Between the Lines: Market Commentary from First Allied Asset Management

Below are some headlines which have been moving the markets this week. The articles highlighted below are provided by First Allied Asset Management. I’m not sure how many of you did “Black Friday” shopping last week but I can tell you the malls were dead around Long Island, New York. It was much quieter than years past and from what I understand, Cyber Monday was somewhat disappointing as well. On the issue of gas prices, I feel great about the $15 I’ve been saving each time I fill up my car. The price is finally hitting that $3 point on Long Island which is well below the $4.30 per gallon which we were paying just a few months ago. This should create some additional household saving and spending as gas is a major expense for people between heating their homes, their businesses, and operating automobiles.

Morning MoneyBeat: Santa on the Street  >

This morning’s The Wall Street Journal MoneyBeat examined a different perspective on the Santa Claus rally, a common belief that the market tends to perform well at the end of the year. Tim Edwards, director of index investment strategy at S&P Dow Jones Indices, developed a Santa Score which measures December performance relative to annualized return.

And, over the last 20 years, the Santa Score for the S&P 500 is 0.17, meaning 17 percent of the average annual return has occurred in December, confirming the view that the market tends to perform well at the end of the year. Interestingly, this high Santa Score is also consistently seen across a variety of global equity markets.

Black Friday Fatigue? Thanksgiving Weekend Sales Slide 11%  >

Spending over the four-day Thanksgiving weekend declined by an estimated 11 percent compared to last year, according to the National Retail Federation. Many analysts predicted strong growth in Black Friday sales this year because of rising consumer confidence and labor growth, falling energy costs, and the increase in retailers open on Thanksgiving.

But it’s still possible for overall holiday season spending to increase compared to 2013. Consumers might not be as enticed by Black Friday bargains as in years past because retailers now provide deep discounts on prices throughout the entire holiday season and also provide special online discounts.

Lower Gas Prices: How Big a Boost for the Economy? >

This blog posting from The Wall Street Journal provides a nice summary of what impact lower oil prices are likely to have on the U.S. economy. The benefits that most businesses and consumers receive from falling energy prices are partially offset by headwinds potentially created from reduced investments by the domestic energy industry.

However, as the energy industry still represents a relatively small percentage of employment, the net impact of lower oil prices is likely to be a 0.2 to 0.3 percent boost to economic growth in 2015 if the price of oil remains near current levels.

US Manufacturers Still Outpacing Rest of World >

U.S. manufacturers barely slowed down in November even as major competitors around the world continued to scale back production. The Institute for Supply Management (ISM) said its U.S. manufacturing index edged down to 58.7 percent last month from 59 percent in October.

Yet any number above 50 percent signals expansion, and the latest reading kept the ISM index near a three-year high. Fourteen of the 18 industries tracked by ISM said business increased in November while the closely watched new orders component hit a three-month high.

As always, feel free to reach me with any questions or comments.

Russell Bailyn

Financial Planning & Investment Advisory Fees

What is reasonable?

From what I’ve seen, fee-based advisory firms, my own included, generally charge an annual fee which ranges from .75% to 1.75% of assets under management. Generally, the larger your account balance, the more likely you are to receive a lower fee. In fact, fee schedules are often tiered such that the initial 250K is billed at a higher rate which scales down at varying thresholds such as 500K and 1M. There may, however, be other methods of determining an advisory fee beyond simply the size of the account. For example, some firms are more active (tactical) than others. Those firms would likely charge a slightly higher fee than a firm which is more passive and investing strictly in products which mirror indexes such as the S&P 500 and the Dow Jones. Firms with passive investment strategies may still charge fees over 1% if they are including valuable services such as financial planning, estate planning, tax planning, etc. What is included in the fee amount (above and beyond investment management) should be discussed in clear detail at an initial consultation.

While the internal debate about fees may have various tentacles, fees as an overall compensation structure is generally understood to be superior to the commission-based system which was the standard not that long ago. With commission-only business, an advisor is often looking for the next piece of business which they can find. Logically, that method of doing business is very sales oriented (or transaction focused) and requires constant sourcing. The fee system does seem to better align a client and advisor’s interests in that as the account value grows, the fee is worth more. So I do recommend locating a fee-based or fee-only advisor when interviewing or filtering through financial advisors.

