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By Bill Schwartz, CPA, CFP®, Managing Director

Believe it or not, there is something that Democrats and Republicans in Congress can agree on, and that is the need for all Americans to increase their retirement savings. Although there is not yet consensus on what any final legislation may look like, there are enough similarities between House and Senate proposals to believe that there could be some movement here. The Senate Finance Committee first reported the Retirement Enhancement and Savings Act (RESA) in November of 2016, followed by a House version known as the Setting Every Community Up for Retirement Act (SECURE), which passed the House Ways & Means Committee in April. Just to give you an idea of what changes are being considered:

The Setting Every Community Up for Retirement Enhancement Act of 2019 (The SECURE Act)

  • Section 103. Increase Credit Limitation for Small Employer Pension Plan Start-Up Costs. This provision will increase the tax credit for employers to create a new defined contribution plan (section 401(k) or SIMPLE IRA) with a tax credit up to $5,000 per year. The credit applies for up to three years.
  • Section 104. Small Employer Automatic Enrollment Credit. This provision creates a new tax credit of $500 per year to employers to add an auto enrollment feature to their defined contribution plans (as auto enrollment tends to increase employee participation). This credit is in addition to the plan start-up credit and would be available for three years.
  • Section 106. Repeal of Maximum Age for Traditional IRA Contributions. The legislation repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70½. As Americans live longer, an increasing number continue employment beyond traditional retirement age.
  • Section 111. Allowing Long-term Part-time Workers to Participate in 401(k) Plans. Under current law, employers generally may exclude part-time employees (employees who work less than 1,000 hours per year) when providing a defined contribution plan to their employees. The bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.
  • Section 112. Penalty-free Withdrawals from Retirement Plans for Individuals in Case of Birth or Adoption. The legislation provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption.”
  • Section 113. Increase in Age for Required Beginning Date for Mandatory Distributions. Under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 ½. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. However, age 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy. The bill increases the required minimum distribution age from 70 ½ to 72.
  • Section 203. Disclosure Regarding Lifetime Income. The legislation requires benefit statements provided to defined contribution plan participants to include a lifetime income disclosure at least once during any 12-month period. The disclosure would illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant’s surviving spouse and a single life annuity.
  • Section 302. Expansion of Section 529 Plans. The legislation expands 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools.
  • Section 401. Modifications to Required Minimum Distribution Rules. The legislation modifies the Required Minimum Distribution (RMD) rules with respect to defined contribution plans and IRA balances upon the death of the account owner. Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner) are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death (no more stretch IRAs).

The Retirement Enhancement and Savings Act of 2019 (RESA)

  • Section 105. Increase Credit Limitations for Small Employer Pension Plan Start-Up Costs (Section 45E of the Code). Same as Section 103 above.
  • Section 106. Small Employer Automatic Enrollment Credit (New Section 45S of the Code). Same as Section 104 above.
  • Section 108. Repeal of Maximum Age for Traditional IRA Contributions (Sec. 219 of the Code). Same as Section 106 above.
  • Section 203. Disclosure Regarding Lifetime Income (Sec. 105 of ERISA). Same as Section 203 above.
  • Section 501. Modifications to Required Minimum Distribution Rules (Sec. 401(a)(9) of the Code). Same as Section 401 above.

As you can see, the House added several provisions not considered in the Senate bill. This bill is also currently held up in the Senate, where a handful of Senators are asking that provisions me added that allow 529 accounts to pay for home school expenses. As further information becomes available, or if it looks like any particular legislation is moving forward, we will obviously keep you informed. In the interim, do not hesitate to reach out to your Bronfman Rothschild advisor if you have any questions or concerns.

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and wholly owned subsidiary of NFP Corp. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, Certified Financial Planner and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Bronfman E.L. Rothschild, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2019 Bronfman Rothschild

The post SECURE Act: Changes May Be Coming Soon to Retirement Savings appeared first on Bronfman Rothschild.

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Kevin Smith to Speak at In|Vest Digital Wealth Management Event

Rockville, MD, July 11, 2019 — Bronfman Rothschild, an independent investment advisor based in Rockville, Maryland, today announced that Wealth Advisor Kevin Smith will participate on a panel at In|Vest 2019, the 5th annual digital wealth management event hosted by Financial Planning. The conference will be held July 16-17 in New York City.

The In|Vest conference brings together more than 1,500 executives from across the wealth management community to explore innovations in digital wealth management and discuss the future of tech in the industry. This year’s event focuses on innovations in investing, saving, and giving advice.

The panel on which Smith is speaking, “The Present and Future of the Advisor Desktop,” is composed of tech strategists who will offer insights on digital collaboration tools that optimize advisor time with clients, as well as offer clients the capabilities they’re increasingly seeking.

