Steven L. Fradkin on the Creation of Wealth (Podcast)

has assets with Northern Trust. They have something like of the Forbes four hundred. Just a very interesting perspective on how to manage through periods of uncertainty, changing tax laws, rising inflation, all sorts of really interesting perspectives. It's less about predicting the future, Steve tells us, than thinking in terms of planning and probabilities. And I think that was really interesting advice. He he is about as knowledgeable as anybody is going to get in the um, both wealth

management business and ultra high now worth management business. I found the conversation really intriguing and I think you will also so, with no further ado, my interview of Steve Fratkin of Northern Trust, This is Mesters in business with very results. On Bloomberg Radio. My special guest this week is Steve Fradkin. He is the president of Northern Trust Wealth Management, running about three hundred and fifty five billion dollars in assets. They serve about one in five of

the wealthiest families in America. Previously, Steve ran the corporate and institutional services. He was head of International business for Northern Trust as well as the firm's chief financial officer. Steve Fratkin, Welcome to Bloomberg. Thank you very great to be here. So you spent your entire career at Northern Trust, having joined in in how do you make the leap from really CFO to a president, which to me, I think of president, I think of someone who's running um

like a CEO running a division. What were the challenges of that transition. Well, it's a great question, and you know, careers are mysterious experiences. The bigger mystery, really, Barry, was the move to CFO. So I joined Northern Trust as a youngster. I didn't know what I wanted to do, worked my way through a variety of entry level jobs, ultimately uh culminating at that point in running are growing international business and UM loving it, traveling the world, clients

in Asia, Europe, the Middle East, Africa, South America. You know, UM really fun and interesting stuff. And was asked at that point to service CFO, which was the unnatural job. UM was not a controller, was not a treasurer UM, and so serving as CFO of a large public company was shall we say traumatic when they asked. But UM did that for six years, including through the global financial crisis, and it was at that point I went back to

doing what I normally do, which is running businesses. I ran our corporate institutional services business and then after that wealth management. So so it wasn't so much going from CFO to wealth management as it was ending up as CFO, if you will, by accidents from my point of view, really interesting. So so you guys had a pretty good year in How did that carry over to this year? Is it just more of the same. What were the big success stories relative to all those challenges we saw

last year? Well, you know, it's it's really an interesting phenomenon and it shows you the in some ways the unpredictability of what can happen. You know, if you think about COVID nineteen and its impact in and if I said to you, you know, look, here's what's going to happen. We're going to go as a society, not just Northern Trust from you know, we all come in and we work and so forth and so on, and one day on about the same day, worldwide, everyone's going to start

working from home. Facetiously, what what do you think is going to happen to the markets? I think most people would have said, well, first of all, it could never happen that way. It's not going to be true that people in Sydney and London and New York and um Sal Paulo are all going to be, you know, as much as one can working from home. That's just impossible.

And second of all, if that were to have up in on a sustained basis, well, gee, you know, the economy is going to creator because no baseball games, no concerts, no you know, less use of restaurants, etcetera, etcetera. I don't think people would have said, you know, the markets would do as well as they've done. So, um uh, look, it's been an incredible journey. Um Northern Trust has navigated exceptionally well through it last year and continues to perform

well today. And there are a variety of factors in that, but each and every day has been a navigation because we're still not out of the pandemic, and we're still operating in a hybrid mode. And UM, you know, balancing safety of our partners, are our employees, and the needs of our clients is a a daily uh A juggling act that we're still working through, and I suspect we'll

be working through for a while longer. Here we're gonna talk a little more about how you guys managed doing the pandemic UH in a bit, but I want to stay with um the success of Northern Trust. You're one of the biggest ultra high net worth investment managers, but relative to your size, you guys kind of fly under the radar. Why is that, well, you know, it's it's

an interesting question. Very the uh so in terms of size, we're in the top twenty banks in the country as measured by our balance sheet, but really the the better marker of our size is the assets that we manage and the assets that we administer for clients. And we're a very uh quiet company. We don't do lots of big acquisitions. We do the same thing today that we've been doing since eighteen eighty nine, serving the same clientele,

and so we're a very focused institution. A little over half our profits come from the UH provision of services to wealthy families in America and around the world, and the other half come from essentially providing the same services but to large global institutional investors seven wealth funds, pension funds and the like, and so um we're a quiet company that has been UM extraordinarily successful and consistently so for UH many many years. So we're proud of what

we've got. But we UM we we we fly under the radar scream screen intentionally to just keep a low profile and stay focused on our clients. And that would make sense given the nature of your clients, who are less Instagram stars and more quiet wealth. Is that a

