The Upside of Stress

By Kevin Slater, CEO, SoundView Advisors

“Sometimes heroism is nothing more than patience, curiosity, and a refusal to panic.” – Leif Enger

We have never experienced a year anything like 2020. From the cascading impacts caused by COVID-19 on social behavior and the economy to the giant waves in performance that rolled across the financial markets to the unendingly tense political environment, it has been a remarkably complete package of interpersonal, political, and socioeconomic stress. 

I used to joke that you can tell which people at a reunion have young children—they look older, heavier, more tired, slightly more irritable, and have worse haircuts than everyone else. It feels as though this year has had some combination of those effects on nearly EVERYONE. 

The upside of stress is that you learn who people genuinely are and what they care about most. The boxer Mike Tyson famously said: “everyone has a plan until they get punched in the mouth”. While that can be said of investors in a bear market, it also applies to how people respond while under severe stress. These are times when your tidily crafted plans and carefully scripted words are forgotten, and you respond instead out of your deepest priorities, feelings, and concerns.

Our team has been nothing but wonderful. In addition to the public stress we all faced, they have also had to handle a flood of new technology, schooling children at home, personal and family health issues, and the disruption and disappointment of ever-changing plans. 

This has been a season when it is easy to be short-tempered, frustrated, and selfish. Yet, they have remained positive and been quick to help each other and serve you well. Rather than see these circumstances as a reason to compromise on quality or quit caring, they have instead seen a greater need than ever to serve others. I have never been prouder of our team. 

In a year of great difficulty, I hope you have felt their care and support as much as I have. They are amazing and by Leif Enger’s definition, heroes.

2020 In The Books; Looking Forward

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Thank you for sticking with us during this tumultuous year. We hope you have felt well served, cared for, and supported. Despite the innumerable obstacles we all faced, we did not sit still. We continue to develop our wisdom, tools, and networks to provide great strategic advice to a broad range of clients on a wide number of issues. Here is a snapshot of accomplishments and projects currently in progress:

We expanded our roster of advisors by two. Cole Spence joined us in August of 2019 having previously worked at an advisory firm in Virginia Beach, VA. He passed his CFP exam this fall. Krista Wallace, also a CFP certificate holder, joined us in February after several years of providing financial advice to US military service members. They serve as Support Advisors under our Lead Advisors to some clients and are taking primary responsibility for other clients. 

Sophea Vasquez-Solis and Debbie Wyman play central roles in their ongoing development and continue to take on more complex responsibilities themselves with a somewhat smaller group of clients. This enables us to increase the attention each client receives, and the quality of the service provided.

Kevin Rigg, our Director of Financial Life Planning, spent much of 2020 researching and identifying the issues most critical to our clients and found or developed tools to address those issues. Simultaneously, we launched the University of SoundView Advisors (USVA), appointing Ben Jennings as the unofficial Dean. Their work and combined 50+ years’ experience will accelerate our team’s development.

Perhaps unsurprisingly, we have invested an enormous amount of time into software this year. We were already deep in converting our major database when COVID-19 hit. With the new world we are operating in, we choose to update and upgrade many other programs. We think you will notice more difference each quarter as more of their work comes on-line.

Nate Porter and Julie Gibson ensured we experienced a smooth transition to remote working. After leading a series of upgrades to our software suite, they are now intently focused on further strengthening our cybersecurity policies and procedures and Annual Review data capture.

Vicki Simpson led a grueling transition from our old portfolio management program to a new platform.  She and Lisa Graber act as our lead “Data Hygienists” tasked with maintaining the highest data quality. They are advancing the quality of reporting to clients and the sophistication of trading we can make.

As for me, Kevin Slater, I am spending more time on investment research, firm leadership, and team support. This requires that I reduce the number of clients for which I serve as Lead Advisor. Because of our team and the work we have done, I am confident clients will be better served as a result. 

It has been a full year and one we are all excited to put into the past. We look forward to 2021 and the opportunity to know and serve you better than ever.

Merry Christmas and Happy New Year!

Kevin Slater

CEO & President, SoundView Advisors

2021 Tax Planning: Tips & Deadlines

by Kevin Rigg, Director of Financial Life Planning, Lead Advisor, CFP®, CPA

As 2020 draws to a close, I am passing along some tax planning tips and a reminder of upcoming tax-related deadlines.

1. Fourth-quarter tax estimates are due soon. To avoid penalties, be sure to have your payment in the mail no later than January 15, 2021.

2. Review your pay stubs. If cash flow allows, make sure to maximize contributions to your tax-qualified accounts before year-end (e.g., 401(k)/403(b)) and to your IRAs (including Roth’s) before April 15, 2021.

3. Consider filling up lower tax brackets. A great way to get this done is with a Roth conversion, which must be completed by December 31st.

4. Consider the timing of state/local tax payments, medical expenses, and/or charitable contributions to maximize your itemized deductions and bring them above the standard deduction ($12,400 for singles and $24,800 for marrieds).

5. Take full advantage of the various tax advantaged opportunities for year-end charitable giving:

   • Take advantage of an easing of charitable deduction tax rules for 2020; a $300 above-the-line deduction and removal of the 60%-of-Adjusted Gross Income (AGI) limit, both for cash donations only.

   • Utilize a Donor-Advised Fund. This provides an immediate tax deduction for current contributions while maintaining the ability to distribute funds to a preferred charity at a later date.

   • Use a Qualified Charitable Contribution (QCD) to contribute directly to a charity out of an IRA (note - a QCD is only available to IRA owners over age 70.5).

