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Thought leader forum: Guardrails for the future: Financial planning in unpredictable markets

In a time of persistent market volatility, geopolitical tension, and shifting tax and regulatory landscapes, long-term financial planning requires more than just investment acumen—it demands resilience, foresight, and adaptability. In this Q&A, Puget Sound Business Journal Market President Don Baker speaks with Garde Capital's Jeff Lippens and Fulcrum Capital's Kathryn Haggitt Fisher about the strategies and mindsets that investors, business owners, and philanthropists need to successfully navigate uncertainty and build lasting financial security. Don: What should investors do about risky markets, particularly given the most recent volatility? Jeff: I like to start by working backwards, define what future cash and financial needs are, then work back to today to manage unacceptable outcomes whereby unknown market conditions don't put you at risk. If we do this, we can then get through whatever market conditions are and we know that things are going to work out. If an investor is taking too much risk, then you increase the chance of doing the wrong thing at the wrong time, whether you being forced to, or psychologically you can't take it anymore. We have to make sure we're not putting ourselves in a position where bad markets are going force you to do something you don't want to do, that can be a very expensive lesson. Kathryn: Having a financial plan in place that models out various market scenarios that allow the plan to still work is crucial. It's helpful to have that plan in place and focus on that instead of listening to the headlines and your friends who are pulling out cash and opening accounts overseas. Instead, go back to your plan and stick with it because you never know exactly what's going to happen in the future. Markets have been doing crazy stuff since the Medicis started banking in the 1400s, and eventually they'll come back. If you stick with the plan, you'll probably be ok. If you don't stick with your plan and you do something rash, you're then reacting emotionally instead of making rational decisions. And, of course, one of the best ways to manage risky markets is to have a well-diversified investment portfolio. Exposure to international investments and bonds has helped stabilize portfolios during this most recent turbulence. Don: Kathryn, do you think those emotional decisions come from people who are closer to retirement and they're the ones that are freaking out a little bit right now? Or do you see it across the board? Kathryn: I'm seeing it across the board. You know, the people who are in retirement now went through 2008. They understand that while there are many things to be concerned about right now, these things go up and down. And so, it's clients who are in retirement that are a bit less stressed about the portfolio than the younger generation, who haven't seen prolonged downturns before. Don: One of the things that's also happening right now is nonprofits and other organizations being impacted and losing funding. How can people best support the organizations they care about that are seeing drastic funding cuts? Kathryn: The first thing I would do is figure out what you do care about, rather than trying to do a scatter shot, giving a little here and there. Figure out the one or two things that you are the most worried about and focus your giving there, because then you feel like you are making a difference and moving the needle. One of the great resources for that is the Stanford Center for Philanthropy and Civil Society. They have a resources tab that leads to questionnaires that you can go through to help you identify what it is you want to focus on. And then once you've done that, figure out how much you can afford to give and the most efficient way to give - whether it's a qualified charitable distribution from an IRA if you're in retirement, or gifts of appreciated stock. These may allow you to give more than you thought you could because you're doing it so efficiently from a tax perspective. Donor-advised funds can be a great tool for facilitating tax-efficient giving as well. Jeff: Yeah, I think there's two components to that question, tax aspects and charitable values. Kathryn touched on some good points on tax efficiency. In addition, there's some tricks in the system like 'bunching' your charitable fundings. In certain cases, we've seen very wealthy people who maybe have an off year and are doing a smaller charitable amount and don't get a full deduction because they're not getting above the standard deduction on their charitable giving. At Garde Capital, for example, we actually have charitable giving as one of our foundational key services and what to assist on both aspects. On the qualitative aspects, we want to support the client regarding their values, only the client knows what's charitably valuable to them. Seattle is a very diverse community, and we want to support all stakeholders in the community. We always need to learn about our clients and where appropriate, we can help match some community connections- Seattle Foundation for example is a great community resource. The nonprofit community in Seattle is amazing and we also have a considerable foundation investment business. We can act as connectors and coaches. But we're seeing it more and more as a very important part of the overall strategy. Kathryn: I agree. The Seattle Foundation is a great resource, particularly if the organizations you want to support are local. They have great insight into what's happening in the nonprofit sector. There are also philanthropic advisors and consultants who work with people one-on-one to help them maximize the impact of their giving. Don: Redeploying money received through a liquidity event such as the sale of a business can be a challenge even in the best of times. What advice would you give to someone with an upcoming or a very recent liquidity event? Kathryn: It's important to work with an advisor to help you put a plan in place so you can set your future self up to make good decisions. Work with that advisor to determine where you want to be in 10, 20, even 30 years so that you can map out what you're going to do with that money and when you're going to need it to help determine the appropriate way to invest it. Right now, I would certainly recommend investing in phases and not putting everything