On Balance November | December 2016

November | December 2016 | Vol. 12 No. 6 A publication of the Wisconsin Institute of CPAs | wicpa.org

Family

First

Christopher M. Cholka, CPA | 6 Senior accountant, Cousins Submarines, Inc.

Plus: Best practices for sole and small practitioners | 10 Section 2704 and its effect on family-controlled businesses | 23 The trouble with traditional asset allocation | 26

HELP YOUR CLIENTS REACH THE

NEXT LEVEL WITH THE RIGHT RESOURCES.

TOGETHER WE MAKE BUSINESS STRONGER IN WISCONSIN. ®

Along with your expert advice, give your clients the many business benefits that WEDC provides. From technology development loans to exporting assistance, WEDC programs and resources help you bring the right solutions to the table. To learn more about helping your clients succeed In Wisconsin, call 855-INWIBIZ (toll free) or visit InWisconsin.com.

In Wisconsin® is a registered trademark of Wisconsin Economic Development Corporation.

A publication of Wisconsin Institute of CPAs | wicpa.org

November/December 2016 Vol. 12 No. 6

6 Features

Columns

6 Family first

23 TAX

Christopher M. Cholka, CPA juggles family, career and service.

By Cynthia M. Hodnett

By June F. Norman, CPA

By Jacqueline B. Wilcox, J.D. 26 FINANCIAL PLANNING

The trouble with 60/40 How traditional asset allocation may be problematic in today’s low interest rate environment

Learn why advisors often use Monte Carlo analysis, which runs simulations that show results over multiple time periods using random applications of historical returns to help determine the feasibility of a match between an investor’s goals and resources.

14 Goal-setter, goal-reacher WICPA Educational Foundation scholarship recipient Molly Bannan aims for an accounting career.

By Donna Pinsoneault

18 How CFOs can help chief marketing officers drive growth More CFOs recognize the value that customer data generates for their company’s marketing department and seek closer relationships with their chief marketing officers.

By Sabine Vollmer

wicpa.org

Proposed regulations may severely impact tax planning for family businesses Learn how recently proposed regulations under Section 2704 may cause concern among family-controlled businesses.

10 11 sole/small practitioner best practices Are you a sole practitioner or want to become one in the future?

These tips can help you reach the top of your game.

14

By Peter F. Schumacher, CPA

30 TECHNOLOGY

30 Departments 2 Odds & Ends | news briefs 3 Outlook | chair’s letter 5

Membership Matters | member benefits

13 In Touch | president & CEO’s message 20 Kudos | members in the news

Best practices for remote access Consider these keys for remotely accessing the tools you need for your business.

By Thomas G. Stephens Jr., CPA, CITP, CGMA

On Balance

November | December 2016

1

Odds & Ends 2013 Apex Award for Publication Excellence 2016–2017 WICPA OFFICERS/BOARD MEMBERS Chair Steven G. Handrick, CPA, CGMA Chair-elect William L. Komisar, CPA, J.D. Past-chair Jean M. Hansen, CPA, MBA, CGMA Secretary-treasurer Katherine L. Hauser, CPA, CGMA Directors Michael D. Akers, CPA, CBM, CFE, CGMA, CIA, CMA, Ph.D. Lucien A. Beaudry, CPA, J.D. Ryan J. Hanson, CPA, CGMA Debra L. Lenz, CPA, CGMA, CIA, CRMA Terri M. Lillesand, CPA Matthew A. Los, CPA Scott D. Miller, CPA, ABV, PFS, CVA Matthew J. Schaefer, CPA, CGMA Wendi M. Unger, CPA AICPA Council Rick E. Dreher, CPA, CGMA Neil R. Keller, CPA, ABV, CVA President & CEO Dennis F. Tomorsky, CPA, J.D., CGMA Chief Financial & Operating Officer Tammy J. Hofstede Vice President of Communications Amy E. Gaeth

Join a WICPA Board The WICPA is seeking members to serve on both the WICPA Board of Directors and the WICPA Educational Foundation Board of Directors. Get involved with the WICPA, gain leadership skills and meet people with a similar passion for the accounting industry. Join one of the boards today! Apply for the WICPA Board of Directors at wicpa.org/BoardApplication by Nov. 15, 2016. Apply for the WICPA Educational Foundation Board of Directors at wicpa.org/EFBoardApplication

by Feb. 28, 2017.

Free report examines new overtime changes Millions of workers will become eligible for overtime pay on Dec. 1. Employers, trusted business advisors and HR pros need to be aware of exemption guidance, advice for clients and other issues regarding overtime pay. Learn about the new overtime changes and the impact on payroll in a sponsored report published in the September 2016 Journal of Accountancy (http://tinyurl.com/jofareport).

Accounting salaries projected to increase by 2.8 percent in 2017 Accounting and finance salaries are expected to rise 2.8 percent next year, according to the 2017 Salary Guide published by Accounting Principals, a recruiting firm. That’s an increase over the previously forecasted rises of 2.4 percent for 2016 and 1.2 percent for 2015. Counteroffers for job candidates are becoming more common and driving salaries higher, said Kathy Gans, a senior vice president for Accounting Principals.

More data is included in the salary guide (http://tinyurl.com/2017salaryguide).

Article: FASB changes not-for-profit financial reporting The Financial Accounting Standards Board (FASB) issued a new accounting standard that is intended to make not-for-profit financial statements easier for users to understand. These are the first significant changes that FASB has made to its notfor-profit financial reporting model since 1993 (http://tinyurl.com/joanfp).

Editor Cynthia M. Hodnett Copy Editor Joan Bahr Design & Layout Brett Stallman Advertising Manager Ellen Engel

WANT YOUR BUSINESS MENTIONED IN ODDS & ENDS?

Email your announcement to cynthia@wicpa.org.

Printing The Printery, An RR Donnelley Company

WICPA offices will be closed on the following dates: Join us online!

On Balance is published six times a year by the Wisconsin Institute of Certified Public Accountants (WICPA). Change of address should be sent to: Membership, W233N2080 Ridgeview Pkwy, Suite 201, Waukesha WI 53188; Phone: 262-785-0445 or 800-772-6939 (WI/MN); Fax: 262-785-0838; email: jessica@wicpa.org. Statements and opinions expressed are those of the authors and not necessarily those of the WICPA. Publication of an advertisement does not constitute an endorsement of the product or service by On Balance or the WICPA. Articles may be reproduced with permission. © Copyright 2016 On Balance.

2

On Balance

November | December 2016

Nov. 24 and 25 in observance of Thanksgiving Dec. 23 and Dec. 26 in observance of Christmas Jan. 2 in observance of New Year’s Day

wicpa.org

OUTLOOK | CHAIR’S LETTER “Being a CPA is near and dear to our hearts. We worked hard to achieve that certification and want to protect what it represents.”

AICPA, CIMA join forces to enhance the accounting profession

W

elcome to this issue of On Balance, where the feature article addresses the Chartered Global Management Accountant (CGMA) designation.

After years of planning by the American Institute of Certified Public Accountants (AICPA) and Chartered Institute of Management Accountants (CIMA), members of the AICPA board held regional AICPA Council meetings last year to discuss the status and future of our profession and review the outline of the proposed enhanced Joint Venture.

In March 2016, the AICPA Council approved taking to membership vote a proposal to expand the Joint Venture with CIMA. As announced in June, the membership of the AICPA, along with the membership of CIMA, overwhelmingly approved the Joint Venture expansion.

The trends, which drove this discussion and ultimate vote, included the increase in regulation originating overseas and growing talent shortage. The trends also included demographic and generational shifts, and the need for finance professionals to differentiate themselves from their peers and demonstrate greater strategic management skills.

In January 2012, the two organizations launched the CGMA designation to develop those broader skills and distinguish individuals who have them. In response to market demand, AICPA Council voted in fall 2015 to make the CGMA designation available to non-CPA’s who complete rigorous educational and examination requirements starting in 2017.

