Client Service May 11, 2016

Volatility Can Strengthen the Advisory Relationship

Advisers are finding new ways to help clients cope with the powerful sense of panic that can quickly set in when broad equity market indexes start to fall. 
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There is a real and growing disparity between advisers’ and clients’ reactions to risks and opportunities in the equity markets, according to the Eaton Vance Advisor Top-of-Mind Index.

According to the asset management firm’s adviser outlook index, which compiles the responses of more than 1,000 U.S. advisers, financial professionals “continue to view market volatility as their top concern, but many have also learned to deal with volatility, even as their clients increasingly panic.”

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Highlighting the ongoing anxiety of advisory clients, “managing market volatility” held the top score (123.3) on the index for the third consecutive quarter. Findings also show more than half (55%) of advisers feel volatility has grown in the last 12 months, with nearly the same number of advisers (53%) saying they believe significant market volatility is the “new normal.” 

“Market fluctuations in 2016 have been unpredictable,” explains John Moninger, managing director of retail sales for Eaton Vance. “Uncertainty can be unsettling, but advisers have indicated they are growing accustomed to operating in this environment and looking for opportunities volatility presents.”  

Clients are clearly not being as stoic, however. A strong majority (81%), for example, say they are primarily motivated by fear of loss, up from 72% just 12 months ago. Further, more than half of advisory clients (62%) feel volatility is primarily a source of loss, rather than a potential source of return—up from 56% less than a year ago.

“Most advisers have learned how to cope with volatility, but their clients have not,” Moninger says. “The growing disparity between adviser and client perspectives highlights the importance of open, frequent communication and establishing and following a carefully constructed investment plan.” 

Interestingly, nearly three out of 10 (28%) advisers actually report volatility has strengthened their relationships with clients due to more interaction, and another 20% gained new clients due to ongoing market volatility. Of those advisers who indicated fear as the primary motivator among clients, 42% increased outbound client communication and 38% indicated clients are contacting them more frequently, Eaton Vance finds.

When asked to look ahead, more than half of advisers believe domestic issues including Federal Reserve policy (26%) and stalled U.S. economic growth (25%) will be the primary drivers of volatility for the remainder of 2016. 

For more information and research visit www.eatonvance.com. 

Compliance May 11, 2016

Make Sure 403(b) Clients Do Not Lose Tax-Exempt Status

The IRS has sent a reminder that many tax-exempt organizations' Form 990 filing is due soon.
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The Internal Revenue Service (IRS) is reminding tax-exempt organizations that many have a filing deadline for Form 990-series information returns in mid-May.

Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s tax year ends. Many organizations use the calendar year as their tax year, making May 15 the deadline for them to file for 2015. However, because May 15 falls on a Sunday, the deadline this year moves to Monday, May 16.

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By law, organizations that fail to file annual reports for three consecutive years will see their federal tax exemptions automatically revoked as of the due date of the third required filing. The Pension Protection Act of 2006 (PPA) mandates that most tax-exempt organizations file annual Form 990-series information returns or notices with the IRS. The law, which went into effect at the beginning of 2007, also imposed a new annual filing requirement for small organizations. Churches and church-related organizations are not required to file annual reports.

Losing tax-exempt status can affect the ability to offer 403(b) plans. In 2014 and 2015, the IRS Employee Plans Compliance Unit conducted a project related to 403(b) plan sponsorship eligibility for organizations that lost their 501(c)(3) exempt status due to the automatic revocation for not filing a required return for three consecutive years. Some entities were unaware that their 501(c) status affected their eligibility to sponsor a 403(b) plan.

The IRS generally does not ask organizations for Social Security numbers and, in the Form 990 instructions, it cautions filers not to provide them on the form. The IRS also urges tax-exempt organizations to file forms electronically in order to reduce the risk of inadvertently including Social Security numbers or other unneeded personal information.

Organizations that need additional time to file a Form 990, 990-EZ or 990-PF may obtain an automatic three-month extension. An organization may also request an additional three-month extension; however, the organization must show reasonable cause for the additional time requested. Use Form 8868, Application for Extension of Time to File an Exempt Organization Return, to request extensions. The request for extension must be filed by the due date of the return. Note that no extension is available for filing the Form 990-N (e-Postcard).

The IRS offers an online search tool, Exempt Organizations Select Check, to help users more easily find key information about the federal tax status and filings of certain tax-exempt organizations, including whether organizations have had their federal tax exemptions automatically revoked.

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