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 🙂

MC Stories – Out of the Mouth of Babes

When I became a mom, I always thought I would be teaching my kids things, not the other way around, especially when it comes to what I do for a living. But as they say—out of the mouth of babes. . . .

One morning recently, I was anxious to take the kids to my parents’ house to go swimming. We’ve been isolating inside like the rest of the world due to the current pandemic, but have been fortunate enough to be able to keep my family in our “bubble.”

My husband and I have three beautiful girls: Dilynn (4), Nora (2), and Harlowe (10 mos). Dilynn is my most tenacious. As we were putting on our shoes to leave, she asked if she could go pack her backpack. Knowing she would put up a fight if I said no, I told her to go pack it quickly.

After a minute or two, Dilynn hadn’t returned. I found her in her room just looking around. Somewhat annoyed, I told her to just grab Puppy (her favorite stuffed animal) and Cozy (her favorite blanket). She pushed back (did I mention her tenacity?) and said she always brings Puppy and Cozy and that she needed to pack other things. She then asked me, “Mom, where are we going? I need to know if I should pack my mittens or a bathing suit.”

That question, out of the mouth of my four-year-old daughter, really made clear just how important it is to know your destination before you pack. Similarly, as advisors, our clients’ life goals—their destination—are so important for us to know before we can create their portfolio allocation. We probably all remember our favorite stuffed animal or special blanket/comfort item, which is, as Dilynn pointed out, an essential item we always pack. Similarly, certain assets like stocks and bonds are essential parts of every portfolio. However, at Morton Capital, we believe that diversification beyond those two asset classes is crucial when trying to mitigate risk and customize our strategy to help clients achieve success. How we choose which additional investments to add to the portfolio is guided by the client’s goals/destination. We need to know if a client needs mittens (maybe that is something that provides more long-term appreciation) or if they need a bathing suit (maybe that is something with less liquidity risk that provides monthly cash flow).

Furthermore, when I first found Dilynn in her room, she wasn’t just stuffing things in her bag. She was looking around. She was taking inventory. To be able to pack for your destination, you have to know what you have first (and what you might be missing). As advisors, we feel this “taking inventory” step, what we call data gathering, is the most important part of the process when it comes to creating a dynamic financial plan that gives our clients control over their long-term financial decisions. Thus, we spend a significant amount of time on data gathering, asking for a breakdown of expenses (such as how much you spend on dining out vs. groceries), mortgage statements, bank statements, insurance policies, and tax returns. Many of our clients assume that providing us with broad income and expense numbers will give us sufficient information to produce an accurate plan, or one that is “close enough.” However, this could mean that you might end up packing a bathing suit when what you really need is a pair of mittens, or, worse, packing half a bathing suit and one mitten (i.e., close but not enough).

It is easy to get stuck in the rhythm of our day-to-day routine. I talk to clients all the time about what we do and why we do it. However, this particular morning with Dilynn really made our process and the reasons behind it more tangible for me. I can’t wait to see what she teaches me next.

MC Stories – An Advisor’s Annotated Book Stack

 

I like to read historical literary texts as well as their inventive modern reinterpretations.  Both sets pose questions that don’t go out of style:  Who are we as a society?  What do we value?  What should we teach our children?  How do we know what we know?  My book stack offers a few examples…

With Infinity in the Palm of Her Handauthor Gioconda Belli takes a line from a William Blake poem and reimagines the conversations of Eve and Adam and the Serpent in the Garden of Eden.  Eve, and Adam to a lesser degree, ask the questions that we moderns might also wish to pose.

 

            Eve:  “What is there beyond this garden; why are we here?”

            Serpent:  “Why do you want to know?  You have everything you need.”

            Eve:  “Why would I not want to know?  What does it matter if I know?”

 

            Eve:  “It seems that you want me to eat this fruit.”

            Serpent:  “No.  I merely envy the fact that you have the option of choosing.  If you eat the fruit, you and Adam will be free, like Elokim.”

            Eve:  “Which would you choose?  Knowledge or eternity?”

            Serpent:  “I am a serpent.  The Serpent.  I told you that I do not have the option to choose.”