Is that a fair way to describe it? Yeah, Today we serve a little overt of the Forbes four hundred wealthiest Americans and obviously many other affluent families and interestingly very you know, sometimes people think of Northern Trust and its wealth management business as UH focusing on or serving multigenerational,

well healed, you know, families, and that's true. We certainly serve many of those, but there are many h entrepreneurs uh in Silicon Valley, in New York, in Miami, in Dallas, in um all over the country and all over the world. And if there's one thing I've learned in being here, it's that wealth is created in a lot of mysterious ways. And so your your reference to Instagram and so forth.

I would say our clients are definitely low profile, but where they create their wealth emanates from every segment of the economy. It's really a fascinating part of the privilege of being in this this kind of role. Let's stay with that, because I was just involved in a conversation recently about the amount of wealth that has been created

over the past couple of decades. Wherever you look, especially in the United States, it seems that people are coming up with new ideas, new technologies, new just even business processes that if you go back to the nineties, I don't think people could have imagined the sort of things that are generating the massive amounts of wealth that we've seen. And I'm not even talking about n f T s or things like that. I mean businesses with clients that are just doing tens of millions of dollars of revenue

a year. M hmm, well, I think the the fascinating thing that I think we see is that UM wealth can be created in a lot of different ways. And I think you're right that as the world has sped up, the wealth creation has be up to you know, to caricature it. It used to be you would start a business in your garage in Louisiana, and over time you would, you know, build a vacuum cleaner or whatever it happened to be, and you would start selling it from a store,

and you know it would um. You know, you'd have a second store, and and the next thing, you know, you have a big business that you never envisioned having, and you could sell that company and create a tremendous amount of wealth. Today that phenomenon still absolutely happens, but it also happens with the power of the Internet that the pace at which UM companies in some industries can

grow and accelerate has has really multiplied. So wealth creation in some instances is still a slow, laborious, step by step process, but in others, I don't want to say it's overnight, but it happens a lot faster. UM with digitalization and the pace at which the world moves today. So we see both phenomena and that's part of the fun and excitement of UM the American economy. And this certainly happens elsewhere in the world as well. Quite interesting.

So let's talk about how you guys had to operate during the lockdown. You mentioned this earlier. What were you doing when you know it became clear the country was shutting down in March. It's a great question. Very well, we started, like many other institutions, with the safety of our clients and the safety of our employees, and it all happened relatively quickly in terms of UH shutting down offices to the bare minimum, getting people home and making

sure that they could function effectively from home. And if you go back to and and by the way, we have twenty employees worldwide, So we were doing the same thing in Manila and the Philippines, as we were doing in London, as we were doing in Dublin, as we

were doing in Houston, as we were doing in Las Vegas. UM. And so I want you to think about the operational and logistical and infrastructural needs of pretty much all at the same time, trying to get people out of the office, enable them to function effectively from home, still be able to serve our clients, uh and all the family and other issues that people were wrestling with. So I would say the beginning of the pandemic was um uh stressful.

You know, we were working seven trying to make sure that technology worked and uh people could still get cash and all those things. It has gotten to a much better you know, I'll call it normalcy in a strange sort of way. But the early days of the pandemic we're challenging. We navigated through well, but um it's certainly not something that anyone had anticipated. Really quite interesting. So I'm assuming you guys have your offices more or less reopens.

