Author: Peter Harper

In the eighth episode of the 3 Pillars Podcast, Peter Harper and Andrew Doust discuss wealth education and how establishing personal, family, and business goals can help build a long-lasting family office.

To listen to the full episode, click the link below or just press play:

https://asenaadvisors.podbean.com/e/wealth-education-philanthropy-or-legacy-how-to-build-purpose-in-the-next-gen/?token=80b0e43b98204d61a5a6d1cadaa4dbed

TL;DR

Peter Harper: Andrew, it’s awesome to have you with me today for the Three Pillars podcast. It’s probably been about 18 months since we last caught up and today, I wanted to touch on with you the topic of prepping next gen for material inheritances and how you think about philanthropy versus legacy. One of the things I love about our discussions is just as we were prepping for this, I started putting things out to you and saw it in my memory of things that we’ve discussed in the past and try to why you’re picking me up and saying “No Peter. This is not allnecessarily about philanthropy, it’s the overarching theme of this is purpose. Can you just give the listener listeners, a bit of an overview of your yourself, your background and what it is that makes you tick?

Andrew Doust: Yeah, sure, thanks, Peter. It’s great to catch up with you again. Yeah, I’ve been working with families of oil for 20 years or more, and so I’ve got to see firsthand the challenges they face as they navigate the complexities of wealth. So I work with families to help them navigate that complexity and to flourish as a family, because if they flourish as a family and the relationships are strong, the chances are they’ll be able to manage their resources as well. Conversely, if they don’t get along well, they really can’t make good decisions. Often the relationships break down and eventually the wealth dissipates. So to me, working with families on being healthy relationally is the key to actually ensuring their success and longevity as a family and as a legacy. And so I’m interested in that idea of, well, how do you help families do that? But also how do you help prepare young people in the context of that? Because they grow into these families not knowing what they should do and how they should be. And so the second part of what I do is, is work with a program called KoreVenture and KoreVenture is all about preparing young people from families of wealth to flourish at every stage of their life as they sort of navigate these challenges that we’ll talk about.

Peter Harper: Yeah, and just prior we were touching on this point about this idea that our particular focus in this series is preparing first-gen patriarchs or matriarchs for life post liquidity event, things you have to do to get ready to set up a family office or a multifamily office and how important it is to integrate the rest of the family into that decision making process.

Peter Harper: And you touched on a point that I think was supercritical that related to what folks think a serious liquidity event will be will mean for their other family members, would you mind just touching on that point?

Andrew Doust: Yeah, I mean, again, families I’ve worked with and who I know through the programs who run the liquidity event, you know, will materially change the families, how they live your life. You know, obviously they were already wealthy. But this unlocking of significant wealth creates a whole bunch of questions for the family. What do we do that wealth? What does it mean for our kids? Do we significantly change our lifestyle when it comes to the kids? How much of this do leave them and eventually? What’s healthy to leave them? What do we want to change about our life now because of the wealth that’s being unlocked? The reality for many is that the wealth it created, which was often a byproduct of something they love to do, building a business, usually wealth isn’t the goal. It’s a byproduct of something else. But when it is unlocked and it often is wealth for the benefit of the family. But historically and for many families, it’s not for the benefit of family. It actually destroys a family because it actually unloads a ton of things onto the family for which they are unprepared and for young people in particular, you see you see the impact in very, very damaging ways. Often kids who end up lost in life that fail to launch and they even have substance abuse challenges. So the thing you’ve created, which might seem like a good thing for the family and it could be might actually destroy the family. And so my message to families is, if you’ve created significant wealth and that’s going to be in your family beyond your lifetime or even in your lifetime, make sure you invest in preparing your family for a job they perhaps didn’t want or didn’t choose, but now they’re faced with taking on, which has being responsible for the family’s wealth.

Peter Harper: It’s a really, really great point. I mean, I think anyone, anyone who knows a strong willed entrepreneur whose likely to type A personality because in order to be successful and be driven, they’ve got to have a strong pathway ahead of them, I imagine a lot of those folks initially will have a view or would say things like “Oh I didn’t have to. I had to go through and do all these things. This person has effectively got a silver spoon. My kids don’t have the same challenges that I did” They’re always taking it back to their own experiences. Everyone experiences their own experiences. If a child hasn’t had those challenges but is experiencing a whole bunch of new challenges associated with growing up in significant wealth, which, by the way, the patriarch or the matriarch may not be able to prepare them for because they did not have the same experiences as a child. I mean, I think would it be helpful to understand is what do you do within a family unit? To kind of: one – break down these issues for you first gen family that, when it comes matriarch or patriarch, you have to get them to understand the crux of this issue and then maybe hearing a bit of the processes of how you bring the child or the children into this would be would be helpful also.

Andrew Doust: Yeah, there’s a couple of things that I can unpack there, one of is maybe the work I do with families to help them kind of navigate this challenge. I’m working right now with a family in London and actually the process is actually fairly simple, but it involves a huge amount of the emotional energy. And it starts to understand the individuals in the family because we had this collective future because of the wealth that’s been created. But actually the collective future is only possible if we have strong individuals who are confident themselves and where they’re going and can work with others in the family to then manage collectively the wealth has been created. So we start and said, well, what’s the mystery? Who am I? What’s my identity? What’s my purpose? What are my strengths and gifts and also weaknesses that I want to work on? What are those things? So we go from the me, people understanding themselves, seeing themselves in a new way to the we. Who are we together? I bring them to the we of the family really matters. So how do we strengthen the we. How do we make this this family, which is a functional decision-making body in some form, effective and functional? Keeping in mind that the we is often undermined by the success of the family. You know, we have a great deal of separation now because we’re wealthy, we can do things on our own and we often do.

Andrew Doust: So the we – the tight family unit that you need – is often challenged by the wealth that’s created. So we go from me to we and then we can think about once we’ve got a healthy vehicle, a healthy family, then we can think about where. Where do we want to go together? What do we want to list before? What impact do we want to have in the world? How do we want to use what we have not just for ourselves and our family’s benefit, but for the future? And then finally, we look at how. Well, how do we look at all that? And that’s why obviously governance and and planning and other things is so important. So we got a me, we, where, how journey. It seems weird, but actually the more we spend working on the me and helping every individual in the family understand themselves and see themselves through the eyes of others and growing the emotional intelligence, the better they’ll come together as a family unit, the better they can function as a family unit. The more trust there is, the more effective they’ll be thinking about where they go together and then the more effective they’ll be at designing the how the structures that get them there.

Peter Harper: So when you say to me you’re doing that for each individual family member?

Andrew Doust:  Each individual family member. So it takes a ton of time, one on one with every single family member and then doing that and then having collective times for the whole family. But, you know, there’s no shortcut to that because these individual family members often haven’t been asked the hard questions, often haven’t done the self reflection that’s necessary. And when it comes to the matriarch and patriarch of the family I’m working with, the patriarch is quite unaware of his impact on his adult kids, quite unaware that he’s quite a stifling influence on them. And they’re an age now with their own dreams and visions. And so the work is helping open his eyes to his impact on their lives and helping to build bridge between the two so that that strengthens the we so that they can have a conversation about the where.

Peter Harper: Was that a challenging process to go through with with him? Was he I mean, was he the person that had started this journey or was it some other member of the family that suggested that you come in.

Andrew Doust: Yeah. And, you know, the journey can start in any in a number of places. In this case, it started with his children, his three adult children saying, look, we’re getting really tight as a sibling group and but we don’t think we can engage our father. What do we do? And I knew that getting the father involved too early wouldn’t work. And so with his blessing, they embark on a journey with me to kind of strengthen the me and the we. And in sharing what they were learning the father got interested. He could see the change in them personally and the relationship. And he said, oh, I want some of what you’re doing, tell me what’s going on. And so he’s now joined the journey with a great deal of desire to learn. If he hadn’t joined it that way, he probably would have come with a desire to show that he knew all that they needed to know. And that’s not the case now – he’s coming with a different posture.

Andrew Doust: And so, yeah, I mean, you just have to work with the different founders, different patriarchs, different matriarchs in whatever way brings them in with a posture of learning and not feeling like they have to know all the answers, because, of course, they don’t. And they’re moving into new territory. You know, they’re moving into a territory. They knew how to create wealth and build a business, but actually, the next chapter of life requires very different skills.

Peter Harper:

Peter Harper: I think for a lot of a lot of successful entrepreneurs. They have the ability to learn and change because they wouldn’t have been so successful, right? I mean, if you’re completely not open to it, then you won’t grow and you and that can stifle success. So watching the kids adapt and engage in your process and then take that back to to the entrepreneur, I mean, I think that sounds like it was a great outcome.

Andrew Doust: My first point to parents would be, if you’ve created great wealth and you intend to pass some or much of that onto your kids, as many do, keep in mind that if you pass on wealth without the wisdom and without the values and character necessary to steward, or look after wealth, the chance is you’re handing the kids, poison and it’ll damage them. And the evidence is clear on that. And you don’t have to look far for families with kids that have kind of imploded under the weight of wealth. So invest heavily in their education and their wisdom.

Andrew Doust: And also keep in mind that the things that made you successful are the things you’ve probably lost in your family. And I mean, what I mean by that is you learn the value of struggle. You had to do things tough. You learn how to be resourceful, how to be industrious. You learn to get up when you’re knocked down. These are all skills you had to learn, perhaps when you didn’t have much as you starting out as you’ve had a lot of abundance in your family, your kids probably haven’t learned that They’re used to flying, in a plane on their own or, you know, at the front of the plane and not actually knowing how to navigate the the the jungle of chicken, for example. It’s a common problem – you’d be surprised. Your kids may have had the best given to them because you could afford it. But your job is not to give them this. It’s actually to bring out their best and bringing out the best in them, it’s an internal activation that requires a different approach. And too much of the sort of blessings of wealth can kill the very thing, the very character you wanted to create in the kids to be really intentional about. There’s a whole bunch of stuff we do around that. I just wanna leave that idea in your mind andin the mind of your listeners.

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Peter Harper: That’s a great point. I mean, I think the overarching theme in all of this is education. Right? If any anyone is an avid reader and wants to dig into this area, I mean, there’s there’s a lot of data points that talk about the core component of what you need to do to get families engaged and buy-in and build longevity around family wealth fundamentally is driven in many ways by education. As you said, building purpose and legacy around values, right Kids need to understand why the family is doing what they’re doing and believe it and buy into it. And I think a very good point that you were flagging before if they don’t value or appreciate the wealth, because it’s just always been there, or they’re turned off by it for whatever reason. What I see regularly with a lot of particularly first gen is there might be this obsession with money, right. Whether it’s the entrepreneur or some other part of the family, because they might have come from humble beginnings, that for the next generation can be somewhat of a turnoff. I mean, because there’s this sense that it may be the money or the business or the focus was more important than the family.

Peter Harper: And in often the case, it’s the case that I think that entrepreneurs that are particularly first gen, as they’re creating wealth don’t see that. Right, they’re like, “OK, well, this is so much better. I’ve come from this place where there is abject misery when it comes to being in a position where you’ve got nothing right or you or your poor. And I’ve created something that is truly impressive and has taken the family, elevated the family in all these different ways.” But still, there’s such a major disconnect between the second generation and the wealth creators. Is there a situation where if that’s been left unchecked for such a long period of time, you think it’s hopeless? As a family, how do we bring this purpose back together? Or do you think that those type of issues, all of that stuff can be resolved in time provided everyone’s open to it?

