Pinnacle - 2014 Annual Review

A N N U A L R E V I E W

2014

Constants and Constant Change: A Vital Balance

The Charles River originates from a quiet source in Hopkinton, Massachusetts known as Echo Lake.

The river traverses land and cityscapes that have been in constant states of change and evolution

for hundreds of years while maintaining its natural steady course to Boston and the Atlantic that has

existed for much longer.

One lesson I’ve learned over the past several years of growth at Pinnacle in the midst of market

volatility, stagnant interest rates, changing tax laws and regulatory reforms is that being adaptive

and sometimes transformative is critical. We derive our success by balancing staying true to

the core principles upon which our firm was founded while simultaneously evolving to achieve the

deepest level of expertise and highest level of service for our clients.

At Pinnacle, evolving means ongoing improvement through technology, talent and collaboration in

order to deliver a different experience from the very first interaction. Whether you are a private

client advisor using our recent “whiteboard” video to help explain to a family the tax-efficient

fundamentals of private placement insurance or an employer growing a retirement plan program

through our one-on-one participant concierge service, you can be sure Pinnacle is always devising

new ways to better serve you.

2015 will bring new changes and challenges. We won’t be able to

predict all of them, but we will be honored and prepared to work

diligently on behalf of our clients throughout the year to navigate

and adapt to whatever lies ahead – as we have done for more

than four decades.

Sincerely,

Michael A. Mingolelli, Jr., Esq. Chief Executive Officer

A L E T T E R F R O M T H E C E O

PINNACLE CORE PRINCIPLES

• Put the client first.

• Be the best through expertise and innovation.

• Create an empowering environment.

• Be a leader in corporate citizenship.2

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PINNACLE SERVICES

Private Client Consulting

• Life Insurance Portfolio Construction & Implementation

• Life Insurance Portfolio Management

• Life Insurance Fiduciary Review

Private Placement Investing

• Portfolio Design and Implementation

• Portfolio Management

Retirement Benefits

• 401(k) Qualified Plans

• Nonqualified Plans

• The total amount of in-force life insurance for which we provide advice and service exceeded $8 billion in death benefit.

• Pinnacle qualified and nonqualified retirement plan assets under management for which we provide consulting services exceeded $4 billion.

• Pinnacle hosted an exclusive Boston appearance by renowned Washington political and tax expert, Andy Friedman. He shared his “Washington D.C. Update” with advisors and clients, addressing the current tax climate, elections, corporate inversions and health care reform with an eye on how Washington D.C. action or inaction may impact the future.

• We extended our video production to include what is known as an “explainer” or “whiteboard” video. This video boiled down the benefit and function of private placement insurance products into a 3-minute capsule.

• Kevin Coffey, Pinnacle CFO and Director of Operations, was elected to serve on the Financial Executives International (FEI) Boston Chapter’s Board of Directors.

• Extended consulting capabilities to clients in over 30 states nationwide.

C O R P O R AT E H I G H L I G H T S

Marc E. Mingolelli, AIFDirector of Client Relations

Ideally, all Boston families would have the resources they need to thrive, but since that is not the reality, I’m very proud of the efforts of Pinnacle as a team — and by our employees — to make a difference in many areas of community service and fundraising.

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In support of our core principle to be an active corporate citizen, we spent our annual company day of service at the Cradles to Crayons Giving Factory in Brighton, Massachusetts. The team sorted donated items and put together “Outfit Packs” for children that included much needed clothing, outerwear and boots to meet the demands of a Boston winter.

In addition to our company-wide service, several Pinnacle employees went the extra mile — literally — for special events and causes such as the MS Muckfest (National MS Society) and the Boston Marathon® Jimmy Fund Walk (Dana Farber Cancer Institute), raising thousands of dollars through great effort and activism.