The recent approval by the memberships of both the AICPA and CIMA for the expanded Joint Venture also creates a new international accounting association that will include all CIMA and AICPA members. This newly formed international association will integrate operations, strategy and management.

wicpa.org

“The new association aims to maximize efficiencies and provide a broader platform for further enhancing advocacy, promoting public and management accounting on campuses and with employers and with clients, and developing new research and educational offerings” (AICPA Communications Team, On Balance, March/April 2016).

Being a CPA is near and dear to our hearts. We worked hard to achieve that certification and want to protect what it represents.

This point was made loud and clear by council members at last year’s regional AICPA Council meetings. During those meetings, AICPA Board and staff indicated that they would at all times protect the CPA brand.

According to Barry C. Melancon, CPA, CGMA, AICPA president and CEO, “The AICPA would continue to maintain its commitment to the CPA, promote high standards for ethics and quality, and protect the public interest and core values of the CPA profession” (On Balance, March/April 2016).

On a lighter note, as we enter the holiday season, on behalf the WICPA Board of Directors and staff and me, have a happy Thanksgiving, Hanukkah Sameach, and Merry Christmas. Enjoy time off with your families and friends.

Steven G. Handrick, CPA, CGMA is partner of Hawkins Ash CPAs in Green Bay. Contact him at November | December 2016 920-337-4541On or Balance shandrick@hawkinsashcpas.com.

3

TRUST US.

PLANNING FOR LIFE. PROVIDING PEACE OF MIND.

Join us at the following WICPA sponsored events: November 3 Tax Planning Conference: Tax Planning Strategies for Your Clients & How to Collaborate with Other Advisors (Milwaukee)

January 13 Investment Management: Proven Factors of Return & Retirement Planning (Appleton)

February 17 Investment Management: Proven Factors of Return & Retirement Planning (Madison)

Tax Planning Workshop: In preparation for Tax Season, we provide a 1-2 hour CE workshop titled “Financial Planning for CPAs�. This workshop is held in your office and helps both new and experienced tax professionals add value to your clients by looking at the 1040 from a financial planning perspective. The best time to hold this workshop is 1/15/2017 - 3/15/2017. Call 262-814-1600 to book this workshop for your office.

AFF

I N I T Y PA R T N E R

info@ShakespeareWM.com | ShakespeareWM.com 4

On Balance

November | December 2016

wicpa.org

MEMBERSHIP MATTERS | SHAKESPEARE WEALTH MANAGEMENT “A new WICPA affinity partner this year, Shakespeare collaborates with CPAs to address the financial planning needs of your high net worth clients.”

Get to know Shakespeare Wealth Management

Y

ear-end is a time when clients take inventory of their situation, evaluate their current finances, learn about new strategies, and look toward accomplishing their long-term goals. You know the clients who are most in need of financial help, both with tax planning and ongoing financial planning issues. These clients have more sophisticated needs and need an ongoing level of advice to help them stay on track with their goals.

A new WICPA affinity partner this year, Shakespeare Wealth Management collaborates with CPAs to address the financial planning needs of your high net worth clients.

In doing so, it strengthens the relationship you have with your clients. The company has sophisticated software that provides holistic financial planning solutions, and also helps facilitate the collaborative process. Being able to see a client’s retirement balances, investment accounts, future income sources, and all other relevant data, you’ll be better able to do tax planning and broaden the level of advice provided.

As you consider which clients can benefit the most from ongoing planning, consider clients who are at or near a transition point in their life. These transition stages include retirement, sale of a business, divorce, widowed, inheritance, advanced age or those experiencing changes in their health or family situation. This is an opportunity for you to strengthen your client relationship at a critical point in their life by providing deeper solutions that come from collaboration.

Shutterstock.com

As fee-only advisors who function as a fiduciary, there are no sales commissions or other conflicts of interest present.

Shakespeare President Kevin Reardon, CPA is a certified financial planner and long-standing WICPA member.

The company’s tagline, “Planning for life, providing peace of mind,” speaks to the value it provides to clients and the CPAs with whom it collaborates.

wicpa.org

You may have seen Kevin teaching at one of our breakfast programs, or seen the company’s ads in On Balance. Look to Shakespeare Wealth Management for regular updates on current trends, available through a number of platforms. Learn more about the company by: • Subscribing to its blog, View from the Lake at http://www.shakespearewm.com/blog-cysq.

• Reading the company’s newsletter, From the Desk of Shakespeare at http://www.shakespearewm.com/from-the-desk-of-shakespeare.

• Checking out its weekly philanthropic donation, $100 for 100 FUN Fridays at www.shakespearewm.com.

The WICPA has selected partners who deliver a range of quality services and products to help members grow, reduce costs and improve efficiencies. Uncover benefits that are most relevant to you by visiting the member marketplace at wicpa.org/ marketplace.

Ellen Engel is advertising manager at the WICPA. Contact her at 262-785-0445 ext. 4513 or November | December 2016 ellen@wicpa.org. On Balance

5

6

On Balance

November | December 2016

wicpa.org

Photography by Mark Hines

Family

First

Christopher M. Cholka, CPA balances career ambition with family-first mission

By Cynthia M. Hodnett

G

rowing up, Christopher M. Cholka, CPA didn’t know any accounting professionals.

However, he loved math and knew he wanted a career that would allow him to use numbers. So, in the sixth grade, he enrolled in an advanced math class to hone his skills.

Today, Cholka is the senior accountant of Cousins Submarines Inc. in Menomonee Falls, work that reflects his passion for numbers and problem-solving. His job also reflects his drive as an accounting professional and a desire to provide financially for his family.

Cholka’s drive came from his family. His father, a shipping dock supervisor for a manufacturing company, and his mother, a stay-at-home-mom and freelance hairstylist, both put in long hours. He also saw his brother work various jobs before becoming a cable television technician.

Christopher M. Cholka, CPA, his wife, Rebecca, and their son, Benjamin, enjoy a walk in Brookfield’s William Mitchell Jr. Park.

wicpa.org

“I come from a blue-collar family (who) didn’t have lots of money,” Cholka said. “I knew I wanted to better my life. So, I pushed myself to break that barrier, and I became the first one in my family to graduate from college. I didn’t expect anything to be handed to me. I knew I had to work for all of it. Then I met my wife, Rebecca, and we had our son. They are my biggest inspirations, and I know I have to work hard for them.”

On Balance

November | December 2016

7

Cholka credits his family for his success.

Hard work plus drive equals success Cholka’ s hard work continued through college, earning him a Bachelor of Science in Accounting from Carroll University in Waukesha in 2008. His next educational goals include earning the Chartered Global Management Accountant (CGMA) designation. The designation demonstrates management accounting expertise, determination and commitment to achieving sustainable business success.

Individuals taking the three-hour exam are presented with three to five tasks related to the business case, according to the AICPA’s website. Along with the tasks, new information is provided that will change the business scenario and will require exam takers to adapt their answers. Each task must be answered fully in the allotted time, which is displayed on the screen.

The computerized case study examination tests the exam taker’s readiness to apply management accounting knowledge in realworld business situations. It assesses theoretical knowledge, but, more important, tests one’s ability to apply that knowledge in an open-ended format.

“Earning the CGMA shows that I’m willing and able to take on bigger roles and bigger projects,” he said. “It also shows that you have a special skill set and that you know how to do the job.”

8

Cholka, a CPA since 2011, plans to earn a CGMA designation.

Foundation Board of Directors and Young Professionals Committee. He also received the 2016 Outstanding Young Professional Award.

“When I first became involved with the WICPA, it was about meeting more people and expanding my professional network,” he said. “But I got so much more from it as I became more involved.

I do enjoy giving back and developing my skills.

