Capital Gains in the Crosshairs

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

We usually save discussions about capital gains for the riveting tax planning sessions our clients have come to love at strategic planning meetings.  Today, we are making an exception to that rule since capital gain changes are in the headlines and many people are wondering how these changes could impact them. If you find yourself in this camp, then read on for an enlightening summary of recent and proposed changes to the capital gain tax rules and what they might mean for you.

Capital gains are defined as the profit earned on the sale of an asset (stocks, mutual funds, real estate, etc.). At the federal level, these gains are generally taxed at lower rates. Here in Washington State they presently aren’t taxed at all, given there is no state income tax.  This special treatment for capital gains could very well end for some, based on the following potential tax law changes:

1. Federal – While only a proposal at this point, President Biden has made it clear that raising capital gains taxes for some taxpayers will be a central part of funding his spending plan. Here are the details:

   • The top capital gains rate would increase from 20% to 39.6%

   • This tax increase would apply to those making over $1 million per year

   • Note the 3.8% Net Investment Income Tax (NIIT) is added on top of this, meaning the effective top rate gains would actually be 43.8% 

2. Washington State – The state legislature passed a bill in April creating a new state capital gains tax, and Governor Inslee has signed it into law. Here are the details:

   • A flat 7% tax rate on net federal long-term capital gains, effective January 1, 2022

   • Tax only applies to gains after $250,000 deduction (for singles and married couples)

   • There are several exemptions to the tax, including real estate and certain small businesses

   • Two lawsuits have already been filed challenging the constitutionality of the law

Much remains to be resolved here and there are likely to be changes to the details listed above when all is said and done. While the laws/proposals may have limited applicability in their current form, they clearly could have a dramatic impact on capital gains taxes owed in certain situations. At SoundView, we will continue to be vigilant in providing our clients ongoing, proactive tax planning each year, and these changes will make it especially important to consider the following strategies:

• Timing the sale of assets

• Spreading out the recognition of income (i.e. installment sales)

• Harvesting capital losses to offset capital gains

We will continue to track developments related to capital gains taxes and you can expect further information from your advisor as they analyze your tax situation heading into year’s end. Who would have guessed capital gain tax changes could make tax planning even more exciting than it already is?!

Clarity is Kindness

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Nate Porter, Chief Operating Officer, SoundView Advisors

I can’t quite recall the first time I uttered this article's titular phrase: Clarity is Kindness. Still, anyone who has spent any amount of time with me is, I’m sure, tired of hearing it by now. I’d like to think it just popped into my head one day, but at this point, I’m not even sure if the expression is original to me or not. Nevertheless, I claim it as my own, and I’ve carried it with me like a cherished heirloom for as long as I can remember.

I SAW THE LIGHT

Believe it or not, I used to be afraid; remarkably so. I was afraid of hearing what people really thought of me and, in turn, fearful of giving folks my honest thoughts about their actions, words, and behaviors. As you can imagine, this sense of dread wasn’t helpful in my personal relationships or my professional life.

Fortunately, a few key people in my life didn’t share the same fears. During a particularly meaningful conversation, a mentor pulled me aside one afternoon and explained that failing to be direct with people, especially when they were being harmful (toward me, themselves, or others), wasn’t actually showing them consideration, empathy, or compassion. I convinced myself I was showing them kindness by not being upfront and direct about their actions. All the while I was allowing them to hurt themselves and others. I was hiding helpful truth because I was afraid.

In my attempt to be kind to people, I wasn’t being clear with people – and just like that, a light went on, and a saying was born. 

TAKE CARE OF BUSINESS 

Like so many of you, I have been in the position to manage many different sorts of individuals (and teams) throughout my career. I’ve hired many employees, and yes, I’ve had to fire people, too. Throughout that time, I’ve found I’ve never regretted establishing personal connections with those I work with. Not only is it easier to work with people you genuinely care about, but it’s also a heckuva lot more fun.  

