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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.

Mid-Quarter Newsletter – March 2021

Congrats to the MC Team!

For the third consecutive year, and ranking #2 on the 2021 list, we feel incredibly honored to be recognized on the prestigious annual Best Places to Work for Financial Advisors list by InvestmentNews.

Each year, InvestmentNews recognizes standout employers in the financial advice industry. These firms, ranging from small practices with fewer than 20 people to large companies with over 700, go beyond offering attractive benefits and perks and create work atmospheres that empower their employees with the skills and confidence necessary to deliver the best possible investment and financial planning guidance to clients.

We are SO PROUD of each and every one of our team members for helping us earn this distinction. Without them, this would never be possible.

Click here to read the full article and explore the list.

 

Revisiting Your Savings Strategy

With many service industries shuttered due to quarantine measures—not to mention the seemingly never-ending stay-at-home orders—the opportunity for spending money has significantly decreased over the last year (though the at-home-entertainment budget might have increased). According to the U.S. Bureau of Economic Analysis, the result has been a record-high savings rate for households with disposable income: the personal savings rate hit 32.2% in April 2020, breaking the previous record of 17.3% in May 1975 (FactSet). Since having fewer opportunities to spend may continue to be the case until the vaccine is fully rolled out, now is a great time to revisit your current savings strategies, especially when it comes to emergency fund savings, retirement savings, and paying down debt.

Read more

 

Untold Truths of Acting in Your Clients’ Best Interest – Interview With Our CIO, Meghan Pinchuk

Our Chief Operating Officer, Stacey McKinnon, recently sat down with Meghan Pinchuk, our Chief Investment Officer, to talk about “Untold Truth # 5 – Don’t just invest with the herd” from Stacey’s industry white paper and why Morton Capital feels investing in asset classes outside of stocks and bonds helps protect our clients.

These types of investments come in all different shapes and sizes and in this interview, Meghan shares how we execute our alternative investment philosophy, including how we source and structure our investments.

They also talk about why it was important for Meghan to build a resilient enterprise when she took over running the firm with Jeff Sarti in 2013, her love for learning, and how the most successful clients are generally engaged, humble, and open-minded.

Click here to read Stacey’s industry white paper on the “Untold Truths of Acting in Your Clients’ Best Interest.”

View more of Stacey’s interviews from the Untold Truths series featuring industry experts such as Michael Kites, Chief Financial Planning Nerd at Kitces.com, and Philip Palaveev, CEO of The Ensemble Practice, LLC, here.

Watch the interview here.

 

The Madness of Crowds

In 1841, Charles Mackay, a Scottish journalist and author, published his study of crowd psychology, called Extraordinary Popular Delusions and the Madness of Crowds. In the first volume of his study, he examined economic mass manias, notably the tulip mania in Holland in the 1630s. Due to a bull market in tulip bulbs, many in Holland abandoned their businesses to grow tulips, trade them, or become tulip brokers. Even banks got involved and started accepting tulips as collateral, thus fueling the speculative bubble. Not long after, the mania collapsed in waves of panic selling, leaving many people financially ruined and shocking the Dutch economy.

Throughout history, there have been many examples of similar mass manias driven by crowd behavior, even in spheres beyond the financial markets. However, in today’s era, social media’s ability to quickly mobilize crowds for a single purpose has introduced a new level of risk. When joining crowds, individuals tend to develop a herd-like mentality. Regardless of their character, intelligence, and education, once in a group, individuals get swept up in the collective mind and may engage in riskier behavior than they otherwise might have on their own.

One recent example of this type of behavior was the price manipulation in GameStop stock earlier this year. This price manipulation was initiated by the r/WallStreetBets Reddit forum, which has over 9 million subscribers and is known for its aggressive trading strategies. In this instance, the crowd had decided that by buying GameStop stock, they would somehow be able to redistribute gains from hedge funds that had profited from betting against the struggling video game retailer into the hands of ordinary people. The power of the crowd caused the price of shares to shoot up by nearly 2,500% in the month of January, at one point trading at a volume nearly twice that of Apple. [1]

What happened with GameStop clearly shows the extent to which the financial markets are susceptible to the mobilization of investment crowds. And while a large group of people can indeed wield enough power to move markets, without investment fundamentals or appropriate risk management backing amateur investors’ moves, their gambling behavior may result in devastating consequences, just as it did during tulip mania nearly 400 years ago.

