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EARNING TRUST. CREATING PLANS. DELIVERING RESULTS.


12 | Sequoia Financial Group

can do things you “ Icannot, you can do things I cannot; together we can do great things.

MOTHER TERESA

CONTENTS CHARTING OUR COURSE

3

MISSION | VISION | VALUES

5

OVER THE HORIZON

6

SEEING THE STARS POINTS OF LIGHT

9 10

EXPANSION 12 CONSTELLATIONS

14


Tom Haught, CFP®, ChFC® President & CEO


14 | Sequoia Financial Group


MESSAGE FROM TOM HAUGHT Mission | Vision | Values Another year has passed, and with it, 525,600 minutes. As in years past, these minutes were filled with joy and sadness, achievement and loss, adaptation and learning. These minutes collectively tell the story of our individual journeys, and of our journey as a team. Whatever high and low points we may have marked over the course of the last year, we have chosen not to be held captive by the past, instead, we are fully present in this moment, and have our gaze locked on our future. We are navigating toward that destination by focusing on our North Star, Sequoia’s mission to Enrich Lives. Everything we choose to do is guided by the magnetic pull of our true north, making a positive impact in the lives of everyone we serve. In our firm’s 30-year history, there have been innumerable opportunities to diverge from this path and lose touch with the answer to the fundamental question of who we are as a team and an organization. Our mission is both broad enough to embrace new ideas and new advancements and narrow enough to act as the framework and boundaries that guide our choices. It focuses our efforts and propels us forward into growth. No matter what we’ve encountered, the north star of Sequoia’s mission has burned brightly, lighting our way and keeping us grounded in our mission to do what’s best for you, our clients. In June, Sequoia will celebrate its 30th anniversary as a firm. I remember our early days, the first five years, where our identity as a firm was being shaped. I could not have envisioned all the ways that we would develop, as a team, as an organization, and as individuals. Through the last three decades, we have welcomed some of the finest talent in our industry onto our team, learning from each other and collaborating to hone our craft. Together, we’ve discovered broad new horizons of creativity, embraced the continual evolution of technology, and explored ways to expand our services. What has remained constant, whether in seasons of exponential growth or in times of adversity, is the gravitational pull of our mission, helping us stay the course. Our values reflect what is most important to us as we pursue that mission, and the daily process of incorporating them into our work has only served to underscore their integral role in our success. 2020 challenged us in many ways, and while we can’t predict what 2021 may bring, we can offer you our assurance that we will continue to keep our eyes fixed on our North Star, our mission to Enrich Lives, and remain dedicated to carrying out that mission with Integrity, Passion, and Teamwork. We will continue to strive to serve you in a manner that honors the trust you place in our team. We thank you for the privilege of partnering with you in accomplishing your financial goals and are profoundly grateful for your relationship with Sequoia. Thank you for your continued support. Tom Haught


16 | Sequoia Financial Group

Chad Roope, CFAÂŽ Chief Investment Officer

OVER THE HORIZON Market Outlook Q1 Capitalism requires the free movement of people, goods, services and capital. The Coronavirus severely constrained this free movement in 2020, which has had profound impacts on our public health, economy, financial markets and psyche. The virus has created an enormous human tragedy with deaths sadly pushing toward two million globally1. For investors, the result has been some of the largest and fastest swings in financial markets and economic conditions in history. Yet, given the range of emotions and volatility, the resiliency of our people and capitalism is truly amazing.

Here is what we are looking out for in the coming months:

Potential Opportunities Clearly, the vaccines developed by companies like Pfizer, Moderna, AstraZeneca, and Johnson & Johnson are most likely game changers for the global economy in 2021. This was a healthcare crisis that led to an economic recession, and a healthcare solution is likely to lead to an economic expansion. As the vaccines are distributed and administered broadly, we expect virus case counts to slowly moderate as we approach sufficient scale to produce immunity. In doing so, the free movement of people, goods, services and capital can start functioning more normally again thereby allowing the economy and corporate earnings to heal and resume growing at a decent rate as we progress in 2021.

