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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

Mid-Quarter Newsletter – November 2020

Year-End Tax Planning

Yes, it’s that time of year again: When it starts to get a bit nippy in Southern California and we have to wear long-sleeve shirts with our shorts and sandals. The time of year when things start to get a little cheerier and we look forward to the promise of a new year ahead (especially after 2020). Yes, you guessed it—it’s time for tax planning!

This year has been an eventful one, to say the least. Amid the social, medical, and political turmoil of 2020, there have been two laws passed that may affect your year-end tax-planning: the CARES Act and the SECURE Act (passed a lifetime ago in January). Let’s take a look at some key opportunities in the new laws, as well as some oldie-but-goodie strategies, to see what’s best for you.

  • Maximize your retirement savings
    • Did you turn 50 this year? If so, you’re entitled to a $6,500 catch-up contribution for your 401(k) plan and an extra $1,000 for traditional and Roth IRAs.
    • If you’ve already maxed out your 401(k) contribution, and your company retirement plan allows you to, consider contributing additional funds to your plan on a non-deductible basis. For 2020, the total contribution limit is $57,000 (made up of your first $19,500 employee elective deferral + any employer matching + any additional contributions you make).
    • If you’re over 70.5 and still working, the SECURE Act increased the age limit to contribute to your traditional IRA to 72.
      • Note, though, if you’re considering making a qualified charitable distribution (QCD), making a deductible IRA contribution may reduce how much of the QCD you can deduct.
    • Take advantage of deductions
      • Charitable deductions
        • The CARES Act increased the limit on charitable deductions in 2020 to 100% of AGI for cash contributions made to public charities.
          • Note: contributions made to a private foundation or a donor-advised fund do not qualify as qualified charitable contributions (QCCs) so the 60% AGI limitation for cash would apply.
        • If you don’t itemize deductions, the CARES Act also permits an above-the-line deduction of $300.
      • Consider a Roth conversion
        • If your income is lower this year—either due to COVID-19 and/or the CARES Act waiver of required minimum distributions for 2020—consider doing a Roth IRA conversion since you’ll already be in a lower tax bracket.
        • The SECURE Act requires that IRAs inherited by non-spouse beneficiaries be distributed within 10 years. Mitigate the tax impact on your heirs by converting funds from a pre-tax IRA to a Roth so the distributions to your heirs will be tax-free.
        • If a Roth conversion is appropriate for you, you can pair it with your QCC to offset the income recognized from converting pre-tax funds into a Roth.

If you’re interested in discussing any of the above strategies further, contact your wealth advisory team now. The last couple months of the year can get very busy with tax-planning requests, so processing times can be delayed at brokerage account custodians. If you and your advisor decide that one (or more) of these strategies is right for you, start early to ensure any transactions are processed by year end. The holidays are going to look a lot different this year, so perhaps a silver lining is the opportunity to be more strategic when it comes to another December tradition—tax planning.

Disclosures: This information is presented for educational purposes only. It is not written or intended as financial or tax advice and may not be relied on for purposes of avoiding any federal tax penalties under the Internal Revenue Code. You are encouraged to seek financial and tax advice from your professional advisors before implementing any transactions and/or strategies concerning your finances.

 

Schwab IMPACT Video & Sharkpreneur Podcast

Featuring our CEO, Jeff Sarti

Our CEO, Jeff Sarti, was featured at Charles Schwab’s virtual IMPACT conference. Thousands of investment advisory professionals gathered remotely to learn about how to think differently about the issues that matter most to their practices. This year Schwab highlighted four firms based on the impact they are making in the industry. In a year that has brought so much change, we are honored to be chosen. Watch the video below as Jeff shares his personal thoughts on serving our clients during these uncertain times.

Jeff was also featured on a recent episode of the Sharkpreneur podcast with host Seth Greene, one of the original sharks from the hit TV show Shark Tank. Jeff discusses Morton’s market outlook given the challenging economy and also explains how our three core beliefs drive our business decisions and empower our internal teams.

To watch Jeff’s video from the Schwab IMPACT conference or listen to his podcast with Seth Greene, click below or visit our Insights page on our website.

Links:

Schwab IMPACT video link:  https://mortoncapital.com/schwabimpactvideo/

Sharkpreneur podcast link: https://mortoncapital.com/sharkpreneur-podcast-featuring-jeff-sarti-growing-to-2-billion-aum/

 

What Does “Money Printing” Really Mean?

