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Finding Your Financial Footing: A Widow’s Journey

BY: NICOLE JACOBSEN-NALLYCTFA
Louisville, KY Market President  |  (502) 569-7400

Losing a spouse is a life-changing, traumatic event. While your sorrow will subside over time, most widows face a new challenge: managing an uncertain financial future. A study by the U.S. Government Accounting Office showed that a widow’s household income fell by 37 percent, while a widower’s declined only 22 percent.

During my career as a fiduciary trust and investment advisor I’ve worked closely with many families and widows. When I lost my husband in 2018, my experience and training helped, but didn’t seem to make my journey any easier. It did, however, demonstrate just how unique is every widow’s grieving process and also just how similar.

It made me realize that I needed to take the time to mourn – and that I needed to wait at least a year before I made any big changes, especially financial changes. I also learned to embrace the four tasks of mourning that J. William Worden describes in his book “Grief Counseling and Grief Therapy.” I’ve modified these a little, but I agree with Worden that widows should complete each task so the process of mourning is completed. Worden advises widows to:

  • Accept the reality of the loss
  • Experience the pain of the loss
  • Adjust to the changes in the new reality
  • REINVEST in the new reality

Every widow’s experience is different and so is the length of time each will take to substantially complete this process. Here are five lessons I learned during my journey that I hope will help you make better financial decisions after losing your spouse:

1. Find an advisor or someone you trust

If you are not already working with a financial advisor, then find someone you trust to help navigate the many challenging tasks you face. Even simple tasks, such as closing a bank account, can be overwhelming. The inability to make decisions is a true “grief response” for many widows. Having a trusted person near you or on-call to support you will help alleviate some of the stress from losing your spouse.

Once you have identified your trusted advisor, now is the time to lean on that person for advice, guidance and, most importantly, support. Don’t give in to your feelings that you are alone. If you are working with an attorney for probate or estate administration, have that person file any claims on your behalf. Both professionals will protect you from being taken advantage of during this difficult time in your life.

2. Hold off on making financial decisions

DO NOT make any unnecessary financial decisions during the first year. Period. This includes changing investments and/or purchasing any new financial instruments (for example, stocks, bonds or real estate). I can’t stress this enough. It is easy to think that you must find your “new normal” quickly to start to heal, but it will be many months before you are equipped to figure that out.

3. Understand the value of your financial assets and liabilities

Financial goals for widows vary by circumstance and situation. The primary initial goal should be to become familiar with your assets and debts and to get into a routine of paying household expenses (if you didn’t already manage paying the bills). Once you’ve been doing that for a year you will have a clear understanding of your total financial picture (income, expenses, assets and debts) and will be in a much better position to determine and adjust to your new financial goals.

4. Get help with life insurance claims

Typically, the funeral home can file a claim on your behalf for life insurance proceeds or assist with completion of claim forms. Let them do it if they provide this service. Any funds received during the first year should be maintained as cash (and invested in a money market fund) until sufficient time has passed. Again, I recommend waiting at least a year – the time may vary depending on your situation – before you make changes to how the funds are managed or invested.

If it falls on you to file your life insurance claim, contact the insurance company yourself, by phone or online, to request and complete the claim forms and avoid the local insurance agent. You should shield yourself from well-meaning agents trying to sell you investment products that are not in your best interest.

5. Hold off changes to your Social Security benefits

If your spouse was entitled to monthly Social Security checks, you must report the death and stop those payments. Although you have up to one year to file a claim for survivor benefits, if you know you need to file a new claim, call and make an appointment that is at least a month out to sit down with a Social Security officer.

Use that time to manage household bills. Keep your expenses to a minimum to “keep the lights on,” so to speak. It typically takes several weeks to receive a certified death certificate to file a Social Security survivor claim anyway, so take that time to catch your breath. You may want to take your trusted advisor with you to the appointment.

Grief is a journey and it’s tough work. Be gentle with yourself and remember that what you are going through is normal. Find support from your family, but also consider using local grief counseling services to help you understand the roller coaster of stress and emotions you are experiencing.

Reinforcing Our Commitment to Fiduciary Excellence

Providing a fiduciary level of service is central to Heritage Retirement Plan Advisors. To further prove our commitment to always putting our clients’ best interests first, we recently passed a rigorous, multi-month audit by the Centre for Fiduciary Excellence (CEFEX). The elite certification is granted only to investment advisory firms that demonstrate conformity to a recognized global standard of fiduciary excellence. There are currently 137 certified investment advisory firm worldwide. We are the only certified investment advisory firm in Oklahoma.

The process was guided by “Prudent Practices® for Investment Advisors,” an industry-recognized handbook grounded in law, regulation and professional best practices. The standard describes how an investment advisor assumes the responsibility for managing a client’s overall investment management process, which includes selecting and monitoring funds, as well as developing processes to implement investment strategies and fiduciary processes.

For clients, this means we uphold the highest level of fiduciary care – and that has a direct effect on you, your plan and your employees. As your advisor, we help plan sponsors with fulfilling their fiduciary duties as outlined by the Department of Labor.

  • Act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Act prudently in the faithful performance of all duties;
  • Follow the plan documents (unless inconsistent with Employee Retirement Income Security Act;
  • Diversify plan investments; and
  • Pay only reasonable plan expenses.

The CEFEX certification is another important way to demonstrate that we always act in our client’s best interest. Our prudent, transparent process directs all of our actions to assure effective stewardship of your assets, conforming to the highest professional standards of conduct.

Click here to learn more about Heritage Retirement Plan Advisors.

Heritage Retirement Plan Advisors Earns Fiduciary Excellence Certification

MEDIA RELEASE
Contact: Taryn Clark, Marketing & Communications Manager
Heritage Trust Company | 405.608.8899

 

OKLAHOMA CITY, Oklahoma, Sept. 18, 2019 – Heritage Retirement Plan Advisors is honored to announce its Investor Advisor Certification from the Centre for Fiduciary Excellence, LLC (CEFEX). The certification, which can be viewed at www.cefex.org, is granted by CEFEX only to investment advisory firms and financial service providers that demonstrate conformity to a recognized global standard of fiduciary excellence. Heritage is the only CEFEX certified investment advisor in Oklahoma.

