We are happy to get this Newsletter to you before the rush of holiday mailings. We begin with a report on the two O&A 25th Anniversary celebrations, one in Katonah and one in Norwich. The second article describes recent research which documents why investing in volatile markets is so challenging. Following those two pieces are articles on the new application of the Fiduciary Rule for all company retirement accounts; the problems that apply specifically to one type of retirement account, the 403(b) plans; and a report on the recent examination of O&A by the SEC. We end, as usual, with a report of some of the comings and goings of staff at O&A.


David W. Otto, Editor



Many of you were able to join in the Otto & Associates 25th Anniversary celebratory gatherings. More than 50 people attended each celebration, the first being at the Katonah Museum of Art, where an exhibit called “The Nest” featured fascinating artistic variations on the theme of nests, birds, and feathers. Guided tours of the two exhibit rooms were offered to guests.

Later in June we held the second event at the Montshire Museum of Science in Norwich. That evening guests explored the entire museum including a prototype for an exhibit titled “Making Music.” It aimed to explore “the science and art behind building and playing musical instruments.” Included were string, percussion, wind and electronic instruments. The Museum was looking for feedback from participants (which some of our guests provided) and the full exhibit is scheduled to open on November 25. While none of our international, West Coast, mid-America, or southern clients were able to attend, they sent good wishes. It was nice to see several clients who go back to the very early days of O&A in Katonah. At both events David reflected on O&A’s 25 year history:

Thank you for coming to help us celebrate the Otto & Associates 25th Anniversary. I and we are immensely grateful to each of you because without you, we would not be here tonight. When I embarked on this venture 25 years ago with Mary’s strong support, we had no idea that Otto & Associates would turn into the organization it is today.

I want to start with a brief rundown of my work history because in some ways, the various aspects of my career are all related. In 1966 with a one month old baby, Mary and I left Union Theological Seminary in New York City for northern Westchester County where I became a pastor of a small country church. That was a very good job for me for a variety of reasons, among them that it led to my becoming a pastoral counselor. After almost 10 years, I left that parish to take a job at the Poughkeepsie Counseling Center and soon became the Executive Director of the Center, which was sponsored by Catholic, Protestant, and Jewish congregations. That proved to be a dynamic time for me, and as part of that process I completed my Doctor of Ministry in Clinical Studies at Andover-Newton Theological Seminary.

The Poughkeepsie Center was part of a larger organization that had two training programs. I joined the faculty of one and enjoyed doing teaching and clinical treatment for many years. But eventually reorganization was in the wind there, and I was ready to explore a new direction.

In running the counseling Center I had recognized the need for more cbusiness and managerial skills, and with Pace University nearby, I enrolled part-time in their MBA program. There, almost by chance, I learned about the Certified Financial Planner™ program – something I had never heard of, even in my MBA studies. The CFP® seemed the right course for me so I took a year to earn my CFP certificate, after which I resigned from the counseling center.

Otto & Associates began in our Katonah home on July 1, 1991. The work grew about as fast as I and a very part time secretary could manage. In 1997 Deborah joined the staff, and at the same time we moved the offices to the current location in downtown Katonah.

Deborah has been a terrific addition to O&A. We have different and complementary skills; she is much more analytical and precise than I am. In addition she brought a strong banking background to the organization and in a way, a more conservative, financial perspective. Her degree from Vassar has also been of value. In so many ways Deborah’s additional abilities enhanced the solo operation that I was running.

Mary retired from public school teaching in 2002 and we moved part-time to Norwich, VT, to be near our older daughter, Susan, and her family of four. Mary joined the faculty of The Sharon Academy and I continued to be in Katonah four days a week, although over time I worked from VT increasingly more. While O&A did not have an office in VT, we did have a few clients who were already in the area. I was back to working from home again.

At some point, Susan, who was the reason for our move to in Vermont, started doing a bit of secretarial work for me. But then, almost overnight, something changed. It happened when her mother said, “Why don’t you consider doing planning with your dad?” I’m not certain why neither Susan nor I had thought of that, but Mary’s words functioned as though a light bulb had come on.

