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How Your Charitable Donations Can Have the Greatest Effect

BY: MINDY HIRT
Vice President / Wealth Advisor
(615) 385-2718 
|  mhirt@argenttrust.com

Mindy Hirt

With the holiday season now in full swing, many of us are thinking about what we can do to help the less fortunate.

Charitable giving feels good to do and can make a big difference to organizations that rely on donor contributions for a large portion of their operating budgets. Around this time of year, there tends to be an increase in “checkbook giving” — writing a small check to a charity, sometimes in response to a mail solicitation. It’s quick to do and requires very little effort.

As we’re planning our donations, though, it’s good to keep in mind how a well-considered financial strategy can make these charitable dollars go further, as well as provide some benefits back to the donor in the form of tax breaks. Many of our clients at Argent are charitably inclined. Whenever we know someone has an interest in giving, whether it is to a religious organization, educational institution, health and human services or other nonprofit, we have conversations about tax-advantageous ways to help those donations have the greatest effect.

Here are a few of the most popular options available:

Donating stock or other property: By donating stock that has increased significantly in value since it was purchased, you can receive important tax benefits. The primary one is avoiding a tax of up to 23.8 percent that you’d normally pay if you sold the stock (the 20 percent capital gains tax, plus the Affordable Care Act tax of 3.8 percent). A charity, on the other hand, could receive the stock as a gift from you, sell it and pay zero capital gains tax. This benefit also applies to other types of assets as well.

IRA distributions: We have a number of clients with individual retirement accounts (IRAs) who are age 70½ or older and must take minimum required distributions from their accounts. Distributions are normally taxed at the IRA owner’s ordinary income bracket — which could be as high as 37 percent, meaning the person may only receive 63 percent of their money after taxes. By giving some or all of your IRA distribution to charity (up to $100,000 per year), you can fulfill the yearly distribution requirement while making your dollars go further than they would if you received them directly.

Donor-advised funds and foundations: Donor-advised funds can be a smart way to receive the tax benefits of a charitable contribution even if you haven’t decided on a recipient for your money. The barrier to entry for opening a donor-advised fund is low — only $5,000 — and once you’ve made the contribution, it can be maintained for your lifetime. One important note: Once you contribute to a donor-advised fund, it’s technically no longer yours, so you can’t change your mind about donating. However, you can designate what charities receive distributions and the amount. Management fees for these funds are in the 1 percent range, which is very affordable.

Private foundations also allow donors to make a gift in the current tax year without selecting a specific charity as a recipient. Foundations are more complex to set up than donor-advised funds but are intended to last for multiple generations and allow donors a higher degree of structural flexibility. Foundations also differ from donor-advised funds because minimum distributions of 5 percent annually must be distributed to charitable beneficiaries.

Charitable lead trusts/charitable remainder trusts: Charitable trusts can also be a way for clients to structure donations and receive income. With a charitable lead trust, a charity receives distributions from the trust for a finite time — 10 or 20 years, for instance — after which the beneficiaries receive any remaining assets. A charitable remainder trust works the opposite way — beneficiaries receive income from the trust for a lifetime or specific number of years, after which the principal is donated to charity.

Timing donations: With the 2017 tax reform, the timing of when you donate is even more important. Clients can often benefit from “bunching” or “bundling” their charitable gifts for a number of years into one taxable year. This strategy allows the donor to itemize deductions in the year of the “bundled” charitable gift (often done through a donor-advised fund) and use the standard deduction in those years that donations are not made. In total, the deductions can be maximized over multiple years.

Each donor’s personal financial picture and charitable goals will ultimately make the difference in which route they choose. The first step should be a conversation with a wealth advisor who can offer personalized recommendations before the donor meets with their CPA or attorney.

The Morning View: November 19, 2019

BY: MARSHALL BARTLETT
Senior Vice President / Portfolio Manager

 Announced this morning, Housing Starts indicated there were 1.314 million units started in October, an increase of 3.8% over the previous month. While a bit below forecasts, units rebounded from previous levels and growth was seen in both single family and multi-family homes.  Meanwhile, Building Permits indicated there were 1.461 million permits issued in October, an increase of 5.0% over the previous month, above forecasts.  While housing is only a small portion of GDP, less than 4%, it is an interest rate sensitive portion of the economy and it is reassuring to see it rebound given the recent rate cuts by the Federal Reserve.  Should housing figures continue to strengthen, it could provide additional support to the slow growing economy in the months ahead.  In all, bond yields ticked slightly lower following the report and equity futures remained higher heading into the market open.

 

This material is intended to be for informational purposes only and is intended for current or prospective clients of Argent Trust Company. This information is obtained from sources believed to be reliable, and its accuracy and completeness are not guaranteed. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor. Forward-looking assumptions are Argent Trust Company’s current estimates or expectations of future events or future results based on proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information. Investments can go down as well as up. Past performance is not a reliable indicator of future results.

