Summer 2014 Volume 15, Issue 3€¦ · UBS Conference Center, One North Wacker Dr., downtown Chicago. ... without a “salesy” pitch, just an organized talk showing an area where

Summer 2014 Volume 15, Issue 3

Summer 2014 • www.fpaillinois.org

2 Member ResourcesMember Update

3 Conference forAdvanced Planning

4 PartnersFarewell to ourCouncil Executives

5 Chairperson’sMessage

6-7 Council News

8 DistinguishedSpeakers SeriesCalendar of Events

9 Featured Partner:Performance Trust

10 Featured Partner:Cole Capital

11 Welcome NewMembers

MemberAnniversaries

Financial PlanningDay 2014

Late last year the FPAof Illinois sent ourmembers a survey tofind out what they seeas the value of theirmembership. Wefound our membersvalue professionaleducation andn e t w o r k i n gopportunities.

As you know, for the past several yearsthe FPAof Illinois has held two single-dayconferences each year, one in the springand one in the fall. In order to delivereven more value to our members, the FallForum was retired and in its place “TheConference for Advanced Planning”(CAP) was created and expanded to atwo-day event.

The CAP Conference will take place onOctober 7th and 8th at the Lisle Hilton.There will also be a pre-conferenceopportunity to obtain your ethics CE onOctober 6th.

The CAP Conference is geared towardsthose who are interested in expandingtheir knowledge of advanced planningtopics. This conference has committed tobring only high level topics to attendees.It is packed with new and cutting edgecontent. But it will also be an opportunityfor you to network with your peers at thistwo-day event. Finally, there will be theopportunity for you to visit withexhibitors that can help you manage andimprove your practice.

The conference will offer topics that fallinto one of three categories - financialplanning, investment management andpractice management. One unique switchthis year is that only half of the sessionswill focus on CE. This allows us to havetopics that are often overlooked at otherconferences but equally important as

traditional topics. These new topics willfocus on marketing and/or ways to bettermanage your practice. Some of thepractice management topics to appear thisyear are Compensation Planning, How toAuthor a Book in 90 Days andUnderstanding Business Valuation. Forthose that need their CE, not to worry,there will also be plenty of opportunitiesfor CE, with some of the biggest names inthe investment and financial planningindustry speaking. For example, some ofthe speakers will be:• Eduardo Repetto, co-CEO ofDimensional Fund Advisors who willspeak on TITLE

• Bob Keebler will be speaking onGenerating Tax Alpha for yourclients.

• Tim Kochis will present a 2 CEsession on Managing ConcentratedStock Positions

• Richard Weylman will be speakingon Breaking Out In A CompetitiveMarketplace.

• Michael Kitces will be speaking onShould Equities Decline InRetirement, Or Is A Rising EquityGlidepath Actually Best?

We hope you take advantage of thisconference and all that it has to offer you.With the strongest lineup of speakersfound anywhere, and two days availableto network extensively with your peers,we believe that it will be time well spentfor you. If you only attend one more eventin 2014, this is the event to attend; youwill not be disappointed!

Hotel accommodations, for those wishingto stay overnight are available for thediscounted rate of $119.

Make sure to register for the conferencesoon. The early bird rate of $645 willsave you $250 but will end on August31st.

PRESIDENT’S MESSAGECraig Larsen, CFP®, ChFCPresident

CONFERENCE FOR ADVANCED PLANNINGTAKES A NEW SHAPE

2Summer 2014 • www.fpaillinois.org

2014 BOARD OF DIRECTORS

ChairSharon L. Egan, CFP®(312) [email protected]

PresidentCraig R. Larsen, CFP®, ChFC(630) [email protected]

President-ElectLinda S. Weinrib, CFP®(312) 263-5235 [email protected]

Secretary/TreasurerJorie L. Pitt, CFP®(630) [email protected]

Director of MembershipValerie Janke, CFP®(630) [email protected]

Director of PartnershipJoe Flores(312) [email protected]

Director of Public AwarenessRandall T. Bruns, CFP®(630) 719-9222 [email protected]

Chapter ExecutiveDee Farris(847) [email protected]

President - Chicago Loop CouncilEric C. Westberg(630) [email protected]

President - North Shore Council Charles Sikorovsky(847) 205-1504

President - Oak Brook CouncilLori J. Miller, CFP®, M.S.(630) [email protected]