To earn CEFEX certification, Heritage underwent a rigorous, multi-month audit and certification process guided by “Prudent Practices® for Investment Advisors,” an industry-recognized handbook grounded in law, regulation and professional best practices. The standard describes how an investment advisor assumes the responsibility for managing a client’s overall investment management process, which includes the selection, monitoring, and removal of funds, as well as developing processes to implement investment strategies and fiduciary processes.

“CEFEX is pleased to add Heritage Retirement Plan Advisors to an elite group of investment advisors who have demonstrated adherence to professional practices that define a standard of fiduciary excellence,” said CEFEX Managing Director Carlos Panksep. “They have earned the right to use the CEFEX Mark which indicates the firm’s established practices are aligned with investors’ interests and worthy of trust and confidence.”

“For more than 10 years, Heritage Retirement Plan Advisor’s mission has stayed true to providing clients with unbiased guidance and transparency with the highest ethical standards,” said Brad Knowles, managing director of Heritage Retirement Plan Advisors. “We applied for CEFEX certification because our retirement plan clients deserve proof of fiduciary process and transparency about the quality of their investments. It’s also necessary in today’s world, as ‘fiduciary’ can be a confusing word. Passing this strict audit certifies that we work in their best interest as prudent plan fiduciaries and provide effective stewardship of their assets.”

CEFEX certification standards are substantiated by legislation, case law and regulatory opinion letters from the Employee Retirement Income Security Act (ERISA), the Investment Advisers Act of 1940, the Uniform Prudent Investor Act (UPIA), the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and the Uniform Management of Public Employee Retirement Systems Act (UMPERSA) in the U.S. A full copy of the standard can be downloaded from CEFEX at www.cefex.org and the certificate and assessment results can be viewed by clicking on the “Registration” tab and searching for Heritage Retirement Plan Advisors.

About CEFEX®
CEFEX®, Centre for Fiduciary Excellence, LLC, a Fi360® company, is an independent certification organization. CEFEX works closely with industry experts to provide comprehensive assessment programs to improve the fiduciary practices of investment stewards, advisors, recordkeepers, administrators and managers. CEFEX is based in Pittsburgh, PA. Learn more at www.cefex.org via Twitter or on LinkedIn.

About Heritage Retirement Plan Advisors
Heritage Retirement Plan Advisors, part of the Argent Financial Group family of companies, offers investment and fiduciary services exclusively to sponsors of retirement plans. Since 2008, Heritage has been providing plan sponsors with unbiased advice and transparency with the goal of improving participant outcomes. For more information, visit www.heritage-401k.com.

About Argent Financial Group
Argent Financial Group (AFG) is a leading independent fiduciary wealth management firm. Responsible for more than $21 billion in client assets, AFG provides individuals, families, institutions and businesses with a broad range of wealth management services including trust administration and related services, investment management, family office services, retirement plan and charitable organization administration, mineral (oil and gas) management, and financial, retirement and estate planning. The company was also recently named for the second year in a row to the Inc. 5000 list of the fastest-growing companies in the U.S. AFG is the only financial services company in Louisiana to make the prestigious list. For more information, visit www.ArgentFinancial.com.

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Michael Romero Joins Heritage Trust Company in Oklahoma City as Vice President and Relationship Manager

MEDIA RELEASE
Contact: Taryn Clark, Marketing & Communications Manager
Heritage Trust Company | 405.608.8899

OKLAHOMA CITY, Oklahoma, August 13, 2019 – Heritage Trust Company announced today that Michael Romero has joined the company as vice president and relationship manager in the Oklahoma City office. He will assist clients in a variety of areas, including trusts, probate and estate planning and administration.

Romero joins Heritage from the Baptist Foundation of Oklahoma, where he has worked since 2001. He served as vice president, trust counsel until 2016 when he was promoted to senior vice president, chief development officer. While there, he was responsible for supervising staff, budget maintenance, monitoring various communications/marketing efforts and participating in cross-team collaboration.

“Mike brings with him an abundance of valuable financial experience, as well as a trust background. He will provide an influx of new ideas and perspective to our clients,” said Kevin Karpe, president of Heritage Trust Company. “His expertise in charitable giving and philanthropy will also be an invaluable addition to our team.”

Romero is also an adjunct professor at the University of Central Oklahoma, where he teaches courses in estate planning and administration and business law. In addition, he is an active member of Council Road Baptist Church.

“I couldn’t be more excited to join Heritage and to continue working with the local philanthropic community,” said Romero. “What drew me to Heritage was how well respected it is for providing exceptional, fiduciary client services. I hope to use my experience to help charitable organizations achieve their missions and look forward to doing so with such an outstanding firm.”

Romero earned his bachelor’s degree in business administration from Oklahoma Baptist University and his Juris Doctorate degree from the University of Oklahoma College of Law. He is also a member of the Oklahoma Bar.

Romero and his wife, Laura, have been married 26 years and have four children. In his free time, he enjoys watching his kids play sports, reading a good book or exploring the Oklahoma terrain on a hike.

About Heritage Trust Company
Heritage Trust Company, part of the Argent Financial Group family of companies, offers trust administration, oil and gas management, real estate management, financial planning and investment management services to individuals, for-profit companies and charitable/non-profit organizations. The Oklahoma-based company has offices in Oklahoma City, Ponca City and in Tulsa under the AmeriTrust brand, which serve clients in the United States and several countries around the world. For more information, visit www.heritagetrust.com.

3 tips for improving your retirement plan’s fiduciary file

Originally published on BenefitsPro.com on July 31, 2019

BY: LINDE MURPHY, CRPCTM

Managing Director, Institutional Services  |  (210) 352-2428

Linde Murphy

It’s that time of year for many retirement plan sponsors as they put the finishing touches on Form 5500, the annual employee benefits report required to be filed with the IRS. It’s also an ideal time for sponsors to take a deep dive into the retirement plan fiduciary file to improve documentation and avoid any compliance-related squabbles with Uncle Sam.

Many employers underestimate the value in having a comprehensive, well-organized fiduciary file — the 20-30 agreements, contracts and written plans that compose any retirement plan. The effort spent organizing your files will give you more time to find ways to improve the plan. Just think: No more scrambling to find or update plan documents at the last minute when filing your 5500.

Remember that you, as plan sponsor, are responsible for keeping your company’s retirement plan in compliance. Here are three best practices to make sure the fiduciary file helps you accomplish that goal:

1. Always have a fiduciary file checklist

Every plan sponsor needs to have a comprehensive checklist of all documents — and where those documents are located — in the fiduciary file. Yes, this should be obvious, but you’d be surprised at how many plan sponsors have an incomplete list and/or can’t easily locate required documents.