[1] Yahoo Finance

 

Welcome Lauren and Mollie

Lauren Salas
Private Investments Administrator

Lauren joined Morton Capital in June 2020 as a Private Investments Administrator. Previously, she worked as the Business Operations Coordinator for eight branches of an HVAC distributor in the Northern California region. She graduated from New Mexico State University with a Bachelor of Business Administration in marketing and managerial leadership. She is currently studying for the Series 65 exam. In her free time, Lauren enjoys going to the beach, camping, and traveling.

 

Mollie Privett
Client Service Associate, CFP®

Mollie joined Morton Capital in July 2020 as a Client Service Administrator before moving into a Client Service Associate role on the advisory team. Mollie graduated magna cum laude with a bachelor’s degree in business management from California State University, Long Beach, in 2017. Throughout her roles at prior companies as a Financial Representative and Client Service Specialist, she earned her life, health and disability insurance license, Series 6 license, Series 63 license, and her CERTIFIED FINANCIAL PLANNER™ certification. She is extremely passionate about helping others, solving problems, and communicating effectively. Outside of work, Mollie loves spending time with her family and friends, going to the beach, writing poetry, cooking plant-based meals, and being in nature.

 

MC Team Fitness Challenge For Safe Passage Youth Foundation

Making a healthy impact and supporting the community continue to be main focuses of ours. At the beginning of January, we kicked off our “Get Moving” initiative where our entire team participated in a fitness challenge to raise money for Safe Passage Youth Foundation, a local organization that provides daily nutrition and emergency COVID relief to hundreds of children (grades K-12) and their families. For every workout or outdoor activity each team member completed, MC made a donation to Safe Passage. In all, our team completed over 700 workouts and raised over $3,500. We are grateful for the opportunity to be a part of this wonderful cause in our local community.

Learn more about Safe Passage here.

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.

Introducing Brian Mann, Wealth Advisor

What moments in your career have given you the most satisfaction and fulfillment?

In 2009, at the Otay Mesa Detention Center thirty minutes east of San Diego, and just a mile and a half from the U.S.–Mexico border, I met my 20-year-old client for the first time. I had recently finished law school and was working for a nonprofit representing asylum seekers, most of whom were from Eastern Africa. He arrived in the U.S. seeking asylum from Somalia, his entire family victims of ethnic cleansing outside Mogadishu. He was shot in the stomach, slashed across the face, and left for dead the day he decided to flee. He was one of the lucky ones. The virtually nonexistent medical care at the detention center left him dying from infection, our translator, Omar, and I his only advocates. After somehow surviving his trip halfway around the world with a bullet in his abdomen, he miraculously survived. Those two enormous hurdles cleared, it was now my responsibility to prove in a U.S. immigration court that he would be killed if he were forcibly returned to Somalia.

Eight years later, I was in another hospital room, this time at Methodist Hospital in Arcadia, CA, and under very different circumstances. My client, 61, had recently suffered a massive stroke, leaving him capable of little more than eye movements and the slightest facial expressions. In this state, he was soon to inevitably leave behind an adorably loving and utterly terrified wife and two young adult sons. I began working intently with the couple about two years prior as their financial advisor. Their goal was to simplify their chaotic estate and finances so they could return their full attention to their local Los Angeles medical practice and Doctors Without Borders work in South America. I don’t think it’s a stretch to say the three of us spent 15 hours together those first two years. We’d become close, and I was the only non-family member allowed in the hospital during this time.