President - O’Hare CouncilAlan Locke(847) [email protected]

President - South Suburban CouncilTerrence M. [email protected]

Council Executive - Oak Brook andNorth Shore CouncilsKelly Zupan(312) [email protected]

FFPPAA ooff IIlllliinnooiiss MMiissssiioonn SSttaatteemmeennttMission StatementInclusion: We will serve a broad, diverse membershipMember Development: Enhance the professional Developmentof our members through networking, education, and serviceopportunitiesVision StatementTo be the community that fosters the value of financialplanning services.To be the primary resource of support and information for ourmembers, the public and the media.ValuesWe demonstrate leadership by:* Listening to each other and being fair and impartial;* Involving communities and respecting their input andopinions;

* Treating each other with dignity and respect;* Broadening our cultural and social horizons beyond ourusual experiences;

* Treating others with compassion and responsibility;* Fostering teamwork within and outside the Association;* Taking responsibility and accountability for our actions;* Producing timely and reliable data and information;* Encouraging innovation and recognizing contributions;* Creating a work environment that encourages input andfeedback;

* Embracing the idea of continual learning and training.

FPA to LaunchKnowledge Circles

FPA’s Knowledge Circles (KC's) are gathering places for like-minded members who want to engage in dialogue about bestpractices and innovations on particular topics. While serving as ameans for professionals to accrue greater knowledge of a specifictopic, each community will also guide the creation of FPA contentand educational programs.

Each Knowledge Circle will decide how it wants to connect.Online discussion forums, on-camera webinars, happy hour chats,in-person meetings – all of these are possible ways to gather.

There will be several ways to participate:

• Help Define a Knowledge Circle Vision• Become a Host• Join a Circle

Expected launch of the first three Knowledge Circles will be atFPA BE: Seattle 2014 on Sept. 20 – 22, 2014.


CONFERENCE FOR ADVANCED PLANNING

October 7th and 8th Pre-Conference Ethics Training - October 6th

________________________________________________________________

Eduardo Repetto, co-CEO Dimensional Fund Advisors New Research into the Dimensions of Equity Returns

Richard Weylman Breaking Out in a Competitive Marketplace

Tim Kochis Key Strategies in Executive Compensation and Managing Concentrated Stock Positions

Robert Keebler Generating Tax Alpha

Michael Kitces Setting a Proper Asset Allocation Glidepath In Retirement: Should Equities Decline In Retirement, Or Is A

Rising Equity Glidepath Actually Best?

Dan Moisand Alternative Withdrawal Strategies That Planners Can Actually Implement

Kelli Cruz Compensation Planning and Retention of Key Talent

How to Market, Service and Keep

ERISA Plan Clients Happy Trust as Beneficiaries of IRAs ERISA, Prohibited Transactions and the Role of a Fiduciary

Advanced Options Usage Taking a Fresh Look at Reverse Mortgages Volatility as an Asset Class

Best Practices in Risk Management

Understanding Business Valuation

Protection for High Net Worth Clients and Small Business Owners

How to Author a Book in 90 Days Using the Kolbe with your Customers and Employees Special Needs Planning in Illinois

How to Get the Most from Social Security when Evaluating and

Selecting Benefits

Entitlements vs. Long Term Growth

The X's and O's of Personal Insurance Policies

How to Recommend Clients Use Pre/Post Nuptial Agreements and

How to Prep Them for the Conversation

Collaborative Divorce Business Development Companies

____________

____________________________________________________

Edua

rdo Repetto, co-CEO Dimensional Fund Advisors

LANNIN

G

_______________________________________________

_________________

Eduardo Repetto, co-CEO Dimensional Fund Ad

visors


FPA of Illinois Partners - 2014

PLATINUM PARTNERSCHARLES SCHWAB ADVISOR SERVICESLinda [email protected]

CHUBB PERSONAL INSURANCETara [email protected]

COLE CAPITALShara [email protected]

PERFORMANCE TRUSTPatt [email protected]

SIERRA MUTUAL FUNDSTrinity [email protected]

WALTON INTERNATIONALLucas [email protected]

GOLD PARTNERSABERDEEN ASSET MANAGEMENT INC.Casey Gober, [email protected]

COHEN & STEERSJessica [email protected] INVESTORSSolon A. Person [email protected]

KEELEY FUNDSScott E. [email protected] DeMale, [email protected]

SEI ADVISOR NETWORKSteve [email protected]

TD AMERITRADE INSTITUTIONALSara ZehnackerSara.Zehnacker@tdameritrade.com402.658.1444TIAA-CREFSharif [email protected]

4

Eileen Jones with husband, Ron, anddaughter, Amanda

FPA of Illinois Bids Farewell…We were very saddened to say good-bye to our beloved council executives, Anne Brabecand Eileen Jones. Anne secured a full time position with the school district near her homeand Eileen hopes to work with the elderly.