Confer with your retirement plan advisor to make sure you have all the necessary documents on file. The more time spent finding documents means less time helping employees with their retirement savings needs. Here’s a sample of the documents that should be included in your checklist:

 ●  Regulatory audits: The plan adoption agreement, Form 5500, IRS opinion or determination letters, fidelity bond agreements, trust agreements, investment policy statements, lists of all fiduciaries, trustees, consultant and plan administrator agreements

●  Administrative functions: Corporate board resolutions, board meeting minutes, fiduciary roles and responsibilities

●  Investment monitoring: Investment account statements, investment committee meeting minutes (if applicable)

 ●   Participant communications: Section 404a-5 participant fee disclosure, automatic enrollment notices, QDIA notices and event communications

This list just scratches the surface, but as you can see, there’s a forest of paperwork that has to be organized. The checklist is your go-to document to keep you organized. It also will serve as a constant reminder of what files you — and anyone else who is involved in managing your plan — need to keep current.

2. Document procedures, processes and roles

A word of advice on managing processes and procedures for something as complicated as a retirement plan: If it’s not written down and documented, then you haven’t done it. Just ask any auditor.

Written documentation of operational procedures is essential so everyone involved with your company’s plan administration can see how important processes are managed. These documents function as the primary resource guide and describe the key roles, responsibilities and tasks so the team understands who’s doing what, how it’s being done and when it’s getting done. Written documentation also provides auditors with necessary evidence to show how your company is managing the plan.

3. Make reviewing your fiduciary file a quarterly priority

Far too many employers look at reviewing their fiduciary file as an annual event. Don’t fall into that trap. A lot can change in a year — new federal regulations could be adopted, employee demographics could change due to staffing needs or executives involved in plan governance could leave the company.

Reviewing your plan quarterly will help to assure that you follow the terms of your plan. Many plans conduct a quarterly investment review, but few go beyond just the investments. Take advantage of these review meetings by adding fiduciary training, reviewing any issues that surfaced the prior quarter, and discussing upcoming changes.

Managing your company’s retirement plan can be a challenging, thankless task. But when you follow these tips, you’ll sleep better because you will have a plan that’s properly documented and working in the best interests of your employees.

Linde Murphy, CRCP, serves as managing director for Argent Retirement Plan Advisors, a Registered Investment Advisor with the SEC that specializes in providing fiduciary and investment advisory services to employer sponsored qualified and non-qualified retirement plans. Linde, who has more than a decade of experience in the financial services industry, works with corporations, nonprofits and municipalities to design high quality and cost-effective retirement plans. Prior to joining Argent, she was chief operating officer and chief compliance officer of M.E. Allison & Co., an investment banking firm specializing in municipal finance.

Argent Retirement Plan Advisors, LLC is a Registered Investment Advisor registered with the Securities and Exchange Commission. A current copy of our written disclosure statement is available at no cost upon request.

Watching Your Money: Tips On How To Monitor Your Investments

BY JIM McELROY, CFA

How often should you monitor your investment accounts? Like so many other things in life, the answer to this question is, “It depends.” It depends on your investment horizon, or when you will need to convert your investments to cash. It depends on your risk tolerance, or how comfortable you are with not meeting a targeted value at the end of your investment horizon. It depends on how diversified your investments are. It depends on how disciplined you are at avoiding decisions based on emotion. And all of these “depends” depend upon each other.

A long investment horizon favors growth investments over income investments and allows time for portfolios to recover from short-term declines. The longer the horizon, the heavier your portfolio should be weighted towards growth, or equity, investments.

Why Being “Hands Off” Can Be A Good Strategy

Such portfolios often benefit – yes, benefit – from a certain level of neglect. Employing a buy-and-hold strategy for a well-diversified portfolio of stocks sounds naive, but it’s a strategy that has a long history of success. As long as your investment horizon is 10 years or longer and your investments are well diversified, a quarterly or even annual monitoring of your portfolio may be all that is needed. As the horizon shortens over time, more frequent reviews of holdings (perhaps quarterly or even monthly) may be warranted, primarily for the purpose of reducing the volatility of the portfolio by selling stocks and increasing intermediate-term bonds and cash. A truly short investment horizon portfolio – one that is invested in cash and intermediate- to-short-term government bonds – need only be monitored for the purpose of reinvesting the proceeds from maturing bonds and ensuring that the merits of selected vehicles remain sound.

Very few investors are stoics, particularly when they see losses in their investment portfolios.  It’s hard to be disciplined when it’s your money, but discipline is one of the primary characteristics of successful investors. If you’re disciplined, frequent monitoring of your portfolio has no downside. For most of the rest of us mortals, however, repeated monitoring of investments opens the door to churning – churning of the stomach at best or churning of the portfolio at worst.

Avoid the Temptation To Constantly Check On Your Investments

The more frequently you look at your investments, the more likely you are to see losses. A recent study indicates that for a portfolio comprised of 60 percent equities and 40 percent bonds, the probability of returns being negative is 46 percent for daily returns, 36 percent for monthly returns, 33 percent for quarterly returns and 26 percent for annual returns.

Having the discipline to avoid checking your investments is critical. It’s highly unlikely you will gain an edge or discover a market anomaly that will tell you when to buy or sell: the market is much too efficient to allow for such opportunities. So do yourself a favor and stop looking at how much is in your investment account every day.

Investment portfolios that lack diversity, however, are a special case. When a portfolio holds only one or two equity securities – either because of a low cost basis, sentimental attachment or speculative motives – the frequency of monitoring usually depends on the proximity of a cell phone with a quote app. Daily, if not hourly, monitoring is generally the rule. While we don’t advocate non-diversified portfolios, we acknowledge they exist, even for risk averse investors. For everyone but risk tolerant speculators, we recommend frequent reviews of non-diversified holdings with the aim of executing regular sales and reinvesting in diversified portfolios.

Whether your goal is to save enough to retire comfortably or fund you children’s college education, monitoring your investments requires setting a plan and sticking to it. Don’t let watching the daily ebb and flow of the stock market sidetrack you from achieving your investment goals.

Investment Commentary – July 2019

Market Recap: Everything Went Up!

