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Time to Tiptoe Towards That Crypto? 06.18.2021

Whether you are skeptical, cautious, and apathetic, OR enraptured, excited and intrigued by it, crypto has exploded in global popularity over just the past year, and has, to one degree or another, captured the attention of most of the civilized world.

Bitcoin was released as the first decentralized cryptocurrency in 2009, and nine years later, in 2018, the Merriam-Webster Dictionary approved “cryptocurrency” as an official word. While many (ourselves here at Towerpoint Wealth included) believe that crypto is here to stay, there are still plenty of “no-coiners” who feel otherwise:

Many Westerners find it difficult to understand how a 12-year-old digital currency could be safer to hold than the US dollar, which has long been recognized as the reserve currency of the world. However, once you understand that the Federal Reserve, America’s central bank, has inflated the money supply to achieve its macroeconomic goals, it becomes a bit clearer. Note the “infamous” comment made by Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, in a March 22, 2020 interview on CBS’ 60 Minutes:

Do we have your attention now?

Rather than opine on the intrinsic details and inner-workings of crypto, it is important for most investors to note three main takeaways:

  1. Cryptocurrency is a digital, or virtual, asset. Many cryptocurrencies are decentralized and aspire to be a form of money and a medium of exchange
  2. Unlike fiat currencies, most cryptocurrencies operate without government oversight or intervention
  3. Most cryptocurrencies are managed by a large group of network participants, and are secured by advanced cryptography. Explaining the Crypto in Cryptocurrency does an excellent job of explaining cryptography further

Concurrently, the shift to embrace crypto as an investment vehicle is certainly on the rise. According to the Financial Planning Association’s 2021 Trends in Investing Survey, conducted by the Journal of Financial Planning:

  • More than a quarter (26%, to be exact) of financial advisors plan to increase their use or recommendation of cryptocurrencies over the next 12 months
  • Almost half (49%, to be exact) of advisors indicated that clients had asked them about investing in cryptocurrencies over the past six months

Do these two facts alone make crypto “good” or “appropriate” for integration into one’s investment portfolio? Certainly not, but it does speak to the inflection (some may say tipping) point where we find ourselves. El Salvador is pushing to become the first country to adopt bitcoin as legal tender. This feels more like a movement than a trend.

As a brief crypto aside/FYI, the term HODL (hold on for dear life) was coined (yes, pun intended) by a user in an internet bitcoin forum who misspelled “hold,” and now refers to a devout buy-and-hold crypto philosophy. Now you know!

Perhaps next month, Trending Today (TT) should pivot from cryptocurrency and cover NFTs (non-fungible tokens)? Is your head spinning and ready to explode yet? While we are joking about NFTs being the next TT topic, we cite them in light of our dialogue above about cryptocurrency, as NFTs are just another specific example of how quickly our world (both inside and outside the world of finance and investing) is changing. Are these immature assets with room for development? We would argue yes. However, we also argue for (read: encourage) you to be careful about dismissing new technologies too quickly, and to be scrutinous yet open-minded about the speed at which our society is evolving.

Aside #2: If you have three minutes, click HERE to watch an extremely funny (and surprisingly educational) Saturday Night Live skit about NFTs.

Crypto – Join Us for Our Cryptocurrency Webinar!

Bitcoin and Ethereum are two of the most popular of the more than 4,000 different cryptocurrencies in existence as of January 2021. Crypto has exploded in popularity over the past year, and has emerged not only as a new asset class, but also as an alternative store of value – some call it “digital gold.”

Click below to RSVP for this 45-minute educational Zoom webinar, in which Christopher King, CEO and Founder of Eaglebrook Advisors, will discuss the question: “Bitcoin – what is it?” as well as how cryptocurrencies and digital currencies can play an important complementary role within a properly diversified investment portfolio.
Wednesday, June 23
12:00PM – 12:45PM PST
Click HERE to RSVP

For every participating attendee, we will make a $10 donation to the Leukemia and Lymphoma Society – please invite a friend, colleague, or family member to also RSVP with this link!

What’s Happening at TPW?