“Cousins found that my involvement with the WICPA became a key part of my development at work,” he said. “Being on the Educational Foundation Board, I get to learn how a board operates, how to conduct the board’s meetings and about all of the legal aspects involved with the board.”

Appetite for success

Cholka earned his CPA designation in 2011 and joined Cousins a year later.

Officials at Cousins support Cholka’s desire to earn the CGMA designation. They also continue to support his involvement with the WICPA. Cholka joined the WICPA in 2012 after attending both the New CPA Welcome Dinner and Member Recognition Banquet & Annual Business Meeting. Since then, he’s served on various boards and committees, including the Educational

“In 2012, I had just joined Cousins as the CFO and quickly determined we had a desperate need for structure in the finance department,” said Jason Westhoff, chief financial officer at Cousins.

“There were no CPAs, let alone degreed accountants on staff. In the process of hiring a staff accountant, I came across Chris as a candidate, and he was easily one of my top two candidates.

On Balance

November | December 2016

wicpa.org

“While I believed that both candidates would be a great cultural fit for the organization and would both help me substantially move the department forward, I opted for Chris as a result of his CPA,” Westoff said. “I knew in the end that having that level of technical expertise would benefit the organization and myself going forward and four years later, we have benefited from that multiple times.”

Before joining Cousins, Cholka worked in accounting positons at several Waukesha-area industries. At Cousins, his responsibilities include managing and preparing the company’s monthly financial closes and monthly accruals, reconciling balance sheet accounts and preparing audit documents.

He also manages a full-time staff accountant and develops ad hoc reports.

“Since joining our team, I have entrusted Chris with a handful of responsibilities, including managing our relationship with our public tax partners with regards to fixed asset management including asset purchases, sales, disposal and unique additions like remodels of existing assets,” Westhoff said. “Additionally, I

wicpa.org

have him responding to each local, state and federal tax notice to get involved on those issues, which will help him ensure Cousins is and continues to be tax compliant on sales and use tax issues.”

Family first Cholka’s future may include a positon as the controller at Cousins, or the controller or chief financial officer at another company.

“At this point of my life, it’s hard to make that decision as my wife and I continue to grow our family,” he said. “I do have the opportunity for work-life balance in my current position, and I want to have it in the future no matter where my career goes.

To me, success includes having your family that you love, as well as your career. ”

Cynthia M. Hodnett is editor of On Balance magazine.

Contact her at 262-785-0445 ext. 4516 or cynthia@wicpa.org.

On Balance

November | December 2016

9

11

SOLE/SMALL

PRACTITIONER BEST PRACTICES

Use these tips to get the best out of yourself and your business

A

t a recent roundtable meeting of seasoned sole and small practitioner CPAs, I asked what key tips we would give fellow small practitioners. Together, our group came up with the following thoughts, for both new solo and seasoned practitioners.

Hire a technology expert Are you really an expert on computer security or computer networking? No, you’re an expert in federal taxation or perhaps accounting. Stick with your strengths, and call a technology pro to deal with this important aspect of your practice.

By June F. Norman, CPA

10

On Balance

November | December 2016

wicpa.org

Paperless office It may take some getting used to, but it’s well worth the effort.

Buy a good scanner and document management system, and kiss your filing cabinets goodbye. It’s much easier to find documents in your electronic filing system than hunt down the paper file.

Revenue If you haven’t purchased a practice and are building a client base from scratch, consider part-time controllerships or working hourly for another small practitioner to supplement your income. You may enjoy the variety and people contact, as well as learn from the practitioner.

Client selection Often, in the beginning, it’s tempting to take on, for example, every 1040 you meet. Is this really your plan — to do 800 1040s at $250 each? If you do, you’ll end up (a) exhausted during the tax season and (b) with nothing to do the rest of the year. Not taking on the small clients is better than working every night until 1 a.m. or disappointing them with late work products.

Before accepting a new client, consider whether you are a good match for each other. Does he or she fit your style in terms of skill set, comfort with compliance matters and demands on your time?

As sole practitioners, we are not jack-of-all-trades people. Your network can be helpful. Perhaps you don’t do estate returns, so refer this client to your friend down the road, and hopefully they will return the favor.

Cull your clients annually to rid yourself of low-paying, timeconsuming, headache-causing clients.

Fees Don’t low-ball to get the business. You’ll regret it later. Bill timely, when the work is delivered.

Consider different hourly rates for different services. For example, most of us charge a different rate for bookkeeping work than complex tax planning.

Manage your clients’ expectations Communicate with your clients upfront, whether about the timing of your services, fees, or what and when you expect information from them. It’s best to set this straight during your initial meetings rather than a week before the deadline.

Engagement letters are critical to document these factors.

Administration Plan to spend more time on administrative issues than you ever imagined. Having a good administrative assistant and delegating is key to your practice success and sanity. Let your assistant send

wicpa.org

out the engagement letters and monitor the e-filing, freeing you to billable work.

Peers Gather a group of peers to share problems and concerns, and celebrate. Don’t view the other solo practitioners as “the competition.” Instead, look to them as “on your team.” Begin by having lunch with the sole practitioner you met at CPE or a former co-worker who now has a practice across town. Over time, bring together a group of sole practitioners, and use one another as sounding boards and backups. These relationships may pave the way for future practice mergers.

Plan for the future So maybe your practice has been humming along for years now.

Have you considered the future? That is, are you steering toward staying solo, merging with other solo practitioners, or bringing your practice into a bigger firm? Even if the change is far away e.g., retirement, the steps you take today will assist in getting to your goal.

Practice continuation and succession A practice continuation agreement provides you and another small practitioner, or two, the ability to back each other up in the case of a planned or unplanned extended absence. The internet has a plethora of information to assist in model practice continuation agreements.

Practice succession is for the longer term. What is your end plan? Is your goal to sell to a younger practitioner or a larger firm?

What does your planned retirement look like, even if it’s 15 years down the road? Draw the map long before retirement, and head in that direction.

Lifestyle If you’re looking to work less, think again. Maybe solo isn’t for you. Solo/small practitioners cherish their independence and love the flexibility and control, but we do pay the price. The hours are long and hard, especially during the tax season. However, a well-managed practice — with care to efficiencies and technology — can make for a balanced lifestyle. Remember that if you’re sacrificing some of life’s pleasures in March, be sure you’re on the other side of the formula in July.

June F. Norman, CPA is a small practitioner with a tax practice specializing in small businesses and their owners in Pewaukee.

Norman also leads the WICPA’s Sole/Small Practitioner’s Roundtable.

Contact her at jjnorman@jjnormancpas.com.

On Balance

November | December 2016

11

2016 Past Chairs Dinner Past Chairs of the WICPA Board of Directors and the WICPA Educational Foundation, Inc. Board gathered for an annual photo at the WICPA Past Chairs Dinner on Sept. 29 at the Delafield Hotel in Delafield.

WICPA Board of Directors Past Chairs Front row L-R: Ray Petkovsek (‘09-‘10), Robert Albrecht (‘80-‘81), Eugene Miller (‘90-‘91), David Benner (‘83-‘84), Daniel Heerey (‘07 -‘08), Nicholas Lascari (‘11-‘12), LeRoy Schmidt (retired executive director) and John Hicks (‘88-‘89).

Back row L-R: Karin Gale (‘03-‘04), William Goodman (‘99-‘00), Thomas Mickelson (‘01-‘02), Lucretia Mattson (‘98-‘99), Douglas Haag (‘00-‘01), Linda Dicks (‘06-‘07), William Heinrich (‘10-‘11), Jean Hansen (‘14-‘16) and Larry Rose (‘04-‘05).

WICPA Educational Foundation, Inc. Board Past Presidents L-R: Renee Johnson (‘14-‘16), Roger Sorenson (‘92-‘93), Ray Petkovsek (‘98-‘01), Robert Albrecht (‘90-‘91), William Komisar (‘12-‘14) and James Miller (‘08-‘10).