I have walked two very different paths in my career, but both have intimately shown me elation and despair. At the time, I questioned if I should have even been in the hospital rooms alongside my clients. These moments were filled with pain and worry, and I felt helpless in them. But sometimes it’s in the hardest moments where we find purpose and fulfillment.

My client from Somalia was granted asylum. Eleven years later, he regularly writes and sends me pictures of his wife and children, braving still unfamiliar Minnesota winters and taking every opportunity to remind me of our connection and his gratitude. Even after my client passed away at Methodist, his wife continued her frequent trips to the office. After months and months of work, their financial matters were finally buttoned up shortly before he fell ill, so her visits were not to conduct any business. She calls and visits just to share about her charity work and family and to hear stories of my own young kids. “My husband knew I was going to be okay, and that’s because of you,” she still says to me.

When I reflect on what’s fulfilling and what’s satisfying about the work I’ve done, I think about each of them.

Quarterly Commentary – Q4 2020

Deus ex machina

One of the few, albeit minor, benefits to an epically challenging 2020 was when blockbuster movies started being released straight to our homes. For example, the new Wonder Woman 1984 appeared on HBO on Christmas Day, offering two hours and thirty-five minutes of escape from reality. We won’t rate the movie in this commentary, but (spoiler alert!) we will say that we were not fans of them bringing back Chris Pine’s deceased character using some silly gimmick in the plot.

This gimmick is also known as a deus ex machina, a Latin term that dates back to the dramas of ancient Greece and Rome. Merriam-Webster defines deus ex machina as a “person or thing that appears or is introduced suddenly and unexpectedly and provides a contrived solution to an apparently insoluble difficulty.” In other words, if you have a problem for which there is no solution, you simply change the rules to fix it. When this device is used in literature or media, it is often unsatisfying and uncomfortable for the audience. We may willingly suspend our belief to enjoy a new world with new rules (e.g., one with a superhuman Amazon running around with a truth lasso), but once the rules have been created for this new world, they should not keep changing every five minutes.

If it is frustrating when this happens in the movies, it is even more disconcerting when it happens in real life. In many ways, it feels like this phenomenon keeps appearing in the modern world of finance as fiscal and monetary authorities keep changing the rules by which the game is played. Some examples include interest rates being held at zero or negative levels or trillions of dollars/euros/yen being printed globally under new monetary theory that fiscal solvency is irrelevant. The extremes of 2020 only exacerbated these distortions of reality and it is tempting to shut your eyes to the manipulations and hope that our government really has found a way to defy the truths of finance. Hope, however, is not a sound strategy. Instead, we need to keep our eyes wide open to the imbalances and risks that exist in our world today. If those in charge keep changing the rules, then we need to be willing to find a different game.

 

Stocks continue defying the laws of gravity and common sense

Most probably would have guessed that a global pandemic would have been negative for the stock market. Not so! Fiscal stimulus, in conjunction with early and sweeping monetary stimulus by the Federal Reserve (Fed), created the easiest financial conditions on record and flooded the market with liquidity, driving stocks higher in 2020. The fourth quarter also saw the introduction of two high-efficacy COVID-19 vaccines by Pfizer and Moderna, as well as prospects for additional stimulus, which propelled risk assets to new heights by the close of the year.

So not only has the market recovered the steep losses first suffered when the extent of the pandemic became apparent in early 2020, but it has since surpassed pre-pandemic levels to a meaningful degree. This is in the face of declining earnings and a great deal of uncertainty about when and to what extent those earnings will recover. To be sure, there have been some “winners” that came out of 2020. The pandemic shock has been transformational for the economy, bifurcating it into “haves” and “have-nots.” This bifurcation has benefited the so called “stay-at-home” sectors of the market, in particular technology, while decimating other sectors such as retail, travel and entertainment. While some of these shifts may prove to be temporary, others will be permanent, and still others have accelerated longer-term trends that were already in place.