At the same time, we will still have the potent monetary and fiscal stimulus relief measures implemented to bridge the gap working heavily in the system. The Fed’s balance sheet has grown by more than 75% or about $3.2 trillion in 20201, and they have pledged to keep it growing with $120B of bond purchases per month1 (quantitative easing) with no end date stated. Likewise, Chairman Powell and other Fed chiefs have clearly laid out in the Dot Plots that they have no intentions of raising short-term interest rates (Fed-Funds Rate) from near zero until after 20231. The clear commitment and scale of these Fed programs will likely continue providing support for financial markets in 2021. Similarly, Congress has injected nearly 15% of GDP (close to $3 trillion)1 in fiscal stimulus through the most recent $900 billion relief bill and the CARES act passed in the spring. This is a scale not seen post WWII. The measures have targeted households and businesses most impacted by the virus and should continue supporting


financial markets and corporate earnings by helping accelerate economic growth in 2021 as well. Already, these combined monetary and fiscal support measures have impacted the real economy as data from the housing market, manufacturing sectors and labor markets have improved significantly off the spring lows, and potentially point to further expansion in 20211. Marty Zweig is credited with the now famous investment adage “Don’t fight the Fed”. In our current environment, it seems to us the playbook is, and will likely continue to be, “Don’t fight the Fed, the fiscal authorities or the vaccines” in 2021. Practically, this means stocks may continue to do well even if they become volatile episodically throughout the new year.

Potential Challenges It’s been noted that many investors have already caught onto the “Don’t fight the Fed, the fiscal authorities or the vaccines” playbook and may be overly optimistic with market expectations in 2021. Some examples might be the recent large price and trading volume increases in vehicles like margin debt, Bitcoin, Tesla, IPOs, SPACs, long call options, small cap stocks and others which potentially show sign of excessive optimism on the part of investors from our view. This type of price and trading volume action tend to be contrarian indicators based on our experience, and should give us patient, longer-term investors some cause for concern. Situations like these typically lead to quick bouts of volatility that shouldn’t surprise us as we head into 2021. Additionally, the price of the stock market relative to fundamental measures like earnings, cash flow and GDP are also a current concern for our team. Using the S&P 500 as an example, the forward 12-month P/E is around 22 with a 25-year average around 16.51. The Cyclically Adjusted P/E ratio (CAPE) is around 33.5 compared to the 25-year average around 27.51. The Price/Cash Flow ratio is near 16 versus a 25-year average closer to 111. Additionally, Warren Buffet’s favorite measure of valuation, the stock market relative to GDP ratio is at record highs near 185%1. The ratio stood at 167.5% on 3/31/001, which is not an occurrence we want to be comparing to, given what followed. What is different now is that interest rates are being held at extremely low levels by the Federal Reserve compared to history. Higher multiples may be

justified relative to longer-term historical metrics given this. How much so is the key question. If the economy fully recovers from the virus induced recession quickly in 2021 and the free movements required for capitalism resume, earnings may be able to grow into these higher multiples. However, as we will outline shortly, if economic growth expands rapidly in 2021 given all the stimulus, longer term interest rates may not remain so low. If not, these multiples may begin to look expensive to investors. The bottom line from a valuation perspective is that while metrics are high relative to history, they may not be too high yet given where interest rates are. Valuation data is likewise never a good tool to use for considering potential shorter-term market movements from our view. However, we think a major assumption implicit in current equity market prices is that longer term interest rates will remain low. We worry economic growth in 2021 may not fully support this assumption. Finally, we also worry that we should “be careful what we wish for” with stronger economic growth. To reference the famed economists Goldilocks and the Three Bears, we need the economic porridge to be just the right temperature. This means economic growth that is not too hot or cold to cause the Fed heartburn. Given all the stimulus measures and potential pent up demand as people, goods, services and capital start to flow more freely, we think there is a decent chance the porridge may get a bit “too hot” potentially leading to longer term interest rates (10-Year Treasury Bonds and longer) creeping higher (due to inflation?). This could set up the valuation dilemma already described. Porridge that’s a bit too warm for the Feds liking in the back half of 2021 could put them in the uncomfortable position of bringing up the terrible “T” word...Taper. Any tapering of the asset purchases described earlier or language changes around reducing the size of the Fed’s balance sheet could lead to a “taper tantrum” as we witnessed at the end of 2018. A turning of the page to a newer chapter in monetary policy could have profound implications on asset prices. It’s a top concern for us into 2021.

Bottom Line Balancing the ledger between the potential opportunities and challenges, it strikes our team that not being too far out on a limb in either direction makes sense as we charge forth into a new frontier. As such, most Sequoia


18 | Sequoia Financial Group

2020 Data Review1 strategies are broadly balanced (neutral) relative to equity/fixed income targets, with modest tilts toward US higher quality equities and lower fixed income duration than broad indices. For example, our 70% equity/30% fixed income strategies are generally in-line with these “neutral” points (i.e. not materially greater than or less than 70% equity). Also, within fixed income allocations, several strategies hold managers that have flexibility to adjust duration and look for yield globally where interest rates may be more attractive. As we look toward the horizon, we long to return to many of the activities we enjoy most (potentially took for granted?). 2021 will also undoubtedly present several unexpected events. As investors, we want to remain patient and disciplined until we better understand if the porridge is going to be just right or a bit too hot or cold. For now, we are on guard for it to potentially be a bit too warm for the Fed’s taste buds later in the new year.

