MC Origin Stories – Sarah Ellis

What was the turning point for you in deciding to change careers?

 

What lessons have you learned from your past work life that you’ve brought to MC?

One of the key phrases I have kept with me over the years is one I learned from my first “real” job working at the local BBQ restaurant. Plastered on the wall to the left of the kitchen entrance was: “Work with a sense of urgency and always anticipate the guest’s needs.” This is a mantra I live by to this day, in all aspects.

I prefer to work quickly, yet efficiently, and I find so much value in taking a moment to think about all the “what-ifs” to ensure I am asking questions that haven’t even been answered yet. The best compliment I can receive is when someone says, “Wow, you beat me to the punch. I was just about to ask you that!”

 

Empowering a customer or client is something many of us hope to achieve in our work. What opportunities have you had to accomplish this in the past?

For me, this goes back to the saying, “Give a man a fish, and he will eat for a day. Teach a man to fish, and he will eat for a lifetime.” Being an overthinker, I always challenged this saying with follow-up questions: What if the person is too squeamish to put bait on the hook? What if the person doesn’t know how to swim if his boat gets turned over? What if he doesn’t have the resources to buy the fishing line and reel? What if he sets everything up right, but the fish are just not biting?

There is so much more that goes into empowering than just teaching. You must provide someone with the tools to accomplish the task well—the physical tools (bait, line, reel), the skillset tools (how to swim, how to drive the boat, how to overcome the aversion to baiting the hook), the learning tools (what is their learning style: doing, watching, listening?)—and in a way that makes sense for them. Empowering does not just teach someone to do something, but actually makes the person believe they can do it and do it well.

One of my favorite examples of this is with the daughter of a current client at our firm. Her mom wanted to start educating her about an irrevocable trust that was set up for the daughter when her dad passed away. Rather than just giving her access to the account (give a man a fish), or even just educating her on what a trust is, how to access the funds, and how to invest the funds (teach a man to fish), we spent time talking to her about her interests and her goals for her life. We did educate her on the basics of a trust and investing, but we took it a step further and explained the pros and cons of knowing the amount of money she had access to. We then put it back on her to make the decision to know how much was in the account or not. For some people, knowing that you have access to a large sum can actually be a demotivator. At the beginning of the conversation, she said she valued her work ethic and her pursuit of her passions. Would knowing that she had access to an inheritance cause her to sit on her laurels and not pursue those passions? We empowered her to make the decision and she actually chose not to know what the balance was. I was proud of her, not for the decision she made, but because she made that decision herself. She now has ownership of her life and goals. She knows she can ask for the balance at any time, but she made the decision that empowered her best to achieve her life goals and feel proud of her accomplishments.

MC Origin Stories – Joe Seetoo

1) What opportunities have you had to accomplish this in the past?

 

2) What personality traits do you believe have set you up for success at Morton? 

1) Passion for Learning
“I am always doing that which I cannot do, in order that I may learn how to do it.” — Picasso
I can remember at a young age my father saying, “Education is something no one can ever take away from you” and “knowledge is power.” I believe his views were shaped by his father, a Chinese immigrant who had escaped the horrors of communism in the late 1930s/early 1940s and fled to the U.S. I’ve adopted a less Machiavellian approach to learning, one that is founded more in a naturalistic belief that we as humans have a proclivity towards growth and expansion. I am constantly reading and learning new things, everything from psychology to neurolinguistic programming to guitar scales. I believe learning allows us to cultivate aspects of ourselves that we might otherwise overlook.

2) Organized/Structured
I still make my bed every morning (okay—6 days a week), my calendar is color-coded, and I can’t go to sleep with a messy house. Given the volume and speed of information, we are required to process in today’s environment, staying organized can be a challenge. I believe having routine systems and processes (i.e., habits) in place both personally and professionally reduces the cognitive load on the brain, which can lead to mental fatigue. By reducing my decision fatigue related to mundane but necessary tasks, I’m able to free up more space for deep work with our clients. Naturally, many clients have scattered random questions and concerns that feel disjointed even though they relate to their financial affairs. They are challenged to organize their thoughts and are stuck in analysis paralysis. I’m able to help organize their thoughts and formulate an action plan that allows them to move forward. And, if I’m being honest with myself, organization gives me the illusion of control. If I’m operating from a place of peace, my ability to listen carefully to a client’s question or concern and respond in a thoughtful manner increases exponentially.

3) Empathy
“We are all just walking each other home.” — Ram Dass
Easing the burden of our fellow man is part of what we do as humans. We are wired to be social creatures. I’m a deeply spiritual person. There is a level of emotional intimacy that evolves over the life of a relationship between an advisor and a client because money is one gateway to many other aspects of our lives. Ensuring our families and loved ones are taken care of, sending our children to college, buying a new home, and having the ability to retire are all major milestones in the human experience. For many, money is an emotional topic because it represents our hopes and concerns about what we want in our lives. Being able to put myself in my client’s shoes in the moment and see where they are coming from helps foster trust and open lines of communication.

 

3) How have your career aspirations changed over the years leading to this point?

I’ve been in wealth management since 1998—over 22 years. I am 44. Early in my career, I was determined to become an advisor. I elected to obtain the Chartered Financial Analyst® charter in the early 2000s. I continued down the path of becoming the best advisor I could by completing the CERTIFIED FINANCIAL PLANNER™ designation in 2008 in addition to coursework on behavioral finance and advanced estate planning. In 2014, I was blessed with the opportunity to become a partner at Morton Capital and work more closely with senior leadership, not only as an advisor but also as an owner. Our company has grown to over 50 teammates responsible for more than $2 billion in assets as of 12/31/2021. We have 13 owners/partners.