In terms of financial planning fees, some people prefer to pay flat rates for portfolio reviews or hourly fees for financial planning services and portfolio consulting. This type of investor may prefer to manage their assets themselves through discount online brokerages. For people with a more do-it-yourself mentality, this system is fine as well. What an advisor charges per hour will typically vary from $150-$300. Some may bill per consultation or per plan, rather than per hour. It generally will depend on the amount and scope of work and research to be done. I’ve seen some advisors charge a flat $1,000 for a financial plan that involves one or two meetings and a written plan. I’ve also seen some advisors include a full plan as part of the advisory fee which they are charging on a portfolio.

The bottom line is that you want your fee schedule with your advisor to feel reasonable. The annual fee based on assets under management is very popular and seems to be working at the moment. Hourly fees for consulting and flat fees for services such as financial plans work as well, but I think a bit more obscure, probably because it’s hard for an advisor to make a good living charging just consulting fees and one-time financial planning fees. What you want to look out for are transaction-based or commission-only arrangements where advisors may be pushing products rather than really getting to know the clients.

As always, feel free to contact me with any questions or comments.

Russell Bailyn

It’s not too late for a few year-end Tax Saving tips!

As the weather turns colder and the end of 2013 approaches, there is still enough time to do some year-end tax planning so that you can hopefully keep as much of your money in your pocket, rather than sending it off to Washington next April. Here are 3 tax savings techniques that may help you accomplish just that.

1) Time for some “Tax Loss Harvesting”

Tax loss harvesting is purposely selling an investment at a loss that is not in a qualified tax deferred retirement account. The IRS taxes you on your total gains for the year so you can therefore use losses in one part of your portfolio to offset gains in another and reduce your tax bill.
The federal government currently taxes long-term capital gains (from the sale of investments held more than 1 year) at a rate up to 23.8%, and short-term capital gains at an individual’s ordinary income tax rate. This year, the highest income tax bracket is a whopping 43.4%*.
According to the IRS, you can also carry your losses forward indefinitely. So make sure you’ve used up all of your losses from prior years. Quick tip; take a look at holdings you may have purchased in 2008 to make sure you’re not leaving some losses on the table.

How can you still stay invested and avoid a “wash sale”?

If you own individual stocks that you can sell at a loss but still want to maintain exposure to that market sector, consider swapping for a sector ETF or mutual fund during the “wash sale” period.
The “wash sale” rule says that an investor can’t claim a loss on the sale of an investment and then buy a “substantially identical” security for the period beginning 30 days before and ending 30 days after the sale. Basically, the IRS wants to make sure that investors don’t get a tax break and then instantly buy back their original investment.

2) Gifting highly appreciated stock

If you own stocks that are not part of a qualified plan, and if you are charitably inclined, you may want to consider gifting highly appreciated stock to your favorite charity. Your charitable deduction would be the value of the stock when you make the gift, not the price you paid for the shares when you purchased them. If you are in the highest tax bracket, this gifting strategy is of greatest value to you.

3) Gift your Required Distribution RMD directly to a charity

If you’re charitably inclined and are over 70 ½, you can donate your required minimum distribution from your IRA custodian/trustee directly to a charity. Persons over 70 1⁄2 can transfer up to $100,000 before year-end but note that the “qualified charitable distribution” must be a transferred directly from an IRA to a qualified charity. The qualified charitable distribution will then be excluded from your taxable income.
There is an additional benefit of such a transfer since the amount of the donated RMD is not included in one’s adjusted gross income. This fact means that certain phase-outs of other deductions that are tied to AGI might be averted.
Additionally, this IRA transfer is most valuable for those philanthropic individuals whose charitable contributions are already up against the 50 percent of AGI limit. Again, since the transferred distribution is not included in AGI, a charitable donation can be made without being included in the 50 percent of AGI limitation.

10 Things Billionaires Won’t Tell You

What happens when so few control so much of the world’s wealth


Original article by Quentin Fottrell of Market Watch/ WSJ >

1.“We just get richer and richer.”

In 2013, the wealth of the world’s billionaires reached a record high — helped by 200 newcomers like Facebook founder Mark Zuckerberg. The 2013 Forbes Billionaires List names 1,426 billionaires with an aggregate net worth of $5.4 trillion, up a whopping 17% from $4.6 trillion last year. And that doesn’t include royalty or, um, dictators. Of those, some 442 make their home in the U.S. (there are 386 in the Asia-Pacific region, 366 in Europe, 129 in the rest of the Americas and 103 in the Middle East and Africa combined, according to Forbes). The average net worth of each U.S. billionaire: $10.8 billion, up from $9.1 billion last year, according to a separate survey released this month by private wealth consultancy Wealth-X and UBS.