In recent years, the term “money printing” has become commonplace with investment professionals, economists and politicians. But what does it actually mean? While the specific execution can be highly nuanced and rather complicated, at its core, money printing is when assets suddenly appear on the balance sheet of the Federal Reserve (Fed), which then facilitates the distribution of those assets to privately held banks. Contrary to its name, money printing doesn’t constitute the use of a physical printing press, but, in our electronic world, just requires the push of a button to make digital assets appear.  To better understand what money printing is and why we should care about it, let’s take a look at money printing in action over the last two global economic recessions.

 

Money printing during the Great Financial Crisis (GFC)

To ensure they can meet their obligations, banks must hold a certain amount of cash as reserves. In 2008, according to the FRED economic database, U.S. banks had very low cash levels (only around 3%!), which meant that, as millions of Americans defaulted on their mortgages, banks didn’t have the cash on hand to remain solvent on their own. The Fed stepped in and essentially created “cash” in banks’ accounts with a few keystrokes. The hope at the time was that this move would shore up bank balance sheets and allow them to start lending again to stimulate the economy. While the first objective was accomplished, the higher level of lending activity didn’t materialize, leading many to cite this example as evidence of how money printing was not economically stimulative or inflationary.

 

Money printing during COVID-19

Over the last several months, the financial media has highlighted numerous ways in which banks are now in better shape than in 2008. However, total debt as a percentage of the gross domestic product in the U.S. economy remains very high. High debt levels make the economy fragile to external shocks—COVID was an example of such a shock. As millions of people lost their jobs and businesses struggled to remain solvent, it quickly became clear that this round of money printing needed to channel money directly into people’s pockets rather than shore up the cash reserves of banks.

To provide the economy with trillions of dollars, the government passed a large fiscal package, which included increased unemployment benefits, stimulus checks and paycheck protection loans. To fund these fiscal outlays, the government had to issue even more Treasury securities, which the Fed stepped in to purchase as the buyer of last resort. Unlike during the GFC, money was poured directly into the economy. As a result, the money supply sharply increased.

The real risk of all of this money printing and fiscal stimulus is that there are now more dollars out there chasing the same number of goods. While money printing may not be obviously inflationary in the short term, it’s essentially adding powder to the inflation keg. Just because it hasn’t ignited yet doesn’t mean that all that extra powder won’t ultimately matter. While some investors may choose to ignore this risk, we’ve turned increasingly to real assets such as real estate and gold to protect client portfolios. Money printing may seem like a harmless push of a button, but its prevalence as the stimulative tool of choice for those in charge makes it especially important to understand and monitor.

Disclosure: This information is for educational 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 Morton Capital and such views are subject to change without notice. Any investment strategy involves the risk of loss of capital. It should not be assumed that MC will make investment recommendations in the future that are consistent with the views expressed herein.

 

Welcome Judy and Cameron

Judy Lee

Private Investments Administrator

Judy Lee came to Morton Capital in March of 2020, after previously working in graphic design, copy editing, and project management for over 20 years. She brings a wealth of experience and organizational skills, having worked in the fields of publishing, product design/manufacturing, corporate/marketing design, and education. Judy graduated with a Bachelor of Arts degree in English from the University of California, Los Angeles. When not at work, she enjoys spending time with her family, collecting children’s books, cooking, watching Dodgers and Bruin sports, and serving at her church.

 

Cameron Meek

Client Service Administrator

Cameron Meek joined Morton Capital in May 2020 as a Client Service Administrator. Cameron is originally from North Dakota, and moved to California to pursue work in the entertainment industry before attending Pepperdine University. She graduated from Pepperdine with a degree in communications. Cameron enjoys spending time at the beach with friends, hiking, and trying new recipes.

 

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Please contact your Wealth Advisor at Morton Capital if there are any changes in your personal or financial situation or any changes in your investment objectives, or if you wish to add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written disclosure statement (Form ADV Part 2) discussing our advisory services and fees continues to remain available for your review upon request. All e-mail sent to or from this address will be received or otherwise recorded by Morton Capital in accordance with SEC regulations and is subject to archival, monitoring, or review by someone other than the recipient. The information contained in this e-mail message is intended only for the personal and confidential use of the recipient(s) named above. If the reader of this message is not the intended recipient or an agent responsible for delivering it to the intended recipient, you are hereby notified that you have received this document in error and that any review, dissemination, distribution, or copying of this message is strictly prohibited. If you have received this communication in error, please notify us immediately by e-mail, and delete the original message.

Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by Morton Capital) will be profitable. Many factors affect performance including changes in market conditions and interest rates and changes in response to other economic, political or financial developments. There is no guarantee that a particular investment objective will be achieved and Morton makes no representations as to the actual composition or performance of any security.