More recently, I have been focused on broadening the scope of our expertise in a few key areas:
Exit Planning—I am committed to helping owners maximize the value of their greatest asset: their business. As part of my journey and being involved in a Generation 1 to Generation 2 succession plan at Morton Capital, in the summer of 2018, I completed a designation called the Certified Exit Planning Advisor, sponsored by the Exit Planning Institute. By experiencing firsthand what many current business owners and next-gen owners will deal with, I believe I can use my knowledge both as a financial planner and owner to help improve outcomes. To that end, in July 2020, I launched the Conejo Valley Chapter of the Exit Planning Institute https://exit-planning-institute.org/chapter/epi-conejo-valley-chapter/. It’s a forum for advisors and owners to share knowledge and best practices related to business succession planning.

Additionally, I have recently launched a podcast called The Ripcord Moment, where we interview owners (and their advisors) who have made the jump and what pearls of wisdom they can share with owners contemplating a sale/transition at some point in the future. These firsthand experiences are a powerful tool to help shape more successful outcomes for other owners.

Mentoring and Recruiting—I’m passionate about what we do at Morton Capital and have been able to help recruit a number of talented professionals to our organization over the years. I am committed to making Morton Capital an even more resilient firm. I enjoy mentoring our talented staff and helping them become the best versions of themselves.

MC Origin Stories – Thao Truong

1) What was the turning point for you in deciding to change careers?


After I left England, I moved to the United States. I just wanted to accelerate my college education and finish it quickly so that I could start making money and be my family’s savior. I moved to the States for more affordable options. I attended a community college in Seattle and graduated from the University of New Hampshire. I decided to study finance, hoping that the degree would give me the knowledge on how to become rich sooner.  While in school, I tried to make money from several different channels, started a few different businesses with friends, and invested in options and penny stocks. But like what your advisors would normally tell you: “Don’t try to beat the market.” I lost money from those risky moves.  Looking back, what helped get me through my hardships were: (1) the support from friends; (2) my personal emergency fund (which I had before my family hit rock bottom); (3) discipline for a long-term financial plan; and (4) my stable college jobs like tutoring in economics, financial accounting and statistics, and being a teaching assistant for microeconomics. During my last two years of college, I worked as an economic forecasting analyst for a professor at my university, and then as one of the 35 financial analyst students specially selected to manage the university’s endowment. Then, through working with affluent clients in the wealth management business, I slowly discovered that I had put the wrong attention on MONEY matters. Prosperity and happiness are far beyond money. There is also knowledge, health, and mental wellness. Financial planning is not about getting rich, it is about long-term planning for your money so it works for your values.

 

2) What lessons have you learned from your past work life that you’ve brought to MC?

 

3) Empowering a customer or client is something many of us hope to achieve in our work. What opportunities have you had to accomplish this in the past?

I believe in the power of financial literacy. I want to be able to extend my knowledge to others who do not have the means. I strive to promote financial literacy to the public by providing free financial workshops for my local community. I also volunteered with San Diego Junior Achievement to promote financial literacy to middle school and high school students. I was an active member of the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA). I co-founded a small women-advisor-only study group that is comprised of younger minority advisors. We have learned the power of having a community of friends and peers to turn to for advice and support. I was humbled and honored to be a recipient of the 2019 Diversity and Inclusion Scholarships for both FPA and NAPFA. These awards were granted to professionals willing to demonstrate and act upon an intense desire to affect the diversity of the financial planning profession.

MC Origin Stories – Jason Naiman

1) What was the turning point for you in deciding to change careers?

 

2) What lessons have you learned from your past work life that you’ve brought to MC?

If I were to find the common thread in the last 50+ years of my working life (OMG!), I guess I just mentioned it above: do the right thing. It wasn’t always easy in the life insurance business because of the inherent conflict of interest that existed based on how you were paid. What was best for your client wasn’t necessarily best for you. From the moment I joined Morton Capital, that issue has been in the rearview mirror.

 

3) How have your career aspirations changed over the years leading to this point?

Having had 14 years in the life insurance business, empathy was baked into your psyche. Selling an “intangible” requires being able to connect at a much different level than if you’re selling a product the buyer WANTS to buy. An axiom in our business was that life insurance wasn’t bought; it was sold. When you think about it, life insurance is a very empathetic purchase: it is being bought for the potential benefit of others. That’s empathy.

MC Origin Stories – Chris Galeski

1) What was the turning point for you in deciding to change careers?

 

2) What lessons have you learned from your past work life that you’ve brought to MC?

You can always improve and learn more. Most of us ignore our weaknesses and spend time doing the things we are good at. In order to give our clients what they deserve, we need to constantly reflect on our weaknesses, understanding the why behind them, and learn from those weaknesses and turn them into strengths. We can accomplish a lot more as a team than as individuals. Most of us have the same struggles and fears in life when it comes to money, so we have built a team here at MC that is inspired to work together collectively and come up with ideas and solutions to help clients move away from fear about money and towards the enjoyment of their wealth.

 

3) How have your career aspirations changed over the years leading to this point?

I went from trying to change or improve one client’s situation at a time to a place where we work together as a team to impact a larger audience and community. Working at Morton Capital and having a true team atmosphere allows us to deepen relationships and impact so many more people both internally and externally. I am driven by our ability as a team and company to impact the community and inspire others to think about money differently.