Meanwhile, the rest of the country’s net worth has actually fallen since the Great Recession — and has yet to recover. Adjusting for inflation, real net worth per U.S. household hovered at $652,449 by the end of June 2013, according to the Federal Reserve, or about 95% of its 2007 level of $684,662. If that seems inordinately high, that’s because the majority of U.S. households carry their net worth in their home. That average also is inflated by, well, millionaires and billionaires: In fact, around half of U.S. households have a net worth of no more than $83,000, a Pew Research Center’s analysis of 2010 Federal Reserve survey found.) And while ordinary Americans have seen their net worth fall since the recession, billionaires saw their net worth rise by over 50% from $3.5 trillion in 2007.

Why are billionaires on the rise? “Daily record highs in the financial markets have caused surging net worth for the richest 1%,” says Mark Martiak, a wealth strategist at Premier Financial Advisors in New York. Commercial and residential real estate values have also been rebounding, he says. “Combined with low inflation and low interest rates for borrowing, this big picture presents a favorable backdrop for the wealthy, in spite of higher taxes, stubbornly high unemployment, the potential Fed tapering and wrangling in Washington,” Martiak says.

2.“One million — or 10 — ain’t what it used to be.”

In a time when the median price of a home in Manhattan is just over $1 million, according to real-estate website Trulia, experts say that being a millionaire no longer means that you’re rich. It could just as easily mean you own your own a home in New York or San Francisco, or have a vacation home on the Jersey Shore. “The word now doesn’t have as much power,” says Charles Merlot, author of “The Billionaire’s Apprentice: How 21 Billionaires Used Drive, Luck and Risk to Achieve Colossal Success.” “In the eyes of the public, even $10 million is considered at the low end of high-net-worth.”

For the global elite, keeping up with the Joneses, Gateses and Buffetts can require, at bare minimum, an eight-figure annual income. The online listing site, a Craigslist for the super-rich, lists helicopters for a snip at $7 million-plus. (Failing that, one could always quietly take a share in one through a site like FlexJet.) For those who believe a Bentley is too — well, obvious — the fastest and most expensive production car in the world is the $2.4 million Bugatti Veyron Super Sport car. Billionaires who don’t want (or like) their neighbors can check out, which has a collection of hideaways around the world to choose from. The 225-acre Katafanga Island in Fiji in the South Pacific is currently on the market with a price tag of $20 million.

In the movie “The Social Network,” a semi-fictionalized account of the founding of Facebook, Justin Timberlake, in the role of Napster founder and early Facebook backer Sean Parker, tells the Mark Zuckerberg character, “A million dollars isn’t cool. You know what’s cool? A billion dollars.” (Parker has, in interviews, denied he ever said that in real life.) Indeed, those who have worked with billionaires say that, to be considered rich among their elite, a million doesn’t cut it. Billionaires and millionaires may sit side-by-side on boards, Martiak says, but handshakes and smiles aside, billionaires don’t see millionaires as their equals.

3. “This is basically a boys’ club.”

Women are making some progress: There are 138 women among the 1,426 people on Forbes’s Billionaires List this year, up from 104 last year.

Still, more than 90% of billionaires are men. Perhaps that should come as no surprise, considering that just 4% of CEO positions at Fortune 1,000 companies are held by women — a strikingly small proportion considering that 18% of members of Congress and 30% of U.S. District Court Judges are female.

Luckily, rising through the corporate ranks isn’t the only or even the most common way to become a billionaire. The richest woman in the world — Liliane Bettencourt, 91, who has $30 billion — inherited her fortune from her father, who founded the cosmetics giant L’Oréal. And the late Rosalia Mera, one of the 20 richest women in the world, was self-made: Although she dropped out of school at age 11, she co-founded the global clothing chain Zara (she died in August).

A more novel theory for the boys’ club: For some young male billionaires, testosterone may have given them their start. “The coolest thing about Mark Zuckerberg and Eduardo Saverin is that they never did it for the money,” says Ben Mezrich, author of “The Accidental Billionaires” and “Bringing Down the House,” which became the sources for “The Social Network.” “The main impetus for them at the very beginning was to meet girls. It turned into a billion dollars.”

4.“I may be smart, but I got a head start.

