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ON THE ECONOMIC FRONTIER U.S. ECONOMY IS BOOMING — DESPITE MARKET VOLATILITY


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WINTER 2018

8 4 ON THE COVER ON THE ECONOMIC FRONTIER: U.S. Economy is Booming — Despite Market Volatility

FEATURES

10

FROM OUR SPECIALISTS: Scam Alert: How to Guard Against Elder Fraud

KIDS & MONEY: Giving your Kids the Freedom to make their Own Financial Decisions

12

12

BY THE NUMBERS Statistics on an Aging Population in America and Business Succession Planning

13

NEWS & NOTES Updates and News from the Frontier Offices

13 13


TAX REFORM PASSES In December, Congress passed and President Trump signed into law the Tax Cuts and Jobs Act, the most significant tax reform legislation in more than three decades. The tax reform act lowers tax rates across the board for individuals

ON THE ECONOMIC FRONTIER

and businesses while making other substantial changes to the tax code. Among the biggest changes for individuals

U.S. ECONOMY IS

are a higher standard deduction, elimination of

BOOMING — DESPITE

elimination of the personal exemption, and

MARKET VOLATILITY

tax reform raised the alternative minimum tax

and limitations to many itemized deductions, expansion of the child tax credit. In addition, (AMT) exemption so that fewer individuals and couples will be subject to the AMT. Note that many of the provisions of tax reform — including the lower individual tax brackets — are only temporary, expiring after 2025. However, many experts believe that there will be tremendous political pressure to extend them when the time comes. It’s estimated that tax reform will yield $1.5 trillion in total tax cuts and an average annual tax cut of $1,600 for nine out of 10 middle-class American families. Withholding formulas used by employers could be recalculated by February, at which time many employees will start to enjoy larger take-home paychecks. On the business side, the biggest change wrought by tax reform is a permanent reduction of the corporate income tax rate from 35% to

4  |  WINTER 2018

FRONTIER WEALTH MANAGEMENT


a flat 21%. In addition, tax reform repeals the corporate AMT effective this year while adding a new 20% qualified income deduction for owners of pass-through business entities like sole proprietorships, partnerships, LLCs and S corporations through 2025.

Looking ahead, economists surveyed by The Wall Street Journal expect job market strength to continue in 2018 with another 2

Tax reform also makes beneficial changes

million jobs added to the economy

to expensing of business equipment. Bonus

this year. This would mark a record

depreciation is doubled to 100% for both new and

eighth straight year of job growth at

used assets acquired and placed in service between

or above 2 million.

September 27, 2017, and December 31, 2022. The Section 179 expensing limit is also doubled from $510,000 to $1 million this year, while the

With regard to business regulations, The New

expensing phase-out threshold is increased from

York Times reports that federal agencies have

$2 million to $2.5 million this year. Both will be

delayed, withdrawn or made inactive nearly 1,600

indexed for inflation in the future.

regulatory actions since January of 2017. And 22 regulations have been rolled back for each new

STOCK MARKETS SOAR IN 2017

regulation issued since the Trump administration

The year that just ended was another impressive

took office, according to the administration.

year for U.S. stock markets. The Dow Jones

One interesting aspect of the stock market

Industrial Average rose 25.1% in 2017, while the

last year was that it lacked the kind of sharp

S&P 500 rose 19.4% and the NASDAQ Composite

retreats that usually accompany market rallies.

Index soared 28.2%.

CNNMoney.com noted in a year-end article that

The strong performance of U.S. stocks was

the S&P 500 hasn’t experienced a meaningful

attributed by many experts to solid economic

pullback since before the 2016 Presidential

growth, strong corporate profits, a healthy labor

election. Meanwhile, volatility metrics have

market and investor optimism about Trump

fallen to record lows, which indicates that stock

administration policy changes like tax reform,

markets are generally not experiencing sharp

reduced business regulations and increased

swings in value. The major stock indices posted

infrastructure

consumer

gains in every quarter of the year, peaking in the

confidence is soaring and has now reached a 17-

fourth quarter when the Dow rose 10%, the S&P

year high.