The Morning View: November 15, 2019

BY: MARSHALL BARTLETT
Senior Vice President / Portfolio Manager

In this morning’s data, Retail Sales for October rose 0.3% slightly higher than the 0.2% expected. Strength was seen in autos and non-store retailers. The Control Group, which excludes sales for food, autos, building materials and gas stations, also rose 0.3% in October, matching forecasts. However, the control group for the previous month was revised lower to -0.1%. Overall, even with the previous month revised lower, consumers continue to carry the load for the economy as the manufacturing sector and business investment have waned in recent months. Uncertainties surrounding trade negotiations, impeachment hearings, the upcoming election, and “Brexit” will likely continue to weigh on the minds of business leaders in the months ahead. As a result, the  consumer will remain in focus, especially as we head into the holiday season. In all, bond yields have ticked slightly lower following the report and equity futures are higher heading into the market open.

This material is intended to be for informational purposes only and is intended for current or prospective clients of Argent Trust Company. This information is obtained from sources believed to be reliable, and its accuracy and completeness are not guaranteed. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor. Forward-looking assumptions are Argent Trust Company’s current estimates or expectations of future events or future results based on proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information. Investments can go down as well as up. Past performance is not a reliable indicator of future results.

Avoiding the Debt Trap for Your Child’s Higher Education

Originally published on Kiplinger.com on November 8, 2019

BY: DAVID REDDING, CTFA, AEP
Austin, TX Market President, Argent Trust Company | (512) 478-3188

It is the dream of many parents for their children to attend college after graduating high school. However, as many of us have experienced, the cost of higher education continues to climb and is making it difficult, if not impossible, for many families to send their children to college.

I witness this frustration in many of my clients as we work through financial plans to take care of their needs today and their goals in retirement, while also funding educational expenses for their children and grandchildren. It’s increasingly challenging to guide my clients through a plan that will allow them to successfully navigate all of these goals, primarily due to the rising cost of higher education.

According to U.S. News and World Report, the average cost of tuition and fees in 2019-20 for private colleges is $41,426. At public colleges, it’s $11,260 for in-state residents and $27,120 for out-of-state students. When room and board, transportation and other expenses are added in, the average cost of a four-year education from a state school, for in-state residents, can be greater than $100,000. The average cost of a four-year private university can easily exceed $250,000. Though most schools provide scholarships or financial aid to reduce the overall “sticker price,” the cost can still be daunting.

Start saving early

If you believe your child or grandchild will attend college, the first step is to start saving early. I almost always recommend a 529 college savings plan. These plans are easy to use, allow for tax-free or tax-deferred growth, and are offered by most mutual fund companies.

A great tool to research different state-sponsored 529 plans is www.savingforcollege.com. This site provides a lot of information on how to best save for college and get the most out of a 529 plan. Bottom line, $250 a month put into a plan earning 7% for 18 years should grow to around $100,000, which may not cover all the cost of college, but it will certainly help.

In many cases, debt is the only way to pay for the high cost of a college education, but I recommend to my clients to avoid debt if at all possible. Post-graduation debt is at an epidemic level in this country. According to the College Board, the average student debt balance for four-year public schools is $26,900, and $32,600 for private schools. This debt is carried by the student and does not include any debt that their parents might have also incurred to put their children through school — possibly jeopardizing their own retirement. So, start saving early!

Is college the right fit?

The second step is determining if your child will really benefit from a four-year degree, or if some other type of job experience or trade school might be a better fit. The days of going to college for the “experience” is a thing of the past. It is simply too expensive.

Parents should also determine if their child is ready for college. Many are. However, a year or two in college at a cost of $25,000 to $50,000 per year can be a big waste of money if the child doesn’t know what they want to do, or simply isn’t ready for the rigors of college-level classes. A “gap year” (or two) is becoming more the norm, giving young adults valuable life skills in a full-time job for a year or two out of high school. In many cases, they can save money to partly defray the cost of attending college.

I can assure you that young adults who use their own money to pay for tuition, books or even spending money will be much more frugal than their parent-funded colleagues!

Understand your ROI

Third, figure out the real cost of college and the potential return for the degree that is being sought. This can vary greatly, but determining a “return on investment” is necessary, due to the high cost — and is especially important if any debt will be carried by the graduate after college. What is the cost versus the most likely salary for a position in the field they are studying? What is the predicted need for jobs in the field of interest upon graduation?

I frequently work with couples who make too much money to qualify for grants or FAFSA assistance. In their cases, their child is often not in the top 10% of their class and didn’t score in the top tier on the SAT or ACT; therefore, the child is not eligible for performance-based scholarships, and is also not a five-star athlete being recruited to play Division I sports on a full ride. Unless there is a large amount of family money from which to pay the expense, we have to get creative.

