Money Managers Live

Fiduciary Responsibility

Image taken from the Wall Street Journal Online

Fiduciary responsibility, in simple terms, is the legal responsibility to put your clients' needs ahead of your own. Some estimates claim that only 15 percent of investment advisers have this responsibility. Paragon Wealth Management has fiduciary responsibility, and we recommend that you only work with advisers who do.

Below are excerpts from an article taken from the Wall Street Journal Online. In the past investment advisers were the only ones to have fiduciary responsibility, but Wall Street has agreed to put its brokers under the same criterion.

Fiduciary Duty Hits the Street- Sort of
August 31, 2009

Written by Jane J. Kim

For years, most investment advisers have been deemed fiduciaries under the Investment Advisers Act of 1940. 

Investor groups say the existing fiduciary standard has been defined and upheld by over four decades of legal precedence, including a 1963 U.S. Supreme Court case, Securities and Exchange Commission v. Capital Gains Research Bureau.

"If you have a precise definition of fiduciary duty, what that does is exclude a number of features of fiduciary," said Rex Staples, general counsel at the North American Securities Administrators Association Inc., which represents state securities regulators.

Trying to define what constitutes a fiduciary duty is like trying to define the duty not to commit fraud -- any application of it depends on the client's particular facts and circumstances, say adviser groups. Proponents say a fiduciary standard can't be defined given the complexity and changing nature of the business.

"For years, they've opposed the fiduciary duty," said Barbara Roper, director of investor protection at the Consumer Federation of America, a consumer-advocacy group. "Now they've embraced it in order to gut it."

Still, Wall Street's support of a fiduciary standard boosts the odds that it will eventually apply to brokers. Now, the fight is over the standard itself.

Investment advisers want to extend the current standard under the Investment Advisers Act to all financial professionals who give investment advice, while the brokerage industry wants a new, federal standard to apply to any broker-dealer or investment adviser that provides personalized investment advice to clients.

Under the Treasury's proposed Investor Protection Act of 2009, the SEC would have the authority to "promulgate rules" establishing a fiduciary duty. SEC Chairman Mary Schapiro said she favors a fiduciary standard that would that would be applied uniformly to all financial professionals.

Reporting from Russia

photo by akk_russ

Two of our clients recently moved to Russia. They will be there for the next year and a half. They sent us this email to let us know how they are doing, and gave us permission to share it with you. We thought you might like to read it. After we read it, we realized we don't have it so bad here in the United States.

Written September 1, 2009

Russia is so different from the United States It is very dangerous to cross a street here. It is also dangerous to walk down the sidewalk because the cars drive there also.

On our way to work we pass a car that has a flat tire. The other day we passed the car and saw they had re-asphalted the road around it. They also asphalted the car in place! Several days later they used heavy duty equipment to dig the car out.

It rains and rains in Moscow. There are puddles everywhere. We walked to work one day, and the road we needed to cross had become a river. It was six inches deep and moving swiftly. The rain was coming down in buckets. We had boots, raincoats and umbrellas, and we were still wet for several hours. It is the first of September, and it feels like November. I can't believe how cold and damp it is. It makes me nervous to think about what November will really be like.

We got back from 25 days of travel only to find out that our hot water had been turned off. This is not because we haven't paid our bill, it is because they have a rotating system here during the summer months where they turn the hot water off for two weeks while they clean the pipes. We were fortunate that we were traveling for one of the weeks.My husband thought he would brave the cold water for a shower. After all, he is a camper. Well, that only lasted for one shower. From then on we heated water on the stove for baths. The washing machine only worked on hand wash because that is the only cycle that will work with no hot water. It is not like the states where you have two water hoses coming in. There is only one here.

I thought I would also tell you a little about our travels to Georgia, Armenia, Kazakhstan, three places in the Ukraine (Donetsk, Kiev and D'nepropetrovs'k) and Saint Petersburg.

Each place has it's own charm, fascination and sadness. There is such poverty here. We went to a gypsy village in Turkey where we donated some computers to a handicapped group. The children had a great time using them. The mayor of the town came to meet us and said they had not realized that these children could learn and now they were going to start a workshop to teach them crafts and a special school to help them.