North Shore and Oak Brook Councils dedicated their June meetings to Anne and Eileenas depictedin the photos below.

We’re sad not only because we’re losing two hardworking and efficient employees, butbecause we will no longer regularly see their heart-warming smiles.We’re saying goodbyenot just to two colleagues, but to two friends.Theirtenures with FPA of Illinoismay finish,but the sweet memories of working with them will never diminish.

We hope you will all welcome Kelly Zupan who is stepping in as council executive forNorth Shore and Oak Brook.

Anne Brabec and Dee Farris

Kelly Zupan and Eileen JonesOak Brook board members wishing Annefarewell

Ed Gjertsen, Eileen and Ron Jones Charles Sikorovsky, Eileen Jones and DeeFarris


CCHHAAIIRRPPEERRSSOONN’’SS MMEESSSSAAGGEESharon Egan, CFP®Chair

Spring Forum:The Spring Forum was held on May 21, at theUBS Conference Center, One North WackerDr., downtown Chicago. Special thanks toDee Farris, Jim Karabas, and Stacie Suhrburfor all of their hard work on this project!!Also, thanks to the board who all stepped in topresent, offer assistance, and generally keepthe day flowing!

We were pleased to have 109 people attend(it’s growing every year), and the feedback was wonderful! Sevensponsors brought speakers, and the topics included:

• Keeley Funds – Mid Cap Investing• Performance Trust – Bond Behavior• Cole Capital – Economic Outlook for the Real Estate

Market• Hodgson Consulting – Cloud Computing 101• Federated Investors – Global Economic Outlook• Aberdeen Asset Management Inc. – Asset Allocation

Strategies• Sierra Investors – Tactical Investing for Conservative

Clients

This event was created in 2012, the first Spring Forum, with thegoal of highlighting the expertise of our sponsors by giving themtime to present to our members, without a “salesy” pitch, just anorganized talk showing an area where that firm excels. Well, itsure worked, as the responses to the talks were great, andencourages us to continue to follow this format – it allows us toget to know the sponsors at a deeper level, and for them to have ashowcase for their specific talent, allowing the participants toself-select when visiting sponsor tables during the day. And, weall learn more about these great companies who sponsor ouractivities throughout the year!

The conference was followed by a cocktail party at South BranchTavern, sponsored by the NextGen group. A beautiful day and allenjoyed the cocktails and snacks – thanks NextGen!!

Highlights of Feedback:

• Venue is great – near the trains and easy to find• Variety of topics is great• Great line up of speakers• Include taxes, retirement and life changes next time• Good value for the money• Like the 7 CEs offered for the day

The biggest negative comment was that the lunch break was toolong – my bad – I forgot that the line for boxed lunches is muchfaster than a line for food you spoon onto a plate – shorter nextyear for sure!

Also, when asked if they will come again next year, 86% said“yes”, 14% said “maybe” – and no one said “no”. Wow!!!

If you missed this event, be sure to put it on your calendar for nextyear, and if you came this time and liked it, come back again nextyear. Better yet, volunteer for a committee and help us make ithappen in 2015.

At Cohen & Steers, we specialize in listed real assets,offering investors the benefits of direct asset ownership,

with the added advantages of liquidity, diversification,real-time market pricing and active portfolio management

800 330 7348

In a recent survey, 90% of top-performing fi nancial advisors indicated that their technology platform has increased the overall effi ciency of their business.* Morningstar provides a wide range of technology solutions, with capabilities like automated performance reporting, detailed attribution analysis, customized report creation, investment research, and secure electronic report delivery, that can help increase the effi ciency of your practice.

Ask FPA member Chris DeMale how Morningstar can help streamline everyday tasks and give you more time to grow your business.

Chris [email protected]+1 312 696-6055

*InvestmentN

ews 2013 Adviser Technology Study, M

arch 29, 2013. ©2014 M

orningstar, Inc. All rights reserved.