The first half of 2019 saw robust gains across most asset classes, but it certainly wasn’t a smooth ride. Global stock markets got a jump start on the year thanks to progress in U.S.-China trade negotiations and a newly “patient” Fed, but an abrupt breakdown in the trade talks (announced via Presidential tweet) spurred

a sharp market sell-off in May. Stock markets subsequently shook off their swoon in June, rebounding on expectations of Fed rate cuts later in the year and (tentative) signs of re-engagement on the U.S.-China trade front. 

The S&P 500 hit a new high near the end of June. Large-cap U.S. stocks shot up 7.0% for the month—their best June since 1955They were up 4.3% for the second quarter, and a remarkable 18.5% for the first six months of the year—their best first half since 1997.

Developed international stocks gained 5.9% in June, 3.2% for the second quarter, and 14.2% for the year to date. European stocks have done a bit better, gaining 15.6% on the year so far. In April, the “Brexit can” was kicked down the road at least until October 31, but the risk of a disruptive “no-deal” exit remains.

Emerging-market (EM) stocks also rebounded in June, gaining 5.4%. Although EM stocks were only up 0.8% for the second quarter, their first-half gains stand at 12.6%. The dollar was roughly flat versus EM and developed market currencies over the six-month period.

Moving on to the fixed-income markets, the 10-year Treasury yield continued to plunge from its multi-year high of 3.2% last October, dipping below 2% following the Federal Reserve’s June meeting. This was a near three-year low, and among its lowest levels ever. The 10-year yield ended the month at 2.0%. Bond prices rise as yields fall, driving the core bond index to a 2.6% gain for the quarter and an impressive 5.0% return so far this year. Our non-core positions in high-yield and emerging market debt continued their run and are up 9.9% and 11.3% respectively for the year.

As an aside—and as further evidence of the consistently poor track record of market forecasters—the consensus of 69 economists and analysts surveyed in January by the Wall Street Journal was that the 10-year Treasury yield would rise to 3% by mid-year. None of them predicted the yield would fall below 2.5% this year, let alone down to 2%!

Mid-Year Outlook: Heightened Uncertainty

In our year-end 2018 commentary, we emphasized the wide range of plausible macroeconomic scenarios and financial market outcomes for the year ahead. At the time, stocks were experiencing sharp short-term losses, reflecting worries of a global economic slowdown, central bank monetary tightening led by the Federal Reserve, ongoing U.S.-China trade tensions, and geo-political uncertainties in Europe (Brexit, Italy) and elsewhere. We highlighted the potential for either a bullish or bearish shorter-term path to play out.

Through the first half of 2019 we’ve gotten a little bit of everything—signs of both the bullish and bearish scenarios. When it comes to short-term market predictions, “Anything can happen… and so far this year, it has!”

Below, we recap our outlook and provide updated perspective on some of the key issues and uncertainties we highlighted at year-end, including central bank policy, global and U.S. economic growth, trade conflicts, and political/geopolitical risks.

Central Bank Monetary Policy

Central bank policy has had an enormous impact on financial markets since the 2008 financial crisis. We’ve seen that continue in 2019, marked by two major shifts in the Federal Reserve’s stance. First, the Fed shifted from tightening monetary policy in 2018 (where it was raising the fed funds policy rate and unwinding some of the assets on its bloated balance sheet) to a “patient” stance (i.e., rate hikes are on hold) in the first quarter of 2019.

Then at its recent June Federal Open Market Committee (FOMC) meeting, the Fed signaled it was inclined towardsloosening policy once again, setting the stage for rate cuts later this year (possibly as early as its July 31 meeting) and/or next year. Fed chair Jerome Powell cited heightened uncertainty around the outlook for global growth, trade policy, below-target inflation, and falling inflation expectations. While the fed funds rate was left unchanged at 2.25% to 2.5%, Powell stated “the case for somewhat more accommodative policy has strengthened.” He also noted, “many FOMC participants believe some cut in the fed funds rate will be appropriate in the scenario they see as most likely.” Specifically, eight of the 17 FOMC participants now project the Fed will cut the benchmark rate this year, with seven of those projecting two quarter-point reductions (50 basis points). Eight participants expect the rate to remain unchanged and one thinks the Fed will hike rates this year.

Other global central banks are also pivoting back towards looser policies, including recent dovish statements from European Central Bank (ECB) President Draghi. The following chart from Ned Davis Research (NDR) shows that a majority of the world’s central banks are now cutting rates (indicating an easing cycle), up from just 38% of banks easing in January. Historically, this has tended to be bullish for global stocks.

Generally looser monetary conditions are a stimulant for financial markets and asset prices, all else equal. A lower interest rate implies higher asset valuations (e.g., higher P/E multiples). But all else is rarely equal. And the implications of lower rates and monetary stimulus are not so obvious when you go beyond simple, first-level thinking to consider the broader economic context

for these low rates (i.e., concerns about slowing growth and very low inflation). It is also critical for an investor to understand what information and expectations are already being discounted in current market prices.

Regarding the latter, the fed funds futures market is now discounting a 100% probability the Fed cuts rates by at least 25 basis points in July, 92% odds of at least two quarter-point rate cuts by year-end, and 60% odds of three or more rate cuts. Meanwhile, the S&P 500 index hit a new all-time high in the aftermath of the June Fed meeting and Treasury yields hit a multi-year low.

So, there is a non-trivial possibility the Fed surprises (disappoints) the markets by not cutting as much as expected, or at all. (While the Fed set the table for a cut in July, they still say they are “data dependent.”) Of course, the Fed is aware of market expectations. And it knows that market reactions to its behavior can impact the real economy, which can lead to further market reactions, Fed reactions, subsequent market reactions, economic impacts, etc. Such self-reinforcing feedback loops may be helpful or harmful to achieving the Fed’s economic mandate. But the Fed can’t always control them.

While U.S. bond yields are very low, at least they are still positive. Across much of Europe and Japan, government bonds have negative yields; the total dollar amount of negatively yielding debt recently shot above $13 trillion, a record high. About half of all European government bonds have a negative yield, including almost 90% of German government bonds. The German 10-year Bund recently yielded negative 0.33%, its lowest ever. The ECB’s policy rate (the “deposit rate”) stands at negative 0.4%.

None of this normal. The consequences of these unprecedented monetary policies are highly uncertain. And we’ve seen the market disruption caused by even modest attempts to unwind them (in the U.S.), or even just the suggestion of beginning to tighten policy (in Europe).