500 rose 8% and the Nasdaq rose 7%.

spending.

Also,

WINTER 2018  | 5


GDP GROWTH AND LABOR MARKETS REMAIN SOLID

and consumer confidence remain strong, the US

On the growth front, the U.S. gross domestic

in more than a decade,” stated the Conference

product (GDP) expanded at an annual rate of

Board in a press release on December 13. It

3.2% in the third quarter of last year, according

expects business investment in equipment and

to the Commerce Department. This was the

software to rise in 2018 due to tax reform’s

fastest pace of growth in more than two years.

beneficial changes to expensing rules, as

This followed GDP growth of 3.1% in the second

noted above.

economy should enjoy its best two-year stretch

quarter, marking the first time since 2014 that

Meanwhile, the labor market looks healthy

the economy grew by three percent or more for

heading into the new year. About 148,000 new

two quarters in a row.

jobs were added to the economy in December,

Even better, estimates for growth in the

which represented a slight reduction in the pace

fourth quarter of 2017 are as high as 4%,

of hiring but still capped off an impressive year

according to the Federal Reserve Bank of New

in which 2.1 million new jobs were added. This

York. The Conference Board forecasts GDP

was the seventh straight year in which at least 2

growth of 2.8% in 2018. “So long as business

million new jobs were added to the economy —

WILL DEREGULATION RELEASE “ANIMAL SPIRITS”? There’s no question that many business owners, entrepreneurs and CEOs are optimistic about the prospects for solid U.S. economic growth and hence strong earnings and profits in 2018. One big reason for this optimism is the regulatory pullback by the Trump administration.

An article published on New Year’s Day in The New York Times noted that deregulation efforts aren’t necessarily saving companies a lot of money yet. Rather, business owners and executives believe

that they don’t have to worry as much about new regulations in the future. This is giving many of them increased confidence to make the kinds of business investments in new plants, factories and equipment that boost economic growth and lead to new job creation. According to the article, there is little historical evidence tying deregulation to GDP growth. But consider that between 1993 and 2016, almost 1,000 new economically significant regulations were passed, each costing businesses at least $100 million. The result: A cumulative drag of at least $100 billion on the nation’s economy during these twoplus decades. By reversing the regulatory tide, many economists believe that the “animal spirits” of businesses that have been hoarding cash since the recession will be unleashed, the article notes.

FRONTIER WEALTH MANAGEMENT


only the second time we’ve experienced this kind of job growth for this long.

In their final meeting of 2017, Fed officials were in agreement that they would continue to

Hiring has now risen for 87 straight months,

raise the benchmark interest rate in 2018, but

which is the longest period of uninterrupted job

were in disagreement as to the frequency of rate

expansion on record. And the unemployment rate

hikes. Some officials predicted three more 0.25%

remains at 4.1%, matching the low from December

interest rate hikes this year, but others anticipated

2000. The unemployment rate for African-

two or fewer rate hikes in 2018. Adding to the

Americans (6.8%) is at its lowest point since 1973,

uncertainty is the planned resignation of Federal

while the unemployment rate for Hispanics and

Reserve chairwoman Janet Yellen in early

Latinos (4.9%) is near a record low.

February. Her nominated successor, Jerome H.

Expansion of manufacturing activity is a

Powell, is still awaiting Senate confirmation.

positive sign indicating potentially strong job

Minutes from the December meeting indicate

growth going forward. The Institute for Supply

that Fed officials see few serious economic dangers

Management’s manufacturing index rose from

on the horizon. Most expect an inflation rebound

58.2 in November to 59.7 in December, the

to around 2 percent, which is the Fed’s annual

16th straight month of expansion. This brought

inflation target, and a modest boost in GDP due

the average 2017 manufacturing index up to

to tax reform. Inflation will be one of the primary

57.6, its highest level in 13 years. New orders in

factors in the Fed’s decision-making process this

December also jumped to the highest level since

year, since inflation has now remained below the

January 2004.

Fed’s 2 percent target for six straight years.