Rather quickly Susan started down the CFP route, got her certificate in 2011, and has been wonderful to work with. She also brings broad experience, having received her Master’s degree in education from Antioch where she learned both educational and management skills, each useful to her work.

We have never had such a smooth, well-functioning office as we do today. Kathy Patton worked for Goldman Sachs for many years and she picked up some remarkable skills which have helped the office work well. You all may not be aware of what is behind Susan, Deborah, or me being able to talk to you on the phone and easily find your will or tax return or whatever it is we need that makes us look so well prepared, but Kathy is probably responsible. Kathy has a Bachelor’s degree from Georgetown University and came to O&A nine years ago. She has been the office manager for the last four years.

Joan joined O&A four years ago and has been a team player from the start. She graduated from Pace University in finance. Joan worked in New York for the Bank of Canada for a number of years before taking time off to raise her daughters. Fortunately for us, she was looking to get back into the financial area when we were looking to hire someone. If you need a job done quickly and right, Joan will do it.

I have taken the time to talk about these five women (including Mary, whose support has been invaluable) because their expertise has helped O&A to become a respected, fee-only financial planning organization in both Westchester County and the Upper Valley of Vermont and New Hampshire. While I was the one who began this organization, O&A functions well because of the work of all of us.

I want to conclude by stating how much I value you, our loyal clients and friends. At times when people asked me why I left pastoral counseling for financial planning, I would say that in doing my doctoral work, I learned that someone attributed the root of all emotional problems to family, sex, and money, and I was never very interested in the first two. (This comment received quite a laugh.)

What that underscores is that money is, in fact, more than money. Money has an important emotional component to it and we at O&A do not shy away from regularly addressing that fact. I am appreciative of and enriched by your sharing this important dimension of your lives with us. The reason I am still working is that you present interesting challenges, stimulating questions, and invitations into a relationship as part of your team. I, and we, enjoy walking this path with you. In short, I am deeply, deeply appreciative of all of you. Thank you for joining us in the celebration.

Party favors were given out to everyone present. If you did not get your special O&A bottle of wine, please make certain to remind us the next time you are in the office because we have a few bottles left.



We have written previously that investing can be quite counterintuitive. A recent article titled “Humans Aren’t Wired for Investing,” from the American Institute for Economic Research, piqued our interest because it approaches the subject of how people invest their money from a somewhat different angle.

The author, Luke Delormoe, presented a graph that covered 1990 to today, documenting the way in which investors have held various percentages of stock in their portfolio (as opposed to bonds and cash). At its high point, the average portfolio was comprised of 65% stocks. At its low, stocks were, incredibly, below 25%. Overlaid on that graph was another one of the performance of the S&P 500 stock index. The resulting picture illustrated that investors had put a greater percentage of assets into stocks after the market had risen, and continued adding more money to the stock side of their portfolios as the market peaked. It was only after the market had fallen that investors began to take money out of the stock market. As the market hit bottom, investors had the smallest percentage invested in stocks. It was at that point that the market began to make money again. In other words, as the stock market made substantial gains, investors had only 25% of their money invested in the stock market, when, in fact, it would have been more rational to have 65% in stocks.

The article goes on to point to the biological reason for this “irrational” behavior. It is known that when our ancestors were in highly stressful situations, such as confronting wolves which might attack, the cortisol levels in their bodies increased. Today, too, our cortisol levels become elevated as our worries escalate. New research shows that with higher levels of cortisol, we also get significantly more risk averse. That is the new information in this article. With elevated cortisol levels, we are inclined to become more financially conservative, which helps explain the “irrational” behavior conveyed by the chart described above.

“Today, we face a different kind of stress…than our ancestors. We are confronted with spikes in cortisol as markets get choppy and our investments lose value. It is agonizing to think about losing money. We have all felt that pain….This human reaction was perfectly rational when we had to face a pack of wild animals. Today, we find that it can be detrimental when dealing with bears and bulls.”