“It’s an honor to participate in the timely discussion around technology and the advisor at this year’s In|Vest event,” said Smith. “At Bronfman Rothschild, we seek to leverage the best technology to optimize the client experience and support the trust-based relationships we form and maintain with our clients. I look forward to hearing my peer’s perspectives on this topic.”

Smith joined Bronfman Rothschild in 2018 and has over a decade of experience in the financial services industry. Smith works with Bronfman Rothschild’s technology partners to create streamlined investment solutions that focus on clients’ goals through tech-supported comprehensive financial planning.

About Bronfman Rothschild

Bronfman Rothschild grows and preserves wealth through thoughtful and disciplined strategies that focus on what’s most important to each client. A registered investment advisor, Bronfman Rothschild was sold to Sontag Advisory, a subsidiary of NFP Corp., in May of 2019 and will launch a new brand strategy by the end of this year. With eleven offices throughout the Midwest and East Coast, the combined firms offer comprehensive wealth management and planning to individuals and families, as well as retirement plan services through NFP Retirement. The in-house research capabilities and collective expertise of the combined teams are supported by a collaborative, client-focused culture. Our 140+ employees adhere to a high standard of fiduciary care as we seek to form a true and objective partnership with each client we serve.

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and NFP Corp. subsidiary. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC.

The post Kevin Smith to Speak at In|vest Digital Wealth Management Event appeared first on Bronfman Rothschild.

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By Aviva Pinto, CDFA, Director

Although planning for end-of-life can be emotionally fraught and daunting, organizing affairs well before the need arises helps families and beneficiaries immensely after a loved one’s passing. But where to start? With the abundance of paper and digital resources accompanying the myriad accounts that comprise many years well-lived, it can be hard to know which are essential to have on hand.

The most important things to have in place are:

An up-to-date financial plan:

Consult with your wealth advisor who can assess your current financial situation and update your financial plans to address any end of life concerns. Your advisor can do a lifestyle analysis to help determine how much you need and how long your assets will last. He or she also can itemize and assess your investments and align your portfolio to match your needs, including generating income and covering any end of life expenses.

An up-to-date estate plan:

An estate attorney should review your current plan and make necessary changes such as updating your will, living will, health care proxy, and power of attorney documents to make sure they reflect your wishes. You should also include copies of any trust documents.

A list of all current bills with methods of payment:

This also includes memberships, professional business subscriptions, and anything else that’s billed to the name of the deceased; designated beneficiaries will need to change the billing information if they’re under the deceased’s name. You may also want to include a list of any regular charitable commitments and whether those should continue. Keeping a comprehensive list helps avoid unscrupulous organizations that target families with fake invoices after the death of a loved one.

A comprehensive list of all online accounts and passwords:

Many bills are managed and paid online, and it can be difficult for surviving members to know which bills are on auto-pay and which need to be paid to keep the lights on and the house owned.

The names and contact information for your accountant, attorney and financial advisor:

An estate attorney can provide crucial help in distributing assets to beneficiaries and paying the estate’s debts. An accountant can ensure that any tax issues are taken care of and a financial advisor can help protect your legacy as well as the beneficiaries plan after your death. Introducing your family to these people in advance is a great idea so they are familiar with the professionals who have been assisting you.

The Human Resources contact at your company:

There are often death benefits, health insurance policies, 401(k) plans and pension plans that will pass to your loved ones. Under a federal law called COBRA, your surviving spouse and any dependent children may be entitled to continue coverage under your work-related medical insurance plan for up to 36 months, provided they pay the premiums. Your survivors should also ask your employer about any payment for unused vacation or sick leave. It’s also a good idea to contact all past employers to determine whether you are entitled to any payments from a pension plan. If you belong to a union or professional organization, list those contact numbers – there may be death benefits associated.

The details and contact information for your insurance policies:

This includes copies of life, health, home, auto, mortgage, accident and any other insurance coverage. Life insurance can pass to your loved ones immediately, and they may need the cash flow in the immediate aftermath of a loved one’s passing. Beneficiaries may be required to decide on a payment plan with options including a lump-sum or fixed payments over a designated period of time. Consulting with a wealth advisor can assist them in determining which option is best for their situation.

