NWIC ranked #7 for AUM in Oregon

Northwest Investment Counselors is pleased to share that we are #7 on the list of Oregon’s top Registered Investment Advisory firms as ranked by assets under management by Investment News.* “We are pleased to have made Investment News’ list,” said Mark Scarlett, Principal and Co-founder of Northwest. “I want to thank our clients for the trust they have placed in us and the hard work and dedication of our employees. As a result, we have grown by over $150 million in the last 10 years, ” he added.

Founded in 1998, Northwest now manages over $300 million for families and foundations, primarily in individual stocks and fixed income securities. Our financial guidance can be summed up by three key attributes that make Northwest’s wealth management distinct and valuable. We put our clients’ needs first rather than products or quotas. Our wealth management team draws upon a wide breadth of experience, education, and credentials to develop portfolios that fit the unique needs of our clients. And the in-house and rigorous nature of our investment process, which has produced tax-efficient investment results with below average volatility, is directed by a team of portfolio managers, all of whom have earned the Chartered Financial Analyst (CFA) designation.**

*Methodology: Investment News qualified over 1,600 firms headquartered in the United States based on data reported on Form ADV to the Securities and Exchange Commission as of May 1, 2015. To qualify, firms must have met the following criteria: (1) latest ADV filing date is either on or after January 1, 2015, (2) total AUM is at least $100M, (3) does not have employees who are registered representatives of a broker-dealer, (4) provided investment advisory services to clients during its most recently completed fiscal year, (5) no more than 50% of amount of regulatory assets under management is attributable to pooled investment vehicles (other than investment companies), (6) no more than 25% of amount of regulatory assets under management is attributable to pension and profit-sharing plans (but not the plan participants), (7) no more than 25% of amount of regulatory assets under management is attributable to corporations or other businesses, (8) does not receive commissions, (9) provides financial planning services, (10) is not actively engaged in business as a broker-dealer (registered or unregistered), (11) is not actively engaged in business as a registered representative of a broker-dealer, (12) has neither a related person who is a broker-dealer/municipal securities dealer/government securities broker or dealer (registered or unregistered) nor one who is an insurance company or agency.

**To learn more about the CFA charter, visit CFA Institute.

Major Changes to Social Security Claiming Strategies

A backroom budget negotiation at the eleventh hour in order to save the country’s borrowing authority has left a Social Security claiming strategy that was starting to gain popularity due to the potential increase in benefits on the “cutting floor”. The two strategies that potentially increased a couple’s total social security benefits, “File and Suspend” and “Restricted Spousal Benefits” now only benefit those that were born within the right time period.

• If you are already 66 or will turn 66 within six months of the new law being enacted (expected May 1, 2016) you can still File and Suspend or:
• If you turn 62 by December 31, 2015 you will still be able to claim just a spousal benefit when you turn 66 as long as your spouse is either claiming Social Security at that time or had File and Suspended by May 1, 2016 and then switch to your higher benefit when you reach 70.

For all others, you are no longer going to be able to claim only a spousal benefit while letting your own benefit accrue delayed retirement benefits. Nor will you be able to File and Suspend in order to release benefits for family members while letting yours increase.

The good news is for those who have already deployed one of these strategies those are grandfathered in as viable strategies and benefits will continue to be paid as such. It is a complicated twist to an already complicated benefit so please call or email us with your specific situation and we will be happy to offer some clarity.

Short Term Volatility

The Dow and the S&P each finished down over 2% yesterday, and the year-to-date return of both is over 5% on the negative side. While certainly not predictable, short term results like this are well within the range of what should be expected from time to time. We have been reporting for several months now that on the heels of a big 2013, we were finding good bargains to be few and far between. Further selling over the coming days and weeks, if it occurs, should begin to reveal the type of risk/return situations for which we have been patiently waiting. With economic news mixed and 4th quarter earnings releases coming out daily, there is plenty of data to influence the marginal investor one way or the other. We will continue to bide our time awaiting the right situations.

Wire Fraud & Your Advisor

As an investment advisor, we rely on the trust relationship developed with our clients for a range of activities.  The basic relationship is that of a fiduciary allowing us to buy & sell investments on your behalf, but our clients trust us with a host of other matters, as well: financial planning, phone calls for one-off advice on an opportunity, or help with the transfer of funds.  We enjoy the chance to serve you on all fronts.

For that reason, we are posting today to alert you to recent industry conversations surrounding wire fraud.  The challenge of fraud has been around as long as money has, but today the sophistication of would-be fraudsters is as great as ever.  And as your trusted partner we are taking steps to help you combat the hoards that would do you harm.

The financial industry has evolved its practices for the movement of money around the use of forms & documents to create a paper trail, and reliance upon original signatures was deemed the gold standard for hundreds of years.  Today, signed paperwork is still important, but in this digital age the creation of original-looking documents (called forgery) is an all-too-simple process.  And with the proliferation of email use, the ability to impersonate and/or dupe someone has never been easier.  At NWIC we work with our clients and their custodians to help combat fraud, and that has required the continual evolution of our processes.

When we are asked by clients to have their custodian move money to their own verified checking account, the chance for fraud is fairly low: after all, the owner of the accounts is the same person, and typically the process of establishing the true owner of the checking account is done at the time the account is set-up.  However, when a client requests that we have the custodian send their funds to a new, unknown party the burden to establish the authenticity of the request is considerably greater.

There is nothing particularly sinister about what’s called a third-party wire – we help clients wire their funds to third parties to buy houses, pay college tuition, or pay medical bills all the time.  Yet, knowing the request is genuine and that the recipient is an authorized one must be completed at each request, and that’s where you will start to notice some changes.  The new standard process in authentication is now to add voice to written request.  Thus, if you send us an email asking us to send funds to a third party (that is, anyone other than yourself), we will not only ask for you to complete and sign a wire authorization form, but we will also need to speak with you.

