KFM Newsletter: Communication DNA to the Rescue

We are one of a select group of advisors who use an innovative technology-based discovery application called Financial DNA rather than going by gut intuition and feel.

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One of our 10 Truths is: "Investor behavior plays a predominant role in investment success." Said another way, investment performance equals market returns plus investor behavior. This is supported by research. Meir Statmen, Behavioral Finance Professor and Author states, “93.6% of an advisor’s role is the behavioral management of clients.” Because everyone has a unique relationship with money, the most important factor in helping clients achieve financial success is for advisors to help understand and manage that relationship.

How we accomplish this:

  • Understanding your money motivators and personal risk tolerance
  • Learning about your values, passions, vision, and life experiences
  • Understanding what your financial behavioral biases are (i.e. risk of loss, overconfidence)

As a client, you will: 

  • Be more aware of your financial personality. This helps you make more confident investment decisions and communicate more effectively with your partner and family.
  • Learn how to recognize the motivation behind your financial decisions.
  • Be more disciplined and mindful in your decision making. Avoiding emotional reactions is a secret to success as an investor.
  • Help us understand your communication needs so that we can serve you and your family better.
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Our experience has shown that financial success is not just about making good investment decisions. It is also about managing the many psychological and emotional pitfalls we face during the journey.

Immediately following your next update meeting, you will be invited to participate in learning more about your communication preferences. You will receive an email from Wyatt to register and complete a short (5 minute) questionnaire. Upon completion, you will receive a one page report indicating your specific communication style. Your report can be shared with others so that your family, friends and colleagues can better communicate utilizing your distinct preferences. You are more than welcome to get started before your next meeting. Visit the Financial DNA page on our website: www.kempfm.com/financial-dna.

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The Putting Tradition Continues

Join us for fun and friendly competition with a BBQ Dinner at The Kemp Financial Management Putting Contest. Mark your calendars for Friday, June 9, 2017 at 4:00 PM. The Putting Contest will take place at the same location as years past, Golfer’s Paradise in Fullerton. We look forward to seeing you there! A formal invitation will follow.

Department of Labor Update

As you may have heard in the news, under a recent proposal, the Department of Labor (DOL) has delayed the fiduciary rule also known as the “Conflict of Interest” Rule until at least June 9th. There has been a lot of media attention tied to this new rule. Here is a brief overview.

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DOL: The Department of Labor (DOL) is a U.S. Government cabinet body responsible for administering and monitoring over 180 federal laws, including those which relate to the minimum wage, working conditions, workplace discrimination, retirement, and unemployment. One main body of law the DOL administers and enforces is ERISA (Employee Retirement Income Security Act).

ERISA: The Employee Retirement Income Security Act (ERISA) regulates employers who offer pension and other retirement plans or welfare benefit plans for their employees as well as their service providers. Title I of ERISA is administered by the Employee Benefits Security Administration (EBSA), the DOL agency responsible for overseeing a wide range of fiduciary, disclosure and reporting requirements for pension and welfare benefit plans and on those who have dealings with these plans.

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Objective of the New Rule:  The new Rule is intended to create an environment where investment advice for a client’s retirement account is always provided in the ‘best interest’ of the client.

Clients Affected by the New Rule: Clients include IRA owners, sole proprietors with Keogh or solo plans, as well as plan sponsors and participants in ERISA retirement plans.

A Fiduciary under the New Rule: Fiduciary includes an advisor who is responsible for providing you investment advice with the care, skill, prudence, and diligence of a prudent person. The advice would be based on your investment objectives, risk tolerance, financial circumstances, and needs, without regard to the financial or other interests of the advisor.

How the Rule Affects You as a Client: Under the new Rule, you will receive investment advice that is focused solely on your interests.

As an Independent Registered Investment Advisor, Kemp Financial Management, LLC has always fallen under and adhered to the fiduciary standards. The new rule, once in effect, will have a minor impact to our clients. At its core, the new rule is looking to reduce as many conflicts of interests relating to investment advice as possible. Specifically, the rule is looking to eliminate “commissionable” transactions in retirement accounts. We believe the rule is inherently good and is a best practice principal that has been a part of our tradition, values and beliefs since the mid-1990s.

While many questions have not been resolved, hence the delay until June 9, 2017, rest assured we will continue to follow the fiduciary standards that you have been accustomed to expect.

The Markets (as of market close March 31, 2017)

Riding the momentum following the presidential election, stocks surged for much of the first quarter of 2017. Buoyed by the anticipation of tax cuts and policies favorable to domestic businesses, the benchmark indexes listed here reached historic highs throughout the quarter. At the end of January, the Dow reached the magic 20,000 mark for the first time, while the tech-heavy Nasdaq gained almost 4.50% for the month. The trend continued in February, as stocks posted solid monthly gains. The Dow closed the month with a run of 12 consecutive daily closings that reached all-time highs. The S&P 500 also achieved a milestone — 50 consecutive trading sessions without a daily swing of more than 1.0%. At the close of trading in February, each of the benchmark indexes listed here posted year-to-date gains, led by the Nasdaq, which was up over 8.0%.

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March began with a bang but ended with a whimper. The Dow closed the first week of the month at over 21000, while the Nasdaq gained over 9.0% year-to-date. However, energy stocks slipped as the price of oil began to fall. Entering mid-March, investors exercised caution pending the potential Fed interest rate hike and the push for a new health-care law. Following its mid-March meeting, the Fed raised interest rates 25 basis points, while the move to replace the ACA with a new health-care law failed for lack of congressional support.

For the quarter, each of the indexes listed here posted impressive gains over their fourth-quarter closing values. The Nasdaq climbed the most, posting quarterly gains of close to 10.0%, followed by the Global Dow and the S&P 500, which achieved its largest quarterly gain in almost two years. Long-term bond prices increased in the first quarter with the yield on 10-year Treasuries falling 6 basis points.

While we provide this data as “information,” we continue to embrace another truth: “Listening to the financial media causes unnecessary stress.” To a degree, publishing this information in our newsletter potentially adds to that stress. So please take the data as just a “snapshot” of how the quarter ended. What most important is staying focused on the short and long-term goals you have set out for yourself in your Investment Policy Statement.

 Market/Index        2016 Close        As of March 31        Month Change        Quarter Change        YTD Change

 DJIA                      19762.60             20663.22                  -0.72%                      4.56%                      4.56%

 NASDAQ               5383.12                 5911.74                      1.48%                       9.82%                      9.82%         

S&P 500                2238.83                2362.72                    -0.04%                      5.53%                      5.53%

 Russell 2000       1357.13                   1385.92                    -0.05%                       2.12%                        2.12%

 Global Dow          2528.21                 2691.45                      1.36%                       6.46%                     6.46%

 Fed. Funds         0.50%-0.75%       0.75%-1.00%                25 bps                     25 bps                    25 bps

 Treasuries (10 Yr)   2.44%                 2.38%                          -1 bps                    -6 bps                     -6 bps

The above reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.