   • Donate shares of appreciated securities (stocks, bonds, mutual funds) to receive a tax deduction and avoid capital gains tax.

At SoundView, we evaluate your personal tax situation and let you know if any tax planning strategies should be considered before year-end. We make every effort to coordinate planning with your tax preparer, both to get their input prior to implementation and to ensure they have everything they will need to file complete and accurate returns for you in the coming year.

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2021 Annual Review Update

by Kevin Rigg, Director of Financial Life Planning, Lead Advisor, CFP®, CPA

The SoundView Planning Team is already hard at work preparing for 2021 Annual Review meetings. In early January we will be sending all clients (yes, including you!) a request for 2020 cash-flow information, as well as year-end values of non-portfolio assets and loans.  

The primary objective of the Annual Review meeting is to accurately assess your financial situation and track your progress toward meeting long-term goals. To do this well, we need timely and accurate financial data.  

Armed with the necessary financial information, it is much easier to produce more accurate reports for the meeting. We will also sit down and review important life changes, or any important decisions you made in the last 12 months. Ultimately, we want to increase the chances of you achieving your life (and financial) goals — so if there need to be changes made, this meeting is where we’ll talk about it.  

We will be utilizing a new method of tracking and reporting your entire financial picture at 2021's Annual Review meetings. As a result, you can expect things to look a little different in regard to data gathering and reports this year. Nevertheless, the Annual Review meeting's core purpose remains the same: bringing the focus back to long-term planning while keeping our eyes on the path you're walking today. 

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True Appreciation: The Financial Wisdom of Giving Thanks

by Nate Porter: COO; SoundView Advisors

“We can only be said to be alive in those moments when our hearts are conscious of our treasures.”
~Thornton Wilder

Sometimes it feels like nothing is the same as it used to be. In 2020, at least, this seems to be the case. This summer was unrecognizable compared to years past. At kitchen tables across the nation, kids are sitting at their laptops, trying their best. Now that I think about it, so are their parents!

Even seemingly unassailable family traditions are on the chopping-block, Thanksgiving dinner being one of them. One of the things I’ve looked forward to most every year is going around the table and asking, “What are you most thankful for?” Young and old, big or small, everyone has their turn. In my family, it’s a sacred time of reflection, laughter, and on occasion, tears. And yes, you can talk and eat at the same time. 

Being intentionally grateful (or having an attitude of gratitude, if you prefer rhymes sometimes), has an incredibly powerful effect on nearly every aspect of our lives. Dozens of published studies agree that psychological, physical, and interpersonal health all improve dramatically when we purposefully and regularly acknowledge what we are grateful for, but the benefits don’t end there.

GRATITUDE & MONEY

When I’m thankful for the things I have, it fundamentally changes the way I think about what I need (or, more precisely, what I want). Oftentimes, it’s a lack of gratitude that leads to increased, impetuous spending — especially impulse purchases. We all know the rush we get from “retail therapy”, but we also know that the “high” doesn’t last very long. That “new car smell” fades pretty quickly. Simply put: when I’m genuinely thankful for what I have, I don’t feel much of a compulsion to go out and buy something else. 

My wife and I have a monthly budget, and most of the time we stick to it – and then there are those other times. We have a phrase we like to use for those months: “we blew up the budget.” The first thing to go when we blow up the budget? Long-term savings. “The kids don’t really need to go to a four-year college, do they? No? Good, then I’m ordering take-out tonight.” Being thankful leads to being less impulsive, which means I more-readily stick our plan, which means there’s money left over at the end of the month. You’re welcome, kids, Tacoma Community College is back on the table!  

Being grateful also leads to increased generosity. When I’m dissatisfied, it’s hard to think about anyone, or anything else. Alternatively, when I’m thankful, then I’m more apt to share what I have with others. Beyond the emotional, spiritual, (and lest we forget) tax benefits, giving to charity also has the added bonus of making sure I don’t blow up the budget too often. I really don’t want to have the “I’m sorry, Red Cross, but I spent my planned donation on an 8th Gen iPad” conversation at the end of the year.

GIVING THANKS IS STILL ON THE TABLE

So, this year, I’m going to try and keep this tradition alive. You should, too. Your tradition doesn’t have to look like mine, but showing, sharing, and teaching gratitude is something everyone should practice. What are you grateful for? Write some things down. Say them out loud. Tell your family, and tell your friends. We should do this on purpose, and regularly – not just on Thanksgiving, but Thanksgiving is a good time to start. If you’re not going to be with your family, it’s ok. Set up a videoconference. If you don’t know how, it’s ok, your grandkids can teach you – something to be grateful for.

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Everything You Always Wanted to Know About Billing* (*But Were Afraid to Ask)

by Nate Porter: COO; SoundView Advisors

A few weeks back, I had a conversation with a friend who recently became the director of a private elementary school in the Midwest. While getting the lay of the land she was able to get a good look at the school’s accounting ledger, and what she found shocked her. Several of the families hadn’t paid their tuition yet. Not only that, but they hadn’t paid last year’s tuition either… or the year before that. In fact, the school had been running a deficit for over a decade, not due to a lack of enrollment, but due to a lack of payment. When my friend inquired about the issue to the school secretary, the response was: “Yeah, gosh, we really aren’t comfortable asking people to pay their bills, so we never have.” 