In Georgia, they are still suffering the effects of last year's war with Russia. There are many displaced people. One man talked to us and said he built his own home, farmed, had fruit trees and worked with his hands all his life. He said the Russians came and destroyed everything with their tanks. Now he has nothing.

In Kiev, we visited a home for women (210 live there) who have neurological problems. They will never leave the home. One woman there was found on the ground in Chernobyl. They didn't know who she was. She experienced a stroke and could not even sit up. She can now sit and get around with help, but she can't speak so they have no way to identify her. She kept holding up one finger and indicating that she is all alone. Then, she held up three fingers and wept. They think it means that somewhere she has three children. It broke my heart to see her. I sat with her and hugged her. I wept when I left her.

In Donetsk, we stayed at the Central Hotel. When I turned on the water to take a shower, it was brown. We left and went to a better hotel. We visited a place where they were giving out hygiene kits, school kits, quilts and clothes from containers that we have shipped over. One woman was expecting her fourth child. Her husband died suddenly last February. She found out she was pregnant after his death. She cried when her children got school kits and clothes.

In D'nepropetrovs'k, we visited an orphanage. There were 74 children there. About half of them were retarded or handicapped in some way. Their parents couldn't or wouldn't take care of them. The other half, were okay, but had been abandoned or taken away from their parents. This was an orphanage for children up to five years old. They had 203 workers to help with the children. We saw children outside playing in groups of 8-10. They were playing games, singing and having fun. We could tell that the workers and children were bonded. The children were beautiful. It was a sad situation, but the workers love the children, and they are doing their best.

Now we are back in Moscow, and I have to say that I am exhausted!

Historical Data Shows Best Performing Investments After a Recession

The latest news from Paragon...

Wealth Management Firm Offers to Help Investors Position Their Portfolios for Recovery

PROVO, UT -- 09/10/09 -- Paragon Wealth Management advises investors to position their portfolio in the areas of the market that have historically performed well after a recession and has offered to help by providing complimentary portfolio reviews.

"We pay close attention to the economy," said Paragon's President and founder, Dave Young. "In July our economic models indicated it was highly likely the recession ended in June."

Paragon's wealth managers have encouraged investors to become fully invested in the stock market since March of this year. They recommended moving to a fully invested position when most investors were selling.

"The first and sharpest stage of the market recovery usually occurs right after the initial market plunge and takes about three to four months," said Young. "We believe stage one occurred between March 9 and June 30. The second stage of recovery occurs after the recession ends, which we believe was around the end of June."

"This difficult market highlights why active wealth management is so important," said Young. "Because market dynamics are constantly changing and evolving, we believe the best investment approach is one that actively adjusts, moves and changes based on market conditions."

Following these strategies from January 1998 through August 2009, Paragon's growth portfolio has generated a total return of 312.43 percent, net of all fees. During that same time the S&P 500 posted a total return of 28.51 percent.

Investors can visit www.paragonwealth.com to schedule a portfolio review.

About Paragon Wealth Management

Paragon Wealth Management is a wealth management firm that was established in 1986. They actively manage all types of traditional and retirement accounts such as IRA and 401(k) rollovers, and pensions and trusts. Paragon has fiduciary responsibility. Call 800-748-4451 for more information.

Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts and not back tested hypothetical returns or performance. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation.

What Happened to the 'Depression'?

photo by cliff1066

Written by Nathan White, Chief Investment Officer

Below is an article taken from the Wall Street Journal Online.This article does a great job of summarizing a lot of the misconception regarding the magnitude of the economic downturn and the subsequent fiscal and monetary reactions. It focuses on how politicians exacerbate situations for political purposes - surprise!

I hold the same view as Professor Melzer that the economy would turn on its own and the main threat now are government actions that will slow the recovery. Policy makers often overreact to economic downturns and enact policies (e.g., higher taxes, more regulation) that make it harder to let the economy grow.

What Happened to the Depression?
Despite the rhetoric from Washington, we were never close to 25% unemployment.

By Allan H. Meltzer

Day after day, economists, politicians and journalists repeat the trope that the current recession is the worst since the Great Depression. Repetition may reinforce belief, but the comparison is greatly overstated and highly misleading. Anyone who knows even a bit about the Great Depression knows that this is false.

