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At a time when investors face widely swinging markets and an uncertain legislative outlook, several North Bay wealth advisers maintain that a long-term approach remains the core of a sound wealth management strategy. North Bay Business Journal asked advisers to comment on the current investment climate, the top concerns of clients, current pitfalls and how upcoming economic and legislative events might affect the world of wealth management.

The advisers are presented alphabetically. Some responses have been edited for length.***

[caption id="attachment_54612" align="alignright" width="200" caption="Eric Aanes"][/caption]

Eric Aanes is president and founder of Larkspur-based Titus Wealth Management. With more than 19 years of experience in financial services, he has held senior positions at a number of asset management firms.

"The economic climate of today appears to be one of constant flux. We are in a period of time where there is little certainty in the world and this has been going on for several years now. We don’t see any change on the horizon given all the political and economic headwinds the global economy is facing going forward.

Some major concerns of clients today are retirement income planning. While there are many computer programs that can help determine probabilities of how long your money will last, there seems to be no substitute for human interaction given all of the unknown variables in ones life. It is important to understand and monitor all the situations regarding your income on a regular basis.

Our view is you want to stay away from long term government bonds given the current low interest rate environment. Unfortunately, this creates a real yield conundrum. It’s a real question as to one’s risk budget and what they are comfortable with regarding fluctuations.

Legislative events continue to unfold, given the current deficit one could assume it’s logical that higher taxes may prevail in the future."

[caption id="attachment_54613" align="alignleft" width="200" caption="Jason Gittins"][/caption]

Jason Gittins is a partner at Willow Creek Financial Services in Sebastopol, where he began working as an intern in 1996. He has worked with a Certified Financial Planner designation since 2000.

"Today, it is more important than ever to carefully assess a client's entire financial situation and execute a holistic financial plan. With investor concerns about stock and bond market returns being low, the way to enhance a client’s household wealth is to be very mindful of alternative ways to build or preserve wealth. Key topics which we carefully analyze to seek opportunities to build or preserve wealth include tax planning, debt management (ie: should you refinance your mortgage), cash flow planning, insurance and estate planning, retirement plan funding (are you getting your company match?), pension and social security planning.

Our approach today would be no different than the approach six months, one year, or five years ago. Successful long-term investors have been invested through all turbulent markets, have taken advantage of the downturns by buying low, and the bull markets by selling high. They have endured both the highs and the lows, and have the long-term “wealth building” returns to show for it. The economic climate is always changing and evolving, but the fundamentals of successful long-term investing remain the same.

Health care costs create a lot of concern for clients, too. Clients need to be prepared to spend more than they may expect on health care expenses in the future. Another concern for our clients is the worry of how their children, grandchildren and those in their community (who don’t have their resources) are going to compete and maintain the good quality of life they enjoyed. We counsel our clients how to save for the next generations, and how to structure their estate plans to provide not only for their family but others in the community as well."

[caption id="attachment_54614" align="alignright" width="200" caption="Michael Gradl"][/caption]

Michael Gradl is senior vice president of wealth management for Redwood Credit Union with more than 20 years of experience in the financial services industry. He was named as one of the top 20 program managers nationwide in 2010 by Investment Consultant magazine.

"It’s still important to stay focused on the long-term journey and not be distracted by short-term fluctuations. Overall the economy is growing and companies are profitable, yet it’s happening at a modest pace that hasn’t gained the full confidence of impatient investors. Periods of reasonably good economic news domestically can be clouded by unfavorable information in more global markets. The European financial downturn has meant extended low interest rates in the US, and more volatile investment markets worldwide.

Six months ago, a stock market rally brought handsome returns to the brave investors who stayed in the markets after the 2008-2009 financial hard times.

We are finding many clients continue to feel unsure about their financial future. Although the markets have come a long way since the 2009 lows, they have yet to meet or exceed the highs set in 2007. Housing shows no signs of a quick return to the values of five to seven years ago so many people, understandably, feel their overall wealth has been negatively impacted.

In addition, savings interest rates are not motivating the long-term investor to think in long term. Short, safe and liquid are what many clients today are seeking.

Things to avoid: Avoid speculation with investments tied to your long-term financial goals. Avoid investing in longer-term interest-bearing treasuries or certificates. The one-year CD is around 0.40 percent and out to the 10-year treasury at 1.80 percent, and although a safe investment, two factors work against you: When interest rates finally begin to rise, you will face erosion of principal with bonds. Inflation -- your buying power is losing ground as the cost of living climbs faster than the value of your investment."