Moreover, when I’ve put in the time to ensure someone knows I have a genuine care for them, they’re much more likely to hear me out when I give them direct feedback on areas where they need to improve. This is not an easy skill to master, mind you, but it can be learned and taught. There’s a true skillfulness to ensuring your “clear communication” is helpful (and not just plain mean). Being clear isn’t just for critique, either. Clarity is needs to be voiced regarding positive qualities and achievements, as well. Never underestimate the power of unembellished praise.  

A FOURTH YACHT? 

I’m not a financial planner, which is fortunate for all of us.  

However, I’m convinced that the work our Planning Team puts into providing grounded, honest, realistic, and candid assessments concerning your financial future is one of the most valuable services we offer here at SoundView. Sometimes, I think it would be easier to be afraid and avoid the hard, clear conversations. Afraid of admitting we don’t have a “crystal ball” when it comes to the markets, interest rates -- or pandemics, for that matter. Afraid to suggest delaying retirement for just a few more years. Afraid of telling you to “think twice before buying that fourth yacht.” I kid, obviously… buy the yacht, but my point stands.  

I’m proud to be part of a firm that will have the hardest conversations about the hardest topics during the hardest times. The fun conversations are easy, and we have plenty of those, too. Most of all, we aim to make a deep and lasting positive impact on your lives. We aim to show you that kindness. And kindness like that, as we know, takes clarity.

Where To Sit On A Plane

A short, an intermediate, and a long bond board an airplane. Where do they sit?

If you are a frequent air traveler, you are familiar with the variety of ways you can experience turbulence. Much of that experience depends on where you are seated on the plane. At the front, you still feel the rough patches, but they are relatively mild. As you move farther back, the more dramatic the effect and perhaps the more airsickness you may suffer.

When it comes to a turbulent ride in the bond market, you will find bonds seated in the following manner: short bonds at the front, intermediate bonds naturally somewhere in the middle, and long bonds at the back. Short-term bonds keep their yields low and tight across their hips, reducing the impact during turbulence. Long-term bonds wear their yields a bit looser and are subject to greater ups and downs as they pass over the same rough air.

In client portfolios, the goal during the recent fixed income changes is an attempt to move closer to the front of the plane. Reduced risk and lower duration will temper the effects of the volatility we are currently seeing in the bond market. We may adjust our positioning if the air smooths out and looks to be more stable on the horizon.

Typical index bonds and longer dated treasuries are down for the year, as seen on the market summary below. Across the board, all markets are experiencing short-term volatility, but equities continue to make gains this year. US small caps show strength in the first quarter, while international and emerging markets are lagging, but are still positive for the year. As always, your SoundView team is here to answer any questions you may have and are available to hold your hand while we pass over any rough patches.

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American Rescue Plan Act - Signed into Law

BY Ben Jennings, Director of Planning Research

On March 11th, President Biden signed the most recent stimulus package to come out of Washington. As with most tax and economic legislation, there are too many details to discuss in a brief article. However, there are a very few key points we want to highlight for you, your friends, and family members.

 
RECOVERY REBATES 

The predominant feature of the Act are recovery rebates of up to $1,400 per person (including dependents) based on adjusted gross income (AGI). Full payments are available if your income is below $150,000 (married filing jointly), $75,000 (single), or $112,500 (head of household). Your income in what year? Great question!

There are three tests to look at sequentially. If you get the full rebate amount after the 1st test, you can stop. Otherwise, go on to the second test: if you are eligible for the full rebate, stop. Finally, you can go to the third opportunity (which will be based on your 2021 AGI). Note: whatever you qualify for under the earliest of these tests in sequence is what you get to keep as a minimum – there’s no “claw back” if you fail to qualify under the later test(s).

Test 1 (Latest Return Filed - 2019 or 2020):

If the most recent return you’ve filed (2019 or 2020) is below the lower threshold noted above, checks for the full amounts should be on the way. If the 2019 return is the most recent return and shows AGI in the phase-out range, you will receive a partial rebate. This can increase later.