 

Homer’s The Iliad and The Odyssey are among the first origin stories of Western Civilization.  In The OdysseyOdysseus (like Eve, above) gets a shot at Eternity — but only if he marries the goddess Calypso.  Instead, Odysseus chooses finite life on his own terms, reuniting with his wife Penelope.  My copy of The Iliad is a signed first edition of the Robert Fitzgerald translation, a college gift that set me on a lifetime course of inquiry. Together the two books pose grand (and small) questions about how we should live.  The texts’ richness in language and allegory has been the source of new literature for almost three thousand years.  Each generation reinterprets the original.  Four hundred years or so after Homer, Aeschylus wrote The Oresteia, performed in Athenian amphitheaters.  A hundred years ago, an Egyptian-Greek poet, C.P. Cavafy, penned a short piece called Ithaca.

More recently, a classics professor at Bard College, Daniel Mendelsohn, wrote An Odyssey.  His aging father audited Mendelsohn’s class on The Odyssey, and this book becomes a meditation on what these historic texts mean to college students with brief life experience, juxtaposed with the meaning for someone who has lived a very long life.  The elder Mendelsohn audited the class in anticipation of joining his son on a Mediterranean cruise that would track the voyage of Odysseus.  An important part of Homer’s Odyssey is a son taking a journey to search for a father he doesn’t know; in Mendelsohn’s Odysseyit, too, is the search by a son for a father, this time a psychological and emotional expedition.

When my older daughter was a sophomore in college, she invited me to audit a class with her; the course combined architecture with gender studies.  Following a conversation with the professor, and germane to the syllabus, I wound up giving a lecture on “advice texts through history”.  In addition to the first four chapters of Homer’s Odyssey, other assigned reading included Discourse to Lady Lavinia His Daughter.  Here, a nobleman during the Italian Renaissance, Annibal Guasco, prepared his 11-year-old daughter to be a Lady-in-Waiting in the Court of Savoy, and as a gift, wrote the Discourse for her.  At such a young age, she required a crash course on decorum.  These are two examples offered by Guasco to Lavinia:

  • On the subject of talking badly about others behind their backs,“…Guard against this, for not only would it be unworthy of your noble rank, but the very earth would repeat it [even] if men remained silent.”
  • On the general topic of being thoughtful in one’s speech,“…Learn well how to control your tongue, considering that Nature enclosed it mysteriously within the lips and the teeth, as if behind two doors, to [hold back certain thoughts] with our teeth, even if they had got as far as the tip of our tongue, and then restrain them with our lips, if they had escaped the confines of our teeth.”

Guasco gave Lavinia advice in many areas of daily life, and among them, this:  “…it is very true that no greater happiness is attainable in this world than through intellectual achievement.”  In the year 1585, this was quite a bright light from a father to a daughter.

The Swerve – How the World Became Modern is a story that begins in the early Italian Renaissance, in 1417, with the discovery of an ancient text written by the Roman poet Lucretius, a follower of the Greek philosopher Epicurus.  (First, though, to set the record straight:  to be an “Epicure” is not to be a pleasure seeker in a hedonistic way; Epicurus placed greater emphasis on the avoidance of pain rather than the pursuit of pleasure, with more focus on intellectual pleasure, as it is the longer lasting one.)  In 1417, scholars knew of Lucretius, but his work had been lost to history for over 1,000 years – until an Italian manuscript hunter (yes, a real job) found a copy of “De Rerum Natura” (“On The Nature of Things”) tucked away in a German monastery.  The ideas contained within “On the Nature of Things” were shocking.  Though written before the birth of Christ, the text was heretical to the Catholic Church.  Contained in the most beautiful Latin verse were the ideas that all physical matter is made up of an infinite number of very small particles called “atoms”; there are different types of atoms, though the types are limited in number.  These atoms move in eternal motion, randomly colliding and swerving in new directions.  In this world of Lucretius, there are particles and voids – and nothing else.  Once brought back to Florence, the manuscript was treated as a secret document, and very few people were allowed to see it.  Scholars and artists learned about the ideas within “On the Nature of Things”, but to write about it would risk a Church accusation of heresy.  Painters, though, caught a break; they could paint the ideas of Lucretius onto the canvas, but they had, to use a modern term, “plausible deniability” when confronted by the Church. (“No, Monsignor, that creature is not from an early species that evolved into humans.  It is a chthonic beast from Greek mythology.”)

The Order of Time by the Italian theoretical physicist Carlo Rovelli shakes up what we know about the nature of time.  Rovelli is a lyrical writer, so the book is both a joy to read and a challenge, as our perceptions of time are challenged by him.  He tears down our assumptions about time, revealing a universe, where at the most fundamental level, time disappears.  Flipping through the pages just now, I see that I am going to have to re-read it.