What are you gonna do going forward? Is it going to be a hybrid model or is everyone back in the office or are people working from home? Um Our offices are open, uh and and really two different extents in different geographies, you know, which makes sense. The the UH infection rates, hospitalization rates, all the metrics that we track are very different in different cities and countries around the globe. Um uh. You know, in terms of where it goes in the future, I think Uh, the future

of work and how people work is forever change. You know, we always had a pretty flexible work force and the ability to work from home, and you know, people people's lives and personal lives and business lives had crossed over long ago that as an employer, we had to be flexible. Uh. I think that's going to be even more so. Uh

coming out of the pandemic. People have gotten used to it, the technology has gotten better, client expectations are different, and so UM, I think we will be in a hybrid you know, what we what we think of today as a hybrid model will be a normal model tomorrow. And that doesn't mean everyone will work from home, but it certainly means a lot more flexibility. UM. For employees too inevitably juggle the conflicting needs of family and work life,

and we're well prepared for that. So as investors, COVID was pretty much an exogenous shock. It came out of left fields. How did the whole COVID crash and recovery comparative past crises, whether it's nine eleven or the dot com implosion or the Great Financial Crisis? How? How do you how do you wrap your head around this one?

Compared to ones from from recent past. You know, it's it's a great question, and I think, Barry my perspective would be that we often call events like the COVID nineteen pandemic tail events or once in a lifetime events, and in some ways they are and in some ways they aren't. If if I think about it through the prism of my career experience, we had the crash of October seven. We've seen the collapses of things like m

Enron and World come. We've seen September eleventh, We've seen Bear Stearns go down, we had the global financial crisis of two thousand and eight UM, and of course the pandemic, and each time we call it a tale event. But at some point we have to admit that there are a lot of tales. So I want to take you back just to compare and contract um COVID nineteen with

two thousand and eight. I'll give you this example. I want you to imagine it's the end of two thousand and seven and you're presenting the two thousand and eight plan for Northern Trust to our board, and you go to the board and you say, look, we expect our revenues to do this, and our expenses to do that, and so forth and so on, And one of the board members raises his or her hand and he says he or she says, um, Berry, that's that's terrific. Sounds

like a great plan for two thousand and eight. But I I just want to get your perspective. What happens if bear Stearns collapses Freddie Fanny Washington, Mutual Walk, Covia, Meryl Lynch, you know, etcetera, etcetera. Lehman, you know, the whole thing collapses in two thousand and eight, how will we perform? I think you you know, I think if you had been CFO at that time, you would have said, well, you know that it's just that's never going to happen.

But it did. Um and Northern Trust navigated through that exceptionally well, not on scarred, but exceptionally well. If you take if you fast forward from that paradigm to COVID nineteen, it's very similar. You know, if if we had been talking to our board uh the year before and put forward our plan, I think our board would have said, well, okay,

you know, that sounds like a great plan. What happens if there's a global pandemic, and every office from which we operate is going to be shut down or substantially shut down. Everyone's got to work from home on the same day globally, and by the way, it's going to be for a year and a half or more. I'm quite confident you or we would have said, well that, you know, that's just not you know, I don't know what we'll do. That's not going to happen. But it did.

And so I think the lesson from these crises is that while they're different, every time, they happen a lot. And so we have to think about our approach to business, our approach to resource research, our approach to preparing for the unanticipateable and um as I say, each each of your examples September eleventh and COVID and two thousand eight are different, but they were all. They all featured substantial disruption,

substantial unanticipatable disruption. And at Northern Trust and every other company around the world, you have to be prepared to be agile and adapt quickly. And that's what we've been able to do pretty consistently over our d and thirty plus years of experience. So given that history and the fact that a big chunk of your clients are ultra high net worth, how do you think about managing assets compared to what I don't know, let's use the phrase

mass affluent. Uh that typical approach? Is this more about preserving wealth than it is striking it rich? These folks are, after all, already fairly wealthy. How does this specific demographic change and challenge the way you manage assets for them? Well? I think, um, look where wherever one sits on the spectrum of wealth, they generally want to optimize their returns over time. And people have different risk preferences as you

would expect. Uh. So to caricature it, if you come from nothing and you've done exceptionally wealth financially, you a not always, but you may have a predisposition to have a stronger defensive component to your portfolio because you don't want to end up back where you were. You know what it's like not to have money. You have it, uh, and you want to be defensive. Um. On the other hand, there are people who, whether they came from nothing or not,

they've had tremendous success. They've seen the power of capitalism, and they want to not only do as well as they can, but keep going. So we see things, um through the eyes of our clients across a continuum. What I would say is people in the ultra neet ultra high net worth space, at least from my point of view, it's not so much about they're more defensive or more offensive.