12

On Balance

November | December 2016

wicpa.org

IN TOUCH | PRESIDENT & CEO's MESSAGE “This summer, 29 exceptionally talented accounting professors representing 23 of Wisconsin’s 26 campuses with four-year accounting programs accepted WICPA invitations to form the Accounting Higher Education Committee.”

WICPA Accounting Higher Education Committee: From insight to action

T

his summer, 29 exceptionally talented accounting professors representing 23 of Wisconsin’s 26 campuses with four-year accounting programs accepted WICPA invitations to form the Accounting Higher Education Committee. The committee was created as an informational resource for educators and policy makers regarding accounting education.

Accounting Higher Education Committee members represent large, medium and small campuses all around Wisconsin. Together, they hold 19 CPA certificates and more than 50 college degrees, including 10 Ph.Ds, 19 master’s degrees and four law degrees. Their combined teaching experience exceeds 300 years, and their campuses graduate an aggregate of more than 650 accounting degreed students annually, with more than 370 of these taking the Uniform CPA Examination.

At its July 27, 2016, inaugural meeting, the committee members shared information regarding challenges their students and graduates recently encountered with CPA Exam and license requirements under revised CPA education regulations that became effective on June 1, 2016. The regulations were intended to simplify and clarify requirements by specifying credits and various courses based on regulations in other states, prior Wisconsin regulations, and a sample of the state’s accounting programs. An unintended result was that many candidates’ applications for the CPA Exam or licensure were denied as a result of missing one or two courses.

The committee promptly developed recommendations that were presented to the Accounting Examining Board (AEB) on Aug. 9 requesting transitional relief to allow CPA candidates to apply prior education regulations to CPA Exam and license applications submitted before June 2017.

In response to the committee’s request and information from CPA candidates, the AEB submitted to Gov. Scott Walker

wicpa.org

an Emergency Rule Scope Statement, which was approved on Aug. 25 authorizing AEB to draft and publish an Emergency Rule to provide the requested relief. The Scope Statement was published on Sept. 6, and on Sept. 21, the AEB and Gov. Walker approved the Emergency Rule drafted by Department of Safety and Professional Services (DSPS) staff, with the rule becoming effective on its Sept. 26 publication date.

Thanks to the Accounting Higher Education Committee; Accounting Examining Board Chair John S. Scheid, CPA; WICPA Board member and Marquette University Accounting Department Chair Michael D. Akers, CPA, CBM, CFE, CGMA, CIA, CMA, Ph.D.; Sen. Chris Kapenga, CPA; state Rep. Dale P. Kooyenga, CPA; Gov. Walker; and the Wisconsin Department of Safety and Professional Services staff for their collaborative leadership and prompt action helping CPA candidates accelerate their entry into the profession.

Dennis F. Tomorsky, CPA, J.D., CGMA is president & CEO of the WICPA. Contact him at 262-785-0445Onext.

4519 or dennis@wicpa.org.

Balance November | December 2016

13

GOAL-SETTER, GOAL-REACHER

WICPA Educational Foundation scholarship recipient Molly Bannan aims for an accounting career

By Donna Pinsoneault

M

olly Bannan has a lot to be thankful for this year and a lot to be proud of. The 2016 recipient of the LeRoy C. Schmidt 150 Hour Accounting Scholarship will graduate from the University of WisconsinWhitewater in December, having set and reached several key goals. Her list includes academic, personal and professional goals, and becoming a CPA.

14

On Balance

November | December 2016

“When you set goals, you realize that, even if you don’t meet them, you tried,” Bannan said. “At least you’ll be coming in a close second.”

Aiming high The process began for Bannan before she headed off to college.

“Math runs in our family,” she said. “My mother and sister are accountants. My brother is a math teacher. Mom encouraged me

wicpa.org

“One of my goals was to get through school without having student loans at the end, and this scholarship made a real difference.”

— Molly Bannan

to take an accounting class in high school. I had a good business teacher there, Mary Halwig, and I really enjoyed the class.”

Bannan chose UW-Whitewater because she wanted to pursue a business-related major.

“I’m probably a little biased, but Whitewater has a good business school and an amazing accounting program,” she said.

Bannan set and met her first academic goal: to complete an accounting major and all undergraduate work in three-and-ahalf years. She set an additional goal of earning a 3.8 GPA and surpassed that goal, completing her undergraduate work with a 4.0 GPA. Along the way, Bannan studied with lecturer Lynn M. Hafemeister.

“She taught some of the most challenging classes, classes that weed you out if you are not really cut out for accounting or are not quite as committed as you need to be,” Bannan said. “She’s an amazing teacher. She expects you to do the work, but is willing to help you along the way.”

Bannan took on another challenge — one often recommended to accounting majors at UW-Whitewater. She worked in an internship in the spring semester of her junior year at SVA Certified Public Accountants in Madison.

“There are only so many things you can learn in the classroom,” Bannan said. “At SVA, they start you right in. You learn so much more actually experiencing the work in real life.”

Although she participated in some audits during her internship, Bannan focused mainly on tax.

“I really enjoy tax, and I had a good mentor right from the start,” she said. “I never hesitated about going to her when I had questions.”

wicpa.org

Taking the CPA Exam With her undergrad and internship goals accomplished, Bannan began work at the graduate level. Hafemeister suggested that Bannan apply for the LeRoy C. Schmidt scholarship, which helps fund the 150-hour education requirement to obtain a CPA. “CPAs need technical ability in accounting material,” Hafemeister said. “Accountants also need strong written and oral communication skills, the ability to prioritize tasks, meet deadlines, work within a team and be a team leader. Molly came well-prepared for every class, asked great questions and picked things up very quickly. Her work was easy to follow, accurate and well-notated. I believe she will be an excellent accountant.”

Hafemeister also highlighted Bannan’s willingness to help fellow students, work effectively as part of a team and to be a team leader. Bannan credits playing volleyball, basketball and softball in high school for helping her hone those teamwork skills.

“Team sports help you learn to work well with others,” she said.

“You learn the value of setting goals too. In sports, you set goals all the time and try to accomplish them.”

In fact, one of her non-accounting goals evolved from her sports experience.

“I knew I needed a way to get exercise in college, so I took up running,” she said. “I set a goal to run a half marathon and worked really hard at doing it. I ran the half marathon, and it’s an accomplishment I’m really proud of.”

Bannan has already met her first professional goal: she’ll begin her accounting career at SVA in 2017. In the meantime, she’s working toward another key goal: to pass all four parts of the Uniform CPA Examination on the first try. When interviewed for this article in September, Bannan accomplished that with

On Balance

November | December 2016

15

parts one and two and was waiting to hear results for her first attempt at part three. Throughout the process, she has kept some key advice from Hafemeister in mind.

said. “Scholarships like these are important components in relieving some of the financial burdens students face.”

“Lynn always says, ‘Think, don’t memorize,’” Bannan said.

“Especially for an exam, I often have a problem because I try to just memorize material. If you take the time to think about the situation though, the answer is usually just logical.”

“It was a huge honor to receive it, to be recognized for all you have accomplished along the way,” she said. “It was a huge help financially too. One of my goals was to get through school without having student loans at the end, and this scholarship made a real difference.”

What’s next?

In the future, Bannan wants to spend a few years in public accounting.

“Some worry they will burn out in the public accounting field, working so many hours, especially during tax season,” she said.

“So far, I haven’t minded that. Also, with tax, you are trying to help clients save money. I like the idea of trying to help others out a bit.”

The goal of helping is what the scholarship awarded by the WICPA Educational Foundation Inc. is all about.

“The cost of education — tuition, housing, books, organizational involvement — continues to rise,” Hafemeister

Bannan is grateful.

Bannan is especially thankful for all the support she’s enjoyed along the way.

“I have pretty incredible parents and teachers who encourage me; a great mentor and training program at SVA, and a roommate and fellow students who are studying for the CPA Exam now too,” she said. “We get to know each other in the accounting program. We encourage each other along the way.”