Add Effi ciency to Your Practice With Morningstar

Monte Luzadder, CFA, CFP®, CRCDirector of Communications, North Shore Council

On June 4th the North Shore Council hosted members and guestsfor a breakfast meeting featuring two guest speakers and a specialfarewell ceremony for guest of honor Eileen Jones.This event wasco-sponsored by Midwest Palliative and Hospice Care Center andEric Snively of American Funds. The focus of the June meetingwas to educate financial planners and other professionals ondealing with some of the more emotionally challenging topics thatmust be addressed with many of their clients: end of lifeconversations and generational wealth transfer.

Our first presentation titled “End of Life Discussions: HelpingClients with Life Transitions” was presented by Cathleen Adams,COO and Vice President of Clinical Services at Midwest CareCenter in Glenview. Ms. Adams focused her discussion on threetopics: 1) Advance care planning; 2) Identifying and coping withdementia; and, 3) Common myths of palliative care. Shepresented data to validate the assertion that wealthy people livelonger. As a result, a high proportion will be forced to transitionout of their homes and eventually end their lives in either ahospital or Long Term Care facility. Planners and advisers needto be prepared to deal with the financial implications of thesetransitions and the change of control that inevitably will occur.Ms. Adams recommended that financial planners should becomefamiliar with the official forms relevant in their state that deal withend of life decisions. These are commonly referred to as “UniformDo-Not-Resuscitate (DNR) Advance Directives” or “PhysicianOrders for Life-Sustaining Treatment (POLST)”. Sherecommends advisers consider uploading relevant documents to asecure “cloud” environment. Many attorneys currently use“www.docubank.com” for this purpose.

Ms. Adams also stressed the challenges of mental illness amongthe elderly. Nearly 5 million people are living with Alzheimer’sin the U.S. today, and nearly 1 in 3 seniors die with eitherAlzheimer’s or dementia. Caregivers can also suffer depressionand fatigue due to the great challenges they face.


REPORT FROM NORTH SHORECOUNCIL

Cathleen Adams

Terry Heafey and Tony DiLeonardi

REPORT FROM SOUTHSUBURBAN COUNCIL

Nancy Ladd, CFP®

On Tuesday, June 3, The FPA of Illinois South Suburban Councilhad its meeting at Tinley Park Convention Center at I80 andHarlem Avenue. There were approximately 10 participants. Ourpresident, Terry Heafey of Isis Wealth Management, welcomedeveryone and encouraged those in attendance to invite theirprofessional colleagues to future meetings. Terry then introducedour speaker, Tony DiLeonardi, Managing Partner of Third QuarterAdvisers, LLC.

Tony spoke about the importance of legacy planning with wealthywomen. They are the keepers of the family and will enable you tobuild relationships with the children and grandchildren. At somepoint in time, 80 percent of women will manage their own wealth.

Affluent women are more open to working with a financialprofessional than men. Helping women with legacy planning canbe done by a personal legacy document and by helping them tobegin legacy conversations with their families. This is oftenprompted by life’s transitions. Women fear becoming a bag ladyand having their wealth spent frivolously by the third generation.Legacy planning helps her to pass along her greatest assets whichare their life stories and values. This also enables the advisor todiminish the loss of assets when they pass to the next generation.Our next meeting will be Tuesday, September 8 at the Tinley ParkConvention Center at 7:30 a.m. Everyone is encouraged to attendour next dynamic presentation and to bring a guest.

Our second presenter at the meeting, Gary Shunk, CEO of FamilyWealth Dynamics, spoke on the topic of “Strengthening Families /Empowering Advisers”. Mr. Shunk emphasized the importance ofengaged listening and empathy skills when assisting multi-generational families of wealth navigate the non-financialchallenges of affluence. His approach focuses on the use ofpositive emotions to defuse conflict and improve trust andcommunications between family members. Mr. Shunk alsobelieves that a “Positive Psychology” approach can be usedwithin financial advisory practices to improve synergy andproductivity among team members.

The next meeting of the North Shore Council will be a luncheonon Wednesday, September 17 featuring a panel discussion titled“Current Issues in Estate Planning for LGBT Families” to bemoderated by Bill Levy, JD of the Rhoades Levy Law Group, P.C.

