Increasing Your Return on Life.®

Frank Talk - 3rd Quarter Newsletter (2016)

Published: 08/30/2016

Table of Contents


Written by: Frank Fantozzi

Happy Summer, Clients and Friends!

It’s been a hot one so far! Hopefully you’ve had an opportunity to chill-out this summer with family and friends despite record-breaking temperatures from coast-to-coast. While we can’t do much about the heat, we do have some cool news to share with you.

This summer has been a particularly exciting time for our firm and our clients. In late May we hosted our 8th Annual Cleveland Economic Summit followed by the July launch of our two new websites: and We also rebranded our corporate and institutional investment offering: 401(k) ProsperityTM – Simplicity in a Complex World.TM 

In late July, we announced our decision to restructure our business as a full-service Registered Investment Advisor (RIA) to provide you with increased flexibility and choice in pursuing the Return on Life® you and your family desire. More details on each of these important milestones is provided below.

8th Annual Cleveland Economic Summit

On Tuesday, May 24, 2016 we had the pleasure of hosting 120 clients, friends, and local business leaders at our 8th Annual Cleveland Economic Summit. The late afternoon event began with a networking and cocktail reception held at the world renowned Cleveland Botanical Garden. This year’s Summit featured two distinguished speakers: LPL Financial Vice President and Market Strategist, Ryan Detrick, and Horizon Investments Chief Global Strategist and Washington-insider, Greg Valliere.

Mr. Detrick provided timely insights on the financial markets and the Fed’s latest thinking, as well as his expectations for the remainder of this year. Mr. Valliere offered keen insight on today’s dynamically-charged political and global economic landscape, providing in-depth analysis and perspective on what’s really at stake for local investors, taxpayers, and business leaders this election year, and why the increasing impact of geopolitical forces on your investment portfolio and business strategy should matter to you.

We thank those of you who took the time to join us this year and look forward to hosting the 9th Annual Cleveland Economic Summit in 2017.

PFS Launches Two New Websites

In July we announced the release of our two new websites designed to offers clients and visitors a content-rich experience, contemporary format, and compelling imagery, along with a clearer understanding of how your Planned Financial Services and 401(k) ProsperityTM team partners with you to create a memorable and  rewarding experience along the path to pursuing your important financial, business, and life goals. and

Both websites present the content and resources you seek through clear, straightforward videos, articles, infographics, and more. We’ve also streamlined our content across mobile and desktop platforms, providing an enhanced user experience and accessibility, so finding the information you need and want is easier than ever before. When you visit our websites, you’ll be able to quickly find information about the services you  currently use, or other services you may be interested in learning more about. A few of our new website features and benefits include:

  • Mobile-Friendly Sites: Experience quick screen load times in a format that’s easy-to-read and navigate from smart phones, tablets, laptops, and other devices.
  • Personalized User Experience: Financial planning and advisory services clients enjoy convenient access to account information through a secure log-in, conveniently located at the top right corner of our Home page.
  • Streamlined Navigation and Content: Quickly access the information, tools, and resources you require.
  • Client Stories: Read about the many ways your team helps people like you, who seek to achieve more for their family or business.
  • Financial Education, Articles, Videos, and Market Updates at your Fingertips: With our new design, you can quickly find and view articles, videos, investment research, and updates on the topics that interest you.
  • Downloadable Tools: Our new Downloadable Tools section provides a fast, easy way to view, download, and share value-added resources.
  • Team Member Profiles: Learn more about your team, both personally and professionally.
  • Upcoming Events: Our Events tab keeps you informed of upcoming events and seminars, including our Annual Cleveland Economic Summit. Events will be populated as they’re scheduled and you’ll enjoy the ability to RSVP online.
  • Automated Newsfeed – Scroll to the bottom of our Home page to access the latest news and press from Planned Financial Services and 401(k) ProsperityTM.

Check us out today! Visit and then drop us a line at and tell us what you think about our new websites.

401(k) ProsperityTM Brand Launch

In our continuing effort to provide our business owner, corporate, and institutional clients with best-in-class services, we’re pleased to announce the rebranding of our 401(k) Plus® corporate retirement plan and institutional asset management division to 401(k) ProsperityTM in conjunction with the launch of our new website.

