The Snowflake Paradox

Let’s start with something we’d all like to believe is true. Everyone of us is spectacularly unique and unduplicated: we lie side by side on an infinite plain covered with billions of our fellow special snowflakes stretched as far as the eye can see.  No two alike. Not now, not before, not after, not ever. At least that’s what my Mom always told me. In so many words, I’m sure yours did too.

Unfortunately, a mindset that reflexively emphasizes the unique ahead of shared attributes all too often presents an obstacle to effective financial planning. Sure we’re all different, but that doesn’t mean using a standardized approach to launch the financial planning process automatically strips us of our individuality or that every financial plan is destined to  pretty much look the same.

Nothing could be further from the truth.

To arrive at a place where every financial plan is imbued with its own unique crystalline pattern, a bit of counterintuitive thinking is required at the onset. Instead of concentrating on the uniqueness of each individual snowflake, let’s simply start by concentrating on the properties of snow while acknowledging the job is simply to clear a path from Point A to Point B. Practically speaking, the professional practitioner should always first go through a standardized checklist that identifies gaps and informs choices on how best to reach the objective.

As a profession, we’re certainly not alone in this way of thinking. An EMT friend once told me “Everyone wants to talk about advanced life support capabilities on the ambulance because they think those things sound really cool. Maybe they are, but its the basic life support checklist employed when we first arrive on the scene that always determines which advanced tools get used and their order of priority. Remove the patient from immediate danger, determine responsiveness, check the pulse & blood pressure, clear the airway,  stop the bleeding. These things get checked every time. If the first thing we did was to spark up the defib paddles and holler ‘clear’ every time we found an unresponsive victim, we’d wind up spending most of our time in court defending malpractice charges”. Roger that.

Interestingly, the same principles hold true for financial planning.  A lot gets written these days about the role of alternative investments in a portfolio, strategies to minimize the impact of the alternative minimum tax, or the best way to set up a generation skipping trust. All these things certainly have their time and place, but its liquidity, cash flow, taxes, diversification, risk management, and estate plan that comprise the universal elements of all financial plans. Skip over any one of these elements, and the plan as a whole is all but certain to spring a leak and turn a once special snowflake to a pile of slush.

When it comes to financial planning, the paradox of the snowflake is this: in order to build a crystalline structure capable of  serving your unique needs, your unique objectives, and your unique fact pattern, it must hang on a common framework that is essentially undifferentiated.

Michael Reid, CFA is a Managing Director and Partner at Exchange Capital Management who spends his Michigan winters shoveling snow and chipping ice. The opinions expressed in this article are his own.