 

4) Has there been a common thread in the work experience you’ve had so far in life?

Besides competing and playing golf for a living, I have always been a financial advisor. I really enjoy helping people better understand money and investing. To me, relationships and trust in the process have been the most common threads in all the work I have done. Success is achieved by the consistent things we do each day, which compound over time and give us the ability to achieve great things. Rarely in life does something significant happen without sacrifice, having a process and being consistent in our actions. The best advice ever given to me is to enjoy the process more than the achievements. All great things happen when you enjoy and trust the process.

Has empathy been a quality you’ve drawn on in roles you’ve held before Morton? As an advisor, friend, husband and father, empathy is the key to a successful relationship. Without it, how can you possibly put yourself in someone else’s shoes? Understand where they are coming from? It is a crucial piece in order to be a good communicator. It’s not my job to put my values on someone else’s money or wishes. It is my job to help guide people in the decisions that will help them find success and get the most life out of their wealth. Empowering a customer or client is something many of us hope to achieve in our work. What opportunities have you had to accomplish this in the past? Helping clients identify that “bucket list” of things that they want to accomplish and then planning them one at a time is an exciting exercise. There have been several instances of this in my career with clients. There have been other instances like helping give to charities, retire earlier, or just even retire that have been just as much fun. Anytime I have a conversation with a client, and they walk away feeling better, more comfortable or happier is a great feeling.

MC Stories – Save Your Portfolio . . . and the World

Climate change hasn’t always been terribly high on my list of concerns. Don’t get me wrong, I believed the science, but it had been a selfish, somewhat conscious choice to ignore dealing with something I was pretty sure wouldn’t greatly affect me. I’ve lived in Santa Monica, where the beach is vast, and in Pasadena, where the sun shines hot, and I could never envision a time where either would become undesirable, let alone unlivable.

My wife, Alyssa, began her career preparing for and responding to natural disasters, first in California, then in a similar role with the U.S. government at FEMA, which moved us to Washington, D.C. She dealt with fires in the West, hurricanes in the Northeast, and tornados in the Midwest. She even traveled to Japan to understand the impact of their disastrous tsunami in March 2011. Throughout her 15 years working on climate and conservation issues, she’s spent innumerous hours educating governments and businesses alike on the perils of increasing temperatures and global sea-level rise.

While I once may have felt captive to these data-dense presentation rehearsals, I came to first merely absorb, but later to seek, the alarming data she was gathering. It was then that I began to make the inevitable connections between her professional world and mine. I thought, “I’m likely investing in companies that do the same damage my wife is devoting her career to remedying. Could I invest and make money in companies that were doing less harm? Or even some good? Environment can’t be the only social issue affected by investing. Could I make even a small impact by limiting exposure to companies that profit in guns, tobacco, child labor, etc.?”

I’ve devoted an increasing amount of free time over recent years to the pursuit of educating myself in the nuances of socially conscious investing and marrying my values to my own personal investment choices. At Morton Capital, we’ve been deeply involved in our local communities and charities and offering investments in socially conscious funds for years. True to our mission and investment philosophy, I’m proud that we consistently seek knowledge and resources that allow our clients to pursue these investments at our firm.

When I introduce my clients to the concept of investing with their heads AND their hearts, I begin, as below, by exploring some of the broader definitions and themes. I also ensure that I address some common misconceptions associated with socially conscious investing. I most commonly see that people think that socially conscious investing means having to sacrifice returns, or that they are more expensive and harder to access. And while not all investments will be available or appropriate for every investor, I find it helpful to address multiple disciplines within the socially conscious investing realm to help provide more insight into the wide variety of strategies that exist. Below are three commonly implemented ones, listed from broader value-focused strategies to those purely focused on impact.

ESG (Environmental, Social, Governance):
This common strategy evaluates companies based on how well they are managing the various environmental, social, and corporate governance issues they face in their businesses. A top-down ESG investment strategy invests in companies that rate highly in environmental, social, and governance factors while still maintaining a focus on the returns and associated risks.

SRI (Socially Responsible Investing):
Socially responsible investing goes one step further than ESG by actively eliminating or selecting investments according to specific ethical guidelines. The underlying motive could be religion, personal values, or political beliefs. Unlike ESG analysis, which shapes valuations, SRI uses ESG factors to apply negative or positive screens to the broader investment universe.

Impact/Thematic Investing
In impact or thematic investing, positive outcomes are of the utmost importance—meaning the investments need to have a positive social or environmental impact in some way. The objective of impact investing is to help a business or organization accomplish specific goals that are beneficial to society or the environment. One example might be investing in a nonprofit dedicated to the research and development of clean energy, regardless of whether success is guaranteed.

As I mentioned, there are many more strategies associated with socially conscious investing than I’ve listed above, evidence of how seriously the investment world is paying attention to not only climate change but social impact as well. Investing with your head AND your heart can and will shape the future of investing as we know it. Knowing how to invest is only the beginning

 

DISCLOSURES:

This summary is for informational purposes only. It should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class. This document expresses the views of the author and such views are subject to change without notice. Morton Capital makes no representation that the strategies described are suitable or appropriate for any person.

All investments involve the risk of loss, including the loss of principal. Past performance is not indicative of future returns. A Fund’s concentration in a certain sector and lack of diversification across other sectors present risks specific to its strategy and should be carefully considered. You should consult with your financial advisor to thoroughly review all information and consider all ramifications before implementing any transactions and/or strategies concerning your finances.