Money can be a funny thing. We all have it (some of us more than others), but it makes a lot of folks a bit uneasy to discuss topics like “fees” and “billing” and… “payment”. We’d rather tiptoe around the subject, or keep it vague, or only answer questions if asked, or if there’s a problem. Friends, I am not one of those “uneasy” sorts of folks! There always seems to be an air of mystery surrounding fees; I’m here to bring some clarity. Let’s talk about your managements fees! 

HOW ARE MY FEES CALCULATED? 

Your investments up to $1.5 million are billed at 1.00% (annually), the next $1.5 million (up to $3 million) is billed at 0.75% annually, and everything above $3 million and beyond is billed at 0.50%. While at first glance, this may seem a tad confusing, I promise you it’s actually a fairly straightforward formula.  

Here’s an example of how we calculate a quarterly management fee of a client with a overall portfolio value of $5 million dollars:

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HOW MUCH OF MY INVESTMENTS ARE CONSIDERED BILLABLE? 

Since we typically oversee your entire investment portfolio, we typically consider your entire portfolio when we calculate your fees. If we manage $2 million in total for you, then that’s the figure we’ll use to calculate your fee.

WHAT DATE DO YOU USE TO CALCULATE PORTFOLIO VALUE FOR BILLING? 

Great question, intrepid reader! We draw a metaphorical “line in the sand” at the beginning of trading the first day of each quarter. So, that’s January 1st, April 1st (no joke), July 1st, and October 1st.  

WHEN ARE FEES PULLED? 

We pull fees at the end of each quarter. So, for example, at the end of the third quarter (the last week of September) we pulled our management fees. We based those fees on the value of your investments at the start of the quarter. We’ll pull fees again at the end of December based on October 1st portfolio values. 

WHERE ARE FEES PULLED FROM? 

The vast majority of fees are pulled directly from your taxable investment accounts at one of our preferred custodians. In some cases, it may make sense for fees to be drawn directly from an IRA, which is something your Lead Advisor would discuss with you. A handful of clients pay via check. 

WHEN SHOULD I RECEIVE MY FEE STATEMENT? 

You should receive your management fee statement mid-month, the last month of every quarter – hopefully, BEFORE fees have been withdrawn from your accounts. Timing in this area is a place that my team can improve. Our goal for Q4 is December 15th, 2020. Hold us accountable. 

WHAT IF THERE’S A MISTAKE WITH MY FEES? 

The bad news is that no process is perfect, but the good news is that everything is correctable. If you notice that something seems off, please bring it to my attention right away. If you see something, say something! We’ll look into it and make it right – ASAP.  

HOW DO YOU SLEEP AT NIGHT, SIR??? 

Very well, thank you.  

I know sometimes it can feel that when money is exchanged between two parties, then something else changes too, something relational. I think that is why the employees at my friend’s private school didn’t want to ask families to pay their tuition fees. They didn’t want the parents to think that they cared more about money than their kids. I understand their hesitation, but I don’t share it. We advocate for the person and the portfolio. 

As for me, every quarter, I’m incredibly proud to be involved in calculating management fees, because I get to see firsthand how much effort goes into serving each and every client we have. Our staff is first-rate, and I couldn’t be more delighted with the work they do, and of the devotion, care, and appreciation they have for our clients.  

Nate Porter
Chief Operating Officer
SoundView Advisors

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The Beginning Of A Long Slow Climb

by Vicki Simpson: Trading Analyst; SoundView Advisors

If Q2 was the valley of the 2020 economy, then Q3 was the beginning of the long, slow climb up to the mountaintop. Of course, the optimistic markets led the chargeback in the spring. From the economy’s perspective, the markets appear to be somewhere near the top and are waving their arms and cheering on the economy as it takes a slower, measured pace up the trail to recovery.

All markets were up for the quarter. We can see that US Large remains a significant contributor to the positive gains in the US. This is driven primarily by companies in the technology and consumer discretionary sectors. Emerging markets were the next top performer in Q3. Despite being just negative for the year, experts maintain a favorable outlook for Emerging Markets over the long run (10+ years). Low interest rates continue to impact income-producing bonds, but they were still positive for the previous quarter.

While we are seeing progress in employment rates, consumer spending, and home building to name a few, there is still much uncertainty ahead of us. In the short-term, we may see some market volatility around the US election. In the longer term, the effects of COVID-19 on the economy are still unknown and intertwined with the impact it is having on individuals and businesses around the globe.

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Tax Planning: Why We Do It (and What Can You Expect)

Benjamin Franklin is credited with stating that “…but in this world nothing can be said to be certain, except death and taxes”. You probably do not need to be reminded that taxes are an inevitable and recurring part of life, yet there are tax-saving opportunities we often see overlooked in the absence of careful planning.  At SoundView, we have several stated objectives for effective tax planning:

• Be proactive and shape transactions in advance

• Take the long view and “smooth” anticipated taxable income where possible

• Plan based on the tax law we have, recognizing it will change over time

• Prioritize wealth-maximization, not tax-minimization

In order to accomplish these goals and provide value in the area of tax planning, we have developed a comprehensive, annual process consisting of the following steps:

1. Assist with tax preparation – While we do not prepare tax returns, we work closely with our clients and their tax preparers to ensure they have the information and documentation needed to file complete and timely returns each year.

2. Review prior-year tax return – We request copies of filed tax returns each year and then review and summarize those returns to ensure accuracy based on our knowledge of each client’s financial situation.

3. Project future taxes – Based on our understanding of each client’s cash flow situation and portfolio activity, we do our best to reasonably estimate income and tax liability for the upcoming tax year(s).