As a work family, part of the Towerpoint Wealth culture is to regularly volunteer and find opportunities to give back to our community. Earlier this week, in conjunction with the Cathedral of the Blessed Sacrament and with the help of Marilynn Fairgood, the Cathedral’s Brown Bag Lunch program coordinator, we had an opportunity to assemble, and then distribute, sack lunches and other supplies to assist Sacramento’s homeless community.

Unquestionably this was a fulfilling experience for everyone involved, as the sincere gratitude and appreciation we received was both heartwarming and priceless.

Click HERE for an excellent article from KHOU-11 for additional information on how to help and volunteer for the Brown Bag Lunch program.

Chart of the Week – Crypto, Bitcoin

In our opinion, the most effective way to reduce and manage the risk of a properly diversified portfolio is to own various assets and investments with low correlations to each other. Understanding that no one can accurately predict the future performance of any investment, owning low (or even negatively) correlated assets can help mitigate damage during any particular market cycle.

Below is a simple chart (specifically, the darker blue dotted rectangle) that delineates the correlation between Bitcoin and the S&P 500 – at 0.19, this is an attractively low correlation. Put differently, Bitcoin oftentimes zigs when the stock market zags.

In addition to technology’s permeation into finance, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

Towerpoint Wealth Sacramento Independent Financial Advisor
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Six Strategies to Optimize Your Charitable Intentions 04.13.2021

By: Matt Regan, Wealth Advisor and Steve Pitchford, Director of Tax and Financial Planning
Published: April 13, 2021

Six Strategies to Optimize Your Charitable Intentions | Most individuals who are philanthropically inclined usually just take the path of least resistance and write a check directly to a charity. Of course, this is a straightforward approach and can qualify for an income tax deduction, but when being charitable, there are many different (and often economically more advantageous) options and strategies available to you. Indeed, with strategic and thoughtful planning, a taxpayer may be able to optimize their gifting strategy, meeting multiple objectives by maximizing the economic benefits 1.) to themselves, 2.) to their favorite charities, and even 3.) to their loved ones.

Are you optimizing your philanthropy and gifting strategy? Below you will find a myriad of different charitable strategies we regularly employ for Towerpoint Wealth clients, designed to help you better understand your options.

Cash/Direct to Charity

A cash gift is the simplest and (by far) most popular form of charitable giving.

The income tax deduction[1] for a cash gift is generally equal to the amount of cash donated less the value of any goods or services received in return. And while the benefit of a cash donation is its simplicity, as you will see below, it is not always optimal from a tax and gifting perspective.

Donor-Advised Fund

A Donor-Advised Fund (DAF) is a charitable fund, a 501(c)(3) entity in and of itself, that allows an individual to donate cash or appreciated securities, such as individual stocks, bonds, mutual funds, or exchange-traded funds (ETFs).[2]

Donor Advised Fund DAF Charitable Intentions White Paper

Donating appreciated securities can be a more tax advantageous way to fund a DAF, as donating an investment that has gone up in value generally provides the exact same tax deduction as donating cash, while at the same time provides the extra benefit of eliminating the capital gains tax that a taxpayer would normally pay upon selling the security.

How does it work? The donor makes an irrevocable gift of cash or appreciated securities to a DAF. The donor is then able to decide, on their own timeline, when to grant funds out of the DAF and directly to a charity or charities of their choice. If the contribution is appreciated securities, the DAF is allowed to sell these positions tax-free. The DAF will typically then, at the donor’s discretion, invest the funds in a manner consistent with the donor’s charitable goals and objectives. Once the donor is ready to make a grant from the DAF, he or she simply informs and authorizes the DAF custodian (usually via the custodian’s online platform) to send a check directly to the charity on the donor’s behalf.

Typically, the funding and operational costs of DAFs are low, and our clients also love that they provide a year-end summary report, eliminating the hassle and stress of tracking each contribution/grant out of the DAF individually.