Donna Pinsoneault is a freelance writer in Brookfield.

Contact her at dpinsoneault@gmail.com.

YOU have the opportunity to impact thousands of students and educators in Wisconsin.

Through your contribution to the WICPA Educational Foundation, Inc., you can help us reach students and educators in high school and college to create awareness about the accounting profession.

As the end of 2016 draws near and you are thinking about tax planning, consider donating to the WICPA Educational Foundation.

Visit wicpa.org/EF to contribute online. Thank you to our past contributors. Find a list at wicpa.org/EFContributors.

Questions? Contact Tammy J. Hofstede, WICPA Chief Financial and Operating Officer at tammy@wicpa.org.

To contribute, visit wicpa.org/EF. 16

On Balance

November | December 2016

wicpa.org

Does your insurance company offer

one policy, one bill, one deductible, no hassle?

WEST BEND

DOES.

West Bend also offers a discount just for members of the WICPA. Contact this Official Supplier of the Silver Lining® to find out what else West Bend’s Home and Highway® has to offer.

Professional Insurance Programs at 414-277-0154 or info@profinsprog.com

wicpa.org

On Balance

November | December 2016

17

How CFOs can help chief marketing officers drive growth

By Sabine Vollmer

M

any chief financial officers (CFOs) have taken note of the valuable customer data that digital technology is generating for the marketing department and have sought a closer relationship with the chief marketing officer, according to a global Ernst & Young (EY) survey on the changing role of the CFO. Nearly two-thirds (63 percent) of the 652 CFOs polled by EY said their involvement with marketing has increased in the past three years. Also, 54 percent said they are collaborating

18

On Balance

November | December 2016

more with the chief marketing officer (CMO) to develop new products and services.

A strong relationship between finance and marketing can help a business achieve profitable, sustainable growth in the digital economy. However, the CFO and the CMO have to first overcome relationship barriers such as the absence of common tools and processes and continued cultural differences.

According to the EY survey: “For organizations to remain relevant and thrive, the CMO needs to call into question all

wicpa.org

aspects of the marketing mix — across products, price, distribution channels, and promotions. The CFO, meanwhile, needs to make the strategic investments that will enable established companies to adapt without cannibalizing their inherent strengths, and new companies to leapfrog their competitors.”

Not enough collaboration Traditionally, CMOs have had a closer relationship with the CEO than with the CFO. Sixty percent of executive managers polled in a 2014 EY study considered the business relationship between the CMO and the CEO strong. Forty-three percent said the CMO and the CFO had a strong business relationship.

Although many CFOs have recognized the value of working more closely with CMOs, EY’s 2015 poll suggests CFOs and CMOs still don’t collaborate enough: • Fewer than half (47 percent) of the polled CFOs felt they made a significant or very significant contribution to improving customer segmentation and insight, which can help a business differentiate itself from the competition.

• Measuring marketing’s return on investment was a high or very high priority to more than half (59 percent) of CFOs polled. However, 13 percent said the agendas of marketing and finance were aligned.

• Of the 20 percent of CFOs who considered product portfolio optimization, a very high priority, 81 percent, reported close collaboration with the CMO. Of the CFOs who prioritized product portfolio optimization less, 47 percent reported a close relationship with the CMO. • Twenty-five percent of CFOs said they are collaborating more closely with CMOs because of the shift to digital within the business.

To overcome the barriers and for their relationship to be successful, CFOs and CMOs should: Agree on the metrics that matter for enterprise value.

About one-third (32 percent) of the CFOs polled said the absence of a clear set of key performance indicators linking financial performance and the marketing agenda is one of the biggest barriers preventing a closer relationship with the CMO. To come up with metrics that work for both functions, finance leaders will have to be mindful to include hard financial measures and more nuanced, non-financial measures to assess factors such as the value of having a well-known brand name.

Bridge the cultural divide between the two functions.

Thirty-one percent of the CFOs polled blamed cultural differences for keeping finance and marketing from collaborating successfully.

wicpa.org

To overcome the barrier, CFOs should make both sides aware of their different mindsets and encourage dialogue to help accomplish the business’s strategic priorities while staying within the business’s risk-tolerance limits.

Collaborate on marketing’s analytics transformation. Onequarter of polled CFOs said marketing is too difficult to quantify.

However, Big Data and advanced analytics are transforming marketing. CFOs can ensure the structures and investments are in place to help marketing manage information security and turn the data into meaningful intelligence.

Team up on the marketing planning process. Twenty-nine percent of polled CFOs didn’t see the value in collaborating with CMOs. However, businesses are looking beyond what has worked and what hasn’t in the past. In the digital economy, effective marketing planning is essential for driving profitable growth, and finance can create value by helping ensure that marketing’s strategic planning is aligned with enterprise objectives.

Sabine Vollmer is a CGMA Magazine senior editor.

Contact her at svollmer@aicpa.org.

Copyright © 2011–2015 American Institute of CPAs. Copyright © 2011–2015 Chartered Institute of Management Accountants. All rights reserved. This article first appeared in CGMA Magazine. For more articles, sign up for the weekly email update from CGMA Magazine at http://bit.ly/UZ07NC.

On Balance

November | December 2016

19

kudos Hui Meng, CPA was promoted to senior accountant at Johnson Block and Company, Inc. in Madison.

Lucas R. Dorn, CPA was promoted to senior accountant at Johnson Block and Company, Inc. in Viroqua.

Lucas R. Dorn

Gregory D. Eul, CPA was promoted to manager at PricewaterhouseCoopers LLC in Milwaukee.

Hui Meng

Brandon J. Hilker, CPA was promoted to manager at PricewaterhouseCoopers LLC in Milwaukee.

Kristy Kolpack, CPA was named as manager at Schenck SC in Appleton.

Kristy Kolpack

Evan Y. Lin, J.D., CPA, AEP®, an attorney and managing member of Lin.Liebmann LLC in Green Bay, was named to the 2016 Wisconsin Super Lawyers list by the publishers of Super Lawyers® Magazine.

Evan Y. Lin

Kevin Nitka, CPA was promoted to president and CEO of Guardian Credit Union in Milwaukee.

Randy S. Nelson

Katherine L. Landa, CPA was promoted to manager at PricewaterhouseCoopers LLC in Milwaukee.

Joseph M. Lehmann, CPA was promoted to manager at PricewaterhouseCoopers LLC in Milwaukee.

Carl L. Marzolf, CPA was elected president of Sitzberger, Hau & Co., S.C. in Brookfield, according to Monroe Times.

wbb-law.com

Randy S. Nelson, J.D., CPA, partner at Weiss Berzowski LLP in Milwaukee, was selected for inclusion in The Best Lawyers in America® 2017, Trusts and Estates Law.

Ha Truong

Charles Risse, CPA was promoted to senior associate at PricewaterhouseCoopers LLC in Milwaukee.

Ha Truong, CPA, a member of the nonprofit team at RitzHolman CPAs in Milwaukee, was promoted to senior accountant.

promotion award

Want your or mentioned in Kudos?

Email your announcement and photo in JPG format to cynthia@wicpa.org.

THE LAW FIRM OF WEISS BERZOWSKI LLP has been working with businesses and individuals to resolve tax issues for nearly 60 years. The Tax Team has unique skills and knowledge in accounting (CPAs), business and real estate law to handle diverse tax situations. They have earned the reputation for successfully resolving federal and state tax disputes from audit, to appeals, through the Tax Court and into collections.

To learn more about how the Tax Team of Weiss Berzowski can assist you in solving your tax problems, contact Rob Teuber at 414.270.2538 or rbt@wbb-law.com.

B U S I N E S S • E M P LOY M E N T • E STAT E P L A N N I N G • L I T I G AT I O N • R E A L E STAT E • TA X

20

On Balance

November | December 2016

wicpa.org

We Give Small Business the Power of Big Business.