”America’s billionaires tend to also be among its most well-educated, recent research suggests. In “Investigating America’s Elite,” published in the journal Intelligence, Duke University psychologist Jonathan Wai found that billionaires are more likely than CEOs, judges, senators or House members to have attended colleges with the most rigorous admission standardsBut were they born smart, or born lucky? Wai says it’s a bit of both. Most billionaires — including Bill Gates, America’s richest man, and son of a successful lawyer — were born into a upper middle-class backgrounds, he says. The father of billionaires David and Charles Koch was Fred C. Koch, the founder of Wood River Oil and Refining Company, today known as Koch Industries; granted, the Koch brothers turned the company into the multi-billion dollar conglomerate it is today. S. Robson Walton, chairman of Wal-Mart, is the son of Sam Walton, the founder of Wal-Mart. “The first trick to becoming a billionaire is being born a millionaire,” says author Mezrich.In fact, plenty of billionaires were not born with financial advantages. Sheldon Adelson, 80, CEO of the Las Vegas Sands casino and resort, was born in a working-class neighborhood in Boston; his father was a cab driver. Stephen Bisciotti, 53, the majority shareholder of the Baltimore Ravens, worked his way through school; his father died when he was eight. Lynn Tilton, 54, founder of private equity firm Patriarch Partners, grew up in the Bronx, and was a single mother working 100 hours on Wall Street in her 20s. “I can’t even remember my 20s,” she says, “they were so dark.”

Read the rest of this entry »

Year-End Ideas for Owner-Only Businesses

There is still time to establish a plan for the current tax year and take advantage of deductible contributions, but the deadline is very close. Owner-only businesses have until December 31 to establish 401(k), Profit-Sharing, or Defined Benefit Plans. Funding may be completed next year, by the business’ tax filing deadline, including extensions

Savings Goal: Up to $51,000 
You may benefit from taking advantage of features available in a 401(k) Plan but absent in a SIMPLE or SEP IRA arrangement. The Roth 401(k) feature is a good example: 401(k) plan might be off your radar because you may not need a large deduction. That’s where Roth comes into play because it allows plan participant to defer up to $17,500 ($23,000, if age 50 or older) on an after-tax basis. By foregoing a current-year deduction for salary deferrals, you may gain access to tax-free growth and distributions during retirement. Unlike Roth IRA, Roth 401(k) is available regardless of income level, provided the plan document contains a Roth provision. Profit-sharing or matching contributions made to the plan receive a traditional tax treatment: they are deductible, grow on a tax-deferred basis, and are subject to taxation as ordinary income when distributed. By receiving Roth treatment on a portion of their contributions, investors are able to diversify their tax treatment both now and in retirement.

Life Happens, Have a Loan 
Loan availability is another example of a feature available in a 401(k) Profit-Sharing Plan; loans are not an option in an IRA-based plan. Life happens, and many business owners periodically find it necessary to access their 401(k) savings in pre-retirement to provide cash injection or cover a temporary shortfall. Qualified plans allow participants to borrow up to one half of the value of their vested account, capped at $50,000. Loans generally can be repaid over five years, the interest the borrower pays on their loan goes back into the plan for their benefit.. The length of the loan can be extended beyond five years in some instances; for example, when the loan is used toward purchase of primary residence.

In an Emergency, There’s a Way 
A 401(k) / Profit-sharing plan can permit in-service distributions prematurely in the event a participant experiences a financial hardship. A premature distribution taken under these circumstances is subject to ordinary income taxes and a 10% penalty, unless an exception applies. This tax treatment is similar to tax treatment of a premature distribution from a SIMPLE, SEP, or Traditional IRA; a plan containing this provision essentially provides permanent access to assets in the plan should a financial emergency arise.

Maximum Contribution without Maximum Pay 
A business owner with at least $132,000 in plan compensation can achieve the maximum contribution 401(k) Profit-sharing plan. By contract, a SEP would require at least $200,000, and a SIMPLE IRA contribution could never reach the 401(k) savings level. As a rule of thumb, a 401(k) / Profit-sharing plan always allows at least equal, and usually greater contributions than a SIMPLE or SEP IRA. Additionally, the catch-up contributions available in a 401(k) Profit-sharing plan mean someone over age 50 with a SEP IRA could never reach the contribution potential of a 401(k) Profit Sharing plan.

Savings Goal: Greater than $51,000 
An owner-only Defined Benefit plan provides you with an opportunity to take advantage of innovative strategies. The most obvious way a solo Defined Benefit plan may benefit a business owner is through the plan’s high deductible contribution limit. Contributions to an owner-only Defined Benefit plan, depending on your age, could reach $100,000 or more. There is a misconception surrounding the funding flexibility of a Defined Benefit plan. First, an owner-only Defined Benefit plan can be combined with a Solo(k) Plan. In an owner-only plan, all contributions to the Solo(k) are discretionary, providing an opportunity to reduce funding on a year-to-year basis.