At the end of 2020, markets seemed to be pricing in a degree of optimism and certainty regarding the path forward that did not appear to reflect the underlying challenges facing the U.S. economy. In our opinion, uncertainty still remains elevated with respect to both the short-term path of the recovery as well as the long-term transformation of the post-pandemic economy. The discrepancy between stock performance and earnings in 2020 served to only further exacerbate stretched valuations. Also, it is important not to forget about the revolutionary amounts of debt it took to keep things afloat, which we believe will reverberate through future generations. Is this really an environment where it is logical for stocks to be making new all-time highs?

 

Investor speculation adds fuel to the fire

While massive government stimulus has been a major driver of the recovery in stocks, investor behavior has also played a key role. Historically, two main indicators that point to how investors are engaging in more speculative behavior are heightened margin levels and abundant initial public offerings (IPOs). Starting with margin, this is simply debt that brokerages extend to their account holders, using their existing securities as collateral. Past market peaks have tended to coincide with high levels of margin debt. This is not surprising as it is human nature to become greedy when stocks go up and borrow to buy even more stock. Toward the end of 2020, margin debt topped $700 billion, a new high and well above levels that have been seen since the dot-com bubble.

Also consistent with previous market pinnacles, private companies are going public at a heightened rate. As you can see in the chart below, 2020 has had many more IPOs than in recent history.

In a year of a global pandemic, where our economy collapsed in terms of output and we lost 20 million jobs in just a few months, does it make sense that the IPO market was robust? Perhaps it would have been more prudent for companies to take a breather and wait until there was more certainty surrounding their near-term futures. After all, look at the middle of the chart in 2008 and 2009, where IPO activity collapsed. This makes a lot more sense in an economic downturn. But not this time, because despite all the uncertainty, in 2020 investors have been eager to take a chance on pretty much any and all IPOs. It is irrelevant if these companies have earnings; in fact, looking at the numbers you would think it was discouraged since about 80% of these 2020 IPOs had negative earnings.

Far from caring about earnings, speculative investors have pushed these stocks higher, to the point where their valuations often reach ridiculous levels very quickly. An example of a recent IPO in this category is QuantumScape, an up-and-coming entrant into the electronic vehicle battery space. With Elon Musk and Tesla making headlines, this is obviously a very hot area of the market, so it is no wonder that this company attracted investor interest. But despite the company’s exciting potential, THEY HAVE YET TO SELL A SINGLE BATTERY. The technology, while very promising, is not yet proven. So what valuation did investors give this pre-revenue company? Nearly $50 billion. To put that in context, that market cap is roughly double the size of Panasonic, which is the battery maker for Tesla cars. Panasonic has a number of other business lines as well and has been around for decades, but the market likes shiny new toys in this speculative environment, so QuantumScape reached a height of $50 billion before getting slashed back down to a meager $20 billion.

Another hot 2020 IPO was Airbnb, the popular company that allows you to rent a home or apartment online. This was a company that got hit pretty hard with the pandemic and its revenue in 2020 was down a good amount from the year before. Also, on $2.5 billion of sales, it lost an impressive $700 million. This is a company that has never made a profit in a calendar year. Yet it was rewarded with a $100 billion valuation when it went public. To put that in perspective, Starbucks, a truly global brand and moneymaker, has a valuation of a little more than $100 billion. FedEx, a massive company that has done well during this pandemic, is worth about $70 billion. These types of IPO valuations are completely disconnected from reality and reflect a speculative fervor that has seized market participants, not dissimilar from the tech frenzy that gripped markets prior to the dot-com bubble bursting.

 

If you don’t like the rules, then change the game

Most investors need to make their investments work for them over the long term to meet their financial goals. Even for those who have large cushions built-in, it is still prudent to make sure that you can stay ahead of inflation, which we see as being a meaningful risk in the years ahead. So what is the solution when we are faced with an investment landscape that includes massive debt imbalances from government intervention and frenzied investor speculation? Though the situation with traditional markets seems dire, we are not intimidated and instead feel increasingly confident in our approach to portfolio management. Three key aspects to our approach include:

1) With traditional stocks, focus on what you can control.

