Cybersecurity

by Nate Porter, Chief Operating Officer, SoundView Advisors

I've been thinking a lot about cybersecurity.

A month ago, my magenta-hued cell phone provider allowed the personal data of me, my wife, and fifty million of our closest friends to be easily stolen. If that weren’t enough, my newsfeed is full of stories of doom and gloom: software giants, the Florida water supply, oil and gas pipelines, computer manufacturers, and meatpacking plants have all been compromised in large-scale attacks. Even the highest levels of the United States government have not been immune to significant data breaches.

These examples, however, are not what keeps me up at night. What occupies my mind is the safeguarding of our client's information and investments: what if we accidentally authorize a fraudulent wire transfer, could a hacker get access to our internal email or document storage software? If so, how? If we determine how, how can we prevent it? For me – that’s the stuff of nightmares.

Now, the SEC imposes stiff financial penalties (into the millions) on firms like ours over cybersecurity failures, which, admittedly, sounds awful. But what sounds worse is the impact on our clients. Trust in, and loyalty to our firm could be shaken if such a breach were to occur—especially a breach that could have been preventable: something within our control.


WHAT ARE WE LOOKING FOR?

The aspect of cybersecurity most within our control as a firm, and within your control as well, is not falling victim to phishing scams. The term "phishing" (and the idea) has been around for a long time. It's probably something we've all heard of. But the techniques of the criminals have gotten a lot more complex (and, dare I say, elegant) in recent years. This month, we conducted training for the SoundView staff to ensure we were all on the same page when it comes to this threat.

Phishing is most closely associated with emails: emails with links pointing to fake websites or attachments that aren't what they seem. Basically, someone is attempting to trick you into clicking something that isn't what it seems. With the information they steal, these criminals will do a variety of bad things. The more sensitive the information, the worse the fallout can be. These emails appear more and more legitimate every day. They could appear they are from companies you know: your bank, Schwab, Pershing, your 401(k) provider, Microsoft, etc., or even individuals you may have had contact with in the past.

Here are a few things to look for to spot a phishing email:

• The email is unsolicited or unexpected – from out of nowhere

• The "from" address doesn't seem quite right – it's close to the name of the company, but not quite

• There are spelling, grammatical, or formatting errors that seem… (sorry for this)… fishy

• The essential info you "have to see right away" is in an attachment (not in the body of the email)

STOP, COLLABORATE, AND LISTEN

Most email clients have spam filters in place, and some are pretty good, but that's not going to catch everything. The crucial thing you can do to protect yourself from getting fooled into giving away your personal info is to STOP! Do you know that big red sign on street corners? The octagon? That one: STOP!

Just stop, take a deep breath, and reread the email. We're conditioned to click. We LOVE to click. Clicking feels right and good. But that's how we fall victim to these things: by clicking instead of thinking. Before you click, think. If you have any doubt whatsoever about the authenticity of the email, DO NOT CLICK. I promise you the world will not end if you don't click the link, even if the email turns out to be real. 

Additionally, never send personal information via email (passwords, Social Security number, full account numbers, date of birth; you know the drill). Don't open any attachments if you're unsure about what it is or who sent it. SoundView Advisors will never ask you to send private or personal information over email – we use a service called ShareFile for secure, encrypted (and SEC-compliant) file transfer.

I'm not trying to scare you, but I AM trying to scare you. Giving away sensitive information won't ruin your life entirely, but it will be a source of frustration for a good long while.

BUT, WHAT IF I?

No one is perfect and falling victim to one of these crimes is not a badge of shame. So, if you believe you have inadvertently been a target of a scam like this and have divulged credentials to a website, log in and change the password right away (if you can). If you are unable, contact the customer support of the site and let them know what the situation is. They will help you.

If you believe financial accounts may have been compromised, let us know right away. This is part of our job, and we are here to help. We will never be too busy or too involved in other projects not to make this a top priority. I cannot stress this enough; please involve us if you even suspect any of your financial accounts may be or have been compromised. We’ll do everything we can to help.

BETTER SLEEP

I trust you see we take this stuff seriously. It's a big deal to us because YOU are a big deal to us. Your trust, finances, and future are important to us. We're far from a perfect firm, but we always endeavor to be learning, growing, staying informed, and safeguarding everything within our control.  

My co-worker Julie just told me this morning the results of our external phishing-simulation audit came back. We didn’t tell our staff this would be happening, and no one fell for it. Not one employee over multiple weeks “clicked”. That’s a nice feeling. I’ll sleep a little more soundly tonight, I suppose.

Tell you what: I’m going to hit “save” on this article, go make a cup of coffee, sit on the porch, and listen to the rain on the roof. And, for as long as I can possibly justify it, I’m not going to click on any links at all.

You’re welcome to join me.

