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Spring 2011 Newsletter
- 1. Business Wealth ManagementProcess TM Estate and Legacy This Quarter: Estate and Legacy This quarter’s planning topic, Estate and Legacy, helps our clients ease the diffi- Succession culty of transitions. This will save their loved ones time, expense and anxiety Planning during stressful times. From succession planning for family businesses to health Key Person directives, we help to identify areas where further expertise is needed. We en- joyed learning about succession planning from our last Lunch & Learn speaker, Estate Planning and look forward to learning about changes to the Estate laws this month— Family Council more information can be found on page three. Next Quarter: Protection The Wealth Managers for Business Owners 84 South Fourth Street Columbus, OH 43215 Mark Fissel, RFC Clint Edgington, CFA www.BeaconHillAdvisory.com
- 2. The Wealth Managersfor Business Owners Spring 2011 Newsletter Tsunamis, nuclear accidents, civil wars, and…stellar market performance? 84 South Fourth Street Equity Markets Columbus, OH 43215 Worldwide economic growth Foreign markets grew as well, al- P: 614.469.4685 shrugged off daunting headlines though volatility among different info@BHadvisory.com and markets continued their ex- countries, regions, and time periods www.BeaconHillAdvisory.com pansion in the first quarter of increased drastically due to world- 2011. U.S. Large Company stocks wide events. experienced their best quarterly performance since 1998! In This Issue: 2011 Q1 Equity Returns 10% 2011 Economic Summary 1 8% Historical Bull Markets 2 6% 7.9% 4% 6.2% 401(k) Corner 3 2% 2.7% Upcoming Events 3 0% 1.7% Wealth Mgmt Process 4 Large U.S. Small U.S. Foreign Foreign Stocks Stocks Developed Emerging Country Stock Country Stock Russell 1000 Russell 2000 MSCI EAFE MSCI Emerging Fixed Income Markets With the yields inching up slightly on bonds, high quality bonds faced headwinds this quarter. Lower credit, high yield bonds (aka “junk”) shared the same tailwinds that the eq- 2011 Q1 Bond Returns 5% uity markets did and continued 4% their robust climb. It will be in- 3% 3.9% teresting to watch how bond 2% yields react to the end of the 1% .4% .5% Fed’s bond buying in June. 0% Aggregate Bond Corporate High Municipal Bonds Market Yield Bonds www.BeaconHillAdvisory.com
- 3. Happy Birthday Bull... Current Bull Market March 9th marked the 2 nd Performance of Bull Markets for the first 2 years Average birthday of our current bull (1929-2011) market since the S&P 500 100% bottomed on 3/9/09¹. This bull market has been vigor- 80% 95% ous compared to past bull 60% 69% markets which leaves many 40% 52% 54% to question how long it can 45% 20% continue. 25% 0% 6 Months 12 Months 24 Months What next? “History doesn’t repeat itself, but it does rhyme” - Mark Twain What to do? Viewing bounce backs after major bear markets² yields “All generalizations, including this one, are false” - interesting conclusions to the potential longevity of Mark Twain this bull market. Pundits have been predicting this market will drop 8 of the last 12 bull markets that celebrated a 2nd solely because it’s gone up for 2 years. We don’t birthday went on to notch gains for the 3rd year, with know if the market will rise for a 3rd year, but this an average return of 9%. On a “roundtrip basis”, analysis shows us that it is not a foregone conclu- which includes the bear and the next 2 and 3 years, we can see that the roundtrip performance of our recent sion. market is actually below averages, due to the severity of the ’07-’09 drop. Roundtrip Stock Perfomance (1929-2011) Bear + Next 2 Years Bear + Next 3 Years 0% -4% -1% -5% ? -10% -15% -16% Current Bull Market Average -20% __________________________________________________________________________________________________ (1) As measured by S&P 500 Closing Price. All graphical data based on S&P 500. (2) Defined as a 20% drop in the S&P 500 over a 6 month period (3) For a full analysis, see: http://personal.fidelity.com/products/funds/content/pdf/robust_bull_market_turns_two.pdf www.BeaconHillAdvisory.com pg. 2
- 4. 401(k) Corner -o Free Lunch Unbundled Providers While most plan sponsors understand the underlying invest- ment expenses of their mutual funds, many have an errone- An “unbundled” plan will have a sepa- ous belief that they don’t pay administrative costs. Some- rate Administrator, Investment Advi- body is paying for the expense; they probably don’t know it. sor, and Custodian. The administrator will likely have some base fee and smaller asset based fee on top. The invest- Bundled vs. Unbundled Providers ment advisor will also likely have a reduction in their fees as plan assets grow. Different custodians charge differently There are three separate services that all 401(k) and Profit and each plan requires a review of the most competitive Sharing plans require: 1.) Custody & trading of securities 2.) custodian for their situation. In essence, a portion of the Investment Advice to determine investment options as a unbundled providers’ costs are fixed, and a portion are vari- “prudent expert” would, and #3) Administration- to handle able to the asset base. the compliance and testing that a plan requires for DOL and IRS testing. A “bundled” product is where one firm provides When Bundled gets Bulky all of the solutions-usually in a very standard way. An “unbundled” plan has a separate provider for custody & The problem arises when the plan grows in value. Under trading, investment advice, and administration. the bundled approach, your fees as a percent stay the same, but the dollar value of the fee grows rapidly. Once the plan Bundled Plans referenced above grows to $1.5M, the bundled approach yields a total cost of $37,500! In other words; once your The belief in “Free 401(k)’s” seems to be a byproduct of plan grows, a bundled provider is likely not the best insurance companies. Insurance companies typically bundle value! Many people think that their broker or insurance the investment, custody, and administrative component company will automatically switch them into a more com- into one product. The investments have underlying fees, petitive plan; this rarely happens. and an additional “wrapper” is then placed on top to com- pensate the provider for administrative duties. These fees What to do are taken from the performance of the investments and are therefore paid by the participants. This isn’t necessarily You have a legal duty to ensure the plan is paying reason- bad, many plans would likely never get off the ground if the able expenses. Most experts recommend benchmarking company had to foot the entire bill. For a small plan, say your plan with an independent source or bidding every 3 $200,000, 2.5% “all in fees” are not abnormal for a total years. Have you reviewed your plan recently to ensure you annual cost of $5,000. and your employees have the most competitive option? Events: B.O.S.S.™ (Business Owner Strategy Sessions) Do you know how the recent Estate Tax changes affect you? In one hour: • Overview of the new estate tax law MORE at www.BOSSworkshops.com • Explanation of portability • Continued value of Trusts Thursday, April 21st | 12:00 PM – 1:15 PM • What to do now? RSVP at 469-4685 Speaker: Jane Higgins Marx of Carlile Patchen & Murphy, LLP Jane helps individuals, business owners and executives work through their estate planning, business and probate needs. She has been recognized as Ohio Super Lawyer Magazine’s “Rising Star” in January 2009 and 2010. www.BeaconHillAdvisory.com pg. 3