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Market Commentary & Coronavirus Thoughts

Marshall Bolden, CFA®, President

March 2, 2020

Given the sharp increase in market volatility and the stock market declines over the past several days, many clients have understandably been concerned. While we cannot predict what the markets will do moving forward, we do want to provide some thoughts and commentary regarding the current situation.

Markets hate uncertainty, and there is currently a lot of uncertainty around the spread of coronavirus and how this will impact economic growth rates and corporate earnings. As the virus has moved outside China and established outbreaks in other countries, fear and uncertainty have grown. This is coming at a time when equity valuations, particularly in the U.S., were higher than average. This combination of factors has led to sharp pullbacks in the equity markets. From its closing level on February 19, the S&P 500 Index declined nearly 13% through February 28. The last week was the worst week for many equity markets since the 2008/2009 financial crisis.

It is too early to speak with any certainty regarding the ultimate reach of the virus and how this will affect various economies. We do expect volatility to remain elevated in the short term as the reach of the virus continues to expand and as various governments, agencies, and industries react to this. However, this does not necessarily mean the equity markets will continue to decline steeply. As already mentioned, the short-term market movements are a guessing game, but we do have historical data related to previous periods when pandemics occurred. JP Morgan Asset Management has reviewed S&P 500 returns related to the SARS, swine flu (H1N1), bird flu (H7N9), Ebola & MERS outbreaks. This data shows an average max drawdown of less than 10%, that one month after the outbreaks the average return is nearly flat, and that 6 months after the outbreaks the average return has been above 10%. In other words, the drawdowns or market declines in similar past events have not been prolonged events, and the S&P 500 has normally been higher 6 months after an outbreak than it was at the beginning.

Volatility and market declines inevitably cause emotions to increase. The urge to sell, reduce risk, or generally take action rises. Behavioral finance has told us this for years. There is also plenty of actual, historical data that points to the impact of quick, emotions-based decisions. Outcomes of such decisions are often detrimental to investor’s returns and probability of reaching their long-term goals. This makes sense. Our emotions normally scream to sell or reduce risk when the markets begin to fall, and once the markets have been up a while and/or are more stable, they tell us to get back in or to increase risk. Doing this often results in selling low & buying high…the exact opposite of the investment idiom that says to buy low & sell high. The reality of investing is that very few, if any, people can accurately and consistently predict short term market movements. Therefore, we will continue to stress long-term investing and for investments and risk level to be determined in light of a long-term plan. This linked video commentary by Kara Murphy provides further insight regarding recent market events and the importance of investing within the context of a long-term plan. Kara is the Chief Investment Officer

Investment advisory services offered through CapSouth Partners, Inc., an independent Registered Investment Advisor, dba CapSouth Wealth Management. CapSouth Partners does not provide tax or legal advice. Please consult your tax or legal advisor prior to making decisions which may have tax or legal consequences. Past performance is no guarantee of future results. Information contained herein is believed to be reliable but is not guaranteed as such by CapSouth. Nothing contained herein should be construed as individual investment advice; all commentary is of a general nature. This commentary contains opinions; any opinions presented should not be construed as fact and are not in any way a guarantee of future events.

We Are Hiring: Financial Relationship Manager “Advisor Assistant”

 

The following position description contains representative examples of work that will be performed in positions allocated to this classification. It is not required that any position perform all the duties listed, so long as primary responsibilities are consistent with the work as described. Roles and responsibilities can often be expanded to accommodate changing business conditions and goals, as well as to tap into the skills and talents of the individuals in the company. Accordingly, associates may be asked to perform duties that are outside the specific functions that are listed.

Please include a cover letter stating why you would be a good fit for this position and for CapSouth Wealth Management. Also, please describe your three most defining characteristics and attributes.

 

CapSouth Wealth Management is a growing Wealth Management company in Dothan, Alabama, with offices in 2 other states, and actively looking to expand.  We are currently looking for an individual who gets excited about taking on challenges and can multitask in a high-demand and fast-paced environment.  The right individual will also embody our core values and thrive on working with a team.  We offer competitive pay, great benefits, and potential for growth.

 

  1. MISSION

The Financial Relationship Manager “Advisor Assistant” acts as the primary point of contact for assigned clients. This individual is responsible for the management and monitoring of the client relationship, ensuring a consistent positive client experience, including working with the team to ensure all commitments are completed and followed through in a timely manner.  This position requires a pro-active approach and ability to independently carry out the duties of the position. The ideal candidate should exhibit high standards, excellent communication skills, good judgment, and ability to take initiative. The ability to effectively manage time and multi-task with attention to detail is critical to this role.  The term Advisor is used in referring to a Managing Director, Senior Wealth Advisor or Wealth Advisor.