The facts we face today are very different than the grim reality Americans confronted between 1929 and 1932. True, this recession is not over. But it would have to get improbably worse before it came close to the 42-month duration of the Great Depression, or the 25% unemployment rate in 1932. Then, the only safety net was the soup line.

The current recession is also much less severe than the 1937-38 Depression. A more accurate comparison is to the 1973-75 recession. Today's recession is as deep and most likely won't be much longer than the one we experienced some three decades ago. By pointing this out, I do not intend to minimize the damage that the economic crisis has had on individuals and businesses. But as policy makers make decisions in order to alleviate the recession, they are not helped when economists overstate its severity.

The table nearby compares the current recession, the 1937-38 depression and some past severe postwar recessions. If the recession ends this summer—as many experts predict—the record will show that it was not very different from other postwar recessions, but very different from the 1937-38 and 1929-32 Depressions.

So why do many opinion makers insist on inaccurate and frightening analogies that overstate the severity of present conditions? I believe there are several reasons.

First, there is a strong political motivation to make this recession out to be worse than it actually is. The Obama administration wanted to make it appear as though it saved us from an incipient disaster, so it overstated its achievements. The White House also wanted to foist its huge "stimulus" program on the country in order to redistribute income. That pleased many Democrats, but did very little to restore growth.

Many others repeated the administration's hyperbolic claims. One reason is because there is genuine uncertainty about what has happened and what is likely to come. Short-term forecasts have major errors, and extrapolation of current data adds to misinformation. Then there are economists who would like to see government take a larger role in the economy. They've chosen to use the recession as a pretext for arguing for this change.

New York Times columnist Paul Krugman and the International Monetary Fund repeatedly proclaimed that more government spending was a necessity. Most economists now believe that the recession is expected to end before much of the government spending takes hold. And while the improvement in recent GDP data reflects a big increase in government spending, consumer spending declined again in the second quarter. The $787 billion of fiscal stimulus has done little for consumers. Keynesian economists always fail to recognize the powerful regenerative forces of the market economy. The financial press—many of whom share their same political assumptions—endlessly reproduces their beliefs.

The Federal Reserve also shared this Keynesian viewpoint. It provided unprecedented monetary stimulus, increasing the monetary base by more than $1 trillion. Much of this increase corrected for its major mistake: allowing Lehman Brothers to fail. After 30 years of bailing out almost all large financial firms, the Fed made the horrendous mistake of changing its policy in the midst of a recession. That set off a scramble for liquidity and heightened the public's distrust in the market.

This had world-wide repercussions. For four months, many financial markets remained frozen and real activity collapsed. Allowing Lehman to fail without warning is one of the worst blunders in Federal Reserve history. Extrapolation caused many market participants to conjecture that we were in a depression. The New York Times and others piled on, speculating foolishly about the end of capitalism.

Now, with recovery in sight, we need to ask what kind of a recovery to expect and what kind of policies are appropriate. My best guess is that the recovery will be a bumpy ride along a low-growth path. Recovery will be helped by lots of monetary stimulus and low inventories. Some calendar quarters will see healthy growth, but trend growth will be low because housing will remain weak, the cash for clunkers program borrowed sales from the future, and the Obama administration's economic program raises business costs and reduces profits.

Many pundits argue that we need another stimulus package. I disagree. The proper response now is to repeal what remains of the misguided stimulus and avoid the cap-and-trade program.

In their response to the recession, Congress and the administration were more interested in redistributing income than encouraging growth. They also ignored the lessons of the successful Kennedy and Reagan reductions in marginal tax rates. They added to their mistakes by enacting a temporary tax reduction as a main element of the $787 billion stimulus. Don't they know that Presidents Ford, Carter and Bush failed to stimulate spending with temporary tax reductions?

A sensible administration would revise its policy. It should start by scrapping what remains of the stimulus. As the world economy recovers, the United States should choose to expand its exports so that it can service its large and growing foreign debts. That means reducing corporate tax rates to increase investment. Instead of implementing policies that increase regulation and raise business costs, we need to increase productivity. And the Fed should soon begin to reduce the massive volume of outstanding bank reserves, which is the raw material for future money growth.

Mr. Meltzer is a professor of economics at Carnegie Mellon University and the author of "A History of the Federal Reserve" (University of Chicago Press, 2004).