Confession of Annuity Salespeople - "We're Not Equipped as Advisors"

If you own an annuity, you own one of the highest commission products sold to retail investors. Odds are that your purchase was in the context of planning for your financial future. You probably asked the salesperson for advice about saving for your financial goals. Despite his efforts, you asked the wrong person. 

This is a harsh assessment, but it's not our opinion. It is the description that the National Fixed Annuity Association used to describe the annuity sales people that they represent. NAFA is a lobbying group that is desperate to exclude fixed annuities from the oversight of the Department of Labor's Fiduciary Rules. In November, NAFA filed a lawsuit to halt enforcement of fiduciary regulations. The suit complains that the fiduciary rule is expensive for annuity companies to enforce. They sell expensive, illiquid policies to consumers and are complaining about costs? They also complain that fiduciary rule favor investment firms.

Wrong. The fiduciary rule FAVORS CONSUMERS.

The words that NAFA uses to describe annuity salespeople are embarrassingly frank. NAFA says that their salespeople lack trust and confidence. They insist that the public implicitly understands that annuity sales agents can't be trusted to give advice and that they only sell products. They are relying on this admission of inadequacy to win their lawsuit against the Department of Labor.  


We have friends that work in the insurance industry. They are hard-working members of our industry. This isn't an indictment of any salesperson's character or honesty. They sell what they are paid to sell, which isn't illegal. NAFA admits to the limitations that financial product sales people face. They cannot provide in-depth, meaningful advice to investors and savers. They provide products. That's it.  

NAFA contrasts the inability of annuity salespeople to give advice with fiduciary advisors who, "have a relationship of trust and confidence with their clients." If you bought an annuity in the last few years, did you know that you were dealing with someone that even their own national organization calls untrustworthy at providing advice? It's there in black and white (and orange). If you are seeking advice from a firm that will act in your best interest, in all matters, at all times, call LeConte. We proudly proclaim our fiduciary standard of care.
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Here's the Inflation That the Bond Market is Freaking Out Over.

Even before Trump's election win in November the bond market has been signaling that inflation is becoming a problem. 10 year US Treasury yields bottomed on July 6th at 1.36% and rose 1/2% from July to election day:



After Trump's victory you can see that rates jumped another 40 basis points (.40%) in a matter of days. The Federal Reserve Open Market Committee has markets anticipating a quarter point rate increase in December. The huge post-election rate increase effectively stole the Fed's thunder. When the market speaks this emphatically, investors should pay serious attention. Here is the question this rate/price action raises, "Where is this inflation worry coming from?" Former Dallas Fed Senior Financial Analyst, Danielle DiMartino Booth digs into monthly CPI statistics to reveal two areas of concern



“It comes down to the services side of the equation, which has been fueled by the Affordable Care Act and rental inflation that’s risen into the stratosphere care of the low interest rates that have encouraged luxury unit construction. To be precise, the CPI tells us rents are up by 3.7 percent in the last year, which is apt to be understated for reasons you need not be bored with, while medical care prices are up by 4.9 percent over 2015. So it’s safe to say services inflation has been driving the train.”

Danielle DiMartino Booth
DiMartino Booth - Money Strong


We prepared two visuals for the data that she highlights: The first is a comparison of rent inflation to broad CPI. We can thank Millennials who prefer luxury apartments over buying their own homes for this inflation bump.  



The Affordable Care Act (aka Obamacare) has started to exert huge inflationary pressures on consumer wallets. This chart displays medical inflation through the latest data from September. Once the October numbers are reported this is sure to escalate even further.



In October, Fed Chair Janet Yellen signaled her willingness for our economy to "run hot". We are there and the bond market sniffed this out in the summer. Investors should watch inflation in these spending categories going forward to see if the problem gets worse. If so, you may want to join the ranks of the #InflationPreppers.  



Our bigger concern is that this (contained) inflation won't be offset by growth in other parts of the economy and we will have to revisit the 70's and educate investors on the perils of Stagflation.
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The Day After

Many Americans are waking up this morning disappointed, surprised, elated and shocked. Pundits are prognosticating about what the next four years will bring and social media feeds are filled with election commentary and lamentations. The financial markets are also uneasy, just as they were when the Brexit vote occurred in May. What are we supposed to do?



Start by focusing on the things that you can control. You may feel downtrodden after the election result, but that doesn’t change your financial goals. In 48 months, we all will be older and hopefully nearer to achieving financial freedom. Your children or grandchildren will be that much closer to going to college. Developing a sound financial plan, reducing debt, living within an established budget and investing wisely are key components of financial independence. It’s imperative that you begin with the end in mind. If you haven’t thought about what to do, find an independent financial firm that can help you get organized and take the first steps.