4. Identify planning opportunities – Taking into account changes to tax law and each client’s personal situation, we consider and recommend various strategies with the goal of minimizing taxes and increasing wealth over time.

We have been reviewing 2019 tax returns and are putting together 2020 projections. In the near future, you can expect an email from your planning team with a high-level summary of your tax situation as well as a summary report uploaded to your ShareFile folder.

Please let us know if you expect significant changes to your financial situation that will impact your taxes this year or in the coming years. We will be sure to incorporate any expected changes to our analysis and planning recommendations before our next meeting with you.

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Valleys and Vistas

by Vicki Simpson: Trading Analyst; SoundView Advisors

Imagine you are on an adventure with two friends. You find yourselves on a trail through a scenic mountain range, providing you with many exciting vistas and valleys.

Lenny the leader is always looking ahead. Perhaps he sees a treacherous river crossing or maybe an inviting flower-filled meadow. One of these brings him great distress and turns him into a negative Nelly while the other sends his spirits soaring, all sunshine and optimism before he even gets there! Lenny’s mood is entirely dependent on what he thinks lies ahead of you on the trail.

Eddy the realist is always bringing up the rear. He must stop and document all the elements of every experience – taking a photo of each flower in the meadow; recording the force of the river current in his travel notebook and so on. Eddy tends to be reflective and fully caught up in the present moment.

In the meantime, you are in the middle of your traveling trio. One friend is urging you forward while the other is imploring you to linger. Is it better to look ahead like Lenny? Or should you be more concerned with present circumstances like Eddy?

If you haven’t guessed, in this example Lenny is the stock market and Eddy is the economy. One is forward-looking, seeing beyond the current circumstances, while the other lags behind documenting things as they are. We find ourselves in a strange time when the stock market seems to be frolicking in the meadow ahead, but the economy is still struggling to make it across the river. The second quarter of 2020 was dominated by a rising stock market during a global pandemic. We saw our country in a lockdown; curves that spiked, flattened, then fell; attempts at reopening; then a resurgence of COVID-19. Add to that, the Fed’s promises to keep the economy afloat, near-zero interest rates and a stock market that has regained most of its losses since March – it is difficult to know what to think or what to expect for the near future.

We must remind ourselves we have prepared our portfolios for times like these and choose the long-term view; we can acknowledge the volatility in the short-term without dwelling on it. This will allow us to both endure the valleys and enjoy the vistas along the way.

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I Still Work Here

by Nate Porter: COO, SoundView Advisors

In Washington State, we are innovators. Whatever “it” may be, we’re at the forefront. And there’s nothing wrong with that! Somebody has to be the best! Whether it be computer sciences, music, the arts, medical innovation, MLS scarf... wearing? …but I digress.

Unfortunately, we even got the virus first (stateside, at least). That meant our local economy was quickly and dramatically affected by the economic toll of the crisis. In proportionate response, our state and local government agencies went into overdrive. They were under tremendous pressure to get unemployment checks (and other needed benefits) to folks with rapid efficiency. Typical waiting-periods were waived, and benefit limits were raised. Like the waters of the mighty Columbia, the money flowed.

Now, at this point, it is difficult for me to write (with a straight face) what exactly has been uncovered: it’s too unbelievable. It’s not that rampant unemployment fraud was discovered. That’s not shocking. It’s not that Washington State is the main target—we’re at the forefront of everything, remember? It’s the villain in this particular story—the unmasking of the antagonists themselves! That is what took my breath away.

The culprits… are a group of (drum roll…) sophisticated Nigerian cyber-attackers! The 90’s live again! Like a phoenix rising from a pile of shredded emails, these guys are back, and they’re stealing millions!

Watch For A Letter At Your Home

I received a letter at my home from the Employment Security Department of Washington State. This letter is not fake; it’s real. I was confused but didn’t pay it much notice. I thought it must be some mistake, or something everyone must be receiving.

Your Employer Will Get A Letter, Too

Soon after, SoundView also received a letter stating I had applied for unemployment benefits. This, however, did come as a bit of a surprise to me, seeing as I am the person who reviews such matters. The irony was thick. I drew upon all my well-honed COO skills… and started Googling.

Report the Fraud

In all seriousness, Washington State is handling this professionally. They were not ready for this potentiality but, hey, join the club! They have set up the link below to report the fraud.

https://esd.wa.gov/unemployment/unemployment-benefits-fraud

The Federal Government has an insanely comprehensive checklist of steps to take when you fear your identity has been compromised. Click below to start the process.

https://www.identitytheft.gov/

Why it Matters

I was not laid off. My job and SoundView are secure. So why all the fuss? So many reasons.

First, we must fight falsehood. Contrary to the notions of some, the notability of the true is worth standing up for, whether I am directly affected or not.

SoundView, on the other hand, would be affected by having to pay higher unemployment taxes/fees if the claims weren’t disputed; I’m helping my firm and its interests.

I’m helping my state, and its (dwindling) resources by ensuring it doesn’t pay one more cent to these crooks.

Lastly, if (God forbid) I, you, or someone we know were ever in need of these sorts of benefits, and we were the victim of this type of fraud, the system would indicate we were already receiving benefits – making it incredibly difficult for the people who need the funds most to receive them.

BIG TAKEAWAYS

Check Your Mailbox: I know it may feel old-fashioned, but once in a while something important shows up in that box in front of your house. Even SVA still sends birthday cards.

Keep Fighting: for truth, for our employers, for our state, and for the right to party.