5 Untold Truths of Acting in Your Clients’ Best Interest

FOREWORD by Kate Holmes — Innovating Advice, FOUNDER & CEO

What does acting in your clients’ best interest mean to you? When was the last time you challenged that thinking?

Going beyond top-of-mind responses like compensation, investment portfolios, and consistent, clear communication, you’ll find that truly acting in your client’’s best interest is much broader than you think and leads to more fulfilled employees, happier clients, and a more successful, resilient business. To get there often requires a mindset shift and an abundance mentality, meaning that once you’ve committed to thinking and doing things differently, everyone wins. This won’t happen overnight but it’s an outcome worth investing in as it’ll shape the future of our industry. As important as quarterly investment reviews and annual compliance requirements are, making time to regularly and thoughtfully pause from working in the business to ensure you’re always working on the business is well worth it. Part of that process is challenging your thinking to continually innovate, which is crucial to the ongoing success of any organization. It’s also what’s in your clients’ best interest.

As financial advisors, we often hear — and even say — the phrase “we are fiduciaries.” What we are conveying when we say this is that we put our clients’ interest in front of our own — an all-too-important distinction in an industry that has spent the last 20 years trying to rebuild its reputation. However, the truth of what it actually means to act in the best interest of a client is rarely explored, and, in fact, this phrase is even sometimes used solely as a marketing tactic. If a financial advisory firm were to truly act in its clients’ best interest, it would go far beyond the investments it recommends or planning strategies its advisors propose, but also focus on the enterprise it is creating. We believe this begins by focusing on five untold truths of what it means to act in a client’s best interest.

Untold Truth #1: Create a resilient enterprise

As a service-based industry, our people are our most important assets. Most registered investment advisors are not selling products, but rather asking our clients to trust us — our people — to manage their wealth appropriately. To continue to do so, we need to ensure our company can stand the test of time and thus we need to think long term. Consensus thinking around how to run a successful business, though, is to set clear goals that can be measured over specific time frames. Metrics such as gross margins or revenue per employee are measured on a yearly or even quarterly basis, with success being defined as consistently improving on these numbers. But what if these “truths” around running a business are simply arbitrary metrics and, more importantly, this focus on short-term goals affects our ability to build a lasting, resilient enterprise that will serve our clients best over the long run? To be clear, we are not saying that these metrics are not important and that accountability to these metrics should be ignored. But putting too much emphasis on these shorter-term measuring sticks can often result in strategic decisions that conflict with truly putting a client’s best interest at the forefront. Simply put, we believe that there are untold truths of running a successful organization that should be more focused on the long term. This means we need strong infrastructure, processes that will create efficiencies and scale, and effective management of our profits and losses so that our company will not be lost to the whims of the markets. After all, you cannot take care of your clients if there is no one here to take care of them. To that end, the first step in creating a resilient enterprise is to create an infrastructure that can withstand significant challenges. We can look to the restaurant industry as an example of well-designed infrastructure (as well as an industry that has had to display a level of resiliency during a pandemic environment). Think about the key players— chef, sous chef, kitchen staff, expediter, servers, bussers, host/hostess, and manager. Each person plays a unique and specific role and, in truth, none of them could do their job without the other. After all, a server cannot serve food without a chef to prepare that food. This is similar to a well-run financial advisory firm. A resilient firm focuses attention on the activities that need to be accomplished [i.e., financial planning, investment research, portfolio management, client servicing, business operations (compliance/finance/ HR), relationship management, and business development] and team members are dedicated to their role and specialty. The resilient firm also leverages marketing to engage with their client communities and technology for effective and efficient communication. If you can create an infrastructure that is resilient to the challenges the firm might face, you have accomplished the first step in establishing a long-lived enterprise.

The second step is not only to create efficient processes but to document them as well. Every single one. Do you know how many steps it takes to onboard one new client with three investment accounts and a financial plan? Around 250 steps. It would be unfair to expect your team to execute processes if they are not documented and expectations are not clearly set. This is a daunting task and usually one of the first items to get pushed to the back of the to-do list. But business owners do not have to do everything. In fact, it would be best to collaborate with a team member regularly doing these tasks so that they can set up a process by which they and anyone who joins after them will be successful. Remember that an employee is acting on behalf of the client, so a successful employee will create the best possible client experience. If the firm has detailed processes, as well as an excellent communication plan where a client is updated regularly on progress, clients will have more confidence in the advice they are given.

And the third step to setting up a resilient enterprise is to manage profits and losses with the utmost thoughtfulness and care. This means that the management of revenue and expenses is more than a task for the person in charge of finance. In fact, the P&L statement should be treated in the same way as you would a client’s nest egg. It is just a much bigger balance sheet. The expenses (human capital/ compensation, rent/office, technology, marketing, etc.) are investments and revenue is your return on investment. As we all know, to get a return, we must invest and take on financial risk. But we should not take on too much risk (i.e., dig into our profitability safety net) because we would not want a market correction to cause us to lose our ability to effectively serve our clients and act in their best interest. If we invest thoughtfully, however, the results will be a more efficient infrastructure, scalable processes, and an excellent employee and client experience.