The Not Forgotten One

by Kevin Slater, CEO, Owner, SoundView Advisors

I met Kevin Rigg in the summer of 2005 when he came to interview at our predecessor firm, Stoltenberg & Associates.  He showed up with a busy toddler and his wife, Annie, to our old office on Black Lake Boulevard.  In his excitement, he accidentally locked his keys in their car.  Soon thereafter, his daughter crawled under a desk and took down our office server.  It was an impressive introduction!

It was clear that Kevin was bright, sincere, and willing to trade the heat of Eastern Idaho for the wet gray of Olympia (one of Bruce’s interview questions).  He worked in a CPA firm but spent as much time as he could helping clients with investments and broader planning.  We were a small company moving to a more comprehensive service model and he was the perfect addition.

It didn’t take long for Kevin to make an impact.  He is friendly, outgoing, and enthusiastic.  He quickly brings joy and a sense of connection to people around him. He is analytical, has good business instincts, and seems to gain a solid understanding of anything quite rapidly. Most of you know that he is respectful, kind, thoughtful, and a good listener.  He works hard to deliver for our clients and our team.  He is exactly the kind of person you want as a partner. 

It has been an honor to have him as a business partner for the past 12 years.  We have walked together through many challenges together: from plummeting stock markets to uncooperative technology to partner retirements to business growing pains.  He has been patient, insightful, and a fantastic partner.  Here’s to another 15 years of working together!

Emerging Markets and China

by Vicki Simpson, Trading Analyst, SoundView Advisors

There are many headlines competing for our attention as investors, but few stir as much concern as news about China. Recent events, including swift regulatory changes in the online education sector, sent Chinese stock values tumbling as investors quickly reacted. As a result, emerging market funds struggled and posted negative returns in the month of July.

SoundView tracks performance of emerging market funds against the MSCI Emerging Market Index. China currently represents approximated 34.62% of this benchmark index. Here are some performance values* which may reveal some of the impact China has had on this market.

• July 2021: the MSCI EM index was down -6.73%.

• From its 2021 high in mid-February to its low in July, the index saw a 10% drop.

• Year to Date: the MSCI EM Index is positive, but only .54%.

• In 2020: the MSCI EM Index posted gains of 18.31%.

We currently utilize active managers for Emerging Markets in the SVA core portfolio, and they have more flexibility to adjust their China exposure or reallocate capital away from industries or sectors that are at higher risk for regulation or mandates. Across SoundView portfolios, total exposure to Emerging Markets represents between 9% to 12% of the portfolio. The net exposure to China represents about 2.4%-4.8% of the portfolios.

I have been in communication with all our emerging market fund managers, as well as our global and active international managers. The consensus is China has been, and will continue to be, inherently risky, but there is still opportunity to invest in China as the economy continues to grow and government policies favor their expanding middle-class consumer base.

SoundView’s Investment Committee is evaluating our allocation to emerging markets considering the risks and volatility mentioned above. The primary questions we are addressing:

Is our allocation to emerging markets, given the underlying weighting to China, adding more risk than is appropriate for a client’s investment objective? If so, how do we adjust the portfolio to reduce that risk?

The change may be quite small and require few or no trades as emerging market values have already fallen relative to US and international markets within portfolios. We will communicate upcoming changes, if any, that are approved by our Investment Committee in the coming weeks. As always, feel free to reach out to me or your Advisor if you have any questions.

 *Sources: MorningStar and www.msci.com

Rapid Changes to Planning for the WA Cares Fund

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

As the great Ron Burgundy once said, “That escalated quickly!”. Back in May, we wrote a brief primer on the new WA state public long term care (LTC) insurance program, which will be funded by a 0.58% payroll tax on all compensation (https://www.soundviewadvisors.com/blog/2021/wastatepayrolltax).

The state program has very modest benefits and for those above certain income levels it makes sense to consider obtaining a private policy in order to opt out (must be obtained by November 1, 2021 to do so). In the weeks following our article, we reached out to clients who we thought might benefit from a private policy and were able to begin the application process for many of them.

However, it wasn’t long before insurance companies began instituting restrictions on new policies (including minimum terms, benefits, and premiums) and soon after they stopped issuing Traditional LTC policies altogether. At that point, the only option available for opting out was a more expensive “hybrid” policy, which combines life insurance and a LTC benefit. The number of companies issuing those policies has also dwindled in recent weeks.

While there are few remaining, cost-effective private options left, it may still be worth pursuing an alternative to the WA state program if your compensation is high enough. We have even seen employers roll out new “hybrid” insurance plans as recently as last week and would encourage you to ask your employer if they offer that type of benefit.

If you have questions about the WA LTC program in general, or what next steps should be in your specific situation, please reach out to your planning team. We are here and ready to help!