Towerpoint Tip:

At Towerpoint Wealth, we also evaluate “frontloading” a DAF with several years’ worth of potential charitable contributions, allowing a taxpayer to “hurdle” the standard deduction and thus, not only eliminate the future capital gains tax of the donated funds, but also provide them with at least a partial tax deduction for their charitable contributions in a particular tax year.

Private Foundation

A private foundation is a 501(c)(3) organization set up solely for charitable purposes.

A private foundation may be structured either as a corporation managed by a board of directors, or as a trust managed by trustees. Unlike a public charity, the funding for a private foundation typically comes from a single individual, family, or corporation.

The primary benefit of a private foundation is the enhanced control that it provides, as it is able to formulate its own customized charitable gifting approach and platform (and continue to gift directly to other charities as well). A donation to a private foundation is an irrevocable charitable gift, and qualifies for a potential income tax deduction that, for most individuals, will be the exact same as gifting directly to another 501(c)(3) charity.[3]

Importantly, private foundations have administrative and tax reporting requirements that may be costly, and speaking further with a financial advisor and tax professional regarding the benefits and drawbacks of establishing one is recommended.

IRA Qualified Charitable Distribution

Individuals who are over the age of 72 are subject to annual required minimum distributions (RMDs) from their pre-tax IRA(s). These distributions are included on an individual’s tax return as taxable income and are subject to ordinary income tax.

As an alternative to taking a “normal” RMD, an individual can instead execute a Qualified Charitable Distribution (QCD), which allows them to both satisfy their RMD and their charitable intention at the same time.

How does a QCD work? Instead of a “normal” RMD, which usually is deposited into an individual’s checking, savings, or brokerage account, a QCD is paid directly from the IRA to a qualified charity. This distribution not only offsets – or, depending on the amount, fully satisfies – an individual’s RMD, but it is also excluded from taxable income.[4]

And unlike other gifting strategies, a QCD’s net effect as an “above the line” dollar-for-dollar tax deduction can offer additional economic benefits when compared to a “typical” itemized charitable tax deduction.

Charitable Remainder Trust

A charitable remainder trust (CRT) allows a donor to make a future charitable gift, while at the same time, receive an income stream during their lifetime for their own spending goals and needs. There are two types of CRTs: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). The two main differences are how the annual distribution to the income beneficiary(ies) is calculated and how often assets can be contributed to the trusts.[5]

When the donor establishes and contributes to a CRT, they are entitled to a current income tax deduction that is equal to the future expected value of the trust assets that will ultimately pass to the charitable beneficiary(ies). The deduction calculation is based on a number of different factors, such as the annual income stream payout set by the CRT, the age(s) of the income beneficiary(ies), the trust’s specified term of years, and the published IRS monthly interest rate.

At either 1.) the donor’s death, 2.) the death of the beneficiary, or 3.) the completion of the trust’s term, the trustee will distribute the balance of the trust assets directly to the chosen charity(ies).

The primary benefit of a CRT is that an individual may receive a substantial tax deduction in the year they open and fund the CRT, while at the same time, continue to receive income for themselves (or other income beneficiaries) during their lifetime. If the CRT is funded with cash, the donor can claim a deduction of up to 60% of adjusted gross income (AGI); if appreciated assets are used to fund the trust, up to 30% of their AGI may be deducted. In addition, if the trustee decides to sell contributed appreciated securities, he or she can do so tax-free.

Towerpoint Tip:

Opening, funding, and administrating a CRT is complicated and there are important ongoing tax filing obligations. As such, it is highly recommended to work with a trusted financial advisor and tax professional to ensure that a CRT is the right choice. Further, the tax deduction calculation may be audited, so it is important to hire a qualified professional to appraise this value.

Charitable Lead Trust

In the simplest sense, a charitable lead trust (CLT) is the reverse of a CRT. The income generated by the contributed assets is distributed to the chosen charity, and the beneficiaries receive the remainder interest. Like a CRT, a CLT can be an annuity trust (CLAT) or a unitrust (CLUT), but different distribution rules apply.