Your Social Security information:

You can also obtain the numbers for your spouse and dependent children through the Social Security Administration (SSA). Contact the SSA to determine what Social Security benefits your survivors will be entitled to. There are two additional types of possible benefits: a one-time death benefit and survivor’s benefits:

  • One-Time Death Benefit: Social Security pays a one-time death benefit toward burial expenses. Beneficiaries can complete the necessary form at a local Social Security office or ask the funeral director to complete the application and apply the payment directly to the funeral bill. This payment is made only to eligible spouses or to a child entitled to survivor’s benefits.
  • Survivor’s Benefits for a spouse or children: If your spouse is 60 or older, he or she may be eligible for survivor’s benefits. Consult with a financial professional to determine the best claiming strategy for your situation. To determine eligibility, check with your local Social Security office or call 800-772-1213.
Marriage certificate and children’s birth certificates:

These can be obtained from the county or state in which they were issued; these will help beneficiaries prove their claim to benefits.

A comprehensive list of all assets:

This includes real estate, stocks, bonds, savings accounts, property titles, stock certificates and other financial papers, and personal property. Also maintain a list of the titles of any vehicles or property in case they need to be changed.

Records of any applicable veterans’ benefits:

Survivors of veterans may be eligible to receive a lump-sum payment for burial expenses and an allowance toward a plot in a private cemetery (burial in a national cemetery is free to a veteran, his or her spouse, and dependent children). Veterans may also be eligible for a headstone or grave marker. The funeral director can help them apply for these benefits or they can contact the regional Department of Veterans’ Affairs (VA) office. If you were receiving disability benefits, your spouse and any dependent children may also be entitled to monthly payments. Check with your regional VA office.

Ticking through this list to confirm that all necessary documentation and information is stored in an accessible location is the first step toward developing a solid plan for your assets and family after you pass. The next step is fostering a discussion about the collected materials and your wishes for your legacy. While discussing end-of-life plans can be difficult for families, engaging in a productive conversation can bring peace of mind to both you and your loved ones. If you don’t know how to frame the conversation or where to start, a financial advisor can help facilitate the discussion, as well as help your family members work through the inevitably tough transition.

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and wholly owned subsidiary of NFP Corp. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC. Certified Divorce Financial Analyst (CDFA) professionals must develop their theoretical and practical understanding and knowledge of the financial aspects of divorce by completing a comprehensive course of study approved by the Institute for Divorce Financial Analysts.  CDFA professionals must have two years minimum experience in a financial or legal capacity prior to earning the right to use the CDFA certification mark. This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Bronfman E.L. Rothschild, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2019 Bronfman Rothschild

The post A Guide to End-of-Life Planning appeared first on Bronfman Rothschild.

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Kath acquires first major financial credential dedicated to sustainable, responsible, and impact (SRI) investments.

Rockville, MD, June 24, 2019 — Bronfman Rothschild, an independent investment advisor based in Rockville, Maryland, has announced that Senior Wealth Advisor JD Kath has earned the Chartered SRI Counselor (CSRIC) designation after completing comprehensive coursework from the College for Financial Planning. Kath joins an elite group of advisors who are trained to work with sustainable, responsible, and impact (SRI) investments.

The CSRIC program provides advisors with foundational knowledge of the history, trends, portfolio construction principles, fiduciary responsibilities, and best practices for SRI investments. The course was developed in partnership with US SIF: The Forum for Sustainable and Responsible Investment – the leading voice advancing SRI investing across all asset classes in the United States.

“As responsible investing continues to gain momentum, JD‘s initiative and dedication in earning this timely designation will deepen Bronfman Rothschild’s SRI knowledge, allowing our collaborative firm to better serve any of our clients who are specifically interested in ESG or impact investing,” said Mike LaMena, Chief Executive Officer of Bronfman Rothschild.

To receive the CSRIC designation, Kath completed 135 hours of coursework and related activities, along with passing an extensive final examination.

Kath has been with Bronfman Rothschild since 2017. With over eight years of experience as a financial advisor, he focuses on high net worth investors, family foundations and business owners. He also leads Bronfman Rothschild’s employee giving fund, which allows the employees to set aside pre-tax dollars towards their favorite charities and receive a match from the firm.

About Bronfman Rothschild

Bronfman Rothschild grows and preserves wealth through thoughtful and disciplined strategies that focus on what’s most important to each client. A registered investment advisor, Bronfman Rothschild was sold to Sontag Advisory, a subsidiary of NFP Corp., in May of 2019 and will launch a new brand strategy by the end of this year. With eleven offices throughout the Midwest and East Coast, the combined firms offer comprehensive wealth management and planning to individuals and families, as well as retirement plan services through NFP Retirement. The in-house research capabilities and collective expertise of the combined teams are supported by a collaborative, client-focused culture. Our 140+ employees adhere to a high standard of fiduciary care as we seek to form a true and objective partnership with each client we serve.

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and NFP Corp. subsidiary. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC.