Index Name

"2020 Total Return (Sorted)"

Asset Class Broad Equity Indices

NASDAQ Composite

US Large Cap Tech

45.1%

Russell 2000 Index

US Small Cap

19.9%

S&P 500 Index

US Large Cap

18.4%

MSCI Emerging Markets Index

Emerging Markets

18.3%

MSCI AC World Index IMI

Global Stocks

16.3%

MSCI EAFE Index

Developed International

7.8%

US Large Cap Equity Sectors S&P 500 Info Tech Index

Technology

43.9%

S&P 500 Cons Discret Index

Consumer Discretionary

33.3%

S&P 500 Comm SVC

Communication Services

23.6%

S&P 500 Materials Index

Materials

20.7%

S&P 500 Health Care Index

Health Care

13.4%

S&P 500 Industrials Index

Industrials

11.1%

S&P 500 Cons Staples Index

Consumer Staples

10.7%

S&P 500 Utilities Index

Utilities

0.5%

S&P 500 Financials Index

Financials

-1.8%

S&P 500 Real Estate Index

REITS

-2.2%

S&P 500 Energy Index

Energy

-33.7%

U.S. Fixed Income Broad Indices U.S. Aggregate

US Investment Grade

7.5%

U.S. Corporate High Yield

US High Yield

7.1%

Currency U.S. Fed Trade Weighted Nominal

Tenor

US Dollar

-2.1%

2020 Treasury Yield Review 12/31/20 Yield 12/31/19 Yield

Difference

3 Month

0.09%

1.55%

-1.46%

2 Year

0.13%

1.58%

-1.45%

5 Year

0.36%

1.69%

-1.33%

10 year

0.93%

1.92%

-0.99%

30 Year

1.65%

2.39%

-0.74%

Sources | 1 Bloomberg


Annie McCauley, CFP® Senior Vice President, Family Wealth


10 | Sequoia Financial Group

Heather Welsh, CFP®, AEP®, MSFS Vice President, Wealth Planning

POINTS OF LIGHT Navigating Financial Planning Perhaps second only to the Big Dipper, the constellation Orion is one of the most recognizable patterns in the night sky. With its belt of three bright stars surrounded by four others forming a rectangular shaped body, three stars creating a triangle for the head, and smaller trails for the sword, club, and shield, a total of 19 stars form the image of “the hunter.” Together, these individual celestial bodies come together in a way that draws our attention, creating what many consider the brightest and most beautiful winter constellation. Just as these stars come together, your financial goals and investment strategy meet in the context of your personal financial plan.

Like the three stars of Orion’s belt, our approach to asset allocation incorporates three broad asset classes (equity, fixed income, and equity alternatives) in order to achieve return and risk mitigation potential through a balanced and diversified portfolio. Asset allocation is grounded in the relative stability of a long-term investment horizon and helps relegate market timing and investment selection decisions to the background while reducing the degree to which investment results depend on mercurial, unreliable factors. Similar to the four stars forming the body around the belt, a financial plan frames your investment strategy through your defined personal wealth planning goals. Perhaps that includes bringing the next generation into the business you’ve worked so hard to build, buying the beach house you’ve always dreamed of, giving back to

your community through philanthropic efforts, or paying education expenses for your children or grandchildren. In many cases, planning is an “and” conversation rather than an “or” discussion as you strive to achieve multiple goals and determine how to best allocate resources for each of them. Turning to the three stars that comprise the hunter’s head, your financial plan allows you to make informed investment decisions and avoid reacting emotionally in volatile market conditions. Through a plan, you can determine the least amount of investment risk projected to help you achieve your goals and thereby mitigate some of the swings in portfolio values. When you’re focused on your long-term goals and know where your cash flow is coming from, it extends your investment time horizon.


Cash Reserves Once you’ve established your budget, establish cash reserves that would cover several months of expenses and provide for emergencies and unexpected expenses such as medical bills or home repairs.

Budgeting Compare your monthly inflows and outflows; if you find you spend more than you earn, adjust discretionary expenses. If you have a surplus, ensure it is being efficiently allocated.

Retirement Withdrawals

Retirement Savings As the availability of traditional pension plans decline and Social Security remains underfunded, it is important to save through employer-sponsored plans and personal investment accounts.