Our republic has lasted for 240 years. We have elected both good leaders and poor executives. The country will live on today and hopefully for another 24 decades. As individuals, we aren’t that lucky. With limited time on the earth, it’s important to make sound choices on the things we can control. Rather than gloating or sulking about the election result, use this time to begin planning and dreaming for what your life will look like in 2020.
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Wages Get Temporary Bump From Hurricane Matthew

Financial headlines today are dominated by this mornings jobs report. Pundits are highlighting the October uptick in wages. Unfortunately, our analysis of the data shows that most of this increase is related to the clean-up work in the aftermath of Hurricane Matthew by utility companies across the eastern seaboard. 



Besides Logging and Mining no other industry grew wages more than 1.2%. 

source: BLS

Higher wages are part of the answer to our ongoing quest for consumer demand. With wage growth flat across most other industries, we will need to wait a bit longer to find out what's really happening to wages.
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Tax Internship


LeConte Wealth Management, LLC is looking for a tax intern to join our team for the upcoming tax season. The intern will work closely with our Director of Financial Planning and CPA and assist with federal and state income tax accounting and compliance. This will be a paid internship with an expected start date of November 15, 2016 and an expected end date of April 30, 2017.

Job Responsibilities

  • Prepare individual, corporate, partnership and not-for-profit tax returns to meet government requirements and deadlines and client expectations
  • Prepare payroll tax reports and property tax reports to ensure compliance Develop a working knowledge of individual and corporate tax laws
  • Respond orally and in writing to various tax inquiries from internal and external clients and from government notices
  • Achieve a working knowledge of tax preparation software used in the office

Qualifications

  • Outstanding academic performance in an Accounting or business major 
  • Proficient in Microsoft Excel
  • Relevant work experience (e.g. internships, summer positions, school jobs)
  • Demonstrated leadership, problem solving, and strong verbal and written communication skills
  • Ability to prioritize tasks and work on multiple assignments
  • Available to work extended hours during peak tax season
  • Communicates effectively with clients and fellow staff members

Benefits of Internship

  • Gain knowledge of industry and LeConte Wealth Management's operations
  • Make professional contacts that may lead to full-time employment

How to Apply

Please send resumes and cover letters to: Jon Dockery, CPA, Director of Financial Planning- This email address is being protected from spambots. You need JavaScript enabled to view it.


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The Robots Have Arrived, They Want Our Jobs

Trump and Clinton are getting all the press but the biggest threat to the middle class is made of steel, works 24/7 without a break and no healthcare or retirement benefits. Meet your new co-worker and he wants your job:



This data series from the St Louis Federal Reserve is worth unpacking:



This chart depicts the long-term relationship between Industrial capacity utilization and employment. The divergence in the data series over the last two years is significant and deserves analysis. Lately, manufacturers have reduced the resources required to produce their products. This would normally be accompanied by a decline in employment. Fed economist Ana Maria Santacreau makes several observations about the trends. First on the post-recession gap in capacity utilization and employment:

Reasons why unemployment took longer to recover following the recessions of the early 1990s and early 2000s:


  1. Firms may have postponed hiring to be sure the recovery was strong.
  2. Firms may have purchased new equipment instead of hiring additional workers.
  3. Workers may have had to switch industries, which may have lengthened the time it took to fill positions.


In a recession companies cut headcount. It's the fastest way to dramatically reduce cost and survive the downturn. Widespread economic problems also provide "political cover" to fire people since every business sector reacts to the same pain point. As the recession troughs and businesses see an uptick in their fortunes, they face a crucial decision. Should they re-hire employees, who may be even more costly to carry (regulation, Obamacare etc...) and harder to fire in the future? Could they afford the capital outlay to replace workers with automated processes, with robots.

The recession of 2008-2009 was different in that many workers who were forced to the sidelines decided to stay there. When businesses started to ramp up production, the low interest rate era wrought by the Federal Reserve's QE policies made it cheaper than ever for them to finance their transition from a human workforce to a robotic workforce.

Santacreau observed, "Capacity seems to be mainly affected by cyclical factors. Employment, however, is also affected by a structural factor that makes it adjust more slowly than industrial capacity adjusts to recessions and recoveries.”

The rise of income inequality since the recession ended in 2009 was a by-product of the Fed's easy money. It helped big business CFOs fix their corporate balance sheets so they could afford to hire more workers and grow the economy. Instead, manufacturing CFOs used the cash to invest in robotics. Their robotic workforce is more elastic (no demand, no big deal, just unplug the robot) and immune from government regulations and employment cost inflation. Robots are easier on the corporate budget than humans.

If you are a knowledge worker (jobs that require creative thinking to solve complex problems) you may be feeling a bit smug as factory workers fight this trend. That would be a mistake. The robot that takes your job won't be a steel and hydraulic behemoth. It will be a rack of servers running software to automate most of the decisions that knowledge workers parse. Make no mistake, in the future machines will be responsible for most of our GDP. We are responsible for the transition. The new thought exercise for Venture Capitalist in Silicon Valley is called "Last Job"- i.e. what's left for people when robots take over.

UPDATE --- Elon Musk CEO of Tesla agrees:

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