guest article from RKL Business Consulting Partner Paula Barrett that discusses potential changes to estate gifting strategies.
We hope you enjoy this fall edition of Insights. In fact, we’re certain you will.
By: Nicholas A. Boyer, Chief Investment Strategist
Through the first half of 2016, economic growth slowed from its 2015 pace, both in the U.S. and globally. This has resulted in modest reductions in estimates of GDP and corporate earnings growth by analysts on Wall Street and at the Federal Reserve. Over the past few months, however, economic data has increasingly surprised to the upside and most leading indicators have either stabilized or improved. Furthermore, while the latest U.S. payrolls data for September were mixed, the report confirmed a trend of consistent job growth, as we’ve now experienced 72 consecutive months of positive job growth dating back to October 2010. This is by far the longest streak in recorded history, with the second-longest streak lasting only 48 months (July 1986 to June 1990). Generally strong labor markets and rising wages should continue to reduce concerns over any slowdown in consumer spending. This trend, combined with meaningful improvements in recent economic activity, should be enough to justify a rate hike by the Federal Open Market Committee. While the market odds are showing that a November rate hike is extremely unlikely (currently only an 8% chance), a December rate hike remains much more likely than not (nearly 70% odds).
From a market standpoint, stronger economic data has translated into the outperformance of cyclical sectors globally and has helped drive the equity risk premium (ERP) lower, keeping equity valuations (P/E ratios) high despite the backup in U.S. 10-year Treasury yields (up to 1.72% from a low of 1.37% in July as of the time of this writing).
As long as the ERP declines as bond yields rise, we expect that downside risk to U.S. stocks is limited. As growth expectations improve and 10-year yields increase, the overall market should remain flat to gradually up in the near term. Even recent macro shocks, including a “flash crash” in the British pound and fresh Brexit worries, have failed to meaningfully upset markets to date.
Nevertheless, we’ve received a number of questions regarding the potential market impact of the upcoming presidential election. To provide some context, a chart recently published by Goldman Sachs reminds investors that since 1984 the S&P 500 has generally experienced positive performance in the months following the U.S. presidential election, regardless of which party wins (the only exceptions being the 2000 “Dot Com Bubble” market crash and the 2008 financial crisis).
Ultimately, our view is that while it is certainly possible the election outcome will increase volatility and may perhaps even result in a sell-off in equity markets, it is very unlikely to constitute a correction (generally defined as a 10% drawdown).
Importantly, given that most of our clients are invested on a long-term time horizon and that we maintain a positive long-term view on the market, we see no reason to fundamentally change strategy or to liquidate market positions based on the rancorous political climate. If we do experience a meaningful sell-off as a result of the election, however, we would likely recommend using it as an opportunity to selectively invest excess cash into areas where valuations may become more attractive.
Meet Nick Boyer
RKL Wealth Management has welcomed Nicholas A. Boyer to the firm as its Chief Investment Strategist. Boyer manages the investment team and serves as Chair of RKL Wealth Management’s Investment Committee, responsible for investment policy review and portfolio strategy development.
Boyer brings nearly a decade of experience in both institutional and retail financial services to his new role. Prior to joining RKL Wealth Management, he worked as an investment advisor and portfolio manager, serving high net worth individuals and families. He also previously worked at a leading investment research and brokerage firm in New York, where he advised institutional asset managers on global investment strategies.
A former U.S. Marine and combat veteran, Boyer served in a special operations unit in Afghanistan as part of Operation Enduring Freedom. Boyer received his B.A. in Business Administration/Economics, Risk Management and Insurance from Temple University. He is Board Chair for the Lancaster Public Library and chairs the Investment Committee for the Catholic Education Foundation. Boyer resides in Lancaster with his family.
Charles Schwab Client Statement Change
In RKL Wealth Management’s Summer 2016 Newsletter we informed our clients that Charles Schwab would issue monthly statements ONLY for those accounts that had qualifying transactions.
Based on our client feedback, RKL Wealth Management has requested that Charles Schwab send monthly statements for all accounts, regardless of qualifying transactions. ALL of our clients should continue to receive their monthly Charles Schwab statements. If you do not, please let us know.
Are You Required to Take an RMD?
By: Lisa K. Griffiths, Wealth Advisor
A Required Minimum Distribution (RMD) is a special minimum dollar amount that the owner of an IRA or qualified plan account is required to withdraw on an annual basis beginning with the year that he or she reaches 70½ years of age. You are permitted to withdraw more than your RMD amount, but you will be penalized if you withdraw less. RMD amounts are aggregated across accounts, so if you own more than one IRA, SEP IRA, Simple IRA or retirement plan account, you will have an RMD for each account. Roth IRAs do not require withdrawals until after the death of their owner.