Evaluate the projected withdrawal rate from your portfolio during retirement. Safe withdrawal rates depend on duration of retirement and the equity to fixed income ratio of your portfolio.

Wealth Planning Targets Debt Management

Long Term Care

Evaluate the makeup of your liabilities (consumer vs. long-term debt) and plans to pay them down over time.

Consider options to provide for potential long-term care needs and the impact that a long-term care event could have on your financial goals.

Life Insurance Review existing coverage and potential gaps, including survivor needs, estate planning, and business uses.

Disability Insurance Your ability to earn an income is a valuable asset, so consider protecting it.

LISTEN TO PODCAST Property & Casualty Insurance Periodically review your coverage with your property and casualty agent to ensure it provides you with adequate protection, including homeowners/ renters, auto, and umbrella insurance.

Like Orion’s sword and club provide more than one option for attack, there is more than one tool in the planning toolkit. Working through the financial planning process helps determine which planning opportunities are best suited to help you progress toward your desired outcomes. Your personal and family circumstances are unique to you, and the strategies you implement to meet your goals should be as well. As the shield protects the hunter, your financial plan helps to mitigate the risk of not meeting your financial goals by capturing your full financial picture in one place. It provides clarity through a consolidated view of your financial life and helps uncover blind spots such as an outdated estate plan (or no estate plan), insufficient insurance coverage if the unexpected occurs, or the need to save more aggressively to increase your chances of maintaining financial independence.

Estate Planning It is important to have estate documents in place that are appropriate for your personal situation and to periodically review those documents once they are executed. Also review beneficiary designations.

Just as the stars in the sky shift with the seasons, your financial plan is not static. As life unfolds, adjustments will be made to your plan, and the strategies used to help you keep progressing toward your goals will evolve. So, as you gaze at the stars, consider creating a financial plan that tells the story of the future you hope to create, one that brings your financial dreams into focus.


12 | Sequoia Financial Group

Kevin Tichnell , CFP®, MSF Chief Financial Officer

EXPANSION To understand Sequoia’s inorganic growth strategy we really need to start at the beginning with our firms mission: Enriching Lives. Internally our team has the goal of enriching the lives of 10,000 households by the year 2027. In order to do this, we need to continue to challenge ourselves to be better advisors, better business partners, better colleagues and better leaders. Growing through mergers and acquisitions challenges our firm in all of these areas.

The Philosophy Simply put – Why grow through acquisition? I could summarize this into two areas – Talent and Scale. M&A activity allows us to attract talent through growth. This could be a talented operations professional, human resources leader, Investment Manager or personal advisor. By nature, talented individuals tend to strive for personal development – which means they thrive in a growthoriented environment. In creating a growth atmosphere through acquisitions, we are better able to attract and retain the best talent in the industry, which translates to a better experience for our clients. Scale is important because it allows us to continuously invest in our technology and business infrastructure. By way of example, let’s assume the average wealth management firm invests 5% of revenues into technology on an annual basis. If revenue is flat – there are no new investments. The technology gets stale and eventually, outdated. By continuing to grow revenue, that investment in technology increases each year. Once again, this continued technology investment ultimately creates an improved experience for our clients.

The What So, what type of advisors or businesses are we looking to connect with? According to Cerulli Associates, there are over 300,000 financial advisors in the United States. Certainly, there are many very good advisors in this group, and there are many who are…well, not-so-good. Further, even those who may be “good” advisors may not be a right fit for Sequoia. What makes a good Sequoia advisor?

CLIENT-FIRST • All Sequoia advisors act in a named Fiduciary capacity for our clients, which means we are legally obligated to put our clients interests ahead our own. While this may sound very intuitive and basic – not all advisors are legal fiduciaries.


The Next Chapter TEAM-BASED • At Sequoia our strength is in our team. We share resources, we share accomplishments, we share responsibilities and when things occasionally don’t go as planned – we share accountability. It’s in our culture and in our DNA. Mother Teresa wrote, “You can do what I cannot do. I can do what you cannot do. Together we can do great things”.

PLANNING-ORIENTED • At Sequoia everything starts with a plan. A plan provides the roadmap and the guardrails for getting from point A to point B. Many advisors view the planning process as unnecessary labor. We view it as the foundation to financial success.

According to JD Power, the average financial advisor in the United States is 55 years old, with nearly 20% over the age of 65. At Sequoia, the average advisor age is 45. This means that we are likely to see continued consolidation in the wealth management industry over the next 10 years as a large percentage of active financial advisors transitions into retirement. At Sequoia, this means we will continue to pursue Mergers, Acquisitions, and recruiting as strategies to attract the best talent in the industry – with the ultimate goal of providing the highest level of service to our most important relationships…our clients.