We’re In This With You: it happened to me, it’s happened to some of our clients. Stay vigilant. Let us know if you suspect anything, and we’ll walk through this process (or any other identity-related issues) with you.

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Estate Planning Update

by Kevin Rigg: Director of Financial Life Planning & Lead Advisor

Earlier this year I highlighted provisions of the recently passed SECURE Act that impact IRA account holders (https://bit.ly/2ZcTzzZ). Perhaps the most significant change discussed in that post is most non-spouse beneficiaries are now required to distribute funds from inherited retirement accounts within 10 years (eliminating the ability to “stretch” those distributions over their life expectancy).

The Act created a new type of retirement account beneficiary (“Eligible Designated Beneficiary”), the only type still eligible for the IRA “stretch” treatment. A Non-Eligible Designated Beneficiary is now subject to the aforementioned 10 year distribution rule and a Non-Designated Beneficiary remains subject to a 5 year distribution rule.

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This change is significant for retirement account owners and creates the need to revisit beneficiary designations and consider strategies to mitigate the tax impact to those beneficiaries. Several ideas for doing so are explored below.

Trust Beneficiaries – Designating a trust as a beneficiary has traditionally accomplished the dual purposes of control and direction of the retirement accounts while stretching distributions over the trust beneficiary’s life expectancy. However, a recent memo from the law firm Montgomery Purdue Blankenship & Austin in Seattle pointed out that “it may no longer be appropriate to name a trust as a retirement account beneficiary, or it may be advisable to revise the trust provisions”. That same memo offered the following alternative approaches for consideration:

• Name an individual as beneficiary, especially for smaller accounts and if there are no concerns about creditor claims or the beneficiary’s ability to manage assets.

• Ensure the trust is setup as an “accumulation” trust, which allows the trust to retain the assets after they are distributed from the retirement account (in contrast to a “conduit” trust that requires distribution to trust beneficiaries).

• Continue to use a trust for spouses since they are considered “eligible” beneficiaries and can stretch distributions over their life expectancy.

Charitable Remainder Trust (CRT) – Naming a charity as a retirement account beneficiary can be advantageous since a charity does not have to pay tax on future distributions. More complex charitable planning may allow someone to accomplish their charitable goals and provide heirs the ability to stretch distributions over their life. In a recent memo, Lauren Pitman at Lifetime Legal in Olympia addresses this type of planning and states “for those who wish to ensure a beneficiary receives an income stream while satisfying their charitable goals, a CRT may be the solution”. This is accomplished by following these steps:

• Name a CRT as a beneficiary of the retirement account.

• Distribute income annually from the CRT to individual trust beneficiaries over their life.

• Pay the balance of the CRT to a charity after the death of the trust beneficiaries.

Planning Strategies – These are some additional strategies to consider for proactively dealing with the recent tax law changes:

• Increase the number of beneficiaries on a retirement account to effectively spread out the income subject to the 10 year rule and reduce the overall tax impact.

• Strategically weigh individual beneficiaries amongst the various retirement accounts (i.e. IRA and Roth IRA) based on each beneficiary’s personal tax situation.

• Utilize Roth conversions to pay the tax now (assumes the tax rate on conversion is lower than tax rate likely to be paid by the beneficiary).

At SoundView we have always believed it is important to review beneficiary designations on a regular basis to ensure they are consistent with the estate plan and stated asset transfer goals. As noted above, the SECURE Act has introduced significant changes to the post death rules for retirement account owners. Reviewing beneficiary designations on these accounts is more important than ever and will be an area of focus in the financial life planning we do for clients through the remainder of the year.

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Reverse Mortgage

by Ben Jennings: Director of Planning Research & Lead Advisor

During our COVID-19 lockdown, my wife returned to an old hobby and set up a jigsaw puzzle on our dining table. Four-hundred and ninety-nine pieces and quite a few hours later, she learned she was missing something. Disappointing, right? We used to speak of the three-part “retirement planning stool”: 1) Social Security, 2) a traditional (defined benefit) pension, and 3) personal savings & investments. In recent years, one of these components has gone missing for most families: the traditional pension.

However, recent research has identified a worthwhile supplement to Social Security and your portfolio to take the place as the third piece of the retirement income stool: home equity made accessible through the use of a reverse mortgage.

Today, most families have only two significant assets - beyond Social Security (and perhaps a pension) for supporting themselves when earned income is inadequate to do so: an investment portfolio and home equity. How do we responsibly and efficiently use those assets to meet our spending needs - while keeping in mind risks such as a lifespan longer than we expected, unplanned (or unhoped-for) expenses such as long-term care, and market volatility (especially early in retirement)?

The traditional default for utilizing these assets has been to draw on the portfolio first, and only turn to home equity after the portfolio has been fully depleted and there is no option left. However, studies conducted in the past 10 years indicate that home equity is far more useful if it is drawn on in cooperation with the portfolio. A reverse mortgage allows homeowners to make home equity accessible while making repayment optional until they have permanently left the home.

There are a number of reasons - not necessarily good reasons - for the default approach. One of these is people in our culture psychologically prioritize preserving their home equity and passing on to their heirs a debt-free home. Of course, like it or not, few heirs want to live in the family home, and if they should, this can always be arranged if there are sufficient assets available.

However, spending from either the portfolio or home equity will have a similar impact on legacy (or funds available for lifestyle). Spending from the portfolio reduces net worth by shrinking the asset balance and sacrifices future growth on withdrawals. Spending a portion of home equity increases the other side of the balance sheet and reduces net worth through taking on debt and subsequent growth of the loan balance. Whether assets are decreased, or liabilities increased - it’s the same result—only the sum matters.