The post JD Kath Earns CSRIC Designation appeared first on Bronfman Rothschild.

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By Crystal Wipperfurth, MBA, CRPC®, CFP®, Wealth Advisor

Determining when to start collecting your Social Security benefit is an important financial decision that requires careful consideration of many factors. While many people don’t anticipate taking benefits before full retirement age, certain life events may force them to do so. A Transamerica Center for Retirement Research survey found that more than half of retirees (56 percent) retired sooner than they had planned.

When can you take Social Security?

“Full retirement age” as specified by the Social Security Agency (SSA) depends on your birth year. A table can be found here. While there’s no universally “correct” age to begin claiming benefits, those who can afford to wait may find it beneficial to do so because benefits increase about 8 percent per year for every year they are delayed.

The earliest you can claim benefits is at age 62, but if you elect to start your benefits early, they will be reduced depending on the number of months you receive benefits before you reach your full retirement age. If your full retirement age is 66, the reduction of your benefits at age 62 is 25 percent; at age 63, 20 percent; at age 64, 13.3 percent; and at age 65, it is 6.7 percent. If your full retirement age is older than 66 (born after 1954), the reduction in your benefit amount will be greater, up to a maximum of 30 percent at age 62 for people born in 1960 and later. SSA provides a comprehensive chart on benefit reductions here.

Your benefit stops increasing at age 70 – so it’s not beneficial to continue delaying past this point.

Considerations in deciding when to take benefits

Although delaying can accrue a monetary benefit, it may not be the right strategy for everyone. Personal and psychological factors beyond the numbers need to be factored into your decision. Some considerations that need to be factored into any decision on when to claim Social Security:

Life expectancy: Individuals with below average life expectancy may not want to delay taking Social Security and instead take what they can while they can. Healthy individuals with family histories of longevity might consider delaying in order to end up with a higher monthly check. SSA has a handy life expectancy calculator that may assist in base-level calculations, though it doesn’t factor in family or individual health histories.

Asset level: Those with enough assets to fund early years of retirement without relying on Social Security checks might find it beneficial to delay. And those who need (or want) to continue working should avoid claiming Social Security before full retirement age, as claiming while earning W2 wages reduces benefit amounts. Or, consider going down to part time.

According to the SSA, the time you will reach full retirement age affects earned income limits and how much benefits are reduced. Prior to reaching full retirement age, the earning limit is $17,640 in 2019. After that, $1 will be deducted from the benefit for every $2 that exceeds the limit. The year you reach your full retirement age, the earnings limit increases (to $46,920 in 2019) and the benefit deduction decreases to $1 for every $3 earned over the limit. If you retire in the middle of the year and begin your Social Security benefits, you will not be penalized based on what you earned in the early months of the year, as the SSA considers your earnings on a monthly basis the year you retire. Once an earner hits full retirement age, no benefits will be withheld for continuing to work.

Estate planning: Social Security benefits cannot be inherited, so if you’d like to factor your benefits into the legacy you wish to leave for your children, it might be best to take benefits early so you can allow investments to grow.

Spousal benefit strategy: Spouses can claim a Social Security benefit based on their own earnings record or collect a spousal benefit that provides 50 percent of the amount of their spouse’s benefit as calculated at their full retirement age. Social Security calculates and pays the higher amount.

Current spouses and ex-spouses that were married for over 10 years and did not remarry prior to age 60 are eligible to collect spousal benefits. Like regular Social Security benefits, they cannot be claimed until age 62. Your spouse must also file for their own benefit before spousal benefits can be claimed. If both spouses have similar earnings histories, it may be beneficial to collect one spouse’s benefits early and the other’s later, providing an income stream while allowing the other benefit to increase. Or, both could be delayed for maximum benefit growth. If both spouses have very different earnings backgrounds, the individual with the lower lifetime record could be claimed early or at full retirement age, and the higher-earning spouse’s benefits could be delayed.

The following chart nicely summarizes some considerations that should factor into when you choose to file for benefits:


Conclusion

If you elect to take early Social Security benefits at a reduced rate but later change your mind, you can withdraw your application and pay back the government what you’ve already received. However, this is only available within 12 months after you begin your distributions, and you’re limited to one withdrawal per lifetime.

Some are wary to delay amidst concerns about the future of Social Security. However, the 2019 annual report from the Social Security Trustees projects that the Social Security Trust Fund has enough resources to cover all promised retirement benefits until 2035 (one year later than last year’s projection) without altering the current system.

We suggest working with a financial advisor to weigh your options, carefully assess the factors that go into the decision and ultimately understand the full implications of any decision. Social Security statements and other important information can be found at ssa.gov.

