The Altfest Advisory Newsletter

personal wealth management
Fall 2013
SM
Page 1
THE ALTFEST ADVISORY LETTER
425 Park Avenue, 24th Floor New York, NY 10022
Phone (212) 406-0850 Fax (212) 406-0867 www.altfest.com
Protect Yourself Against Identity Theft
Risk Management Planning for the 21st Century
H
ave you ever purchased a $9,600 motorcycle in California
while sitting in a meeting at your
office in New York? According
to my credit card company, apparently I have.
Identity theft is the reality we
must
all deal with and if you have
by: John Valentini
yet to be hit by a form of identity
theft, you should consider yourself
very fortunate. Just like investing in stock and bonds,
while there is no way to eliminate risk, there are certainly some great ways to reduce risk.
the keys in the ignition, your car has a good chance of
being stolen. If you lock the car and have an alarm,
can your car still be stolen? Yes, but your risks are significantly lower that it will happen. The same analogy
applies to identity theft. Intelligent planning can significantly reduce your risk.
I like to divide identity theft prevention into four major categories: Technology, Financial Record Vigilance,
Interacting with Financial Institutions, and Managing
Physical Documents. Below are techniques in each of
these four categories to lower the risk of identity theft.
Technology
Password Protection: Unfortunately in the last few
years
we have seen a couple of cases of clients having
For just a moment, let’s compare identity theft to car
their
email
accounts hacked and in which the hackers
theft. If you leave your car with the doors unlocked with
found correspondence with our firm and contacted us
(Continued on page 2)
ETFs: Tread Lightly
A
s a longstanding client
of the firm, you know
that two principles
form the pillars of our financial decisions: VALUE and INDEPENDENT THINKING.
Years of experience have taught
us that when headlines and investor money go in one direcby: Andrew Altfest
tion, nine out of ten times your
money should flow in the exact
opposite direction. While avoiding fads in their heyday
may have won you the scorn of others, it also ended
up helping you find the right path to best achieve your
financial objectives.
Today, Exchange Traded Funds (ETFs) are all the
rage. Many investors and financial advisors are using
(Continued on page 4)
Altfest Personal Wealth Management
Celebrates 30 Years of Financial
Planning & Investment Management
On May 21st, clients, staff, and friends, joined together at the New York Yacht Club to celebrate the
30th anniversary of the firm’s founding. The evening
included a discussion on “The Future of Value Investing Here and Abroad,” followed by a reception.
The Altfest Advisory Letter
Page 2
Protect Yourself Against Identity Theft
Risk Management Planning for the 21st Century
(Continued from page 1)
Social Media: Do not publish personal information
in an attempt to facilitate withdrawals from investment
such
as your birthday or your pet’s name on social media
accounts (These attempts were caught by our firm and
sites.
Those are often the response to security questions
our firm has safeguards in place supplementing those in
that
websites
ask you in order to retrieve a forgotten
place with your account custodian).
password. Publishing other revealing information such
First, make sure you password protect your computer,
as your phone number, home address and even your
phone and home network. It seems simple enough and
middle name can also increase the chance of fraud.
so many people make the mistake, but don’t use the
Phishing Scams: Do not respond to emails or calls
same username or password for any of your logins. For
anyone maintaining the same username and password, from financial institutions or others. Instead respond
once identity thieves have one set of credentials, they to requests by looking up the company’s phone number
(from its website or statement) and calling them.
have them all.
Make your passwords complex by using uppercase and
lowercase letters in addition to numbers and symbols.
And periodically change your passwords.
You can make every login more secure by using a token, a small device
that creates a six-digit number that
serves as an additional password
every time you log in. A token, in essence, gives you a new numeric password each time you log in.
Some financial institutions will provide free security
tokens for online access to your accounts. These tokens
are a great layer of protection because they generate
random passwords required to access your account.
Even if your normal password becomes compromised,
the thief will need the security token to gain access to
your account. Presently Charles Schwab provides free
security tokens, and we have asked TD Ameritrade to
invest in doing the same. Please contact me directly at
[email protected] if you would like to obtain a security token.
Online Shopping: Be aware of websites offering large
discounts on goods and services. If it is too good to be
true, it is more than likely the case. In general, there is
less risk in shopping with well known merchants compared to small, independent unknown websites.
When sending credit card payment information, make
sure to check the URL. Secure websites begin with
https://. Unsecured websites will only have http://.
Financial Record Vigilance
Below are a few tips both to protect you from identity
theft and make you aware of identity theft if it does occur.