If your income on your 2019 tax return is below the thresholds above, and you haven’t yet filed your 2020 return – don’t be in a hurry to file. This is especially true if your 2020 AGI will be higher. The check(s) should be on their way soon; you can ignore the following tests.

Test 2 (2020 Return):

If your 2020 AGI was less than 2019, they will base your rebate on the 2020 AGI if your return is filed before a certain date (to be determined - potentially as early as July 15th, 2021, but likely September 1st, 2021). If you haven’t already qualified based on Test 1 for the maximum rebate, this might get you a bigger check.

If you are due a partial rebate or refund based on the 2019 return, but you should get more based on 2020 – you may want to wait to file the 2020 return until you’ve received what you are due based on the 2019 return, so you don’t slow the process down.

Test 3 (2021 Return):

If your 2021 AGI is below the upper threshold ($80k singles, $160k married, $120k head of household), the IRS will send additional amounts if an adjustment is needed.

INCREASED TAX CREDITS FOR 2021

There are expanded benefits to the healthcare premium assistance tax credit for 2021 and 2022, but we want to emphasize here the child-related credits.

Child Tax Credit

These have “extra” amounts for 2021: up to $3,600 for children under 6, or $3,000 for children 6 through 17. The extra amounts are subject to lower than usual phase-outs (based on 2019 / 2020 returns, and begin at $150,000 (joint), $112,500 (head of household), or $75,000 (single and others). Recognize those numbers? Yes, same as the rebate thresholds!

A portion of this credit may be paid in advance, beginning in July 2021; unlike the recovery rebate, the amount paid is subject to “claw back” if you end up not qualifying later based on 2021 income.

Child & Dependent Care Tax Credit

This is fully refundable (can reduce your tax below zero). It is a maximum of $4,000 per child or $8,000 for two or more children for 2021 only. Both the maximum eligible expenses and the maximum applicable percentage have increased.

UNEMPLOYMENT & HEALTHCARE

You may have heard that benefits set to expire this past week have been extended to September 6th, 2021. The extra federal benefit amount (on top of state benefits) is $300 per week.

An additional change impacts the taxation of 2020 unemployment benefits (which are typically taxable income). If your AGI (any filing status) is under $150,000, up to $10,200 per person of unemployment compensation will be tax-free. If this impacts you and you’ve already filed your 2020 return, you will want to file an amended return.

Finally, if you were laid off, you should be aware there are now additional health care benefits (potentially no-cost COBRA benefits) available through September 2021.

FINAL THOUGHTS

As we noted initially, there is a lot in this bill! We have only scratched the surface, and you may need more details, but we wanted to highlight some major areas to be aware of and possibly explore further. Be sure to give us a call, or send an email with any questions you have.

New 2021 IRS Tax Filing Deadline

By Kevin Rigg, Director of Financial Life Planning

This week, the IRS announced an extension of the 2021 tax filing deadline from April 15 to May 17 for 2020 tax returns. This extension is automatic and only applies to individual returns (Forms 1040 and 1040-SR). Here are answers to a few common questions about the recent extension: 

1. Do I get an extra month to pay my first quarter estimated taxes?
   No, the extension only applies to the 2020 tax filing, and the 2021 first-quarter tax estimate is still due April 15.

2. Do I get an extra month to make my IRA or HSA contributions?
   It is unclear at this time, but we expect the IRS to issue guidance soon. In the meantime, we recommend operating under the assumption that these contributions are still due by April 15.

3. What if I need even more time to file my 2020 tax return?
   You are still permitted to extend your tax filing deadline to October 15. It is not automatic and you will need to file Form 4868, although you now have until May 17 to do so.

4. Will my state tax return deadline also be extended?
   This is also unclear, although most states usually conform to the federal tax filing guidelines. We suggest you contact your state tax authority for further guidance.