They have more flexibility for choice. Um. They can be defensive because they've you know, so to speak, got more more than enough, or they can lean in and be more aggressive because they have a bigger cushion than the rest of us. And our clientele is all ends of that spectrum. There's no um the notion that some people have that well, once someone's made a certain amount of money,

they're they're just trying to preserve it. Um. There are certainly clients that that exhibit that behavior, but there are an equal number who want to optimize it and aren't in a completely defensive mindset. So it depends on the personality. Very interesting. One of the cliches of the industry is three generations from you know, short tales to short tails, referring that generational wealth very often gets I don't want to say wasted, but frittered away irresponsibly or recklessly. Uh.

Some people take too much risk. How do you manage around that? Do you do? You ever have families coming to you and say, hey, we want to leave money to the next generation, but we want to make sure they get it and that it's not just you know, ferraris and weekends in Vegas. Yes, all the time. Again, every family is different, every client is different. But you know, one thing to one thing that I think is a little bit unfair and in not by you, but in

the characterization that you refer to. Is this notion, well, you know by the third generation it is, you know, frittered away. I think you you have to remember a couple of things first. When when we say it's frittered away, the comparison point is often to someone who did the extraordinary.

So if I started from nothing and created a billion dollars billion dollars of wealth, it's a little unfair to say, my kids are my grandkids you know they're not as smart as I am, because you know they didn't do it too. You know, people who have created extraordinary wealth have done so. By definition, it's it's extraordinary and it's not reasonable. Even if you have bright, talented, you know, um, high functioning kids, it's not reasonable to assume that each

generation is just gonna you know, uh, mom made a billion. Uh, mom's kid made two billion, and and mom's grandkids made made four billion. You know, it's mathematically that's not a reasonable probability. That said, UM, there is definitely an art to optimizing wealth through the generations. And of course it starts in the home and how you raise kids and values and um you know what you demand of them

or not. Um, But a lot of our clients do a great job of trying to steward their wealth, trying to educate their kids, trying to make use of family governance to to help everyone understand how things work for the family. And so each client is different. But UM, as with most things, the more you put into it,

the more you're likely to get out of it. And for those who believe it's an important responsibility to steward that wealth, pass it to future generations, educate those generations, make them um uh, try and help them be important members of society. Um. They tend to get better outcomes than the rest of us. It's a it's a very um. It's you know, raising kids and money are too challenging vectors.

But um um. We see some great examples of people stewarding wealth through multiple generations, not just the founder, so to speak. Quite interesting. Let's talk a little bit about what you call goals driven wealth management. Start out with what what exactly is that sure? Goals driven wealth management at Northern Trust is the framework that that we've devised to build personalized wealth plans for clients, and it focuses

on helping them achieve their individual goals with confidence. It provides a big picture of their wealth and transparent steps on how to manage and optimize wealth over time. So very one way to think about it is and I'm being a little bit facetian decetious, but just to make the point, it used to be in this industry that the starting point for how money might be managed was a function of your outlook on the markets. You think equities are going to go up, etcetera, so you allocate

more to equities. Um Goals driven wealth management comes at investing through a different lens. The starting point is not so much our call on the markets, though that will be important at some point. Our starting point in goals driven is what are you and your family trying to accomplish? Once we understand what you're trying to accomplish and the

assets you need to accomplish it. We can in effect back into how to deploy those assets in stocks, bonds, other asset classes to give you the best probability of achieving your life goals over time. So it's really just a different starting point for how to think about creating an asset allocation that is most effective for you and

your family. So let's talk about that framework. And again the question comes back, how different is it for the ultra high net worth than for the merely wealthy or is there a lot of overlapping between the two different types of planning. The process is really the same no

matter where you are on the wealth spectrum. You and your family have goals, and whether you have a million dollars, a hundred million, a billion, ten billion, or whatever the number is, you have something you want to achieve over time. You plan to live to age nine hundred, this is what you need to live in the style to which you want to be accustomed. And we do a variety of work to figure out first of all, are you asset sufficient? Meaning under reasonable scenarios, do I have enough?