So, the question really is, how do we best sustain aggregate net worth?

Recent academic research has challenged conventional wisdom and shown that putting a reverse mortgage in place early, and coordinating home equity and portfolio withdrawal decisions can provide greater resources for sustainable spending and/or additional legacy assets.

There are two primary aspects of a reverse mortgage that can make it beneficial, even taking into account the upfront and continuing loan costs:

1. Withdrawals from a reverse mortgage line of credit can reduce the negative impact of sequence-of-returns risk during retirement. We routinely discuss this risk with clients and anticipate the potential effects when planning, but the use of a reverse mortgage is one of the few tools available to actually mitigate the negative impact in practice.

2. The total line-of-credit available (called the “principal limit”) in a reverse mortgage will grow throughout retirement. This feature of reverse mortgages acts as a hedge against declines in the home’s market value, among other benefits. At the same time, FHA reverse mortgage insurance (with premiums paid by borrowers) means the lender will not experience a loss, nor will the borrower (or their estate) need to repay any more than the value of the home when the loan becomes due.

If your “retirement planning stool” would benefit from some increased stability, this third element - a reverse mortgage line of credit - could be your missing piece. We are current on the latest research and how this tool can be used in practice and would be glad to discuss it further.

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2020 Q1: A Psychological Thriller

by Vicki Simpson, Trading Analyst

ACT I

We open the year with guarded optimism about the future. The markets are relatively calm. We maintain our usual routines while something lurks just out of sight.

ACT II

February brings a celebration; the S&P 500 hits a record high! The excitement is palpable, but now we question if it is too good to be true. Rumor has it something is coming our way, but we want to stay at the party. We will think about that tomorrow. Just days later, the first signs of trouble appear as markets skid off course.

ACT III

Chaos ensues in the month of March. The threat has revealed itself and the bear market rears its head within a few short weeks. Our hero, the Fed, drops interest rates to buy us some time. We look over our shoulder to find nothing there. An eerie calm hangs in the air… we take a breath. Things are looking up again, but then… we fall in a hole. Rescued (again!) by stimulus packages and government promises.

We are cautiously moving forward. Have we seen the worst? Are we at the end of this scary movie? Or is there a sequel around the corner?

I can not answer these questions, but I do know we are in this together! One of our goals in planning is to prepare our clients for challenging times such as these, both financially and mentally. We continue to work hard behind the scenes and hope you all are staying safe and healthy.

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J-Term

by Kevin Slater: CEO & Lead Advisor

I spent hours in high school investigating dozens of colleges in search of the ideal fit. All the brochures included photos of the campus in autumn (never winter), a football player, and a student intently studying a beaker in a chemistry lab (where have all those chemists gone?). Liberal arts schools added a paragraph about how they helped students become well-rounded (and somehow highly employable?).

At some point in my research, I stumbled across the rare and mystical “J-Term”: aka January term. At some schools, students took a single course for the entire month of January. One class-- all day, every day with daily quizzes and weekly exams. Theoretically, it was a period of intensive focus, study, and frequent testing which enabled students to learn a complex subject much more quickly and completely.

Unprecedented Intensity

Welcome to the financial market’s version of J-Term. We are currently experiencing an unprecedented period of intensity for financial markets and investors. COVID-19 and its implications for public health, public interaction, the economy, and the markets are dominating daily news and web searches. Everyone is now an amateur epidemiologist. It is all coronavirus, all the time.

The markets have reacted in unprecedented fashion. The Dow Jones Industrial Average had its fastest fall into a bear market in its history. March was its most volatile month EVER— by a long shot. How intense is this J-Term class? Nick Maggiulli, a blog writer at Of Dollars and Data, created this January vs. March comparison of daily market swings:

This is A Test

The swings in the market are testing investor psychology, risk tolerance, and discipline. Just when you thought markets could go nowhere but down, they rose. Things have moved so quickly with so many unknown (but critical) variables that many mathematical models are impossible to apply. Thought you knew your risk tolerance? Thought we had hit the bottom? Markets have alternatively rewarded and punished timing bets in the same week!

While we do not know who the big winners (if any) may be, we do know one strategy has been passing the tests: diversification. Those with well-diversified portfolios have seen noticeably smaller losses and are therefore compounding more capital when markets go up.

This won’t go down as our “favorite class of all time”; but what is important is that we apply what we know to be true and make it to the next semester.

See you after spring break!

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CARES Act - Relief for Individuals and Businesses

by Kevin Rigg, Director of Financial Life Planning, Lead Advisor, CFP®, CPA

On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. This $2 trillion emergency relief package is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Major relief provisions are summarized here.

Recovery Rebates

Most individuals will receive a direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed (or 2018 returns if a 2019 return hasn't been filed) and sent automatically via check or direct deposit.

The amount of the recovery rebate is $1,200 ($2,400 if married filing a joint return) plus $500 for each qualifying child under age 17. Recovery rebates start phasing out for those with adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing joint, $112,500 for head of household).

More information on the recovery rebates can be found directly from the IRS.

Retirement Plan Provisions

• Required minimum distributions (RMDs) from employer-sponsored retirement plans and IRAs will not apply for the 2020 calendar year

• The 10% early-distribution penalty tax is waived for retirement plan distributions of up to $100,000 relating to the coronavirus and any taxes due can be paid over three years

• Limits on loans from employer-sponsored retirement plans are increased to $100,000 and any payments due in 2020 can be suspended for one year

Student Loans

• The legislation provides a six-month automatic payment suspension for any student loan held by the federal government; this six-month period ends on September 30, 2020.