Required Minimum Distributions

Kevin Slater, CEO, SoundView Advisors

If you inherited a retirement account or are at least 72 years old, you are likely subject to Required Minimum Distributions (RMDs) from your retirement account. RMDs are the Internal Revenue Service’s way of saying: “Thank you for saving all those years. We sure hope you enjoyed that tax-free growth. Now it’s time we get our cut.”

Basics The amount of the RMD is calculated each January based on the December 31st retirement account balances and a formula tied to your age. The funds do not need to be spent or withdrawn from the investor’s portfolio; they simply need to leave the IRA. The withdrawal is generally (but not always) subject to income tax at ordinary income tax rates. Any portion of the RMD not drawn is subject to a 50% penalty (they REALLY want their cut!). 

Timing We are encouraging clients to make their RMD within the first 90 days of the year if reasonably possible. Formerly, we distributed RMDs throughout the year or during the last quarter of the year. However, we have had situations arise in which not having the RMD done earlier proved detrimental to the client and/or their heirs due to tax law provisions.

Paycheck Substitute Some clients like to replicate a paycheck by receiving their RMD periodically over the course of the year. We can accomplish this by transferring the RMD to a taxable investment account first, then sending the “paychecks” from there.

Tax Withholding It is possible to withhold funds from your RMD for federal and/or state income taxes. Alternatively, you may choose to take the RMD without withholding and make a lump sum payment toward estimated taxes once those are calculated. Either one will keep the IRS happy.

Charitable Bonus Those 70 ½ years of age or older can make gifts directly from their individual retirement account (IRA) to a qualified charity. Qualified Charitable Distributions (QCDs) are not treated as income yet still counts toward satisfying the RMD. 

Making QCDs reduces the investor’s taxable income and thereby the taxes they owe. Since QCDs are not income in the first place, they cannot be deducted again. That said, making QCDs rather than cash gifts (and deducting them) usually leads to net lower taxes.

To best utilize the QCD strategy, any planned charitable gifts should be identified early in the year. Our team will ensure these gifts are made and the RMDs completed soon thereafter. While it may feel a bit odd to be making charitable decisions in January rather than December; we assure you the charities will be happy to receive the funds at any time!

At the end of the day, we make sure clients meet their RMDs in the manner most appropriate to them. Nobody wants the IRS knocking on their door!

Tax Season Is Upon Us - Here's What You Need To Know

The 2021 tax season is underway… just a tad bit later than usual! We’ve been through this process a time or two and have shared our answers below to the most common tax-reporting questions we receive from clients this time of year.

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 should receive it in the next few weeks. This form is produced for each of your taxable investment accounts and reports the income earned in the account during the year (interest, dividends, and sales proceeds).

• 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 in 2020 out of any retirement account (401k, 403b, IRA, etc.), you can expect to receive a 1099-R from the account custodian reporting the amount distributed.

• The deadline for custodians to send these forms out is January 31st, so it is likely to have 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. 

• If any of your private placement investments are in a partnership, you will receive a Schedule K-1 and can usually expect it 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 2020 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. However, 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 on the return.

Tax-Favored Account Contributions (IRA, Roth IRA, HSA) – If you already contributed to one of these accounts for 2020, please make sure it is reported on your return. The contribution deadline is April 15, 2021, so you still have time to fund these accounts for the 2020 tax year.

We know that tax filing time can be stressful as you gather documents and records in order to file your tax return before the deadline. We hope this is helpful and alleviates some of the stress, but please let us know if you have any further questions. We're here to serve!

Kevin Rigg, Director of Financial Life Planning, SoundView Advisors and the SoundView Advisors Client Service Team

Changes to SoundView Fixed Income Portfolios

Kevin Slater, CEO, SoundView Advisors

There are three roles Fixed Income plays in a portfolio:

1. Generating income

2. Reducing volatility

3. Preserving capital for reinvestment after an equity market downturn

Interest rates are historically low, causing investors to receive reduced levels of income and be exposed to higher-than-average volatility due to potentially rising interest rates (the value of a bond portfolio moves inversely to interest rates).