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and wholly owned subsidiary of NFP Corp. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC. CHARTERED RETIREMENT PLANNING COUNSELOR SM and CRPC® are registered service marks of the College for Financial Planning®. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, Certified Financial Planner and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Bronfman E.L. Rothschild, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2019 Bronfman Rothschild

The post Weighing Your Options on When to Take Social Security appeared first on Bronfman Rothschild.

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By Chris Maxey, Director, Investment Research

Recent years have seen growing popularity in share buybacks, the process whereby a company repurchases outstanding shares of its own stock. The argument is that when lacking better investment opportunities, companies should return capital to shareholders, reduce share count and that will ultimately support the stock price. Buybacks are catching the attention of politicians as well. There are concerns that companies are not spending a sufficient amount on employees or reinvestment in projects that would be beneficial to the broader economy. In this discussion, we take a look at the growth in buybacks, the ramifications for investors and address the concerns raised by politicians (such as this op-ed from Bernie Sanders and Chuck Schumer).

Background

There are two mechanisms for companies to return capital to shareholders – dividends and share repurchases. There was historically a preference for dividend payments for a number of reasons, but the past 10 years saw the continuation of a paradigm shift towards buybacks. In fact, companies in the S&P 500 Index repurchased more than $4.7 trillion of their own shares during that time, vastly outpacing dividend payments.

On an absolute basis, that number sounds enormous, but maybe even more surprising is that it recently accelerated. With corporate tax rates declining after 2017, companies had additional cash on hand and there were 444 companies within the S&P 500 Index that repurchased shares in 2018. In total, those companies repurchased $806 billion worth of shares.

Only looking at the absolute dollar value of buybacks lacks an important element of context as the stock market itself has performed well over the same period of time. With the aggregate value of companies having risen it is necessary to consider buybacks as a percentage of total market capitalization. On that basis, buybacks as a percent of market cap look quite ordinary. In fact, buybacks were lower in 2018 than in 2007.

The Criticisms

Given the dollar amount spent on buybacks in 2018 and the perceived lack of economic growth, politicians have begun to voice their concerns. Those concerns are outlined below, but in general they are centered on the idea that companies should not only reward shareholders. It is thought that they should reinvest in employees, reinvest in things like technology and the result would be a multiplier effect that filters through to the economy. Let’s explore the criticisms.

Legality: buybacks were “illegal” prior to 1982. It is not clear that they were explicitly illegal, but the Securities Exchange Act of 1934 prohibits security price manipulation. The definition of what constituted manipulation is not cleanly defined and it was implicitly accepted that buybacks were a form of manipulation. But in 1982, Congress passed a new rule providing legal protection for companies seeking to repurchase shares. Some argue that ipso facto, buybacks were illegal previously and they should be illegal again.

Unrealized economic potential: capital spent on buybacks should be diverted to higher employee compensation, research and development, and capital expenditures, thereby supporting the broader economy.

This criticism implies that companies should always reinvest back into the business. Doing so is not always productive (see next bullet: value destruction). If investing in a project results in a higher expected return than it costs to finance that project, then yes companies should pursue that endeavor. If companies are reinvesting in those projects irrespective of expected return, poor investments may result. It is the job of company management to determine most appropriate capital allocation, whether that is returning capital to shareholders through dividends/buybacks or reinvesting internally to generate returns.

Value destruction: companies such as General Electric conducted more than $40B in buybacks between 2015-17 at share prices ranging from $20 to $32. Move forward two years and the stock was trading below $10. Wasn’t it destructive to spend so much money on buybacks as opposed to reinvesting in the business? Not exactly. GE is an isolated situation not indicative of all companies. Given the lackluster history of investment by that specific management team, simply reallocating that money to purchasing other businesses or research & development may have been equally as futile.

Indebtedness: there is concern that companies are borrowing money in the current low interest rate environment to fund repurchases. In our opinion if that were true, it would be a reasonable concern. In reality, the largest percentage of buybacks have occurred in sectors such as technology (25% of all buybacks in the past decade) and healthcare. Those are not heavily indebted sectors. If we look at the largest corporate repurchases, the list includes Apple, Facebook, Alphabet, Oracle, Microsoft, IBM, Visa. Again, not heavily indebted companies.

Incentive misalignment: companies may borrow money to boost short-term earnings per share (note: share repurchases reduce the share count which can theoretically makes earnings per share appear higher). Management team compensation may increase if short-term financial objectives are met, such as achieving certain levels of EPS. In our opinion, this is as much an assessment of management team capability as anything. If a particular management team is operating under selfish motivations, there is a reasonable likelihood the share price should reflect that information.