In the face of continued weak eurozone economic growth, below-target inflation, and falling inflation expectations (dropping from 1.8% in January to below 1.2% on one closely followed measure), the ECB was forced to reverse course in the first half of 2019 as well. Markets now expect the ECB to lower the deposit rate later this year and restart QE asset purchases next year.

The market’s expectations for imminent central bank easing are clear. But it’s important to note, the market is not pricing Fed easing because of credit issues or liquidity concerns, or even financial stability issues; it’s pricing Fed easing because of expectations of a meaningful downtick in growth rates.

Given the underlying growth dynamics, the required amount of Fed easing should be relatively low. The easing cycle of 1998 – three cuts totaling 75 bpts – may be a good analogy.

The Global Economy

The global economy remains in a sustained slowdown. The revival of trade tensions, imposition of additional tariffs, and uncertainty over further protectionist policies have taken a toll on global trade, manufacturing, and business sentiment, with negative implications for future investment spending and hiring.

However, foreign stock market valuations are already discounting a lot of negative news and uncertainty. And importantly, without a U.S. recession, history suggests the likelihood of a severe equity bear market is low.

So, is a U.S. recession on the near-term horizon? We don’t know. No one knows. There are plenty of mixed signals and economic indicators to support almost any view on this. But there is enough evidence for investors to take the recession risk seriously, if not within the next 12 months then within the next few years. The precise timing and path is uncertain, but sooner or later the United States will have another recession and a painful bear market associated with it.

The evidence among the key U.S. recession indicators we track is mixed. However, some important indicators, while still positive, are weakening.

On the negative side, the yield curve (3-month T-bill vs. 10-year Treasury) has been inverted for over a month now. According to NDR, yield curve inversions have been a precursor to each and every of the seven U.S. recessions in the past 50 years, albeit with variable and sometimes long lag times—ranging from six to 23 months. (There have also been two inversions that were recession “false alarms,” in 1966 and 1998.) The widely followed New York Fed U.S. Recession Probability model, which is based on the yield curve spread, jumped to 30% in May, its highest level since 2008.

On the positive side, the U.S. Conference Board’s Leading Economic Index (LEI) remains at peak levels. Historically, the LEI has peaked a median of 11 months before the onset of recession (with a range of between eight and 21 months). The LEI also shows a positive (albeit declining) 12-month rate of change. No recession has begun with the LEI’s year-over-year percentage change still above zero. According to the Conference Board, the latest result “clearly points to a moderation in growth towards 2% by year-end.” While that’s not a strong growth rate, it is right in line with most estimates of the U.S. economy’s long-run sustainable growth rate, which is a function of labor force growth and productivity growth.

Another recession composite, NDR’s “U.S. Recession Watch Report” lists only one of ten recession indicators currently flashing red—the CEO Confidence Index. Six indicators are strongly positive (including measures of financial conditions, consumer confidence and the labor market), and three are neutral.

Let’s also step back and look at this U.S. economic cycle in a broader historical context. As of July, this will be the longest economic expansion in U.S. history, beginning its 11th year. However, it’s also been the mostsluggish recovery in the past 70 years. Real GDP growth has averaged just 2.3% per year during this expansion, compared to a median growth rate of 4.4% per year for the prior 11 post-WWII expansions.

Arguably, this recovery doesn’t yet exhibit the financial market excesses (asset price bubbles) or economic overheating (inflation) typically seen late in the cycle. Such excesses or imbalances are what lead the Fed to tighten monetary policy and ultimately—inevitably—kill the expansion and tip the economy into recession.

As such, successful investors must remain flexible and open-minded, but still grounded in a fundamental investment discipline, rather than seeking falsely precise answers (e.g., When will the recession happen? What will the Fed do next?).

Outlook for Trade and Other Geopolitical Risks

Rising political uncertainties since early 2018 have constrained economic confidence and still seem to be the main economic risk. Unfortunately, the risk of a geopolitical shock on financial markets is ever-present. An impulsive and erratic U.S. president may increase that risk, but it is always there. Most recently, there is heightened potential for a military conflict with Iran. But there are many other potential geopolitical flashpoints and unknowns: Brexit remains unresolved. The tug of war between democracy, populism, nationalism, and autocracy continues around the globe. The U.S. presidential election next year will likely create additional market uncertainty. China’s rise and challenge of the United States as a global superpower goes well beyond just the current trade conflict. The Middle East (beyond Iran) remains a potential flashpoint. Don’t forget about North Korea. And so on.

We read the headlines like everyone else and don’t believe we have any unique insight or edge in assessing these events on a day-to-day basis versus the consensus. New information is continuously reflected in financial asset prices. For us to make a tactical investment decision based on political or geopolitical developments, we’d need to believe we have a meaningfully different view than what’s currently being reflected and also have high conviction that we are right and the market is wrong. Instead, we incorporate the potential for external shocks (geopolitical and otherwise) within our strategic (long-term) portfolio construction, multi-asset/multi-strategy diversification, and shorter-term downside risk management.

As we said last month, uncertainty is a constant presence and volatility can return to markets at the drop of a tweet. Those of us who own stocks need to be prepared to ride through the inevitable down periods. It’s the shorter-term price we pay to earn their higher expected returns over the longer term.

In the event of an external “shock” event, it historically has paid not to panic and get out of the market. Rather, it is during these moments when one’s investment discipline pays off, opportunistically looking for attractive investments that may be “on sale” due to excessive short-term market fear.

Closing Thoughts on Portfolio Positioning

In his latest memo, Oaktree Capital co-founder Howard Marks wrote: “In recent years, the U.S. has simultaneously experienced economic growth, low inflation, expanding deficits and debt, low interest rates, and rising financial markets. It’s important to recognize that these things are essentially incompatible. They generally haven’t co-existed historically, and it’s not prudent to assume they will do so in the future.”

We agree there is a high likelihood this benign macroeconomic backdrop won’t be sustained over the next five-plus years. U.S. stock market valuations and expected returns imply the market consensus maybe discounting an overly optimistic outlook. However, we continue to recommend balancing our portfolios to international large and small-cap stocks. Our analysis indicates their valuations are very attractive relative to the U.S.