14 | Sequoia Financial Group

Leon LaBrecque, JD, CPA, CFP®, CFA Chief Growth Officer

CONSTELLATIONS Seeing Patterns in The Stars Who first gazed upward in the night sky and connected the dots? Who first wrote stories to explain what they saw in the stars? We are not certain, but we know there is a rich history in the patterns and their evolution to the Zodiac. There is even a wild comparison of dark cloud constellations in an Australian aboriginal rendering of the ‘emu in the sky’ versus a very similar one in the Inca Mayu, where both render the celestial rift in the Milky Way. Northern hemisphere constellations have very old and deep roots, and southern hemisphere constellations even correlate to navigation of the horn of Africa in 400 BC.

Pattern recognition is as ancient as humans and we apply it to all parts of our lives. Our ancient ancestors looked upward and saw stars in a pattern reminiscent of a bull, lion, person, even a scorpion. Humanity has used the constellations to help navigate, follow the edge of the Big Dipper to Polaris, the north star (part of the Purple Forbidden Enclosure in Chinese astronomy). Polaris is always within one degree of the celestial north pole. Its constancy makes it an asset for understanding our own position, helping us make sense of the ever-changing vista of our night sky. We have used the stars to tell the stories of humanity throughout the ages, and used their position in the sky to chart our courses on land and at sea, and we have used them to try to predict the future, to help us make sense of the seeming randomness of our experiences. We have similar desires when it comes to how we understand and make decisions with our wealth, we

desperately seek predictive patterns. This can range from simple stock charts offering a look at the trends, like the 50 and 200-day moving averages of a security’s performance, to something wildly exotic like the Elliot Wave theory, which identifies repeatable fractal waves of consumer behavior. Navigation or horoscopes? One only needs to watch CNBC for a little while to find a pundit talking about ‘cup and handle’ or ‘head and shoulder’. Patterns can reveal a lot (see chart). The chart illustrates the growth of $1 in the stock market from 1870 to now. Note: this is a logarithmic chart, so $1 in 1870 turned into $10 by 1900, then $100 in 1945, then $1,000 in 1970, and so forth. What do you see? Hopefully you see a nice, long upward line, with a lot of bumps. The red sections are market crashes, and you can see that there have been plenty. You also probably see that despite those bumps, the market has done pretty well: $1 invested in 1870 turned into $19,044 by February 18, 2020. What


MARKET CRASH TIMELINE: GROWTH OF $1 AND THE U.S. STOCK MARKET’S REAL PEAK VALUES

Morningstar.com Data as of Jun 30, 2020. Sources: Kaplan et al. (2009); Ibbotson (2020); Morningstar Direct; Goetzmann, Ibbotson, and Peng (2000); Pierce (1982); www.econ.yale.edu/~shiller/data.htm, Ibbotson Associates SBBI US Large-Cap Stock Inflation Adjusted Total Return Extended Index.

might not be apparent from the pattern is that there are some signs when a downturn is going to happen. Note that in 1918, we had WWI and the Spanish Flu pandemic at the same time. The market (and economy) tanked, followed by the expansion of the 1920s. No one predicted WWI, and similarly, no one knew how big or bad the Spanish Flu was. The markets and economy, like the stars, can help us navigate, but they can’t predict the future. Why not? First, we must recognize that unlike the stars, the market is a human construct. It is a daily representation of our economic behaviors and choices. One day we vote (or proxy someone else to vote) what industries, companies, or securities we like or dislike. The short-run movement is highly unpredictable. (So unpredictable that the probability of an up-day is scantly more than 50%, but still enough to turn $1 into $19,000.) The long-term movement very clearly shows an upward trend, and we have a theory about why: humans want

their lives to be better, safer, and easier, and will migrate to whatever they believe will allow them to have a better life. Do a simple thought exercise about typewriters, phones, or TVs and you’ll see the pattern. So, the stars can guide us, but not tell us the future. The market and economies can guide us as well, provided we have a long-term goal to navigate toward. They are tools and indicators, in our forward progress toward financial independence and wellness, but they make horrible dictators. When we look heavenward at the night sky, we’re reminded of the millions of human eyes that have looked at the same stars and told their stories in the pictures they found there. In the same way, we can write our own stories even as we use their light as landmarks to chart our course toward our future.


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Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training. Š 2021, Sequoia Financial Group, all rights reserved.

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Sequoia Viewpoint 2021