Looking ahead, economists surveyed by The to continue in 2018 with another 2 million jobs

MOST INDICATORS ARE POINTING UP

added to the economy this year. This would mark

Despite the recent stock market volatility, most

a record eighth straight year of job growth at or

leading economic indicators are pointing in

above 2 million.

a positive direction for the U.S. economy and

Wall Street Journal expect job market strength

financial markets. We will continue to keep you

FED RAISES INTEREST RATES

updated on the latest economic and financial

On December 13, the Federal Reserve raised the

developments throughout the year.

Federal Funds rate by 0.25%, its third rate hike of

Feel free to give us a call any time if you have

last year. This brought the Federal Funds rate up

questions or would like to discuss your portfolio

to a range of between 1.25% and 1.50%.

and investing strategies in more detail.

u

WINTER 2018  | 7


from the specialists.

SCAM ALERT:

HOW TO GUARD AGAINST ELDER FRAUD Western Union or MoneyGram.

It has been called the “crime of the 21st century.” We’re talking about elder fraud and senior scams, which cost older Americans an estimated $36.5 billion a year, according to True Link Financial.

Elderly people who are hard of hearing and perhaps mentally impaired due to dementia or Alzheimer’s disease can be very

TYPES OF ELDER FRAUD

scams,

There

investment schemes.

are

many

different

types of elder financial abuse,

and

various

bogus

susceptible to this type of fraud. Sadly, far more common

One of the most insidious

than scams perpetrated by

National

types of elder fraud is simply

strangers is fraud committed

Council on Aging (NCOA).

called the “grandparent scam.”

by family members and friends.

These include Medicare and

Here, fraudsters call elderly

According to the National Adult

health

scams,

individuals claiming to be a

Protective Services Association

funeral and cemetery scams,

grandchild in need of money

(NAPSA), 90 percent of elder

telemarketing

Internet

for a financial emergency and

abusers are family members

fraud, sweepstakes and lottery

asking that funds be sent via

or someone else who is trusted

according

to

the

insurance and

8  |  WINTER 2018

FRONTIER WEALTH MANAGEMENT


by the elderly victim. Scams perpetrated by friends and family members include: • Using a power of attorney to steal money, • Stealing ATM cards and checks to withdraw money from accounts, • Threatening

to

harm

victims or withhold care if victims don’t give money, • Paying bills using funds from the victim’s account. Even educated

seniors and

who

are

financially

sophisticated can be susceptible to elder fraud. This is especially true

for

seniors

suffering

from cognitive decline. So it’s important for all seniors and their close family members to be aware of the warning signs indicating possible cognitive decline, as well as red flags that might indicate that elder fraud is taking place. To learn more about elder fraud and how you can protect yourself and your loved ones, contact the NCOA at (571) 5273900 or visit them online at www.ncoa.org. 

u

5 PROACTIVE STEPS TO PREVENT ELDER FRAUD If you are a senior who is concerned about being victimized, or if you have elderly parents or other relatives you want to protect from elder fraud, consider taking these five proactive steps:

1

ALWAYS BE WARY OF SUSPICIOUS CALLERS. The telephone remains a favorite tool of scammers for committing elder fraud — whether it’s the grandparent scam described above or thieves trying to bait victims into an investment, lottery or Medicare scheme. Tell suspicious callers right away that you never buy products from or give money to anyone who calls you unsolicited. If it sounds like the call might be legit, ask the caller to send or direct you to additional information in writing. And be sure to ask the caller for his or her name, the name of the (supposed) business and its street address, telephone number and website address.

2

SIGN UP FOR THE DO NOT CALL REGISTRY AND GET OFF MAILING LISTS. You can register both your home and mobile telephone numbers with the National Do Not Call Registry by visiting www.DoNotCall.gov. Keep in mind that it can take up to 30 days for your registration to become effective. You can also stop most pre-approved credit offers you receive in the mail by visiting www.OptOutPrescreen.com. And you can stop many pieces of

direct mail for 10 years by visiting www.DMAchoice.org and paying a processing fee of $2.