There are two main types of CLTs: a grantor CLT and a non-grantor CLT. A grantor CLT, like a CRT, is designed to give the donor an upfront charitable income tax deduction. However, to receive the charitable deduction, the donor must be willing to be taxed on all trust income. Since the gift is “for the use of” a charity instead of “to” a charity, cash contributions to a grantor CLT are subject to reduced deduction limits of 30% of AGI, and appreciated asset contributions are subject to deduction limits of 20% of AGI. For non-grantor CLTs, the grantor does not receive a charitable income tax deduction, nor are they taxed on the income of the trust. Instead, the trust pays tax on the income, and the trust claims a charitable deduction for the amounts it pays to the charity. It is very important to note that since they are not tax-exempt, neither type of CLT offers the ability to avoid or defer tax on the sale of appreciated assets like a CRT does.

A CLT may be a better option than a CRT if an individual has no need for current income and wants to ensure that, upon their death, their loved ones receive an inheritance.

Towerpoint Tip:

A charitable lead trust is often structured to provide gift-tax benefits, not necessarily a current income tax deduction. A donor is able to gift more to family members with a reduced gift-tax effect because the gift’s present value is discounted by the calculated income to be paid to the charity(ies). The tax deduction the individual receives is based on the annual amount provided to the charity.

Pooled-Income Fund

A Pooled-Income Fund (PIF) is a type of charitable trust that functions like a mutual fund.

A PIF is comprised of assets from many different donors, pooled and invested together. Each donor is assigned units in the fund that reflect his or her share of the fund’s total assets. Each year, the donors are paid their proportionate share of the net income earned by the fund – the distribution amount depends on the fund’s performance and, importantly, is taxable income to the beneficiary (which is typically the donor but may also be a family member, friend, etc.). At the death of each income beneficiary, the charity receives an amount equal to that donor’s share in the fund.

PIF contributions provide a tax deduction to the donor upon contribution and, like the other charitable gifting vehicles described previously, affords the donor the ability to avoid paying any capital gains taxes on the contributed appreciated securities.

Pooled Income Fund Donor Charity

A primary drawback of a PIF is that the donor has no control over how the assets are invested, as the investment of the fund is directed by a professional manager. As such, it is important that individuals speak with a financial advisor to ensure that a PIF is thoughtfully incorporated into their overall investment allocation and strategy, as well as philanthropic and charitable giving plan.

How can we help?

At Towerpoint Wealth, we are a legal fiduciary to you, and embrace the professional obligation we have to work 100% in your best interests. If you would like to learn more about charitable giving strategies, we encourage you to contact us to open an objective dialogue.

Steve: 916-405-9166, spitchford@towerpointwealth.com
Matt: 916-405-9164, mregan@towerpointwealth.com


[1] In order for an individual to receive a tax deduction, their combined itemized deductions must exceed their standard deduction.

[2] Appreciated securities may be donated directly to certain charities as well. However, doing so is typically an administrative hassle for both the individual and the receiving organization.

[3] Donations to a private foundation are tax deductible up to 30% of adjusted gross income (AGI) for cash, and up to 20% of AGI for appreciated securities, with a five-year carry forward

[4] Up to an annual maximum of $100,000, per taxpayer.

[5] A CRAT pays a fixed percentage (at least 5%) of the trust’s initial value every year until the trust terminates. The donor cannot make additional contributions to a CRAT after the initial contribution. A CRUT, by contrast, pays a fixed percentage (at least 5%) of the trust’s value as determined annually. A donor can make additional contributions to a CRUT.

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401(k) Loans 03.31.01

401(k) Loans | You’ve recently made some money in the stock market and interest rates are still low, so you decide it is the perfect time to buy a home. But there is a dilemma – which assets should be used, and which accounts should be drawn from to fund the down payment? Should you liquidate investments held in your “regular” non-retirement account, or should you borrow from your 401(k)?

Many people don’t like the idea of funding a down payment by selling investments in a “regular” non-retirement account because of the possible income tax consequences. Instead, they sometimes choose to borrow from their 401(k), saying to themselves: I can save money NOW by borrowing from myself, AND I am paying myself interest on the loan! Sounds harmless, right? Not so fast!