Over the shorter-term (i.e., the next 12 months), if the global economy starts recovering from current depressed levels—with China’s fiscal and monetary stimulus being a key to that outcome—and the United States remains clear of recession, we would not be surprised to see outperformance from developed international and EM stocks versus U.S. stocks. Further, if the growth differential between the United States and the rest of the world narrows, the U.S. dollar will likely depreciate, providing an additional tailwind to foreign stock returns for dollar-based investors.

In this global growth recovery scenario, our active equity managers’ exposure to more cyclical value stocks (e.g., financials, industrials, consumer discretionary, technology) would also likely outperform more defensive “bond proxy” sectors (e.g., utilities, REITs, consumer staples). Most of our managers view the latter as unattractive and overvalued, but these sectors have rallied the past year on plunging bond yields. A solid global economy would continue to benefit our higher yielding credit strategies and emerging market positions relative to core investment-grade bonds.

On the other hand, if the United States falls into a recession and bear market, our balanced portfolios have “ballast” in the form of meaningful exposure to core bonds as well as lower-risk fixed income strategies that should hold up much better than stocks on the downside. These lower-risk, diversifying positions have been a drag on our overall returns over the past several years as U.S. stocks have been in a raging bull market. But we’ve seen their benefits during the occasional market corrections, including in last year’s fourth quarter.

That said, and it bears repeating, our balanced portfolios will experience shorter-term losses if we do get a bear market due to our overall equity- and credit-risk exposure coupled with the very low current yields on core bonds.  In other words, the core bond ballast won’t be as buoyant in the next bear market as in past cycles when their starting yield was much higher, which provided an additional return cushion as stocks fell.

This has been an unusually long U.S. economic and market cycle. But we firmly believe it is still a cycle, and that our patience and fundamental valuation discipline will be well-rewarded as it turns again. As always, we appreciate your continued confidence and trust in Argent.

Investment Outlook – July 2019

It’s Got Us Scratching Our Heads

BY: JIM McELROY, CFA  

This was the comment made by one of our fixed income managers at a recent investment strategy meeting, and it accurately describes our bewilderment over the mixed signals we’re receiving from the marketplace. The cause for this specific itch was the simultaneous occurrence of an inverted yield curve and a shrinkage in the credit spread (the difference in interest rates between like-maturity government and corporate bonds). This isn’t supposed to happen.

An inverted yield curve (a higher rate for three month T-Bills than for ten year Treasury Bonds) forecasts and often causes economic weakness and recessions. A shrinkage in the credit spread normally indicates that investors are unconcerned about a recession-induced lowering of corporate bond quality and are more interested in the higher yields available in the less than perfect corporate sector. In short, the first is sending a “risk off” signal while the second is encouraging investors to take a “risk on” posture.

It is a “head scratcher”, but it’s not the only one. The entire investment marketplace appears to be operating in at least two divergent universes and neither seems to be communicating with the other.

The stock market, after having registered two corrections in 2018 — one in the winter and a second over the summer and fall — roared back in the first half of 2019, set two new records in May and June and so far is up 17%, recording the best first half return since 1997.

In the meantime the economy, while definitely not in a contraction mode, is showing some signs of fatigue in what is now tied for the longest expansion since WWII: the index of Leading Economic Indicators has been trending downward since its peak in mid-2014; consumer sentiment has slipped to its lowest level since September of 2017; the Conference Board’s CEO Outlook for future business conditions recently came in below 50 (above 50 suggests an expansion, below 50 suggests contraction); the Purchasing Managers’ Index, though still above 50, has been declining since the beginning of 2018; and Non-Farm Payrolls posted the lowest increase since 2010.

In the Wall Street universe, the stock market is forecasting robust growth and earnings, while in the universe on Main Street, the mood is less optimistic.

We prefer to resist characterizing this divergence as a struggle between fantasy and reality. It may only be the usual difference of opinion between optimists and pessimists, bulls and bears, or the greedy and the fearful.

For us, this sense of dislocation is reminiscent of other periods that were late in their cycles. We’ve already mentioned that the U.S. economy is now tied for a post-war record. The stock market also has some age on it: at about ten years, it’s the second longest bull market since 1928 (the longest was the twelve and one third years’ run from December 1987 to March 2000).

Everyone knows the good times can’t last forever, but few wish to invest, or disinvest, strictly based on extended age: the only difference between early or late and wrong is the spelling of the error.

As in so many other periods of past stock market and economic dissonance, the leading suspect is the Federal Reserve and its tinkering with interest rates.

When the news from the economy is good, the market expects that the Fed will raise short term interest rates in pursuit of its governmental obligation to keep inflation in check. One would expect this to be a good thing — the Fed raises interest rates gradually so that the economy doesn’t overheat and cause prices to rise faster than productivity — but the market often has little faith in the Fed’s ability to moderate growth without precipitating a recession: good news on the economy translates to an overly aggressive Fed, an end to the existing expansion and a plunging stock market.

Bad news — or suspicions of bad news — on the economy suggests to the market that the Fed will remember its other governmental obligation (to maintain full employment) and either will keep interest rates steady or will lower them. Obviously, the market likes this latter scenario: lower interest rates mean lower capitalization rates, higher stock and bond prices and accelerating economic activity. And what effect this may have on inflation is apparently a concern for another day; to be fair, however, with a current inflation rate below 2%, it’s hard to argue that an acceleration to hyperinflation is an imminent risk.

On the subject of bad news or suspicions of bad news, there is much outside the U.S. to give the Fed concern. In fact, with the exception of the U.S., most of the world economy is decelerating or already in recession mode.

The Trump administration’s campaign of brinksmanship on tariffs and trade seems, for the moment, well timed: tariffs hurt everyone, but for the U.S., currently the largest and strongest economy — and the one least dependent on foreign trade — a trade war would appear to have favorable consequences. Unfortunately, being least dependent on foreign trade does not mean invulnerable: unintended consequences and unrecognized trading interrelationships could have dire consequences for the U.S. This and the other signs of slowing growth mentioned above have caused the Fed to announce that they’re postponing any new rate hikes and could possibly reverse those already in place. This is the primary reason behind the 17% return for the first half of this year.

If the Fed does reduce short rates in the second half of this year — the futures’ market has the odds at 100% that the Fed will cut rates at their next meeting in July and at 22% that the cut will be by .50% — then there’s a good chance that that troublesome inverted yield curve will disappear. It’s not necessarily the case that this would also propel the stock market higher or that long term interest rates would increase to more attractive levels: the stock market has already factored in the cut while the current yield on the ten year U.S. Treasury bond (only a shade over 2%) reflects more dollar strength and lack of competition from negative yields overseas than from concern over the U.S. economy.

