July 2017

Inside this issue:

W. Michael Montgomery, AIF, CPFA, CLU, CFS, TGPC, C(k)P

During Father’s Day recently, I found myself reflecting on some of the life-changing principles my father shared with me during the early years of my career.

Starting in the late 1940’s, my father, William P. “Bill” Montgomery applied the tough lessons learned from a Great Depression childhood and World War II Marine Corps service to build a successful career in the group health insurance field. As I started my own career in 1977, Dad occasionally offered helpful suggestions, but much of what I learned from him came from observing his example or listening to his informal comments on the business world. Here are five of Dad’s principles which charted the course of my career.

1. Do the Things Failures Don’t Like to Do
Early on, Dad gave me a little brochure based on a 1940 speech by Albert E.N. Gray. Its premise was simple: Do the things failures don’t like to do. Outdated and corny in today’s culture, right? Perhaps, except that it works.

As a 22-year-old I had little idea of how a successful person would act, but it was easy to see how a failure would approach the job. We’re surrounded by examples of the wrong approach. Failures don’t drive 400 miles for a promising appointment; they don’t take ownership of their mistakes; they don’t work the extra hours to finish a job the right way; they don’t put conscience and honesty ahead of expediency when doing so will cost them something; they’re so afraid of the little failures that they fail big. The list is endless. Since reading that brochure in 1977 I have consciously applied the principal thousands of times, and especially in situations where I couldn’t see a clear path to success.

Whenever you reach a point that you are not sure what to do next, ask yourself what a failure would do in that circumstance, and do the opposite.

2. Always be Improving
Have you ever met someone with twenty years of experience in a field, only to realize later that they actually have about one year of experience repeated twenty times over?

This principle could also be called, Invest in your Future. As I began my career, Dad pointed me to a difficult industry designation that involved ten courses and offered testing only twice a year. He suggested I get settled into the job for a year and then start taking one course every six months. He pointed out that I’d have my first industry credential in six years without disrupting my career and family. At age 22, six years seems like a long time, but the time was going to pass anyway, and the slow and steady approach paid off. I’ve continued to apply this principle throughout my career. Constant, incremental improvement is part of maintaining an optimistic, forward-looking view of life. After 40 years, it is amazing how the small steps forward have added up without putting much of a time strain on work or family responsibilities.

3. Family Comes First
To this day, hearing the words, “Son, I’m proud of you” is one of the greatest rewards I have ever received. One day I will hear it no longer.

My father was a successful, hard-working businessman but he was an even better father. When he was not working or traveling on business, he was building sand boxes, wooden toys, or tree houses to keep his two sons (and later, a less mischievous daughter) occupied. Later, as my career developed, he frequently reminded me, “Make sure you spend enough time with your wife and those two sweet children.” My father proved family and work don’t have to be mutually exclusive. At age 91, few people know who Dad worked for or what he achieved. His wife of 68 years, children, grandchildren, and great-grandchildren know his real legacy is us.

4. Surround Yourself with Good People, Even if They’re After Your Job
My father climbed through the ranks to a top corporate position for a major group insurance company. He mentioned once that some executives tend to surround themselves with yes-men or weak performers to avoid being challenged. Dad’s belief was the contrary. Regardless of those subordinate’s motivations, he said, they would do better work and probably push him to better performance as well, both of which would only help him reach his objectives.

I’ll add one brief corollary to this. Don’t be afraid to share credit for your good work with those around you. People will be more willing to share it right back with you. Besides, you probably do depend on others much more than you realize.

5. Honesty is Good Business Policy
I am rarely impressed when I hear a business person boasting about how honest they are. In fact, I generally check to make sure my wallet is well-secured as they blather on about themselves, so I won’t talk about myself here. What I will say is that my mother and father are the two most honest people I have ever met. Hands down. They both treat personal integrity and character as table stakes in life rather than an aspirational concept.

An honest, straightforward approach to business can be costly at times, but this article is about principles of life success rather than shortcuts. I am impressed when I come across an individual who seems to have a solid moral compass and quietly follows it, and that is the sort of person most of us would love the opportunity to do business with.

A few months ago, soon after my father’s ninety-first birthday, he and I sat together on the back porch discussing a couple of business issues that were troubling me. He listened, asked pointed questions, and then cut right to the heart of the matter with keen observations. I think I’m starting to get the hang of this business thing, but I still need a little help from my mentor every now and then.


For the client who may be concerned about fiduciary compliance, a fee policy statement may give comfort. Like all other fiduciary actions, the value of this statement is a function of how well it is written (not too loose nor too tight) and how consistently a plan sponsor actually describes/practices the process documented. So, a fee policy statement can potentially create problems in addition to mitigating them.