Andrew Doust: I think if we take our first goal to be having strong and flourishing individuals and strong families, if we take that as the overarching purpose, then everything else is up for discussion. And so most of the families I work with, the founder will have loved the business and wealth have created. But if you ask them what’s more important, this is sustaining the family, sustaining the wealth they will generate, say, will actually family matters more. Obviously you want both, but actually that’s preeminent. And so what I would say is that if you are a founder and created a significant wealth, maybe you’ve still got your operating business somewhere there and you’re pretty attached to it. Keep in mind your purpose. You had freedom to pursue what you wanted to do, what you are passionate about doing, what you feel compelled to do, what you really want it to do. You feel free to do that. And you were free. And look what you created. What you’ve now done, if you want your kids to follow in your footsteps, is actually deny them that choice. Because if you say, hey, here’s your purpose, it’s to follow me. And so it’s funny because you enjoy choice and we all do. But if that’s imposed on the next gen, of course, we’re going to kick back and say, well, hang on, what about me? And so what you want to do is create an environment where it’s possible for young adults – and we do this for the KoreVenture program – to think about: well, what am I here to contribute in the world? What’s my purpose? What’s what’s my reason for being? What footprint am I going to leave on this world? Because I want to I want to matter. I want to do something that’s substantial. And I don’t want to be a footnote on my father and mother’s, you know, achievements.

Andrew Doust: Give them freedom to explore that, but also freedom to opt in to taking on the family’s responsibilities if they so wish. From a young adult perspective, we say, listen, there is something has been created that is going to outlive your parents. It’s assets of certain forms that might be, you know, still an operating business, perhaps, and other forms of assets. There is a responsibility you have to honor your parents and to help them think about how that would manage now, but also beyond their lifetime. So don’t turn your back on the family and the needs of you. Lean into it and say, well, how can I still pursue what I think I want to do and want to be? Maybe I need to be an artist or a surgeon or whatever it is you think you can do. It should be or maybe build your own business. Do that, but also recognize and work on how you can play a part in managing the family’s affairs, and that’s why obviously, you know, a whole bunch of models around that governance models where you can still be actively involved but not have to be a slave So I’d say let there be freedom, but also let that be a responsibility.

Peter Harper: I think what you’re saying, if I’m paraphrasing back, is that the collective input of the entire families is important. So even if someone saying this is not my core purpose, I’m going to go off and I’m going to follow my dream, there needs to be a framework with a family supports that. Right. Because as you rightly point out, this is probably the magic or the secret sauce that created the value or the wealth within the family to begin with, because the the patriarch or the matriarch had that, you know, that ability. But strong families still require collective input.

Andrew Doust: And they certainly do. And we talked before about the me – the me is what do I want to do and be? And the we is who do we want to be together and how do we work together well, to make good decisions for the future? Dennis Jaffe, who wrote the book, Borrow from Your Grandchildren. And it’s the culmination, I may have mentioned this before, of a study of businesses around the world of enterprises, families that have lasted more than 100 years. And I said, what are the ingredients that helped them last a 100 years? How is that possible? Because most don’t make it. But one of the things they picked up on is this idea of being the families that make it being generative families. And what I mean by generative is that instead of the first generation sort of creating the wealth and the second sort of building and the third squandering it, because I don’t feel like they have any attachment to what was created, what you want is every generation to see themselves as the first generation, every generation to say, okay, well, this is now ours. How do we build what’s next? Rather than just follow the plans of the, you know, generation one, what do they want? Are we honoring what they wanted? Now, every generation has to work out for themselves together, if they are together, what their contribution is going to be. They need to be industrious and be entrepreneurial. They need to be creative and productive with whatever they have. So that’s what I’d encourage families to do. Make sure you cultivate that dynamic in your family, where you have this creativity that continues to push on beyond whatever you could create.

Peter Harper: Yeah. Now, it’s really, really important advice. I mean, when we we were starting this discussion, you were talking about the me and the we. I don’t think I truly understood the way in which your framework worked together, the way in which you just break it down just now, right? I could see how that could be really powerful. Everyone’s looking at themselves individually. What’s my own purpose? How do I go out and get that? But there still needs to be this understanding – this collective we. Yes. You’re free to pursue whatever you want, but collectively, we need your intellect, we need your input, if the family is going to obviously stay together and grow together. That’s a great insight. And I like the way you framed it. And Andrew, the education piece, again, we’ve talked about this many times is how critical that is

Peter Harper: Before we step off, I did want to jump a little bit into KoreVenture because through my own dealings with individual clients, I could see how having programs such as this could have material impact.

Peter Harper:  I think regardless of what people’s personal view is of this topic, anyone who’s coming at this and experiencing this would agree that education of next gen so that you can get them into a position that they feel they have a purpose and buy into whatever the we is of the family has to be, I think it’s the single most important thing, right? Because if you don’t have kids that are educated, they have the IQ or the emotional intelligence to actually take on the challenges that they’re going to have as they grow into a role within a material family, then you’re almost better off giving up on things before you even get started. Can you talk a little bit about KoreVenture, how it came about and what you’re saying within the program?

Andrew Doust: Sure. Thanks for the question about KoreVenture. KoreVenture kind of grew out of this observation that many families were failing to prepare the young people for a future of wealth failure to thrive. Young people from wealthy go all of the benefits you could ever want, but actually not launching. In some cases I mentioned earlier, actually suffering through substance abuse and those sorts of things. And digging into it I looked in to see, well, what do people do to prepare young people for wealth? And the answer was, well, you know, the banks put on some programs, made lawyers do, and they learn a bit about money and estates and, you know, succession and maybe philanthropy as well. All good stuff and all necessary. But it failed to do with the deep issues that the next-gen I knew were dealing with. And those issues were things like, you know, I feel really isolated. I don’t have any friends I can trust because I can’t really talk about my world with them. And when I do, it just makes me feel very different. And wealth has actually made me feel very different growing up. And I didn’t want to be different growing up. I wanted to be like everybody else. Or, you know, I don’t know if I could ever achieve anything next to my parents. Their achievements are so great. How I could I ever add up and be anything much in this world? And so I feel like I’m starting as a defeated already. Or maybe I got so many options. I could be anything or it could be nothing. And in some ways it doesn’t matter because I’ll still get a roof over my head and probably an income.

Andrew Doust: So all of these questions running around in people’s minds that weren’t being addressed. And I thought what’s happening here is that people, because of the wealth they’re living in, I’ve been confronted with a whole bunch of things that they can’t talk about with others because it’s not the normal experience of most. And parents perhaps don’t see this or don’t recognize because they haven’t lived it. These things are going on, these questions being asked. And so the assumption is if we do send our kids to the best college, give them the best education we can, that’s our job done. But the reality is the job they’re actually already doing, which is living with wealth, they’ve not been prepared for.

Andrew Doust: And so what we want it to do is create something that was beyond the NBA, something that does what no NBA actually really does well. And that is to put people in a peer community of people like them who are wrestling with those sort of questions and helps them process and the complexities of what it means to live with wealth. And actually work it through and find a path through so that they can live a life of great purpose, great meaning, great joy. And actually do that with a focus much more on character and say, look, success isn’t about taking the family’s wealth and multiplying it x fold. Success is much more around who you become. The thing you’ll be celebrated for the end of your life isn’t isn’t your net worth. It’s going to be the impact you had on others. And let’s help you be a person who has a great impact on others and makes a contribution and, you know, based on whatever your gifts.

Andrew Doust: And guess what? If we do that, the chances are when it comes to thinking about wealth, you won’t be one who thinks like I’m just going to squander this wealth or I’m going to consume it or I’m going to pocket and do nothing with it. You’ll be a person who thinks, great, look at this wealth, how can we be impactful with it? How can we building a business? How can we grow the business we’ve got? How can we do good things in a world with all of what we have as well? So this focus on character is really what the program is all about. And so we kind of launched this very intense four month journey over three countries with input from Stanford University, Oxford University, families of wealth, experts in their field, intense coaching. But it’s created an extraordinary impact in the lives of those who have gone through it. And they even a year on, we’re just doing our last batch. We’re doing our follow up phone calls to see how it’s going. They said, look, this has transformed our lives and we are a different person because of what we experienced. This is what real preparation looks like. So, I mean, you know, people can look up the details on KoreVenture.org, but it’s it’s a very intense and highly relational approach to preparing for a future.

Peter Harper: Yeah. I couldn’t recommend it more highly. I mean, when you first mentioned to me, there’s a lot of amazing things you just sort of touched on. But, I shared my own experience with a client , we were talking about purpose and you were going through all the different things that they could do and the response to each of the different items was what I could do that or I could just buy it. The challenge is when you have enough money to buy anything in the world, building purpose can’t be around around money. It needs to be around something else.

Peter Harper: And I think the other thing that some people might find challenging or strange if they’re not necessarily in this world or they’re new to the world is that every single human wants to be better than their parents. It is human nature, Freud write extensively about it. So as a result of that, if the sole way of judging success or whether someone can be more successful than a parent is to make more money, then as you said, the probability of that happening is low and they’re doomed to have challenges from the start.

Peter Harper: So I think this whole notion of building purpose through these other other means – provided it it’s got the buy-in and support of the rest of the family – is such a major thing, and I can see how it would have had a huge impact if you’re getting kids to think like this at the right age in the foundational years

Peter Harper: For anyone that’s listening, I’d recommend you go to the website, check it out. If you’ve got any questions reach out to Andrew or reach out to me, I’ll make sure you get through to the right people, because I think  it is a really, really, really awesome thing that you’re doing.

Peter Harper: Andrew, I just want to thank you very, very much for coming along and being here today. It’s been it’s been a great session. So thanks for joining us,

Andrew Doust: Peter thanks very much. And look forward to catching up again soon.

In this week’s episode, our two special guests – Mr. Joshua Luff and Mr. Alex Thompson – discuss liquidity events, cash flow, and the importance of data when strategizing an investment with our host Peter Harper.

Click the link below or just press play to listen to the full episode:

https://asenaadvisors.podbean.com/e/wealth-management-%e2%80%93-a-liquidity-event-is-just-an-acceleration-of-cashflow/?token=361f3033182e883651ba450b9e12dffd

TL;DR

Peter Harper: So today’s topic for the Three Pillars podcast. Is on liquidity events and how they are simply an acceleration of cash flow. So for those entrepreneurs are listening in that are preparing for a significant life changing liquidity event for the very first time, it can be hard for folks to hear this, but for most people, you’re likely going to get to experience this once. Statistically, that’s what the data shows. And the thing that we always like to talk about within our own business is that a liquidity event is simply an acceleration of cash flow, right. So thinking through how capital post a liquidity event is managed and subsequently invested is a really, really critical focal point. So today I’m joined by Josh Luff and Alex Thompson.

Peter Harper: Josh is a portfolio manager for a number of significant family offices and has been a wealth manager in the ultra-high networth space for many years. And Alex is a partner of mine and is the managing partner of Woodpoint Capital. So, Josh and Alex, thanks for being with us today.

Alex Thompson: Thanks man.

Josh Luff: Great to be here.

Peter Harper:  Just as a kickoff, if each of you can separately introduce yourselves and give us a bit of an understanding of your background and what it is that you do.

Alex Thompson:  I’ll kickoff so thanks Peter. I lead Woodpoint capital, which has been set up as a private market investment platform for our family office and private investor clients. So when we were launching the business a few years ago, we really set out to build the business as an institutional grade co-investment platform. And so what really what that means is providing investment grade opportunities through to families that families otherwise wouldn’t be sitting in a structure that is appropriate for how they manage their portfolios. And I think that was the piece that we felt was missing previously: is that the feedback from a lot of our families was there was a real preference to avoid commingled funds, to avoid blind pool structures and really a preference to see single asset deals, to see really strong, high quality. And that’s really what we like to do. Woodpoint’s responsible for assets right across private markets, private equity, real estate, real assets, but across everything we do, we do have a focus around cash flow and we do have a focus around around capital protection. And we aim to do that through understanding the underlying asset base that each of our investments hold, so happy to sort of jump in to that in more detail later. But hopefully that gives a bit of a flavor

Peter Harper: That’s great. And Josh?