“Prosperity” is defined as a successful, flourishing, and thriving condition—exactly what we strive to bring to your business and your employees every day. As such, we believe the 401(k) ProsperityTM name more accurately represents our retirement planning and institutional asset management philosophy and better describes how we create Simplicity in a Complex World.TM as we help companies pursue the goals they’ve set for their organizations and employees. It speaks to our steadfast focus on employers and their plan participants, and embodies our team’s commitment to continually expand our professional and industry knowledge as dedicated investment fiduciaries, as well as the program services and resources we provide.

In conjunction with our rebranding announcement, corporate retirement plan sponsors received a “Q&A” about the name change, as well as a sample letter they can use to communicate this change to plan participants.

PFS to Become a Full-service RIA

In our first and second quarter newsletters, we shared information about our active exploration of business structures that would provide greater flexibility in meeting our clients’ growing and changing needs and accommodate the changing regulatory landscape, including the Department of Labor’s (DOL) new fiduciary rule. We are pleased to announce that effective January 1, 2017 Planned Financial Services will transition from its current dual RIA registration with LPL Financial to serve as a full-service Registered Investment Advisor (RIA). We believe this business structure transition will enable us to serve all of our clients better today and in the future, and will not cause any interruption in the exceptional service that you have come to expect from our firm.

The transition to a full-service RIA will benefit our clients in a number of ways, providing:

  • Greater flexibility in serving your needs, including the ability to custody assets at multiple custodians, as necessary, and based on your needs and circumstances.
  • The ability to invest more in our business and technology capabilities over time, and gain increased flexibility with regard to how we report on your investments and financial planning goals.

While client statements and account numbers will remain the same, and your assets will still be held at LPL Financial, in order to complete this transition all Planned Financial Services advisory agreements and accounts are required to be updated. Industry regulations also require appropriate agreements to be in place for all client accounts that correctly reflect the business structure of our firm and the relationship we have with our clients.

As a result, all Planned Financial Services clients will receive additional materials outlining this change in greater detail, beginning in August, and will receive copies of updated agreements that require their signatures along with instructions for completing and returning these forms. Our goal is to make this process as simple and easy as possible for you and we’re available at any time to answer your questions or provide additional information about what we believe to be the right business structure to support a broader range of your financial needs and goals moving forward.

Mid-Year Outlook 2016

**We believe the conditions are in place for a solid rebound in corporate profits during the second half of 2016. After a slow start to the year, we expect 2–2.5% economic growth in the second half, as measured by gross domestic product (GDP). Nominal economic growth, which includes inflation and may exceed 4% during the second half, is highly correlated to corporate revenue.

S&P 500 revenue is expected to rise 3.6% in the second half based on consensus estimates. The recent improvement in the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) for manufacturing, which has shown high correlation to corporate profits historically, is encouraging.

Drags from U.S. Dollar & Oil Should Ease

The U.S. dollar should it remain near current levels, would be a potential tailwind for earnings in the third and fourth quarters of 2016, after representing as much as a 20% drag on foreign earnings in the second quarter of 2015.

We do not expect a prolonged U.S. dollar rally as a result of Brexit, but that remains a risk to earnings in the coming months. Should oil prices stay at current levels, the commodity would show year-over-year price gains in the third quarter of 2016; this, along with the significant capital spending and other cost reductions undertaken by oil and gas producers, could potentially enable the energy sector to reach consensus double-digit earnings gains by year-end and propel overall S&P 500 profit margins back to near record highs. A potential Brexit-driven rally in the U.S. dollar that drags oil prices lower is a risk.

Wages Remain in Check

Finally, although wage pressures are starting to build, and wages are the biggest component of companies’ cost structure, increases have been gradual. Wage inflation remains below levels of prior decades based on the government’s Employment Cost Index (ECI) for wages. The most recent ECI reading in the first quarter of 2016 increased 2.1% year over year (on an inflation adjusted basis), compared to the 30-average of 3.0%. In the June payroll survey (released July 8), average hourly earnings rose 2.6%. So far, excluding the energy sector, S&P 500 companies have done an excellent job of absorbing wage increases over the past two years. As long as wage gains remain gradual, we do not see them as a material threat to corporate earnings.

In Summary

We expect mid-single digit returns for the S&P 500 in 2016, consistent with historical mid-to-late economic cycle performance, driven by a second half earnings rebound. Key risks include a policy mistake from Washington or the Fed, geopolitics, and a surprising pickup in inflation. Bouts of volatility are likely. We hope for more capital investment in the second half of 2016 and beyond.