Second, those who adopt Defined Benefit plans before 12/31 can establish the plan with a minimum benefit formula. The benefit formula can be amended upward until March 15 if you wish to contribute more than the minimum; in essence, this planning technique allows more time to dial into the exact funding amount with a perfect hindsight. In subsequent years, the Defined Benefit plan’s contribution requirement will vary with your income level and the performance of plan assets. Each year, you will be provided with a minimum required contribution, recommended contribution, and maximum deductible contribution amount. Many are unaware that this level of flexibility exists within defined benefit plans.

Who can Take Advantage of These Opportunities? 
A business doesn’t necessarily need to employ only the owner to be considered an owner-only plan. A plan that covers the business owner and spouse, or partners and their spouses, is considered an owner-only plan. However, even when non-owner employees are in the picture, advanced plan design allows a great deal of flexibility in targeting specific groups of participants thus managing plan costs and efficiency.

There is Still Time 
It’s not too late to take advantage of qualified plan opportunities. Employer contributions are not due until the following year; as long as they are contributed before the employer’s tax filing deadline, including extensions, they are deductible for the preceding year.

As you sit down to do year-end tax planning, consider the above concepts and feel free to reach out to me for further exploration. Together with your CPA, you may be able to take advantage of tax-savings opportunities. I can be reached at 212-752-4343 *231 or send me an e-mail at

Russell Bailyn

Wealth Manager
Premier Wealth Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673

Baffled by College Costs? Me Too

It’s a conversation many of us have over the dinner table or with our colleagues at work: “I can’t believe the cost of college.” It is a very reasonable statement when you consider that many private colleges cost $40,000+ per year. My alma mater, New York University, is now over $50,000 per year. The question I keep coming back to is whether or not it’s worth it. I think the answer was a resounding yes up to the point when I graduated college (2004) but since then, a college education seems to be doing more harm than good for many, many people that I speak with. That’s not to say it’s wrong for everyone, but perhaps the decision to attend college, especially a private college, deserves a lot more contemplation than it has in the past. A recent article in Money Magazine ponders some similar questions and covers some specifics that I think my readers may find interesting.


First, who should go to college? Studies show that people with specific degrees in science, technology, engineering, and math tend to earn more money than those with liberal arts degrees. It makes sense, right? If you have a technical skill that is desirable in the work force, you will very likely earn more money than somebody who studies a broad range of topics in college without specific direction. Thus, if you start your post-high school education with the knowledge that you’d like to be a doctor, a computer programmer, or a math teacher, you can feel more confident when paying (or borrowing) tuition funds that you’ll earn enough money in the future to make it worth it! Along those lines, if you are seeking a liberal arts education, perhaps try to obtain it from a city or state school and not a high-end university. If you plan on attending grad school, perhaps invest more in that leg of your education instead.

Next, I think focusing on the price of college must become considerably more important in the process of selecting a college. Where I live, on Long Island, people focus on where they want to go to school, first, and how much it costs, second. Many people end up going to expensive colleges like Syracuse and Emory because they have friends who go there, not because they have determined that school to be the specific best fit for their educational needs. This paragraph is certainly more relevant for those borrowing money than those who have the benefit of having parents pay for your education.

People love to say that “college loans are good debt” because they often lead to more money in the future. Let me say loudly and clearly that NO debt is good debt; some debts are just more logical or necessary than others. I truly believe if you need to borrow more than 2 years of your school costs, that school costs too much for you. You will not appreciate having to pay $500-$1000/month back to your school for 10 years after you graduate, especially with the tough job malaise we’re experiencing now. I do blame government programs which make borrowing money so easy for part of this problem. Now that student loan debt is over a trillion dollars, the government should put the brakes on these programs before this makes our economy even more vulnerable than it already is.

It seems crazy to suggest that only wealthier people should attend college, but I think opening college up to the middle and lower middle classes to the extent that we have over the past 2 decades is starting to have an adverse effect. I can’t tell you how many parents and recent grads reach out to me asking if I know of any job openings. These are well educated people, often with law degrees, trying to sniff out a $50,000/year jobs.

Let’s take the same care with our education decisions that we would with other parts of our lives. Higher education is important but take a step back and try to plan out what the next 10 years of your life would ideally look like. It may not be 8 years of school. Maybe it’s developing a technical skill and getting a job sooner than later. Maybe it’s something truly creative and entrepreneurial. Just take some time and think about it.
As always, feel free to reach me with any questions or concerns.


Russell Bailyn

Wealth Manager
Premier Wealth Advisors, LLC.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673

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