in at once in this market and potentially earmarking what you're going to need to live on for the next year or so, because things are probably going to continue to be volatile. Once you've developed your plan and figured out the appropriate allocation and how you want those assets invested, work into that over time over the next year or so. Assuming you're talking about a business sale, this money is going to work for you in a completely different way, and a lot of business owners struggle because this is a new balance sheet and a different source of income. It's a little different when your money is invested in other people's businesses. So, it's good to work with an advisor and be comfortable with that approach and think about changing your mindset around how that money is going to work for you and where your cash inflow is coming from. Jeff: We always talk about diversification. Well, time is just another form of diversification and there's a reasonable argument that how you get started at the front end of that liquidity event is going to set in motion a lot of different things in the future. I recommend some sort of phased-in effect or hedged phase-in where you're not going to suffer significant losses on the front end. That starting point over a one-hundred-year period will make very little difference, but in a three-year period it can make a very big difference. If you psychologically set an investor up for being uncomfortable you have created a scenario where things might tip them over, right? A big part of investing is the psychology of the market but the psychology of ourselves as well, because all of us together become the market, right? And markets will bottom where the greatest number of people want to sell. One strategy that we like is to create five years of guaranteed income on the front end. And the earlier you start working with an advisor before the liquidity event, the better. Don: I want to move to estate tax. The assumption seems to be that the higher estate tax exemption amounts of the TCJA will be extended along with much of the rest of the act. Does that mean clients don't need to worry about estate taxes? Kathryn: We still have the Washington State estate tax, which applies to estates over about $2.2 million. Senate Bill 5813 adjusting that exemption amount for inflation and increasing the tax rate for larger estates, is currently on the governor's desk. But there's a lot that can be done to accommodate for that tax. The federal exemption amount is much higher – just under $14 million, or $28 million for a married couple - so a lot of people don't need to worry about it. But even if you're not up in that realm, it's good to work on estate planning because we don't know what the future will look like. The best estate plans are ones that allow for flexibility and allow the estate to take advantage of whatever the exemption amount is at the time of death. The most alarming thing with regards to estate planning that somebody asked me was, well, can't we just do one of those online services? And I say, well, you know, you get what you pay for, and there are a lot of things that you may not realize are important until you talk to an estate planner, since they can ask the right questions and bring those needs out. Jeff: I agree with everything that Kathryn said, but I'd like to add it a different dimension to this: a concept called 'Advisor Alpha.' How much additional value can we get from combining taxes, estate and trust, psychological aspects, in a comprehensive way for the client to get the most out of their assets, actually quite a bit. And we haven't even addressed investment returns. For example, if we look at multi-generational after-tax returns, the estate planning concept in full integration is some of the largest returns you can possibly pick up. Advisor Alpha will work on the blocking and tackling of all of this. A client might have an amazing attorney, but a lot of times the attorney doesn't have the information and fully understand everything that's going on and only meet every three to five years. So, what we do is analyze all of these estate documents and the entire balance sheet and ask two questions: Is the estate plan working the way you think it is with the right people in control and secondly are the assets cascading the way that you thought it would? I believe that a good advisor can be amazing in this area because they can fully integrate all of this into the overall plan. The advisor should be fluent in estate and trust, fluent in tax, and expert on the investment side, to bring together the estate attorney and CPA to deliver full stack financial optimization for the client. Kathryn: It's critical that your financial advisor gets your CPA and your attorney involved. The more you can get in place before a transaction happens, the better. If there's a business sale or a real estate transaction, you need to go beyond the financial plan and investment allocation to think about estate planning and how those assets are going to be transferred to future generations. Is that going to be transferred to the rest of the family? And how are you going to help ensure that in a few generations, that money is still there? Don: What should clients expect from their advisors? Kathryn: First and foremost, they should expect that their advisor has their best interests at heart, that they have a fiduciary responsibility to the client, and that their primary responsibility is to provide advice regarding what is best for the client, not just what's suitable. There needs to be that level of trust. They should expect their advisor to be transparent and honest on everything from fees to exactly how long it's going to take to get back to you on something. They should have in-depth knowledge of who you are and what you want your future to look like, and the expertise to deliver solutions. You should expect to have a relationship with that advisor, and they need to be somebody you are comfortable with, because if you can't share things with them then they aren't going to be able to help you. For example, maybe you have one child that is doing well financially and you're not worried about them at all, and another who's working in the nonprofit sector and is amazing but does not have the long term earning power - you need to be able to share that with your advisor so they can help you set both up for success. A good advisor is somebody who understands your entire