If I steward it effectively to live my life the way I want to live it over time, and that happens whether you have you know again, whatever the number is five dollars or ten million. The difference Barry comes in with the flexibility end options that you have as you create more wealth. So the starting point is the same, understand your goals, understand your needs, and let's figure out an asset allocation to give you the best chance to

get there. What becomes different for people in the ultra high net worth space relative to the rest of us is that they can take advantage of more planning techniques. They can take advantage of uh more techniques to optimize philanthropy, They can take advantage of gifting to future generations and so forth, and so the process is the same. But as you accumulate more money UM in general, you have more flexibility on some other things you can do. The

ultrah net worth also have more investment optionality. They have the ability to invest in asset classes like private equity, hedge funds, and so forth, where um they may have to trade off some liquidity for a period of time. Those of us who are lower on the spectrum may not be able to endure that in a down market, those who have more wealth can can uh oftentimes whether that storm more so, the process is the same, but

you get more flexibility as your wealth grows. We're going to talk more of about alternative investments in a little bit. I want to stick with a couple of interesting things I read, UH in some Northern Trust research. One of the things that I kind of knew but I didn't realize it was this intense was the number of clients you see relocating to new states. It's been a record volume. Some of that's pandemic related, some of it predates the pandemic.

How does that challenge the planning process? How different is it from state to state when it comes to things like tax planning. You mentioned trust, you mentioned philanthropic issues. What happens when somebody picks up from one state and relocates to another state. Yeah, it's an interesting question. Look, clients relocating has always been with us. If you look at Northern Trust's history. We are headquartered in Chicago, in the middle of the United States. It's cold here in

the winter. Lovely city, but it does get rather cold at wintertime, and oftentimes as people age and you know, their kids finished school, and so forth. They opt for better UH environments in the wintertime, so they may want to be in Florida or Arizona, or Texas or California. Um So, one phenomenon we've always seen is migration from

state to state. That phenomenon is also impacted by state tax rates, by a state tax UH considerations, and so both because of the pandemic and for tax reasons and lifestyle reasons, we're continuing to see movement across state lines and so, UM. You know, I think that the message to UM urban planners is taxes do matter to people.

It's not necessarily the only factor, but um even affluent people will think through where do they want to be, where do they want to live, what environment do they want to be in, and what's the tax impact for their clients. And that phenomenon is alive and well it's always been there, UM, but it does seem to be important as different states consider different UH policies. If will UH people residents make their choices and UM. So it's it's it's a phenomenon. It's very much at the front

of mine for many of our clients. Interesting you mentioned taxes. There was a new administration came to town this year, and the expectations are there will be some sort of change in tax policy, potentially including increases in capital gains and increases in estate taxes, and in some cases fairly substantial increases. How do you plan around that? And since nothing is known for certain in advance what an administration is is going to do, how do you make decisions

in the face of that uncertainty. Yeah, I think our starting point on behalf of our clients is to prepare rather than predict. So let me give you an example that that you referred to. The newly proposed tax law change would change the lifetime gift in a state tax exemption amount from eleven point seven million dollars down to

five million dollars. And what this means for people who have built up substantial wealth is that, uh, if the proposal goes forward as as offered, uh, you have until the end of this year if you want to make a gift to your heirs of eleven if you can afford to, and if you want to make a gift of eleven point seven million dollars. And again, I can't tell you whether this will happen, but if we just

think about the financial impact here. If you have enough capacity to do that, and you choose to do it, you can take eleven point seven million dollars out of your estate today, get it to your kids, grant kids whoever. It happens to be tax free as opposed to on January one, if the law goes forward only as as offered, uh,

you can only do five million dollars. And what that means is the difference between sorry to get you know, numbers all over, but the difference between eleven seven and five, which is six point seven million dollars will be taxed you know when you die um uh at a at a high rate. And so we have literally thousands of clients all across the country, and each one we're working with individually to evaluate, um, what's their financial circumstance, what do they want to do? Do they want to make

the gift? And by the way, this this this tax law change may or may not happen um, So people have to make a choice without knowing for sure whether it's going to happen. I think the bottom law mine though, is people are looking at this carefully, they're studying it, and they're trying to prepare and make judgments about what