Watch this video from our Sacramento Wealth Advisor and CPA, Matt Regan, to learn why treating your 401(k) like a piggy bank could have a material impact to your retirement plan and longer-term economic health.

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Dollar-cost Averaging 03.05.2021

We hear people say it all the time. “I’m just waiting for the stock market to pull back, and then I’ll invest more” or “I’m going to build my cash for awhile and then invest it,” or “Things are too uncertain, or scary, or unpredictable right now – I am going to wait to invest for the time being.” Perhaps you have heard friends or colleagues say these things. Perhaps you have said them yourself?

When I hear people say things like this, I immediately think of the possible opportunities that person may miss out on by not taking more immediate and decisive action. This kind of investor behavior, while common among inexperienced or fearful investors, or among those who are not following a disciplined plan, can be problematic, but fortunately, easily improved upon by implementing a dollar-cost averaging strategy.

Watch this video, Dollar-cost Averaging, from our Sacramento Wealth Advisor and CPA, Matt Regan, to learn how the use of dollar-cost averaging helps overcome emotional investing and is one of the best ways to grow and protect your portfolio over time.

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Comprehensive Estate Planning | TPW White paper 03.08.2021

Navigating the Tax Laws to Maximize | Your Beneficiary’s Inheritance | Comprehensive Estate Planning

When most individuals are establishing an estate plan, they generally only think about the tax consequences to themselves. But a truly comprehensive estate plan is one that takes planning a step further and considers the tax consequences the beneficiaries of the estate may face. When creating an estate plan, having a clear understanding of, and properly planning for these taxes will help ensure your beneficiaries get the largest inheritance possible.

When one inherits money as a beneficiary of an estate, there are three different taxes that oftentimes need to be understood and accounted for:

Let’s take a look at these individually:

Estate and Gift Tax

• The 2021 federal estate tax exemption (commonly known as the unified tax credit) amount is $11,700,000 per individual.
• Only the deceased taxpayer is subject to the estate tax when the estate value is greater than the unused exemption.
• Even if the decedent did not have a taxable estate, the estate of the decedent survived by a spouse should file Form 706, Estate Tax Return, to pass any remaining/unused unified tax credit exemption to the surviving spouse.
• When someone dies, their assets become property of their estate. Any income those assets generate is also part of the estate, and may trigger a requirement to file Form 1041, Income Tax Return for Estates and Trusts.
• An inheritance is not considered taxable income to the beneficiary.
• Currently, in addition to estate taxes assessed at the Federal level, 12 states and the District of Columbia also collect an estate tax. California does not currently have an estate tax.

Inheritance Tax

• Only six states currently collect this tax (Iowa, Kentucky,Maryland, Nebraska, New Jersey, and Pennsylvania).
• Property passing to a surviving spouse is exempt from inheritance taxes in all six of these states.

Income Tax

• Inherited retirement account distributions are subject to ordinary income taxes.
• If you sell or dispose of inherited property that is a capital asset, you will be subject to either a long-term capital gain or loss, regardless of how long you, as the beneficiary, have held the asset.

Additional considerations

Inherited Pre-Tax Retirement Accounts

• Eligible Designated Beneficiaries and Non-Eligible Designated Beneficiaries are subject to different required distribution rules.
• Consider Roth conversions to allow the beneficiaries to take tax-free distributions.

Lowering the Value of Your Estate – Gifting

• Make annual cash gifts to your children, grandchildren, other family members, and even friends. You can also contribute cash to a 529 plan to help pay for future school to any individual you would like. The receipt of cash is non-taxable to the recipient, and, if the gift is below the $15,000 annual exclusion amount, you will not eat into your above-mentioned $11,700,000 lifetime estate and gift tax exemption amount.

Lowering the Value of Your Estate – Philanthropy

• If you are charitably inclined, you can make gifts of any size at any time while alive directly to charities or to a Donor Advised Fund. The donation of appreciated securities provides not only an immediate deduction of the fair market value of the stock at the time of contribution, but also avoids capital gains tax upon sale.
• Charitable contributions due to the death of the taxpayer result in a dollar for dollar reduction of the taxable estate.
• Additional vehicles available include Charitable Remainder Trusts or Charitable Lead Trusts.