Gary Shunk


7

REPORT FROM CHICAGO LOOPCOUNCILEric WestbergPresident, Chicago Loop Council

The FPA of Illinois Chicago Loop Council continues to offer greateducational and networking events for our members. Our mid-year review of events and plans for the remainder of the year areas follows:

January 14, 2014 Partnered with Chicago Council on Planned Giving (Economic Outlook)

February 26, 2014 Behavior Finance with Michael FalkMarch 19, 2014 Strengthening Relationships with

Female ClientsApril 16, 2014 Good Funds Used PoorlyMay-2014 Spring Forum (No regular meeting)June 19, 2014 EthicsJuly 16, 2014 Social Security August 13, 2014 Networking Event with NexGenSeptember 17, 2014 Long-Term CareOctober-2014 Conference for Advanced Planning

(No regular meeting)November 24, 2014 Federal Reserve Meeting (Economic

Forecast)December, 2014 Board Meeting (No regular meeting)

Like all of the other councils, we are planning our 2015 scheduleand would like to hear from our members. What are you mostinterested in? What topics would you like to see us cover at oureducational events? Plus, we are planning more networkingevents for 2015. This is a great opportunity for members tointeract and get to know each other in a casual setting after hours.Stay tuned for the date and make sure you don’t miss thisopportunity to mingle with your peers with the FPA.

If you have any ideas that you would like to contribute or wouldlike to volunteer to help make our council stronger, please call meat: 630-849-3419 or e-mail me at: [email protected]

REPORT FROM OAK BROOKCOUNCILLori Miller, CFP®President - Oak Brook Council

I hope all of you are enjoying a wonderful summer after the brutalwinter we endured in Chicagoland! Our FPA of Illinois OakbrookCouncil welcomed in the summer season with a special socialnetworking event on June 4th, hosted by Calamos Investments attheir award-winning “green” North American headquarters inNaperville. The food was delicious, the beverages refreshing, andthe Calamos wait staff very attentive. Our host Kevin Beck invitedhis National Sales Director, Tim Brand, to give an overview ofCalamos and a preview of Alternative Investments that he will bepresenting in more detail at our next Council meeting. Nearly 40FPA members, graduating college students and guests attendedthis special evening to also celebrate the retirement of AnneBrabec, our esteemed Oakbrook Council Executive who has beena dedicated and enthusiastic staff member for over 23 years! Annecould always be counted on to be the cheerful greeter andorganizer at all of our functions and assisted at the FPA of Illinoisspecial events too ---she will be greatly missed, but loves her newrole in her school district. At the same meeting we were thrilledto welcome our newest team member, Kelly Zupan, who hasaccepted the responsibilities of Anne’s position effective July 1st.Our State Board had appointed a task force on which I served thispast spring to find and secure the Oakbrook and North ShoreCouncil Executive positions, and Kelly comes to the FPA ofIllinois with high regards and is quickly transitioning to our newwebsite, registration process, and the administrative functions.Please introduce yourself to Kelly at our next gathering that isquickly approaching on August 22nd, and you too will see that shewill add value to our accomplished FPA of Illinois family.

Yes, I keep dropping hints that our next Oakbrook Councilmeeting is Friday, August 22nd and we want you there since weare featuring “Alternative Investments for the Main StreetInvestor”. Our program committee has secured CalamosInvestments and Morningstar to present a deeper dive intoAlternative Investments, so this is a 2-hour program you won’twant to miss if you’re nervous about a market pullback, want todiscover how to secure yield for your retirement clients, how todial down the volatility for your risk adverse clients, and manyother take-aways to help you construct allocation strategies thatmakes sense. Our panelists will be on hand to answer your realquestions, so this is your chance to get up close and personal withnon-correlated assets. Of course, don’t miss the delicious hotbreakfast included in your registration at 7:30am first, as our newlocation at the Naperville Country Club is known for its cuisine.We will also enjoy the private golf course views from theirexecutive dining room since we are being upgraded toaccommodate all of you! We just may have another treat after theprogram concludes, so be ready to bring your clubs.

Mark your calendars now for another “treat”, no trick, onHalloween morning, October 31st, again at 7:30am to learn fromChicago Federal Reserve analyst Scott Brave discuss the latestdevelopments in Monetary Policy. Meetings are held at theNaperville Country Club, 25W570 Chicago Avenue in Naperville,IL. Registration and hot breakfast buffet open at 7:30am and theprogram runs from 8:00 am – 10:00 am. You can register onlineat www.fpaillinois.org or contact Kelly Zupan [email protected] or 312- 318-6412. Thanks for reading,and we look forward to welcoming you to our next program onAugust 22nd. Enjoy your summer!

