ON THE ECONOMIC FRONTIER U.S. ECONOMY IS BOOMING â€” DESPITE MARKET VOLATILITY
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8 4 ON THE COVER ON THE ECONOMIC FRONTIER: U.S. Economy is Booming â€” Despite Market Volatility
FROM OUR SPECIALISTS: Scam Alert: How to Guard Against Elder Fraud
KIDS & MONEY: Giving your Kids the Freedom to make their Own Financial Decisions
BY THE NUMBERS Statistics on an Aging Population in America and Business Succession Planning
NEWS & NOTES Updates and News from the Frontier Offices
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
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
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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
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
500 rose 8% and the Nasdaq rose 7%.
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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
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
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.
WINTER 2018 | 7
from the specialists.
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
types of elder financial abuse,
susceptible to this type of fraud. Sadly, far more common
One of the most insidious
than scams perpetrated by
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
individuals claiming to be a
Protective Services Association
funeral and cemetery scams,
grandchild in need of money
(NAPSA), 90 percent of elder
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
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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
victims or withhold care if victims don’t give money, • Paying bills using funds from the victim’s account. Even educated
sophisticated can be susceptible to elder fraud. This is especially true
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.
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:
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.
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.
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.
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.
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
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
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
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”
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.
They might even become more appreciative of
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.
WINTER 2018 | 11
AN AGING POPULATION IN AMERICA AND BUSINESS SUCCESSION PLANNING
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.
(PEW RESEARCH INSTITUTE)
number of Americans age 65 and
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
home in 2017.
percentage of business owners
(KAISER FAMILY FOUNDATION)
who claim to have a succession plan.
Amount of lost wages and
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.
(FAMILY BUSINESS INSTITUTE)
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FRONTIER WEALTH MANAGEMENT
FRONTIER WELCOMES TWO NEW TEAM MEMBERS TO KC OFFICE
news & notes
ANNUAL CLIENT SURVEY
welcome both Ben Jones,
Financial Planning Specialist, and Brewster Ellis, Senior
Kansas City office. Ben
FINANCIAL PLANNING SPECIALIST
SENIOR WEALTH STRATEGIST
participated in this year's
alongside advisors to provide
than 40 years of industry
received some very helpful
detailed financial plans for
complex needs of sophisticated
surveys in an effort to improve
from Samford University as
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
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.
WINTER 2018â€‚ |â€‚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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