Josh Luff: Yeah, so I get my start in the business with a large multinational bank, started in their associate program and quickly found a love for working with business owners in particular and found that I was able to connect with them, started developing a nice group of clients and partnered up with the commercial bank at this large multinational institution. A lot of the commercial bankers subsequently left to go to a regional bank. And I followed. I followed along with them, along with the clients, which was which was nice.

Josh Luff: From there, that business continued to grow and grow significantly and working with these ultra-high networth individuals over a period of years, a few of them came to me and asked and said, hey, you know, we like what you’re doing for us. Would you would you be willing to come and do this directly and work for just our families?

Josh Luff: And so it was interesting. We tried to see if we could set it up as a single family office structure two business partners. Unfortunately, they were not related out to 10 generations. So we have to set up as a multifamily office, which also meant then that we could bring in other families to the mix as well. So I’m very fortunate in the sense that I work with a very small group of families and look over their entire investment portfolios, making sure that we’re tying together the investments, the estate planning, managing and overseeing the cash flow, but bringing everything in from stocks and bonds and mutual funds and ETFs to the private investments, much like with Alex at Woodpoint. And we partner up with them and last but not least tie in that cash flow planning and the estate planning, in particular, to make sure it’s all being done efficient a manner as possible.

Peter Harper: Yeah. And this is the reason why I wanted to have two gents on here together. I mean, any portfolio that should be the right balance of public securities and private market investments, and so I think that having – and particularly for entrepreneurs that might might have had a concentrated investment framework which is the case most first in entrepreneurs – even if they’ve had substantial cash flow in their business. They might have predominantly had a substantial concentration in their operating business, right. So this notion of diversifying and spreading risk across public markets and private markets can be a major mind shift. I I think there’s two things that. That’s kind of struck out to me listening to your introductions, I think both of you guys have a heavy focus around not only growing a capital base through capital appreciation, but cash flow. And I think that that is a critical thing for folks to understand when they’ve gone through a liquidity event and they’re focusing on how do we want to position ourselves on a go forward basis.

Peter Harper: So. Gents, the title of today’s session was around liquidity events and liquidity events being an acceleration of cash flow. It’s been my experience and a lot of entrepreneurs do not actually think like that, I mean, the the the pushing of business to the point where it’s big enough to sell may even just be a mechanical mindshift, a mechanical mindset, right, as to the reason behind why they’re driving a business the way in which they are.

Peter Harper: Why is it important for entrepreneurs, particularly first gen entrepreneurs, to get their heads around the liquidity event being an acceleration of cash flow.

Josh Luff: Well, I can jump in there. The first generation – it’s been the people I’ve worked with the most and again, they think as business owners should and very pragmatically in many respects. But oftentimes I think that they understand their business so well that they look at that as their one asset that they have, rather than saying, hey, if I were to sell, I can accelerate those cash flows and then reinvest those in a different manner. And I’ve seen all sorts of pitfalls along the years to going off and then trying to think you’re going to double down and buy another business and go all in on that one business. And at the same time, I’ve seen lots of success stories, too, where they say, hey, you know what, I don’t need to keep working and I can live a more fulfilling life in whatever terms they deem that to be appropriate. And the simple example is this is a let’s say it’s a business owner, that the business is doing well. It’s throwing off a million dollars in an income to them every year. They say when you add back the depreciation and amortization and say it’s million, a half, they’re able to take and turn and sell that business for, call it seven and a half million dollars so that no large business, no small business, just a nice medium sized business.

Josh Luff: And they say, hey, we can sell it for seven and a half million dollars and have that today rather than waiting year in and year out for that million dollars. It’s like, yeah, that’s an annuity stream of a million dollars that’s coming in. But at the same time, it could take that seven and a half million dollars and we can use it to invest in multiple assets, not just in one and make a decent return. Might not be making a million dollars every single year and into perpetuity, but we can make a significant return and the clients can then live off of that just depends on each situation. I’ve had businesses that have sold for hundreds of millions of dollars and I’ve seen businesses that have sold for five to ten million dollars. 

Josh Luff: And each family is very, very different. A quick example here as well as is you have families that they sell their business for seven and a half million dollars and they’re going to have enough cash flow to survive their lifestyle for the rest of their lives and their next generation, in all likelihood, depending on how their kids spend the money. Flipside is, I had a gentleman that sold his business for one hundred and fifty million dollars and we had to have a very uncomfortable discussion of, hey, you’re spending through this cash at such a rate you will be out of money in the next 10 years and you’re 50 years old. So I saw it was a very interesting conversation in that regard. So long story short, with acceleration of cash flows is there are many, many things to consider, everything from the family dynamics to what can be done, what they want to do. But the bottom line is this is the quickest way to accreting wealth is through a concentrated position, their business. And I could tell them all the time the fastest way to eroding wealth is through a concentrated position. And I have seen in many instances where a business owner takes and then takes that cash flow, tries to reinvest in another business that they don’t truly understand, and they go all in. And suddenly that nest egg that they had that was quite substantial is been eroded to a fraction of what it was initially because they bought into a business that they really didn’t understand.

Peter Harper: And I think that’s a really amazing point, because, as I was talking about this notion of being a serial entrepreneur.  The reason a lot of folks are successful in the first business is because they’ve got their 10000 hours right there. They’ve done the work. They understand the business. They’ve made some gains. Maybe they’ve had a bit of luck. Right. But it is a very specific skill to be able to roll in again and again and again and do it successfully. So, Josh, really appreciate those stories. Alex?

Alex Thompson: Yeah, I mean, I know a lot of what Josh said, I think with the families that we typically deal with tend to fall into one of two buckets. I think the first point is this category we’re talking about families or first generation entrepreneurs who have been through a liquidity event and are now faced with a lump sum and a range of questions and no doubt a range of different ambitions and goals for what to what to do next. But ultimately, when we sit down to chat through with them, how should an investment strategy look for them? It really centers around two things. It’s a direct risk and start to provide and grow a steady cash flow stream.

Alex Thompson: I mean, we the second bucket of families, we deal with second, third and beyond gen families who may be faced with a similar problem where they have a lump sum. But the outcome from an investment strategy perspective is not dissimilar. I mean, it’s the risk and it’s got to be a cash flow that that cash flow is going to afford them flexibility with living expenses, flexibility with future ventures. And so it really is the critical piece, I think, just to to to circle back to this emphasis around cash flow.

Peter Harper: And I mean, Josh, the story you were telling before about the client who had major liquidity event and you thought he was going through one hundred and fifty million in ten years. I mean, I think anyone that’s in this business had some experience with a client like that. I mean, we we’ve gotten to the position where when we’re going through a process and trying to pitch for work with my client, it’s a two way interview And the strong view that we have is if we don’t feel like a client buys into these issues and understands that there is a material change to the life circumstances, i.e. they might have sold the golden goose. And so they have to change their attitudes to how they spend it because they’re spending the capital they have now possibly on cash flow. We won’t necessarily represent them because it might not be a good fit. How do you think about that as well? I mean, if you don’t if you have a client that you think doesn’t have the right headspace when it comes to expense management, would that be your attitude?

Josh Luff: Yes, it’s an interesting thought, you know, it depends on what part of my career I was in first. When you’re younger, the saying goes first, you survive and then you thrive. So you did anything you could for anybody just to stay afloat. But as you get further along in your career, you quickly realize that there are people that fit better and you don’t want to spend all your time putting out fires of messes that you didn’t create.

Josh Luff: So what I found was over the years that the further that somebody deviates from from the way that finances should be managed to a certain degree, again, there’s oftentimes, for ultra-high networth individuals a lot of latitude. That’s that’s what wealth has done for them, is they’ve created lots of options that are available to them and which is fantastic. 

Josh Luff: So I try to always take a step back and look at it and say, OK, is this somebody I can work with that will be also coachable and teachable? Even if they don’t fully subscribe right away? Is that somebody that we could get there over time, through time and education? Again, if it’s a spectrum and we need to be within here and there, way out here, well, then usually we can figure it out pretty quickly that we’re both not a good fit for each other. And in the few circumstances where they’ve still wanted to work with me, you do get to that point, Peter, where you politely turned down to say, hey, this is not going to be the right fit. You know, you’re going to be best served by finding somebody that meets the philosophy and style.

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Josh Luff: One last quick story there. It was very interesting. I had a client about five years ago now, six years ago, something like that. He had sold for forty two million dollars. I had a very different investment philosophy, one that I was just like, hey, that’s just not realistic. They had other advisors that were throwing out some unrealistic expectations, or at least in my opinion, were very unrealistic. Some a year later at a holiday party and he was talking to an attorney and he said to the attorney, hey, this is the only guy that was honest. He did this and that. And he said this. And he goes, Oh, so you’re one of his clients. He goes, No, I went with the other guys. He goes how that work out for you. He goes, it hasn’t worked out well. And so it’s interesting because a couple of years after that, he became a client of ours because it took him some time. He had to unfortunately take the more difficult path. But at the same time, that’s sometimes what it takes. So it’s I think that people do have the ability to change over time, but sometimes it is just not best to take them on right away.

Peter Harper:  If a client’s coming to this for the first time, they’ve got to really understand risk-adjusted return. Right? I mean, like it’s very easy to quote a big number – it’s all relative to the risk you’re taking. So that’s a great story. Alex, do you have anything else you want to add to that?

Alex Thompson: No, no, that’s all for me.

Peter Harper:  Shifting gears slightly, for anyone who’s going through a liquidity event for the first time, maybe they’ve only had a modest amount of money invested in the market, and so let’s say that they’re transitioning from a position where they’ve had seven million to now putting know ten, twenty, fifty million in the market. What would you say to someone who’s interviewing a manager, financial adviser for the first time as they’re going through the process?

Josh Luff: Yeah, so I feel like  the best advisers are the ones that a) you know well and you’ve known for a while. If you’re just starting to have interviews with investment managers at the time of sale, often you’re already starting behind the proverbial eight ball. It’s usually good to have those conversations, you know, a year or two in advance and start getting to know they. Folks, if you know you’re going to be in that 50 to 100 million dollars base, you should have at least a person or two or somebody that, you know, that works with those sorts of clients as well. You don’t want to go to a guy that primarily works with one to five million dollar clients. They’re just not going to be able to serve you.

Josh Luff: And then again, depends on the size of an asset base. But if you’re in the – call it – five to twenty five million dollars space, if you go to somebody that’s a one hundred million dollar person, you’re probably not going to get the time and attention that you’re really going to demand. So it’s also important to get the right type of advice and the type of advisor. And just knowing their clients and the type of person that they work with is important, you don’t want them to be learning on you.

Josh Luff: If I work with hundred million clients all day long, am I willing to go and try to help somebody to the best of my ability that has two or three million dollars? Sure. But the product set is completely different. The advice set is completely different. The things to focus on are completely different. And so while I might be able to do it, I’m not going to be an expert in it. And that’s really a disservice to those sorts of clients. I think too many advisers try to be all things to all people.

Josh Luff: So I’d say, number one, you don’t want them to be learning on you. Another thing is obviously that you want them to be trustworthy. There’s a lot of nice people out there, there’s no question about it. But making sure that they’re also trustworthy. And then I think the last part is somebody that’s truly passionate. Again, I struggle with this because I think there’s passionate people at all in all groups of advisors. But I think there’s a lot of folks that aren’t truly passionate that that can just they watch CNBC a little bit more than their client and therefore they’ll use all the quips that they hear on TV or someplace else, rather than it’s truly passionate and doing the research and trying to find new ways to benefit their clients. I think that bar none is somebody that you’d want to at least seriously considering partnering up with.