Ask Us About a Merchant Services Account Today!

SOLUTIONS FOR BUSINESS Next Day Funding with Business DDA In-Person, Mobile and Online Payment solutions including Apple Pay™ and Android Pay™

Conact Us Today!

Hector M. Salas Jr, MBA Market Manager Hector.salas@USBank.com 414-333-0777 cell

Chip Card/EMV Terminals and POS Systems 24/7/365 Customer Support Industry Leading Security & Protection Programs

wicpa.org

On Balance

November | December 2016

21

OPTIMIZE YOUR RESOURCES Gain access to exclusive member savings with these Affinity Partners!

Applied Tech helps companies and organization increase efficiency, exceed business goals, and make the best possible use of technology so they can take better care of their customers.

As a student member of the WICPA, you receive a discount off the regular tuition of Becker’s in-class, online or CD-ROM CPA Review Course. Live courses starting soon in Milwaukee, Madison and Whitewater.

With comprehensive and competitively priced coverage, Pearl Insurance has been providing Accountants Professional Liability Insurance for 60 years. Our team is continuously evolving our insurance plans, ensuring we stay ahead of the curve as an industry leader with coverage that is responsive to the needs of accounting professionals.

For nearly 140 years, The Prudential Insurance Company of America has helped individual and institutional customers grow and protect their wealth. Today, we are one of the world’s largest financial services institutions with operations in the United States, Asia, Europe, and Latin America. We also have one of the most recognized and trusted brand symbols. The Rock®, an icon of strength, stability, expertise, and innovation. 0282998-00001-00 The WICPA has partnered with Professional Insurance Programs, Inc. to provide quality comprehensive and affordable insurance programs to its members.

Financial Advisors Ken and Jim Schneider focus on retirement plans, i.e., 401(k), SEP/SIMPLE IRA, etc., and work extensively with CPAs, individual investors, attorneys and business owners on wealth management, investment planning and estate strategies.

Wells Fargo Advisors, LLC, Member SIPC. As a CPA you have clients looking for answers related to all of their retirement and financial planning needs. The more answers you can provide, the stronger your client relationships will become. Shakespeare works in a collaborative effort with CPAs to solve client issues. As a Fee-Only Advisor, we provide unbiased advice and look comprehensively at every client situation. We function as a Fiduciary, always putting your client’s interest first.

Small Business Growth Partners (a national business coaching and consulting company) was created to help small business owners strategically and systematically create a unique, consistent, and highly profitable small business. Our proprietary action plan creation process, technology platform, and highly qualified industry experienced coaches combined with our dedicated Strategic Alliance partner relationships, make SBGP the expert in growing and systemizing America’s small businesses and their owners.

Spectrum Investment Advisors co-sponsors the annual Retirement Plan Investment Seminar, which offers members CPE credits at a nominal cost. Members can work directly with Spectrum Investment Advisors to receive Plan Consulting Services for their retirement plan program and individual wealth/asset management services.

The Payroll Company provides award-winning payroll services, human resources consulting, timekeeping solutions and an integrated 401(k) as part of their commitment to fulfilling all of their clients’ payroll needs. Members receive a discount on their product.

U.S. Bank Provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, and trust and payment services products to consumers, businesses and institutions. Elavon, Inc. offers a cost-effective payment acceptance program allowing you to accept payments in a number of ways - in store, online, over the phone or from a mobile wallet like ApplePay™ or Google Wallet! Use of Elavon services supports the WICPA Educational Foundation.

Receive a discount on West Bend’s Home and Highway® program and be rewarded for going claim-free for the year.

Visit wicpa.org/marketplace for discounted pricing, codes and links to take advantage of the buying power WICPA members have.

22

On Balance

November | December 2016

wicpa.org

{ Tax | Section 2704 }

Proposed regulations may severely impact tax planning for family businesses

T

he IRS recently released proposed regulations under Section 2704 that could severely impact estate and gift tax planning for family businesses by effectively eliminating valuation discounts as they apply to intra-family transfers of equity interests.

Background

By Jacqueline B. Wilcox, J.D.

wicpa.org

Congress enacted Section 2704 in 1990 to close perceived loopholes in estate and gift tax laws.

Specifically, the statute provides special valuation rules regarding intra-family transfers of equity interests subject to lapsed voting or liquidation rights and restrictions on liquidation.

First, Section 2704(a) treats certain lapses of voting or liquidation rights as a taxable transfer if the family controls the entity both before and after the rights lapse. Second, under Section 2704(b), certain liquidation restrictions

On Balance

November | December 2016

23

{ Tax | Section 2704 }

(“applicable restrictions”) must be disregarded in computing the value of an intra-family transferred interest if the restriction lapses after the transfer or can be removed by the transferor or the transferor’s family.

The proposed regulations state that the purpose of Section 2704 has been largely circumvented by strategic taxpayer planning, evolving state law and certain decisions of the U.S. Tax Court. Hence, the proposed regulations are an attempt by the IRS to bolster the statute’s application. A summary of significant changes under the proposed regulations follows.

Limitation on deathbed transfers The current regulations under Section 2704(a) define a liquidation right as the right to compel the entity to acquire all or a portion of the holder’s equity interest. However, transfers resulting in the lapse of a liquidation right aren’t typically subject to this rule if the rights themselves are not restricted or eliminated. This exception allows the transfer of a minority interest that causes the transferor to lose his or her liquidation right to escape application of Section 2704.

The IRS believes this exception should not apply when such transfers occur shortly before the transferor’s death. As a result, the proposed regulations would treat transfers within three years of death that result in the transferor’s loss of a liquidation or voting right as transfers occurring at death for purposes of Section 2704(a).

Narrowed state law exception With regard to Section 2704(b), the current regulations provide that an applicable restriction (which must be disregarded for valuation purposes) is one that is more restrictive than state law limitations. However, since issuance of those regulations, many state statutes governing limited partnerships have been revised to be at least as restrictive as the maximum liquidation restrictions

24

On Balance

November | December 2016

that could be imposed under the partnership agreement.

Consequently, partnership liquidation restrictions often fall within the regulatory exception.

The proposed regulations narrow this exception by eliminating the current comparison to state law liquidation limitations.

Under the proposed regulations, only restrictions that are both mandated by state law and cannot be overridden by the entity’s governing agreement may be considered for valuation purposes.

New disregarded restrictions The proposed regulations further limit the use of valuation discounts by creating a new class of liquidation restrictions that must be disregarded for valuation purposes. These new “disregarded restrictions” include any restriction that: (1) limits the holder’s ability to liquidate his or her interest; (2) limits liquidation proceeds below a certain amount; (3) defers payment of liquidation proceeds for more than six months; or (4) permits payment of liquidation proceeds in any manner other than cash or other property (excluding certain notes issued by operating businesses).

Guidance for non-family member transfers Finally, the IRS notes that taxpayers have circumvented Section 2704 by simply transferring a nominal interest to a nonfamily member, often a charity, to ensure that the family doesn’t have the unilateral right to remove the restriction. The proposed regulations curtail this strategy by providing that a non-family member’s interest can be recognized only where the interest is “economically substantial and longstanding.” This test imposes four criteria on the non-family interest (relating to time the interest is held, the value of the interest, and the presence of a put right) that must be met before Section 2704 could be avoided.

wicpa.org

{ Tax | Section 2704 }

“Although we cannot know whether, and to what extent, the proposed regulations will be adopted in their current form, change is coming.�

Effective date The proposed regulations would generally apply 30 days after they are finalized. However, the three-year rule could apply to transfers taking place prior to the effective date if the transferor dies after the regulations are finalized and within three years of the transfer.

