SCHOOLED: The SECURE Act Passed the House with Flying Colors. Why it’s Failing in the Senate. (And why that matters.)

On May 23rd, in a blue moon, bi-partisan, super-majority effort, the House passed a bill intended to encourage retirement savings. It appeared to be that simple. Even elementary. Given the passage of the bill by a vote of 417 to 3, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, seemed a sure thing for quick approval in the Senate.

But…Not. So. Fast. The bill has been suspended in the Senate due to “holds” placed by several Republican senators which have stalled its expedited passage under “unanimous consent” and, instead, re-routed it through committee consideration and a more typical schedule of floor debates and votes. And why would Senator Ted Kruz (among others) object to the bill?

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What Keeps You Up At Night? Mind your Ps and get some Zzzs.

If your personal finances keep you up at night, you’re not alone. Bankrate research conducted in 2018 reported that seven in 10 Americans have occasional sleepless nights due to worry. Concern over money was a concern for more than a third of worriers.  By the way, the number one cause of worry (41%) was relationships. The phone calls we received over that last year corroborate those findings. We fielded calls and emails asking:

  • Will the deep state bring down our country?
  • Will Congress ever work together for a common good again?
  • Will changing social values and norms weaken families?
  • Will rising debt, foreign crises and world economics erode our financial markets—and with them, our financial security?

Few (if any) of the questions were rooted in hope for the future. Instead, most of the questions were incited by a steady stream of sensationalized headlines meant to breed fear. We realized that the questions weren’t truly about the deep state and global market meltdowns. The underlying question was this: “How can I deal with the anxiety I’m feeling about the future?” Now that’s a million dollar question. It’s a question that can keep you up at night if your planning isn’t built with the three Ps: proper Perspective, established Process and enduring Principles.

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Surprise! (Surprise Again!) Three factors pension plan sponsors should consider as the IRS makes (another) surprise move on lump sum payouts.

In a surprise move during the summer of 2015, the Treasury Department and the IRS announced that defined benefit (DB) plan sponsors would be restricted from offering lump sums to retirees receiving annuity payments. The reasoning behind this move seemed clear. Asking retirees to choose between continued annuity income and a lump sum, given the retirees’ general informational disadvantage, seemed to introduce potential conflicts. During that time and under President Obama’s administration, the IRS expressed concern about participants being shortchanged on the value of their vested benefits if they switched from life-long monthly payments to a lump-sum distribution once payouts were underway. This protection also kept the investment and longevity risks of pension plans squarely on the shoulders of plan sponsors. So while the suddenness of the move was unexpected, the rationale was consistent with the protective stance that U.S. regulators have adopted with regard to DB plans.

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3(21) or 3(38). Whatever it Takes. Understanding Fiduciary Responsibility.

 

In the 1983 film Mr. Mom, Michael Keaton plays a downsized auto engineer named Jack who tends the homefront while his wife, Caroline, goes to work as the family breadwinner. When Caroline’s boss arrives to pick her up for a business trip, Mr. Mom, chainsaw in hand, leads him to the renovations ongoing in the house. He asks Jack if he’ll be wiring the house for 220 volts, and Jack replies with the movie’s signature line: “Yeah, 220, 221—whatever it takes.”

ERISA plan management is increasingly complex (and sometimes litigious). It’s no wonder a plan sponsor might say their investment adviser is serving as a fiduciary—yeah, a 3(21) or 3(38) fiduciary. Whatever it takes. The understanding of the two may be unclear, but it’s not unimportant.

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Highland Welcomes Barbara Myers, CFA

Barbara Myers

We are delighted to introduce you to Barb Myers, our newest consultant at Highland Consulting Associates.

While Barb may be new to Highland, she has over 30 years of experience. She is a pro in the world of investment management, especially in the areas of research, asset allocation and portfolio construction for institutional and individual investors.

In her longstanding role as head of investments and portfolio management of KeyBank’s nonprofit group, Barb managed the bank’s largest institutional accounts, select private clients, and a team of portfolio managers, overseeing more than $5 billion in assets under management. In recent years, Barb expanded her investment responsibilities further to include the bank’s wealth management clients nationwide. As Chief Portfolio Strategist she developed the portfolio construction process for the private bank and managed the team of multi-strategy research analysts.

Barb has joined Highland to apply her experience and know-how doing what she loves most, and that’s “the important work of helping organizations grow their resources to accomplish their objectives and achieve their goals—whatever those may be.”