Typically, we will simply call you at home or on your cell phone to verify the details and ask you a few questions.  This is not only a chance to correct any typos we discover, but it’s also the best way to engage you in conversation and satisfy ourselves that your request is a valid one, and not that of an imposter.  And be aware: the typical fraud attempt relies on a sense of urgency and drama to cause people to act before thinking.  Thus, if you need funds sent from your account, try to provide us with as much advance warning as possible, and keep us updated on the best phone contact for you.  We look forward to speaking with you!

Some Social Security Housekeeping Items

Social Security has changed the way it issues annual benefit statements. If you want a complete Social Security benefit statement you will have to set up an account online to get the information. The Social Security Administration is no longer mailing those statements in an effort to cut costs. You must be 18 years or older to set up an account. It only takes a few minutes to set one up, simply go to www.socialsecurity.gov/mystatement and follow the steps. You will need your Social Security number, a mailing address, and a valid e-mail address. To prevent identity theft there are several questions you will be asked that are considered “out of the wallet” questions. In other words, even if someone stole your wallet they shouldn’t be able to answer these types of questions (i.e. past employment questions or residence questions).

We recommend checking your statement at least once a year if you are not currently receiving your Social Security benefit. It not only helps you plan for your retirement income needs, but if there is a discrepancy in what is shown you paid in versus what you think you paid in, it is better to catch the error as soon as possible.

Remember if you are within three months of your 65th birthday you should contact the Social Security Administration about receiving Medicare. Finally, if you are receiving your Social Security check by mail, you must switch to direct deposit by March. You can do this either online or by calling 800-772-1213.

Some Contributions Limits for 2013

Often the contribution limits for tax deferred accounts and gifting are increased to keep up with inflation. The limits have been increased for 2013. Up to $17,500 can be contributed to a 401(k) or 403(b) account and those participants 50 years and older are able to add an additional $5,500 in catch up contributions. The maximum contributions to IRAs and Roths for 2013 is $5,500 with an additional $1,000 in catch up contributions for those 50 years and older. There are phase out limits and other restrictions for IRA and Roth contributions depending on adjusted gross income and whether you have access to a plan through work. Please seek the advice of your tax accountant for individual contribution limits.

The annual gift tax exclusion for 2013 will also increase to $14,000 per individual or $28,000 for a couple. There is a lifetime limit to these tax exclusion gifts which may change significantly in 2013 from this year so again, please consult your tax advisor for your personal tax situation.

Bank downgrades

The announcement after trading hours yesterday from Moody’s that it had downgraded a range of banks had been anticipated for months: indeed, Moody’s took great pains to telegraph its actions starting as far back as February.  So, when the big moment came, there was actually relief that some of the downgrades were not as deep as feared, and the costs of insuring the debt of these banks against default actually dropped.   The simple fact is that debt ratings are opinions – no more, no less.  True, we have somehow incorporated these opinions into all sorts of regulations (investment guidelines, SEC regulations, etc.), but at the end of the day people are generally free to do what they wish with these opinions.  Did anything change yesterday to cause the ratings to drop? No, these new ratings reflect the opinions of one firm (Moody’s) based upon the events of the past 2-3 years, not recent history.  And like with any opinion, the market is free to ignore it, so it should be no surprise that bank names, like Morgan Stanley, were up 10% on the opening bell today.

Taxes and Dividends

An interesting tidbit crossed our desk the other day related to dividends, which is a topic many clients have been interested in with income from bond holdings at fairly meager levels. Morningstar reports that “342 of the S&P 500 companies increased their dividends (in 2011), while only five cut their dividends, leading to a net annual increase in payout of $41.1 billion, a far cry from the $37.3 billion in dividend cuts created by this group in 2009.” The Morningstar author goes on to posit that he expects healthy dividend increases in 2012 as well. In our view, that may well turn out to be the case in 2012. However, President Obama has proposed some pretty hefty increases in taxes on dividends, to the tune of up to 44.8% in the top tax bracket compared to today’s 15% (calculation by the WSJ). That tax increase, if it comes to fruition, may pose a headwind for increased corporate payouts. We know that when tax rates on dividends were cut in the past, dividend payouts went up as corporations recognized a preference for dividends over share buybacks from many in their shareholder base. It seems reasonable to postulate that a dividend tax over 40% could cause the reverse behavior. Stay tuned.

What’s the difference?

Did you know that registered investment advisors (RIAs) and broker/dealers (representatives) are held to a different standard of care when it comes to their clients? RIAs must meet the “fiduciary” standard as regulated by the Investment Advisers Act of 1940 whereas brokers and dealers must meet the “suitability” standard as governed by the Securities Exchange Act of 1934 and FINRA (The Financial Industry Regulatory Authority).

Should you care? Of course you should. When you get a recommendation from a registered representative (a broker), they must ensure that their recommendation is suitable for you. In other words, the security must be appropriate for you given your financial situation. However, it doesn’t mean that the security would necessarily meet the needs of your overall portfolio. It is more of a transactional focus rather than an advisory focus. An RIA, on the other hand, must ensure; that the clients’ needs are placed first, that they act in the best interest of the client (does it meet the client’s portfolio needs), and that all conflicts of interest are disclosed.

There is pending legislation to try and establish a universal standard for all financial professionals, however it would appear that it is far from reaching the floors for a vote in either the house or the senate. So what can you do as an investor? Simply knowing what type of relationship you are involved in with your financial professional is a great place to start. You know the saying, “Caveat Emptor,” Let the buyer beware.

Northwest Investment Counselors is an independent Registered Investment Advisory firm.