Data & Research August 25, 2015

Volatility, Delivering Yield Top of Mind for Advisers

Eighty-seven percent of advisers say their clients are leery of equities.
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Advisers’ concerns about market volatility rose to 109.5 in the second-quarter Eaton Vance Advisor Top of Mind Index survey, up from 102.2 in the first quarter. Generating income measured 111.5 on the index, up from 96.3 last quarter. When Eaton Vance launched the survey in April 2014, it set a baseline average of 100 for the index.

The survey also found that 87% of advisers say at least some of their clients are wary of equities. In addition, 74% of advisers are concerned about interest rate increases, 69% believe their clients are motivated by fear, and 59% think their clients view market volatility as a risk rather than an opportunity. Sixty-five percent of advisers say they are trying to mitigate their clients’ market risk via diversification, and 41% are moving holdings into cash. However, many advisers say volatility offers buying opportunities and is the price investors pay for solid returns.

“Volatility always lurks, but how investors are preparing for and managing volatility is what really matters,” says John Moninger, managing director at Eaton Vance. “It starts with having a plan to address the effects of volatility on a portfolio and harnessing the opportunity it may create to influence long-term goals.”

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Kathleen Gaffney, co-director of diversified fixed income at Eaton Vance, agrees with Moninger that volatility can lead to attractive values: “There is a lot of uncertainty in the market right now, which has historically led to good value. In a market environment driven by low yields and uneven global growth, it’s critical to respond in a thoughtful, rational way that allows investors to take advantage of undervalued opportunities that can potentially lead to long-term rewards.”

Michael Liersch, head of behavioral finance for Merrill Lynch, concurs that the best approach investors can take is to stay the course. “Many investors suffer from being reactive, rather than staying the course they had set for themselves,” he says. “They run the risk of continually buying high and selling low, essentially churning and burning their own portfolios.”

Compliance August 25, 2015

Certain Identity Theft Benefits Not Considered Taxable

The IRS says identity protection received as a result of a data breach will not be considered taxable benefits.
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In Announcement 2015-22, the Internal Revenue Service (IRS) notes that data breaches at organizations’ recordkeeping systems can, and do, happen, and in response to such events, customers and/or employees are offered identity protection services.

The IRS says it will not assert that an individual whose personal information may have been compromised in a data breach must include in gross income the value of the identity protection services provided by the organization that experienced the data breach. Additionally, the agency will not assert that an employer providing identity protection services to employees whose personal information may have been compromised in a data breach of the employer’s (or employer’s agent or service provider’s) recordkeeping system must include the value of the identity protection services in the employees’ gross income and wages. The IRS will also not assert that these amounts must be reported on an information return (such as Form W-2 or Form 1099-MISC) filed with respect to such individuals. 

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The agency says the announcement does not apply to cash received in lieu of identity protection services, or to identity protection services received for reasons other than as a result of a data breach, such as identity protection services received as part of an employee’s compensation benefit package. The announcement also does not apply to proceeds received under an identity theft insurance policy; the treatment of insurance recoveries is governed by existing law.

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