Barb sees her role as a catalyst, giving lift to the important work of the clients she serves. “I’ve been privileged to witness the amazing work done by so many generous people,” said Barb. “My hope is to positively impact the financial resources of those charitable organizations, corporations, and individuals so they may contribute in greater ways to their communities, the lives of their employees, or the worthy causes to which they’re dedicated.”

We do hope you’ll have the opportunity to meet her. Welcome to Highland, Barb. [Click to Continue Reading...]

How’s your Relationship with your Money?

The Complicated Relationship between Women and Money

Research shows that when you ask a woman about her relationship to money and investments, she’ll likely say, “It’s complicated.” It sure is.

In the 1980s, a woman-empowered commercial for perfume said that women could “bring home the bacon, and fry it up in a pan…and never let you forget you’re a man” To that we say, you have come a long way, baby.

A few decades later, women are not only bringing home some bacon, almost 4 in 10 are the primary breadwinners for the family.

And there’s more:

  • 51% of women report they are CFO of the household, making daily spending decisions and managing family budgets and cash flow.[1]
  • 53% have responsibility for managing the household’s long-term saving and investments.[2]
  • Women control the majority of private wealth in the U.S. (at 51% of the total, or $14 trillion) and that share is expected to grow to $22 trillion by 2020.[3]
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    Highland at 25

    When Highland Consulting Associates opened its doors on December 1, 1993, there were associates, technically speaking. But only three of them. And instead of operating out of well-appointed offices overlooking a bustling, mixed-use lifestyle center, they worked in an office park looking out at a major interstate.

    To further elaborate, they punched a hole through the wall between two of the offices. (Who had money for an intercom system? Texting? What’s that?) Highland’s office furniture was the best money could buy—from a used office equipment warehouse.

    Highland then didn’t look a lot like Highland does today, 25 years later, at least on the surface. But like most enterprises that have stood the test of time, there was something unshakeable at its core. An idea, which was actually more of a conviction, that investors could be better served.

    “It seems simple today,” says Rich Veres, a founding partner, “but it was a lightbulb moment which quickly became a calling: Clients should have the focus on them. We knew technology was revolutionizing the industry and that we could help clients, serving as fiduciaries in each and every client relationship.” At the time, five of them.

    Today, Highland has multiplied the number of clients on its roster and the assets under advisement, but they haven’t strayed from their commitment to independent, conflict-free advice.

    Marc Williams, Rich’s counterpart through the hole in the wall, put it this way: “We were passionate about our mission to earn our clients’ trust. We still are. We never want clients to question our motives. Ever. We want to get paid for what we know, not what we’re selling.”

    Rich recalls clients asking if they were really being paid only the fees they earned for providing investment advice. The answer was and is still “yes.”

    Of course that means you have to hire a bunch of really smart people to prepare and deliver the advice.

    Marc recalls that when he, Rich and their fellow partner, Bill Kinde sketched out the business plan, they didn’t foresee a problem getting clients, but getting people.

    Highland found a number of clients the old-fashioned way. “We put a hundred letters in the mail one week,” recalls Marc. “The next week, we’d make a 100 phone calls. We were so passionate about our work, we never had a bad day. We had better days, but never a bad day.”

    They found Highland “associates” more opportunistically, hiring quality individuals believing the business could and would support the addition even before there was an opening to be filled.

    Rich recognizes these co-workers, most of whom have been a part of the team for well over 10 years as “professionals who have made a tremendous effort—even a sacrifice to grow Highland’s business. It’s a great group of colleagues and we consider ourselves fortunate to link arms with them every day.”

    In this case, “team” is the operative word. As an example, unlike many businesses that direct clients to an individual’s extension, Highland still asks clients to dial into a main number that is always answered promptly. It seems a small distinction except in this: Clients are served personally. By a team of people who know them by name.

    Talk to any member of the Highland team and they’ll tell you what motivates them.

    Kelly O’Hara, the fourth Highland employee says, “We never forget that each of our clients have an end user. For our nonprofit and corporate retirement plan clients, it’s employees and retirement plan participants. For our foundations and endowments, it’s the beneficiaries of their mission. For our private clients, it’s the next generation. When I come to work every day, I know what the end goal is.”

    Rich has said the trio who started Highland back in 1993 were like the movie “Three Men and a Baby.” At 25, the baby’s all grown up, but the idea is evergreen. And the next 25 years look as promising as the 25 that will be commemorated in December.

    As Kelly says, “It feels like we just started. There’s still so much to do.” [Click to Continue Reading...]