We believe the key to weathering these and other challenging market conditions is a commitment to a well-formulated plan and a long-term focus, which includes avoiding the temptation to adopt a herd mentality or make decisions based on emotions, both of which can easily derail your strategy as you pursue your life plans. At Planned Financial Services, your Return on Life® is always our top priority. We remain committed to providing clients with the education, advice, and insight required to retain a long-term perspective and focus on your individual goals.

We thank you for your continued trust in your experienced team and remind you that if you need additional help or someone you know needs our advice, we are only a phone call away at 440.740.0130. We are always honored to help our clients’ friends and business associates take greater control of their future with the guidance from the PFS Team. We welcome and are grateful for the many introductions our clients continue to provide.

Real People. Real Answers.

Health, Happiness, and Good Fortune,

Frank Fantozzi
President & Founder

**Research Source LPL Financial. July 2016

Paying for College

Written by: Cynthia Yang

How to avoid costly financial aid mistakes

Given the astronomical cost of college, even wealthier parents should consider applying for financial aid. Note, however, that one misstep can harm your child’s eligibility. The following are pointers to help you avoid mistakes and maximize aid:

File the right forms. Most colleges and universities, and many states, require you to submit the Free Application for Federal Student Aid (FAFSA) for need-based assistance. Some schools also require it for merit-based aid. In addition, a number of institutions require the CSS/Financial Aid PROFILE®, and specific types of aid may have their own paperwork requirements.

Assume you qualify. It’s difficult to predict whether you’ll qualify for aid, so be sure to apply even if you think your net worth is too high. Keep in mind that you don’t need (and shouldn’t include) the value of your principal residence or any qualified retirement assets on the FAFSA.

Make the deadlines. Filing deadlines vary by state and institution, so note the requirements for each school to which your child applies. Some schools provide assistance to eligible students on a first-come, first-served basis until funding runs out, so the earlier you apply, the better. This may require you to complete your income tax return early.

Prioritize schools. The FAFSA allows you to designate up to 10 schools with which your application will be shared. Some families list these schools in order of preference, but there’s a risk that schools may use this information against you. Schools at the top of the list may conclude that they can offer less aid because your child is eager to attend. To avoid this result, consider listing schools in alphabetical order.

Know which parent is responsible. If you’re divorced or separated, the FAFSA should be completed by the parent with whom your child lived for the majority of the 12-month period ending on the date the application is filed. This is true regardless of which parent claims the child as a dependent on his or her tax return.

The rule provides a significant planning opportunity if one spouse is substantially wealthier than the other. For example, if the child lives with the less affluent spouse for 183 days and with the other spouse for 182 days, the less affluent spouse would file the FAFSA, improving eligibility for financial aid.

These are just a few examples of pitfalls to avoid when applying for financial aid. Talk to your financial advisor about other ways to finance college.

© 2016

Is Your Bond Portfolio Ready for Rising Rates?

Written by: Elisabeth Plax

When the Federal Reserve finally boosted its short-term target interest rate in December 2015, bond investors were put on notice: The era of rock-bottom rates could be ending. In general, bond prices fall when rates rise. That’s a concern for fixed-income investors, but it’s just one of several factors to consider when assessing the potential impact of rising rates on a bond investment portfolio.

Look beyond falling prices

Bond prices fall when rates rise because a bond’s stated interest rate, or coupon, becomes less attractive to buyers in the marketplace when compared to the prevailing rates offered by newer bonds. But when you buy these debt securities, the borrower agrees to provide you with regular interest payments and to pay back your original investment, or principal. As long as the issuer remains creditworthy, you’re guaranteed to recoup your purchase price.

So if you hold on to individual bonds through a period of rising rates — perhaps because they provide a source of regular income during retirement — you may not need to be concerned about falling prices. If, however, you decide to sell your bonds in a rising-rate environment, you risk doing so at a loss.

Remember that income matters

A bond’s total return consists of two parts: price performance and income payments. For bond owners, the possible silver lining of higher interest rates is more income — especially when you own a portfolio of bonds, either on an individual basis or through a professionally managed mutual fund. As bonds in your portfolio mature or are sold, the proceeds can be reinvested into securities paying today’s higher rates. Over time, the higher income can offset some or all of the capital losses caused by declining bond prices. 