Barbara Gawdzik, Greg Theis, Lori Miller

l to r: Andrew Salata, Social Security Administration, Patt Long,Performance Trust, Eric Westberg, president, Chicago Loop Council


FFAAIILLIINNGG TTOO PPLLAANN IISS PPLLAANNNNIINNGG TTOO FFAAIILL……aanndd tthhaatt aapppplliieess ttoo yyoouurr nneexxtt bbuussiinneessss aauuddiitt..Ring, ring, ringWho is it?Your Illinois State Securities AuditorWhat can I do for you?I’m coming to your office to look through all your RIA and B/D business related information.If you had this call you know you will have a tough time sleeping as you do a business fire drill hoping you have everything in goodorder the auditor may want to review.Even if you think you are prepared or have been through this before, the rules and interpretations keep changing, especially in thenew social media world we live in.At our next DSS meeting you can hear directly from the Illinois Securities Department about how you should plan for your next audit.You will find out what you should have in place and what you should expect during the audit. The floor will also be open for specific(anonymous) questions and answers. The final Distinguished Speakers Series for 2014, “How to Help your Business Owners and Employed Clients Deal with Obamacare,”will be held Friday, November 14th. Jeff Kubik from EBRM (Employee Benefit Risk Management Services) will discuss the current state of the Patient Protection andAffordable Care Act and how you can serve clients with your knowledge and expertise.

Date Time Council Description Speaker Location .

August

8/22/2014 7:30-10 AM Oak Brook Alternative Investments Tool Kit Naperville Country Club

September

9/5/2014 11:30 AM-3 PM Chapter How to Survive an Illinois State Securities Audit State of Illinois Securities Café LaCave,Auditor Des Plaines, IL

9/9/2014 7:30-10 AM South Suburban Tinley Park ConventionCenter, Tinley Park, IL

9/17/2014 11:00 AM-1:30 PM North Shore Current Issues in Estate Planning Bill Levy, JD, Rhoades Levy Law Highland Park Country Clubfor LGBT Families Group, P.C.

October

10/6/2014 AIF Training Hilton Lisle/Naperville

10/7-8/2014 8:00 AM-5 PM Chapter Advanced Financial Planning Conference Hilton Lisle/Naperville

10/15/2014 11:30 AM-1:30 PM Chicago Loop Topic Open

10/31/2014 7:30-10 AM Oak Brook Economic Outlook Scott Brave, Federal Reserve Bank Naperville Country Club

November

11/14/2014 11:30 AM-3 PM Chapter How to help your Business Owners and Jeff Kubik, President, Employee Café LaCave,Employed Clients Survive Obamacare - Benefit Risk Management Des Plaines, ILUpdate on the Affordable Care Act Services

11/24/2014 11:30 AM-1:30 PM Chicago Loop Economic Update at the Fed Bill Strauss Federal Reserve of Chicago

11/19/2014 11:00 AM-1:30 PM North Shore Charitable Giving Planning: From Conversation Randy Fox, Allstate Highland Park Country Clubto Implementation; Field Testing a Trust Dan Felix, JD

December12/2/2014 7:30-10 AM South Suburban Tinley Park Convention

Center, Tinley Park, IL


Fixed Income Debate: Individual Bonds or Bond Funds?Which one is appropriate for your client AND for rising rates?Why is Fixed Income so challenging?

Fixed Income. Two words historically synonymous with “consistent”, “safe” and “low volatility,” has become a source of frustration andconcern for advisors, especially for baby boomers as they approach retirement. For 33 years, we have watched the 10-year Treasury ratesdrop from a high of 15.8%. Even recently, the 3-month T-Bill has moved from 5.03% in January 2007 to 0.03% in January 2014 – a 500basis point drop!Interest rate direction has historically been impossible to predict. In 2013, most economists inaccurately expected rising rates in 2014.

Instead, the 10-year Treasury dropped more than 50 bps since the beginning of the year. Despite one’s best intentions, no one canaccurately and consistently predict the future direction or magnitude of rate changes.However, at some point, the rate rise predictions can come true. How do we prepare now?Unfortunately, what has worked in the past may not work going forward. Let’s look at the options.