Although we cannot know whether, and to what extent, the proposed regulations will be adopted in their current form, change is coming. High-net worth taxpayers might consider completing intra-family transfers now to take advantage of valuation discounts that may not be available later. On the other hand, taxpayers who own a family business but do not have a large enough estate to cause estate taxes may benefit from the final regulations. For those

taxpayers, the elimination of valuation discounts could lead to a more favorable basis adjustment at death.

Before the regulations are finalized, tax advisors should consult with their clients and legal counsel to take advantage of the opportunities that remain, and those that may emerge, from the changes described above.

Jacqueline B. Wilcox, J.D. is an attorney with Husch Blackwell in Milwaukee. Contact her at 414 978-5469 or jackie.wilcox@huschblackwell.com.

Member

Challenge Winners

Heather Smith, Kyle Stephens and Randall Prost Thank you to everyone who participated in the Member Challenge.

- The WICPA

wicpa.org

On Balance

November | December 2016

25

{ Financial planning | Asset allocation }

The trouble with

60/40 How traditional asset allocation may be problematic in today’s low interest rate environment

C

By Peter F. Schumacher, CPA

26

On Balance

ountless investors have maintained a balanced portfolio in the range of 60 percent stocks and 40 percent bonds to achieve their long-term retirement goals. Over time, this allocation has been a good approach, as it has generated reasonable income and grew enough to “keep up” with inflation. And until the financial crisis, these traditional portfolios averaged 7 percent or 8 percent returns.

November | December 2016

Many sophisticated planning tools today recommend portfolios with a similar mix of stocks and bonds. Advisors often use Monte Carlo analysis to help their clients feel confident in their asset allocation. Monte Carlo analysis runs simulations that show results over multiple time periods using random applications of historical returns to help determine the feasibility of a match between an investor’s goals and resources. Most of these tools

wicpa.org

{ Financial planning | Asset allocation }

were developed using long-term historical stock and bond return assumptions. But can we still rely on these assumptions?

The challenge today is that stock and bond returns have diverged significantly from the historical averages on which most Monte Carlo simulations are built. As advisors, we question whether these tools can effectively factor in some of the more extreme events we’ve experienced over the last decade, including the 2008 crisis and the extremely low global interest rates caused by zero — or in some cases negative — interest rate policies of central bankers. In fact, we do not expect the traditional 60/40 portfolio to be able to generate the same kind of returns that have been assumed in the past.

Consider the following table from Vanguard that illustrates returns of various portfolio allocations based on blended index returns as noted in the footnote excerpt beneath the chart:

Stock/bond allocation 20%/80% 60%/40% 80%/20%

Actual U.S. return, 1926-2012

3.7%

8.6%

9.3%

Actual U.S. return, 2000-2012

5.7%

4.3%

3.4%

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The equity returns represent a blend of 70% U.S. equities and 30% international equities; bond returns represent U.S. bonds only. For U.S. bond market returns, we used Standard & Poor’s High Grade Corporate Index from 1926 through 1968, Citigroup High Grade Index from 1969 through 1972, Lehman Brothers U.S. Long Credit AA Index from 1973 through 1975, and Barclays U.S. Aggregate Bond Index thereafter. For U.S. stock market returns, Vanguard used S&P 90 Index from 1926 through March 3, 1957; S&P 500 Index from March 4, 1957, through 1974; Dow Jones Wilshire 5000 Index from 1975 through April 22, 2005; and MSCI US Broad Market Index thereafter. For international stock market returns, Vanguard used MSCI EAFE Index from 1970 through 1988, and a blend of 75% MSCI EAFE Index/25% MSCI Emerging Markets Index thereafter.

Source: Vanguard

wicpa.org

Based on the above return calculations, a 60/40 allocation delivered attractive results from 1926 to 2012. In the more recent term from 2000 to 2012, the allocation produced a far less favorable return. To be fair, historically, when stock and bond investment returns were higher, so was inflation. Today’s lower inflation environment changes how we see these results.

Today’s bond yields close to historic lows More troubling is how to think about bond allocation. We don’t view bonds as a source of “alpha” or returns but as a way to smooth returns and generate income. When the 10-year U.S. Treasury is approaching 1 percent and is at a historical low point, and the stated federal policy is to raise interest rates over the next few years, it is very hard to commit a good amount of capital to bonds.

We have no doubt that bond returns are going to be lower in the future starting from this historic low point. When this will happen is still a question. To the surprise of many, bonds were among the top performing asset classes in the first half of 2016, and some believe they still have room to appreciate. However, a large bond allocation now makes us pause when contemplating those just entering retirement. The returns experienced earlier in retirement can have a dramatic impact on the long-term results and could reduce the rate at which the portfolio can be drawn down, requiring a lower spending rate.

William J. Bernstein, a physician, neurologist and financial advisor for high net worth individuals, wrote extensively on this sequence of returns risk and the risks of inflated return assumptions. In one hypothetical illustration, Bernstein examined the impact of using wrong assumptions for investors entering retirement and starting to draw down their portfolios. He constructed a hypothetical milliondollar portfolio of large and small cap stocks and treasuries that was invested in 1966, a year in which the stock market began a prolonged low return market and when stock returns were essentially flat after inflation. His hypothetical million-dollar portfolio would have been exhausted within 15 years by withdrawing 8.17 percent per year, what was then the mathematical historical average return for this hypothetical portfolio.1 To make that portfolio last 30 years required halving the withdrawal rate.

Is there a new 60/40?

Given this context, some find there is merit in stepping away from the typical 60/40 stock and bond portfolio and considering alternatives. We would agree. For example, some might want to look

On Balance

November | December 2016

27

{ Financial planning | Asset allocation }

at a 50/30/20 portfolio of 50 percent stocks, 30 percent bonds and 20 percent alternatives. The 20 percent of the portfolio dedicated to alternatives could include non-stock, non-bond investments in hard assets such as real estate, metals, or other commodities, private equity and hedge funds, or macro-strategy funds that invest in a variety of assets including currencies.

Those adopting a 50/30/20 portfolio should consider the following. • Dividends today are surprisingly high and the stock of some companies can yield more than the bonds. Stocks, while more volatile, are in some cases producing more income than bonds. • Adding alternatives can add significant diversification and in some cases return opportunities. Consider the Callan Periodic table below showing the total returns of various asset classes since 2003, and you will find a number of alternative asset classes that performed better than both stocks and bonds.

• Investors need to think in terms of total return, especially those living in retirement who tend to think about income production.

Total return is the combination of income and capital appreciation on an investment. The income generated by 50/30/20 portfolio may be lower, but the return generated by the higher stock allocation and the alternative piece can lead to an overall total return that is better than the traditional 60/40 portfolio.

Investopedia: http://www.investopedia.com/financial-edge/0113/planning-your-retirementusing-the-monte-carlo-simulation.aspx 1

Peter F. Schumacher, CPA is vice president, relationship manager at Cleary Gull Advisors in Milwaukee. Contact him at 414-291-4500 or pschumacher@clearygulladvisors.com.

Past performance is not necessarily indicative of future results.

Source: Callan

28

On Balance

November | December 2016

wicpa.org

We can do it all for you or we can help you with specific projects including:

DATA ANALYSIS

BUSINESS INTELLIGENCE

CLOUD

SECURITY

ANY OTHER TECHNOLOGYRELATED ISSUES

Applied Tech, with Madison headquarters since 1999, is Wisconsin’s leader in IT services for small to medium sized businesses.

OUR GOAL: To manage all of your technology so you can focus on running your business.

We have a wide range of skill and expertise with more than 60 employees.

Find out more at www.appliedtech.us or reach us at 855-729-1300.

wicpa.org

On Balance

November | December 2016

29

{ Technology | Remote access }

Best practices for remote access

Understand Your Options 1. Data only.