While our target stock allocations are at their lowest in our firm’s history, this does not mean that we do not own any stocks. There are a number of reasons why stocks are a prudent part of a long-term portfolio, not the least of which is that if the Fed continues pumping money into the system, we could continue to see stocks benefit from asset price inflation. At the end of the day, we do not believe that this is a long-term recipe for success. But the proverbial end of the day could potentially be far off and, in the meantime, stocks can continue to benefit from the tremendous liquidity in the system. One key is making sure that stocks are at an appropriate level in the portfolio given their potential for meaningful volatility. Another key is making sure you maintain diversification and do not allow FOMO (fear of missing out) to push you to overweight the hottest, most overvalued tech stock in the market. Finally, while we cannot control market valuations and performance, there are some attributes of this investment that we can control: namely, fees and tax efficiency. If we access our stock allocations using vehicles with relatively low fees and high levels of tax efficiency, this can help maximize returns for the long run.

2) Take advantage of speculative behavior (safely) when you can.

While we have no interest in being swept up in the speculative fervor of negative-earning IPOs, that does not mean that there aren’t ways to profit from the space. An increasing number of companies are choosing to go public through the use of special purpose acquisition companies (SPACs). SPACs, also known as blank-check companies, are pools of capital raised by a sponsor, such as a well-known businessman or asset manager, with the goal of finding a company to take public. At the onset, a SPAC is funded entirely with Treasuries. The manager that Morton Capital utilizes in this space looks to take advantage of a structural inefficiency that allows investors to participate in the initial jump up in SPAC prices following the announcement of a deal without actually having to own the stock and assume the downside risk. Thus, investors can participate in some of the upside from these SPAC IPOs with the downside being the yield on Treasury bonds. Needless to say, there are quite a few moving parts to this strategy, as well as logistical requirements and minimum sizes. If you are interested in learning more, please contact your Morton Capital wealth advisor.

3) Lend on assets, not to zombies.

The more debt that piles up in the system, the riskier it is to loan money to companies that may be challenged when paying back that debt. The stock market is currently plagued with the highest level of zombie companies in its history (representing around 20% of the largest U.S. companies according to a late 2020 study by Bloomberg). A zombie company is defined as a company that generates insufficient earnings to pay its debt service and has to continually borrow to stay in business. Instead of lending to companies that need a constant supply of cheap debt to survive, our focus has been on making loans on tangible assets. This includes making private loans to companies that are cash-strapped but have real assets that can be sold if the company does not survive. It also includes making loans to borrowers on assets such as real estate, including mortgage loans in both the private and public markets. The key to any strong asset-based loan is how conservatively the manager values the collateral assets that back the loan and what type of cushion the manager leaves to account for any changing values over time. Another preference of ours is to invest in managers that make short- term loans for periods where there is better clarity around the values of the assets. In an environment where traditional bonds offer little reward with plenty of risk, finding managers with expertise in asset- based lending can add meaningful downside protection as well as opportunities for heightened cash flow.

We recognize that these are trying times with a great deal of uncertainty pervading all aspects of life. Instead of being intimidated by the uncertainty in financial markets, we hope that our clients feel empowered by our willingness to look beyond the traditional game, where the rules keep changing, and instead find investments with fundamentals that still make sense. If you have any questions about your portfolio or financial plan, please do not hesitate to reach out to your Morton Capital wealth advisor. As always, we appreciate your continued confidence and support.

Best Regards,

 

Disclosures

This commentary is mailed quarterly to our clients and friends and is for information purposes only. This document should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class, and should not be considered investment advice. This memorandum expresses the views of the author and are subject to change without notice. All information contained herein is current only as of the earlier of the date hereof and the date on which it is delivered by Morton Capital (MC) to the intended recipient, or such other date indicated with respect to specific information. Certain information contained herein is based on or derived from information provided by independent third-party sources. The author believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information. Any performance information contained herein is for illustrative purposes only.