Even as governments and corporations take advantage of low rates to issue massive amounts of new debt, economic conditions are adversely affecting organizations’ ability to make their payment. In fact, 2020 saw the greatest number of bond defaults in the past decade. 

We will be making a number of trades in the fixed-income portion of portfolios over the next few weeks. The changes are to protect client portfolios by improving the overall quality of our funds (to reduce the risk of bond defaults) and shortening their average duration (to dampen the impact of rising interest rates). 

Aside from allocations to Treasury Inflation Protected Securities (TIPs), we are avoiding bond index funds in favor of actively managed funds, where there is the freedom to manage more conservatively.

SVA Projections, Portfolios, & Your Investment Objective

By Kevin Slater, CEO, SoundView Advisors

There is somebody, somewhere that has a knack for attaching dates to random things. National Cat Day (October 29) or National Doughnut Day (November 5). January 1st must be both “Set Overly Optimistic Resolutions Day” and “Ask Someone to Predict this Year’s Stock Returns Day”. 

In honor of the latter, here are SoundView Advisor’s 2021 Projections by asset class:

• US Stocks: We have absolutely no idea

• International Stocks: Higher or Lower than US Stocks

• US Bonds: Lower or Higher than US Stocks

• Gold, Bitcoin, Real Estate: Lower than the most enthusiastic promoter suggests 

We do not know the future and we want to plan wisely for it. 
While those phrases may seem at odds with one another at first glance, we do not believe they are. No one has shown the ability to consistently predict short-term returns. However, it is possible and important to make reasonable long-term estimates (10 years) of the range of returns. These inform financial projections and how we manage portfolios.

We depend on firms with sophisticated research departments (JP Morgan, Vanguard, State Street, BlackRock, Invesco) to create our estimates. Below are some of their combined prognosticators.   

We expect generally lower average returns in the US going forward. The combination of low-interest rates, elevated US stock price ratios and concerns about the speed of economic recovery and debt lead us there. Meanwhile, lower price ratios and a falling dollar provide greater hope in international markets.  

None of this is particularly surprising nor greatly concerning to us, although it does have an impact on our work, namely with regard to financial plan projections and portfolio construction. 

The projected returns we use in financial plans will be lower but not wildly so. We tend to be conservative in our projections anyway. That said, with the slightly lower estimates, we need to review whether you can achieve your goals at your portfolio’s current level of risk.  

For some clients, changes may be in order. This may mean taking more risk or reducing your expectations for spending in the future or no meaningful change. Your advisor will discuss this with you.

In any case, you can anticipate changes in your portfolio in the coming weeks. We will restructure the bond allocation to reduce the negative impact of potentially rising interest rates and swap out a few managers in the process. In equities, we will slightly increase the allocation to international equities and swap the international small-cap index out for an active international small-cap manager. 

For some, these changes will be imperceptible. For others, more noticeable. In either case, we are here to serve you for your best outcome. We look forward to the conversations ahead.  Happy New Year!

2020 Q4 Market Summary

By Vicki Simpson, Trading Analyst

There is no arguing 2020 was a year full of major events. Many of those are still on our minds, but here is a shortlist of highlights.

• Trade tensions with China

• COVID-19

• Stock market crash in March

• Lockdown, Quarantine, Economic Standstill

• Unemployment

• Black Lives Matter

• Wildfires

• Stock market recovery

• Elections

I have recently been thinking about the word reconcile. Over the last year, as we were implementing new data management software, I spent a lot of time working on reconciling accounts. Ensuring data was flowing in correctly, values were matching expectations, and auditing many portfolios gave me a lot of satisfaction. Data cleanliness became a place I could work in certainties while the world outside my (home) office was very uncertain.