• Under already existing rules, up to $5,250 in payments made by an employer under an education assistance program could be excluded from an employee's taxable income; this exclusion is expanded to include eligible student loan repayments an employer makes on an employee's behalf before January 1, 2021.

Unemployment Provisions

The legislation provides for:

• An additional $600/wk benefit to those collecting unemployment benefits through July 31, 2020

• An additional 13 weeks of federally funded unemployment benefits, through the end of 2020, for individuals who exhaust their state unemployment benefits

• Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits

• Unemployment benefits through 2020 for many who would not otherwise qualify, including independent contractors and part-time workers

Business Relief

• An employee retention tax credit is now available to employers significantly impacted by the crisis and is applied to offset Social Security payroll taxes; the credit is equal to 50% of qualified wages up to a certain maximum.

• Employers may defer paying the employer portion of Social Security payroll taxes through the end of 2020 and may pay the deferred taxes over a two-year period of time; self-employed individuals are able to do the same.

• Provisions relating to specified Small Business Administration (SBA) loans increase the federal government guarantee to 100% and allow small businesses to borrow up to $10 million and defer payments for six months to one year; self-employed individuals, independent contractors, and sole proprietors may qualify for loans. There are two primary new loan programs and more information on each of them can be found on the SBA web site:

  • Paycheck Protection Program (PPP)

  • Economic Injury Disaster Loan (EIDL)

Additional Tax Relief

(not CARES Act related)

• Due date for individual, trust, and gift tax returns is moved to July 15th. (Estate tax returns remain due on April 15th). This is automatic, and you do not need to be sick, quarantined, or have experienced any other impact.

• Tax payments may also be postponed from 4/15 to 7/15 interest and penalty-free.

  • Second quarter estimated payments remain due on 6/15

  • The deadline for 2019 IRA contributions is moved to 7/15

• Charitable contribution deduction percentage-of-AGI limitations are eliminated for 2020 for cash gifts (not gifts of appreciated assets). Gifts to a donor-advised fund are NOT included.

  • Those that do not itemize deductions can still receive a deduction for up to $300 in cash charitable gifts

There is likely to be a steady stream of guidance forthcoming with details relating to many of these provisions, so stay tuned for more information. We're here to help and to answer any questions you may have.

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Was Chicken Little an Optimist?

Ben L. Jennings, Director of Planning Reserach, CPA/PFS, CFP ~ SoundView Advisors

I’m sure you recall some version of the story of Chicken Little (or perhaps Henny-Penny, or some similar name). An object fell on her head and she concluded “the sky is falling”. One useful lesson we can draw from this folk tale? Hesitate before you conclude disaster is looming. Chicken Little notwithstanding, in 2020 many of us are convinced that disaster in one form or another is imminent. But is it?

In 2018, one of Bill Gates’ recommendations for “5 books worth reading this summer” was Factfulness, by Swedish global health lecturer Hans Rosling. Indeed, Gates endorsed it as “one of the best books I’ve ever read.” Rosling’s observations about how the world is getting better - rather than “going to hell in a hand basket” - are striking. I found especially interesting his connection of why we often are so pessimistic with how our brains work. Rosling describes this as “the gap instinct.”

All of us have a strong tendency to binary thinking - a perspective which divides things into 2 groups - this or that, right or wrong, good or bad. It helps us deal with a complex world if we can readily use a framework of this kind and easily categorize things.

Rosling points out this is not only useful and intuitive, but dramatic because it implies conflict. Our bent toward binary thinking is reinforced because dramatic conflict is the stuff of interesting stories, and our storytellers - journalists, political leaders, and others - construct compelling narratives with conflict between two opposing people, views, or groups. We are told - and readily believe - that there is “an increasing gap” between two ends of a spectrum, when the reality is that many elements fall into the middle - exactly where the gap is reported to be.

What does this have to do with financial planning? As we evaluate options and make decisions, we often construct the question as “Should I do this or not?” However, we will make more effective choices if we recognize that we have a range of options, not just binary alternatives. As we move into an increasingly polarized environment, I would encourage you to recognize binary thinking (personally and in the world around you), and consider there may be nuance and more alternatives than you imagine at first blush. That’s likely to be good for us as a society, as well as good for you personally! (And if you’re a reader, you might check out Factfulness.)

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(Software) Graduation Announcement!

Kevin Slater, CEO, SoundView Advisors

As we announced last fall, we are replacing our “legacy” portfolio management software with a modern, state-of-the-art platform. Thanks to the hard work of Vicki Simpson, Nate Porter, and the rest of our staff, we expect to graduate to the new program in early to mid-March. This will enable us to perform faster, more sophisticated data analysis – providing even stronger portfolio management for you. We have already begun using the new system for some internal functions; it is a fabulous tool! Just like that feeling of anticipation a senior has in their last few weeks of high school, we too have spent lots of time preparing for this next “stage of life” and are excited to finish up with the old system.

A major benefit of the new system will be a new client portal. It gives you access to more up-to-date data and allows you to perform analysis of your own. We will “celebrate” our software graduation by setting up every client with secure access to your new portal during your Annual Review meeting (no gifts please, just the honor of your presence).

