In what should be landmark legislation to reform the financial system, there is a little known component of the proposed legislation that forces investment brokers (Broker/Dealers) to actually act in the “best interest” of their clients. That’s right, your broker will have to put your interests before the firm’s.

The Dodd-Frank Wall Street Reform and Consumer Protection Act that passed the Senate a week ago Thursday requires the Securities and Exchange Commission to conduct a six-month study on the impact of adopting a fiduciary duty for brokers. As I see it, that should be an easy study to conduct. If brokers are no longer allowed to abuse their clients in an effort to line their own pockets, the impact should be positive for individual investors.

Current law only mandates that brokers meet a “suitability standard”, requiring them to offer appropriate investment advice to their clients. A “fiduciary standard”, by contrast is a much higher standard and one which will allow investors to sue their broker if the duty is breached. The relatively small Registered Investment Advisor community (firms that charge a fee for advice instead of commissions) has owed their clients a fiduciary standard of care since the Investment Advisors Act of 1940 was signed into law more than sixty years ago.

Explaining what it would mean if the SEC were to impose a fiduciary duty on broker-dealers, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, told CNN that they would “for the first time … have to act in your best interests or you can sue them.”

Not surprisingly, industry executives are opposed to this legislation. Tom Currey, president of the National Association of Insurance and Financial Advisors told Politico “We frankly think, and thought from the onset, the suitability model under which broker-dealers are regulated works pretty well.” The question though is: “who does it work well for?” Clearly, it has worked well for the investment sales community but in light of revelations of the client dealings of major Wall Street firms such, it has been disastrous for the individual investor. It is high time that the brokerage community quit their self dealing and put the client’s interest first.

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio.  Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Hoxton Financial, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

Wealth Manager is proud to present the 10th annual Top Wealth Managers survey results, rankings and analysis. The firms that participate in the Top Wealth Managers survey are the lion’s share of the largest, most established registered investment advisors (RIAs) in America—the ones that our survey partner, Fusion Advisor Network President Philip Palaveev, says are ‘the ones every RIA wants to be when they grow up.”

A Family Mission Statement Can Help Any Family Manage Assets,
Philanthropy and Direction

A family doesn’t need a surname like Vanderbilt to benefit from a family mission statement.  A mission statement is a collaborative document created by one or more generations of family so standards and goals can be set for the handling of all family assets, including businesses and philanthropy in particular.

While mission statements aren’t legal documents – in fact, many are done both in written form and on videotape as a companion to legal wills and directives –  their purpose is to make a record of the family’s values, goals and aspirations and how those sentiments should drive future decisions about family wealth management, business succession plans and charitable pursuits.  Multi-national companies have mission statements. Non-profit corporations have mission statements.  A mission statement for your family, helps identify and clarify specific values and goals, facilitates group decisions, instills confidence and encourages unity.  

It should also identify family leadership who will work with other relatives in implementing those goals.

While the end product should produce a document built from discussion, argument and consensus, it’s not so much about the piece of paper as the process. Many families start the process as a way to build consensus about long-term financial, business, estate and philanthropic goals, but the conversation can take twists and turns that don’t directly involve the family money. In this process, a family can identify the strengths, weaknesses and unearthed priorities of all family members and might reveal leadership few had expected.

Trained financial advisors including financial planners, tax experts and estate attorneys, can help explain the process and set an agenda for families to follow in creating the mission statement. While some extended families may elect to bring in a facilitator to guide their process, there are generally four components to a family mission statement – estate issues, philanthropy, business planning and family dynamics in general.

It also helps to start with some questions that can guide the discussion.  Many experts start with questions that first get family members talking about their relationships and how their dynamics work, and then move into business and money matters.

• What’s most important about our family?
• What do you think our goals should be?
• When do you feel most connected to the rest of us?
• How should we relate to one another?
• What are our strengths as a family?
• Where do you think we’ll be as individuals in 5, 10 and 15 years?
• In order, what are the five things you value most in life?
• How should we behave toward each other?
• How should we take care of relatives who are or become sick or disabled?
• How should we resolve our disputes?
• How important is the family business to you?
• What should we be doing differently with our family money as well as our assets inside the business?
• What professionals or structures should we bring in to help us manage our wealth?
• What’s the best way for us to be building our wealth?
• What do you think the role of our family should be in helping the community?
• What should we be doing individually and as a family with regard to philanthropy?

Structurally, the written mission statement can be whatever you agree it should be – most experts say it should be no more than a paragraph long, but that’s a guideline, not a rule. It is also very important to focus on the positive, meaning what you want to accomplish and achieve as a family, as opposed to want you want to avoid. And it needn’t be set in stone – a family should have a meeting every year or two to revise or approve its mission.  The family mission statement helps a family establish its identity and the variety of voices within, and those voices may be subject to change over time. The family mission statement is a living, breathing document that can evolve over time. In today’s fast paced world, it is easy to get caught up in the here and now, a family mission statement can help you stay true to your family’s values. As a result, families may not feel the pressure to keep up with the Joneses because their mission  statement helps achieve balance. It is also very important to focus on the positive, meaning what we want to accomplish and achieve as a family, as opposed to want we want to avoid.

The right mission statement can help reset goals and diffuse tensions later. It can also be used to moderate discussions that inevitably happen after major changes within the family – death, divorce or happily, an increase in the number of heirs and participants.