Credit Reports: Periodically request free credit reports from the major credit bureaus for all members of
your household (including children). Make sure there is
no information on your credit report that is not yours.
Setting a reminder in your smart phone or elsewhere to
check your credit report a few times a year is a great way
to keep on track.
Options such as adding a fraud alert or freezing your
credit are available to help prevent identity theft. Fraud
alerts require credit bureaus to verify you are the one
initiating the request. Unless you have been the victim
of identity theft and provide a police report or potentially other documentation to substantiate the incident,
you will need to periodically renew the fraud alert. As an
Don’t login into financial web sites or email accounts alternative you can freeze your credit. Keep in mind that
on public computers. Public computers found in hotels once you freeze your credit you will need to temporarily
and internet cafes can be tampered with and your ac- lift the freeze when you apply for a loan.
tivity on the computers can be monitored. Also avoid
Statements: Check your financial statements monthly
logging into financial web sites on your own laptop, celland look for unknown activity.
phone or tablet at public wireless “hot spots” such as
Interacting with Financial Institutions
in airports, hotels and coffee shops. Public wireless hot
spots can be less secure than those found in your home.
Do Not Email Sensitive Information: When sending
Computers: Consider maintaining two computers at
home. Use one computer strictly to access financial institution websites, with less of a chance of infection, and
use the second computer for browsing. When maintaining your computers it is important to have the most up
to date versions of anti-virus and anti-malware software.
(Continued on page 3)
The Altfest Advisory Letter
Page 3
Protect Yourself Against Identity Theft
Risk Management Planning for the 21st Century
(Continued from page 2)
documents with sensitive information to your professional service providers, password-protect all documents. When communicating with our firm, our private
client web site, MyAltfest, allows you to bypass emails
and upload and download sensitive documents through
a secure web site. If you have not yet subscribed to MyAltfest and want to get started you can contact me directly at [email protected].
find that there will be more tracks to cover to prevent
identity theft.
Lock Box: Consider keeping your sensitive information at home locked in a lockable, fireproof file box.
Many people pass through our homes and it is an unfortunate reality that a lot of the identity theft that occurs is
caused by people we know.
With the above security measures in place you may be
ATMs: Try to use a bank ATM and minimize the use of
wondering if you have sealed off every possible way to
ATMs in non-bank locations like delis, restaurants and
have your identity compromised. Unfortunately there
malls, since they are more likely to have been tampered
is no way to completely protect against the possibility of
with. When entering your pin, cover it to protect your
identity theft especially because so much personal inforpin from any hidden cameras and onlookers. Do not use
mation is exchanged in our day to day routines.
the ATM if anything looks funny
in its configuration or if it is hard
In the event you may have had
to get the card into the slot. For
your
identity compromised, you
ur private client web
additional protection, match your
should immediately contact your
site, MyAltfest, allows
ATM receipts to your bank statefinancial institutions and the necesyou to bypass emails and
ments to make sure there were no
sary authorities.
unauthorized withdrawals. If there
upload and download senIn addition, it is prudent to nowere any unauthorized withdrawtify
the credit reporting agencies
sitive documents through a
als you will want to know about
and
reach
out to the FTC (Federal
secure web site.
them to request reimbursement
Trade Commission) to create an
and safeguard your account.
Identity Theft Report. An Identity
Enhanced Security: Contact
Theft Report will help you prevent
your financial institutions and find out what enhanced the identity theft activity from spreading further.
measures they have in place to protect the integrity of
Lastly, you should place an extended fraud alert on
your accounts, such as verbal passwords required to
your credit report and vigilantly monitor your credit rewithdraw money.
port on an ongoing basis.
Do Not Lend Your Credit Card, Share Passwords, etc:
In 2012, there were 12.6 million victims of identity
Not only do you make yourself more vulnerable to identheft in the United States and $21 billion stolen. The
tity theft by sharing passwords and lending your credit
importance of taking a proactive approach to identity
cards to others, but financial institutions like credit card
theft speaks for itself. Just like your health and your
companies might not reimburse you for identity theft
portfolios, being proactive is much easier and less time
if they find the theft was the result of you sharing your
consuming than being reactive.
information.
If you would like more information about anything
Physical Documents
discussed in the article and identity theft prevenMail: Keep a close eye on your mail, making sure you tion, feel free to contact John at (212) 406-0850 or
use a locked mailbox.