might happen and what's best for their individual circumstances. But tax law changes matter, and we are in the business of helping our clients figure out what's the best choice for them with the information that we have. Quite quite interesting. So we talked a little bit about alternatives earlier. Let's address that a bit. There seems to be a growing appetite for all manner of alternative investments, given that stocks and bonds are all a little bit pricey. Um, let's

start with private equity. What what sort of demand is there from your clients for private equity and how do you guys respond to the question of potentially better returns and exchange for far less liquidity. Sure, look, investment has become much more granular over the decades. And again, just to be facetious, you know, large cap stocks versus high

quality bonds. You know forty years ago. Today clients think in terms of small cap, mid cap, large cap, value, international, emerging markets, private equity, and thousands of flavors of private equity, hedge funds. Same thing. So in the quest for optimizing returns, clients and their professional money managers and Northern Trust included have um searched for different asset classes to combine together to give people the best chance to achieve their objectives.

Private equity clearly has been in the aggregate. There are winners and losers in private equity, but has been a asset class that has done well for many There are tradeoffs with private equity, particularly in terms of liquidity UM, but I would say amongst our clientele, the appetite for private equity and private equity is a more normalized asset class continues to grow. It's not the right asset class for every client, but for clients who have the capacity,

the risk tolerance, and so forth. Uh, it definitely can play an important role in a client's portfolio. And increasingly we're seeing more use of private equity today than we did, say ten years ago. What about venture capital or hedge funds too, totally different entities from both each other and private equity. What's the demand like for those products? Demand exists for venture capital and four hedge funds as well. Again, the devil is in the detail. Not all hedge funds

are created equally. The theme is that they charge. The performance that they've delivered can differ substantially, But there is um again, this same notion of I want to diversify my portfolio. I want a range of options and so called alternative investments, whether you call it private equity, venture capital, hedge funds, UH seem to continue to be growing in appeal to our clientele. What about crypto and things like blockchain and ethereum? There seems to be a lot of

real interest in the space. Are are you finding your client base is crypto curious? Um? I would say the demand for crypto is more muted amongst our clientele than um some of what you read in the public press. And um, that doesn't mean we have example of clients who have invested in crypto and done exceptionally well you know, right time. But I would say in general, if I had to caricature it, I would say that crypto is still an evolving asset class that is misunderstood by many,

and I think most are treating it uh carefully. And the ones that are making crypto investments are viewing it more as a uh um, more as a roll of the dice than a rational uh uh analytical view of what crypto is trading it today and what it's going to trade it tomorrow. They view it as a bit of a roll of the dice. They may jump in a little bit, but UM, they understand that what goes up can also go down. So I would say amongst our clientele overall crypto is still UM not idely in use.

So we mentioned briefly the market is a certainly priced yer than it was five or ten years ago. How do you manage around stocks and bonds, neither of which are inexpensive. Yeah. Look, I think for many of our clients UM, the market does go up, the market does

go down. And one of the great features of our the goals driven methodology that we use for clients is that we build a UM portfolio such that, after a lot of analytical work to evaluate their goals and so forth, UM that enables them to uh endure and not have to sell in a down market. We we create something that's called a portfolio reserve. I would liken it to the moat around your castle. Some people like a wide, deep moat, some people eat the narrower UM and less

deep mode. But think of that as high quality fixed income. If the stock market goes down, your your bonds are still fine, you can still pay your mortgage. Life is good. You can wait until the market goes up or returns to normal. So the one thing we know on behalf of our clients is markets go up and down, and so you have to plan and prepare for that. And

so it's very difficult to know, um you know. Again, using the COVID nineteen example, I think there are a lot of people who might have argued the markets are going to crash. You know, everyone's working from home and we can't get essentials and people don't want to go to the grocery store. And yet the market went up dramatically.

