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The Importance of Comfort

IF ONE’S DESTINATION IS FREEDOM FROM WEALTH, THE ROAD MUST be one of comfort. Without freedom, comfort is difficult to achieve, and without comfort, freedom is impossible. In building a sound wealth management program, every wealth holder must start by building a comfortable relationship with the wealth. Yet many wealth holders in the United States, Europe, and Asia are painfully uncomfortable with their wealth. The wealth becomes a source of anxiety, not comfort.

How does one build comfort in a relationship with wealth? The answer might start with an understanding of “biophilia.” E. O. Wilson articulates that theory of biophilia, a manifestation of which is a “preference for certain natural environments as places for habitation.” Modern people everywhere, writes Wilson, “wish their home to perch atop a prominence, placed close to a lake, ocean, or other body of water, and surrounded by a park-like terrain” (The Naturalist, page 360). We want to see trees with spreading crowns. In another publication he notes, “The location is today an aesthetic choice and, by the implied freedom to settle there, a symbol of status. In ancient, more practical times the topography provided a place to retreat and a sweeping prospect from which to spot the distant approach of storms and enemy forces” (The Diversity of Life, page 350).

Wilson goes on to offer the following example: “Consider a New York multimillionaire who, provided by wealth with a free choice of habitation, selects a penthouse overlooking Central Park, in sight of the lake if possible, and rims its terrace with potted shrubs. In a deeper sense than he perhaps understands, he is returning to his roots” (The Naturalist, page 361). For that New York multimillionaire, life with the kind of sweeping prospect that gave his ancestors comfort remains the lifestyle that gives him or her comfort.

The biophilia theory takes us back to our roots on the savannahs of Africa, where from a plateau our ancestors could see predators coming, could easily find a source of water and food, but could also be near the shelter of trees and caves. In this same vein, whether in Hong Kong, New York, or Sydney, an apartment with a large window and view out over the water is always most comfortable.

What does biophilia have to do with wealth management? Simply stated, wealth holders need a clear perch from which they can see and understand all threats and from which they can see where they may want to go. They want a familiar landscape with sustenance visible.

Quite often, wealth holders do not enjoy the comfort of a privileged perch on a high bluff because their financial and other service providers have made their lives unnecessarily difficult. Attend a family wealth program anywhere in the world, whether through the Institute for Private Investors, Family Office Exchange, Campden, or another, and you will find a nervous tension in the room. You will see many there jump from attention to the speaker to iPhone or BlackBerry. Some will bite their nails and otherwise exhibit signs of discomfort. They are feeling surrounded by those who know what they do not know or understand. They worry that stewardship or protection of their family wealth requires that they know what they do not know. And those who believe they have figured out what they need to know are eager to share successes with the others. So much to learn, so much to worry about, and so little capacity!

The novelist George Eliot has been attributed with the following passage about comfort:

Oh, the comfort, the inexpressible comfort of feeling safe with a person, having neither to weigh thoughts nor measure words, but pouring them all out, just as they are, chaff and grain together, certain that a faithful hand will take and sift them, keep what is worth keeping, and with a breath of kindness blow the rest away.

Comfort is not easy in the valley of the wealth management conference. Comfort begins with security, consistency, and minimized surprises. Absence of fear (whether of loss, bad news, or the unknown) will bring comfort. Harmony in family and business promotes comfort. Reliable relationships with family, business associates, and advisors are helpful in gaining comfort.

Distrust and fear are impediments to comfort. Lack of control or understanding can create anxiety and discomfort. What you do not know or understand makes you uncomfortable because it is hard to relax in the presence of uncertainty and threats unseen.

I have yet to attend a family wealth conference where I see a comfortable audience. Questions asked most frequently include those searching for the “ideal” model, asking whom to trust, and looking for tools to create functionality out of dysfunction. I am often asked “What is the best governance structure for a family?” as if there is a best remedy for family dysfunction just as there may be a best remedy for a fallen soufflé. The questioner assumes that there may be a secret model known to everyone but himself or herself. Of course, there is no secret remedy. Until the “ideal” family is created and produced consistently, there can be no “ideal” governance structure.

There is no secret model to gain comfort. How to become comfortable with wealth requires analysis of what is making you uncomfortable.

That analysis is made difficult by the financial services industry, which builds opaqueness and obfuscation into its operations. Unfortunately, complexity is a built-in part of the industry’s “product mix”—investments, tax analysis, and fundamentals of custody, counterparty risk, and financial analytics. Correctly perceiving that the industry is putting on the hard sell, clients are inclined to distrust, and that causes discomfort. To resolve the distrust, clients try to understand details and pierce the opaqueness, but understanding details and piercing opaqueness is often nearly impossible. Individuals then feel they do not know what they do not know. Wealth holders have no clear view of where risks may be or how to analyze risk, and they feel threatened by the unknown.