This means that the former client portal, Modestspark, will be closed down at the end of February. If you are a regular user of the old system and would like to get set up on the new version prior to your Annual Review, please reach out to our Operations Assistant, Julie Gibson (julie.gibson@soundviewadvisors.com) and she will make arrangements to get you enrolled.

Tax Reform - SECURE Act

Kevin Rigg, Director of Financial Life Planning, CPA, CFP®

Last December was a typical year end that brought us wintery weather, holiday festivities, time with friends and family, and significant tax reform. Really, tax reform!? Yes, and if it feels a bit like déjà vu, that’s because it was nearly two years ago to the day another major tax bill was passed (read our summary of the 2017 TCJA here – https://bit.ly/2RpGCxf).

This time around, the changes were not as broad or substantial, but they will have an impact nevertheless. The graphic below highlights all of the major changes, but those that impact our clients the most center on new IRA rules effective January 1, 2020:

1. Inherited IRA’s for most non-spouse beneficiaries must now be distributed within 10 years (this does not apply to Inherited IRA’s already in place).

2. Required Minimum Distributions (RMDs) will now begin at age 72 (previously age 70.5).

3. Those over age 70.5 with earned income can now contribute to an IRA.

These changes could very well have a significant impact on your personal situation. Expect to hear more from your advisory team at the upcoming Annual Review meeting and throughout the coming year.

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The Subtle Intricacies of Jello Salad Volatility

Vicki Simpson, Trade Analyst, SoundView Advisors

For as long as I can remember, a common slogan in my family has been, “No news is good news.” In Midwestern, small-town terms, this really means, “nothing so scandalous has happened that would cause someone to call home to gossip about it”.

The fourth-quarter of 2019 seemed like there was not a lot of news, which, truly, feels like good news! We heard a lot of the same ol’ gossip about trade tariffs, slowing global growth, political factors like impeachment and the upcoming election year. The Fed did cut rates another .25% in October, but maintained course at the December meeting—both moves contributing to the bond markets flattening out towards the end of the year. The US markets had a couple bumps leading up to the Fed’s interest rate decision in December, but they rallied and returned to their previous course soon enough. All equity markets were up for the quarter, as you can see in the graph below. The upward momentum of international and emerging markets may serve as ballast in portfolios if US growth continues to slow and market performance no longer dramatically outpaces the rest of the world.

No one can say with certainty what is in store for 2020, but you can be sure my mother will be calling me if Ms. Jane starts bringing a strawberry Jell-O salad to the potlucks rather than her standard lime Jell-O salad. A simple ingredient change? No news? Good news. Another variety all together? News? Bad news. A true sign of a disruption in the Jell-O salad market as the strawberry variety has been my mother’s signature dish at any gathering. Volatility lies right around the corner in the Midwestern small-town potluck forecast!

As always, your team at SoundView is working hard to evaluate all areas that impact your investments. News is news here and we strive to keep you updated and informed on any relevant changes. Please reach out to your Lead Advisor should you have any questions about your portfolio or if you want to know exactly what Ms. Jane is putting in her lime Jell-O salad; we hope for strawberry, but we can help you plan for the unforeseen (and perhaps inopportune) lime. I can hear gossip now!

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Are You Ready For Tax Season?

By Kevin Rigg, Director of Financial Life Planning, SoundView Advisors

The 2020 tax season is underway! Here are the answers to some of the most common tax-reporting questions we receive from our clients.

WHEN SHOULD I EXPECT MY INVESTMENT RELATED TAX FORMS?

Taxable Accounts – If you haven’t already received your Consolidated Form 1099 from Schwab or Pershing, you will receive it in the next couple of weeks.

o This form is produced for each of your taxable investment accounts and reports the income associated with that account during the year (interest, dividends, and sales proceeds).

o As has been the case for several years now, these forms are often mailed out well after the previous January 31st deadline. This is done to reduce the number of corrections and revisions that frustrated custodians and investors in prior years.

o If you have not received your Consolidated Form 1099 in the mail or electronically by early March, please let us know and we will help track it down for you.

Retirement Accounts – If you made a distribution out of any retirement account (401k, 403b, IRA, etc.) during 2019, then you can expect to receive a 1099-R from the account custodian reporting the amount distributed.

o The deadline for custodians to send these forms out is January 31st, so you can expect to receive yours any day now if it hasn’t already arrived.

Private Placements – If you have invested in private placements, you should receive one or more additional investment-related tax documents that you will need to report on your return.

o If any of your private placement investments are in a partnership, you will receive a Schedule K-1 and can expect that from the partnership by the end of March.

WHAT ELSE SHOULD I KEEP IN MIND FOR FILING MY TAX RETURN?

Roth Recharacterizations – In the past, you had the opportunity to “undo” a Roth conversion up until the final filing deadline of October 15th. This is no longer an option, so any Roth conversions made in 2019 are final and must be reported as income on your return.

Qualified Charitable Distribution (QCD) – A QCD is a charitable gift made directly from your IRA that does not have to be reported as taxable income on your return. Unfortunately, the full distribution is still reported on the tax form (1099-R) and it is your responsibility to remove the QCD amount from the taxable portion and note it on the return.

Tax-Favored Account Contributions (IRA, Roth IRA, HSA) – If you have already made a contribution to one of these accounts for 2019, please make sure it is reported on your return. Do keep in mind that the contribution deadline is April 15, 2020, so you still have time to fund these accounts for the 2019 tax year.

We're here to serve! We know that tax filing time can be stressful as you gather documents and records and prepare to file your tax return. We hope this clarifies some issues for you, but please let us know if you have any more questions.