So we try and take a long, stewarded view and help our clients plan and prepare themselves so that when the market does go down, um, that they can get through and um uh not have to take adverse steps and sell uh in dire circumstance. And that's been very helpful for our clients. So, in terms of forward return expectations, does that and historically loban yields high equity prices tend to suggest lower returns going forward. Does that work its way into the planning process or is that really more

of an academic theory. No, it absolutely works its way into the planning process. Because our starting point is what needs does a client have over the near term for financial resources. We we've got to make sure they can buy their groceries and pay their mortgage, and we have

to deploy assets against those goals. But once in working with a client we figured out the right mix of assets to uh to enable them to to afford those goals over a reasonable period of time, we then have to deploy the rest of the portfolio towards so called risk assets equities, private equity, hedge funds, venture cat, whatever the asset class, And in so doing we have to bring our judgment about risk and return expectations for each

of those asset classes. So our view of asset classes and what they're likely to bring over the relatively short term is still an important part of the process. So what do you tell investors who say, you know, I'm really not happy with my muni bond portfolio. It's barely thrown off two or two and a half percent. Investors are always seemed to be looking for more yields. How

do you respond to that group of clients. Yeah, I think it's my Our response is, really, you have to remember what you're going to do with that muni bond portfolio. No one is saying it's a great, high returning asset class, but that's not its role. Its role is to making this up bury. But generally the role of that muni bond portfolio is to provide you with certainty, security, confidence, uh, and not have to worry about the other part of

your portfolio. Let's just call that equities gyrating up and down. So, of course people want their muni bonds or their high quality fixed income to return as much as it can, and it's our job to try and help people achieve that. But I think you always have to come back to what role is this trying to play? And for most clients, it's trying to play a role of stability and reliability

and consistency, and that's the paramount feature. And in providing that consistency and stability and predictability, they give up a little bit of return on that asset class, but they're trying to get that elsewhere with their equities, private equity and so forth. So you had you had discussed previously, Um, hey, you know it's up to us to make the most

of a low rate environment. What does that mean? How does one make the most of a low rate environment, Well, I think, um, you know, low low rates create low interest rates create uh challenges and opportunities, and maybe two

simple ways to think about it are. One on the challenge side, if you're living on a fixed income, as assets repriced and you're reliant on bonds, your bonds to provide UH income, the lower rates make the yield on those bonds lower, and so that's bad from a you know, how much cash will I have to fulfill my needs? The flip side to that is that when rates are very low, UH, if you want to, if it's appropriate, if it's thoughtfully done, you can use credit rather than

liquidating stocks too. You know, if you want to buy a new toy, um so to speak, a boat, whatever it happens to be. One way to do that is to sell stocks in your portfolio and buy the you know, whatever it is you want to buy. Another way is to let those stocks keep working on your behalf. And because rates are so low, UH, take advantage of credit, take a loan by that boat and or whatever it

happens to being paid back over time. So low interest rates, you know, can have different UM conflict phenomenon opportunities on the credit side and headwinds on the bond investment side. So so how do you incorporate all this inflation chatter to to your planning. Um, we've started to see rates tick up the tenures as we're recording this, just about one point five. And I know there's an irony in saying that rates are all the way up to one

point five, which historically is incredibly low. How do you figure um inflation into your modeling and thinking about the future. Will we use multi scenario modeling? The reality is no one knows, and so you have to you know, the prognosticators will will have a view. Some some believe inflation is here and is going to continue. Others argue it's so called transitory. Um, and uh, the truth is, we don't know. We'll we'll we'll find that out tomorrow, so

to speak. And so as we work through planning with our clients, we generally are running multiple scenarios low inflation, medium inflation, high inflation, and we're trying as well as we help clients make decisions, we're trying to make the best judgment we can at a given point in time. But UM, that's why you you really have to be you have to plan for multiple scenarios and bring agility to your process because we don't know whether the stock

markets going up or down. We don't know whether inflation will be higher or lower. We have a view, we can have probabilities, but as we've seen, whether it was with two thousand and eight or uh covid um, we everyone can be wrong, and so you have to plan and adapt and leave yourself a buffer for when you are wrong, and hopefully it's not um uh not catastrophic. Huh. So I know I only have you for a little

bit of time. Let me jump to my favorite questions that I ask all of my guests, starting with tell us what you're streaming these days? What's keeping you entertained at home, either on Netflix or Amazon Prime or wherever. Well, I've I've been working hard, so I can't say I've made great use of Netflix. But um, what I have just started. This will show you, Perry, how far behind am is. I've just started ted Lasso, so um, I'm behind the rest of the world. But that's what I'm

on right now. All right, Well, well you'll I can tell you this much. You will enjoy it and and enjoy catching up with us. What about mentors who helped to shape your career. You know, I've had a lot of mentors at Northern Trust over the years. Uh, people who were senior to me and people who weren't. But