3

USE DIRECT DEPOSIT FOR BENEFIT PAYMENTS LIKE SOCIAL SECURITY. This eliminates the possibility that benefit checks could be stolen out of your mailbox or a close friend or family member could steal and cash them. To sign up for Social Security direct deposit, create your own Social Security account online by visiting www.ssa.gov/signin. Your bank or credit union can also help you sign up.

4

PROTECT YOUR SENSITIVE PERSONAL INFORMATION. One of the main goals of many scammers is to get seniors to give them their Social Security, credit card, bank account or Medicare ID numbers. With one or more of these numbers in hand, scammers can wreak financial havoc on unsuspecting seniors. So be sure to shred any receipts that have credit card numbers on them, as well as bank and credit card statements. And never give out this kind of information over the phone to unsolicited callers.

5

DON’T ISOLATE YOURSELF. The NCOA says that isolation is a big factor in elder fraud. For example, seniors with limited mobility sometimes withdraw from the outside world. This can make them more vulnerable to elder fraud since there may not | 9 be anyone else looking after them. WINTER 2018 


KIDS AND MONEY: GIVING YOUR KIDS THE FREEDOM TO MAKE THEIR OWN FINANCIAL DECISIONS

I

t can be hard to give your kids freedom when it comes to anything, including their finances. But kids are sometimes smarter about money

than we think they are. And even their most

foolish spending mistakes can be valuable

their head, clothes on their back and food in

learning experiences

the refrigerator.

Therefore, it could be wise to loosen the leash

Sure, it can be painful to watch your kids

a little and let your kids experience both the

make poor financial choices and waste their

benefits and struggles that come with making

money, but it might be for their own good in the

their own financial decisions.

long run. As they experience the consequences of wasteful spending, it’s likely that your kids will be

THEY WON’T ALWAYS BE YOUNG

more careful about their spending in the future —

As difficult as it may be, it’s often better for your

when it really matters.

kids to experience financial loss now than later.

Giving your kids financial freedom also helps

The stakes are lower and they may learn important

teach them the value of money. For example, small

lessons from their mistakes. For example, it may

expenses like a $5 Starbucks drink or $15 movie

be better for them to splurge on an expensive new

ticket may not seem like much. But they add up

video game console now when they have limited

quickly and eventually your kids will notice their

financial responsibility than to splurge on more

bank account slowly dwindling — and the value

expensive items later when wasteful spending

of a dollar will become more significant.

could hurt them more financially.

At first it might be hard for your kids to resist

The fact is, the “real world” won’t always be

blowing their hard-earned paycheck on a $200

easy on your kids, and you can’t cushion them

pair of Nike Air Jordan shoes or a $300 Coach

financially forever. So let them make financial

purse, but they might start to think twice once

mistakes now while they still have a roof over

they realize the hard work that went into earning

10  |  WINTER 2018

FRONTIER WEALTH MANAGEMENT


that paycheck. As they mature and come to

overall healthy development. Once they realize

realize what true financial responsibility as an

they can buy items just as easily as their parents

adult looks like, they might better realize the true

can, many kids will gain a tremendous amount of

value of money.

satisfaction and enjoyment from their newfound financial independence and power.

SPEND AND LEARN A survey conducted by T. Rowe Price in 2017

RESIST THROWING THEM A LINE

revealed two important things when it comes to

As a parent, it’s natural to want to protect your

giving kids more financial independence. Not only

kids from making financial mistakes. But financial

are these kids smarter with their money, but they

blunders can help them grow and even give them

are also more financially honest with their parents.

more confidence in their saving and spending

Nearly half (44 percent) of the parents in the

decisions later. The greater their confidence is

survey said they allow their kids to make their

now, the less anxious they may be when they

own spending and saving decisions. As a result,

enter the real world.

these kids tend to be less likely to spend their

So if your son or daughter begs for a bailout

money as soon as they get it, lie about what they

due to making poor spending decisions, say

spent their money on, or expect their parents to

no and let your child’s bank account suffer the

buy them things. They also tend to be more likely

consequences. He or she will grow from the

to talk openly with their parents about managing

experience, however painful it is, and may even

their money.

come to you for financial advice. The more

Not expecting their parents to buy them

experience and good financial advice your kids

whatever they want is often essential to a child’s

get from you now, the better prepared they will be for the real financial world.