Having said this, assuming the plan is being managed prudently, by conducting a comprehensive live bid every three to four years (or sooner if circumstances warrant), along with an annual “second opinion” based on national normative data (as in our annual Fiduciary Plan Review), and the plan sponsor responds appropriately to the conclusions and maintains documentation, this should provide sufficient documentation to mitigate liability.

The recent attention to this issue is good in that, if interpreted properly, it will raise awareness. On the other hand, it also may create a bias for action which may not be beneficial.

A written fee policy is not required and may not be necessary.  It is sufficient to state in the Investment Policy Statement (IPS) that the fiduciaries will take the necessary steps to ensure fees are reasonable. A detailed fee policy may set fiduciaries up for failure and limit their flexibility in determining how fees will be structured.
Plan fiduciaries should have a complete understanding of how much a plan is paying in total and to whom, and they should benchmark the plan periodically to ensure the fees are competitive. If the investments are sharing revenue, the fiduciaries should decide that this is appropriate and should understand who is receiving this revenue. All of this should be documented through reports and meeting minutes.


We are now in the eighth year of an equity bull market, making this the second-longest upswing in American history.1 Additionally, the bond market has been in a secular bull market since 1982 as rates on the 10-year treasury fell steadily from above 14 percent to below 2 percent last year.2 The recent strong returns we have experienced may be difficult to sustain due to equity valuations, near-record corporate profit margins, and low interest rates. This is not to say we are in a bubble or an imminent bear market looms, however now is a good time to reset long-term investment return expectations for participants. In fact, California’s state public pension system, Calpers, recently lowered their expectations for long-term investment returns from 7.5 percent to 7 percent3 Even those reduced projections may prove optimistic.

Equity returns are primarily a function of three factors: earnings growth, the multiple paid for earnings, and dividends. Earnings have benefitted from near-record corporate profit margins4 Since the Great Recession, corporate profit margins have expanded on the back of cost cutting, low labor costs and low interest rates. This margin expansion has fueled earnings growth and any reversion to the mean would create a headwind for earnings going forward5 Furthermore, the current price-to-earnings ratio6 for the S&P 500 is about 18 times forward earnings. That compares to a historical 25-year average of about 16 times earnings.7 These valuation levels are not extreme yet provide less opportunity for future multiple expansion to drive returns. Lastly, the current dividend yield on the S&P 500 is less than 2 percent compared to a historical median yield of over 4 percent.8 For all of the above reasons, U.S. equity returns in the high single digits are unlikely over the coming years from this starting point.

Expect returns from fixed-income investments to also be challenged going forward. The most significant component of fixed income returns are yields. During this secular bull market in bonds, returns have been bolstered by falling interest rates. The current yield on 10-year treasuries is about 2.5 percent. That compares to an average historical nominal yield of over 6 percent.9 Additionally, if or when rates eventually rise, bond prices will be pressured since bond prices move inversely to interest rates. Clearly with yields near historically low levels, expect fixed income investments to return less than they have historically.

This is by no means a signal to exit the market and go to cash. Market timing is a fool’s game because it is impossible to properly time an exit and entry back into the market. As history has repeatedly shown, investors who try to time the market are destined for inferior returns over time. However, from the current starting point, it is difficult to envision a balanced portfolio achieving high single digit returns over the next five to 10 years. A low to mid-single-digit return is a more realistic expectation.

1 http://money.cnn.com/2016/04/29/investing/stocks-2nd-longest-bull-market-ever/
2 http://www.cfapubs.org/doi/pdf/10.2469/cp.v27.n2.6
3 Calpers Cuts Investment Targets, Increasing Strain on Municipalities. The New York Times. December 21, 2016.
4 A “Generational” Peak In Corporate Profit Margins. ZeroHedge.com. April 2, 2016.
5 A “Generational” Peak In Corporate Profit Margins. ZeroHedge.com. April 2, 2016.
6 The ratio for valuing a company that measures its current share price relative to its per-share earnings.
7 2Q 2017 Guide to the Markets. J.P. Morgan.
8 S&P 500 Dividend Yield.
9 2017 Guide to Retirement. J.P. Morgan.


MRPA welcomes David M. Ward to the MRPA consulting team!  Based in the Tampa office, David Ward has over 20 years of specialized experience in retirement plan design, compliance, and consulting.

No strategy assures a profit or protect against loss.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

For Plan Sponsor use only – Not for use with Participants or the General Public. This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

Montgomery Retirement Plan Advisors offers investment advisory services through Independent Financial Partners, a Registered Investment Advisor. Independent Financial Partners and Montgomery Retirement Plan Advisors are separate entities.

About Us  |Resources | Contact Us
©2017 Montgomery Retirement Plan Advisors, All Rights Reserved.

Montgomery Retirement Plan Advisors offers investment advisory services through Independent Financial Partners, a Registered Investment Advisor. Independent Financial Partners and Montgomery Retirement Plan Advisors are separate entities.