 

  1. ESSENTIAL RESPONSIBILITIES
  • Actively participate in all assigned Advisor client meetings
  • Demonstrate the ability to escalate potential client issues to Advisor as appropriate
  • Actively document all notes and action items during client meetings and ensure all commitments made by the Advisor are being completed in a timely manner (this may include personally completing task or assigning task to other team members for completion)
  • Review task assignments for each client and work directly with team members to ensure all follow-up and action items as a result of client meetings are documented in Salesforce and completed within the specified time frame
  • Under the direct oversight of the Advisor, actively engage in Client Case Prep meetings and providing recommendations and feedback relative to the client’s financial plan, as appropriate
  • Responsible for maintaining an ongoing agenda for the next meeting immediately following completion of the current meeting (this agenda should be modified with new information as developed and finalized several days in advance of the next meeting)
  • Create, or assist in creating, presentations, case documentation, and deliverables for all assigned clients
  • Ensure compliance requirements are adhered to
  • Be responsible for the onboarding process for new clients, ensuring all guidelines are adhered to throughout the process
  • Act as the primary point of contact for all client interactions, working with team members to ensure a timely response to all client questions and concerns
  • Establish and maintain positive relationships with existing clients to ensure client satisfaction
  • Constantly seek for ways to improve operations

 

III. POSITION SPECIFICATIONS

Experience and Education:

  • A Bachelor’s degree is preferred
  • Prefer 3-5 years working in a Client Service
  • Some knowledge of financial industry preferred
  • Willingness to pursue Series 65 license

 

Skills and Knowledge:

  • Demonstrates analytical ability, good judgment, problem solving, responsibility, personal integrity, and able to deal with confidential information daily
  • A self-starter with a strong sense of ownership, positive professional attitude, and demeanor
  • Must be able to exercise judgment, tact, and diplomacy on behalf of supervisors when dealing with other executives and levels of management
  • Proficient in Microsoft Office (Word, PowerPoint, Excel, Outlook).
  • Experience in Salesforce highly desired
  • Excellent customer service
  • Professional and articulate with strong attention to detail and excellent oral and written communication skills
  • Ability to work efficiently, effectively, and independently to see projects through to conclusion
  • Excellent time management, organizational skills, and ability to prioritize multiple tasks and anticipate potential problems

 

Core Competencies:

  • Comprehends the extreme confidential nature of the business and exhibits extreme care in handling confidential information
  • Evaluates and assess timely completion of client deliverables, allocation of internal resources, and client liaison
  • Able to interpret and disseminate information, prepare reports, and use of the appropriate mode of communication
  • Orientated to provide excellent Customer / Client service
  • Computer literate – comfortable with technology and the use of standard office programs and networks

 

Benefits include:

  • Off every Friday at 1 pm
  • 401k plan with match, non-elective contribution, and potential for profit-sharing contributions
  • 10.5 annual holidays
  • Paid time off starting at 8 days the first year, increasing to 13 days in year two
  • Great medical benefits (partially subsidized by the company), along with the option to add a supplemental medical coverage, dental, vision, long-term disability, life, and voluntary life

 

Important IRA and Roth Changes Under the SECURE Act

by: P. Lewis Robinson, CPA | Managing Director, Senior Wealth Advisor                                                                                                                                              CapSouth Wealth Management, McDonough, GA Office                                                                                                                                                                                                1.8.2020

 

Congress has passed the year-end Spending Package that includes the SECURE Act that became effective January 1, 2020. President Trump signed the bill on Friday, December 20, 2019. With the passing of this bill there are major changes to the rules for IRAs and Roth IRAs. Although there were also changes in the 401(k) world, this article will focus only on the changes to IRAs and Roth IRAs.

 

The following is a summary of the major changes to IRAs and Roth IRAs:

 

  1. Due to people working longer, Congress has pushed out when required minimum distributions (RMDs) begin. For anyone who has not reached age 70.5 by the end of 2019, the new required beginning date will be 72 for RMDs. There is an exception to this rule if you are not a 5% owner in the company and continue to work; in this case you can push out your RMDs for your current employer’s retirement plan until the year after you retire.

 

  1. We have many clients who take advantage of Qualified Charitable Distributions from their IRAs at age 70 ½. This rule allows a taxpayer who is age 70 ½ years to make a distribution to a qualified charitable organization that will not be subject to income taxes. There has not been any change in this provision. At age 70 ½, a taxpayer can still make Qualified Charitable Donations. If you have a question as to how this could reduce your income taxes, call you financial advisor at CapSouth Wealth Management.

 

  1. Under the old rules, there was an age limitation to being able to make deductible Traditional IRA contributions. Under the new bill, there is no age limit for making IRA contributions as long as you or your spouse have earned income. If you are a participant in a company retirement plan, you may not be able to make an IRA contribution or may be subject to contribution limits. Discuss these limitations with your tax advisor.

 

  1. One of the more appealing Roth IRA rules is the lack of an age limit on contributions. While traditional IRA contributions were barred for individuals older than 70 ½ before January 1, 2020, you could and still can be any age and contribute to a Roth IRA if you or your spouse has earned income. However, there are limitations that you should be aware of. Discuss these limitations with your tax advisor.