The fact is, the “real world”

Finally,

remember

that

if

you

model

won’t always be easy on your

responsible financial behavior, there’s a good

kids, and you can’t cushion

chance your kids will follow in your footsteps.

them

They might even become more appreciative of

financially

forever.

So let them make financial mistakes now while they still have a roof over their head, clothes on their back and food in the refrigerator.

the financial sacrifices you’ve made for them. Even though it’s hard, take off the training wheels and give your kids some freedom to make their own financial decisions. They’ll appreciate it now — and might even thank you later.

u

WINTER 2018  | 11


AN AGING POPULATION IN AMERICA AND BUSINESS SUCCESSION PLANNING

47 MILLION

40

16

Percentage of Americans

percentage of business owners

surveyed who said they'd be

who actually have a documented

open to the idea of having a robot

succession plan in place.

assist in caring for a loved one.

(PWC)

(PEW RESEARCH INSTITUTE)

number of Americans age 65 and

30

older. This number is projected to

percentage of family businesses

more than double by 2060.

that pass successfully to the

(US CENSUS BUREAU)

second generation. (FAMILY BUSINESS INSTITUTE)

$82,000 Average annual cost of a nursing

50

home in 2017.

percentage of business owners

(KAISER FAMILY FOUNDATION)

who claim to have a succession plan.

$300,000

(PWC)

Amount of lost wages and

12

benefits incurred by family

Percentage of family businesses

caregivers over age 50 who leave

that pass successfully to the third

the workforce to provide care.

generation.

(AARP)

(FAMILY BUSINESS INSTITUTE)

12  |  WINTER 2018

FRONTIER WEALTH MANAGEMENT


FRONTIER WELCOMES TWO NEW TEAM MEMBERS TO KC OFFICE

F

rontier

is

pleased

news & notes

to

ANNUAL CLIENT SURVEY

welcome both Ben Jones,

Financial Planning Specialist, and Brewster Ellis, Senior

Wealth

Strategist,

to

the

Kansas City office. Ben

Jones

works

BEN JONES

BREWSTER ELLIS

FINANCIAL PLANNING SPECIALIST

SENIOR WEALTH STRATEGIST

T

hank

you

to

all

who

participated in this year's

annual

client

survey!

We

alongside advisors to provide

than 40 years of industry

received some very helpful

detailed financial plans for

experience,

clients.

deeply

Frontier,

Before Ben

coming

to

graduated

grounded

in

feedback.

understanding

the

We

distribute

annual

complex needs of sophisticated

surveys in an effort to improve

from Samford University as

clientele.

joining

our services and relationship

a University Fellow in 2012

Frontier, Brewster spent more

with our clients. To emulate

where he earned his degree in

than 12 years at Merrill Lynch,

our desire to better ourselves

finance. Following graduation,

where he focused on working

and our firm, this year we

he worked in Baltimore for a

alongside each client to help

extended a similar opportunity

large RIA, where he honed his

oversee their daily and lifelong

to our clients. As part of our

skills as a financial planner.

financial responsibilities, while

"Be part of something bigger

Brewster Ellis brings more

preserving their legacies. u

than

Prior

to

yourself"

campaign,

clients who participated in

FRONTIER DIGITAL EXPERIENCE CHECKLIST Sign up for access to your personalized client portal. Download the Frontier mobile app. (Search Frontier Wealth in the App Store or Google Play.) Stay connected to Frontier through our monthly emails. If you need to update your email address, please reach out to your Wealth Advisor or Client Service Specialist.

the survey were automatically entered into a drawing for a charity donation to be made on their behalf to an organization of their choice. We were pleased to donate $500 to the Humane Society of Kansas on behalf of our charity donation winner.

u

WINTER 2018  | 13


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services and general economic conditions are as of December 31, 2017. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this newsletter is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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Winter 2018 This Way  

This Way is the official newsletter of Frontier Wealth Management.

Winter 2018 This Way  

This Way is the official newsletter of Frontier Wealth Management.