 

Untold Truth #2: Focus on your employee experience

It is not uncommon for any firm to obsess over its client experience, whether that includes the services it offers or the way it differentiates itself in the market. However, it is far too often overlooked that the employees are the ones actually providing this experience. The truth is, if your employees are not happy, it is a guarantee that your clients will eventually not be happy. The employee experience encompasses all of the following aspects of a business: culture, career pathing, compensation philosophy, resources, talent management, education, transparency, trust, respect, values, meaningful/ fulfilling work, and an empowering leadership team. Oftentimes, we mistake a positive culture with an organization where people get along and like working together. This definition of culture is too limited because it only focuses on the employee-to-employee dynamic and is frequently too reliant on people being physically present with one another. While there are immense benefits to people physically working together, they need to be connected beyond the four walls of the office to have an enduring positive culture. This lasting positive culture starts with the leadership team and their ability to create an environment where people feel truly cared for beyond their work output. Think about the way we as humans maintain any kind of long-distance relationship, like with family or childhood friends — it is not always possible to be physically present, but it is possible to show that you care.

Image for postIn advisory firms, this care can be displayed through the ability of leaders and managers should be empowered and trained to prioritize personnel growth and empower them to achieve success in their careers. If an organization focuses on its employee experience, the team members will bring their best selves to work each day and the employee, the firm, and the clients will all benefit.the organization to offer career growth opportunities, allow team members to build personal wealth with transparent compensation plans, and listen when team members articulate what would make them most fulfilled in their work (see the exhibit to the right).

Untold Truth #3: Prioritize education and lifelong learning

Our clients are the beneficiaries of our knowledge. This could be factual knowledge, like investment research or financial planning strategies, or intuitive knowledge, like goal setting or behavioral finance. In either case, the truth is that the only way to ensure your clients are getting the best possible advice is to reject complacency and encourage continuous personal growth. Our industry has many resources available, including financial publications, webinars, conferences, and programs and credentials like the G2 Leadership Institute or CFP® certification. However, it is not enough for firms to send their team members out for education outside of the four walls of the organization. There also has to be a purposeful program within the organization so that everyone knows that learning and education are cornerstones of the firm. This focus on education could look like accountability groups, study sessions, education sessions with COIs or other experts, employee-led case studies on investment and planning topics, or even life skills (e.g., how to keep your inbox from overwhelming you). Oftentimes, firms are reluctant to form mandatory education programs for fear that they will take away from the actual work that needs to be done or business development activities. But, if you are one of those firms, have you asked yourself the question about what happens if you do not invest in education? If not, you may not want to know the answer. If you instead ask your team members to spend 2–3 hours per week investing in themselves, the result will likely create a more fulfilled team member with better and more effective work habits. If clients are to truly get our best, we must ask our people to adopt an attitude of lifelong learning and continually strive to grow.

 

Untold Truth #4: Grow the organization

Some clients fear firm growth because they think that will mean you are less dedicated to them. This is understandable, especially if you are running a silo practice where you are “the person” to whom they go for everything. However, the truth is, if you are a founder/principal of an organization, it might actually be in their best interest for you to have another advisor take over as their dedicated relationship manager so that you can grow the business. If you grow the business, you will have more resources for better research, technology, financial planning tools, talent acquisitions, support positions, and leaders/managers. These additional resources can translate to more services that will solve client problems and give advisors more time to focus on client strategy and goals. In addition, if you are to truly create an effective enterprise, those clients will be better served by a specialist who is dedicated to investment advising and financial planning and not distracted by running a business, trading, or filling out paperwork. Appointing dedicated leaders who focus on growing (and running) the business will create more time for client-facing personnel to spend with the client. And as the firm grows, there will be more talent with whom to collaborate to solve client needs and create strategies and plans on behalf of the clients.

Growth is also important to your ability to keep talent. If you grow, more employees will be able to move forward on their career path, building knowledge that will enable them to face and conquer more challenges. In addition, you will attract those who are trying to create a future for their own families. Ideally, this growth will create multiple owners in an organization, which will establish more resiliency and strength. These talented team members will partner with you to continually expand the company and help serve more clients.

 

Untold Truth #5: Don’t just invest with the herd

It is easy to invest alongside a benchmark (e.g., the S&P 500 or Barclays Agg). However, there are thousands of businesses that make money outside of public companies or public bonds. Aren’t we doing a disservice to our clients if we do not look at every possible opportunity? Yes, it is true that it is much harder to seek out investments that add value beyond the traditional markets or to find cash-flowing assets in a world with all-time-low interest rates. However, I believe it is also true—and absolutely necessary—that you should do so (when appropriate) in order to act in your clients’ best interest. If you do not utilize alternative investments when appropriate for clients and continue sailing along with only stocks and bonds, you will eventually subject your client to more physical (and emotional) volatility than any plan can handle.

Truly diversifying your clients’ assets must include an analysis of risks and purposefully putting “risk eggs” in different baskets. This might mean investing in stocks (subject to market risk), some bonds (subject to interest rate risk), real estate (subject to market, idiosyncratic or leverage risks), and other alternatives when appropriate (subject to other risks not correlated to the markets). However, many clients only have exposure to 75% of these categories, all of which can suffer in a nasty market. The truth is that it takes hard work, dedicated resources, and a willingness to look different that pushes some advisors to look outside of the box for alternative investments and veer from the herd. We believe it is a risk to not hide behind a benchmark and use the excuse that “the market is down, which is why your portfolio is down.” However, it is a risk more advisors should take if they want to do best by their clients. If they are willing to source non-traditional investments, they can then say to their clients, “Even though the market is down, we have you allocated to a diversified pool of investments. Some of these are not subject to the risks of the stock market, which we believe will help keep your portfolio afloat and increase the likelihood of reaching your financial goals.” The second answer is not only powerful from a performance standpoint, but also from a behavioral finance perspective.