    Building a MODEL Investment Committee

    The composition of the investment committee is as important as the development of a nonprofit’s investment policy and its portfolio design. Without thoughtful and intentional planning, the committee appointed to expand a nonprofit’s influence and reach can sometimes encumber the organization and limit its impact—an outcome to which no one aspires.

    Using MODEL as an acronym helps us consider the essential elements for building an effective investment committee.

    Membership

    The size of the committee can either improve its agility or slow it considerably. Our experience suggests seven or fewer members tends to work best, keeping in mind that an odd number of formal voting members will ensure the committee’s never locked in the stalemate of a tied vote.

    Optimal Term

    Closely related to the number of committee members is the preferred length of service. The opportunity to serve should be limited to two, three-year terms, with, at a minimum, a year’s break before a member can serve again. (In addition, a term renewal for that member should require a committee vote.) The three year term allows a member to develop proficiency over time as senior members mentor junior members.

    Term limits help to reduce complacency and fatigue and curb the decision-making domination of one long-standing member over more recent appointees. A regular influx of new members resulting from term limits protects against stagnation and encourages the flow of new ideas.

    Diversity

    Often investment committees can benefit by resembling the very organization they are appointed to represent. Committees may lack the diversity in gender, age, ability, race and ethnicity that makes for robust discussion among a heterogeneous group who reflect the broader community. This missed opportunity can be more pronounced in organizations with larger asset pools that attract investment professionals, but less likely to have members with direct community involvement and awareness.

    To this point, a recent BoardSource report revealed that nonprofit boards (not exclusively investment committees) are no more racially and ethnically diverse than they were two years ago and, more surprisingly, little changed from when the survey was first conducted in 1994. The report summarized simply that “a board’s composition is a reflection of its values.”

    Expertise and Engagement

    Diversity also encompasses the breadth of expertise and experience on a committee. This includes participation of members with financial services backgrounds and those without. Look for experience that is complementary and anticipate the gaps in experience that could arise when terms of service expire.

    While it’s the norm that some members will be investment and financial services professionals, the complement to them are members with expertise in nonprofit programming. These members understand the pressures of meeting community needs and meeting payroll. Consider additional backgrounds that have direct community involvement and are close to your cause.

    As a final note here, it’s important to know if any members have formal ties to a brokerage or bank, remembering that impartiality is a fundamental fiduciary responsibility.

    Engagement is the expectation that every member should be fully involved during their time of service: attending meetings, active in discussion and offering their informed perspective. Their engagement should be met with an equally engaged nonprofit support staff, providing necessary materials ahead of time, establishing the right frequency of meetings and running them efficiently. Establishing a quarterly meeting calendar serves both committee members and nonprofits well.

    Beyond meetings, fully engaged members often serve an ambassadorial role, too, taking part in fundraising and community outreach.

    Legacy

    While the term of the committee members may be limited, their contributions are not. Member service and advocacy ensures the vitality of the organization far into the future.

    A model investment committee will be composed of members who share a common passion for the organization and its mission. Stoking that passion is an ongoing objective that should be an organizational priority and one that can be accomplished by regularly sharing the stories of lives forever changed in the communities the organization serves.

    With this testimony, everyone – the organization, its donors, and the board and investment committee – reaps the reward of strategic investment for the greater good.

    Highland Consulting Associates is celebrating its 25th year of serving our clients with objective, conflict-free counsel. Call us if you’d like to discuss your goals for your organization’s investments. [Click to Continue Reading...]

    Twists and Churns: Annuities No Sure Path to Retirement Readiness

    On every path to retirement security, there should be a blinking sign that reads: “Annuities This Way: Proceed at Your Own Risk.” Which is an entirely appropriate retirement planning thought.

    What’s your appetite for investment risk? If you’re risk averse, it would appear that annuities are an iron-clad, guaranteed, safe investment option. They may be. They may also rope the plan participant into needlessly long investment commitments for which investors pay excessive fees. But not always.

    That’s the problem with annuity contracts: too few investors know exactly what they’re buying. And that makes the annuities route to retirement a difficult one to navigate.

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    Who will inherit your wealth? Your heirs or the IRS.

    Consider these three facts:

    1. Americans held $7.9 Trillion in IRAs by the end of 2016. (2017 Investment Company Institute Fact Book)
    2. With more than 10,000 baby boomers retiring every day, we are on the cusp of an historic intergenerational wealth transfer that could total as much as $3.2 trillion. (RBC Wealth Management Survey.)
    3. As much as 30-80% of an estate could be made up of IRAs or other retirement plan assets according to most estimates.

    And, let’s add a fourth fact that is worth considering: Only 3 in 10 of families have a wealth transfer strategy in place.

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