financial picture and can help you map it out over time. Jeff: From a legal perspective, Kathryn did a great job of describing a fiduciary, a 1940 Act Advisor is. A suitability standard is an investment salesperson like a brokerage firm. I believe that if you're bringing millions of dollars to the table, you should not be expecting a salesperson, you should be getting a fiduciary advisor. An advisor should have an amazing investment team behind them, which a lot of firms do. They should have excellent knowledge in tax; although they may not be a CPA. They should have strong knowledge estate and trust. And they should have strong knowledge in financial planning. In my opinion, you should think of them as one of your top employees, think of them as your personal CFO, bringing all these things together. For example, say you're the president of a company, one of the best things you can do is manage your experts really well, in this case, your advisor should be one of your experts executing on the things under their purview. Some of the best client outcomes I see are where the client is really good at managing their advisor/ advisors. Don: What are some key attributes you see in successful investors? Jeff: For clients and advisors 'If you're not a good caretaker of capital, capital will find somebody that is.' Therefore, one of our jobs is being a great caretaker of capital, and the client end investor should be this too. I believe being emotionally grounded, highly aware and reconciled to what you know and what you don't know, a high curiosity of all things, technical competence, and understanding human behavior is a great start for professional and end user investors. I love the supposed Mark Twain quote 'It ain't what you don't know that gets you in trouble, it's what you know for sure that just ain't so.' Don't invest for how you wish the world was, invest for how it actually is. There are many ways to be a great investor, but I think what I mentioned here is universally applicable. Kathryn: The people I've seen who are most successful are the people who are good at keeping emotion out of it and are ignoring the headlines and listening to their advisors and managing their advisors well. Don: One final question that I have for you. How is AI changing how investors should think about their portfolios? Kathryn: From the big picture perspective, it doesn't change the fundamentals of investing – of the need to understand how much risk you need to take on to get the return you need. We are relatively early in the AI journey, and it is changing how investors gather information and impacting how firms manage money and how clients interact with advisors. In our portfolios, we invest at every level of the AI hierarchy, from applications, foundational models, and infrastructure. From an individual's standpoint, I think AI can be helpful with planning, but once you get past a certain level of complexity, you need to involve your CPA, attorneys, and your financial advisor. You can't replace that with AI, so from a planning perspective, I don't think those things will change. We may use AI to take notes in those meetings and to help remember things, and maybe to initially do a translation of the estate planning documents or a tax return, but they're not changing the way that those things are being thought about. It's like any new technology that develops; there will be changes and impacts that it'll have, but the overall investment landscape is not completely going to change. Jeff: At Garde Capital, we lead with indexing, it's hard to outperform the market. Then we'll fill in around that, but we're going to lead with indexing and when you index, you get the lucky privilege and a bit of an embedded insurance policy, because you have an implicit guarantee of becoming whatever the world becomes. For example, in the Garde Capital portfolios, our 3rd or 4th largest position is NVIDIA, and Amazon. Over the last 30 years these companies have earned their way into that position. In 2045, none of us can predict how AI is going to impact the economy or markets, but what we know for sure is there's going to be different companies at the top of the list than they are today. When you index you have this implicit guarantee of becoming whatever the world becomes. Now go to another level, which is societal implications. I believe the sooner you can get on board to accumulate capital, whether it's financial investments or owning real estate, it's building your balance sheet. So, invest in your human capital. Acquire capital as soon as you can to participate in the simplistic guarantee of whatever the future holds. And then a third aspect of this is, is how it is going to change our business. It's going to change every business profoundly. And so, we should be able to raise our game. We should be able to do a lot more and better equip our team. I don't worry about AI putting advisors out of business, I worry about the other guy using AI better than we're using it. I believe that the age of AI favors the highly curious and agile. Don: Any final thoughts, comments, or pieced of advice for the business leaders reading this? Jeff: The world feels very unsettled right now, and I would remind us that I think the world has felt unsettled most of the time. Do you think it felt settled during the Civil War? Do you think during World War I? The Great Depression, World War II, Vietnam, '70s inflation, energy wars, the stock market crash, the Kuwait invasion, Sept. 11, the early internet boom, the internet bust? Did those feel settled? I don't think we ever feel settled, yet the world is likely to continue and be prosperous. Lastly, I think for all of us, compassion can go a long way to enhancing all of our lives, and we just might get some investment returns in the process. Kathryn: Like I said at the beginning, market volatility and recessions, and political turmoil have been going on since the 15th century. And we humans always manage to get through and move on. So, I would say, in terms of advice, try to keep emotion out of it. It's understandable to be upset and concerned about what's happening, about the uncertainty. But don't make decisions when you're in that amped up phase. Keep emotion out of it and look for opportunities. There are almost always opportunities, so set yourself up such that when you see those opportunities, you're able to take advantage of them because they're there. And maintain some optimism.