Chairman’s Message: Building Bridges

When a new or prospective client first meets with us, they often ask: What should my asset mix be? Is now a good time to invest? Which managers do you recommend? What about passive investing options? What tax planning opportunities should I consider? Do I need to update my will?These are all good questions, but not the ones that we address first.Instead we start by helping clients think about how they are going to build a bridge -- a bridge that will get them from this side of the proverbial river to the other side, safely and successfully.

‍This side is their life today. The other side can mean different things to different people. It might refer to their retirement, the end of a well-lived life, or perhaps reach far into future generations of the family. It’s different for everyone. And as we all know, crossing the river of life is full of opportunities and risks, joys and sorrows, uncertainties and unknowns.Charley Ellis, a well-known investor and author (and contributor to our recent book, Wealth of Wisdom!) argues that “…portfolio management is neither art nor science. It is instead a very special problem in engineering, of determining the most reliable and efficient way of reaching a specific goal, given a set of policy constraints, and working within a remarkably uncertain, probabilistic, always-changing world….” (Investment Policy: How to Win the Loser’s Game)I believe he is correct. Think about the construction of a physical bridge for a moment. It would, of course, be unwise to launch into such a project without a proper plan, or to begin by implementing one single component of the bridge in isolation. Here are some of the questions a planner or an engineer needs to think about before starting out:

• Where should the bridge be built? What type or terrain will it be built on? How far is it to the other side? How long will the bridge have to be? A short span is easy. A long span is typically more challenging.
• What types of loads might it be required to carry? How strong should the bridge be? What combination of loads provides the highest possible stress on each component of the bridge? Are we talking about a multi-lane vehicle bridge or a pedestrian bridge?
• What physical challenges and natural phenomena might the bridge need to withstand or take into account? e.g. wind, snow, earthquakes, waves, currents, .
• What materials should be used? Will it be sensitive to the natural environment? Will it look attractive?
• How long will it take to build?
• What is the cost?
• Who will manage the construction?
• Who else should be consulted?
• How and when should the progress be evaluated? How should changes be made along the way?

Similarly, a family needs a financial plan to get them across the river of time and life, and similar questions need to be asked:

• What goals does the plan need to fund? How long will it take to meet the various goals?
• What kind of capital growth and income will be required to fund each of the goals?
• How much volatility is the wealth likely to experience? What forces could derail the wealth from accomplishing its goals altogether?
• What is the tradeoff between potential return and potential risk? Which combination of assets are most likely to result in success?
• What is the proper tax structure? What is the best governance approach for the family? How will the family communicate and cooperate effectively?
• What is the cost?
• Who will manage and implement the plan?
• Who else should be consulted?
• How and when should the progress be evaluated? How should changes be made along the way?

Once the plan is developed, construction of the bridge (financial or physical) can begin, the various components can be evaluated and incorporated, and individual decisions can be made. The questions in the first paragraph will be answered in the context of the overall plan and will help to ensure that the bridge is solid, secure and successfully executed.

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