Peter Harper: You know, I think you cover off on a lot of really good points. I mean, I think for anyone is coming to this, right. For the first time, getting to know the industry and understand the economic factors that sit under advisors that at the lower end of the market, they’re very heavily commodities and product-driven. Because quite frankly, there’s just not the revenue to sustain highly customized product offerings. Whereas as you go up the J-curve, like in any advisory business, comparing this back to corporate attorneys, you wouldn’t get the guy that’s advising on the Sprint T-Mobile merger to come in and help out with the sale of the five million dollar gas station down the road. Right. It’s like so I think there’s very practical elements of what you’re saying that might make a lot of sense. I love the trust factor is a critical thing. I agree with you as far as timing is when we talk to clients, we were trying to engage with them probably two to three years out from a liquidity event where we’re starting a process with them, getting them to think about if we sell, what is what are the numbers like? What’s my net going to be? What’s going to drive this decision making? And I think any of the guys that are any good in this business, in the business you’re in, are more than happy to spend the time to open the bonnet on what they do in a sort of pony show leading up to a liquidity event. People should absolutely go through that process.

Peter Harper: And the one thing that I think things supercritical is references. Right. Is asking for a number of client references. So if you want to verify and say, OK, listen, how many clients do you have that have this amount of liquidity? I mean, as you said, no one wants to be the largest fish. If someone is used to dealing with five million accounts and you’re walking in and giving someone a 50 million account, you’re going to have challenges, so understanding that that’s critical. Alex, do you have any other comment to make on that?

Alex Thompson: Yeah, I think probably the one thing that we see quite a lot within our, client base is, Josh had touched on it, understanding your thoughts and specialization. So a lot of the families we work with, cross-border private clients, you have families that may be foreign nationals either running a business here in the US or running a business abroad with your family here in the US. So understanding what needs to happen from a structuring taxation perspective can make a meaningful impact to outcomes. And the reality is that cross-border advice in particular, it is highly specialized and it’s chronically underserved. So finding the right advisor, if you do have a specialist situation is critical.

Peter Harper: Yeah, yeah, I agree with that. I mean, the impact on getting the tax base, structure piece wrong can have a completely wipe out the benefits of the portfolio that’s been recommended and can press yields. So having a good team of peoples is absolutely critical. I think that’s one of the amazing things about the US market. There is it is such a large and dynamic market that there is enough business for highly specialized folks to really concentrate their expertise.

Peter Harper: Ok, we’re cracking down to the end of today’s session. One sort of final area that I wanted to talk with you today is about your interaction with your data and your clients. Again, let’s assume a first-gen is going through this process has been through this interview process and has said, Josh and Alex, we want to hire you as a team. Josh, on portfolio management. Alex, we want you to come in and help on building out a portfolio of alternative investments. How important is data to the way in which that you develop and manage investments, which obviously is critical, and then the interaction with the management and presentation of that data back to your client.

Josh Luff: Quick, quick phrase, garbage in, garbage out, right. Better the better the data you have, the better the decision you can make as an adviser to those clients. So, I mean, dovetailing into the conversation that we just had, even about people having liquidity events, that one of the primary reasons why you want to be engaged early as an adviser is to understand what is changing and what all the moving pieces are. I’ve heard business owners say, hey, I don’t want to engage somebody because I don’t want to jinx it or I don’t want to count my chickens before they hatch. And it’s like, well, no, you know, things do change. We understand that. But the more we can understand all the pieces, whether it’s spending, whether it’s lifestyle, whether it’s preferences, whether it is just finances – like the just the pure bank accounts, numbers, assets – the better we can advise, the better we can structure, the better we can say, hey, you know what, let’s take our time, let’s move some of this outside the estate now to freeze it and preserve it, maximize exemptions, gain tax benefits. I mean, there’s so many different reasons, but data is really the key there without good data. You know, I can say, hey, this is the greatest investment in the world. But if you need all this cash flow and I’m going to lock it up through this greatest investment in the world for the next 10 years, what do we do in between there and all? If I’m saying, hey, you’re going to get this great return, but you’ve got to lock it up over 10 years and you’re saying, hey, I need that cash in the next 10 years? Well, it’s not such a great investment anymore. So, again, data data is incredibly important. And then being able to turn that around and and then report on it properly is also extremely important to be able to make future decisions.

Peter Harper: Yeah, that’s one of the biggest things that we try and start an early dialogue with these with our clients that we think could be good multifamily office candidates is thinking through family reporting. And again, going back to the earlier sort of dollar we were having about compression of cash flow, when there’s a lot of money around, a lot of these folks might roughly know how much money they’re spending, but they haven’t ever really thought it through and manage that in a way that’s impactful. And that’s the biggest thing that we and change now, I think for folks who are in the ultra category, where it’s that next level of wealth, where it’s I won’t say there is enough money that you could never spend it, because when there’s a will, there’s a way that it’s more challenging. Right. So, Alex, do you have any thoughts on this?

Alex Thompson: I think that’s right. I mean, particularly for business owners, it’s quite common, they understand the importance of data and the importance of a regular reporting and to quote another throw away, if you can measure it, you can manage it. So in their operating businesses, we find that there are very sharp clients. But when it comes to reporting at the family level and on the personal balance balance sheet, that rigor is just not there necessarily as much.

Peter Harper: Yeah. That’s brilliant. Well, gentlemen, I want to thank you both for joining. This has been a great discussion. I really appreciated the feedback and your thoughts and look forward to catching up with you both next time.

Alex Thompson: Great, thanks. 

Peter Harper: Thanks, guys

Josh Luff: Thanks, Peter.

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In the sixth installment of the 3 Pillars Podcast, we’re switching it up!

This week, returning guest Thor Conklin will interview our managing director Peter Harper. Thor and Peter discuss the importance of good advisors and how finding the right fit for you can perpetuate a successful family office and give you time to expand and do what makes you happy.

To listen to the full podcast, click the link below or just press play:

https://asenaadvisors.podbean.com/e/administration-%e2%80%93-people-are-more-successful-and-happy-with-good-support/?token=dcad15be2a2fe41fff6ce2e96bc8b8aa

TL;DR

Peter Harper: Thanks for joining me again for the next episode of the Three Pillars podcast, and today we’re going to talk about a topic that’s very, very dear to my heart because it’s something that is within our business we spend a lot of time on and that is what we like to call complex administration. And in light of this, rather than me running this and interviewing someone else, I’ve asked my friend and partner, to conclude to join, join me again today. Thor was on a previous podcast with us where we were talking about accountability and why it’s such a critical component of a successful family office. And today we’re going to talk about, as I said, complex admin with a key item of more money, more problems. So I Thor, thanks. Thanks for joining us.

Thor Conklin: Peter, thanks for having me. You know, this is an area that you were so passionate about, and I would really like to start with, why do you find this topic so interesting?

Peter Harper: It’s a really, really good question. I think it’s because, you know, I’ve seen many times a situation where a successful entrepreneur is staring down the barrel of a big exit. And I’ve had a discussion – I’ve had a dialogue with with them maybe six months out from a transaction where I’ll try to explain. You know, the level in which their personal life or their family life is going to get increasingly more complex. Yeah. When they sell their business and it’s often the case of that for whatever reason, whether they caught up in the day to day of their business or the or there’s a lot of work going on with the actual, you know, the transaction around selling their business, that they don’t necessarily have the headspace to really figure that out.

Peter Harper: And I think it’s a major risk point. So, you know, what we see is a liquidity event is happening. People all of a sudden, entrepreneurs all of a sudden have a big chunk of cash through accelerated cash flow and throwing the rule book out the window as far as what they should spend money on and not spend money on. And making some very substantial capital purchases post liquidity that not only erodes the capital base of the family, but adds a huge a lot of complexity to how the family needs to manage their assets. So things like planes, boats, second, third, fourth homes. I think the reason why I’ve become so passionate about it is that you may world more trying to be very intentional about everything I do. And I try and talk to my clients about that is just making sure that they’re aware of, “hey listen, if we’re going to take this next step and add all these operational complexity to our family, let’s make sure that we have the right support and right people assisting us to manage it. So it’s not a major compliance headache once that happens.

Thor Conklin: And there is a lot of compliance through it and one of the mistakes that I see is that you’ve got an entrepreneur running an organization and they think, “Hey, once they have more money, once they don’t have to run the business anymore, things are just going to get easier”. They now start to get more complicated and you start to play in an arena that is different than you’ve played in before. What are some of the issues that you see that come up?

Peter Harper: I think the single biggest issue is these folks understanding their risk profile because it changes dramatically, right? I mean, that whole bunch of different facets of their life. And it happens really quickly. Right. So I think the biggest thing is, if you’re someone who’s worth two to five million – so you within America, probably upper middle class/middle class, and then all of a sudden you transition to fifty to one hundred million overnight, you’ve got a lot more to lose So my risk profile when I’m entering a transaction with, no matter what it is or how I’m engaging with folks, is very different for someone at that networth level of two to five than it is for that person at fifty to one hundred. And so I think when we think about these things like hoe do we de-risk that process when you’ve escalated the risk points in your sort of asset base very quickly. If you haven’t necessarily had the time to work out where are all these pressure points or risk points, we try and compress them, whether it’s insurable risk, investment risk, relationship risk, we try and work with folks to get their heads around that as quickly as possible.

Thor Conklin: And what I’ve noticed is as wealth increases, not only the complexity increases, but it seems like things get very easily scattered about. Many clients that I’ve worked with have forgotten about assets, accounts, and various things. You’ve got a bigger area to kind of get your hands around. I know this is one of the reasons why you create it and sort of doing the kind of work that you’re doing. What are some of the things that you found out there with clients that in helping them get their hands around it and manage it? Because that’s really at the core of what you’re doing here.

Peter Harper: Sure. I mean, part of this is not necessarily complex, right? It’s like understanding the size and scale of any issue. So if there’s more assets, there’s more transactions, there’s more stakeholders. So I think that we’ve talked about in the past, when someone transitions from being heavily focused to their business in a business where there might be a whole bunch of stakeholders across the metrics across who is important. When you transition that and compress through a liquidity event where you’re shifting all the capital out of that model into the family unit, all of a sudden you’ve got all these stakeholders that in the storyline that have no connection to the business but are relevant stakeholders was nonetheless right, because there’s been this major transition of capital.

Peter Harper: So I think when we think about why it’s important to get focused around that, it’s really about that.

Thor Conklin: And everything comes down to measuring success. How do you measure success and how do the clients know that they’re getting their needs met? What sort of metrics do put around this?

Peter Harper: We start out again, going from a situation where they might not have been any sort of family order around the family office at the start, know prior to a liquidity event to all of a sudden we’re saying, how are we going to put a whole rulebook around the families? That we start with vision, values, mission statement of the family, governance, and working out what the rules are. And then really like all things modeling it. Is there enough money that exists that no matter how much they spend, they can’t really do any damage to the family legacy? It’s the same approach in business. The more structure you put around things in order to ensure there’s not we’re not taking on substantial risk, right. We’re not exposing the family to some other issue as a result of what we’re doing, whether it’s buying some form of depreciable assets that you’ve had no experience owning in the past and you don’t necessarily have the skills to acquire the asset, manage it to ensure and within the family, make sure that there’s a clear set of rules around how the assets managed. I think they’re points of focus, right And when you’ve got families that expand over multiple generations, that element is even more complex. So we’ve got an asset that might have existed with the family for multiple generations and everyone still wants to utilize the asset. How are those things managed in such a way that the families are being taken advantage of and no one is wasting money?

Thor Conklin: You know, it’s interesting because I see and I would love to have your take on this, do you find when someone has an event, their assets expand, do you find that they spend less attention on it because there’s more out there and it doesn’t matter. The dollars and cents are kind of rounding errors now, or do you find them you get more focused or is it more of a lackadaisical: “Hey, there’s plenty there. I’m not really as focused on the dollars and the cents”.

Peter Harper: I think it really depends on the individual, I think if someone’s being cost-conscious and thrifty their entire life, they’ll get to the liquidity event and they’ll be penny pinching because they’ll be like this is this might be the only event I ever have. And folks that have always been liberal spenders will be probably at risk of spending all the money I think that there is a very much of truth to that. But I think the single most important factor is that a lot of entrepreneurs think they are serial entrepreneurs. Right.