Not surprisingly, the prices of bonds with lower coupons are more vulnerable to rising rates because they lack the ability to offset the price changes through higher income payments. In contrast, higher-yielding issues such as corporate bonds frequently are better insulated from the negative pricing effects of higher interest rates because their attractive yields mitigate the price impact. For this reason, corporate bonds can initially seem more desirable in a higher rate environment.

But corporate securities, especially lower-rated bonds, may be riskier. They’re more likely to default, and you may not get all of your investment back when the bonds mature.

Consider new strategies

In a rising interest rate environment, there are a few strategies investors might consider to reduce risk and improve returns:

Municipal bonds. Like all bonds, the prices of tax-exempt issues typically decline when rates rise. That said, rising rates often accompany an improving economy, which in turn may lead to higher tax revenue collections that boost the credit quality of the state or local government issuing municipal bonds.

Shorter-duration bonds. The shorter a bond’s duration — a measure of its sensitivity to interest rate changes — the less it will be affected when rates rise. These bonds might be a good choice if you’re particularly concerned about rising rates.

Bond ladders. With a laddering strategy, you own a portfolio of bonds that mature at various intervals. As they mature, the proceeds may be reinvested at current rates, allowing you to increase your portfolio’s income stream over time.

Bond barbell. This approach involves balancing a portfolio between short-duration and longer-duration holdings. Longer bonds can provide income over time. Meanwhile, when shorter-maturity bonds mature, the proceeds can be reinvested in newer, higher-yielding issues.

Focus on the long term

Despite the best predictions of experts, no one really knows if rates will continue to rise through 2016 and beyond. Rising interest rates can have a detrimental effect on bond prices in the short term, but a strategy that focuses on the future can help meet investor objectives regardless of what interest rates are doing.

Sidebar: Consider cash as rates rise

Yields on cash investments — or very short-term securities — have been paltry in recent years. But as interest rates rise, historically these investments have offered more respectable returns. And considering that popular cash investments are FDIC-insured, they can provide relatively safe places to plant your rainy-day funds.*

The most common ones are money-market accounts and certificates of deposit (CDs). Money market accounts offer convenience, such as easy withdrawals and check-writing privileges, and come in two varieties — taxable and tax-exempt. Tax-exempt accounts invest in municipal bonds and typically offer lower yields. But for those in the highest tax brackets, they can offer better after-tax returns.

CDs are loans to financial institutions for set amounts and specific time periods. When you buy a CD, you receive a fixed yield that won’t change as interest rates fluctuate. The downside is that you’ll be penalized if you withdraw funds before the end of the CD’s term.

* FDIC insurance covers all deposit accounts, including checking accounts, savings accounts, money market deposit accounts and certificates of deposit. FDIC insurance doesn’t cover other financial products and services that banks may offer, such as stocks, bonds, mutual funds, life insurance policies, annuities or securities. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

© 2016


A QCD Might Help You Meet Charitable Giving and Tax Savings Goals

Written by: Jeremy Bok

If you’re age 70½ or older, have a significant balance in a traditional or Roth IRA and plan to make charitable gifts, consider a qualified charitable distribution (QCD). In December 2015, Congress reinstated and made permanent this tax break. A QCD, also known as a charitable IRA rollover, allows you to transfer up to $100,000 per year tax-free directly from your IRA to a public charity and to apply the transferred funds toward your required minimum distribution (RMD) for the year. However, while IRA rollovers can generate significant tax savings, there are other charitable giving tools that might suit your needs better.

Putting it to use

A QCD provides tax advantages when a donation of other assets would be wholly or partially nondeductible. This may be the case if you don’t itemize or if your total contributions could exceed deduction limits.

Generally, deductions are capped at 50% of your adjusted gross income (AGI) — 30% for donations of appreciated capital assets. Although unused deductions may be carried forward up to five years, these limits reduce the tax benefits of charitable deductions in the current year. In contrast, a QCD is excluded from your taxable income. Essentially, it’s the equivalent of an “above-the-line” deduction, so you enjoy the equivalent of a full charitable deduction even if the donation otherwise exceeds AGI limits.

A QCD also may be preferable if your income is high enough to trigger the Pease limitation on itemized deductions. This limitation puts a floor on certain deductions when your AGI exceeds a certain threshold, currently $259,400 for individuals and $311,300 for joint filers. You might consider one if taking an IRA distribution would push you over the income threshold for additional taxes, such as income tax on Social Security benefits or the 3.8% Medicare tax on net investment income.