Certain investment opportunities discussed herein may only be available to eligible clients. References to specific investments are for illustrative purposes only and should not be interpreted as recommendations to purchase/ sell such securities. This is not a representation that the investments described are suitable or appropriate for any person. It should not be assumed that MC will make investment recommendations in the future that are consistent with the views expressed herein. MC makes no representations as to the actual composition or performance of any security.

The indices referenced in this document are provided to allow for comparison to well-known and widely recognized asset classes and asset class categories. YTD returns shown are from 12-31-2019 through 12-31-2020 and Q4 returns are from 10-01-2020 through 12-31-2020. Index returns shown do not reflect the deduction of any fees or expenses. The volatility of the benchmarks may be materially different from the performance of MC. In addition, MC’s recommendations may differ significantly from the securities that comprise the benchmarks. Indices are unmanaged, and an investment cannot be made directly in an index.

Past performance is not indicative of future results. All investments involve risk including the loss of principal. Details on MC’s advisory services, fees and investment strategies, including a summary of risks surrounding the strategies, can be found in our Form ADV Part 2A. A copy may be obtained at www.adviserinfo.sec.gov.

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.

2020 Reflections | Year End Letter

NEW YEAR’S WISHES

As we look back over 2020, this year has turned out very differently than we expected at the start. As the world has slowed down to keep everyone safe, Morton Capital has continued its work to bring an essential service to our clients and community. As you’ll see from the highlights below, we are more dedicated than ever when it comes to our team and our clients. We would like to thank you for allowing us to continue to be part of your story, especially during such a challenging time.

 

MC TEAM AND GROWTH

In 2020, initiatives around hiring, team development, and firm growth continued to be a focus.

  • MC was named one of the Best Places to Work for Financial Advisors by Investment News for the second year in a row. This list highlights the top 75 firms nationwide in the financial advice industry.

  • We implemented our Employee Value Proposition, a commitment by MC and its team members to create an organization full of meaning and purpose and that champions our core values.
  • We launched our Mentor/Mentee program, which pairs team members across the firm to provide support and development around such skills as leadership, presentation skills, and written communication.
  • We held our first Core Values Awards, highlighting team members who exemplify each of our five core values.

  • This year, we began working more closely with Talia Jacqueline of Visceral Impact to help with team development and to teach us about the psychology of communication.
  • MC hired talented new people across several teams, including the advisory, compliance, client service and private investments teams. New hires included:
    • Brian Mann (Wealth Advisor), Mollie Privett (CFP®, Client Service Associate), Thao Truong (CFP®, Associate Wealth Advisor), Sherry Uchuion (Compliance Administrator), Jessica Hull (Client Service Administrator), Cameron Meek (Client Service Administrator), Trent Paddon (Client Service Administrator), Lauren Salas (Private Investments Administrator), and Judy Lee (Private Investments Administrator)
  • Across the firm, leaders met with team members to discuss individual, personalized career path timelines, for a total of 45 firm-wide.

  • Advancements through those career path timelines included:
    • Menachem Striks (Chief Compliance Officer), Sarah Ellis (Client Experience Manager), Dan Charoenrath (Director of Operations), Olivia Payne (Associate Wealth Advisor), Chris Wahl (Associate Wealth Advisor), Benjamin Markman (Trader), Elana Yaffe (Financial Planning Associate), Edward Garcia (Paraplanner), Patrick Garcia (Fund Relationship Manager), Moriah Bowles (Client Service Technical Specialist), Austin Overholt (Client Service Administrator), Kierstan Lewis (Private Investments Administrator)
  • We enhanced leadership development initiatives and the number of team retreats.
  • Two of our team members became new partners in the firm: Wealth Advisor Chris Galeski and Chief Compliance Officer Menachem Striks.
  • Through the hard work and dedication of our team, we were able to add 40 new client households to the MC community. We now manage over 1,000 client households and surpassed $2 billion in assets under management (AUM).
  • Three team members welcomed beautiful babies Aila (Chris Galeski), Anderson (Carly Powell), and Presley (Patrick Garcia) this year.