Peter Harper: Because if they’ve had one business that they’ve ideated or they’ve been a founder of, and they’ve continued to grow that successfully, they think “I can sell or liquidy that I can move into something else and do it again”. And it’s just not the case. I mean, in my experience, folks that are serial entrepreneurs that can do it again and again, someone like Elon Musk, across multiple industries, what they’re really, really unique people.

Thor Conklin: Yeah.

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Peter Harper: So we try and have that discussion up front and really get people to own that and say, “Do you think this is your one and only liquidity event?” That’s a factor of a lot of things. Right. What’s your track record in the past? What age are you when you’re selling? And then we try and peel it back from there: you’ve had this acceleration of cash flow. You’ve had this liquidity event. Let’s try and put some rules around buckets of capital. Capital that can be allocated to depreciating assets – we’re going to lose money – capital that we call neutral expenses – we’re sure maybe there is no cash flow being generated, but maybe there’s ability to appreciate value – and then capital that’s actually assigned to grow wealth.

Peter Harper: I think provided they get their head around that, my experience is that they can break a cycle. But I think that’s the biggest thing around this is folks that have been profitable businesses that have been making a lot of money. And they’ve all of a sudden, they’ve taken away the cash flow liquidity events are not always the best outcome for them.

Thor Conklin: You know, really, what I hear you saying is focusing on this and attacking this in the same way you would have business come up with an operating procedure for the entity, for the family, come up with the rules, the regulations, come up with the strategy, come up with the game plan, come up with the budgeting. It’s really like running a business, but forming the family business.

Peter Harper: Yeah, absolutely. I think the admin side, the complex admin, really disputes within the operational bucket.You didn’t break it down into the people – compared to the people bucket of any business. You’ve got the stakeholders within the family are the participants, the direct family participants that are going to benefit from the careful deployment of capital and use of funds. So it’s how do you manage the dynamics?

Peter Harper: I mean, same thing. How do you manage the dynamics within the workforce to ensure that they’re happy and they’re motivated to grow the business and create a good work environment? Same thing within the family. How do you incentivize the family to make sure that they care about retaining capital rather than blowing it on simple things and really respecting the legacy that the original founder may have provided to the rest of the family as far as access to various assets that they may not otherwise have access to or experiences or education that they might otherwise have had access to?

Thor Conklin: It almost sounds like taking the chief operating officer, taking the CFO and general counsel, putting those all together. And that’s really what you’re doing on an outsourced basis for having them remain as the chairman of the board and then really all the operational pieces and the risk management pieces would be offloaded to you.

Peter Harper: I mean, the only difference is you’ve got family dynamics on top of that.

Thor Conklin: And those never end do they?

Peter Harper: No. Which can add a bit of crazy to it. But I think that’s why we actually call it complex admin. Because the complexity can be driven by a number of different factors, whether it’s geographic complexity, because family are scattered around the world or there’s assets around the world. Or it’s complexity, because not only are you trying to execute on a plan, but you’re trying to deal with your family personalities or interactions that that you would not otherwise have to deal with in a business setting.

Thor Conklin: And having the knowledge – this is what I think is so important here – is you’ve been there. You’ve seen these family dynamics. I get to see some of these family dynamics as well with some of my clients. It’s so important that you address some of these things up front so you don’t end up causing a disaster within the family just because you started to add zeros to the networth. And money will accelerate those issues. And if you can deal with them and you have a knowledgeable advisor up front to help you navigate that so you don’t make those mistakes, I think that’s invaluable.

Peter Harper: And I listen, I agree. I mean, I think it takes it takes the transition or the pending transition before people start to understand why this is such a critical component of a successful family of significant means.

Peter Harper: And I think we might have touched on this in the last time we caught up, is that if a lot of folks might sit there and say, “Hey, this is overkill, I don’t need this, I got a strong relationship with the financial adviser or an attorney or whatever else. The entrepreneurial spirit that got me to where I am, I can run my life in the same way with one or two psychics.” I think the biggest push back on I’ve sort of put on that is that it’s true. However, if you want your family and future generations to actually engage in your vision and your legacy and you want your wealth to last more than your lifetime – for a longer period of time, then you need to get your family engaged and they’re not going to get engaged and buy into vision and your mission if you don’t appropriate things where you can include them. And in my experience the only way you can do that is to have a proper experienced team around you that can facilitate a delegation of responsibilities and key tasks within the family unit, family members.

Thor Conklin: And you’ve got one entity that’s tying all those advisers together and making sure that everyone’s reading off the same page. I know in my personal experience, my ex is due to inherit quite a large real estate portfolio. Her and her sister. And her brother happens to run the businesses that are on those those lands. And my ex father in law actually put the properties additional that rents that are going to be charged in the future in the girl’s hands. So now the girls are going to be setting the rates. The brother is going to be the one paying the fare on that. And I said, you’re setting up a family dynamic that is going to cause rifts immediately within that family. These people are going to be at each other’s throats because one is going to want the low rent on the on the land and the others are going to want the highest rent. It’s such a dynamic that’s and knowing the dynamic personally, it’s just going to boil over. Simple little things like that where you think you’re doing a great thing. Boy gets the business, the girls get the land, everybody should be happy. Well, you just turn to the boy’s business, the landlords is his sister.

Peter Harper: And listen there probably was a whole lot of thought put into that dynamic, but then again, it seems a fair but for a cross purpose. And I think that’s why in many ways where you have legacy assets that you’re expecting people to maintain on a go forward basis rather than just liquidity. Liquidity can be managed and produce cash flow, and you can distribute that easily amongst the family and create purpose. But when you’ve got legacy assets, it’s infinitely more complex. It’s often overlooked and broken down purely into “Hey this seems like it’s a fair economic outcome”.

Thor Conklin: So, Peter, how do the listeners address this complex? Because we just touched on a couple of the complexities. This thing goes much, much deeper. I know you have the three pillars. How do they address this complexity? And specifically, what do you do to help address those?

Peter Harper: Well, listen, I think, as I said earlier, it comes with a very clear plan what our preferences are 12 months prior to a liquidity event, be engaging with the family and preparing them for the changes that are about to happen. And what that looks like is building our governance framework for a future family. What is the legal structure look like? What is the rulebook? What has to change and evolve with the estate plan? What has to change and evolve with insurance – insurance needs. And integrating any of these with whoever is going to be the financial adviser for the family. So that we have a very clear framework around what we view as the complex administrative risks to long term achievement of the family’s goal when it comes to their ultimately ultimate objective around legacy. Right, because when you break down the stuff that I’m talking about when it comes to it, it’s the reason why I’m actually so passionate about it.

Peter Harper: This idea, of the administration, operational administration, of a family office ties into pretty much every other part of the family. It has an impact on the financial plan and the annual budgets for the family. It has an impact on how it integrates with the mission of the family and the key integration policies for various family members.

Peter Harper: And so we start with that planning prior to the liquidity event and then we look within the family and say, is there enough liquidity to justify a full C suite? So we are building out a full operational time for the family because I required that. And some families do, depending on size and type of assets, they want to acquire post-liquidity event. Or do we think we can outsource certain components of that? And so some folks will come to us and say, hey, guys, we want you to act as the outsourced CFO for the family outsource general counsel. So we’re managing all the legal negotiations associated with your family assets and sort of control the stuff like bill payment and that type of stuff as well. So making that decision: Are we doing this in-house or are we going to outsource it?

Thor Conklin: And what I really like about your approach to this is it’s a whole family approach. It’s not just going to the leader of the family – person having a liquidity event, but it’s really involving the entire family and doing this as a team, just like you would in an organization or a business. What level of a liquidity event or net worth would people need in order to qualify for these types of services. Where’s the starting point?

Peter Harper: Well, listen, I think that we break down the financial planning side of what we do. I think that can really work for anyone is as little as probably a five million dollar exit. Normally, in my experience, you talk about what’s what’s called a multifamily office, which is someone who hasn’t had a big enough liquidity event where they have a full C suite. When you’ve had a massive liquidity event – so you might be talking, you know, net tax to fifty million up – they might actually say, OK, we’re going to spend the money to have a full six weeks. So, you know, I think really it’s probably as little as five million if you’re just looking for someone to help you with financial support for your family. But if you’re looking for the full suite of services is probably somewhere between 30 and 50 million.

Thor Conklin: Ok, terrific. Well, Peter, I really appreciate you having me on. I appreciate you being here and kind of giving us some insights as to what you’re doing and how it helps the family dynamic. So thank you.

Peter Harper: And Thor, thanks very much for joining me in and running the interview. Really appreciate it.

Thor Conklin: Always my pleasure. Thank you.

Peter Harper: Cheers, buddy, bye.

In the fifth installment of the 3 Pillars Podcast, the Managing Director and CEO of Asena Advisors – Peter Harper, and this week’s guest – Andrew Auchincloss discuss the idea of governance and the fiduciary responsibilities in a family bank or family office setting and how they can provide strength for the long term.

To watch or listen to the full podcast, click the link below or just press play:

https://asenaadvisors.podbean.com/e/the-legal-rule-book-and-the-role-of-the-fiduciary/?token=a528a4b431d7a34f9f6ea6a88e64c828

TL;DR

Peter Harper: Any advice that works in the area of private client advisory or wealth management has seen firsthand the impact that poor governance practices can have on significant wealth. It can be mind-boggling to watch a very intelligent person refuse to acknowledge their own mortality and witness the counties that can be left behind, where an individual effectively transfers their issues to their children at death. So I’m joined today by a very good friend of mine, Andrew Auchincloss. Andrew and I have known each other now for close to seven years, worked extensively for various clients. Andrew has practiced almost exclusively in the area of intergenerational wealth transference and tax for most of his career. So, Andrew, would you mind just starting by giving folks a bit of information about yourself and the area of law in which you practice?

Andrew Auchincloss: Yes, Peter, hi. So I graduated from law school in 1989 and I joined big, big law firm in New York City, White & Case [LLP] where I was for 18 years with a high emphasis on private client practice with a big international component. I decided 2007 to go to an investment house, Bernstein [LP], where I was for six years in their wealth planning department and also in their international group. I decided to leave the industry 2013, and I went to Sidley Austin [LLP], another big firm where I was for three years, and now I’m at a boutique firm in New York City. There’s 12 of us at Schlesinger Lazetera & Auchincloss [LLP], and all we do is private client work.

Peter Harper: So, you’ve got experience on the topic, which is which is great. Yeah.

Peter Harper: So. Andrew, I mentioned briefly before we kicked off that this year the purpose of the series is to prepare first-generation, high net worth individuals that have had significant liquidity event that may not have thought through this idea of a family office or governance around material wealth. Right. That the rulebook of how they are managing wealth within their own lives and then and then for future generations. And so the purpose of today’s I wanted to leverage off the depth of your expertise, educate the listeners on some basic concepts, and then maybe dive into a bit more detail into different areas that you think might be relevant. So one of the first. Items that might be a new concept for some folks when they’re thinking through this is when they’re thinking about the idea of governance, is this concept of a fiduciary and fiduciary responsibilities. Can you sort of briefly touch on it as a concept and how we think about it as lawyers and know why folks might want to understand what it is and what it means when it comes to building out a family office or sort of wealth transfer plan?

