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Why a Rule-Based Approach is the Only Way to Win in Today’s Market

For executives at publicly traded companies, there’s a better approach to wealth management.

The Financial Adviser’s True Value

When you’re an executive at a publicly traded company, the single most important reason to hire a financial adviser is discipline. Today, everyone has access to the same financial data and insights. The real value advisers hold is disciplined behavioral nature. The best advisers bring a focused, rules-based approach to investing that many lack the discipline to adopt on their own. This pragmatic approach, combined with deep financial knowledge, experience, and insight, can result in an enormously valuable asset management strategy.

HERE'S WHAT YOUR RULES-BASED INVESTING STRATEGY SHOULD LOOK LIKE:

A Three-Pronged Approach for Achieving Your Financial Goals

As an investor, you have choices. There’s no shortage of financial advisers, consultants, brokers, or other investment professionals looking to help you. But as you think about your financial goals and consider who you’re going to partner with, challenge the orthodox and reset your expectations according to your individual needs as an executive with a tightly coupled financial system. As experienced advisers to executives at publicly traded companies, here’s what we recommend.

01 - FOCUS

01

You need financial frameworks, not more financial planning

Executives take more time to plan a two-week vacation to Hawaii than they do their financial future. Why? The excruciating detail, document requests, and four-inch-thick plan that you will never consult again. And in most cases, the financial engineer that populated the plan enjoyed the software more than they did understanding you. Financial frameworks are effectively the antidote to all of the financial plans you’ve received in the past. Rather than a daunting plan that makes it difficult to see the forest for the trees, we use a series of simple financial frameworks that bring focus and purpose to everything that we do with our clients.

THOSE FRAMEWORKS INCLUDE:

A one-page plan.

Your one-page plan sets the purpose of your financial capital. Maybe that’s having the security of knowing that you’re not “fragile” to a downturn in capital markets or the economy. Maybe it’s prioritizing experiences over things and being able to afford those experiences. Or maybe it’s figuring out how to lead the next generation of your family using the resources you established in building your legacy. Whatever the case, your one-page plan will articulate your purpose and establish business metrics that will measure success and your goals over your timeline.

A risk-allocation statement.

Rather than look at asset allocations, look at risk allocation. We see risk as falling into three buckets: 

The preservation bucket

is where your safety lives. It’s your liquidity, established in cash, treasuries, and money market accounts that will allow you to preserve your lifestyle in the event something goes “bang.”

The maintenance bucket

typically consists of stocks and bonds. Our mandate in this bucket will not make you wealthy, but it is designed to maintain your lifestyle after tax and inflation, with a little growth left over.

The aspirational bucket

is where you can double your stack of chips. Concentrated business ownership, private equity, venture capital, and real estate come with greater risk and superior returns.

A goals-based financial plan.

This is a tool for revealing key results, harvested for your unique metrics — safe withdrawal rate, stress tests, average annual growth rate, etc. These become the key performance indicators in your one-page plan, and you should regularly track progress to these goals.

A cash flow framework.

Distinguish your cash assets (comprising your liquidity) from your investments (stocks, bonds, real estate, venture capital), which provide return on investment in an intermediate- to long-term time frame. Additionally, distinguish liquidity-focused risk profiles from your investment profile.

Our cash flow framework will establish a conservative, moderate, or aggressive view on cash, as well as how much you need to feel comfortable. It’s not that we have the right answer for you but that you have a disciplined plan with intent … no surprises.

 

The Right Framework, The Right Frame of Mind

These frameworks, whether individually or collectively, help you develop a rules-based investing strategy so that you understand where your finances are today, where you want them to be in the future, and how you’ll get from point A to point B. For an executive like you whose portfolio probably centers around a large position in your company’s public stock, this is particularly important. Once these financial frameworks are established, the next step is to ensure that you have the right understanding of the market so that you can put these frameworks into action.

02 - UNDERSTANDING

02

Market context matters.

These frameworks, whether individually or collectively, help you develop a rules-based investing strategy so that you understand where your finances are today, where you want them to be in the future, and how you’ll get from point A to point B. For an executive like you whose portfolio probably centers around a large position in your company’s public stock, this is particularly important. Once these financial frameworks are established, the next step is to ensure that you have the right understanding of the market so that you can put these frameworks into action.

 

Offense vs. Defense

When it’s time to play offense, it’s time to put your money at risk in the market. But like any good athlete, you’re going to want to do so wisely. The key is to selectively allocate your funds to the best relative-strength asset classes and sectors, rather than taking a spray-and-pray approach by, for example, simply mimicking a particular index.

A competent financial adviser experienced with your peer group will help you identify what opportunities are at any given time. Depending on your needs, they should be able to stack rank all of the options for you on a regular basis so that you always have the right risk allocation to earn the best possible return.

When the risk/reward is not in your favor and supply governs capital markets, it’s usually time to play defense. That’s when you get small in your foxhole and protect your capital. By doing so, you preserve your money and are ready to re-deploy it more aggressively once the market shifts. In that way, you can aggressively increase your positions and build wealth faster and more efficiently.

A Moneyball Mindset

The right approach to assessing the context of the market isn’t based on gut instinct or emotion. It’s data driven and rules based, which is critical to a disciplined and successful outcome.

03 - VALUE

03

Look for flexible and customizable pricing structures.

As a corporate executive at a public company, what you’re paying for in a financial adviser must hold value. The only things worth paying for have to be knowable and important. If they’re not, then you’re wasting your money.

A competent financial adviser will take a deliberate approach to fee structures. For example, our executives can pay for what we do (taking a rules-based approach to managing your assets) or what we know (how to develop financial frameworks and apply them given the context of the market).

When you pay for what we do, fees are based competitively on the amount of assets we manage for you. 

A Rules-Based Investing Strategy Wins

If you’re an executive at a publicly traded company, it’s important to recognize that your income, your incentive compensation, and your concentrated stock position are a tightly coupled financial system. These ingredients have the potential to yield windfalls or destruction. Most of the time, what separates one from the other is discipline vs. passivity. You can be confident that you’re acting in your own best interests, relying on data and careful planning rather than emotions or gut reactions.

That’s where partnering with a family office for uniquely successful executives can help. By partnering with you to develop the right financial frameworks and bringing you critical market context, a niche family office will ensure that you’re making the right moves to reach your financial goals. Ideally, a family office will also allow you to bundle or unbundle its services so that you’re only paying for what you actually need.

We provide comprehensive advice to help you ensure your financial well-being. That includes everything from advising clients on their property- and casualty-insurance needs to assisting with their estate and tax planning.

By taking a holistic view of your finances, the right partner can help you identify potential risks and liabilities, guide you to take the right preventative measures, and help ensure that you’re aggressively pursuing any opportunities to shore up the long-term financial success of you and your family.

Set up a meeting to learn how Pulliam Family Office can help you build a rules-based investing strategy, or visit our website to learn more.

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Any opinions are those of John Pulliam and not necessarily those of Raymond James Financial Services or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The information has been obtained from sources considered to be reliable, but we do not guarantee the foregoing material as accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk, and you may incur a profit or loss regardless of strategy selected.

Past performance may not be indicative of future results.

Raymond James and its advisers do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.