In January 2017, RKL Wealth Management (RKLWM) will send a letter to account owners age 70½ and older to confirm the RMD amount and request a federal tax withholding rate. Keep in mind that RMDs, and additional withdrawals above your RMD amount, will be included in your taxable income for the year you receive them. We will also ask to which account you would like the RMD to be deposited, whether it be into another account managed by RKLWM, or to your checking account. We also have the ability to distribute your RMD as a check which will be mailed to you at your address of record on the account.
You may draw your RMD annually, monthly or quarterly. If you don’t have a preference, RKLWM will set up the distribution to occur on December 1. If you choose to take the distribution monthly, RKLWM will distribute on the 5th or 15th of the month. For quarterly distributions, RKLWM will distribute on the 5th or 15th of the quarter.
The owner of an inherited IRA must also take an RMD distribution each calendar year. RKLWM will also contact you regarding these RMD distributions, providing the same information noted above for IRA RMDs.
If you were age 70 in 2015 or before July 1, 2016, and have not heard from RKLWM or Schwab, please contact us so that we can set your distribution up before the end of this year.
Days Numbered for Common Estate Planning Technique
By: Paula K. Barrett, CPA/ABV, CVA, CGMA, partner in RKL’s Business Consulting Services Group
Regulations that would restrict the use of a common estate planning technique are moving through the approval process in Washington, D.C. The U.S. Treasury Department and IRS earlier this month issued proposed regulations regarding a technique used to transfer interests in family businesses at a reduced value. These proposed changes seek to prevent undervaluation of transferred interests, but will result in the elimination of a significant gift and estate tax benefit.
What is the current practice for business transfers?
Under the current laws, transfers by an individual or their estate in excess of the $5.45 million exemption amount are subject to estate and gift tax. For married couples, the exemption amount is $10.9 million. The estate and gift tax applies at a top rate of 40 percent on values in excess of these exemption amounts, so the elimination or reduction in discounts applied to ownership interests will have a sizable impact on the gift or estate tax due.
How would these regulations impact my estate plans?
The proposed regulations under Internal Revenue Code Section 2704 would severely limit the applicability of sizeable discounts commonly applied to ownership interests in Family Limited Partnerships (FLPs) and Family Limited Liability Companies (FLLCs) for estate, gift and generation-skipping transfer tax purposes. Under the new regulations, the determination of fair market value for interests transferred via FLPs and FLLCs would disregard certain restrictions in operating and partnership agreements. This would essentially eliminate the valuation discounts for lack of control and lack or marketability, which often can result in tax-friendly reductions ranging from 20 to 50 percent.
When will these regulations take effect?
The proposed regulations are open for public comment, for a period of 90 days after their initial release on August 2, 2016. The regulations would then take effect 30 days after finalization by the U.S. Treasury. It is important to note that these regulations will be applied prospectively, not retroactively, so there is still time to take advantage of the discounts up until the effective date.
RKL’s Business Consulting Services Group will continue to monitor these proposed regulations. Individuals or businesses in the midst of estate planning projects should consider accelerating their timelines to take advantage of these discounts while they are still fully available. Have questions as to how this may impact your business ownership transfer plans? Contact your RKL advisor or one of our local offices today.
What Does RKL Wealth Management Do with Your Personal Information?
Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. You may limit sharing for our affiliates’ everyday business purposes – specifically information about your creditworthiness – and you may limit sharing for our affiliates from using your information to market to you. We do not share your personal information for nonaffiliates of RKL Wealth Management to market to you.
Federal law also requires us to tell you how we collect, share and protect your personal information. To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. Additionally, RKL Wealth Management requires and trains its employees to comply with its privacy standards and policies, which are designed to protect client information.
For a copy of our Privacy Notice, please contact Steph Connerton at 610-375-9561 or firstname.lastname@example.org.
The end of the year is a great time for clients to think about charitable gift donations, either via their IRAs (if over 70 ½) or via shares of stock.
Please inform us NO LATER THAN NOVEMBER 30th of your gifts to charitable organizations with your assets held here at RKL Wealth Management/Charles Schwab. This will help to ensure your distribution will be accepted by the charity for the current tax year.
Meet Stephanie Etter
RKL Wealth Management LLC has welcomed Stephanie J. Etter to the firm as its Operations Manager. She is responsible for managing the daily activities within the operations department and serves as an intermediary between operations and management.
Prior to joining the firm, Stephanie spent 16 years working for a regional wealth management firm. Her background is multi-faceted and she brings a great deal of experience to the RKL Wealth Management team.
Stephane lives outside of Spring Grove with her fiancée and her two dogs. Her favorite pastime is spending time with family and her grandchild, Bentley.