Having said this, however, we should also mention that it is long past the time for higher bond yields. Early in our careers, there was a time when the ten year bond sported double digit yields — as high as 15.22% in September of 1981 — and we have witnessed the long zig-zagged decline in yields from that period. It’s probably too early to claim that a floor in U.S. bond yields has been reached, but if the bull market in stocks is long in the tooth, then the secular bull market in bonds has lost its teeth and is also missing a lower jaw.

In this investment environment, with stocks hitting record levels and bond yield curves portending a recession, “head scratching” may well be a useful response. It certainly suggests that caution should be the emphasis among investors over the next six months.

Rebalancing portfolios to long term goals makes a lot of sense: equity positions in balanced portfolios are likely above desired levels following double digit stock returns in the first half of the year.

In the fixed income portion of balanced portfolios, we recommend keeping maturities in the higher grade, intermediate term range (ten years or shorter): more than ever, now is not the time to reach for somewhat higher yields in longer term and/or lower quality bonds.

And although overnight yields are strongly rumored to be headed lower, we think a little cash would not be unwise. No one can accurately forecast the timing of a stock market crash or a long overdue increase in bond yields: having a little extra cash in reserve can soften the blow and allow investors to take advantage of lower prices in the future.

Not Investment Advice or an Offer
This information is intended to assist investors. The information does not constitute investment advice or an offer to invest or to provide management services. It is not our intention to state, indicate, or imply in any manner that current or past results are indicative of future results or expectations. As with all investments, there are associated risks and you could lose money investing.

“First, Do No Harm” AmeriTrust CEO Harvie Roe Discusses His Career and Investment Philosophy

BY: HARVIE ROE

President, AmeriTrust

(918) 610-8080

Harvie Roe, CFP®, is a pioneer in the field of fee-only financial planning, having worked since 1982 as a fiduciary for clients in his hometown of Tulsa, Oklahoma. He joined the Argent family in mid-2018 when AmeriTrust, where he’s been CEO since 1997, merged with Argent.

What were the circumstances behind AmeriTrust’s founding in 1997?

I’m a co-founder of AmeriTrust along with two other people and the only one who is still active in the company. Before AmeriTrust, I headed the trust departments at a succession of banks in the Tulsa area and went through about four mergers in five years. It just got to the point where we knew we couldn’t serve our customers the way we wanted to. So several of us started AmeriTrust 22 years ago.

What made your merger with Argent such a good fit?

We wanted to be with people who shared our philosophy of how to serve clients. We believe the trust business is very personal and is best served locally. We talked about this a lot during the merger process, and we continue to believe that Argent is serious about giving every client highly personalized service.

How has AmeriTrust changed since it merged with Argent in 2018?

During the time we’ve been under the Argent umbrella, we’ve been serving clients with the same style, the same people, from the same location and with the same phone number. Aside from us learning some new back-office systems, I don’t think our level of contact or speed of response to clients have changed. Where we’re strengthened is that Argent has a lot more services available, and having their institutional knowledge is also a benefit in that we have additional experienced people who can offer their advice on a particular client situation.

Do you have an investment philosophy?

I borrow a portion of my philosophy from the medical profession: “First, do no harm.” We try to make sure our focus is on how to help our clients accomplish their financial goals, and not keeping up with the fancy investment trend of the week. We want to protect the money our clients have and grow their assets along the way. We want to give people peace of mind with the least amount of risk.

Many of our clients are in their 60s or above. By the time people arrive at that transitional period of their lives, financial independence is very important. They want to make sure their bills are being paid and their money is safe. Sometimes that’s part of the job for us — putting the pieces of the financial puzzle together to make sure our clients have peace of mind.

One of the critical failings of the financial services industry is that advisors want to talk about investments, and how they have the “hot investment” that’s going to triple in two years. Very few advisors talk to clients about their lifestyles and whether or not their level of spending is feasible over the long term, based on the resources available to them. Instead of trying to accomplish the unrealistic goal of higher and higher returns, with higher and higher risk, we try to help clients adjust their lifestyles to get control over their spending if they’re living beyond their means.

What continues to inspire you about your job?

In many ways I feel blessed that I get to do something that I enjoy. I’m helping clients accomplish their financial goals and getting to share in their life journey. These are people whom we think a lot of, and hopefully they think a lot of us. It’s not just business.

It’s not uncommon for us to attend our clients’ bar and bat mitzvahs, weddings and funerals — we like being included in their inner circle. There’s true friendship there, and it’s based on a foundation of trust that we work to strengthen every day. We’re very conscious of that. The word “trust” can’t be overemphasized. You earn it every single day, and you can lose it in five minutes.

Trip of a Lifetime: Preparing Your Financial Road Map

BY: LAURIE SAINT

Assistant Vice President, Financial Planning
(405) 608-8007

Close your eyes and think back to the first time you were given a set of car keys. I imagine you felt a little bit like I did: a combination of excitement, freedom and a tiny bit of fear. Where will I go first? How will I get there? What if something unexpected happens along the way? Just like having a map is an essential guide when you hit the road, it’s important to have a guiding plan or authoritative voice to assist in creating a plan for your finances as well.

At AmeriTrust, we’ve designed our program to be an in-depth analysis of various components of an individual’s personal finances, with resulting recommendations targeted toward meeting a client’s individual financial goals. It can be viewed as a financial road map, identifying where a client is today, where they want to be and most importantly, how to get there. Creating a road map is the first step toward lasting financial wellness and independence. Here are three stops we pass along the way:

Start with ‘why’

Just like when you first open a map, the complexity of looking at your situation and trying to find the safest and most efficient path to success by yourself can be daunting. Our advisors begin with getting to know you first, before we get to know your numbers. What are your goals and dreams? We begin our work by looking at every piece of your financial lifestyle, from monthly spending and medical history to debt and assets in order to identify a fair and objective starting point.

Studying these parts of life that are rarely discussed publicly allow us to make comprehensive recommendations about income tax planning, cash flow management, investment portfolio, retirement planning, estate tax and distribution planning, risk management and education planning. Being honest about these facets of life with a trusted advisor is the first step to setting and pursuing the best financial plan for your unique situation.