The following list represents additional organizations Pinnacle and our employees supported throughout 2014 through donations of time and/or goods:

Alzheimer’s AssociationAmerican Ireland FundBig Brothers Big Sisters OrganizationCatholic Charities of Greater BostonChildren’s HospitalCity YearCommonwealth Shakespeare CompanyFishes & LoavesFriends Supporting HopeIrish American FundJewish National FundNetwork for GoodPan Mass ChallengeRosie’s PlaceTravis Roy Foundation

C O M M U N I T Y I N V O LV E M E N T

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Pinnacle volunteers pictured at the Cradles to Crayons Giving Factory in Brighton, Massachusetts.

PRIVATE CLIENT CONSULTING

2014 Overview Significant changes occurred both inside and outside of the insurance industry during 2014. Equity markets posted healthy gains and the Federal Reserve indicated that it would keep interest rates low for the near-term. Prolonged low interest rates continued to strain insurance carriers affecting many in-force policies and impacting product development and access. Federal regulators designated three life insurance carriers as Systemically Important Financial Institutions (SIFIs) as part of the broad-reaching 2008 Dodd-Frank Act. The National Association of Insurance Commissioners (NAIC) is developing a uniform standard for Index Universal Life (IUL) policy illustrations in an effort to provide clarity and consistency when comparing products. Against this back drop, Pinnacle continued to partner with many advisors and clients to review and optimize existing life insurance policies as well as implement new insurance programs.

2014 Underwriting Results & Advocacy*

(Average age of client – 56 years old) *Historical outcomes may not reflect future results.

Policies Issued Preferred

or Best Class

Policies Issued Standard Class

or Better

Policies Negotiatedto Upgraded Ratings

100%

80

60

40

20

0

78.5%

Kenneth J. Masters, CLU, ChFC, AEPDirector of Life Insurance Design & Development

Our commitment to delivering a superior planning experience is illustrated in every facet of our work, from advanced modeling and underwriting advocacy to active policy administration and stewardship.

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97.4%

53.8%

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2014 ACTIVE MANAGEMENT & ADVICE

Increasing Liquidity for a Large Estate A single family office engaged Pinnacle to implement a life insurance portfolio that would help assure liquidity for estate taxes as well as fulfillment of charitable intentions and maintenance. Pinnacle implemented a $150 million insurance portfolio, using five different insurance carriers dispersed among four different ownership entities and 16 policies. Pinnacle surveyed the entire marketplace and managed the insurance capacity along with various reinsurance treaties among carriers.

Identifying Risks and Opportunities A married couple, both in their early 50s, owned a variable survivorship life policy. While reviewing the policy, Pinnacle’s Monte Carlo analysis indicated a 66% probability that the policy would not grow to the planned amount and it was revealed that the husband was recently turned down for any new coverage. Pinnacle conducted further analysis and design ultimately obtaining a preferred rating for the husband who had been denied coverage and replacing the existing policy for one worth 20 percent more with the same premium and no market risk.

Seth J. Buckley, CFP, CLU, ChFC, MSFS, AEPVice PresidentPrivate Client Services

P R I VAT E C L I E N T C O N S U LT I N G & P R I VAT E P L A C E M E N T I N V E S T I N G

Having worked with clients from the institutional side and as an independent advisor, Pinnacle offers the perfectly balanced platform for consulting with clients on a very personal level with objectivity and transparency while also providing institutional level expertise and resources.

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Expanded Private Client Group with Addition of Seth J. Buckley, CFP, CLU, ChFC, MSFS, AEP

Seth Buckley joined Pinnacle as Vice President of Private Client Services bringing over 20 years experience in estate, business and charitable planning to the group.

Before joining Pinnacle Financial Group, Seth was President of the independent insurance firm he founded, Buckley Financial. Prior to Buckley Financial, Seth was Senior Vice President of Bank of America – US Trust’s High Net Worth Insurance Group, where he was also its national leading insurance consultant.

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PRIVATE PLACEMENT INVESTING

2014 Overview With increased income tax rates and robust markets, Pinnacle served as a valued resource to clients engaged in alternative investing in 2014. Given the tax inefficiency of many successful alternative investments, exploring opportunities to defer or eliminate taxes on earnings is increasingly a topic of great interest to high net worth families, corporations, fund managers and third-party advisors.

