The attorney and longtime Washington observer Andy Friedman told attendees Tuesday at the Raymond James Financial Services national conference that advisors and their clients can expect continued volatility in the markets—and in politics—for the rest of the year.
That's due not only to the November presidential election, which introduces the uncertainty that markets hate, and to the expected June ruling by the Supreme Court on the legal challenge to Obama's health care law, but also to what Friedman expects will be the "mother of all lame-duck sessions." That will be when the current Congress likely returns for a Thanksgiving-to-Christmas session after the presidential election to address a host of tax, deficit and budget deadlines.
At the end of the year, regardless of who wins the presidential election or which political party is in legislative power next year, the sequestration budget cuts enacted last year are set to take effect. The lawmakers will need to pass a 2013 budget and, likely, increase the debt limit. Finally—and this one will affect advisors and their clients most—the Bush-era tax cuts are scheduled to sunset.
Quoting White House chief of staff Jacob Lew, Friedman said there was a "perfect storm set up" for December. Noting the coining of the now-popular phrase the "financial cliff," Friedman wondered if it would force Congress into a compromise. He's not optimistic, however, considering that both parties have drawn "lines in the sand," particularly after 2011's acrimonious budget and debt ceiling battle.
As for the outcome of the presidential election, Friedman suggested that the polls to watch should be those of independent voters, who he said tend to care more about economic issues than social issues. Their importance has grown as the electorate has pretty evenly split among Democrats, Republicans and independents. He mentioned in passing that the recent political flap over gay marriage "is a red herring," since both Democrats and Republicans already know where they stand on that issue.
For independents, however, it's not an issue. While he said those independents were "uncertain who to blame" for the nation's less-than-booming economy, he did note that there is a 50% approval rating for President Obama among independent voters, while only 9% of them approve of Congress. They might also, he suggested, be more amenable to raising taxes on the 'wealthy.'
So what should advisors be doing throughout this volatile period on behalf of their clients? Friedman, of TheWashingtonUpdate.com, listed six key areas:
1. Sell assets and dissolve concentrated positions. These steps are important since there's a chance that income and capital gains tax rates may increase next year depending on what Congress does with the expiring Bush-era tax cuts, and since there will definitely be a 3.8% Medicare-funding tax increase in 2013 under the Affordable Care Act for families with more than $250,000 in annual income.
3. Beware of dividend-paying stocks. Friedman says the likely 2013 tax treatment of dividends is "less clear" than for other forms of income, but should the Bush-era tax cuts expire, taxes on both long-term capital gains and dividends are set to rise from their current level of 15% to a maximum of 20% for capital gains and a whopping 39.6% maximum for dividends.
5. Take advantage of gifting opportunities. Friedman encouraged advisors in attendance to have their clients take advantage of the much higher 
