The Hendershot-Frederiksen Group

Transcription

1 The Hendershot-Frederiksen Group Discussion materials Prepared by: Paul Hendershot, Senior Portfolio Manager, Financial Advisor Carsten Frederiksen, CFP, Financial Advisor

2 Contents I. The Hendershot-Frederiksen Group at Morgan Stanley Wealth Management II. III. IV. Wealth management in an uncertain world Our core values Our services Financial planning Customized asset management Liquidity event pre-planning 10b5-1 Preset Diversification Program for executive stock compensation Our service model

3 I. The Hendershot-Frederiksen Group at Morgan Stanley Wealth Management

4 The Hendershot-Frederiksen Group Paul Hendershot Financial Advisor Senior Portfolio Manager Carsten Frederiksen, CFP Financial Advisor CERTIFIED FINANCIAL PLANNER Cindy Andreasen Senior Client Service Assistant Coordinates the Group s day-to-day administration Focuses on high-quality client service with attention to detail Leads the Group s investment research Leads the Group s financial planning Began career as a Mergers & Acquisitions banker at Credit Suisse in New York; advised corporations in connection with more than $30 billion worth of mergers, acquisitions, IPOs, and bond offerings Subsequently recruited by Highland Capital Management in Dallas; served as a member of a 11-person team managing several billion dollars worth of equity and fixed income portfolios Awarded an academic fellowship to pursue the Ph.D. in Economics at Johns Hopkins University; after completing all coursework required for the Ph.D., Hendershot left the program with a Master s Degree in order to pursue his career in finance Coordinates our clients various financial needs: investment management, financial planning, estate planning, insurance, lending Selects all client portfolio investments in conjunction with the Group s Senior Portfolio Manager, Paul Hendershot Began his career as a Trade Broker Manager at Lanelogic LLC in Dallas Bachelor s degree in Finance and Supply Chain Management from TCU Key volunteer with Special Olympics Texas Avid soccer player and golfer Currently serves as Treasurer of The Dallas Chamber Music Society 3

5 II. Wealth management in an uncertain world

6 An investment landscape challenged with risks The current global economic backdrop has led to an unprecedented degree of volatility and uncertainty for investors. Information moves instantaneously, and even unimportant information can have immediate consequences for financial markets Record U.S. government debt; servicing this debt could lead to: Reduction in Medicare and Social Security benefits Tax increases Inflation of dollar to payoff debt; consumer prices in the U.S. have increased more than 2,000% since records began in 1913 U.S. dollar depreciation; 14% since 1973 Geopolitical risks; war and terrorism Peer pressure to follow and keep up with the crowd Many individual investors thought they were making permanent gains for several years during the 1990 s technology boom; then the bubble burst If you want a different outcome, the path along the way must differ from what the majority does, and annual results will deviate from stock indices Basing investment decisions on circumstances that no longer apply E.g. fixed income investing in the falling interest rate environment of the 1980 s through 2015 versus interest rates over the coming decades Complex investment funds without adequate understanding of process, lack of liquidity and transparency; if there s not much liquidity in good times, how much will there be in bad times? Insufficient savings 5

7 Wealth management strategies for an uncertain world Succeeding as an investor in today s economic climate requires disciplined adherence to a proven strategy of success that must fulfill several stringent criteria. While we are optimistic regarding the long-term trajectory of human ingenuity and progress, there will be continuous short-term crises and problems along the way No one can guess the short-term, so trying to time the market and move in and out of investments won t work Doing nothing and sitting in cash isn t an investment strategy it s a strategy for failure (inflation over 2,000% over the past 100 years) Thus the key to investment success is to own assets with the following characteristics: 1. An established track record of operating successfully through a continuous stream of unprecedented crises (decades and centuries) 2. Geographic diversification to capture growth in the global emerging middle class and protect against expected declines in the value of the U.S. dollar 3. Products and services that fulfill a basic necessity of human civilization; NOT fad or popularity-driven products and services 4. Investments with strong earnings vs. those without earnings 5. Investments that are easy to understand 6. Investments in productive assets with a history of increasing cash flows to investors, even during recessions 7. Complete transparency and liquidity: know everything you own and why; be able to sell any time you need money 6