[email protected]
O
Shredding: Consider buying a shredder and shredding all documents with sensitive information such as
account numbers and prescription information found on
pill bottles. Unfortunately dumpster diving is an identity theft risk.
Travel Lightly: It is best to not carry your social security card or all of your credit cards in your purse or
wallet. In the event of a lost or stolen wallet, you will
John Valentini is Chief Compliance Officer and Operations Manager at Altfest Personal Wealth Management.
John joined the firm in 2008 after graduating from Pace
University’s Lubin School of Business where he was in the
Business Honors Program and graduated with a B.B.A in
finance with a concentration in economics. He has spoken
at industry conferences about technology best practices
and was featured in a white paper on technology.
The Altfest Advisory Letter
Page 4
ETFs: Tread Lightly
(Continued from page 1)
ETFs extensively; there are ETF books, conferences,
and personal finance publications that have created
special columns devoted to covering the more than
1000 ETFs available for investment. So why have we at
Altfest not joined the crowd regarding ETFs?
Recently, when we were reviewing the bank loan
investment sector, two long tenured bank loan fund
portfolio managers we evaluated made unsolicited cautionary statements about ETFs investing in bank loans.
The portfolio managers claimed bank loan ETFs were
controlled by Wall Street. Were these portfolio managers just disparaging a competitor, or are there fundamental problems with ETFs? I think the answer is best
explained by going over a simple example. Let me walk
you through a deep dive of the bank loan ETF category,
whose largest ETF, the PowerShares Senior Loan Portfolio, has attracted over $5 billion from investors in a
little over two years. First let’s define ETFs and their
value proposition.
How do ETFs differ from Mutual Funds?
By way of background, ETFs are investment vehicles,
similar to open-end mutual funds in the sense that they
pool funds for investment. However, unlike traditional
mutual funds, ETF shares are generally not sold directly
to investors but are traded on an exchange where buy-
ers and sellers agree on a price. Therefore, ETF shares
do not perfectly track the value of ETF portfolios.
ETFs have several frequently cited potential advantages over mutual funds. First, ETFs can be lower
cost than similar mutual funds. Since many (but not
all) ETFs track indices, a comparison could be made
to index mutual funds. Second, due to their mechanics (by issuing securities in kind to meet redemptions),
ETFs can help an investor better defer capital gains
tax than can mutual funds. Third, some investors like
that ETFs can be bought or sold intraday while mutual
funds are bought and sold at the end of the day at their
NAV (Net Asset Value). Finally, because there are so
many ETFs now, investors are promised access to a ton
of ways to slice and dice the market and play themes from European Telecom stocks to companies that are
headquartered in Nashville, TN. There also may be access to Bitcoins through an ETF offered by Facebook’s
Winkelvoss twins.
A Major ETF in Practice
To evaluate the ETF value proposition and to see who
has it right (the ETF proponents or the bank loan portfolio managers who sounded the alarm), I thought it
would be interesting to turn our attention to the largest
bank loan ETF, PowerShares Senior Loan Portfolio that
manages over $5 billion.
(Continued on page 5)
Altfest in the Media
j Lewis Altfest was featured in a CNBC.com article by Jeff Brown entitled, “Financial Advisors Tips for YearEnd Planning “ on September 10, 2013.
k Lewis Altfest was featured in a CNBC.com article by Eric Eosenbaum entitled, “US No Longer ‘the place
to be’ For Investors” on September 4, 2013.
l Lewis Altfest was named as one of Barron’s 100 Top Independent Advisors on August 24, 2013.
m Karen Altfest was quoted in an article entitled, “Minding Retirement Accounts in Estate Plans” on
WSJ.com on July 30, 2013
n Andrew Altfest appeared in an article entitled, “ Hedge- Fund Ads May Lure Performance Chasers” on
WSJ. com on July 18, 2013.
o Lewis Altfest was featured on The Willis Report on Fox Business TV, which aired on July 15, 2013.
p Greg Lavine was quoted in an article entitled, “Short-Term Bond Funds Not Immune to Selloff” on
WSJ.com on July 3, 2013.
If you would like a copy, contact David Novak at (212) 406-0850 or at [email protected].
The Altfest Advisory Letter
Page 5
ETFs: Tread Lightly
(Continued from page 4)
PowerShares - A Case Study
Like many ETFs, PowerShares Senior Loan Portfolio
roughly tracks an index, in this case the S&P/LSTA U.S.