Advisors often encourage clients to align their investments with their goals. But do you know why we do that? Because defining purpose = protection. It is paramount that advisors dig deep and truly understand how the client will react in order to build a solid investment strategy (one that includes emotional behaviors). Sometimes advisors do not insert emotions into the equation, but emotions show up whether you address them or not. Genuinely understanding the purpose behind someone’s wealth and the emotions tied to their goals will increase the client’s success rate. Research shows that negative emotions (such as fear) hit us with an intensity that is two and a half times stronger than positive emotions because they signal a disturbance that we should do something. When a client defines the purpose of their wealth, it provides more clarity to the “why” behind the investment strategy and ultimately protects the client from their own emotions. If we are to truly act in the best interest of clients, we cannot only focus on the specific investments, but also need to understand emotions and help define the purpose so that clients have more confidence in the end result.

 

Concluding Thoughts

It is important that advisory firms recognize that their ability to service their clients is contingent upon the strong foundation of the business (including the resiliency of their investments) and the happiness of their team members. If we put thoughtful energy into the business, inspire and empower our employees, and care for our clients, we will then be able to truthfully say we are acting in our clients’ best interest.

 

About the Authors:

Stacey McKinnon, Morton Capital, COO

Stacey McKinnon, CFP®, is the Chief Operating Officer and a wealth advisor at Morton Capital, an RIA with over $2B in AUM and more than 45 employees. She is passionate about creating environments where employees and clients can thrive and has dedicated her professional career to spreading the message of positive leadership inside Morton Capital and throughout the financial services industry. Being from Lake Tahoe, a small town in Northern California, she takes this same passion into her personal life with the goal of creating an environment where her family can thrive. She enjoys paddle boarding, skiing, hikes with her pup and husband, and most other outdoor activities. The “pursuit of being better” is her personal mantra and is the underlying theme of her papers, podcasts and public speaking engagements. Learn more about Morton Capital here.

Kate Holmes, Innovating Advice, FOUNDER & CEO

Kate Holmes, CFP®, is the energetic and passionate founder of Innovating Advice, which provides coaching, consulting and community for forward-thinking financial advisors and financial planners. As an advocate for propelling the global financial planning profession forward, Kate has had the pleasure of speaking, consulting and working with financial services professionals in over 35 countries and territories. She is the host of the first globally focused podcast, The Innovating Advice Show, and, having worked virtually throughout her 15-year career, she can often be found traveling the world with her pilot husband or enjoying the sunshine at home in Las Vegas, Nevada. Learn more about Innovating Advice here.

 

 

Disclosures: Information presented is for educational purposes only and is not intended as an offer or solicitation with respect to the purchase of any security or asset class. This presentation should not be relied on for investment recommendations. Certain alternative investment opportunities discussed herein may only be available to eligible clients and can only be made after careful review and completion of applicable offering documents. Private investments are speculative and involve a high degree of risk. Any investment strategy involves the risk of loss of capital. Past performance is no guarantee of future results.

MC Stories – Liquid vs. Illiquid Investments – What’s the Difference?

We all know that having the right types of investments in your portfolio is critical to achieving your goals. But did you know that you can’t create a successful mix of investments without first knowing what you need each asset to do for you? It’s like trying to pack for a vacation without knowing your destination. Get unlucky and you might be unpacking flip-flops when there’s a foot of snow outside. The same principle applies to your financial success—not knowing your desired destination (aka your financial goals) can hinder your investment selection and overall performance.

In addition to knowing your destination, an important ingredient when it comes to your investment mix is understanding the liquidity or illiquidity of a particular asset. Liquid investments are holdings that can readily be converted into cash with a certain level of price stability and include such assets as cash, money market funds, Treasury bills, and bonds. Illiquid investments are assets that are not easily sold or exchanged for cash, often referred to as “private placements”. If forced to sell before the end of any holding, or lock-up, period, these illiquid assets may suffer a substantial loss in value due to their limited marketability and/or greater price volatility.

So, assuming you know where you’re headed on your vacation (your financial goals) and you’re preparing to pack your bags for this trip (creating the appropriate mix of investments in your portfolio), my question for you is this: what do you carry on to the plane versus check down below?

When organizing your carry-on, you know the contents will be easily available and accessible to you throughout your journey. Usually this includes some snacks, a book or laptop, and, of course, your wallet (so you can buy more snacks if you run out). Even if you don’t do anything with these items during the flight, you’re able to relax knowing they’re within arm’s reach in case you do need them. That accessibility mimics that of your liquid investments. You want these funds to be quickly available to you to help manage any expenses that come up as you make your way towards reaching your financial goals. Liquid holdings serve a specific and important purpose in your portfolio and may need a place in your investment mix, just as your carry-on has a place on the plane (tucked under the seat in front of you).

Unlike your carry-on, the items you choose to put in your checked bag are not easily accessible to you during your journey. While we all get a little nervous watching our luggage disappear into the darkness of the conveyer belt, we also know that at our final destination the items in our bag will maximize our vacation experience. We didn’t have to limit ourselves to a three-ounce shampoo bottle or have to choose between two pairs of shoes. This checked bag will provide us with both the variety and volume that our carry-on can’t. This inaccessibility is typical of the illiquid investments in your portfolio. Locking up your money can also be nerve-wracking, but just like your checked bag provides benefits over your carry-on, illiquid assets can also be beneficial as part of your portfolio when appropriate: higher targeted returns to compensate you for that lack of accessibility, predictable cash flow compared to publicly traded assets, and lower relative volatility due to the lack of daily pricing.