Taking a pass

A QCD may not be appropriate if you’re in a position to donate appreciated assets — for example, stock or other securities — because they may produce greater tax benefits than a QCD. Take the fictional Elaine, who plans to donate $20,000 to charity in 2016. She’s in the 28% tax bracket and must take a $20,000 RMD from her IRA this year. If she uses a QCD to satisfy this requirement, she excludes the $20,000 from her income, saving $5,600 in taxes.

Suppose, instead, that Elaine donates $20,000 in stock that she originally purchased for $5,000. She’ll have to take the $20,000 RMD, triggering a $5,600 tax. But her charitable deduction for the stock should — assuming her total charitable deductions are less than 30% of her AGI — offset the tax. Plus, Elaine permanently saves the capital gains tax that would be due on the stock, resulting in additional tax savings of $2,250 (15% of the $15,000 gain). The bottom line in this particular example: A QCD could save her $5,600 in taxes, but a stock donation would save her $7,850.

You should definitely think twice before using a QCD to donate IRA funds that would otherwise be tax-free, such as nondeductible contributions to a traditional IRA or nontaxable amounts in a Roth IRA. In most cases, if you itemize, you’ll be better off taking a tax-free distribution and using the proceeds to make a tax-deductible charitable gift. Because the distribution is tax-free anyway, a QCD provides no income exclusion benefit, and it doesn’t qualify for a charitable deduction.

Keep in mind that not all transfers to charity qualify for QCD treatment. Most contributions to public charities (other than supporting organizations) are eligible, but distributions to private nonoperating foundations, donor-advised funds and charitable remainder trusts aren’t.

Executing your strategy

A QCD is invalid if the IRA custodian distributes the funds to you rather than directly to the charity, if you receive something of value from the charity in exchange for your contribution, or if you fail to obtain a proper written acknowledgment of your gift. So if you’re considering a QCD, talk to your legal and financial advisors. These advisors can help ensure that you execute a valid transaction in a way that’s appropriate for your specific situation.

© 2016

Preventing Heirs From Bending Your Will and Violating Your Trust

Written by: Frank Fantozzi

Blocking frivolous challenges

A no-contest clause generally is used to discourage heirs from making frivolous challenges that only create unnecessary expense and delay for beneficiaries. The provision disinherits any heir who contests your will or trust — typically on grounds of undue influence or lack of testamentary capacity.

But before you insert a no-contest clause in your estate documents, know that not all states permit or enforce them. Most states do, but the rules governing such clauses tend to vary by jurisdiction — particularly when it comes to what constitutes a “contest.” In some states, your heirs may be able to challenge the appointment of an executor or trustee without violating a no-contest clause. And in some states where a no-contest clause generally is enforceable, courts will refuse to enforce the clause if a challenger has “probable cause” or some other defensible reason for contesting a will or trust.

Even if you live in a state where no-contest clauses are strictly unenforceable, it might still make sense to include them in your estate documents. It could provide protection if you move to another state that does enforce no-contest clauses or if you own property, such as real estate, in another state. You might also decide to establish a trust that’s governed by the laws of another state where the clause is enforceable.

Discouraging unhappy heirs

A no-contest clause can be a powerful deterrent, but it’s also important to design your estate plan in a way that minimizes incentives to challenge it. Start by working only with experienced financial and legal advisors. To avoid claims of undue influence or lack of testamentary capacity, make sure you have a qualified physician or psychiatrist examine you — at or near the time you sign your will or trust — and attest in writing to your mental competence. Also choose witnesses whom your heirs trust and whom you expect to be able and willing to testify, if necessary, to your testamentary capacity and freedom from undue influence. Finally, be sure to record the execution of your will and other estate planning documents.

You should also make an effort to treat your children and other family members fairly, remembering that “equal” isn’t necessarily fair, depending on the circumstances. If your plan contains any unusual terms — such as leaving the bulk of your estate to charity — be sure to meet with your family and explain the reasons for your decision.

Note that if you leave a child — or another person who otherwise would inherit from you — out of your will or trust, a no-contest clause will be ineffective because that person has nothing to lose by challenging your plan. Instead, leave family members enough to make them think twice before contesting your plan and potentially receiving nothing.

Honoring your wishes

A no-contest clause is only one tool for ensuring that your wishes will be carried out after your death. Talk with your financial and legal advisors about other ways to meet your estate planning goals.

© 2016

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