Keep the end in sight

Once we’ve identified your starting point, it’s time to start dreaming about where you’ll end up! Just like the best part of a vacation is counting down the days until it starts, the best part about planning your financial road map is looking forward to the destination. Do you want to own your home? Give generously to your grandchildren’s college fund? Take that vacation you’ve always dreamed of?

Our advisors take the time to get to know you in order to facilitate your individual dreams and goals, giving you the freedom to concentrate on the steps needed to achieve them.

Discover joy in the journey

Anyone who has embarked on a road trip knows there are bound to be mishaps along the way. Our lives are full of these same situations, which is why our process is dynamic – designed to ebb and flow with the changes in your life. We like to consider ourselves as your financial co-pilot, constantly monitoring for upcoming changes, making recommendations for switching course or even just cheering you on in the right direction.

I am thankful for the opportunity to work alongside clients during their most joyful and most sorrowful moments, giving them the gift of peace of mind, knowing we have a plan for anything life may throw their way.

 

 

Financial Wellness Programs: An Essential Benefit For Employees and Employers

BY: RYAN BARNETT

Vice President, Retirement Services
(405) 608-8007

In my role as vice president of retirement services for Heritage Retirement Plan Advisors, I have the pleasure of speaking with employers and employees about saving for retirement and financial wellness. The benefit to employees is obvious: more financial security and less anxiety. The benefits to employers are less obvious, but just as important, because if employees’ money problems are not addressed, it can lead to higher health care costs, absenteeism and lack of productivity.

Financial wellness can be achieved through good financial decisions based on a basic education in personal financial management. Unfortunately, many people lack this understanding.

When I meet with people, the three most common problems I find are 1) debt management, 2) budgeting and 3) savings. The result is lost efficiency and absenteeism – both of which impact employers’ bottom line. In addition, financial stress can undermine an employee’s ability to complete projects efficiently.

That’s why many organizations are now seeing the ROI of financial wellness programs that go beyond understanding traditional 401(k)s to offering support, information and training that address a broad range of employee personal finance concerns. And high-touch methods like one-on-one coaching, seminars and phone support are some of the most effective for delivering personal financial education to employees.

Employers are concentrating on finding ways to incorporate financial health into broader initiatives that include physical, emotional and social well-being. These initiatives include helping new-to-the-workforce individuals pay off their student loans and assisting near-retirees with navigating the retirement process – offering tools, resources and educational campaigns designed to help workers gain more solid financial footing.

For example, I had a client who had a large number of employees who were at or nearing retirement age. While salary deferral rates were strong, many of the employees were not financially ready to retire because of several important factors outside of the retirement plan, such as outstanding loans, credit card debt and medical expenses.

To help address these concerns, our team created and coordinated a targeted communication plan where wellness coaches sat down and evaluated everyone’s financial issues one-on-one. Then, we developed a customized program for each employee, with definable metrics to measure and monitor improvement.

The key to this program was to look beyond the spreadsheets of participation rates and plan balances, and treat employees with the care and concern normally reserved for close family members. By doing so, we dramatically improved each individual’s situation, which had a direct effect on their emotional and financial well-being.

There is no “one-size-fits-all.” Each employee has unique needs, so employers should provide a program that encompasses a range of options, including basic information about investing and saving, as well as topics like paying off student debt, estimating a family emergency fund and planning for health-care out-of-pocket needs. And it’s never too early or late to evaluate future retirement income savings goals.

The important thing to remember is those who have bad financial habits did not create them overnight, so they cannot be fixed overnight. Taking small steps toward addressing each topic will help avoid employees feeling overwhelmed. I enjoy the fiduciary responsibility and opportunity of working with employers to establish a tailored plan that allows employees to create healthy habits which will reduce financial stress and ultimately increase the bottom line – for everyone.

Setting Expectations: How Risk Affects the Return on Your Investments

BY: JOHN MCCOLLUM

Chief Investment Officer
(405) 608-8662 | jmccollum@argentfinancial.com

The idea of expected return is critical to making investment decisions. Expected return is simply the annualized growth and income an investor expects to receive on a particular investment, over the time the investment is held. The term is often applied generically to classes of investments like stocks or bonds.

All other things being equal, the higher the expected return, the more attractive the investment. That’s pretty simple, but as we all know, all other things are not equal. The first “other thing” that investors must be concerned with is risk. Academics and many finance practitioners define risk as the volatility of returns. Volatility (the actual academic term is standard deviation) is, simply put, the expected range of possibilities for the value of an investment over a certain period of time.

A simple investment, such as a $1,000 bank deposit guaranteed to pay 2% for a year plus the return of the $1,000 at the end of the year, has almost no risk. And so, we are able to calculate with great precision the value of such an investment at the end of each year. A bank account is a very safe investment and has nearly zero volatility.

At the other extreme of risk might be an investment in the stock of an early-stage technology company. Very generally, the stock price (I have intentionally not used the word value) of a technology company represents the market’s expectation for earnings (and dividends, if any) and how fast these might grow many years into the future.

These expectations for growth and earnings can change rapidly and sharply due to changes in sales, new products, competing products, new regulations, and a host of other factors. As investors digest ever-more information, the stock prices of these companies can change rapidly. Both up and down. This volatility, which comes from an uncertain future, is one important form of risk.

The real risk for most of us in making investments, however, is the risk of losing money. And to be more specific, it’s the risk of losing purchasing power. Not only do we need a return of our investment, we need a return on our investment in order to keep up with inflation and the rising prices of clothing, housing, and other necessities (including comfort). And the kinds of investments likely to keep up with inflation are usually not the investments that have near perfect certainty about their future values (like the bank account).

We certainly want to avoid investments where the probability of losing money is too high. But sometimes, in the right proportions, a collection of riskier investments, including some that unfortunately turn out to be losers, makes sense. Howard Schultz, the founder and former CEO of Starbucks, once said that in 2008 he believed his company was seven months away from insolvency. There was a real risk that an investment in Starbucks at that time would end up as a total loss. Instead, 11 years later, the company is now worth $50 billion.

Many investors have come to believe that common stocks offer very good expected returns. They do – but they come with volatility. Stock prices don’t go up in nice straight lines and often they go down. To earn the high returns that common stocks can offer, one must be prepared to give them time – certainly more than five years – and be prepared for the times in between when owning stocks doesn’t feel very good.

Contact us to learn more about our investment management services.