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2012 Year in Review: Insights from our leaders

As 2012 comes to a close, there is a significant question about what the markets will bring for investors in the coming year. With the impending fiscal cliff and uncertainty in the global market, current trends such as decreased investing and the Generation Skipping Transfer Tax may yield insights onto what the financial markets could expect for next year. Below, the First Western Trust team outlines thoughts on the biggest opportunities and obstacles facing the global economy and provides insight into the outlook of the financial landscape for 2013.

Focus Area: Investment Management

Name: Warren Olsen
Title: Co- Founder – Vice Chairman – Chief Investment Officer
Location: Denver, CO

In your area of focus, what did you see as the biggest trend in 2012?
Similar to 2011, investment markets were much more affected by global macro events than by individual security selection. Although economic woes in Europe dominated the financial news for most of the year, it was eclipsed in the latter half of the year by speculation about the U.S. elections and the impending fiscal cliff.

Adding to the uncertainty coming out of Europe and the United States was a once-in-a-decade leadership change in China and conflicting speculation from China watchers as to whether the Chinese economy was experiencing a “hard” or “soft” landing. Further tensions in the Mid-East added to investors’ concerns as there was significant talk of conflict between Iran and Israel. Although these macro events dominated the financial markets, volatility in 2012 was actually down from 2011 as investors settled into this environment.

Why was this trend important? 
The events of 2012 were important because they continued to scare many investors away from “risk” assets, primarily equities. Although 2012 looks to be a pretty benign year for equity and other risk asset returns (barring a major hiccup between now and year end), investors remain significantly underweight in these asset classes as evidenced by mutual fund flows.

What do you see, when looking ahead to 2013, as the biggest opportunity or obstacle for investors?
Looking ahead to 2013, the biggest obstacle for investors remains the great amount of uncertainty still unresolved from 2012. Many economic commentators don’t believe that much has been done to solve Europe’s structural problems and that the actions to date have simply “kicked the can down the road.” In the United States, there is a significant question about whether the political parties will come together to solve the fiscal cliff issue, what this solution will look like and what ultimate effect it will have on the economy.

Interestingly, however, we believe that these obstacles will lead investors to the greatest opportunities in 2013 if they are willing to look past the day-to-day noise and angst and focus on investment fundamentals. As one prominent money manager put it: “You can have good news or you can have cheap stock prices, but you can’t have both”.

Focus Area: Wealth Planning

Name:  David Cerullo
Title:  Assistant Director of Wealth Planning
Location: Denver, CO

In your area of focus, what did you see as the biggest trend in 2012? 
Many of our clients are holding off on investing or participating in transactions due to the uncertainty in the income tax code.

Why was this trend important? 
There is potentially a lot of cash sitting on the sidelines not being invested in areas that would stimulate jobs and growth in the economy.  The possible changes will affect all industries.  For example, many favorable oil and gas provisions are being reviewed for removal and many clean energy tax credits expire at the end of 2012.  The uncertainty makes it hard to plan for 2013.

What do you see, when looking ahead to 2013, as the biggest opportunity or obstacle for investors?  
The biggest obstacle for 2013 is trying to determine how much our current tax system will change and how that will impact our client’s businesses and investments.

Why is this trend important?  
The updates to the tax code will essentially help determine how much our clients will invest in their business.  For example, if unfavorable tax provisions are implemented for our oil and gas clients, many will reduce or even stop their exploration drilling.  There are potentially many high paying jobs at stake if this happens.

Focus Area: Trusts and Estates

Name:  Loren J. Richards
Title:   Trust Officer
Location:  Laramie, WY     

What did you see as the biggest trend in 2012? 
Generation Skipping Transfer Tax (GSTT) planning was a hot topic in 2012 due to the pending lapse of the Bush-era tax cuts and its generous $5 million per person GSTT exemption vs. the expected return to $1 million after the lapse.  There seemed to be a delay in revocable trust planning because of uncertainty with regard to the estate tax exemption level.

Why is this important?  
Many clients came seeking recommendations and advice. First Western’s flexibility allows us to offer services as a disinterested trustee in their GSTT plans.  The trend is important because it indicates that clients and prospects are aware of the changing financial and taxation landscape.  When some of the dust settles, it will offer First Western Trust an excellent opportunity to reach out to clients and prospects alike to encourage them to revisit their “old” plans and strategies, with our assistance, in light of the new landscape.

What do you see, when looking ahead to 2013, as the biggest opportunity or obstacle for investors?
The biggest opportunity will be the possibility of a stronger, more resilient positive market if Congress can come to a reasonable agreement regarding the budget and extension of some tax cuts.  The biggest obstacle for investors and non-investors alike, will be the old guard party-line political figures that, despite the current flow of mostly positive rhetoric, will use the seriousness of the situation to once again foster news releases and sound bites aimed not at resolutions, but at differences.

Why is this trend important? 
The current depth of uncertainty surrounding our economy as well as the rest of the world’s is actually increasing at this point in 2012, and the “either/or” alternatives continue to be so divergent that there is relatively no “comfort zone.”  Regardless of the outcome, early 2013 should provide at least some solidification– providing a base to developing various financial and estate planning strategies.

Focus Area: Retirement Consulting

Name: Paula Hendrickson
Title: Senior Vice President – Director of Retirement Consulting Services
Location: Denver, CO

In your area of focus, what did you see as the biggest trend in 2012?
2012 was the year of fee disclosure. Participant disclosure turned out to be very similar to the Y2K scare in 1999 – a lot of noise and headache for very little reaction or comment.  The plan sponsor disclosure on the other hand was a step in the right direction.  Now plan sponsors have the obligation to understand the fees being charged to the plan (participants) and next, determine if they are reasonable.

Why was this trend important? 
Fee transparency and disclosure is very important.  There are so many assets in retirement plans and many are being charged exorbitantly by brokers that are not providing commensurate services.  ERISA does not say that the fees need to the least expensive but rather ‘reasonable’.  The only way to absolutely know if they are reasonable is to benchmark a plan or prepare a full-blown Request for Proposal (RFP).

What do you see, when looking ahead to 2013, as the biggest opportunity or obstacle for investors?  
There is much more RFP activity, and plan sponsors are looking for fiduciary protection provided by an investment advisor and plan consultant, like our First Western Trust retirement team.  We have been engaged to do not only full RFPs but also benchmarking, which may reveal an opportunity to reduce plan costs.

Why is this trend important?  
Brokers will be out of the business and fiduciary advisors win – positively impacting the investor’s ability to save more towards retirement.

For more information or to speak with one of our thought leaders, please call: 303.531.8100.

 

Disclosures:

First Western Trust cannot provide tax advice. Please consult your tax advisor for guidance on how the information contained within may apply to your specific situation.

Investment and insurance products and services are not a deposit, are not FDIC insured, are not insured by any federal government agency, are not guaranteed by the bank, and may go down in value.

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