Because these tendencies are counterproductive in managing investments, the article suggests two ways to guard against bad decisions at such times:

1) Acknowledge that these tendencies are real and that pain will exist. Investors must train themselves to suffer through it. “This requires almost constant reassurance that we’re doing the right thing, even when it feels wrong.” Reading literature that supports long-term investing can be an antidote at such times.
2) Decide that if you don’t like the heat you should get out of the kitchen. That translates to significantly (or completely) reducing your exposure to the volatile markets, while understanding that return will diminish, and may, in fact, drop below the inflation rate. The “price” for this option could be significant.

We would add a third option, which is a variation on part of #2 above. A compromise could include reducing the risk to a place where you believe you can manage the volatility and related suffering. We would also add that considering the rewards of staying the course during a down market should be considered and may mitigate some of the pain.

It is critical that investors understand themselves and their impulses in order to make wise financial decisions. For a somewhat different take, although consistent with this article, readers may want to go back to the first article in the December, 2015, O&A Newsletter. That article looked at this same issue from a somewhat different angle. That Newsletter is available on our website at We also have copies in both offices.



Fiduciary responsibility, which requires that advisors put clients’ interest ahead of their own, has been the rule for fee only advisors who are members of NAPFA, the national fee only organization, from its inception in 1983. Now, effective in the spring of 2017, the Department of Labor (DOL) is stepping into the process by applying the Fiduciary Rule to retirement accounts offered by corporations and other businesses, including plans such as 401(k), 403(b), as well as Rollover IRAs.

The action of the DOL has had the effect of encouraging the SEC to also adopt stricter fiduciary rules., but there is confusion in the industry, particularly since many advisors (including O&A) work with clients who have both regular, taxable investment accounts as well as company retirement plans. The SEC is working with only three of the five commissioner slots filled (the vacancies are the result of the current governmental dysfunction) but is hoping to clarify their guidelines on putting clients’ interests first.

On his Last Week Tonight HBO show, John Oliver did a humorous piece on retirement plans that discusses fiduciaries. As long as you don’t mind explicit language, you may enjoy the 20 minute program. You can find it here.

While O&A will likely have to make some minor modifications to our process to satisfy the way in which the DOL will implement the rule, we have been supporters and adherers to this rule from the outset.



Some of you may have seen the recent excellent coverage in The New York Times about 403(b) accounts, which are retirement accounts for public service employees. The series, written by Tara Siegel Bernard and Ron Lieber, was sufficiently lengthy that you probably read it only if you are a teacher or work for a nonprofit organization and have such an account.

The articles explain how employees can be ill-served when workplace retirement plans come with costly investment options and biased advice from aggressive salespeople. In some plans, employees can be locked in to expensive annuities for years, unless they pay large surrender fees to exit. We have discussed this with some clients whose plans have had these problems, and we will continue do so. (We wish to note here that there are some 403(b) plans that offer low-cost investment options, one of which is TIAA.)

The dilemma for employees offered suboptimal plans is that if they do not contribute to the 403(b) tax deferred savings account available from their employer, they do not have another option. According to the reporter, “the people who do the most good in the world, spending their careers helping others in exchange for modest paychecks, often get the worst retirement plans.” (NY Times, Oct. 23, 2016, p. BU-1)

The original intent of these 403(b) plans was to supplement teacher pensions. For that reason regulators allowed only annuity investments that would enhance teachers’ monthly pensions. Subsequently, in the for-profit world, a somewhat different, but generally much more competitive 401(k) was made available. The 401(k) plans generally have lower fees and, like 403(b) plans, can be transferred to and IRA upon retirement.

You probably know that we at Otto & Associates, as fee only planners, do not sell annuities. When we do recommend them, we send people to a low cost provider such as Vanguard.

The final article of the N.Y. Times series offers advice to employees who are motivated to lobby for better 403(b) retirement accounts.