Life Insurance

• If you are considering buying life insurance to either pay for the estate tax liability or provide more for your beneficiaries, set up a life insurance trust and have it purchase the policy so the death benefit isn’t included in your taxable estate.

Step-Up in Cost Basis – Take Advantage!

If you have appreciated stock or property and gift it to someone, the recipient gets the carried over basis and will have to pay capital gains when he or she sells the asset. Instead of gifting before your death, have them inherit it after your passing so they get a “step up” in basis and recognize a smaller gain on future disposition.

The Future of Estate Taxes Under the Biden Administration

• During his campaign, President Biden discussed the possibility of decreasing an individual’s federal estate tax exemption amount either to $5 million per individual (and $10 million for a married couple) or to the pre-Tax Cuts and Jobs Act amount of$3.5 million per individual (and $7 million for a married couple). This decrease in lifetime exemption could be paired with an increased top tax rate of 45 percent.
• President Biden also proposed eliminating stepped-up basis on death and possibly taxing unrealized capital gains at death at the proposed increased capital gains tax rates.

How Can We Help?

At Towerpoint Wealth, we are a legal fiduciary to you, and embrace the professional obligation we have to work 100% in your best interests. If you would like to learn more about Towerpoint Wealth and how we can help you achieve your financial goals, we encourage you to call (916-405-9164) or email (mregan@towerpointwealth.com) to open an objective dialogue.

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Student Debt: Tackle it Now!

Student Debt | You’ve graduated college, there is so much to look forward to and be excited about! Your first professional job, making money, traveling to new places, meeting new people, and no more studying! But for 44 million Americans, there is one part of college that unfortunately sticks with them for quite awhile: student loans.

Among the Class of 2019, 69% of college students took out student loans, graduating with an average debt of about $30,000. Most people believe that if they pay more than the minimum monthly amount, they won’t have extra cash for travel, nice things, and possibly even to invest. However, with the average student loan interest rate of 6%, it might sound crazy but it’s true: Even if you did invest that extra money, you might not break even!

Watch this video from our Sacramento Wealth Advisor and CPA, Matt Regan, to learn how making sacrifices and staying motivated can help you pay off your student debt sooner, save you money, and achieve greater peace of mind and full financial freedom.

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Rental Passive Activity Losses

Do you invest in #rentalrealestate? Are you considering doing so? You have heard about the potential #taxdeductions and benefits, right? Not so fast!

Watch this quick video from our Wealth Advisor, Matt Regan, to learn more about the passive activity loss (PAL) rules associated with owning rental real estate, and message us with any questions that are on your mind.

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Choosing Who Will Inherit Your Retirement Accounts

You are working on your estate plan, and trying to figure out who you should name as the beneficiary of your 401k account and IRAs. Simple – the kids, right? Not so fast.

Click to watch the video below from our Wealth Advisor, Matt Regan, to learn the non-spouse beneficiary distribution rules for inherited and pre-tax IRAs and “regular” pre-tax 401ks, and why understanding these rules are so important for income tax and estate planning purposes.

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Funding a “Backdoor” Roth IRA

Do you have the enviable problem of NOT being able to contribute to a tax free Roth IRA every year because you make too much money?

Click to watch the video below from our Wealth Advisor, Matt Regan, to learn how you can go through the back door and still fund a *tax-free* Roth every year!

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Five Things I Wish Someone Told Me Before I Became A Founder 02.12.2021

Our President, Joseph F. Eschleman, CIMA®, was interviewed by Candice Georgiadis, a contributing writer to Authority Magazine, as part of her series about leadership lessons of accomplished business leaders. Joseph’s story and message does an excellent job of summarizing not only how passionate and driven he is as President and founder of Towerpoint Wealth, but also the grit, tenacity, and hard work it takes to build and grow an individual advisory practice, and to then pivot, and ultimately build and grow a $300 million boutique wealth management firm.

Click HERE to read the Joseph Eschleman / Towerpoint Wealth story!