Blog   Tagged ‘private wealth’

Monthly Media Update – August

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CNBC discusses the impact of the political drama in Washington on the markets with our CIO, UMB’s Texas team talks about its expansion into Fort Worth’s iconic 777 building, our healthcare services CEO shares tips for employers to help employees be more financially secure, and why our personal banking president thinks each generation should have a retirement plan as distinct as their taste in pop culture are a few media coverage highlights from August.

Stay informed on industry trends and noteworthy company news by visiting our UMB in the News section on umb.com, which is updated weekly for timely viewing.

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UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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August Outlook by the Numbers

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Do you have questions on the housing market, labor market and interest rates? Check out UMB Investment Management team’s August 2017 Outlook by the Numbers for a quick snapshot on these and other economic drivers.

Also, be sure to review the following videos, articles and interviews for more market and wealth management information…

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*Bloomberg Radio with Pimm Fox and Lisa Abramowicz (audio): UMB’s Mathews: People Conflated Trump Bump With Earnings Rally ‡

*CNBC (video): Tech leadership names will likely rotate

*BloombergMaybe ETFs Aren’t the Reason You Can’t Find Any Stocks to Buy

*CNBC (video): Avoid the Political Distractions

*Ingram’s Magazine: Gray Expectations

*Colorado Biz Magazine: How to Stay Cool as Markets Heat Up

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story. Our focus.

Follow UMB‡ on LinkedIn to stay informed of the latest economic trends.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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Market Minutes: Earnings, Tech Stocks and Valuations

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Chief Investment Officer KC Mathews recently shared his thoughts on current market conditions with Bloomberg and CNBC. Review the below media highlights to learn more about items he’s watching.

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*Bloomberg Radio with Pimm Fox and Lisa Abramowicz (audio): UMB’s Mathews: People Conflated Trump Bump With Earnings Rally ‡

*CNBC (video): Tech leadership names will likely rotate

*Bloomberg: Maybe ETFs Aren’t the Reason You Can’t Find Any Stocks to Buy

Also, read KC’s recent economic articles, which give more detailed information on where we’ve been and where we’re headed.

Follow UMB‡ and KC Mathews‡ on LinkedIn to stay informed of the latest economic trends.

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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July Outlook by the Numbers

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Do you have questions on the housing market, labor market and interest rates? Check out UMB Investment Management team’s July 2017 Outlook by the Numbers for a quick snapshot on these and other economic drivers.

Also, be sure to review the following articles for more market and wealth management information…

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Follow UMB‡ on LinkedIn to stay informed of the latest economic trends.

 Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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Active, Passive or Complementary Investing?

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The Yin and Yang of Investing

In Chinese philosophy, yin and yang describe how seemingly opposite or contrary forces may actually be complementary, interconnected and interdependent in the natural world. When you look at portfolio management, passive (indexing) and active strategies are the yin and yang of investing.

However, most of the debate around passive versus active investing comes from those advocating for one approach over the other.

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We, on the other hand, believe they are complementary and not mutually exclusive. Based on our research, neither an all-passive, nor all-active portfolio, is an optimized portfolio. Rather, optimal appears somewhere in the middle, hence our comparison to yin and yang.

The Case for Passive

  1. Narrow-Based Market

For many years, the S&P 500 performance has been driven by a small number of stocks. Portfolios that do not own a handful of these stellar performing stocks will underperform. In years where the S&P 500’s total return is between three and 11 percent, a few select stocks drive the market’s return.

The median number of stocks driving the market is 10. So far, this year is no different. The S&P 500 is up seven percent, and 12 stocks are dominating performance.

When the market is narrow-based, including passive investments in a portfolio is clearly beneficial.

  1. Fees

Passive funds simply replicate an index like the S&P 500 or the Russell 2000 and have lower management fees than actively managed funds. Fees negatively impact a fund’s performance, and over the years there has been downward pressure on management fees on both passive and active managers.

Remember, though, fees should be part of the investment process, not drive the investment process. Is the least expensive automobile the right one for you and your family? Perhaps not.

  1. Efficient Markets

There is an academic theory called the efficient market hypothesis (EMH) that suggests it is impossible to beat the market. If the market is efficient, share prices reflect all relevant information and trade at fair value; therefore, active managers can’t outperform the market.

I would counter that some markets are efficient and others are far from it. For example, from 2009 to 2016, 80 percent of domestic, large capitalization managers underperformed the S&P 500, suggesting it is efficient. However, in the same period, 60 percent of domestic small capitalization managers beat the Russell 2000, suggesting it is inefficient.

The jury is still out on EMH. However, it is clear that some markets and asset classes are more efficient than others, once again supporting the yin and yang case of using both active and passive investments in your portfolio.