In short, Private Placement Life Insurance (PPLI) can eliminate income taxes on investment earnings while a Private Placement Variable Annuity (PPVA) can defer income taxes on such earnings. Investors turn to PPLI policies when the frictional costs of the insurance charges are less than the tax friction the investment would ordinarily experience. PPVA policies do not offer permanent elimination of income taxes on earnings like PPLI policies, but they are effective tax deferral tools with less complexity than PPLI policies. For high net worth investors, PPLI can also offer additional benefits such as creditor protection, integration and enhancement of estate and charitable planning, as well as tax planning for international clients.

Pinnacle’s infrastructure, reporting and service complement private placement insurance portfolios as well. We provide advice and service on over $700 million in assets in this specialty area.

For advisors and clients for whom private placement was a new strategy to explore or explain in 2014, Pinnacle produced an easy-to-understand “explainer” or “whiteboard” video to provide a top-level overview simplifying some of the basic features of PPLI and PPVA. To view the video, visit our Private Placement Investing page at www.pinnaclefinancialconsultants.com.

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INDUSTRY AND THOUGHT LEADERSHIP

Delivering insightful and timely information to our clients remains one of Pinnacle’s key directives. In 2014, we continued to participate and drive the dialogue on key issues facing our clients:

• Published three Advisor Alerts that covered federal regulatory and accounting changes, financial strength assessments from rating agencies, and industry reform concerning illustration best practices and requirements for index universal life insurance.

• Presented in two sessions at the 2014 AALU Annual Meeting regarding product chassis selection and insurance portfolio management best practices.

• Participated in three panel presentations at the M Financial Group Annual Meeting.

• Michael Mingolelli, Jr. assumed the Chair of the Program Planning Committee for the 2015 AALU Annual Meeting.

• Ken Masters served on the Program Development Committee for the 2014 M Financial Group Annual Meeting.

• Ken Masters passed Level II of the CFA exam.

• Michael Mingolelli, Jr. continued his service on M Financial Group’s Product Development Group, which oversees and delivers proprietary products, services and technology for M Financial Group.

• Ken Masters continued his service on M Financial Group’s Case Design Group, which collaborates with the Product Development Group on new product development ideas.

P R I VAT E C L I E N T C O N S U LT I N G & P R I VAT E P L A C E M E N T I N V E S T I N G

Reducing Fiduciary Liability & At-Risk Allocations

One strategy to help plan participants achieve more through their qualified plan is an investment re-enrollment with target date funds receiving assets as the Qualified Default Investment Alternative (QDIA).

After undertaking a provider search in late 2013, a client decided to change record-keepers. While aggressive education and communication efforts in previous years had increased target date fund utilization and reduced at-risk allocations, the client wanted a broader impact on employees. Pinnacle suggested an investment re-enrollment, with the recordkeeper change offering an opportune time to implement the action.

The results were impressive. Prior to the re-enrollment, target date funds comprised more than 37% of plan assets with nearly 44% of participants using a target date fund. After the re-enrollment, 87% of assets were in target date funds representing nearly 92% of participants. Additionally, the allocation to cash equivalents fell from five percent of plan assets to less than one percent.

The client’s employees are now better situated to weather turbulent markets throughout their path to retirement.

Disclosure: Past performance does not guarantee future results.

Gregory C. Lewis, AIF, MSFSenior Consultant401(k) Qualified Plans

A qualified plan benefit strategy only succeeds if it is effectively communicated. That’s why I personally connect one-on-one with at-risk, eligible employees throughout the year to advise and individually illustrate the potential value of contributing to the plan as soon as eligible and maximizing deferral rates.