Andrew Auchincloss: Sure, sure. So, I mean, I guess fiduciary there’s a lot of flavors of fiduciary in the world these days. Fiduciary duties arise in the context of many different relationships. But I think we can summarize them all by basically saying that a fiduciary is someone who is playing with somebody else’s money. And so it is the law of playing with somebody else’s money. Most basic example is the trustee of a family trust, the trustee, whether an individual corporation doesn’t actually – they own the property as a title matter, the trust property, but they’re not the beneficial owners. So there is a division between who the controller is and who the beneficiary is. And in that instance, there’s a lot of law, fiduciary law about what the trustee can and cannot do with that money. In the most basic example for fiduciary duty is that the trustee has a duty of loyalty to the beneficiaries and cannot do things that are conflicted. So, for example, a trustee cannot buy or sell assets on his own balance sheet to the trust: that is a conflict of interest and against the fiduciary duty. So when these families start setting up all the structures, we’re probably going to talk about, there is a huge component of fiduciary law that’s going to apply in these entities. So that’s why it’s important for us.

Peter Harper: Yeah, and I think the reason why I wanted to sort of touch on it is that whenever I’m speaking to folks that you maybe have, they might have in their own career, if there have been a senior executive role or whatever else they might have been familiar with, the idea of fiduciary responsibility to shareholders that are governed by corporations, regulations and all that type of stuff. But when you’re talking about how to prepare for the transfer of significant wealth to future generations, working out, how, what is the law that’s going to assist us as we’re going down that pathway to ensure that if I want to give money away in a certain way, that the person that I’m handing it over to is not going to waste it.

Peter Harper: Right? I mean, they’re all those concerns that I think that folks have, right, when they’re starting to think about these issues. I think that – sort of leading off that – the term family offices thrown around a lot these days, it seems that any any family that has a certain amount of money is sort of classifying themselves as such. What would be helpful, I think, for folks to understand is that putting aside the designation of what a family of offices is, what the sort of legal structures that you would ordinarily expect to see this notion of a family office operate from.

Andrew Auchincloss: Right well, it’s actually hard to generalize as to what’s out there, because families are very, very different about this. You’re absolutely right. The first-generation wealth, it’s often hard to convince them that they need to prepare for what has become an extremely complicated world. Right. I mean, you’ve got taxes. You’ve got all kinds of choices with structures. You’ve got some fundamental questions as to how wealthy you want your kids to be versus what are your philanthropic interests. Sorting through this all on yourself would be extremely difficult. And so the idea is to build a team of professionals and maybe some employees who can help navigate this. The structure that that team takes is actually, in my experience, varies hugely. You see some families who literally get one employee. It’s a very trusted person in this. One person basically runs all of the accountants and all the lawyers and the investment advisers. You see other families set up offices with a hundred people. I’ve dealt with one family, that one hundred person family office that included art curators for their art collection. And so there’s a big, big difference. The key for people listening to this is you need to find the right structure for you and for your goals, because doing it on your own at this point is just too hard. And the world has become too complicated.

Peter Harper: Yeah, I agree with that. And as I talk to folks about how to be focused on longevity or thinking through this and saying, well, when we think about our legacy, whether that’s the maintenance of a multigenerational business, that we want to still be around in 100 years time, or it’s just ensuring that the family can still benefit from the wealth or the capital we’ve got today for multiple generations. A lot of these different folks will touch on the importance of buying through multiple generations and maybe that engagement happening through philanthropy or it’s happening through education. What in your experience, I mean, is there anything that you think’s more powerful – a more powerful tool than if your objective is for something to sustain, to be self-sustaining and exist after a benefactor is passed away? What do you think in your experience of what you’ve witnessed is amazing?

Andrew Auchincloss: Oh, you mean so sort of family that has a business that they want to pass on.

Peter Harper: Or they have had the liquidity event and have sustained it and now they’re saying, OK, we want to put these rules around this to make sure that: One, the wealth is sustained; and Two that the family members are interested in actually being engaged in whatever the family’s up to.

Andrew Auchincloss: Right. Well, so I, I would say that if there’s the liquidity event and the wealth is going down to the next generation “G2” let’s call it and then also then “G3”, depending on what the client wants. My feeling is pretty strong that you want the next generation to have a separated wealth. You don’t want everybody feeding on the same pot because that puts them in each other’s hair in a way that is very, very destructive to their personal relationships. In my experience now, you still I still have clients who say I don’t I want everyone to be together. I want them meeting. I want them investing together. I want my family to stay together. Which case you work with that. But I think if that’s liquid and it’s divisible, the next generation and the third generation will be much happier if they’re dealing amongst themselves with fundamental questions around investment and spending and all of that kind of thing.

Peter Harper: Yeah.

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Andrew Auchincloss: The philanthropy piece might be the component where I try to make the whole family stick together.

Peter Harper: So you might set a foundation or whatever it is. We’ll have everyone in the same strategy long term. But there is going to be assets carved out. Yeah.

Andrew Auchincloss: Right. Now where this is not possible, is if you haven’t had the liquidity event, where you still have the operating business that generated all the wealth is still in the family.

Andrew Auchincloss: And by the way, many families treat that business as one of the children or even more important in some cases than the children. It is the thing and the hope is that generation after generation, the family will work in that business and so forth. So now you can’t really separate it out because you got a single thing. Now you’ve got to be very, very careful about how this thing is going to be governed when the matriarch or patriarch is gone, who can call the shots. And here I try to encourage people to be realistic. Do not kick the can down the road, make some decisions. Usually, this means putting one child in more control than the others. That has a huge number of implications, some of which are good, some of which can be bad depending on who the child is.

Peter Harper: Yeah, I mean, it’s a really, really solid point. I feel like any time that it is pushed out and people don’t want to make the decisions, all you’re doing is taking the decision that you maybe didn’t have the gumption to make yourself – you’re pushing that on the people that may not have the right aptitude or the desire to make it without creating tension.

Andrew Auchincloss: Right. I think we can also say that you want your team, however it’s constructed, you want the generations below you to be steadily educated on how all this complication works. You want them when they deal with the trust to have some sense of it. You want them when the investment advisors come in to have some sense of what they’re talking about. You know, I don’t know how much tax law you have to pick up, but it’s very, very useful for the “G2” and “G3” to have some rudimentary knowledge on this stuff. So hopefully your team is bringing them into discussions earlier rather than later on some of these things.

Peter Harper: I know there is a million different ways that this can be crafted. You know, when I think about a liquidity event, it can be really dramatic, right. For certain people that have never really spent a lot of money with advisers, and when I say a lot of money, because the risk profile for that individual can change very rapidly. Right. So they might think that they can manage the same challenges that I had with one person. But in my experience, the depth of the challenges expand sort of rapidly. So, I mean, do you agree?

Andrew Auchincloss: Back to the point that the world is complicated and it’s too difficult. I believe tycoon’s – the great captains of industry of the turn of the 19th century in the United States. Now, with a single lawyer, I mean, the tax law was nothing.

Peter Harper: Sure

Andrew Auchincloss: With a single lawyer, they could organize their billions of dollars and have it all makes sense. That’s just not possible today with all of the possible tax points, philanthropy. And by the way, the complexity frequently drives the discussion when people get really overwhelmed by the complexity, you find they’re trying to answer questions based on the complex situation. I always encourage people to have a time out here, assume there’s no tax law, there’s nothing. Can you tell me what you would do in a tax-free world? And often you get a very, very illuminating comment as to sort of what the real goal is. And it’s just been distorted by all the complexity. But, yes, you need advisors to help you navigate this. Yes, they seem expensive. But in comparison to the problems avoided, I mean.

Andrew Auchincloss: You know, obviously, you and I are in this business, so we think it’s a very good investment.

Peter Harper: No, no, sure. I mean, I think that’s the biggest thing, right? I mean, the purpose of these podcasts is really to bring forward discussions that folks have never really had to think about, right. So as I think through this, it’s you know, if I go from paper wealth to liquidity, that’s 50 million or more. And prior to that, my cash flow is pretty weak. There’s a whole bunch of different I mean, really liquidity events, just an acceleration of cash flow. So you’re going, okay, well, I’ve got this money. Now what? Right.

Andrew Auchincloss: Yes, and you and I have to deal with international people all the time who, you know, beyond the domestic context, their lives are even more complicated because now they’ve got to figure out where are they going to be, where they’re going to be tax residents. Are they going to change for the liquidity event? Is there any opportunity to? What are the treaties say? So, yeah. So you and I are in a particularly complicated version of this problem.

Peter Harper: It’s great

Peter Harper: I think – I mean, if you’ve had experience that I think would be impactful around family governance structures and folks that are outside of them, that are marrying into the family.

Andrew Auchincloss: Yeah, I was going to say, I mean, in my ideal for a client is for them to have all of the benefits of wealth with as little title to that wealth as possible. because title to the wealth brings with it all kinds of creditor risk. Risk on divorce and other kinds of things where if you had the benefit of the wealth without the title, then a lot of those other questions are minimized or go away. And my happiest client is a very wealthy man who actually owns nothing. So, yes, he is the beneficiary of a very large trust. So for him, it’s very important that he understand very clearly how the trusts work.

Peter Harper: Sure.

Andrew Auchincloss: And what that really means. And so the trust structure I see most often with wealthy American families are these very large trusts. They have to have some cons. There’s some downsides to them in certain circumstances. But for the most part, it is a brilliant solution to a whole host of tax problems and governance problems. They’re very frequently used.

Peter Harper: Let’s say there’s money that’s being sort of doled out around the family or there’s they wish to assist and wish to be some degree of assistance, let’s say a family member, next-gen wants to buy a house or something like that, is it often the case that rather than handing money out, this little money lent out?

Andrew Auchincloss: Oh, yes, we will always be careful. So I call this a lot of people call this asset location. Right. You have the balance sheet of a family and who owns what. The size of the balance sheet is one thing but where things are in the balance sheet is a hugely important matter. So you want to educate the younger kids when they buy houses there should be a discussion around how best to do this, what entity should own it. Are there, you know, just confidentiality and privacy are the reasons to have houses in an LLC or are the reasons for a family trust to try to own them. What are the downsides to that? Yes, but you can achieve a lot of goals for family just by being careful about where things are on the balance sheet.

Peter Harper: And do you find expedient confidentiality? Do you find that has a major benefit because it stops folks from even starting a claim. Like, let’s say there was an opportunity for someone to start a claim and sue someone. Right.

Andrew Auchincloss: I think confidentiality is mostly from making it difficult for people to find things just by Internet searches or database searches. If someone is thinking about suing you and they really want to know where you live, I mean, they can find you and they can watch you go in and out of the house. So it doesn’t really stop the dedicated lawsuit, but it can be very, very useful just to keep certain things out of the public eye.

Peter Harper: So, if you’re focused around asset protection and confidentiality, is there any state in particular that your clients favor over others?

Andrew Auchincloss: Yeah, the states that most practitioners in New York that I know, high-end practitioners, we’re very fond of Delaware as the jurisdiction. The other states you hear about are New Hampshire, South Dakota, Nevada, there’s a few others that are trying to get into this. And these states are having a little bit of a competition as to who can have the most attractive laws for well-heeled clients to do their entities in. The states sell themselves very hard on the fine differences between their laws. I find that those fine differences aren’t so meaningful. I’m mostly interested in how good the court system is in those states because if there’s a blow up, I want it going to competent judges and competent court systems. So Delaware does very well on that. Can’t really comment on the other states on that subject. I know that California practitioners like Nevada very much so. I assume there’s a lot of good experience with Nevada.

Peter Harper: That’s helpful. That’s great. Andrew, thanks very much for joining us.

Andrew Auchincloss: Great! Peter, it is always a pleasure. Always a pleasure. All right. Take care.

In the fourth installment of the 3 Pillars Podcast, Peter Harper, the Managing Director and CEO of Asena Advisors and special guest Mike Abel discuss how building a family bank to protect your capital can perpetuate a successful family office especially in the case of liabilities.

To watch or listen to the full podcast, click the link below or just press play:

https://asenaadvisors.podbean.com/e/how-do-you-protect-the-downside-%e2%80%93-building-a-family-bank/?token=25916253a177ac524b856c22d45fded1

TL; DR

Peter Harper: So, folks, once again, welcome to the Three Pillars Podcast. Today I want to cover the folks that have a material excess and wish to do things to help their family. This can be as little as paying for education or as meaningful as funding business endeavors or the purpose of the home. How then should first gen families approach asset protection when it comes to distributing capital among their family?