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The Case for Active

  1. Valuation

The narrow-based market argument suggested that, at times, a few stocks drive the market. This year is no different. The top 10 performing stocks year-to-date trade at 3.4 times sales. The S&P 500 trades at 2.5 times sales, and the bottom 490 stocks in the index trade at 1.9 times sales.

However, we believe that over entire market cycles, valuation matters. Historically, sooner or later, overvalued stocks underperform and undervalued stocks outperform.

Most active managers attempt to buy undervalued stocks. By doing this, they can control risk and perform well over a market cycle.

  1. Quality

If the index was dissected into high-quality stocks (rated A+ to B+) and low-quality stocks (rated below B), as defined by Standard and Poor’s, it would show they perform differently at various times.

Low-quality stocks outperform during the early stages of a cyclical bull market, while high-quality stocks perform best in a bear market. Of course the index owns both high- and low-quality names.

When safety trumps valuation, high-quality names will protect the portfolio. Thirty-one percent of the companies in the Russell 2000 index lost money last year, while high-quality stocks have not experienced negative returns over any 10-year period since 1986. Typically, active managers search for quality investments.

  1. Dividends

Dividends play two important roles. First, they can be a material factor in total return. If stock prices appreciate five percent and there is a three percent dividend yield, the total return is eight percent. Importantly, 37.5 percent of the total return came from dividends.

Second, as companies pay and increase dividends, it sends a message that management is confident that earnings will increase. Since 1972, stocks that increase or initiate their dividend have outperformed the market by 2.6 times. During this period, dividend growers and initiators returned 10 percent annually versus the S&P 500’s 7.6 percent.

Active managers can build portfolios that seek out stocks with attractive and growing dividends.

All Investing is Active

Portfolio management requires numerous decisions. Asset allocation is paramount—which asset classes should be in the portfolio, and what allocation?  Even if passive securities are to be used, which index is appropriate?

For example, the 2016 return for three passive small capitalization exchange traded funds, each with their own underlying index, had an eight percent return variance:

  • iShares Core S&P Small Cap, 26 percent return
  • iShares Russell 2000, 21 percent return
  • Vanguard Small Cap ETF, 18 percent return

Every component of portfolio management requires a well thought-out and researched decision. Thus, all investing is active.

The Yin and Yang

Passive and active management styles are not opposite or contrary; they are complementary. Given our research, we believe using both styles strategically in portfolio management creates an equilibrium and holistic strategy.

This article originally ran in the Colorado Biz Magazine on July 5, 2017.

 

 

 

 

 

 

 

 

 

 

 

Read our full perspective by clicking here or learn more about our Private Wealth Management division. See what we mean when we say, “Your story is our focus.


K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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Corporate Earnings and Fidget Spinners

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What do corporate profits and fidget spinners have in common?

Happiness.

While parents may never understand fidget spinners, kids sure love them. Trendy toys make kids happy, even if we don’t understand the intrigue. While we expect fidget spinner fascination to wane and follow the path of prior fads, such as the pet rock, Furbys and silly bands, we expect the opposite of corporate earnings.

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We believe corporate earnings are moving to trend status and have the staying power to grow for the next eight quarters. And this will translate to happiness in the market. Stock markets do well when corporate earnings are stronger than expected, as earnings are the lifeblood of the market.

July 10 marks the unofficial start to second quarter earnings season, and we expect earnings growth momentum to continue based on the following data.

Shift from Earnings Recession to Earnings Expansion

Beginning in the fourth quarter of 2014, corporate earnings evaporated, starting an earnings recession that lasted until the third quarter of 2016 when earnings finally posted a slightly positive gain.

The first quarter of 2017 recorded strong earnings growth of 17.8 percent and sales growth of 8.5 percent. Wage inflation, commodity costs, margins, and share repurchases boosted (and will continue to boost) earnings growth.

Additionally, easy year-over-year comparisons helped these numbers, as earnings declined 5.0 percent last year during the same time period.

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Industries We’re Watching

Technology and finance sectors are expected to have the highest growth rates among all S&P 500 sectors.

  • Strong demand for cloud-based services and cell phones are leading growth for technology.
  • In the finance sector, the recent increase in interest rates bode well for banks as expanding margins can make more profit on the money they lend out relative to their interest paid on deposits such as checking/savings accounts. Additionally, higher rates should help offset weaker than expected loan growth trends.

Key Drivers: A Look Ahead

Sustainable corporate earnings growth is driven by economic activity and GDP growth, and corporate earnings are highly correlated. Economic global growth continues to improve, with China and Europe’s economic data showing signs of green shoots, and we see a pick-up in domestic growth as well.