Leveraged Loan 100 Index. In a nutshell, the PowerShares ETF is basically buying the biggest bank loans in
the space. Now one has to ask oneself whether buying
the largest bank loans represents a sound investment
strategy. When stepping back to think about the ETFs
investment strategy, all else being equal, the ETF will
be inclined to buy the debt of companies that have the
MOST debt outstanding. There is no indication of any
opinion being made about whether you are investing in
the debt of companies that are likely to pay back their
debt! The ETF’s strategy makes as much sense as deciding to invest in the mortgages on the homes in your
neighborhood and executing by buying those mortgages
with the largest balances outstanding. The arbitrary nature of the ETF’s investment strategy is troubling.
Costs
There are two costs to consider with ETFs: Direct
Costs and Indirect Costs.
Direct Costs: as mentioned, lower expenses are often
cited as a benefit of ETFs. But often, there are mutual
funds cheaper than an ETF and plenty that are just
slightly more expensive. The bank loan mutual fund
we chose had lower expenses than the PowerShares
ETF plus, rather than utilizing a passive investment approach like the PowerShares ETF, the bank loan team
actively manages the portfolio in an effort to add to performance.
Altfest summer interns, staff and family at the
2013 US Open.
Indirect Costs: Setting aside expense ratios, there are
costs that are unique to ETFs. Because ETF shares are
sold over an exchange and do not trade at NAV (the
value of the shares), an investor can buy an ETF at a
price that is lower or higher. Why would one want to
buy something for more than it is worth?
In times of stock market volatility, shares can trade
below the value of the portfolio and the indirect costs
can increase. In the case of the PowerShares ETF, the
stability of the investor base has to be questioned. Once
the good times are gone for the bank loan space, and
the hot money heads for the exit, there could be an unpleasant surprise on the way out the door in the form of
bids for investor shares below the portfolio value. This
problem can be exacerbated by the lower liquidity of
bank loans. In other words, with sad irony, the same investors who are now buying the ETF above its worth,
could be liquidating the ETF shares below their worth.
Tax Advantages
One heralded advantage by ETF marketers is a tax
advantage. This is where ETFs can claim they have a
better mouse trap than their index mutual fund competitors. If you hold an ETF in a non-retirement account, are not in a low tax bracket, do not have a large
loss carryforward, or will be experiencing a change in
your tax situation, an investor will likely desire deferring capital gains tax. Applying techniques to defer tax
in situations where it makes sense is certainly one way
that our firm brings value-added service to our clients.
In some instances the mechanics of mutual funds do
not fully optimize tax deferral. While the real value of
(Continued on page 6)
The Altfest Advisory Letter
personal wealth management
Page 6
SM
425 Park Avenue, 24th Floor
New York, NY 10022
(212) 406-0850 Phone
(212) 406-0867 Fax
www.altfest.com
The Altfest Advisory Letter
IN THIS ISSUE:
Protect Yourself Against Identity Theft
Page 1
ETFs: Tread Lightly
Page 1
Altfest in the Media
Page 4
Save the Date
Page 5
(Continued from page 5)
ETFs: Tread Lightly
tual funds, they have grown into something else comthe extra tax deferral could very well be negligible, all pletely.
else being equal, the ETF could
In the meantime, for us at Altin theory have a slight tax advanfest,
it is business as usual. We turn
tage.
f the original vision a critical
and suspicious eye to inSo how does the PowerShares
for ETFs were to be dustry trends, unafraid to stand out
ETF fare on taxes? The Powera better alternative to from the crowd. We search for inShares ETF does not follow the
vestments that we believe will promutual funds, they have duce superior results and will help
operational process ETFs have
at their disposal to enhance tax
grown into something clients better reach their financial
deferral. So tax is a non-starter.
goals. In the case of the bank loan
else completely.
Even if the ETF did follow the
space, when we decided to add exoperational process, bank loans
posure to portfolios, it was not hard
with their short average lives and
to find a better alternative to ETFs, one with lower risk
the preference to place them in retirement accounts and less hype.
because of how bank loans are taxed would make tax a
moot point.
Andrew Altfest is a member of the firm’s PortAs for intraday buying and selling of ETFs, quite simfolio Action Group and Investment Committee,
ply it adds virtually nothing to be able to sell something
and leads the firm’s committee on the tax manageduring the day as opposed to the end of day.
ment of investment portfolios. Andrew received
his B.A. from Cornell University and MBA from
ETFs have gotten a lot of attention, to the extent that
Columbia University Business School.
investors have blindly followed the herd. If the original
vision for ETFs were to be a better alternative to mu-
I