 

  1. The new law allows taxable non-tuition fellowship and stipend payments to be treated as compensation to qualify for an IRA (or Roth IRA) contribution.

 

  1. What has been called the Stretch IRA has been limited. Under the old law, beneficiaries, other than a spouse, could take Inherited IRA distributions over their lifetime. Now, Inherited IRAs and Roth IRAs will have to be distributed to the beneficiaries, other than an eligible designated beneficiary (EDB), within 10 years beginning the year of the death of the account holder. In addition to the surviving spouse, there are four other categories of EDBs that are discussed in the next point.

 

  1. The following is a list of the eligible designated beneficiaries (EDB) that are entitled to a modified version of the life expectancy payout method:

 

  1. Minor child (but not grandchild) of the participant. The life expectancy payout applies to a “Child of the employee who has not reached majority.” Upon reaching the age of majority, the ten-year rule becomes effective.
    1. A child may be treated as not reaching the age of majority if the child has not completed a specified course of education and is under the age of 26.
    2. A child who is disabled within the meaning of the IRS regulations when the child reaches the age of majority may be treated as having not reached the age of majority so long as the child continues to be disabled.
  2. Disabled beneficiary. The life expectancy payout applies to a designated beneficiary who is disabled within the meaning of the IRS regulations. Upon their death, the 10-year payout rules become effective.
  3. Chronically ill individual. The life expectancy payout applies to a designated beneficiary who is chronically ill within meaning of the IRS regulations. Upon their death, the 10-year payout rules become effective.
  4. Less than 10 years younger beneficiary. The life expectancy payout applies to an individual who is not 10 years younger than the participant. Upon their death, the 10-year payout rules become effective.

 

  1. There will be tax planning opportunities for those who inherit IRAs. Unlike with the old rule, there is no required amount to be paid out each year of the 10 year pay out period. The beneficiaries could take larger distributions in years where the beneficiaries’ tax bracket is low or lesser amounts when their tax bracket is high.

 

 

 

  1. The effect of limiting the stretch of the IRAs and Roth IRAs is as follows:

 

  1. The income taxes payable by the beneficiaries would probably be higher since they can not spread the income taxes over a longer period.
  2. The deferral of the income taxes would be much shorter.
  3. Shorter period of tax-free growth of Roth IRAs.

 

  1. In my opinion, the change in the stretch IRA or Roth IRA makes life insurance a more tax efficient way to leave a legacy to your heirs.

 

  1. Every person who has named a trust as their IRA beneficiary will need to review those plans and likely look for alternative planning solutions.

 

  1. The new Act would likely cause problems for so-called “conduit” trusts. Conduit trusts have been used by IRA owners to ensure that the bulk of the inherited IRA is preserved for the beneficiary over the long haul. Any required minimum distributions (RMDs) that are distributed from the IRA to the conduit trust are then passed by the trust to the beneficiary and taxed in the year of distribution. The beneficiary may or may not have the ability to withdraw amounts in addition to the RMD.

 

  1. Under the new Act, the entire account would be distributed to the beneficiary. Going forward, IRA owners should consider using accumulation trusts instead. Accumulation trusts permit distributions from an IRA, including RMDs, to be preserved for the beneficiary inside the trust. So, although the new Act would require the entire IRA to be distributed to the trust within ten years, the assets could be held in trust for the beneficiary for as long as the terms of the trust dictate. However, an accumulation of trust would not prevent income tax from being assessed as distributions are made from the IRA to the trust.

 

  1. A major planning objective for the beneficiaries of trusts is to minimize the annual taxable income. The maximum Federal income tax rate of 37% applies to taxable income of the trust in excess of $12,951. The 37% bracket does not start for a couple until their taxable income is in excess of $622,050.

 

  1. Spouses still have the option to roll an Inherited IRA from their spouse into their own IRA or Roth IRA. They could treat the IRA or Roth IRA as an Inherited IRA or Roth IRA. In some cases, it could be an advantage for the spouse to elect to treat the IRA or Roth IRA as an Inherited IRA or Roth IRA.

 

  1. There is a new exception for the 10% penalty for distributions up to $5,000 for birth or adoption made before a taxpayer is age 59 ½ years of age. The distribution is subject to income taxes. The birth or adoption distribution amount can be repaid at any future time (re-contributed back to any retirement account).

 

  1. For parents and others with 529 education savings accounts, the legislation allows tax-free withdrawals from IRAs of as much as $10,000 for repayments of some student loans. The distributions for loan repayment amounts would be subject to income taxes.

 

The bottom line is that if you have retirement accounts, you should strongly consider working with a financial advisor who knows the new rules. CapSouth Wealth Management has been very pro-active with planning regarding IRAs and Roth IRAs. With this new law, there are even more planning opportunities.

 

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. The information in this article has been provided by sources deemed to be reliable. However, CapSouth Wealth Management does not guarantee the accuracy or completeness of the information. This material has been prepared by P. Lewis Robinson, CPA for planning purposes only and is not intended as specific tax or legal advice. Tax and legal laws are often complex and frequently change. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

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