We expect second quarter earnings to increase eight percent and revenue growth to grow four percent.

Timing the Earnings Tailwind

The promise of fiscal stimulus is a tailwind for corporate earnings. Tax reform, reduced regulation and infrastructure spending have the potential to increase earnings by 10 to 15 percent.

However, there are two issues with fiscal stimulus. The first is timing—how quickly will things develop? Given current conditions, it appears this will be a 2018 event.

Secondly, fiscal stimulus has a short-term impact on economies and markets. Historically, when you are late in an economic cycle like we are now, fiscal stimulus is effective for only four or five quarters.

Therefore, while potential fiscal stimulus is positive for the long-term, investors will have to exercise some patience and understand that they may be shorter-lived when they are realized.

The Broader View

We have a positive view on the economy and expect GDP to grow at 2.2 percent in 2017. Over time, S&P 500 revenue growth has had a multiplier of 1.5 times GDP growth. This GDP multiplier, plus an expected rebound in oil, supports our 5 percent revenue growth for 2017.

All things considered, we believe the next few quarters of corporate earnings are going to be a trend that will bode well for the markets. Meanwhile, children will continue to play with their fidget spinners – or the next greatest fad – and everyone will be happy.

Follow UMB‡ and KC Mathews‡ on LinkedIn to stay informed of the latest economic trends.

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


K.C. Mathews is executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute.

Will Reese is a senior securities analyst for the Private Wealth Management division at UMB. He has an Bachelor of Science degree in psychology from the University of Kansas and a Master of Business Administration degree with an emphasis in finance from Avila University. In his role, Will monitors and maintains departmental equity working lists, recommends stocks for external clients, and provides equity research and analysis for internal customers.




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Is the Bond Market Wrong?

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After the surprise election results in 2016, domestic markets experienced the “Trump Bump,” which entailed a traditional risk-on shift—investors bought stocks and sold bonds to prepare for the presumed good times ahead. Stock values and interest rates both shot higher in anticipation of a boost to both economic activity and inflation.

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Trump Bump to Trump Slump

However, after a few months of treading water early in the New Year, interest rates began a steady decline. The 10-year Treasury note dropped from 2.60 percent to 2.25 percent in just a few weeks.

This occurred despite an early increase in overnight rates by the Federal Open Market Committee (FOMC) and clear messaging that they are prepared to continue the upward march in rates as part of a gradual “normalization.” All the while, stock prices remained resilient and repeatedly bumped up against all-time highs.

Debates and Head-Scratching

The drop in long-term rates created a flattening of the treasury yield curve, something that typically occurs near the end of a Fed tightening cycle, as the economy begins to slow down.

This rate drop and curve flattening has triggered a healthy debate throughout the

investment industry. It appears the bond market is signaling that the economy isn’t going to be nearly as strong as the equity market is discounting.

Historically, a flattening yield curve has been a strong, early indicator of economic deceleration—so the divergence between stock prices and interest rates has unleashed some serious head-scratching.

Disagreement Abounds

As a further complication, the Fed Funds futures market—the bond market’s estimate of where overnight rates are headed—is substantially below the FOMC’s estimates for where they’re planning to move rates. The FOMC expects overnight rates (and money market rates) to head to 1.50 percent in 2017 and rise to 2.20 percent in 2018, which is good news for savers. However, the futures market is placing overnight rates at only 1.25 percent and 1.50 percent in 2017 and 2018.

It appears that the bond market currently disagrees with both the FOMC and the stock market on the strength of the economy and the path of rates, raising the question, “Is the bond market wrong?”

Countering the Contrarian View

At this point, our answer is “yes, we believe the bond market is wrong.”  While it’s usually not fruitful to bet against the bond market, we believe several factors are causing it to paint a contrarian (versus the stock market) picture at this time:

  1. Assumption that the new administration will not get any stimulus plans enacted
    The bond market appears to be responding to the president’s early challenges with enacting campaign promises.
  2. Global interest rates
    Global interest rates are still well below the U.S. The glut of excess savings from around the world is still chasing U.S. rates whenever they rise, making it difficult for our rates to rise as much as they might otherwise.
  3. Normalization cycle
    Bond investors around the world are assuming the current Fed normalization cycle will play out in a similar manner to how the entire global financial crisis cycle has unwound—much slower than anyone anticipated. They are betting against any “upside surprises” for the economy or inflation, and it’s been a very long time since we’ve had either.
  4. Extreme caution in rising rates
    The bond market believes the FOMC will exhibit extreme caution in edging rates higher because it fears rising rates will tip the economy back toward a slowdown.The bond markets are not signaling that an economic slowdown is eminent, but rather that rate normalization will not be possible at the pace indicated by the Fed and most forecasters.