As you can see, both liquid and illiquid investments can serve specific purposes in a portfolio. Some travelers may choose to only bring a carry-on. They understand the limitations of their decision but believe the convenience of access outweighs the benefits of delayed gratification. Other travelers may always choose to check their luggage, knowing they prefer to be greeted with a larger bag (with more to choose from) upon their arrival. But once you know what you need your assets to do for you, you’re better able to prepare so that you can both enjoy your journey towards achieving your financial goals and maximize your success once you do reach your final destination.

 

Disclosures:

This information is presented for educational purposes only and is not intended to constitute investment advice.  Morton Capital makes no representation that the strategies described are suitable or appropriate for any person. Investments in illiquid assets are available only to eligible clients and can only be made after review and completion of the applicable offering documents. Illiquid investments involve a high degree of risk, including the loss of capital. You should consult with your financial advisor to thoroughly review all information and consider all ramifications before implementing any transactions and/or strategies concerning your finances.

MC Stories – Financing Life Insurance . . . with Debt?

America is a society that has become extremely comfortable with financing. It’s rare nowadays for someone to pay cash for large purchases like their home, a car, or education costs. It’s also, however, more popular than ever for people to finance small purchases. Credit cards are used to buy groceries, gas, meals, clothes—pretty much everything.

With such widespread comfort around debt, it’s not a surprise that it’s used to finance life insurance premiums as well. This strategy has, in fact, been around for over 20 years (even longer in the property and casualty marketplace). Life insurance premium financing is where an insured borrows money from a bank to pay their life insurance premiums. The borrower is then responsible for posting collateral for the loan and paying the interest on the debt.

Today, financing represents around 25% of all policy premiums for in-force insurance policies. However, many people still haven’t actually heard of premium financing before and it has to do with the history of the strategy. In the early 2000s, a time known as the “Wild West” in life insurance sales, premium financing was used incorrectly and with limited regulations. Many people lost money and got hurt by taking on investments that they didn’t fully understand. Because of the stigma and reputation of its past, premium financing remains out of the mainstream conversation for many.

Fast forward to today, where the pendulum has swung far in the opposite direction and premium financing is now under strict regulation. The National Association of Insurance Commissioners passed Actuarial Guideline 49 in mid-2015 to protect consumers from misleading illustrations by limiting the growth rate and by limiting the policy design options that advisors are able to use in marketing to their clients. Also, all carriers now require the insured to have skin in the game by posting collateral and/or paying interest on the loans.

With stronger protections in place, the benefits that make financing life insurance special are much more attractive: the guarantees and the flexibility and optionality of the design, both from the onset as well as throughout the life of the policy. Because of these guarantees, financing life insurance can be a lower risk strategy to compound your wealth. That’s why the fastest-growing segment for premium financing is high earners in their 30s–50s. Rather than purchasing insurance for a death benefit, investors are looking to maximize their investment growth and increase their wealth to establish a future tax-free income stream in retirement. With interest rates near all-time lows, the benefits of using debt in a thoughtful way have never been greater.

But, as with any investment strategy, premium financing has additional risks not present when purchasing a policy without financing, such as having enough liquidity to post collateral, interest rate risk, and market risk. Financed life insurance should be considered for someone who has a need for a large-premium life insurance policy or is interested in compounding their wealth. Specifically, for business owners, financing should be considered as a smarter way to protect their company with a buy/sell agreement or key-person policy while keeping more cash available for other ventures within their business. If the business is a C-corp, there are even greater strategies to amplify the benefits. Given the nature of premium financing, it’s recommended that you consult your professional tax and legal advisors before purchasing a financed policy.

In my role as a financial advisor at Morton Capital, I collaborate with our internal financial planning team as well as outside insurance professionals to review and evaluate our clients’ life insurance policies. Although we don’t get paid for selling insurance, reviews are an integral part of ensuring our clients have the appropriate risk coverage and are taking advantage of investment opportunities when they align with their goals and risk tolerance.

 

Disclosures:

This information is presented for educational purposes only, and should not be treated as tax, legal or financial advice. This information should not be taken as a representation that the strategies described are suitable or appropriate for any person. All investments involve risk, including the loss of capital. You should consult with your insurance professional to thoroughly review all information and consider all ramifications before making any decisions regarding your insurance coverage.

 

 

MC Stories – 4 days, 450 miles in a 4-wheeler

How often do we get the chance to really get away from it all and unplug? With the stresses of modern-day life—raising two children, my wife, Jen, and I working full-time—I was looking forward to a “guys trip.” Now, mind you, this was not with my friends but rather an L.A.-based group called Wilderness Collective, which runs UTV and motorbike trips in the western United States. I had been thinking about doing one of their adventures for the past two years but the timing never seemed to work out. However, in early August, I decided that it was time to get out and make it happen.

I was fortunate to be able to spend four days over Labor Day weekend traveling from St. George, Utah, through the Northern Arizona desert to the North Rim of the Grand Canyon in my own UTV four-wheeler. I traveled in a caravan of 14 guests, accompanied by four guides, a cook and a photographer.

 

In reflecting upon my adventure, I was able to take away a few key points that can apply to my role as a wealth advisor.