Last, but not least, is the classic and definitive book on investment bubbles.  Written in 1841, Extraordinary Popular Delusions and the Madness of Crowds covers Tulip-mania, the South Sea Bubble, and John Law’s Mississippi Scheme.  There are, unquestionably, lessons to be learned from this book about today’s financial world — particularly regarding the Fed’s current money-printing regime, as well as the understanding that people will, and do, pay crazy amounts of money for items of fleeting worth.  Popular Delusions shows how the bubbles build.  From a distance of two centuries and more, foolishness seems obvious.  When we are living in it, though, it takes focus to keep questioning commonly-held beliefs, asking ourselves over and over, “How do we know what we know, and from there, which actions should we take?”

Next time:  “What’s the deal with all those record albums in the picture?!”

Bruce Tyson

 

MC Stories – Poker Play – Optimizing your investment approach

I am fascinated by the markets and all things related to investing. I have always enjoyed solving puzzles and various brainteasers. I enjoy deep-thinking games and activities that involve a constant change of information. One of my favorite games to play is poker. I love the game for the challenge it presents—playing the cards, playing the people, playing the odds—all while not letting emotions get the best of you.

With each round of betting, new information is learned and a new decision tree is spawned. Each hand delivers a range of potential outcomes and, depending on how you play the hand, you can either end up adding chips to your stack or biding your time for a better opportunity. Poker is a game of skill; however, even the best, most disciplined players will not win every time because there is a level of uncertainty with each hand played. Despite that uncertainty in the short term, over the long term the right strategy combined with a disciplined approach often becomes a winning strategy.

In this way, poker is very similar to investing. Having the right investment strategy and staying disciplined often leads to long-term success. In poker, you combine various cards of different suits and numbers to create the best hand. With investing, your “hand” is a diversified portfolio and it contains a combination of various asset classes (stocks, bonds, real estate, etc.). When investing (just like in poker), some combinations are better than others, based on the specific goal. Depending on what type of poker you are playing, sometimes the best hand wins and other times, technically speaking, the worst hand wins (Razz and 2-7 Triple Draw, for instance). Similarly, when it comes to investing, if you do not know the objective or the goal, then it is often difficult to know which “hand” of assets will give you the best chance to achieve the outcome you are seeking.

To have long-term success in poker or investing you must have a disciplined approach. Oftentimes people believe poker to be a game of excitement and thrills; however, those who play poker professionally are affectionately referred to as “grinders” for spending long hours playing through the monotony of poker, hand after hand, in order to make a living. When people think of investing, they conjure images of day traders or getting rich overnight, but, when done correctly, investing is boring. As the renowned investor George Soros once quipped, “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” Whether playing poker or investing, making educated decisions based on the information available as well as the probabilities related to historical outcomes is necessary to consistently make decisions with confidence.

In the short term, it is difficult, if not impossible, to consistently predict the outcome. For instance, during a single day, the markets will either be positive or negative, and in poker you can do everything right, with the odds in your favor, and still end up losing a hand. If this continually happens, without a plan or a strategy, it can be frustrating and can sometimes lead to poor decisions driven by emotions. In poker, a player making emotional decisions no longer based on strategy is considered to be playing “on tilt,” whereas an investor making emotional decisions is often acting out of fear—fear of losing in a market downturn or fear of missing out (FOMO) during a market rally. Regardless of the activity, poker or investing, emotional decisions typically lead to poor decisions with unpredictable outcomes.

The goal then is to be aware of these emotions so when they appear you can objectively evaluate your decisions to determine whether the correct action is being taken. How do you do this? In poker, you can work with a coach to evaluate your play and review how you played during specific situations to ensure you are always playing with the optimal strategy. In investing, you can work with an advisor to create a financial plan based on your specific goals to determine your appropriate long-term strategy. Either way, having an independent third party can be a valuable resource to keep you on track.

Uncertainty can be challenging, but it can also create opportunities. Remember this the next time you get together for your monthly poker game or are analyzing your investments. In order to capitalize on an opportunity, you must first identify the goal. Then, with the goal in mind, you can create and implement the correct strategy. That will allow you to stay disciplined and consistently take the appropriate actions. And then, when emotions come into play (and they always will), to improve your chances for long-term success, have a system or person in place to help with decisions to counteract those emotions. Do this consistently and over time you will find success at the tables and in your portfolio.