Bond Mutual Funds

Funds provide access to professional managers. For advisors seeking exposure to high yield or emerging markets, this expertise can beparticularly beneficial. These investments require a deep understanding of credit, country, political and currency risks. Given manyadvisors lack of expertise or time, it stands to reason that these investments are best left to professionals.Many advisors like funds because they are diversified. Some of the larger funds, like the Vanguard Total Bond Market Index fund

(VBMFX), consist of thousands of bonds; 6,691 in this case. If that’s not enough diversification for you, the PIMCO Total Return fund(PTTAX ) holds 18,418 bonds! Is there such a thing as too much diversification?Another common benefit is liquidity. With the click of a button, advisors can easily allocate the portfolio or sell when cash is needed.

Simple.Despite these benefits, there are a number of drawbacks that aren’t as evident.Mutual funds have no stated income and no specified maturity date, otherwise referred to as perpetual maturity. For clients that need

definitive income or prefer a defined maturity, mutual funds might not be the best solution.Mutual funds are tax inefficient. Clients may experience unwanted gains when significant net outflows are triggered in the fund. Also,

due to the mutual fund structure, when losses occur, funds are not able to pass on those losses to the investor as losses are held in thefund to offset future gains. The ability to capture tax losses provides valuable benefits for the client.

Although liquidity is a benefit, crowd behavior, human emotion and headline risk can create panic and liquidation, forcing fundmanagers to sell the best bonds first. Investors who remain are left holding inferior bonds.Let’s consider last summer’s events. Shortly after the Fed announced their intention to reduce the bond buying program, interest rates

moved up aggressively in a short amount of time. From May 1st until September 5th, the 10-year Treasury moved from 1.63% to 3.0%,a rise of 137 bps in 4 months!What followed was 30 consecutive weeks of net outflows, causing the NAV on many bond funds to dropmeaningfully. For example, on May 1st, the PIMCO Total Return Fund’s (PTTAX) NAV was $11.35. By September 5th, the NAV was$10.53, a decrease of 7.22%! iThe Fed is concerned about liquidity too. In June, The Financial Times reported significant Fed concerns about the potential for mass

outflows from funds in times of stress. They are discussing possible implementation of exit fees and gates. Such policies would makefunds less liquid and prevent redemptions, exactly when you need it! While this may be good for fund managers, what about your practiceor your clients?When considering investment options, expenses are critically important as they directly reduce a portfolio’s total return. For fixed

income, especially now, expenses can be a significant drag on performance. Clients are paying not only an expense ratio but many fundsalso include 12b-1 fees, redemption fees and sales loads. When considering expenses, be sure to consider your fund’s expense ratio as apercentage of yield or total return; you may be surprised.

Individual Bonds

Investors seeking high yield or exposure to emerging markets are better served with a professionally managed fund. However, if thestrategy is to invest in high quality bonds, such as investment grade munis, corporates, CDs or agencies, your clients may be best servedbuying the underlying investments directly rather than the packaged product.Individual bonds are a contractual cash flow with a specified coupon and maturity. Assuming no credit issues, clients can own individual

bonds with a defined coupon and maturity for each bond they own and experience regular cash flow and return of principal when held tomaturity.Most importantly, individual bonds provide advisors the ability to create a custom portfolio of individual bonds that are tailored to the

client’s specifications; for the cost of the bond mark up at the time of purchase. Also, unlike some funds, the client can know exactly whatthey own.While clients with less than $250,000 to invest in fixed income will most likely benefit from mutual funds, those with more investable

assets seeking high quality bonds in a client-centric solution should consider individual bonds.

Jason Stuck, CFADirector, Performance Trust Analytics [email protected] Finance, PIMCO Total Return A (PTTAX),http://finance.yahoo.com/q/hp?s=PTTAX&a=4&b=11&c=1987&d=6&e=30&f=2014&g=d&z=66&y=264.