2. Software as a Service.

3. Hosted and published applications.

4. Remote access software.

5. Virtual desktops.

30

On Balance

November | December 2016

6. Virtual Private Network.

7. Virtual Everything.

wicpa.org

{ Technology | Remote access }

By Thomas G. Stephens Jr., CPA, CITP, CGMA

I

n today’s “anytime, anyplace” world, many business professionals need to access their data and desktops remotely. In some cases, this requirement is only occasional, while in others, it is standard operating procedure. This article examines the best practices for remotely accessing the tools you need to get the job done.

First, understand your options Before you consider the technology you will use to facilitate remote access, first ensure that you understand your options. At K2 Enterprises, we see at least seven variants of remote access, each of which is described below.

1. Data only. In this environment, you only need to access data files such as Excel workbooks, PDFs, and similar documents. You likely will need a cloud-based data storage and synchronization tool such as OneDrive for Business or ShareFile. Under this approach, store all of your data files in the cloud service and access the cloud service from the applications on your mobile device.

2. Software as a Service. If your needs are greater than simply accessing data files, consider what options you may have available using Software as a Service (SaaS.) For example, if you need to access your accounting application or your tax software, consider switching to a cloud-based version of that tool, such as QuickBooks Online or CCH’s Axcess Tax. In this environment, your data and the related application are both in the cloud. So ensure that you have adequate internet connectivity before making this move.

wicpa.org

3. Hosted and published applications. Similar to the SaaS option outlined above, consider moving to hosted or published applications. In this environment, you continue to run your traditional applications, but instead of them running from your desktop or server, they are run from a remote location and accessed through the internet. The advantage of this approach compared to SaaS is that you do not have to switch to different applications. However, the tradeoff is that hosted applications sometimes do not run as efficiently as their SaaS counterparts.

4. Remote access software. Many professionals are aware of tools such as pcAnywhere and GoToMyPC, and use these tools to remotely access their desktops. These tools provide an affordable solution and, in some cases, are free and easy to set up. They also facilitate access to all applications on the desktop, and are easy to use. For these reasons, they are popular when needing to remotely access a desktop on an occasional basis. Potential issues associated with their use include performance and multiple monitor compatibility.

Further, the computer you wish to access remotely must be turned on, which can present a security issue.

5. Virtual desktops. For those needing to remotely access their desktops on more than an occasional basis, running full virtual desktop is a viable option. With this type of solution, you always access the desktop remotely, even if you are working in the office. Virtual desktops can be hosted on your internal servers or you can contract with third-parties such as Cetrom, Amazon Web Services and Microsoft.

6. Virtual Private Network. This popular option allows you to access your desktop remotely through a “private

On Balance

November | December 2016

31

{ Technology | Remote access }

“Before you consider the technology you will use to facilitate remote access, first ensure that you understand your options.”

tunnel” carved out for you on the internet. A Virtual Private Network (VPN) is a cost-effective and relatively easy-toimplement, easy-to-use solution. One potential drawback to this approach, however, is the speed of the connection, as oftentimes VPNs run a bit slower than many of the other options listed.

7. Virtual Everything. In a fully-virtualized environment, substantially all of your computing infrastructure — servers and desktops — is hosted elsewhere and is accessible from the cloud. Like virtual desktops, in this environment, you always access your desktop remotely.

Second, address frequency When considering best practices for remote access, address the issue of frequency, because it will have a major bearing on what constitutes a best practice for you. For example, if your need is only occasional — say, a couple of times per month — then using remote access software may be a viable solution for you. Otherwise, if you will need to engage in remote access several times a week, virtual desktops, SaaS, VPNs, and/or hosted and published applications may be the best options.

Third, consider security No discussion of remote access is complete without addressing security. Each of the methods identified above can provide relatively secure remote access. For example, virtually all remote access options incorporate encrypting your data as it is being transmitted. However, if you are using a cloud-based data storage and synchronization tool, verify that your data is encrypted while it resides on the thirdparty’s server. If you are using a consumer-grade service, the data is not encrypted at rest. However, it is encrypted if you are using a business-grade solution.

Fourth, making your decision Given the summaries provided above, what constitutes

32

On Balance

November | December 2016

your best practice for remote access? To answer this question, define your needs with respect to the data and applications you may need to access remotely, the frequency that you will need to engage your remote access solutions, and any specific existing security issues. Once you have defined your needs, consider the options available to you and choose the one that best addresses your needs. For example, consider the following scenarios: • If you only need to access data files, then a cloud-based, business-grade data storage and synchronization tool may be your best choice.

• If you need to remotely access your desktop on only an occasional basis, then remote access software might be your best choice.

• If your remote access needs are more than occasional, then make remote access your standard operating procedure by implementing a virtual desktop or a fully-virtualized environment.

• If you only need to access one or two applications remotely, consider switching to SaaS solutions or moving those applications to a hosted environment.

• If you want to maintain full, in-house control over remote access, use a VPN approach.

Summary You have a number of very good options available for remotely accessing your data and applications. The challenge is deciding which of these approaches will provide you with the optimal solution that best addresses your needs. By following the process outlined above, you can implement your best practice for remote access with ease.

Thomas G. Stephens Jr., CPA, CITP, CGMA is a shareholder in K2 Enterprises in Hammond, La. Contact him at tommy@k2e.com.

wicpa.org

Wh y Hire A Profe s sional Ret ire men t Pl a n A dvi s or?

A t Spectr um Investment Advisors you gain: FIDUCIARY EXPERIENCE -Independent Advice - ability to help objective evaluation of partners.

-A partner to share investment fiduciary responsibilities.

INVESTMENT EXPERIENCE -Selection of appropriate objective investment solutions.

PLAN ADMINISTRATION & OPERATIONS -Plan design assistance to help meet employer objectives.

-Leading the process to identify new recordkeeping partners.

EMPLOYEE IMPACT -Independent education AND advice.

-One on one employee education/guidance to personalize the conversation and improve retirement readiness.

-Assistance implementing recommendations.

Colors Simplify Investing®

SM

Would an independent advisor help your company, in its fiduciary capacity, better meet your obligations?

As a fiduciary, would a professional advisor help to better position your plan participants for financial independence in retirement?

SPECTRUM

SM

2015

2016

Mequon-Thiensville Advisor Leadership Award

Semi-Finalist 2015

Chamber of Commerce

Business of the Year

INVESTMENT ADVISORS

www.spectruminvestor.com 800-242-4735

The National Association of Plan Advisors (NAPA) 401(k) Advisor Leadership Award recognizes leadership, innovation and contributions to the retirement plan industry with sales, marketing and establishment of 401(k) plans. In 2015, Spectrum was one of 10 finalists selected from a field of 100 participants. Finalists were selected based on acknowledgment of peers and customers, demonstrated expertise in plan design innovations or products, results in terms of plan growth or participant retirement readiness, participation and leadership in industry events and committees, expertise sought by peers, regulators and policy makers. The rating is not indicative of the advisors’ future performance. The 2016 PLANSPONSOR Retirement Plan Adviser Large Team of the Year finalists are advisers who have a majority of business revenue derived from employer-sponsored retirement plans, who serve as a fiduciary, are committed to fee-based compensation and are using outcome-based metrics of plan success with clients. A large team is a practice with 11-25 people (including advisers and support staff ). In 2016 Spectrum was one of five finalists in the Large Team category out of 40 companies reviewed by PLANSPONSOR. The rating is not indicative of the advisors’ future performance. Mequon-Thiensville Chamber of Commerce 2015 Business of the Year Award nominations are based on being in operation for at least three (3) years, made improvements over the years (employee growth, expansion), involved in community-oriented projects and programs and support local civic organizations (i.e.

Rotary, Lions, Chamber, etc.). Investment advice offered through Spectrum Investment Advisors, a registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.

PRSRT STD U.S. POSTAGE

The Magazine for Wisconsin CPAs A publication of the Wisconsin Institute of Certified Public Accountants W233N2080 Ridgeview Parkway Suite 201, Waukesha, WI 53188 wicpa.org

PAID

Milwaukee, WI Permit No. 5845