Board Minutes from the Chairman: March 2023

Pay It Forward

We’re off and running in 2023 and mindful that our Chairman Minutes are entering their third year in providing topical quarterly market and Buchanan Street observations and insights. Appreciatively, a number of our readers have provided good feedback along the way and several comments have surfaced about retirement, estate planning and moreover, educating and preparing the next generations for the great wealth transfer.

Being in the real estate investment business I’ve always enjoyed sharing varied tidbits and learned experiences with my own kids. Our family are active hikers and outdoor enthusiasts, so the opportunities are plentiful to educate and lecture (as my wife messages) on the fascinating aspects of finance and investment. How could my family not want to hear more about the importance of multiples vs IRR’s, positive vs negative leverage, cap rate arbitrage, functional obsolescence, or portfolio construction while out on the trail?

In fairness, they each seem to be f iduciarily inclined, aware of sleep at night investments and appreciative of Dad’s passion for the sport of making and managing investments so just maybe they’re hearing the droplets of wisdom. But now with two grandsons, I have a real responsibility to train the next generation to ensure that we don’t fall into the statistical abyss where 70% of families lose their wealth by the second generation and 90% by the third.

There are many reasons for this including, as Rick Keller, Chairman of First Foundation points out, that “sometimes not enough time is spent on the soft side of these family dynamics as parents have gotten used to managing their wealth for 20, 30 or 40 years and the kids might have less than a year”.

We’ve all heard that the baby boomers are set to pass to their children more than $68 trillion in the biggest wealth transfer in history, but have they prepared the next generation or generations?

Financial literacy is of course a significant part of a successful wealth transfer but equally important is connecting and engaging with these next generations. My own experience has found that each heir has different levels of interest, aptitudes, and questions to these potentially challenging discussions. Most importantly, we have tried to provide transparency and straight talk while not making any topics taboo or technically overwhelming.

To complicate these conversations, demographic studies point out that 10,000 people a day turn 65 which coincidentally is also the age that the census determines that retirement begins. From a health standpoint, anyone that is 70 years or older has a greater likelihood today of making it to 90, such that certain transfers will potentially be delayed, and estate planning extended as children and grandchildren will probably live even longer.

Recognizing these longevity trends can create an educational opportunity to share investment ideas, dry-run investment analysis and potentially create a mini-portfolio for your family that ultimately might mirror your asset transfers to future generations. To further their education, most investment managers are happy to meet with families to explain their strategies and answer questions. One of the benefits of investing in real estate is its access and visibility as a hard asset accommodating a site visit and walk through to bring to life the investment merits.

Equally important to investment selection and portfolio construction is both the after-tax and estate tax outcomes that your portfolio produces. You have worked hard during your life to make investments and build your net worth and proper tax and succession planning should certainly be considered within the greater investment strategy. Unfortunately, estate planning is not easy with complexity around every corner.

The first thing any prudent estate planning attorney will ask, and in no specific order, is how much do you want to give to your children/grandchildren, how much do you want to give to charity, how much control do you want your directive to influence and guide your going forward estate and lastly how much estate tax are you ok giving back to the government? If you can answer these questions thoughtfully, it will aid greatly in your estate plan preparation as you consider the myriad of solutions and options available to best manage your goals.

I became more educated and attentive to the options available as many of Buchanan’s investor clients utilized them in making their varied Buchanan investments. In discussions, I learned that many viewed these strategies not as an encumbrance but instead as their fiduciary responsibility to their family. Be it GRAT’s, IDGT’s, ING’s, SLAT’s or QPRT’s to name a few, these structures can be factored into both the investment’s net return as well as your own psychic ROI in knowing that you’ve prepared your family to properly care for, pass forward and enjoy the benefits of your hard work and successful investing.

Throughout Buchanan’s history, we have purposefully evolved our investment product offerings to be mindful of our client’s investment goals. As such, we aim to provide (where applicable) cash flow predictability, capital preservation and continued product diversification. The company’s investment portfolio has actively structured both debt and equity investments through varied investment entities including pooled open-ended funds as well as one-off single investment transactions where we attempt to underwrite, mitigate, and appropriately optimize specific risk.

To supplement the actual investments, our quarterly Chairman Minutes, and online investor reporting, we have recently started a monthly educational podcast entitled Counting Capital where we introduce guests from varied investment businesses, Buchanan Street employees and other topical resources to provide information and perspective to further enhance our client’s investment knowledge. This education is not only for existing clients but their families and other life learners to help bring familiarity to varied investment offerings, risk return analysis, industry trends and to hear from some of the brightest about their own life journeys and investment outlooks. We hope you utilize this podcast for your own family and find it helpful in educating our next generations. Please let us know if you would like us to add anyone to this podcast as we continue to share good learning.

In closing, my youngest, who is pregnant with our first granddaughter, called me the other morning to check in. After sharing with her my latest round of naming options, I mentioned that we should start thinking about a 529 plan for my granddaughter’s future education. After a long pause she said, “I love you Dad, but I have to get back to work and decide on how we’re going to decorate the nursery.” Yes, my kids are continuing to teach me to live in the moment.