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R E T I R E M E N T B E N E F I T S

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401(k) QUALIFIED PLANS

2014 Overview As the stock market continued its upward trend in 2014, Pinnacle emphasized to clients and their eligible employees just how valuable contributing to a qualified retirement plan can be. Pinnacle assisted several plan sponsors in their efforts to increase participation, deferral rates and appropriate asset allocation with tactics such as re-enrollments and customized communication campaigns so that plan participants make the most of their qualified plan benefit — no matter what the market is doing.

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R E T I R E M E N T B E N E F I T S

NONQUALIFIED PLANS

2014 Overview Pinnacle’s Nonqualified Deferred Compensation (NQDC) practice experienced significant growth this year, adding a Fortune 50 company and a Fortune 500 company as clients. As the economy improves, more companies realize it is imperative to have highly valued executive retirement programs in order to ensure they attract top performers, but also so that these key contributors can save as much as possible and retire when desired. After the malaise that hung over the economy following the “Great Recession”, many companies have waited longer than they should have to implement a plan and are now taking the necessary steps to install these plans. Pinnacle also partnered on redesigning NQDC plans with companies whose current plans suffered under increasingly inefficient and expensive program funding design, higher taxes and profit and loss expense.

The question is not, ‘What is the cost of an executive benefit program?’ but rather ‘How much value can a well-designed and efficient executive program bring to the growth and success of the organization?

“” David S. Hauptman, ASA

Managing Director Executive Benefits

Lower Costs, Motivated Executives and a Better Retirement Outlook

A private real estate firm with 2,000 employees offered a NQDC plan that lost its appeal after 2008. Only 13 of 140 executives participated, perception was low and the company was incurring a tax cost from mutual fund gains in the rabbi trust that was becoming prohibitive — projected to be $750 thousand in 2014. Little to no participant education or program oversight had been provided by the broker, recordkeeper or consultant. The firm was considering shutting down the program but first gave Pinnacle the opportunity to perform a diagnostic review and ultimately redesign the program.

With one enrollment cycle complete following the redesign, participation has increased from 13 to 47 participants.

The solution developed by Pinnacle transitioned the plan to Corporate Owned Life Insurance (COLI), eliminating the tax cost within six years and improving the projected profit and loss statement impact by $1.2 million over the next five years — and $8 million over the life of the plan. Additional components integral to the successful new program included a performance-based company contribution, an improved fund lineup, as well as a third-party expert responsible for oversight and administration. Together, these elements improved the organization’s bottom line while increasing recruiting competitiveness and probability for a successful retirement for executives.

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INDUSTRY AND THOUGHT LEADERSHIP

Our retirement benefits consultants strongly believe that providing leading edge advice to our clients is critical. In 2014, our team once again provided leadership and valuable information opportunities to our constituents:

• Through Pinnacle Insights pieces, “In Other Words” compliance updates, and seminars, Pinnacle boiled this year’s immense compliance and regulatory output down to the relevant language and action items for employers.

• Pinnacle launched its CFO Roundtable Series, coupling the region’s top CFOs and Pinnacle’s senior consultants for candid, peer-to-peer discussions in a small group setting about current benefits challenges and solutions.

• David Hauptman presented at the Construction Managers Financial Association (CFMA) of Massachusetts Annual Meeting.

• Pinnacle participated in two Retirement Benefits-focused panel presentations at the M Financial Group Annual Meeting.

• David Hauptman, as a member of M Financial Group’s COLI Task Force, contributed his expertise to helping M Financial Group assure it has optimal services, practices and best practices for implementing and/or managing nonqualified retirement benefits.

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Securities offered through M Holdings Securities, Inc., a Registered Broker Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Pinnacle Pension Consultants, LLC. Pinnacle Financial Group and Pinnacle Pension Consultants, LLC are independently owned and operated.

Reservoir Corporate Center144 Turnpike Road, Suite 110, Southborough, MA 01772 P. 508. 875.7431 F. 508.626 .1591

www.pinnaclefinancialconsultants.com

Pinnacle Financial Group

Pinnacle Financial Group

@pfgconsultants

Pinnacle Financial Group

Via email: [email protected]