 

MC Stories – The Technology Age — The Good, the Bad, and a Little Gen Z

Do you remember the time before cell phones, computers, or even televisions?

The generation who might answer “no” to this question, Generation Z, categorized as those born between the years of 1997 and 2015, is also known as the “Smartphone Generation.” According to a 2018 Pew Research Center survey, 95% of 13- to 17-year-olds have access to a smartphone, and a similar share (97%) use at least one of seven major online platforms.1 Teens surveyed have different opinions on whether social media has had a positive or negative effect on their generation. On a macroscale we are learning quickly to deal with the good and bad that is coming from this new Technology Age.

The Good

Staying connected to family and friends is easier than ever. One major cause for the positive impact is that the technologies traditionally used for business purposes, like videoconferencing and screen sharing, are now being brought into the home for personal use. For example, family meetings over Zoom are the new Sunday dinner meetup and grandparents or parents of Generation Z now celebrate birthday parties, baby showers, and graduations virtually. While in-person is preferred, most are happy they can enjoy each other and still maintain safety guidelines during the current pandemic.

Generation Z can also weigh in on the political conversations happening in this crucial election year on platforms such as Twitter and TikTok, even if they are not old enough to vote. Empowering youth to take an active role in their future is the result of independence and resources not afforded to previous generations. Activism is not unique to Gen Z, but this younger generation is sharing opinions of each other at a rapid pace that is affecting their self-worth.

The Bad

The more time teens spend looking at screens, the more likely they are to report symptoms of depression.2 The current circumstances of 2020 may lead you to believe that there is nothing occurring to feel left out of—but not so fast: FOMO, or fear of missing out, still runs rampant due to platforms like Facebook and Instagram, which show us a skewed view of the world and other people’s lives. Young adults who are looking for ways to monetize themselves and make cash fast are using technology to invest more easily which could have a good return or very bad returns depending on the market environment.

New online trading platforms such as Robinhood reported an increase in new accounts, spurred mostly by new investors who saw the market downturn in March of 2020 as an opportunity to start investing. Traditionally, financial professionals who trade stocks are required to pass an exam to obtain their securities license and are regularly monitored according to industry regulations. Millennials and Generation Z, while not as experienced in the investing space, still felt confident buying familiar big name tech stocks.3 If investors employ a buy-and-hold strategy, they may come out successful; but if individuals are allocating mortgage payments or student loan debt to a risky portfolio, they are in for a roller-coaster ride—emotionally and financially.

Generation Z

The Smartphone Generation may be young but they are mighty. They are coming of age during a volatile economy and an unprecedented technology age. The percentage of teens that reported they are online “almost constantly” virtually doubled in 2018 from a couple of years prior. This data makes them prime targets for online advertising and social media campaigns. With the access and speed currently available to this generation, the need to be a prudent investor is even more important. For the parents and other adults affected by this plugged-in generation (i.e., All of Us), it would be advantageous to learn the habits of this new generation and listen to their viewpoints, which are just as bold as past generations but reach much further. Making a wave is much easier with a touch of your smartphone and we are all now finding ourselves in the splash zone.

 

 

1 https://www.pewresearch.org/internet/2018/05/31/teens-social-media-technology-2018/

2 https://www.pewsocialtrends.org/essay/on-the-cusp-of-adulthood-and-facing-an-uncertain-future-what-we-know-about-gen-z-so-far/

3 https://www.cnbc.com/2020/05/12/young-investors-pile-into-stocks-seeing-generational-buying-moment-instead-of-risk.html

How Business Owners Can Find Opportunity in Chaos

While 2020 may seem like a difficult time to be a business owner, there are hidden opportunities to grow in the chaos, especially if you think of opportunity as the ability to make positive changes in your business regardless of what’s going on around you. Below are five things that every business owner should consider in this environment to capitalize on potential opportunities for growth.

Click here to read the full article.

Author:
Wade Calvert, Morton Capital, Wealth Advisor & Partner

Leadership in a New Workplace

As businesses prepare for a return to work in the coming month, one of the most important questions that every leader must be ready to address is: How do we operate differently to ensure that our people are still engaged and motivated? Beyond questions surrounding how to resume regular operations, we must first consider how we’ll successfully lead our teams through the drastic changes in their work environment.

Click here to read the full article.

Author:
Dan Charoenrath, Morton Capital, Direct of Operations