Willow Creek Commentary: Summer-2016

10 REASONS TO BE CHEERFUL

Do you ever listen to the news and find yourself thinking that the world has gone to the dogs? The roll call of depressing headlines seems endless. But look beyond what the media calls news, and there also are a lot of things going right.

It’s true the world faces challenges in many areas, and the headlines reflect that. But it’s also easy to overlook the significant advances made in raising the living standards of millions, increasing global cooperation on various issues, and improving access to healthcare and other services across the world.

Many of the 10 developments cited below don’t tend to make the front pages of daily newspapers or the lead items in the TV news, but they’re worth keeping in mind on those occasions when you feel overwhelmed by all the grim headlines.

So here’s an alternative news bulletin:

  1. Over the last 25 years ending May 2016, one dollar invested in a global portfolio of stocks would have grown to more than five and a half dollars. After inflation, this represents real growth of more than four dollars.
  2. Over the last 25 years, 2 billion people globally have moved out of extreme poverty, according to the United Nations Human Development Report.
  3. Over the same period, mortality rates among children under the age of 5 have fallen by 53%, from 91 deaths per 1000 to 43 deaths per 1000.
  4. Globally, life expectancy has been improving. From 2000 to 2015, according to the World Health Organization, the global increase was 5.0 years, with an even larger increase of 9.4 years in parts of Africa.
  5. Global trade has expanded as a proportion of GDP from 20% in 1995 to 30% by 2014, signaling greater global integration.
  6. Access to financial services has greatly expanded in developing countries. According to the World Bank, among adults in the poorest 40% of households within developing economies, the share without a bank account fell by 17 percentage points on average between 2011 and 2014.
  7. The world’s biggest economy, the US, has been recovering. Unemployment has halved in six years from nearly 10% to 5%.
  8. The world is exploring new sources of renewable energy. According to the International Energy Agency, in 2014, renewable energy such as wind and solar expanded at its fastest rate to date and accounted for more than 45% of net additions to world capacity in the power sector.
  9. We live in an era of innovation. One report estimates the digital economy now accounts for 22.5% of global economic output.
  10. The growing speed and scale of data is increasing global connectedness. According to a report by McKinsey & Company, cross-border bandwidth has grown by a factor of 45 in the past decade, boosting productivity and GDP.

 

No doubt many of these advances will lead to new business and investment opportunities. Of course, not all will succeed. But the important point is that science and innovation are evolving in ways that may help mankind.

The world is far from perfect. The human race faces challenges. But just as it is important to be realistic and aware of the downside of our condition, we must also recognize the major advances that we are making.

Just as there is reason for caution, there is always room for hope. And keeping those good things in mind can help when you feel overwhelmed by all the bad news.

 

cartoon

“… And on Wall Street, the markets generated another
exciting day’s worth of meaningless white noise.”

 

DEPARTMENT OF LABOR FIDUCIARY RULE

After years of deliberation, the U.S. Department of Labor (DOL) has released a final rule clarifying the term “fiduciary” as it relates to financial and investment advisers and spelling out when conflicts of interest arise relating to retirement plan advice.

To be crystal clear, Willow Creek has always acted as a fiduciary in the pursuit of our clients’ financial success – And we take this responsibility very seriously. Many financial professionals, however, including insurance agents, commission-based stockbrokers, broker-dealers and others, have not been held to the fiduciary standard – until now.

So what does this change really mean? To us, it’s just good common sense – looking out for every clients’ “best interest” and disclosing any situations where potential conflicts of interest may exist.
It’s been estimated by the DOL that backdoor payments and hidden fees (often buried in the fine print) are hurting mostly the middle class, with about 1% lower annual returns on retirement savings and $17 billion in losses every year. The new ruling could save families with IRA’s more than $40 billion over the next 10 years.

Though the DOL rule doesn’t go so far as to ban commissions or revenue sharing, it will require advisors to have clients sign a best interest contract exemption (BICE). The BICE pledges that the advisor will act in the client’s best interest and only earn “reasonable” compensation. The exemption also must disclose information to clients about fees and conflicts of interest that could affect their best judgement as a fiduciary giving advice.

The DOL rule will have a significant impact on financial advisors who sell variable annuities and indexed annuities in qualified accounts. As a result, sales of these high commission annuity products are expected to slow. It’s been estimated by insurance coverage group Keeve, Bruyette, & Woods, that sales of variable and indexed annuities within qualified plans could fall between 25% to 50%, which would equate to a sales decline of about 15% to 35% overall. This small loss for insurance companies is a huge win for the consumer.

The final rule was effective June 7, 2016 and is applicable April 10, 2017. The best interest contract exemption (BICE) goes into effect on January 1, 2018.