MC Stories – Eliminating Capital Gain Tax on the Sale of an Appreciated Asset Through the Use of a Charitable Tax-Exempt Trust

For many investors, a barrier to diversifying their portfolio is the impact of losing 25% of their profits if they sell a highly appreciated asset. If you are charitably inclined, that barrier can be eliminated by using a tax-exempt trust, as outlined by the following example:

Let’s assume you have a highly appreciated asset (perhaps stock or real estate) that you paid $200,000 for, and that has a market value of $1,200,000. Your capital gain would be $1,000,000. If you sold that asset, you’d only have about $950,000 to reinvest after paying 25% of your gain in taxes (approximately $250,000). By using a tax-exempt trust you would have the full $1,200,000 to reinvest.

    Here’s how it works:

  1. You establish this trust prior to selling the asset. The terms and provisions of the trust are established at its inception. Prior to selling the asset, you transfer the asset to the trust. You and your spouse (if married) become income beneficiaries for your lifetimes to the trust. The IRS sets a range of “approved interest rates”; let’s say 5% per year.  So, in year 1, the trust will distribute an income to you of $60,000 ( 5% of $1,200K). If the trust earns a return of greater than 5%, your income the next year will go up. But the big advantage is that you have $1,200,000  to invest, rather than the $950,000. Additionally, you can be your own trustee, so that the investment decisions and control of the assets are retained.
  2. Why does this trust qualify to be tax-exempt? Primarily there are 2 reasons:
    1. The trust is irrevocable, so once established, it cannot be modified.
    2. A t the death of the last income beneficiary, the remaining balance of the trust is paid to a 501c3 charitable organization (the legal name of this trust is a Charitable Remainder Trust). An additional benefit is that upon transferring the asset(s) to the trust, you receive an immediate charitable income tax deduction for the “present value of the future interest” of the “gift”. Depending on the age(s) of the income beneficiary and the established interest rate, the deduction can be in the range of 25% of the gift. So, in this example, instead of paying $250K in capital gain taxes immediately, you’ll SAVE $100K in income taxes as a result of the charitable deduction.

   The main disadvantages of this arrangement are:

  1. Lack of liquidity. You do not have access to principal; only the income that the trust distributes. If you are dependent on the principal from the sale proceeds for your lifetime/retirement, this may not be the best strategy for your cash needs.
  2. At the death of the last income beneficiary, the money is not retained by your heirs. That “negative” can perhaps be eliminated through the use of a life insurance policy (the premium will be substantially less than the capital gains taxes you, otherwise would have paid). However, for those investors where this trust makes sense, this technique allows them to fulfill their charitable wishes, and normally, this is only a “piece of their estate” so the balance of their net worth will be distributed to their chosen heirs.
  3. While the earnings and gains in the trust are tax-exempt, the income that is distributed from the trust to the income beneficiaries is generally taxed.

The above is only meant to be a concise summary of this strategy. You should consult your financial advisor, tax professional or attorney to obtain more information. Tax rates used in this article are for illustrative purposes only and may not apply to your unique situation.

 


Disclosures:

This information is presented for educational purposes only, is hypothetical in nature and does not represent actual clients. The information presented is not written or intended as financial, tax or legal advice, and may not be relied on for purposes of avoiding any federal tax penalties under the Internal Revenue Code. Use of this information is not a substitute for legal counsel, and Morton Capital makes no warranties with regard to information contained herein. You are encouraged to seek financial, tax and legal advice from your professional advisors before implementing any transactions and/or strategies concerning your taxes or estate plan.

Financial Bites – Tax Planning for Individuals Video and Update

Tax Planning for Individuals, the third event in our new Financial Bites lunch series, was a huge hit. In this session, our advisors explained why tax planning is vital to a healthy financial life and how to put money back in your own wallet. Thank you to all our attendees as well as our outstanding wealth advisors, Bryce Snell and Wade Calvert, who presented.

Click on the above image or visit this link to watch our tax planning session: https://vimeo.com/mortoncapital/fbtaxplanning

We hope you find this video valuable. Please feel free to share this link with family and friends and on your social media channels. Any feedback you have would be extremely valuable to our team, including any recommendations of topics you would like us to present on in the future. Financial Bites is a complimentary series and our upcoming sessions are filling up fast, so we encourage you to RSVP soon. Click on the link below to view all sessions and RSVP today!

https://mortoncapital.com/financialbites

We hope to see you soon and thank you for your continued support of Morton Capital.

The MC Team