Let’s approach the issue of discomfort resulting from the financial services industry’s practices from another perspective. A jet is just as complex and just as opaque as any hedge fund. The transportation regulatory framework is even more difficult to understand than the securities framework. A jet flight is just as subject to disasters as any wealth management program. One has no control whatsoever over the operation of an airplane. Yet, why can we board a flight in Los Angeles and get off in Sydney without feeling we must understand how to navigate the plane ourselves? In neither case can you know every detail and understand all systems and elements. However, when wealth holders meet a financial services provider, they often feel they must trust him or her before they can do business together. We rarely meet our jet pilots, and yet we put our lives in their hands.

What is the difference between that portfolio management and that transpacific flight? Simply stated, we know that there are proven, established processes providing objective protection of every passenger on that flight—from training of pilots to maintenance of mechanical systems to language to be used to emergency procedures. And we know those processes evolve from years of experience and wisdom.

It stands to reason then that comfort is necessarily derived from process and wisdom. We can get comfort from a commanding view showing us everything we may fear. The wisdom to know what we don’t know, to seek help from those who do, and to create the proper process to ensure the smooth takeoff and delivery is the equivalent of commanding heights. This wisdom is the plateau from which we can overview and ensure that we are looking at a forest but can discern the threats to us. The wisdom creates the comfort that significant wealth owes to the wealth holder.

Blind trust alone should not provide comfort in wealth management any more than in air travel. But the industry of wealth management exalts trust; it does not demand process and discipline of its clients because discipline and process would remove the sense of complexity and powerlessness that requires customers to pay so much for so little. People trusted Madoff, Lehman, Weavering, AIG, and so on. Trustworthiness is the garb of the scoundrel who can sell his fraud, so long as he is clothed with trust.

While wisdom helps build the process and therefore the comfort, it’s also important in grounding strategy to ensure that every action will lead to a goal. As the capacity to look out over the forest to the river gives us the view of what we need to see—our water supply—and as our jet ticket says clearly that we want to go to Sydney, so we must know where we want to be to help us build the wisdom to get there. We must know what the wealth is for to make sure we can decide how to make it do its job. We must have the perspective of the height to allow us to see over the trees and to the water beyond.

The wise counselor, the trusted advisor becomes key here by helping analyze decisions in terms of goals. His or her wisdom can help us see the places we should not be comfortable because they do not get us where we are going. What risks should we take to help us move along our path, and what risks should we not take as they do not relate to where we are headed? The wise counselor helps us with perspective, and this help is often merely a question of pointing out the obvious.

The following three examples illustrate how wisdom helped three wealth holders make better decisions for themselves and their families. In each case, the wealth holder was prepared to be comfortable without the aid of a commanding view derived from wisdom. You will see how, in each case, a touch of wisdom allowed a perspective akin to that on the heights of biophilia.

A 90-year-old American, predicting the demise of modern society and the Armageddon to follow, confided that he was stashing tens of millions of dollars of gold in more than 30 Swiss safe-deposit boxes. This plan allowed him to sleep well at night and gave him great comfort. “I am secure and my family is secure no matter what,” he said. I asked him who knew of these boxes besides himself and whether he had told his son. “Oh no, I dare trust no one. The Communists might get my son and he might disclose the secrets.” I then posed the simple question: What happens if you die (and he was an “if I die” type rather than a “when I die” type) or if you are incapacitated? He looked puzzled at first and then concerned. He suddenly realized that if he died, no one in the world would know he had the gold or where to find it. The next day he gave his son the inventory of boxes.

A group of doctors came into our offices many years ago. They were going to invest in a tax shelter scheme in the business of hog farming. The tax deductions would be quite generous and projections were that the doctors would double their investments through losses and credits. The doctors carried two weighty prospectuses and set them at the middle of the table, asking my father for advice. My father, one of the nation’s leading tax attorneys at the time, said he could read those prospectuses and charge thousands of dollars to do so. Before he did, he wanted to ask the doctors what they would think of a hog farmer investing in medicine as a tax shelter. The doctors retrieved the prospectuses and with thanks left the office.

A client telephoned my father with what he considered a sound plan, one that made him very comfortable. That night he planned to pack a suitcase with cash in the millions and the next day he would meet a Swiss banker in Nassau. The bank had a plan that allowed the banker to take the cash, deposit it in the bank, and keep it so secret that the IRS would never find it. The client was planning to save millions of dollars in taxes. My father suggested the client come into the office immediately and meet with the two of us. He did and repeated that plan. My father said: “Sounds very clever. But if that Swiss bank is willing to cheat the IRS, might it be willing to cheat you?” The client abandoned the plan then and there.

Comfort cannot come from one plan or one scheme or one decision. Comfort comes with holistic vision, making sure that every element works with every other element, that the entire web of wealth management is integrated, strategic, and accomplishing its goals. Comfort comes when we know that every detail is designed to work in harmony with every other detail in carefully considered processes to take us from what the wealth is for to what we should be doing. Wisdom helps design the processes, wisdom helps us keep our eyes on the goal, and wisdom helps us understand when a specific plan should not give us comfort. Here then is the view we need from the bluffs overlooking the forest to the river beyond.