If you’d like to read any part of the Public Sacrifice series, you can find it on or ask us for a copy of the entire series.



On April 21, 2016, Otto & Associates received a secured electronic email from the Securities and Exchange Commission (SEC). The email began, “The purpose of this letter is to inform you that the staff of the U.S. Securities and Exchange Commission is conducting a limited scope examination of risk factors present at your firm….This is exam is being conducted as part of the Office of Compliance Inspections and Examination’s initiative to engage with the population of investment advisers that have not been examined in ten or more years…”.

Since our most recent SEC visit had occurred in 2004, we definitely fell into the category for a needed routine examination. The initial letter contained 12 questions, some with multiple parts. We gathered the information that was requested and sent it back, with the expectation that they would return to us with more requests for information. They did, multiple times. In fact, between April 21 and September 8, when we had our final phone conversation with the SEC staff, there were four more requests that contained long lists of questions requiring extensive narratives and documentation.

We are very pleased to report that this SEC examination went well. The SEC had specific, minor recommendations for us around documentation and they accepted our proposal regarding how we would respond to their recommendations.

The process was informative and, at times, extremely challenging. It took a significant amount of time and energy from all five of us, often time that we would rather have been spending with clients. Nonetheless, we are supportive of this oversight and appreciate the demands of meaningful regulation. And unless there are drastic changes, we do not expect another examination for some time, probably a number of years.



The Newsletter was all but ready to be published when the surprise election of Donald Trump occurred. We do not want this Newsletter to go out without adding our thoughts on the possible impact of the Trump election on investments.

As the reader must know, prior to the election there were seemingly agreed upon predictions that a Trump election would result in an immediate stock market loss and maybe a subsequent recession. Technically those pundits were correct. The futures market lost 5% (“triggers” kicked in at that point so the market could not go down further) in the middle of the night of Nov. 8-9, but by the time the markets opened on Wednesday, that trend had reversed and the markets were essentially flat. By the end of the first day after the election, the US stock market had gained more than 1%.

Because we at O&A never know where the market is headed in the short term – and maybe not even the intermediate term – we are urging that clients hold their course. The one exception is that for those clients who are retired and take money from their account regularly, we are recommending that we have a bit more cash on the side during this period, which could be volatile. Having developed this perspective, we were glad to see today (11/11/16) that Warren Buffet has a useful perspective. In an interview on CNN today, he indicated that he thinks the US stock market is strong and Trump will not have a long-term negative effect on the market.

As always, we welcome questions and conversations from clients on this and other matters.



In mid-October David and Susan attended a three day NAPFA conference in Washington, DC, that was focused on “Leading in Times of Change.” That trip also allowed us to see four clients who live in the area. Earlier in the year Susan and David went to the TD Ameritrade conference in Orlando.

Deborah, Susan, and David have also attended a variety of one-day or partial-day educational conferences, including several presented by mutual fund managers. One of the more memorable was the Baron Conference, held each year in November at Lincoln Center, where the attendees take over the entire Lincoln Center campus. Approximately 5,000 people, including Deborah, were there. In addition, Deborah volunteered at Westchester Community College’s Financial Education Day, answering participants’ financial planning questions. She also completed a project for her city of New Rochelle to compile a list of free on-line financial literacy resources for teens and adults.

The entire staff is looking forward in early December to the O&A Holiday Party with the Yankee Swap, something that has become a tradition.

As a reminder, our recently updated website is available with lots of information. For instance, we are planning to post photos from each of the 25th Anniversary celebrations soon. In addition, this and previous Newsletters are available on the site as well.

Finally, we remind readers that to get in touch with any of us by phone, simply dial the telephone number we have had from the outset, (914) 232-5379. The phone system links all the phones in both Katonah and Norwich. The call will be answered if someone is in the office and available. If no one answers, your call will go to voice mail and we will get back to you as soon as possible.

As Thanksgiving, Hanukkah, and Christmas approach, David, Deborah, Susan, Kathy, and Joan join in wishing you a very happy season.