On a deeper level though, I spent many hours in 2020 trying to reconcile the wide-ranging, powerful events occurring in our country with an optimistic and rising market. I certainly know the nature and history of markets do not always align with what is happening around the globe – be it politically, socially, or even environmentally, but I do want it all to somehow reconcile; to be in harmony, but it is not.

If, at the beginning of last year, someone had given you a list of the major events that were to come in 2020, would you have expected the results you see in the chart below? I do not think I would have. There is a lot of green on the market summary below. Fixed income markets had a turbulent fourth quarter as the effects of low-interest rates begin to catch up, but most markets were positive.  All markets were positive for the year and this takes into account the wild ride in March and April! The S&P 500 finished 2020 at historic highs. US Large, commanded by technology and consumer discretionary (think Amazon), led the charge in the middle of the year while US Small saw its recovery flourish in Q4. Portfolios also benefited greatly from Emerging Market allocations.

The economy did show improvement in the second half of the year as portions of the country re-opened, but it is a much slower journey. We hit rock bottom interest rates, the Fed and government-provided stimulus and job recovery have lost some momentum. There is still a long way to go in many sectors, including travel, dining, and hospitality. Many experts are optimistic for continued growth in 2021 as COVID vaccines are more widely available and administered. As people gain more confidence in returning to normal activities, the economy may also return to something more normal toward the end of the year.

While my data-oriented mind appreciates all the green, my heart is not yet reconciled to it. As an investor myself, I was glad for the positive returns, but as a person, I wanted it (the markets) to just take a minute to consider all the important things that were happening to people. I am thankful to work for a company that values people – my coworkers and especially our clients. You may be like me, still unreconciled, but I am glad to have the opportunity to walk through it with you whatever may come our way in 2021.

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'Twas a Dark and Stormy Night

By Kevin Slater, CEO, SoundView Advisors

Last night I was deeply, deliciously asleep. Sometime in the depth of my joy, our nine-year-old daughter, Vivian, tried to wake me. “Daddy, there is a loud sound on the roof.” I rolled over, heard heavy rain, and responded, “it’s just rain, go back to bed” and instantly was asleep.  

Some minutes later, another nudge from Vivian stirred me “Daddy, there is a loud sound on my window”. I sat partway up, listened, and with a hint of grumpiness: “honey, it’s just the wind, go back to bed!” and once again was asleep. The visits persisted at regular intervals despite my increasing irritability and less than kind responses.  

In my stupor, it finally dawned on me, Vivian was afraid.  

As a lifelong Seattleite, she has experienced plenty of rainstorms; but this one seemed different. There were noises that either did not make any sense or she usually associated with danger. She did not know what to expect and she was scared. 

I did not know any more than Vivian did about the storm, but I was not scared for two reasons. First, I had experienced big storms before and survived. I knew it was possible we would have tree branches down, surface water, and even a power outage. It was unlikely we would get hurt. 

Second, I was confident our general preparations would reduce the impact of the storm. We had cleared the gutters, covered the deck furniture, and stored the miscellaneous items from our yard. While the storm could make a mess and create extra work, it would be less than it would have been. 

Vivian needed to know that I cared about her and would work to keep her safe. She did not need data or stories--though those will certainly come at some point! I did not promise her that it would be easy, or there would not be damage or consequences—only that we would face them together. So, I invited her to crawl into my bed, and she was soon asleep. 

Our world has experienced a series of “bigger storms” of late. Economic, political, and public health among them. They have felt a little scarier perhaps because they seem to exhibit different characteristics than we are accustomed to seeing. Markets dropping more quickly, political viewpoints expressed more forcefully, contagious diseases which are more deadly.  

We have survived many major economic, political, and public health difficulties in the past. Those experiences guide us in how to respond to the current challenges. We cannot prevent storms from happening in the future, but we believe proactive planning will reduce the damage they inflict. 

Please let us know what is keeping you up at night. We are here to help you deal with it --although we do prefer to avoid 2 am phone calls. 

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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