1. Communication is key. Imagine being alone in the desert for seven hours without a way to communicate with your guide. This is what happened to me on that Saturday. How, you ask? For the prior two days, we were using a “flagging” system where, if the lead guide came to a fork in the road, he would pull over and have the next driver stay and direct traffic in the proper direction. Given the speed at which we were driving (oftentimes 60–70 mph), the distance between vehicles (sometimes hundreds of yards due to the dust or other factors) and the length of our entire caravan, it wasn’t uncommon for the total distance from beginning to end to be 5–10 miles long. Additionally, we had a large truck hauling our food, camping supplies and extra gasoline, among other things, that was oftentimes 20–30 minutes behind. The truck was always the “sweeper,” meaning anyone who acted as a flagger was to remain in position until the truck got to you and that was the signal to move out.

We left camp early on Saturday morning, and after a few miles of winding turns in the pine forest, we reached a fork in the road and the guide positioned me as the flagger. Over the course of the next 15–20 minutes, I performed my duty as four-wheelers passed me, pointing them in the direction ahead along the dirt road. Another 10–15 minutes passed and I began to wonder, Where is the truck? Eventually, it became clear to me that they had left me.

Later, I found out our lead guide had instructed another guide to act as a sweeper instead of the truck. The new sweeper waived as he went by, assuming this was enough for me to follow him. I was still thinking about what the lead guide had said on the first day, which was DO NOT LEAVE YOUR POSITION UNTIL THE SWEEPER RELIEVES YOU. When changes occur, it’s critical that all parties know what the change is.

As you know, we work in teams at Morton Capital to ensure the highest level of client service. To this end, each advisory team meets weekly to thoroughly address all client matters. These recurring weekly meetings are supplemented by morning huddles (brief meetings) throughout the week to address the most pertinent issues of the day so we all know when changes occur.

We are also passionate about proactive communication with your other trusted advisors, like your CPA, insurance advisor and estate attorney.

During the pandemic, we enhanced our communications with our clients even further, all with the purpose of staying connected so you knew we were on top of your finances. Our outreach included robust video content and webinars that covered everything from the economy to investor behavior. Additionally, we created articles and content for social media via platforms like LinkedIn, Facebook and Instagram.

2. Don’t make a bad situation worse. It was about 12:00 or 1:00 pm—the sun was directly overhead and the desert was cooking. I’d been alone for probably two hours and I was getting antsy. I thought to myself, Ok, I can catch up to them. I had a general sense of the direction they were going, and it was just me, so I could go faster than the caravan.I took off down the mountain covered in pine trees, screaming around corners and straightaways for about 10 miles. I hit a T-junction and saw the vast terrain of open desert in front of me. I could see for about 100 miles to my left, 100 miles to my right and 100 miles in front of me—truly like something out of a movie. My caravan was nowhere in sight, so I’d be speculating by picking a direction to try and find them.

Oftentimes, when things don’t go our way, we can feel like we have to “do something.” In this case, I had to evaluate the risks of staying put (playing defense) versus going on the offensive. I decided the smart thing to do was to go back to my original position where I had shade and water and wait it out. I knew the terrain better and it was my best chance of the guide knowing where I was. Also, given that we had experienced four flat tires up until that point and my rig was not outfitted with a spare tire or the necessary tools, it seemed too risky for me to wander off into the desert alone with limited water. In the case of my adventure, access to shade and water were my most basic needs and the most important drivers of my decision.

Markets and investments don’t always go as planned. Our natural inclination might be to sell when asset prices fall. While it might feel good in the moment to “do something,” more often than not, these knee-jerk reactions work against us in the long run.

Focusing on risk management ahead of time and properly evaluating both the upside and downside of a given action or investment is critical. Additionally, focusing on the basics when things get complicated can help. This is why we are so passionate about cash flow in our investments. At the end of the day, we can’t control the price a buyer will give us for an investment but if we focus on the basics of cash flow, that is a universal sign of health and stability in any environment.

3. Always have a backup plan or safety net. At the beginning of our trip, our guide had given us a small black pouch and in it was a device with an SOS button. It was only to be used in extreme emergencies. If you hit the SOS button, it would activate local first responders and they would send in the helicopter to find you. Knowing I had that in my tool chest should I need it gave me the comfort to sit tight.Ultimately, I waited it out and one of the guides returned around 5:00 pm. We raced through the desert for the next few hours as the sun set, trying to cover as much ground as possible before night fell. By around 10:00 pm, we made it to camp just in time for roasted herb chicken with a side of fresh dill potato salad. I sat around the campfire with the guys as they teased me for getting “lost.” It was all in good fun.

As we have added financial planning as a core element of our services. When developing our clients’ cash flow plan, we stress-test the plan for a variety of factors like down markets, long-term healthcare events and lower returns to ensure we have a backup plan in place so you are in the best position possible to adapt to most any circumstance.

Knowing ahead of time that your financial plan can withstand these difficult situations helps to calm the natural anxiety you experience when confronted with a situation beyond your direct control.

How often does someone get to spend the night 50 feet from the edge of the Grand Canyon? Or gaze up at the Milky Way galaxy with no light pollution and see the night sky with an unblemished view? Or watch the sun come up over the North Rim? Life is short. We are a culture of information overload, flooded with constant information on a daily basis about politics, our economy, the civil unrest our nation is currently experiencing, the pandemic, etc. Having four days away from emails, text messages and phone calls was really good for my soul and allowed me to be grateful for the career I have, the clients I serve and the talented people I am blessed to work with on a daily basis, all contributing to our mission of helping our clients get the most life out of their wealth. It also made me eager to get back to Jen and the kids and, yes, to take a shower 🙂