Welcome to the 33 new membersof FPA of IllinoisMay 1, 2014 - July 31, 2014Central IllinoisSasha GrabenstetterKevan Melchiorre, CFP®Kyle WettersChicago LoopDaniel B. Fitzgerald, CFP®Kenny GarciaMeghan GembaraSirisha GorjalaJon HarveyJoshua K. LamersJohn K. Nicholson, Sr., CFP®Susan A. PayneKenneth G. Pollard, Sr., CFP®David RistauGreater Oak BrookKevin BerceLaurie W. BlazekJacob CaldwellGabriel A. ChavezChristopher DeacyChris EllerWilliam P. Ellsworth, JD, CFP®Mary McGovernBrian M. NiksaJacqueline RunnbergMatthew TomichJohn N. Wills, CFP®Greater O'HareNicole Campbell

Tyler FisherDaniel FudalaScott A. JohnsonBrent A. Lindell, CFP®Gary D. LoveMichael McKevittNorth ShoreKelly FitzpatrickCongratulations to memberscelebrating membershipanniversariesMay 1, 2014 - July 31, 201430 YearsJoel M. Blau, CFP®Jack R. SoderlundThomas G. Tesar, CFP®25 YearsArmond A. Dinverno, CFP®David A. Marcus, CFP®,Michael P. McGillicuddy, CFP®Kevin J. Meehan, CFP®, ChFC, CLU,CASL20 YearsElizabeth Roob Ireland, CFP®Paul Kelly, CFP®Ann Marie Klingenhagen, CFP®Scott R. Lebin, RFCMary Kay Ryan, ChFC, CPA/PFS, CFP®James M. Weil, CFP®, CIMA, ChFCMaria R. Wilson, CFP®, CRC15 YearsDavid L. CoonrodJeffrey L. Crum, CFP®

Judy C. Curtis, CFP®Amy J. Downey, CFP®James EcclestonJack A. Folkerts, CFP®, CPAMichael C. Foltz, CFP®David W. Harby, CFP®, CLU, ChFCDouglas M. Miller, CFP®David N. Navarro, CFP®, ChFC, MSFSKarin M. RettgerDwain K. Tataryn, CFP®Linda S. Weinrib, CFP®10 YearsEric J. Anderson, CFP®Bradley M. Barrie, CFP®John L. Bodolay, CFP®,CIMAJames E. Chadwick, CFP®David J. Dahl, CFP®Amanda L. Falkum, CFP®Kathleen J. Howe-Hrach, CPA, CFP®Matthew S. Mikula, CFP®Jeffrey S. Rollo

5 YearsMohsin Dada, CFP®Gerard Fellows, CFP®Adam J. Glassberg, CFP®, CIMAThomas B. Hall, CFP® & AEP®Craig E. Jensen, CFP®, CRPC®, CPAKhloe U. Karova, CFP®Jacob D. Kuebler, CFP®, EAJoseph J. McDonnell, CPA, CFP®Terrance P. Murphy, CFP®Morgan G. Pearsall

CHICAGO FINANCIALPLANNING DAY 2014Randy Bruns, CFP®Director of Public Awareness

On Saturday, October 25th FPA of Illinois and the Harold Washington Library will host “Chicago Financial Planning Day”. This localevent is part of the national “Financial Planning Days” initiative sponsored by four national non-profit organizations – the FinancialPlanning Association®, the Certified Financial Planner Board of Standards, Inc. ®, the Foundation for Financial Planning, and the UnitedStates Conference of Mayors.

Chicago Financial Planning Day 2014 will feature experts from the Financial Planning Association® and highly qualified CERTIFIEDFINANCIAL PLANNER™ professionals, all volunteering their time and expertise to provide free one-on-one counseling and classroom-style educational presentations addressing key personal finance topics. Best of all, there are no strings attached – volunteer financialplanners will not sell products or services, give out business cards or take down names.

The event is free to all attendees and will run from 10:00am until 3:00pm. If you are a CFP® professional and would like to volunteerat Chicago Financial Planning Day, please contact Randy Bruns by phone at (331) 214-9204 or via email [email protected]. Additional information can be found at www.FinancialPlanningDays.org.

12Summer 2014 • www.fpaillinois.org ©2006 Financial Planning Association of Illinois

PRESORT STDU.S. POSTAGE

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Phone: (847) 244-3691

Toll free in Illinois: (800) 430-4237

Fax: (847) 244-9813

www.fpaillinois.org

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www.chubb.com. Actual coverage is subject to the language of the policies as issued. Chubb, Box 1615, Warren, NJ 07061-1615. ©2013 Chubb & Son, a division of Federal Insurance Company.

Documents

Summer 2014 Volume 15, Issue 3€¦ · UBS Conference Center, One North Wacker Dr., downtown Chicago. ... without a “salesy” pitch, just an organized talk showing an area where