8 III. Our core values

9 Our core values Our core values define who we are and describe what our clients can expect from a relationship with our Group. We emphasize the importance of an investment s safety, while surmounting what we view as the major risks to retiree lifestyle: inflation, rising interest rates, depreciation of the US dollar, rising taxes, potential entitlement reductions (Medicare, Social Security, Pensions), and not sticking to an appropriate investment strategy We focus on providing our clients with dependable, reliable and consistent advice to help them achieve their financial goals We employ a personal, custom approach to financial planning and asset allocation Honesty is always the best policy and trust has to be earned We do not use of high fee, opaque, and illiquid investment products If someone trusts us with their money, they deserve to hear from us on a regular basis. We proactively contact our clients, and pride ourselves on the fact that our clients don t feel the need to call us to ask what s happening with their investments We aim to keep our clients out of financial bubbles popularity does not justify an investment Advisors should invest their personal money according to the same principles they recommend to their clients. That is what our Group does We believe in a compensation arrangement that incentivizes us to grow our clients wealth We define risk as the possibility of permanent loss of capital 8

10 IV. Our services

11 Financial planning: the confidence to pursue your goals starts with a financial plan Benefits of Customized Wealth Management Process: Holistic: Integrates the advice of clients external advisors (including but not limited to lawyers, accountants, tax preparers and other financial advisors) with that of Morgan Stanley to create a comprehensive solution Educational: Aims to ensure that clients understand how all facets of their strategic plans work together Objective: Independent group situated to leverage the intellectual capital throughout the Firm (for clients with $5mm or more of investible assets) 1 Discovery Process 5 Ongoing Assessment of a Family s Portfolio and Wealth Management Needs 2 Formulation of Tax, Trust & Estate Strategy with appropriate advisors 4 Implementation of the Customized Wealth Strategy 3 Creation of a Customized Asset Allocation Note: Asset allocation does not ensure a profit or protect against a loss. 10

12 Financial planning: advantages of saving early Source: Morgan Stanley Wealth Management GIC. (1) Assumes 8% annual return. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 11

13 Financial planning: retirement may be longer than you think Source: Social Security Administration. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 12

14 Financial planning: retirement benefits differ based on when you claim Source: Social Security Administration. (1) Assumes birth date between 1943 and 1954 (Age 60-71). Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 13

15 Financial planning: timing of social security benefits Source: Social Security Administration. (1) Estimated monthly benefits shown in today s dollars and determined by the Social Security Administration calculator. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 14

16 Portfolio Management Program Established in 1979 to provide individual investors with a level of personalized portfolio management typically reserved for major institutional investors. All portfolios are managed individually on a fully discretionary basis by Financial Advisors at Morgan Stanley who have been qualified by the firm to independently manage client assets based on training, experience and commitment to service. As your Portfolio Manager, I and my team can offer you: Direct access to the investment professionals managing your portfolio Personalized service A disciplined, multipart investment process Ongoing client communications and reporting Access to the intellectual capital and global resources of Morgan Stanley 15

17 Customized asset management: asset allocation Our Group uses insights from our economics studies to determine our clients optimum asset allocation based on current economic conditions. Customized asset allocation based on your specific financial needs and current economic conditions The formulation of a client s customized asset allocation begins with the financial planning process, which allows us to ascertain your future goals, plans, and needs In conjunction with a client s financial goals, our Group uses its background in economics to develop a client s customized asset allocation We make decisions on the basis of current economic data and indicators, not speculation, emotion, and theory Our Group utilizes Morgan Stanley s Portfolio Management program, an investment advisory program in which the client s Financial Advisor invests the client s assets on a discretionary basis in a range of securities The asset allocation will evolve over time Our asset allocations are not static Your customized asset allocation will evolve over time as your personal goals and needs, as well as economic circumstances, change Note: Professional investment experience, M&A experience, portfolio customization, use of a margin of safety, and long-term investing do not ensure a profit or protect against a loss. A company s historical profitability does not ensure future profitability. 16

18 Customized asset management: income generation and growth We invest client assets according to the same principles we use to invest our personal assets. We select only the highest quality productive assets with a demonstrated track record of stable, above average profitability and market share Under present economic conditions, we have determined that high quality U.S. corporations currently satisfy the criteria needed to protect against the risks outlined at the beginning of this presentation The investment selection process combines our Group s M&A experience and asset management experience at Highland Capital, in conjunction with principles developed by Warren Buffett and his teacher Ben Graham Investing in quality is not enough: our Group values the businesses we acquire and only invests when the company can be purchased for fair value or less Avoiding the purchase of over-valued assets is critical for long-term investment success Our investment process emphasizes stability and principal protection while achieving a level of growth needed to overcome the major risks to retiree purchasing power (inflation, rising interest rates, depreciation of the US dollar, increasing taxes, Medicare / Social Security / Pension cuts) The majority of the companies in our discretionary portfolios have a demonstrated track record of operating success since the 1800 s Accessibility to the person making investment recommendations Our Group proactively contacts our clients on a regular basis Note: Professional investment experience, M&A experience, portfolio customization, use of a margin of safety, and long-term investing do not ensure a profit or protect against a loss. A company s historical profitability does not ensure future profitability. 17