[caption id="attachment_54615" align="alignleft" width="200" caption="Steven Jenkins"][/caption]

Steven Jenkins is a senior vice president and the director of trust services at Santa Rosa’s Exchange Bank. He has 30 years of experience in investment and fiduciary services and has held executive positions at several institutions throughout his career.

"The major concern of clients today is yield, or more precisely, the lack of yield. Many investors have lowered their fixed income quality standards and lengthened duration in order to obtain a percent or two of addition yield. Some have also ventured into illiquid real estate investment trusts in search of yield only to find that the market value of their investment has been cut in half. We continue to remind our clients to focus on total return versus just current income, and not to lessen their focus on risk management when evaluating their fixed income portfolio. 

There are a number of events on the horizon, both large and small, that will affect the accumulation, preservation, and transfer of wealth. Regarding the transfer of wealth, due to current gift and estate tax laws, along with uncertainty with respect to future changes in these tax rules, this year represents a potential once-in-a-lifetime opportunity for many families to reduce their taxable estate and pass on more of their assets to their beneficiaries.

While the current estate tax laws allow an exemption of the first $10 million per couple, these exemptions are likely to change in 2013. The federal gift and estate exemption amounts expire at the end of this year and, absent congressional action, will revert to exemptions of only $1 million per person and tax rates of 55 percent on the amount in excess of $1 million. Although most tax and wealth management professionals believe Congress will act before year end on estate and gift tax legislation, virtually everyone thought they would have acted in 2010, yet they failed to do so. With Congress continually kicking the can down the road on the estate tax, the wealth transfer component of a wealth management plan needs the same periodic review process as does one’s investment plan."

[caption id="attachment_54616" align="alignleft" width="200" caption="Earl "Ed" Osborn"][/caption]

Earl “Ed” Osborn helped found the wealth advising firm now known as Bingham, Osborn & Scarborough in 1985, following his role as a partner in the law firm Johnston & Klein. He is the author of California Securities Exemptions, Transactions Analysis Program, and is based in the firm’s Healdsburg office.

"Today’s economic climate is marked by more uncertainty than one or five years ago, with a greater range of potential outcomes, none of which is assured. The economy is teetering between economic growth and double-dip recession. The job market is tenuous. Economic policy is swinging between the alternatives of austerity (Europe) and measured stimulus (United States.) 

Clients need to know that we are in new territory, dealing with an economic cycle unlike prior cycles in the post-World War II era. Economic growth can no longer be generated through increased government spending or increased consumer borrowing. Globalization leaves us more vulnerable to events beyond our control. These problems are exemplary of a modern world which is complex and interconnected, in which we must experiment with new ways of doing things, not knowing exactly what will work.

Clients are concerned on the one hand with a double-dip recession and deflation, and on the other hand with rising interest rates and uncontrolled inflation. Each possibility requires a different investment approach, which necessitate trade-offs. Investors are uncertain what to do, and have no clear idea of the future.

What clients must do is not try to predict the future, but rather to learn how to invest in an uncertain world with a wide range of potential outcomes. This means don’t make big bets on one investment or another. Diversify widely. Hedge against multiple risks. Don’t try to make a fortune. Be happy with preserving assets and earning competitive returns."

[caption id="attachment_54617" align="alignleft" width="200" caption="Henry Pilger"][/caption]

Henry Pilger is a principal and chairman at Vista Wealth Management and co-founder of Burr Pilger Mayer, the largest California-based accounting firm. He has over 25 years of experience in wealth management, spanning a variety of subjects.

"Many of our clients are beginning to feel more comfortable with the recovering economy and with their investment portfolio. Others have adjusted their investment strategy to a more conservative posture. The volatility of the markets these past few years has highlighted the importance of integrating financial planning and portfolio selection. Our clients want to know if they have enough money to retire comfortably, often years before their 65th birthday. Clearly identifying a client's possible life paths allows us to select the appropriate level of investment risk required to accomplish their goals.

