Randy Carver

Suitability Standard versus Best Interest – What They Mean For You

April 18, 2016 // by Randy Carver

Our firm follows a fiduciary standard of putting our clients’ interests first. We believe this is simply the right thing to do and ultimately is good business. In the financial services industry there are two regulatory standards – a fiduciary standard and a suitability standard. The majority of the public does not understand the two different rules under which various types of financial advisers operate. Failing to be aware of this difference can have negative financial impacts.

Most broker dealers, insurance salespersons and other financial company representative operate under the “Suitability Standard” which is:
o Know your client and their financial situation.
o Recommend products that are suitable for their situation.

Registered Investment Advisors (RIA) or an ERISA appointed Fiduciary must operate under the “Fiduciary Standard,” which is:
o Put the client’s best interest first.
o Act with prudence; that is, with the skill, diligence and good judgment of a professional.
o Do not mislead clients; provide full and fair disclosure of all important facts.
o Avoid conflicts of interest.
o Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.

Fred Reish, a very well-known ERISA attorney, summed up the differences this way: “With regard to the standard of care under current securities laws, a broker-dealer needs only to determine that an investment is suitable for the client. However, the fiduciary standard of care requires that the adviser take into account a number of considerations, such as whether the fees are reasonable, whether the investments are adequately diversified, whether there are conflicts of interest, whether the investments are consistent with the provisions of the trust or other governing document, and so on.”

On Wednesday April 6, 2016 the Department of Labor (DOL) released new rules pertaining to IRA’s which in many cases requires advisors and firms to be fiduciaries. We believe this is a good thing. The bill also attempts to increase the transparency of expenses which we also believe is a good thing.
At the end of the day the key is for your portfolio to meet your needs, objectives and risk tolerance while you are aware of all fee’s and expense associated with the relationship. The least expensive option may not be the best; however, you need to know what you are paying to determine if the relationship makes sense. Many investments with high commissions or expenses such as some annuities or limited partnerships do not make the information readily available. Our team is always here to help you evaluate any investment opportunity and to answer any questions that you may have.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Randy Carver and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James is not affiliated with and does not endorse the opinions or services of Fred Reish.

A Tale of Two Islands

April 1, 2016 // by Randy Carver

Once there were two islands – each had ten couples living on them. For years each day the couples would wake and spend the morning fishing and the afternoon taking care of maintaining their huts and surviving. Each couple would catch one fish that would feed them for the day. One day two of the people on each of the islands discovered a way that they could catch enough fish for everyone.

On the first island the people decided that those who could best fish would catch enough fish for everyone and the others would then use the time to improve their village, begin farming and improve everyone’s lives. Everyone was better off.

On the second island the people decided that they would let just the two go fishing and the rest would not do anything but take some of the fish – a tax from those who were working. Over time the two people fishing asked why they should do all of the work to support everyone else and began to catch less fish. Everyone’s lifestyles and attitudes got worse.

As technology improves efficiency both companies and individuals can earn more and produce more. This is a good thing as it allows others to take on different productive endeavors to improve our society both financially and culturally. If, however, you over tax those who are the engines of our economy they will not produce as much and everyone will be worse off. At the same time it is important for everyone in society to contribute, rather than simply taking from those who are productive, so that everyone may be better off. Simply taxing the most productive and while other’s do little or nothing will not benefit society and actually hurts the most vulnerable.

We are truly living in an amazing time of innovation and we have a choice of whether we will use this to improve everyone’s lives or not. It is critical that everyone contributes, and that we do not over tax those who are generating growth. In my opinion two of the biggest risks we face as a country are a sense of entitlement and a lack of work ethic. There are those who are critical of the success of others and feel entitled to benefit from society while not contributing. We can all improve and prosper like the people on the first island or we can fall prey to our own success like those on the second. I believe there will always be people who want to do better for society and will continue to innovate- the question is whether we will benefit as a society or not.

As we hear more about new income tax proposals and criticism that the ‘wealthy’ are not paying their fair share the following should be noted. According to the IRS the top 1 percent of taxpayers pay more in federal income taxes than the bottom 90 percent combined. In fact while tax rates have gone down the amount paid by the top 1% has gone up over time.

Not only does this group pay more taxes they also produce more jobs and capital than the rest of the population combined. As we get deeper into the election season and one of the issues is the concentration of wealth and ideas for ‘redistributing’ we should consider whether this really benefits us all or not.

It should be noted that wealth has become more concentrated by the wealthy. According to The Economist (November 2014) real incomes for the top 1% of families grew 3.4% a year from 1986-2012 while those for the bottom 90% grew 0.7%. The chart below indicates the results of this trend for the wealthiest 1/10 of 1% of Americans.

As the government attempts to redistribute wealth we believe that it is critical that everyone pursue a productive endeavor like those on the first island so that we all may be better off. If we simply tax those who are productive and give it to those who do not want to work, we will be like those on the second island and everyone will be worse off – especially the most vulnerable. We have the opportunity to grow and prosper as a country in which everyone benefits – the question is will we seize it.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Randy Carver and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss. All information is as of 1/14/16 and subject to change.

