‘Fundamentals of building wealth … remained constant’

March 23 marked my 30th anniversary working in trust departments.  A great many things have changed over the years.  From a technological standpoint, I experienced the transition from typewriters and word processers to desktop computers, the internet, cell phones and social networks.  From an investment standpoint, securities have proliferated with a myriad of derivatives, futures, Collateralized Mortgage Obligations, and Credit Default Swaps to name a few.

The number of investment vehicles has likewise multiplied with hedge funds, ETFs, and sector mutual funds available in every shape, size, and description.  As a result, the approximately 6,500 stocks traded on major U.S. exchanges are packaged in an avalanche of over 30,000 investment funds and pooled accounts.  This is clearly a case of quantity over quality.

A commonly held belief thirty years ago was that through intelligence and hard work, an investor could consistently earn a profit by purchasing a few mispriced securities before other intelligent and hard working investors bid these prices up to their fair market value.  This belief has since been convincingly debunked in study after study.

And although the percentage of assets invested in passively managed funds and ETF’s has risen steadily over the last three decades, the vast majority of investors are still searching for that sure-fire scheme to beat the market.

While it is true that many have learned the hard lesson of the last two bear markets that their stock picking and market timing activities actually detracted from their investment results, far too many decided that if they could not beat the market, they could find a manager who could.  The truth is that finding someone to succeed at stock picking and market timing has proven to be just as elusive as doing it yourself -- intelligence and hard work notwithstanding.

Another change is that family relationships are more complex and dynamic than ever due in part to increased longevity.  This has added complications to some already strained family relationships as many baby boomers are having to manage their parents’ health care and financial needs.  This comes at a time when many boomers are worried about how to plan and fund their own retirement.

A well thought out estate plan, in partnership with an experienced successor trustee, can add both value and peace of mind to the day-to-day financial management of many seniors and their families.  Unfortunately, far too many people do not have an up to date trust (or even a will), nor have they discussed the tax and financial management advantages of having a family trust with an estate planning attorney.

Although much has changed, much has not.  The prudent investment principles of diversification and asset allocation are as important today as ever.  The keys to successful wealth management have not changed in thirty years.  With all of the advances in technology and the availability of investment funds, asset classes, and investment advisors, the fundamentals of building and preserving wealth have remained constant:

1.        Save more and spend less

2.        Have adequate short term reserves for money you may need within one year or less

3.        Limit taxes by investing through IRA’s and 401(k) plans to the greatest extent possible

4.        Core portfolio holdings should be in low cost, passively managed funds

5.        Diversify broadly over high quality stocks and bonds, both U.S. and foreign

6.        Rebalance periodically to the asset mix that is right for your goals and time horizon

7.        As risk is rewarded in the long-term, ignore short-term news events and the temptation to time markets.

8.        If an investment sounds too good to be true, it probably should be avoided

Looking back over my career, the most overused word in the investment industry has been “integrity.” This word has been misused and abused more in investment firm mission statements, brochures, and advertisements than any other.  Virtually all of the over 100,000 investment advisory firms in the country claim to have more integrity than the firm two doors down the hall.

In my experience, integrity was a rare attribute in March of 1981 and is even more rare today. That said, bank and trust company officers have a rich heritage of demonstrating this core value through their high level of loyalty and care in working with families and their wealth.

The image of trust departments as catering to the investment needs of the wealthiest families, generation after generation, is only a part of the picture.  Today’s modern trust organizations assist families of modest wealth with a wide range of services for accounts such as special needs trusts, generation skipping trusts, charitable trusts, and fee-only investment management.  Trust organizations also provide institutional investors with full scope fiduciary coverage and investment services for their retirement plans and endowment funds.

Regardless of which full service bank trust department or trust company you partner with, you will receive safety, comfort, and security of knowing that a trust officer’s sole duty of loyalty is to you and your beneficiaries, and to no one else.


Steven T. Jenkins, CTFA, is the Senior Vice President with Exchange Bank and Manager of their Wealth Management Group.  This group provides trust administration and portfolio management to individuals, families, and institutions across the North Bay.  You can reach the Wealth Management Group at 707-524-3151 or wealthmanagementinfo@exchangebank.com