Our investment philosophy is to focus on the things you can control. Taxes and unnecessary fees are a major drag on investment returns. Strategic asset placement can minimize taxation. ... Taxable fixed income and REITs generate ordinary income and should be held in a tax deferred account. Gold investors should be aware of the special 28 percent collectibles tax rate and should place this asset in a tax deferred account as well. Mutual fund fees charged by active portfolio managers typically range from 1 to 1.5 percent per year, while there are many low cost passive alternatives that produce similar investment returns but with far better tax efficiency. Well publicized academic research has shown that over 60 percent of active managers in U.S. equities fail to beat the index. A similar trend has also been observed in actively managed fixed income funds. 

Our best advice is to find a financial planner, develop a tax efficient, low cost and long term investment strategy based on your goals, and stay in the market. If you find yourself losing sleep at night you are probably not in the right portfolio. Update the financial plan every few years to check your progress and reassess the investment strategy."

[caption id="attachment_54618" align="alignleft" width="200" caption="Irv Rothenberg"][/caption]

Irv Rothenberg is a principal at Santa Rosa’s Wealth Management Consultants, LLC, a fee-only firm with clients primarily in California and the western United States.

"Even Warren Buffett advises that we should ignore forecasts because they tell us nothing about the market but a lot about the person. Another big problem is acting on recent events. Making decisions based upon very current events versus longer term data. 

The European crisis, the Iranian and Israeli situation, our own debt crisis, the fiscal cliff coming at the end of the year with no budget resolution, uncertainty over tax rates, and future risk of inflation ... since we don’t have clear crystal balls and relying on forecasts and active strategies has proven to be a loser’s game, one should focus all the time on the things we can actually control, and returns is not one of them.

A decision about realizing capital gains in 2012 versus postponement to a later period should be discussed with most investors because the answer is different for every investor. "

[caption id="attachment_54619" align="alignleft" width="200" caption="Ronald Wargo"][/caption]

Ronald Wargo is a partner at Santa Rosa law firm Friedemann Goldberg LLP. His specialties include estate planning, business and intellectual property law.

"The biggest changes have involved cash positions of the largest companies. Simply put, large companies are compiling historic amounts of cash reserves. Sooner or later, they will have to spend these reserves, the trick is choosing to invest in companies that will use their reserves wisely.

From the estate planning perspective, we are operating in a perfect storm of low values, low interest rates, and a high gift tax exemption. Such a combination of events may not last forever, and those with estates in excess of $3 million should consider some sort of leveraged gifting opportunities.

My clients wonder where they can keep their money. From their standpoint, CD’s and bank accounts produce to little return, but those who watched their assets fall dramatically are wary about the capital markets and the real estate markets.

Avoid the temptation to buy assets on margin. Obtain the advice of a competent investment professional."

[caption id="attachment_54620" align="alignright" width="200" caption="John Whiting"][/caption]

John Whiting is a partner with Moss Adams Wealth Advisors, LLC, advising business owners and high net worth individuals. He has over 20 years of experience in financial services and wealth management.

"One of the biggest challenges for investors is the need to manage expectations. We’ve been in a prolonged period of high volatility. People are anxious and rightfully so. Those who will be successful will continue to take a long-term view with regard to their investment strategy. In an effort to” catch up,” some folks will want to attempt to anticipate what the market is going to do and “time” it with changes to their target investment allocation. More times than not, they will miss opportunities presented to those that maintain a long-term view and target allocation. We manage our client’s investments so they are aligned with their long-term goals and are there for them with times get tough, keeping them invested.

We’ve seen a significant run up in the equity markets since March 9, 2009. S&P is up almost 100 percent since that time, yet most of the “news” has been pretty bleak. There are people still waiting for the clouds to clear before getting back in. Make no mistake, we will likely continue to see volatility in the equity markets for quite some time. Knowing what your long-term risk tolerance is and having a portfolio that is allocated accordingly will allow you to ride the ups and downs of the market in a way that will keep you in the game.

The current estate tax situation creates a very significant opportunity for those individuals that have significant wealth, wealth in excess of what they will need during their lives. Those folks have an opportunity to transition a significant amount of wealth to future generations free of gift tax. Under the current law, this opportunity is scheduled to be reduced dramatically on Jan. 1, 2013.

The challenge for folks in this position is to know what their personal wealth requirements will be, while they are alive. Until an individual or couple has a very comfortable understanding of their personal financial need, they will not be inclined to move forward with transferring wealth to future generations."