 

INVESTMENT RESEARCH, FINANCIAL PLANNING, AND WEALTH AND LEGACY PLANNING

We work diligently behind the scenes to source great investment opportunities for our clients. To give you a peek behind the curtain, this year:

  • Our investments team had over 180 calls on new potential investment opportunities.
  • Out of all the new strategies reviewed, we introduced 3 new strategies.
  • Our CIO, Meghan Pinchuk, and our investment research, private investments, and portfolio management teams collaborated on an “Investment Approach” video that highlights the core tenets of our investment philosophy.

Financial planning and wealth and legacy planning are key ingredients to helping our clients get the most life out of their wealth, and we continually work, year after year, to refine and expand our planning offerings. This year, we:

  • Introduced a five-month-long Paraplanner training program to provide a strong foundation for our Paraplanners, both those staying on the Financial Planning Team career path and for those moving along the advisory team career path.
  • Expanded our Financial Planning and Wealth and Legacy Planning Teams to five members.
  • Reviewed and completed over 250 financial plans.
  • Completed over 130 Wealth and Legacy Planning meetings with Wealth Planner Brian Standing.
  • Held 48 education sessions for our team members around estate planning, insurance, tax strategies, and retirement planning.

 

MC IN THE COMMUNITY

Earlier this year, as a result of a company-wide innovation tournament, we formed an internal committee dedicated to pursuing charitable initiatives in the community. Our team members at MC feel passionately about giving back to the community, not just financially but also with our time and energy. Here are a few of our 2020 charitable initiatives:

  • Community Give Back – We were able to help 22 individuals/families with complimentary financial planning advice at a time when many are having to make extremely hard financial decisions.
  • Get Moving Fitness Challenge – In November, we chose Feeding America as the recipient of our first-ever fitness challenge for charity. Every time a team member exercised for 30 minutes, MC donated $5. We are excited to report that our team members were active 532 times, logging more than 250 hours and raising $2,660!
  • Holiday care packages – In December, we collected non-perishables, toiletries, and other supplies to send to the military overseas. We were able to send over 150 holiday care packages this year.

 

INDUSTRY RECOGNITION, ENHANCEMENT, AND EDUCATION

 Education is incredibly important to us at MC, as is enhancing our offering through technology and marketing initiatives. We are also pleased to share below how our firm and team members are making an impact in the financial services industry.

  • Virtual conferences:
    • COO Stacey McKinnon’s “Good to Great” presentation at Bob Veres’s virtual 2020 Insider’s Forum
  • In addition to being featured on industry forums and at conferences, MC hosted our own live webinars for the first time this year.
    • CEO Jeff Sarti and CIO Meghan Pinchuk presented market review webinars over the past four quarters.
    • Our advisory team hosted our six-part “Staying Connected During COVID-19 webinar series.
  • We launched MC’s social media presence, writing hundreds of posts over the course of this year, including advisor-written articles, our This Is Wealth series, and book stack posts of what our team has been reading.

  • To support our increased use of home offices and virtual client meetings, we expanded our technology infrastructure to include Zoom’s cloud-based phone service and the appointment scheduling software Calendly.
  • We updated our reporting process to shift to more on-demand access of portfolio performance through our online client portals rather than traditional quarterly performance reviews.
  • In February, we closed out our popular Financial Bites educational lunch series.
  • Our team members continued to work towards increasing their knowledge by obtaining additional certifications that enhance our offering.
    • Series 65 license (wealth management): Olivia Payne, Benjamin Markman, and Chris Wahl
    • CFP® certification (financial planning): Mollie Privett

Even in such a challenging year, it has been important to us to continue to pursue knowledge and growth to become even better stewards of our clients’ wealth. This year, more than ever, we feel truly grateful for your continued confidence in us and wish you and your family a happy, and healthy, new year.

Here’s to a brighter year ahead.

Your Morton Team

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.