Why we believe the bond markets are wrong:

  1. We believe the new administration will succeed in enacting tax cuts and infrastructure programs—both will involve compromise and delays, but they will ultimately be accomplished, and both should point toward higher rates.
  2. We believe the global savings glut is in the very early stages of abating, so the artificial “lid” on interest rates may be slowly dissipating.
  3. While the last decade has been one of extremely slow movements from the Fed, it appears wage pressure is building throughout our economy—a precursor to inflation. Economic momentum is turning upward in Europe as well. These trends will allow the Fed to push forward with rate normalization at the pace reflected in most forecasts.
  4. Interest rates are exceptionally and unsustainably low, particularly given that we are experiencing a modest global upturn. Even after the Fed’s projected upward adjustments, interest rates will still be exceptionally low—modestly higher rates are not a threat to the economy or a barrier to normalization. For these reasons, we believe the bond markets are not properly reflecting the most likely path for interest rates over the next two years. There are risks to this outlook, but the most likely outcome is an upward shift of roughly 1.00-1.50 percent over the next two years.

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


Mr. Kelley is managing director of fixed income at UMB and is responsible for overseeing the product development and management of the fixed income holdings for the Wealth Management division. Mr. Kelley earned a Master’s of Business Administration from Baker University in Kansas City.



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Dust off Your Finances: Spring Clean Your Financial House

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Spring is just around the corner, and with that comes the proverbial spring
cleaning. While most people recognize the value of scrubbing their homes, we recommend dusting off your finances as well.

Consider these tips to help ensure your financial house is cobweb-free.

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Settle In for a Review

  • Review the titling and ownership of all financial accounts. Make certain any accounts owned and titled in a trust, or have a Payable upon Death designation, will meet desired intentions if a transfer were to take place.
  • Review your credit report to make sure
    you’re in positive standing. You can request a free copy once every 12 months from annualcreditreport.com.
  • Review insurance policy and retirement account beneficiaries. This is particularly important if there has been a recent change in marital status. A spousal waiver will be needed if the beneficiary is not the spouse.

 Prepare for the Future

  • Execute a will and a living will. If these documents already exist, they should be reviewed on a regular basis. Circumstances and viewpoints change, which can heavily impact desired allocations and intentions.

Check Up on Your Cards

  • Check the interest rates that are being charged on all credit cards. For individuals who carry balances, consider consolidating to the card with the lowest interest rate or even contemplate a Home Equity Line of Credit as the interest may be tax-deductible.
  • Utilize a credit card that offers rewards. Many of these now carry no annual fee and offer cash back in addition to the travel and merchandise rebates.

Evaluate Your Employer Benefits

  • If financially possible, make the most of your 401(k) by contributing to the level that takes advantage of the full employer match.
  • Review your health insurance coverage options to ensure you are making the best selections for yourself and your family. If you are currently enrolled in a High Deductible Health Plan coupled with a Health Savings Account, review your contributions to make sure you are maximizing your saving options.

Examine Your Life Insurance

  • Make certain existing coverage will meet the financial needs of your family if any member were to pass away, not just the primary income source for the family. Also, if the only secured life insurance is provided by an employer, consider pricing other term policies. Remember employer-provided insurance may not transfer if there is a change in jobs.
  • Research long-term care insurance. Ask your insurance provider about this coverage to ensure it offers home health care in addition to nursing home care. Life expectancy is much greater than it used to be, and in-home and community care continue to rise in price.

Freshen Up on Your Investments

  • Review or create an investment policy statement (IPS). This is an agreement with a financial advisor that states your investment purpose, time frame and risk tolerance. An IPS clearly states the investor’s goals and helps provide clear expectations, consistent communications and true accountability for both the advisor and the investor.
  • Conduct homework for obtaining professional services from investment consultants, estate planning attorneys and certified public accountants. Seek references from trusted friends and colleagues and stick with specialists. Professionals will be able to offer insights and guidance that will help individuals succeed in reaching their financial planning goals.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.pulation Survey/Housing Vacancy Survey, Series H-111, U.S. Census Bureau, Washington, DC 20233.


As a Private Wealth Management regional manager, Brent is responsible for the growth and support of new customer relationships as well as supervision of regional sales associates. He is also responsible for oversight and delivery of the financial planning discipline within the region. With nearly 30 years of experience private wealth client relationship management, Brent is a seasoned banking professional with deep Texas roots. He attended the University of Texas at Arlington, where he earned a bachelor’s degree in finance, and is a Candidate for CFP® certification. He serves as a board member of the Dallas Parks Foundation.



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