As for the age of the participants, it can start in very basic form with younger children and the process can mature as they age. It’s actually a good idea to bring young members into a customized version of the process for youngsters so they can comfortably adjust to working as adults with the older members of the family.

For additional resources on how to create a family mission statement, please consider utilizing any of these websites

http://www.nightingale.com/mission_select.aspx?from=homepage&element=missiontitle

http://www.ehow.com/how_2043790_write-family-mission-statement.html

http://www.franklincovey.com/msb/

Most of our Shepherdstown lines are up and running now. Unfortunately the toll-free and main line are not. It seems that someone fed the gremlins last night and they fried these two lines. Everything should be back to normal later this afternoon. In the meantime, call 304-876-2656 or 304-876-2664 to reach us.

Good morning! We thought we should let you know that we are experiencing some problems with the phone system in our Shepherdstown office. We anticipate that it will be solved later this morning. In the meantime, please contact us by email or cell phone.

Last week was a volatile one filled with uncertainty that resulted in a sharp decline in stock prices. The Euro dropped to a four year low before rebounding a bit in what appears to have been a “short covering” rally. The 30-year bond yield hit fresh lows for the year and the S&P 500 closed on Thursday at the lowest level since February (taking out the so-called “fat finger” low).

There wasn’t a specific headline to account for the swings, though continued uncertainty about Europe is keeping negative investor sentiment in place for now.

Here at Hoxton Financial, we continue the process begun earlier this year of reducing managed portfolio exposure to stocks. So though the markets are significantly lower, portfolio performance has compared favorably on a relative basis. We stand ready to continue protecting portfolio values if the stock market continues its march lower.

Putting Things in Perspective:

Take a look at where the market (S&P 500) has been over the last few years:

10/07          1565           S&P 500 All time closing high

3/09             683            Down aprox 56% from the peak

4/10            1219           78% above its 3/09 low and 22% below the 10/07 high

5/20/10       1071           12% below its 2010 high, down 4% ytd

Therefore, after a 78% advance from the March lows, the S&P 500 (so far) is experiencing a 12% decline (as of May 20^th).

Why the recent increase in volatility?  Despite the confidence with which the media presents causality of any market event, you can never be sure of the direct cause of any short term changes in market sentiment.  Certainly, there are a number of qualified candidates:

•    Budget ”Crisis” in Portugal, Ireland, Italy and Greece (PIIGS)
•    Civil unrest in Greece due to the required reduction in entitlement spending
•    Lack of confidence in leadership (Legislative and Executive) to get U.S.budgets  under   control and  fear that the European budget crisis is a preveiw of things to come in the U.S
•    The implications of the ”Euro” crisis spreading and derailing the global recovery
•    China taking actions to SLOW their economy due to rising inflationary pressures
•    Fannie and Freddie’s continued drain on the U. S. taxpayer
•    Continued high unemployment
•    Irregular trading activity (most likely due to electronic order routing) which erodes      investor confidence in financial markets 

WHICH IS MORE IMPORTANT–making sure you participate in the market’s 10-best performing days or avoiding the market’s 10-worst performing days over any given period? Based on the 81 years between January 3, 1928 and March 31, 2009, here are some numbers to help us answer this question, according to data from Invesco Aim:

• The 10-best performing days in the S&P 500 index yielded a daily average return of 11.7%. The 10-worst performing days yielded a daily average return of -10.8%.
• If you missed the 10-best performing days, $1 would have grown to just $14.99.
• If you missed the 10-worst performing days, $1 would have multiplied to $143.47.
• If you missed the 10-best and the 10-worst days, $1 would have grown to $47.59.
• On a buy and hold basis, one dollar invested at the beginning of this 81-year period would have grown to $45.18 by March 31, 2009.
• All 10 of the worst performing days occurred during bear markets as did seven of the 10 best-performing days.

Here are a few thoughts on interpreting this data: 

• First, missing the 10-best performing days reduced your growth over the entire 81-year period by about two-thirds compared to staying fully invested during that period. This makes a case for staying fully invested so you don’t miss these big up days.
• Second, missing the 10-worst performing days more than tripled your results compared to staying fully invested. This suggests that historically, if you had magical powers to foresee the future and were out of the market on the 10-worst performing days, your return would have more than tripled the return of the fully invested buy-and-hold strategy. This makes a case for market timing.
• Third, missing both the 10-best and 10-worst days in the market had very little impact on your results compared to just staying fully invested during the entire period. Score another one for buy-and-hold.

But, let’s be realistic. The above numbers are based on historical data, you cannot invest directly in an index, and few people have an 81-year investment horizon. And, by the way, nobody we know has the ability to perfectly time the market and pinpoint the 10-best and 10-worst performing days before they happen.

This data helps support two of our beliefs. First, the historical data shows the importance of risk management relative to return maximization. Second, we design your investment plan to meet your financial goals, not simply to capture or avoid the best and worst days in the market. Ultimately, it’s your number that we are trying to achieve.

Rob Hoxton of Hoxton Financial and Anna Taylor of Anna Taylor Design will host a virtual meeting for members of the presitgious Phoenix Group to discuss the benefits and pitfalls of social marketing for financial advisors. The Phoenix Group represents the financial planning profession’s most forward thinking firms from across the United States. Membership is by invitation only.