Investor Implications

There are a few ongoing implications. Investors have historically relied on companies to determine the best capital allocation procedures. Management could reinvest in corporate projects if a sufficiently adequate return were achievable, they could pay dividends, or they could repurchase stock. The preference in the recent environment has been to maintain dividend payments at a steady rate while increasing share repurchases. Share repurchases provide flexibility in that repurchases can be stopped relatively easily if other capital needs arise. Companies are more hesitant to reduce dividend payments, viewing that as a stable approach to capital distribution. Investors should recognize that share buybacks are one piece of a broader capital allocation policy undertaken by company management.

Conclusion

Michael Mauboussin synthesizes the concerns around stock buybacks as such “A company should retain its earnings if it can earn a rate of return that is above the cost of capital. But if shareholders can earn a higher rate of return on capital than the company can, the company should disburse the cash.”

We understand the desire to bring stock buybacks into the political sphere. There are valid criticisms of particular company’s ineptitude related to poorly timed buybacks and poor spending decisions. Those situations are not endemic of a broader societal problem around buybacks, however. Those are company specific situations that arise from management teams making incorrect decisions. As always, we encourage everyone to arrive at their own conclusions, but we generally view the politicization of stock buybacks to be unjustified.

Additional Reading:

Aswath Damodaran Blog Post on Stock Buybacks

Bronfman Rothschild’s 2019 Chartology, “Stock Buybacks”

 

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and wholly owned subsidiary of NFP Corp. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC. This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Bronfman E.L. Rothschild, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2019 Bronfman Rothschild

The post Stock Buybacks: The Battle of Perception vs Reality appeared first on Bronfman Rothschild.

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By Juliette Williams, Wealth Advisor

Most of our clients will at some point ask if paying off—or more aggressively paying down—their mortgage is a prudent financial decision. The answer to this question, like most complex financial decisions, is that it depends. Several factors should be considered with the help of a financial advisor to determine if it makes sense to pay off your mortgage or use your financial assets elsewhere. For the purposes of this article, we are seeking to help answer this question for one’s primary residence versus an investment, or rental property. Cash Flow Planning

One of the first steps in determining if paying off your mortgage is the right financial decision is to look at your current cash flow in the context of your overall financial goals. You need to determine if you have excess cash flow after prioritizing savings goals related to your overarching financial objectives. For example:

  • Do you have appropriate emergency cash reserves?
  • Are you participating in and maxing out any potential 401(k) programs available to you? In 2019, the maximum 401(k) contribution rate increased to $19,000. The individual retirement account (IRA) limit was bumped up to $6,000 per person.
  • If education funding is a goal, do you have an education savings strategy in place, such as contributions to a 529 college savings plan?
  • Do you have other spending goals (i.e. vehicle purchase, vacation) toward which you are adequately saving?
Is my HELOC tax deductible?
  • If your HELOC was taken out before December 15, 2017, you can deduct the interest up to $1 million.
  • However, if your HELOC loan originated after December 15, 2017, the maximum deductible interest is on $750,000 of your mortgage and HELOC combined.
  • The interest is deductible if the HELOC was used for something related to real estate. For example, if you took a HELOC to remodel your kitchen, the interest is deductible. But if you used the HELOC to pay for a car, it is not.
Debt Considerations

If you are well on your way to meeting your financial goals and have excess cash, one of the next steps is to evaluate other outstanding debt you may have, such as credit card or student loan debt. This debt should be paid off first before paying down your mortgage because it typically carries a higher interest rate and is never tax deductible

If you have other loans—for example a car loan or home equity line of credit (HELOC), you will want to evaluate the interest rate and tax deductibility of those loans. For example, you’d likely want to start by paying down your car loan because it is typically not tax-deductible. After that, you would look at your HELOC, which may or may not be tax deductible (see side bar for more information).

Risk Assessment

One of the most helpful ways to frame the question as to whether you should pay off your mortgage or invest excess cash is to consider the best use of—and return on—your money. In other words, you need to assess the risk of the mortgage versus the risk of potential investments. Based on the average annual inflation-adjusted return of the stock market (about 7%) compared to the current 30-year fixed rate mortgage (about 4%), you are “technically” better off investing your money. However, the decision is not this clear cut. We all know that markets are never really “average.” While you know what the “return” on your mortgage is, there’s no way of knowing what the return on your investment will be and timing won’t always be in your favor. Therefore, your risk tolerance, investment time horizon and other risk factors should be taken into consideration. Consider the following questions:

  • What is your risk tolerance? If you are a conservative investor and the “expected” return on your investments is less than or equal to your mortgage (plus interest), it would make sense to pay down your mortgage. The more you pay down, the less interest you pay.
  • What is your investment time horizon? Going hand in hand with your risk tolerance, it’s also important to consider your investment time horizon. Will you be invested long enough that you can stand to weather a potential market downturn? Someone looking to invest for a longer time period with a higher risk tolerance may be more comfortable investing their excess cash versus someone who intends to retire in the next couple of years.
  • How long will you stay in the property? If you’re currently in your “forever home” where you intend to live for many more years, paying down or paying off your mortgage makes more sense than if you are in a home you may be looking to sell in the next few years.
  • Do you owe more on your mortgage than what your home is worth? While most homeowners anticipate the value of their property appreciating over time, some people find themselves in a situation where they’re underwater on their mortgage. If you’re in this situation and can afford to pay off your mortgage, you’re likely better off doing so.
Psychological Considerations

As with many financial decisions, it’s not always about the numbers. For some individuals, especially those nearing retirement, the thought of carrying a mortgage payment causes anxiety. There are homeowners who can’t stomach the idea of having a mortgage payment in retirement even though they could afford it and would have likely been better off investing their excess money. The same holds true for younger individuals who have said they feel a sense of liberation and personal achievement knowing their home is paid off. The decision that helps you sleep at night is frequently the best decision for you.

An Important Note about Mortgage Interest in the Context of Tax Code Changes

It’s important to remember that mortgage interest goes on a Schedule A (Form 1040) along with state and local taxes, charitable donations and other line items that have the potential to reduce taxable income. However, starting in 2018 with the Tax Cuts and Jobs Act, more people are opting to take the standard deduction ($24,000 for married couples; $12,000 for single individuals) rather than itemize because itemized deductions often total less than the standard deduction.
That means mortgage interest, while technically still deductible, is not applicable to those who file using the standard deduction. Therefore, if you maintain a mortgage primarily because the interest on your mortgage is tax deductible, it may be time to reconsider this strategy. In some cases, the recent tax code changes have motivated individuals to pay down their mortgage because carrying the mortgage interest was no longer a tax advantage.

Conclusion

If you’re considering paying off or paying down your mortgage, we encourage you to walk through these steps and talk to a financial advisor to ensure you’re factoring your personal financial goals and unique financial circumstances into the decision. The decision that’s right for your next-door neighbor may not be the right decision for you.

 

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild and Bronfman Rothschild Plan Consulting) and wholly owned subsidiary of NFP Corp. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC.

The post Should I pay off my mortgage or invest? appeared first on Bronfman Rothschild.

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By Jay Weinstein, CFA®, Managing Director

The U.S. Treasury Yield Curve inverted recently for a few days, which provoked hand-wringing and doomsday predictions from all the usual market commentators in all the usual places.

So let’s examine this phenomenon, starting with the simple question:

What is an inverted yield curve anyway?

An inverted yield curve is simply the unusual case of short-term interest rates being higher than long term.  Under normal circumstances, you wouldn’t lend money to anyone for a longer period at a lower rate– it just makes no sense.  That’s why inverted curves don’t happen very often.

But all yield curves are not created equal.  A perfectly inverted curve would have the 30-day (shortest) rate as the highest, with a consistently downward slope such that every year would be lower than the next and the 30-year rate would actually be the lowest yield of the curve.  The current version (as of April 30, 2019) is a weird iteration, as it’s only inverted from 30 days to about 7 years, then it goes upward sloping again from 10 years to 30 years. So it’s only semi-inverted. We’ve plotted it here alongside the yield curve from May 31, 1989, which was the only “perfectly inverted” yield curve in modern history.

The ugly truth is that while the inverted curve has a better prediction record than any other macroeconomic indicator and we do take it seriously, I still don’t think it’s particularly valuable on its own.

Why is the Yield Curve Limited in Value?

Truth is, there just aren’t that many instances of inverted yield curves, so we don’t have nearly enough data points to generate any kind of statistical significance.  Second, each yield curve inversion is so unique in circumstances that I don’t regard each data point as similar enough to group together. As an example, the past few times the curve inverted (the three most recent occurrences were in 2006, 2000, and 1989, shown above) the Fed took rates above the level of nominal GDP growth and whatever the NY Fed delineated as the “natural rate of interest.” Those preconditions are absent this time around.

Let’s also take a closer look at the bizarre past six months.  The yield curve was NOT inverted in August when we started a dramatic and precipitous bear market that lasted until January 5th.  Bond yields dropped really sharply in the 4th quarter, presaging the economic deceleration that we are seeing now.

But as yields have dropped and the prospects of more Fed rate hikes have disintegrated, the stock market flipped on a dime and had an epic 3 months since then. So while the economy has slowed and the curve moved towards inversion, the market has soared.