One family’s creative solution

One client of mine was able to achieve their child’s desire of going to the college of her choice — and did so in a very financially responsible manner. Their daughter was bright, but not in the top 10%, so automatic acceptance to the university she wished to attend was not offered. She wanted to go to Texas A&M University, which her father and great-grandfather attended, but the competition was very tough.

She decided to deviate from the traditional path in high school of taking the AP and pre-AP classes that could give her GPA a boost. Instead, she took “dual credit” classes that were offered by a local community college at her high school. She graduated high school with 24 college credits, almost a full year! The cost of these college classes amounted to the cost of the books she needed to buy, so they were basically free.

She then enrolled in Blinn College, a two-year school that is known to work closely with Texas A&M to help students transfer when their two years of mostly prerequisite work are done. She completed all of her core classes at Blinn, made excellent grades, and was accepted into the Education program at Texas A&M to complete her junior and senior years.

The tuition at Blinn was $2,500 per semester, versus $7,500 at Texas A&M. The total cost of her four-year degree will be approximately $65,000, or roughly half of what four years at Texas A&M would have cost, including tuition, fees, expenses, room and board, and transportation.

I share this story as an encouragement to show that there are unconventional ways to accomplish the same goal. With the cost of higher education continuing to rise, more and more of these unconventional paths will need to be explored. So, start saving early and do everything possible to avoid the debt trap for education.


David E. Redding, Market President and Senior Wealth Advisor at Argent Trust Company, helps clients navigate the complex world of estate planning, trust administration, wealth transfer and closely held business strategies. His 30 years of experience in the industry give him a depth and understanding to tackle real life problems faced by high net worth families as they plan for the transition of business interests and wealth to future generations.

Why a Lifetime Trust Might Make Sense for Your Family

BY: CORT H. BETHMANN, JD, LLM
Wealth Advisor, Argent Trust | (615) 591-4002

When I partner with clients and their attorney to set up their estate plans, one question that comes up frequently is the best strategy for passing their wealth to their children after their death.

The answer to that question can be different in each family situation. Some of our clients choose to give their money as an inheritance. Others structure their trusts so that when their children reach a certain age, the trust starts paying out portions of the principal, and the remainder is provided after the parent passes away.

Many of our clients aren’t aware that there’s a better option available — lifetime trusts. These are truststhat, as the name indicates, last through the lifetime of their beneficiaries.

Despite a host of reasons why a lifetime trust might be in your beneficiaries’ best interest — a few of which I’ll go through in a moment — clients hearing about them for the first time often wrestle with the idea. There’s a general perception that giving assets to your children in trust conveys the underlying message that they aren’t trustworthy. Because of that, many clients prefer to give their money outright as long as their children are old enough to handle the responsibility.

But leaving money in a lifetime trust has nothing to do with trustworthiness. A well-maintained trust can support a family for decades to come, ultimately giving your beneficiaries all the control they could want, while providing them some important protections as well.

One key benefit of a lifetime trust is that it can ensure that a family’s money stays protected in case of a divorce. When a mother and father set up their trust, they intend for their money to go to their son or daughter, then on down the biological tree.

However, consider the possibility that after you give your assets outright to a son or daughter, they are divorced from their spouse. All those assets could be brought into the marital estate and divided between your child and their ex-spouse. You may love your daughter-in-law or son-in-law, but you probably also want your children to keep the wealth that you’re passing down to them.

Other scenarios could be that a son or daughter gets in an accident or hurts somebody, gets into debt or has a business deal that goes bad. In those cases, assets handed down from their parents would be subject to creditors — unless they’re kept in trust. These situations are the kinds of things you think will never happen, until they do.

One major issue surrounding trusts is who ultimately has control over the money. Clients often want their children to be the designated trustee — and in many jurisdictions, including Tennessee, where I’m located, the laws do allow for a trust’s beneficiary to serve in that role. Although the money is held in trust and the trustee has to abide by certain rules to access it, they can make distributions from the trust for their own health, education, maintenance and support needs.

I suggest to my clients that, if they choose to go this route, they first sit down with their children and communicate the reasons why they want to leave their money in trust. The key is communication — explaining to the children that this arrangement isn’t a negative reflection on them, and legally protects them from unexpected future life events that may threaten to take away their inheritance.

If you decide to put your money in a lifetime trust, one important thing to know is that once in place, it’s irrevocable — meaning that it can’t ever be altered. So it’s very important to have a good team of legal and financial advisors involved in creating the trust to make sure that everybody is on the same page.

In many client situations, the benefits of a lifetime trust far exceed the drawbacks, providing your family financial protection and control for many decades to come. If you’re considering a lifetime trust for your family, I’m glad to answer any questions or discuss them with you further. Give me a call at (615) 591-4002.

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.