2021 Q2 Quarterly Performance Update

by Vicki Simpson, Trading Analyst, SoundView Advisors

Bonds and Treasury returns were up in Q2, but still negative for the year. Fixed Income will likely continue to see volatility in the short term as the Fed maintains low-interest rates and continues its bond purchase plan. FOMC continues to keep a close eye on employment and inflation expectations as signals to make more significant changes to their current policies. The latest Fed meeting hinted at a possible bond purchase taper later in the year and pulled interest rate increases forward into 2023.

The second quarter of 2021 had a lot of good news for the US markets. Vaccines became widely available, recovery in many sectors of business accelerated, employment numbers rose, and the economy overall is continuing to show strong growth. Across the globe, the recovery has been uneven, but all markets were positive for Q2 with the US (S&P 500) being the best performer. Despite many parts of the world still in the grips of COVID, economic recovery and growth are expected to strengthen in the second half of the year in international markets.

We hope you all are enjoying the summer season; finding time to rest, refresh and staying cool. We look forward to seeing you at your fall meetings, perhaps even in person!

View fullsize

SVA Business Announcement

View fullsize

SoundView Advisors Business Announcement

I am happy to announce that Nate Porter, our Chief Operations Officer, has joined Kevin Rigg and me as an owner in SoundView Advisors. Some of you have had the privilege of meeting Nate in person, while others have been limited to reading his insightful and witty newsletter articles. He is an incredibly talented, genuine, funny, and thoughtful person.

Nate and I met in 2009. Whether it was because of a shared enthusiasm for U2 or the ongoing healthy conversations/debates on a wide range of topics, we have been friends ever since.  

In July 2016, SoundView needed a talented and experienced operations person to help our then COO, Angie Creel.  After a serendipitous chat with Nate’s wife, Brit, I was certain Nate was the right person. During an infamous phone call with spotty coverage from the outskirts of Adna, WA, I convinced Nate to drive to Olympia to interview.  Two days later, he met the leadership team, and we offered him a job.

Nate jumped in with both feet. It quickly became clear to everyone that he was a perfect fit.  Angie noted, “Nate loves doing all the stuff I hate doing!” Projects that had been stuck were revived.  New phones, software, processes?  Done.  He took a load off the entire team and especially Angie.  And when she decided to retire, he took on even more.

Nate has been an advocate for clients and for our staff. He works hard to ensure everyone is taken care of and knows how much they are appreciated. You can see why we appreciate him so much. He is precisely the kind of person you want on your team.

Kevin Slater
CEO and Lead Advisor

New Payroll Tax in WA State

View fullsize

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

In June of 2019, Governor Inslee signed the Long-Term Services and Support Trust Act into law. It has since been renamed the “Washington Cares Fund”, but its purpose is unchanged: to create the first publicly operated long-term care insurance program.  The program will be funded by a payroll tax on all compensation of W-2 employees in the state of Washington, to be assessed starting January 1, 2022, through mandatory paycheck withholding. There is a one-time window to qualify, permanently opt-out of the program, or be exempt from the tax, and the deadline for deciding is coming soon.

Confused? You are not alone! Read on for a brief primer on the Washington Cares Fund program benefits, payroll tax details, and personal planning considerations.

The Washington Cares Fund provides long-term care benefits of $100/day with a maximum lifetime benefit of $36,500. The program will be funded with a new payroll tax of 0.58% on all W-2 employees (self-employed individuals are exempt). Importantly, there is no cap on the amount of income to which the payroll tax applies, which means compensation of:

• $10,000 will be taxed at $58

• $100,000 will be taxed at $580

• $1 million will be taxed at $5,800

To receive benefits under this new program, one must meet several requirements:

• Unable to perform 3 of 10 activities of daily living (ADL)

• Reside in the state of Washington at the time of the claim

• Paid the tax for at least 10 years (with no more than a 5-year break) or for at least 3 of the last 6 years immediately preceding filing for benefits

You can permanently opt out of this program (and avoid the payroll tax), so long as you have your own long-term care (LTC) policy in place before November 1, 2021, and your policy provides benefits equal to or better than the new program. We believe it will nearly always make sense to opt-out and obtain your own policy if possible due to limitations of the new program such as these:

• Benefits are only available if unable to perform 3 of 10 ADLs (most policies are 2 of 6 ADLs)

• Benefits are not portable (cannot be used outside of Washington state)

• Benefits are not LTC partnership qualified (in brief, partnership programs help protect assets from Medicaid’s asset recovery program)

• Benefits are likely more expensive for many people due to no income cap on the tax

We are currently assessing the impact of this new program across our client base. If you are retired, don’t have W-2 income, live outside of WA state, or already have an LTC policy, you don’t have anything to worry about at this point. For everyone else, you can expect to hear from your advisor soon, with a recommendation regarding what needs to be done before the opt-out date of November 1, 2021.

Capital Gains in the Crosshairs

View fullsize

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

View fullsize

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.

View fullsize

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.

View fullsize

'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

---

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