Randy Carver named one of top financial advisors in United States by Barron’s Magazine

March 8, 2016 // by Randy Carver

March 5, 2016 Barron’s Magazine named Randy Carver as one of the top advisors in the Nation and one of Ohio’s best financial advisors. Randy has been recognized by Barron’s each year since 2008. The rankings are based on data provided by the nation’s most productive advisors. Factors included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance isn’t an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment-picking abilities. According to Reuters (February 11, 2015) there are roughly 285,000 financial advisors in the United States. Barron’s listed the top 1,200 or just 4/10ths of 1% of all advisors. “It’s an honor and privilege to be included in such an elite group. This recognition reflects the professionalism and commitment to our clients of our entire team”- Randy Carver

An Amazing Week with Alan Greenspan, Sir John Sawers, Cokie Roberts and more

February 12, 2016 // by Randy Carver

Our team strongly believes in continuing education and meeting directly with world and thought leaders so that we can provide you with timely, unbiased and relevant information. The week of February 1^st, 2016 was a truly amazing week as I had the opportunity to meet with Alan Greenspan (former FED chairman), Sir John Sawers (former head of MI6), Cokie Roberts and more than a dozen other influential leaders to hear their thoughts. We had more than a dozen meetings over five days in two cities. What is very interesting is that there are some common themes and insights which I outline below. As always please feel free to contact me, or your advisor, with questions, comments or if we can otherwise be of service.

There is a consensus that both the United States and world as a whole are facing some new challenges and threats which we discuss in more detail below including an existential threat from Russia and a more direct threat of cyber-attacks. With that being said, all of the leaders that I spoke with were very optimistic about the outlook for the United States and its place in the world – and more specifically our equity markets over the next three to five years. They believe we will remain the dominant super power and our currency will continue to be the reserve currency at least for the relative near term. As is generally the case in life there are some great opportunities for the country, and individuals, who have the courage to take advantage of them but also some significant challenges and risks ahead. There was general acknowledgement that it is virtually impossible to predict what will happen over very short periods of time (one to six months) and that ultimately if someone plans properly it really doesn’t matter.

Low oil prices are helping some poorer countries like India and will benefit the United States over the next few years. While there are some who have said that low oil prices could lead to a recession we believe the opposite is true- that this will lead to more inflation . In the near term the lower oil prices are helping put more dollars in the hands of individuals and the only ones really suffering are large oil companies. The impact on our economy of people having more cash is not likely to be seen in the statistics for another six to twelve months.

Nobody has a crystal ball and we believe that with proper planning short term market and interest rate changes should not matter. Having said that there is some consensus about the longer term outlook. We agree that over the next five to ten years interest rates will go up, inflation will go up, unemployment will go up and that the broader domestic markets will move up strongly. There will be increased volatility that will cause some to miss the potential for growth due to fear. Interestingly Mr. Greenspan expressed a different perspective.

“We are at this moment faced with a number of serious long term economic problems, all in a sense having to do with the underinvesting in our economic future. My most worrisome concern is our broken political system”, Alan Greenspan

One of largest global change factors in the world is China. China is struggling now as they transition from a command and control economy to more of a market economy. They also face challenges as they move from a net exporter to a domestic economy. China has a choice to essentially compete with the west or to partner. They are moving in the direction of a partnership but this presents challenges for several reasons including the planning perspective of our respective countries. In the United States things are planned for the next quarter, year or often at most the next election cycle. The Chinese think in terms of decade’s even centuries and plan as such.

While it was expressed that the biggest existential threat right now for the world is Russia – it was not felt that they are a direct threat to the United States.

The largest disrupter today is technology. Technology will help create efficiencies and reduce expenses but will also eliminate jobs both in the near term and more so in the future. One upside to increased technology is that ‘big data’ should expose any fraud, deception or discrepancies in markets or accounts creating more transparency and efficiency. With an increasingly connected world cyber security at a personal, corporate and National level is critical. There is consensus that cyber-attacks are the single biggest threat to the nation at this time which we are seeing currently addressed in Washington.

It is believed that while we hear a lot about government and tax reform but little will be done by Congress or the Senate before the Presidential election this fall. There is a need to address the Federal Debt which will continue to grow until there is entitlement reform as entitlements (Social Security, Medicare, Welfare, Medicaid, etc.) account for almost 60% of the federal budget. As interest rates rise so too will the interest on the debt which will need to be paid. The leaders that we spoke to feel that this will be resolved but it will be a long and painful process which will result in cuts to entitlements and most likely means testing. This is unlikely to affect anyone who is 55 – 60 year old today but will be directed towards the next generation and will take effect long after today’s politicians are out of office. This is why personal planning, rather than reliance on government programs will be critical.

In the US we have many baby boomers whose wealth planning is shifting from focusing on growth to generating income as they retire. The challenge is that they are living longer and will need their funds to last. This emphasizes the need for proper planning based on each person’s situation – not the previous generations or some rule of thumb. Our Personal Vision Planning® process address’ each person’s needs, resources and goals with a plan based on their situation – not a model or rule of thumb.

What should you do now?

As the pace of change accelerates and factors affecting become increasingly complex it’s important that your planning is monitored and updated on a regular basis. We do not advocate market timing or short term trading for investments but do believe it is critical to actively monitor and rebalance. In our opinion the idea of simply buying and holding a generic portfolio does not make sense as this must be a dynamic process based on both your evolving needs and changes to markets, interest rates and regulation. We believe that inflation and the ability to maintain and enhance our standard of living is a major risk for many people which may be negated by properly allocating your portfolio. Finally, it is critical to make decisions based on your situation and looking forward – not based on past performance or experience. Planning based on the past is like driving down the road looking in the rear view mirror – it’s fine unless the road turns. For example we have not seen interest rates rise for more than 20 years – planning based on bond performance over the last decade will not, in our opinion, produce similar results going forward.

The only things we can say with certainly are that change will continue and we cannot predict the future. Your overall planning is a process that is continually evolving – not a static onetime event. We appreciate the opportunity to partner with a select group to bring you timely and relevant information while being a partner to you and your family for generations to come. Please contact our team with any questions or whenever we may be of service to you or your friends. There are exciting times ahead and we look forward to helping you benefit from them.