Peter Harper: I’m always focused on downside protection. What do we need to do in this scenario to ensure my client has the same or more capital than they had yesterday? How do we protect, protect against marital misadventure or children? Today, I want to talk about the idea of a family bank and how capital should be deployed around a family group to ensure that the loans that are left to the family are protected from outside creditors. I’m joined today by Mike Abel, who is my partner in us, sit up, and he regularly advises foreign families on US structure and protection issues. Welcome, Mike.

Mike Abel: Thank you, Peter. I’m glad to be here.

Peter Harper: So, Mike, can you please tell the listeners what asset protection is why it’s so important in the US?

Mike Abel: Yeah, especially in the US, as you know, we are one of the most litigious countries out there. And I always tell people that they jumped the gun a lot of time ago to estate planning for asset protection, because to be blunt, if you don’t protect your assets, you’re never going to have an estate to worry about. So when we look to protect assets in America, we do a lot of different things. You have to look at the types of assets that they have now. And I was talking earlier about how is the asset that you’re looking to protect an active asset or is it a passive asset? And what the difference is between those so you can get to know how to identify them. An active asset, I always think of is nothing to do with taxation, but that it creates risk. It can create a judgment. Think about your rental unit. I always tell everybody, if you have a rental unit or you have different rental units, you’re crazy if you own them in your own name. Then you look at other ones – Cars for example. These types of assets create liability in themselves. So with those, we need to make sure they’re all in an LLC, etc. Then we have passive assets and that’s something we’re going to use a lot with family banks. A passive asset – think of it as cash – cash equivalent, stock, mutual funds. You know, we’ve never had a mutual fund in a car accident, as far as I know. So it can’t create a liability. And we need to make sure that all of these assets are segregated. You’ll never mix an active asset with a passive asset. And we make sure that each active assets basically in a separate LLC. So these are some of the things that we do in the US when we’re looking at protecting assets. And we can go ahead and get into more with putting in holding companies and stuff like that. And if you want, I can go on to explain a little bit of why we use an LLC over a corporation.

Peter Harper: Well, I mean, I think the thing that’s kind of important baseline to understand is – I like that you talked about segregated assets and active vs. passive. That’s one thing I think that folks need to understand is generally practically what happens if there’s some form of liability. So something happens with a tort or something contractually. Right. with respect to an active asset where there is real risk. So someone sues you, they get a default judgment or they get there successfully getting a judgment against – whether it’s you personally or the entity that that liability sits with and then they are able to look to enforce that judgment against you personally or the entity that relates to. The reason why I’m asking about segregation is because if someone is actually successful with a client, right. Then they can only enforce that against the assets that are owned by that same entity.

Peter Harper: So in the perfect world, you would have every single asset you own sitting in its own entity. Right, so that the risk is only limited to the asset that you own. But depending on the value of entities, it can get quite expensive for people. So a bare minimum, right, as you’ve talked about, you should be segregating assets and saying, OK, active assets where there’s a lot of risk sitting in one bucket, definitely not in my own name. Passive assets sitting in another bucket, again, definitely not in my own name.

Mike Abel: Exactly. And that’s what we always structure when we’re looking at asset protection to make sure. You never mix an active asset with any type of passive asset because you’re put them all at risk if you do and you have a risk of losing everything.

Peter Harper: Now, that’s great, I mean, I think this leads into this great topic. For a lot of entrepreneurs that are going through this process of selling a business and realizing a significant amount of capital, I know from firsthand experience that they are thinking of ways in which they can sprinkle or deploy capital around the family. It’s largely for personal use reasons, but maybe to fund them into other businesses or ventures and we’ve had a bit of experience with forming and managing family banks for high net worth and ultra high net worth families. Mike, can you please give the listeners a bit of an overview of this concept? What does it mean by a family bank? Is it licensed? Is it lending to people outside the family or within the family only?

Mike Abel: Yeah, sure, no problem when we set up family banks for individuals or couples or whatever for their family use, we go ahead and use the LLC or could be owned by their trust or irrevocable trust in anyways. We have the family bank set up. It’s a non licensed entity and we don’t use force. We put capital in it and then within it’s business purpose. It states that it is to be used only to make loans to family members – blood family members. You can spell out how you want to define that. And then by doing so, the owner of the bank, you, can go ahead and assist their children or grandchildren, brothers, sisters, whoever it might be in the family in bettering their own life, so that we don’t need to go to a bank and they have to worry about all the banking processes, etc. The family bank can go ahead and decide that, yes, I want to give my granddaughter two hundred fifty thousand to help start her business.

Mike Abel: And the beautiful thing is by using your own family bank, we can preserve capital. And what I mean by that is when we operated the family back, we make loans to our family members. Those loans are secured just as if we were a bank. If they borrowed real estate, we secured against a real estate mortgage deed of trust. If it’s any type of chattel we use UCC filed, we create liens just as if we’re a bank. And by doing so, we are protecting the money that we give them from their creditors. So if something would occur in their life, that would go ahead and cause in the event of duress for them that they were going to lose money, we as a friendly creditor, can come in and take over the assets. We can foreclose, we can preserve our capital that can then be redeployed to anyone else in the family, them or another family member. So it’s a real nice concept. If family members want to help other family members succeed in life, give them a leg up. Use your wisdom and experience along with some of your money to give them a shot to hopefully and eventually start their own family bank or even become a partner in yours.

Peter Harper: You know, I love it as a concept. I mean, I think that know, particularly in the area where various family members stop to get married. I mean, the thing is, when you starting to talk about children and inherited money versus folks that may not have come from the same same background and you want to ensure that not only your own capital is protected, but that of your your is putting them in a position where you know that they can they can have you know, they can have assets such as a first home and or second home you provided by the family without putting that at risk if they were to get married. I think it is a is a major asset.

Peter Harper: And Mike, you know, when we were touching on this before, one of the things is, you know, we were talking about the ability to charge interest vs. not charge interest. I wanna do two things I want to tie this back to the conversation we’ve just been having when we talk about structural options and the benefits of charging interest. But I also want to talk about why debt, when it comes to asset protection, why debt is superior.

Mike Abel: Yeah, debts are superior to equity, because you’re first in line to get paid, if I loan you to purchase real estate and you’re going to buy an LLC and build an apartment complex. If I say give me equity and I’m sitting there with equity and all of a sudden somebody gets hurt in the apartment complex or they find lead poisoning or whatever it might be and the apartment complex gets sued, my investment is at risk. Everything that I put into it is gone if they get a judgment. However, if I use debt, then my liens get paid back prior to any other claimant. That’s because my money would be the purchase money mortgage or else it would be invested prior to the event that caused the liability occurred. So by sheer priority, I get paid back. And if you work it out like I do with one gentleman that loans a lot of money, just family members, we have all sorts of default interest rates and everything worked in with the obligatory instruments. So that is any event of duress occurs within his kids, his interest rate goes up from four percent to twenty four percent as a way to try to claw back more money within to the family bank. So it’s an ingenious play.

Peter Harper: Yeah. And in those top provisions, I think when people are listening, hearing this for the first time, go, How did the mechanics of that work? I mean, that’s no different from from when you think about a default rate with the bank. I mean, if your credit rating is going from good to bad. Right. Or you’re late paying, it’s no different to how a credit card company might treat you or how a bank might treat you. Right. If you’ve got some form of variable rate or or, you know, any of these forms of default just trigger the provision which has to be repaid immediately. So, you know, I think I think when folks get their head around the concept and how valuable this can be to a broader family, the way I like to think about it, it’s like you’re putting this sort of shield, this shielded umbrella out over all of your family and they’re out there operating in the world.

Peter Harper: You may not be seeing what they’re doing, but you’ve put in place this mechanism that to the extent they get themselves in any form of trouble, whether it’s through, as I said before, to some form of tort or to some form of negligence and claim resulting in an economic claim or its contract, some form of contract dispute resulting in an economic climate, there’s an ability for the capital to be protected. And one of the things that we always like to focus on within our business, we talk about downside protection all the time, all the time. How do we ensure our clients have more tomorrow than they had today? And I think as substantial capital, who is not focused on the dispersement and management of their capital within their family unit in this way, is missing a massive opportunity.

Peter Harper: And I think that the another point that I’d sort of just put on this is that I think often is overlooked, a lot of people out there with go, oh, why would I worry about any of this stuff? I’ve got insurance.

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Peter Harper: Insurance policy are written to not be paid. Right. I mean, if I thought of the insurer, I’m trying to do whatever I can to scale down. The ability for someone to actually call on the payment of the policy in, you know, if clients actually spent the time and energy to actually look through their policies, I mean, it might give them some form of comfort. Right. But the majority of policies out there aren’t worth the paper they’re written on.

Mike Abel: Well, I’ll give you a I’ll give you a prime example of one of my clients when I was in Ohio. They owned an up down duplex, you know, you walk up the first floor, one room, you walk up steps onto a landing, second duplex or unit is up there. Well, he had it rented – luckily we have it into an LLC, its own LLC and everything – but they had a Christmas party at the up unit. And during the Christmas party, a bunch of them went outside to smoke and one of the guys leaned against the railing. They left, the railing broke, and he’s a paraplegic. They, of course, sued my guy who had an LLC. We thought he had insurance, too, except for they went to the tenant and started asking him about the accident. And the tenant informed the insurance company that “I told that landlord months ago about that loose railing and he never fixed it”. The mere fact that the landlord did not fix it negated all his insurance coverage. They refused to pay because under the policy, if you have a known defect that you do not fix within a reasonable time, that defect becomes an exclusion. If we didn’t have his property into an LLC and it was in his personal name, he would lost everything. So insurance companies number one job is to not pay claims. So I used to work at one. I know the title insurance. That was the first thing we did is not pay claims.

Peter Harper: Sure, sure. I mean, that’s the one big thing. You know, it’s funny. Like whenever anyone comes to me, you know, we talk about asset protection and it seems like we were either overengineering the entities, you know how much because it’s going to cost and what’s the ongoing compliance. And I say OK, work out that number, let’s look at your insurance costs and then let’s compare – let’s actually look at the risk we’re quantifying. And we know, right, provided you’re complying with your performance, you’ve actually got a proper insurance policy around that to compare the two. And, you know, I can tell you every day of the week that that is going to result in a better outcome than than the money that he’s spending on insurance. I’m not saying, folks, don’t get insurance. I mean, you should have everyone should have insurance. But believing that insurance is going to solve your problems solely is is crazy.

Mike Abel: Right. And I tell people to, as I say, always get your insurance, get your umbrella policy. However, don’t count on them. Let’s set it up that if something happens, you’re going to be safe.

Mike Abel: One thing I to bring about your family bank to that is important with any asset protection, because I was just thinking about it because of being like you one time in California and stuff, you have to look to the state where you want to form the family bank and hopefully have some roots there.

Mike Abel: And the reason why I say that is every state in America has different laws concerning with piercing of corporate veils and stuff like that. And I always advise people, especially if they’re out of the country and they don’t really live here. We pick a state such as Ohio, Arizona, Wyoming, Florida that has great L.L.C. laws that you can’t pierce them or anything rather than putting something in California that can be pierced. And where that would come into play is say, I started my family bank and I have ten million dollars that I’m loaning to my kids and I go out and get to a horrific car accident. If I live in California, they sue me, they get a judgment they can actually go into and pierce my assets and take my money out of my LLC. If I lived in Ohio or Arizona, they could not do that. So it’s all depends on where you live and where your LLCs are at

Peter Harper: But what about if I live in California and they set up in Ohio?