19 Customized asset management: liquidity We recommend clients invest in bonds in a highly diversified, low cost manner with the objective of providing a stabile source of liquidity. Investment grade bond investing We select from investment grade corporate, government, and municipal bonds to provide our clients with a stable source of liquidity We do not invest in high yield or junk bonds A minimum of three years living expenses in stable, liquid assets Our primary objective with bond investments is to provide clients with a minimum of three years living expenses in stable, liquid assets Recognizing the negative impact that rising interest rates will have on bonds, we limit bond investments to short-term maturities only We consider tax exempt municipal bonds when yields make sense For clients in a high tax bracket, tax-exempt municipal bonds may make sense Depends on the taxable-equivalent yield (i.e. how high municipal bond prices and coupons are relative to corporate bonds) 18

20 Liquidity event pre-planning A collaborative approach to liquidity event pre-planning We are not providing you with specific M&A, investment, legal, or tax advice. We strongly recommend that you consult your own M&A, legal and tax advisers to determine whether the analyses in these materials apply to your personal circumstances. Particular M&A, legal, accounting and tax implications applicable to you, as well as margin requirements and transaction costs may significantly affect the structure discussed and we do not represent that the results indicated will be achieved by you. This material may not be used for the purpose of avoiding taxpayer penalties under either State or Federal tax laws. Morgan Stanley Trust, Tax and Estate Planning Capabilities Your Current External Legal Advisors 1. Conduct preliminary due diligence 2. Meet with external M&A advisors Customized Strategy Customized Tax, Trust and Estate Strategy 3. Analyze available planning techniques in relation to client s financial goals External M&A Advisors Your Current External Tax Advisors Process for Formulating Your Tax, Trust and Estate Strategy: 4. Assist clients and their M&A, tax, and legal advisors in the implementation of a financially integrated estate plan to the extent that the client is comfortable Integrate investment and estate plans Many of these topics may include products and services which are provided by Morgan Stanley Smith Barney LLC or affiliates and may not be available in all areas. Some of these services are provided by third parties including the client s personal tax advisor or attorney for matters involving taxation and tax planning and his or her personal attorney for matters involving trust and estate planning and other legal matters. For additional information please speak to a Financial Advisor or visit for more information. 19

21 10b5-1 Preset Diversification Program for restricted stock Key benefits of a PDP 1 Affirmative defense against potential claims of insider trading 2 Access to public markets without regard to corporate blackout periods 3 Ability to dispose of stock on a predictable and consistent basis 4 Potential to mitigate signaling issues generally associated with sales by insiders 5 Convenience of putting diversification on auto-pilot 6 Discipline during volatile market fluctuations 7 Customization of the selling plan to reflect the particular monetization needs of each individual seller 8 Potential to facilitate the organized disposition of shares by multiple company insiders 9 Reduce the risk associated with a concentrated equity position through diversification 20

22 Our service model How we communicate with our clients All clients receive a monthly market commentary written by our Group, summarizing our latest thoughts on the investment environment and discussing timely financial & estate planning topics We use a tiered system for outbound client phone calls and meetings, based on a client s total assets under management by our Group $1,000,000 and higher: client receives monthly phone call and at least two in-person meetings per year $500,000 to $1,000,000: client receives phone call every other month and in-person meeting once a year Below $500,000: client receives quarterly phone call and one in-person meeting per year One quarter of the annual fee is deducted every quarter 21

23 Disclosures Interest in municipal bonds is generally exempt from federal income tax. However, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one s state of residence and, local tax-exemption typically applies if securities are issued within one s city of residence. Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Bonds face credit risk if a decline in an issuer's credit rating, or creditworthiness, causes a bond's price to decline. Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made. NOTE: High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. Morgan Stanley Smith Barney LLC. Member SIPC 22

24 Disclosures This material is intended only for clients and prospective clients of the Portfolio Management program. It has been prepared solely for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. The individuals mentioned as the Portfolio Management Team are Financial Advisors with Morgan Stanley participating in the Morgan Stanley Portfolio Management program. The Portfolio Management program is an investment advisory program in which the client s Financial Advisor invests the client s assets on a discretionary basis in a range of securities. The Portfolio Management program is described in the applicable Morgan Stanley ADV Part 2, available at or from your Financial Advisor. Morgan Stanley Smith Barney LLC ( Morgan Stanley ), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters. Morgan Stanley Smith Barney LLC. Member SIPC 23