I learned from everyone. I think when I think about mentors, for me, it's less about people with whom I work, and maybe it's my interest in history, but um, I try and learn from people who have overcome insurmountable ods. The Mahatma Gandhi's, the Martin Luther King's, the Winston Churchill's,

the Thoughts of Hovels, the Abraham Lincoln. And there's so much wisdom that I see in people like that, because um, they really faced incredible circumstances and worked through them generally too good outcomes, and so um they're those great thinkers are probably the people I've learned the most from. As I wouldn't call them mentors to me, but I've certainly read about all of them and learned a lot from

each of them. Let's talk about books. What are you reading right now and what what are some of your favorites? You know, I think, in keeping with that theme of mentors or poor um periods of time, that interest me. Uh. I've really enjoyed The Splendid and the Vial by Eric Larson, which is um about Churchill and the blitz of World War Two, and again it it helps you here, it helps me to see just how dire the circumstances were

and what he and others had to navigate through. The other book that I've dusted off recently I had read some time ago, but I think in a few of the pandemic it seemed interesting to me was The Hot Zone by Richard Preston, which has nothing to do with the pandemic, but um uh, there are parallels to what we're dealing with than It was sort of a gripping, gripping book if you have time for a good read,

it sounds interesting. What sort of advice would you give to a recent college grad who was interested in a career in either investment management or finance? Yeah, I think, um berry, I'd offer a couple of themes on this, and I don't know that I um narrow these themes too uh an interest in investments or finance, although I

think they do overlap. I'd start by saying it probably the easiest place to get my view there would be to go to YouTube, and I gave a commencement addressed at the University of Illinois, Chicago and tried to formulate those themes for for young people. But but a few that come to mind, at least through my lens are UM. Comfort is the enemy of accomplishment. If you want to be the best you can be. Uh, you can never

be satisfied with where you are. You've got to push, push, push, and UM make yourself better each and every day and everything you touch. UM. I think of a couple of the other themes that would come to me would be in the same vein UM. We see this at Northern Trust all the time. Excellence is not a part time job. For people who want to be excellent, who want to do the best job for our clients and our shareholders.

You can't be excellent only when it's convenient, only when you want to do it, or only when you feel like it. You've you've got to UM. Excellence is an all in phenomenon. And then probably the the last theme that comes to my mind is persevere beyond your accomplishments. It's not what you did yesterday, UH, it's you can be proud of what you've accomplished, but again, you want to be better going forward, and so be proud of

who you are. Be proud of your grades and your your school and your degrees and all that sort of stuff. But those are what you did, you know two years ago, five years ago, ten years ago, whatever it happens to be. Keep pushing forward to be the best you can be, so persevered beyond your accomplishments. And our final question, what do you know about the world of investing today? You wish you knew thirty five years ago when you were

first starting with Northern Trust. That is a long list, Arry, But um, I think what I would say is you don't have to be right on everything, and sometimes being right is more about luck and timing than it is about specific analytical acumen. Uninspiring choices in a bowl market can turn out just fine, and well reasoned ideas in a down market can turn out to be not so good. Get the direction right more often than not and you'll be just fine. Really good advice. Thank you, Steve for

being so generous with your time. We've been speaking with Steve Fradkin. He's the president of Northern Trust Wealth Management. If you enjoy this conversation, well, be sure and check out any of the other three prior discussions we've had over the past seven years. You can find those wherever you normally find your favorite podcast iTunes, Spotify, wherever. We love your comments, feedback and suggestions right to us at

m IB podcast at Bloomberg dot net. You can sign up from my daily suggested reading list at rid Halts dot com. Check out my regular column at Bloomberg dot com slash Opinion. Follow me on Twitter at rit Halts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Paris Wald is my producer. Michael Batnick is my head

of research. Attika Valbron is our project manager. I'm Barrier. Adults, you've been listening to The Master's in Business on Bloomberg Radio.