In essence, following the yield curve would have steered you in the wrong direction during the past six months of market volatility.

From many years of experience, my personal belief is that with so many more market actors making hair trigger decisions and trying to outguess everyone else, today’s stock market reacts much faster than in other eras to perceived economic changes and interest rate developments.   This renders the “yield curve indicator” as just another signal which may not ultimately help us.

Most people view the “market” as a somewhat static entity that will react predictably to certain conditions.  We at Bronfman Rothschild feel that this is misguided. To the extent that “the market” even exists as a unified entity, it is a changing and adapting organism in my experience. That doesn’t make the “market” right or wrong at any given moment about anything, but it sure makes it unpredictable.

So, to beat the dead horse, I am hesitant to ever make any broad conclusions about “the market” because I don’t even think it’s a 50/50 guess.   For most, it could actually be less!  Human beings just cannot wrap their arms around the futility of that, which is why we as a firm like to stress diversification, a long-term approach to investing, and skepticism of a belief in “timing” the market.

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and NFP Corp. subsidiary. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC. This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Bronfman E.L. Rothschild, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. Past performance does not guarantee future results.

The post The Yield Curve: An Imperfect Indicator in Evolving Market Conditions appeared first on Bronfman Rothschild.

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Bronfman Rothschild now part of the NFP group of companies

Rockville, MD, May 2, 2019 — Bronfman Rothschild, an independent investment advisor based in Rockville, Maryland, today announced the closing of its sale to Sontag Advisory (a subsidiary of NFP Corp.). Bronfman Rothschild will integrate with Sontag Advisory and the combined firms will manage $11.93 billion as of March 31, 2019. Of those assets under management, $2.4 billion will be managed by Bronfman Rothschild Plan Advisors, who will be bolstered by NFP’s comprehensive retirement and corporate benefits practice.

“We are excited about the integration of the two firms,” said Mike LaMena, president and COO of Bronfman Rothschild. LaMena, who will become CEO of the combined firms, added, “The initial feedback has been overwhelmingly supportive as clients recognize that the combination will enable us to build a wealth management firm with an even deeper pool of talent, technology and solutions that help us assist clients in meeting their goals.”

NFP first announced plans to acquire Bronfman Rothschild on March 26, 2019, also sharing that a new brand strategy for the combined firms and their shared values would launch later in 2019. As the firms integrate, Mike LaMena will assume the role of chief executive officer, Eric Sontag will become president and chief operating officer and Howard Sontag will become chairman of the combined entity.

About NFP

NFP is a leading insurance broker and consultant providing customized property and casualty, corporate benefits, retirement, and individual solutions through its licensed subsidiaries and affiliates. NFP enables client success through the expertise of over 5,100 global employees, investments in innovative technologies, and enduring relationships with highly rated insurers, vendors, and financial institutions. NFP is the 5th largest US-based privately owned broker, 6th largest benefits broker by global revenue and 7th best place to work in insurance (Business Insurance); 10th largest property and casualty agency (Insurance Journal); and 12th largest global insurance broker (Best’s Review).

Visit NFP.com to discover how NFP empowers clients to meet their goals.

About Sontag Advisory, LLC

Sontag Advisory, an NFP Corp. subsidiary, is a New York City based, independent registered investment advisory firm that serves clients in more than 30 states. Founded in 1995, Sontag Advisory acts as a wealth manager, investment advisor, consultant, and fiduciary. For more information on Sontag Advisory, please visit www.sontagadvisory.com.

About Bronfman Rothschild

Bronfman Rothschild grows and preserves wealth through thoughtful and disciplined strategies that focus on what’s most important to each client. With ten offices throughout the Midwest and East Coast, we offer comprehensive wealth management and planning to individuals and families as well as retirement advisory and consulting services to retirement plan sponsors. 95+ employees adhere to a high standard of fiduciary care as we seek to form a true and objective partnership with each client we serve.

 

Bronfman E.L. Rothschild, LP is a registered investment advisor (dba Bronfman Rothschild) and NFP Corp. subsidiary. Securities, when offered, are offered through an affiliate, Bronfman E.L. Rothschild Capital, LLC (dba BELR Capital, LLC), member FINRA/SIPC.

The post Bronfman Rothschild Announces Close of Acquisition by NFP’s Sontag Advisory appeared first on Bronfman Rothschild.

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Bronfman Rothschild CEO Mike LaMena recently sat down with Citywire to discuss M&A and the integration of Bronfman Rothschild with Sontag Advisory. Read More.

The post CEO Mike LaMena weighs in on M&A with Citywire appeared first on Bronfman Rothschild.

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