Mike Abel: We have to look at where the incident occurred and if it still occurred in California, then a lot of times California courts will determine that we don’t care about Ohio law. We’re going to use our law. However, if we did proper layering with different policies and maybe I have the family bank its own out of out of Arizona, it’s own to Ohio and it’s back to California, that extra layers and that being protected. What it does is it makes a settlement very, very more attractive to creditors.

Mike Abel: What if a creditor comes after you or your attorney? What we are looking at is what can we put in our pocket? And we look at the expenditure of time and effort it’s going to take to put it in our pocket. And when we see somebody that going to take millions of dollars just to try to get that service in the state or to bring them under our corporate umbrella, then to pierce viels, everything. Suddenly a judgment of five hundred thousand dollars becomes worth one hundred and twenty five thousand dollars because we’re not going to spend the time to go after it. And that’s why I would tell a lot of people that that’s what a proper asset protection plan does is. It puts a big deterrent out there to say, do you really want to go after my asset? And so many times people don’t. We used to make a joke of it back when I did do litigation in Ohio that when somebody came in and talked to us, the first thing we did is search for assets to the person we’re going to sue. And then if we find that it’s a complicated plan or everything, we refer them to an attorney that we do not like. So they waste their time. So it’s just that’s one of the reasons why we do all this.

Peter Harper: But the great thing about this discussion is that it also highlights the value of using, you know, using non US locations as capital. Well, provided they’re sort of tax neutral. Right. I mean, this level of protection, if you want to talk about someone getting a judgment and enforcing it, ratchets up to an even higher level. If you’re storing cash or assets in foreign jurisdictions that have a lot of protection rules as well.

Peter Harper: Yeah. So some Mike, They say nothing’s more certain than death and taxes to the law. Well, I should say death, taxes and divorce and so the last topic I wanted to talk about is how that folks should be thinking about this concept of the family bank when it comes to a family member who’s going through a divorce. You know what happens to the asset and what’s the value of having this type of security in place of somebody that’s happened.

Mike Abel: Yeah, let’s assume that they didn’t do any preplanning when it started, so it’s either considered under the state law, community property or joint property. Well, the spouse is going to be awarded part of that or else they’ll get awarded a comparable amount in some other asset. However, if we have that loan on there, then at least the money that you gave your child or your family member is not going to go to their soon to be ex-spouse. So we can go ahead and preserve that and make sure that it stays separate property.

Mike Abel: I do know on some of these loans that we’ve made, our lender has required the spouse, no matter how long they’ve been married, to sign off on the property, especially on community property jurisdictions, to make its own separate property of their direct family members. That way, if something did occur like that, it stays that family member’s property. So all depends on the structure you do up front that you do have to guard against that, because like I say with my wife, I tell her all the time something happens between us and she can have everything. I don’t care, but she better never, if she gets remarried, give that person a dime because I didn’t work this hard for that. So you can do some of that with a family bank and it makes it good.

Peter Harper: I mean, that’s the thing that I think about. I mean, there’s a lot of information out there about prenups. You know, they’re more common in America than they are in a lot of other jurisdictions that they’re gaining – yeah, they were gaining popularity in outside, you know, in certain other countries. But there’s hotter issues as far as, you know, enforcement.

Peter Harper: But I think that when you talk about intergenerational wealth, when you’re talking about a situation where you’ve established your bank, you put capital in it, you’ve lent that to family members, to children, if that is managed correctly, to me, that’s far more powerful than a prenup, right. Because it’s clearly established that it’s a family asset. And there’s big security over the asset. Right. So if something happens, I mean, prenups have their place. And it’s obviously when if you got children that are inheriting, you know, substantial wealth, they should still be going through and putting that in place. But I think the combination of the two is a really powerful tool.

Mike Abel: There’s an additional thing that you can do that we use in some transactions dealing with to protect against this when we use debt instruments or even if, say, like you said earlier, about getting equity in the property, you know, the difference in debt and equity, we will do our obligation document will be a note with what’s called an equity kicker. What that says is that, hey, this is the note. You owe me everything back on a note, but a due on sale clause, anything triggers in there that requires you to pay it back. You also owe me as an additional to what we gave you, a percentage of the growth of the company that you have. So we get part of the equity back. So you can even use that to say that one spouse is not really too happy with signing off anything, then just put an equity kicker in there to at least the family bank can save your family, your child or grandchild, an additional 25 to 50 percent interest in the equity in the property. So you retain wealth that way. Sounds like a dirty trick on the other side, but I drafted it for families.

Peter Harper: Now, listen, I think the thing is that what we’re talking about is capital that’s being created by our generation and it’s looking to be provided to the next generation for their benefit. And the family members benefit while those people are in the family if they’re if they play the gigs up and that’s the rule or the purpose of the bank. I mean, how much experience do you have with prenups and what I mean, how important are they?

Mike Abel: They’re very important. We’re a little bit hybrid here in Arizona where a resident now we do pre and postnups. And as long as you go ahead and you’re there up front, you provide them with a detailed list of your assets and everybody goes in wide open, eyes wide open. They generally hold up. Other jurisdictions, they’re not as you know, the courts don’t like them as much. They’ll give reasons for allowing one spouse out of it or not if they deem it to be too harsh or the time frames everything. So it’s very state-specific. In Arizona, I can say they work a lot better than they do for the state compared to California, for example.

Peter Harper: Let’s say you do the prenup in a state like Arizona where it’s more preferable than in California. Right. So you married in Arizona, but then you go to California. Is California still going to overlay California’s rules over everything that they’re going to say? Well, no, this was done in Arizona. Therefore, you can rely on Arizona law.

Mike Abel: Well, I wish I could say one hundred percent, because they should as a choice of law, because we put choice of law provisions within the agreement, we apply Arizona law. But I’ve seen California courts go do whatever they want. You know, we are you know, I always joke that, you know, we in Arizona are the independent country of Arizona. California is the same way. They’re the independent country of California.

Peter Harper: I think California is on the fringe of everything. They do what they want and when it comes to law and the reason why I think when it comes to asset protection, specifically we talked earlier about US being a litigious country, California is probably the origin of most of the scary stories that foreign families have heard about, right, because it’s it has a tendency to not necessarily always accept the terms of the contract and overrule it on the basic principles of equity or other forms of statute. Right.

Peter Harper: Whenever I’m talking to folks about asset protection, you know, I always start the dollar where I’m looking at this and say, you know, because this is the big thing with asset protection is that: You have to be willing to go through a process and let the client run its course, right? So someone goes in to get they get a judgment, right. Look to enforce it. And then there’s a question of the location where the assets, can we enforce it. Right. And as you talked about, it’s part strategic, part practical, part law. Right. It’s the combination of these three things. And at the end of the day, you’ve got to look at what is what I think what is it about an asset protection strategy that’s driving it? I mean, what is your objective for me? And this is the way we always like to talk to our clients. It’s about capital protection for your family, insuring your more capital tomorrow than you had today. And if you’re that focused, then asset protection is going to be all part of any wealth planning strategy. Right. And it’s like, okay, well, what are the different layers of protection that, you know, that that you’ve got? And it’s either going to be regional. So you’re looking at regional options or opportunities within the US or you’re saying, OK, we want to make this a belt and braces approach, that we’re going to stick this up and move this to another country

Mike Abel: That’s all dependent on your wealth, what your wealth is.

Peter Harper: Correct. It’s got to be material. I mean, this stuff and these structures and information and stuff can get expensive. So you’ve got to be able to justify, right But it’s as I said at the start of this, is like, you know, what would it cost to insure your risk Assuming you could go and get insurance to cover the risk that you have. Right. What would that cost? So if you can do that, back to the napkin math and say ok, the cost of this structuring is less expensive. More of the same costs is what an insurance would cost if I could cover it, then I think you’re ahead of the game.

Mike Abel: Absolutely. Way ahead of the game, and I always tell them also what would be the cost of a loss. So what are you comfortable losing? Because One, you lose one of your properties you can live with, you lose 10. You can’t.

Peter Harper: Yeah.

Mike Abel: So you have to look at compared to your asset, what percentage of them are you willing to give up to ensure that you’re going to keep the remainder? If I could go ahead and say I’ll give you five percent of my net worth today, Peter, to guarantee that I’m going to have 95 percent of it and all the growth it does over the next 20 years. I’d write you a check.

Peter Harper: You know, it’s it’s fantastic. Well, Mike, it’s been a great, great session, I really enjoyed it.

Peter Harper: I think it’s an area that a lot of folks can overlook until it’s too late. Right. Because they like all that stuff is never going to happen to me. But I know the big thing I would leave with everyone is I would go I would look at all your assets and quantify your risk, the risk that exists in your life today. Right And then say, okay, this these are three questions.

Peter Harper: What assets to I own? And then what risk is associated with that assets?

Peter Harper: Can I get insurance? Do I have insurance?

Peter Harper: And then thirdly, is the insurance sufficient, legally sufficient, the way it’s been drafted. Right. To cover any perceived risk.

Peter Harper: And if you can’t get to a comfortable answer when you’re really trying to address those three questions or areas, then you really need to spend the time and money to focus on a proper strategy.

Peter Harper: OK, Mike, thanks again for dailing in and I look forward to catch up with you next time.

Mike Abel: All right, thanks, Peter. Talk to you later.

In the second installment of Asena Advisors’ new podcast, our Managing Director and CEO: Peter Harper discusses with a special guest the value of a family office and wealth education in taking accountability.

Peter and special guest Thor Conklin, discuss how accountability, goal setting, and education can perpetuate a successful family office when combined with data.

To watch or listen to the full podcast, click the link below or just press play:

https://asenaadvisors.podbean.com

TL;DR

Peter Harper: [00:00:33] So welcome, everyone.

Peter Harper: [00:00:39] We’re here for the next installment of Three Pillars podcast where we are focusing on items that I view as critical success factors, pillars to a successful family office, and one of the topics – last week we talked about the legacy and the impact that it has to the values of a family and purpose of a family – Today, I wanted to focus on accountability and how a strong value system, measured and connected with a strong system of accountability, can make family strive.

Peter Harper: [00:01:30] So I’m joined today by my partner in Asena Consulting: Thor Conklin, and Thor has been assisting entrepreneurs with accountability for over 20 years, and I’ve used Thor to help myself with various aspects within my business when it came to accountability and I found the way he thinks is super impactful. So I’m excited to have you here with me today. Thanks for joining Thor.

Thor Conklin: [00:01:58] Well, hey, thanks for having me.

Peter Harper: [00:02:01] So, buddy, would you mind just giving everyone a bit of background about yourself and how you came to do what you do?

Thor Conklin: [00:02:07] Yeah, so in the early part of my career, I was in New York working with private equity firms, helping them with their deal transactions, entering and exiting and the risk management of those programs and those portfolio companies. And then I turned in to become an entrepreneur about twenty one years ago and about five years ago, really drove into the coaching and the accountability piece. Because what I found, Peter, was on the surface, so many entrepreneurs seemed to have everything all together. It looked great and shiny on the outside. And you lift up the hood and you very quickly started to uncover some things that were going to bring the house down or potentially bring the house down. And all they needed to do was to make some shifts. And if they were able to make these shifts, they were able to shore up that foundation. So I wanted not only to have entrepreneurs that look good on the outside, but also work well on the inside.

Peter Harper: [00:03:02] And that’s awesome. And actually, one big thing that you focus on is profitability. How do you think that notion of profitability really delve back to accountability and to determine if we’re going to successful sort of family dynamics?

Thor Conklin: [00:03:22] Well, yeah. You know, it goes back to everyone seems to like this shiny exterior. And when you get around some friends at the country club, you start talking. How’s business going? What’s everyone talking about? Oh, we had 10 percent top line growth this year; yeah we’re expected to close this big deal. Very rarely is the discussion about the profitability. But at the end of the day, that’s really what it’s all about. What sort of profits can you bring to the bottom line? Because there’s only one reason why a business goes out of business, and that’s because of lack of cash, lack of cash as a result of poor profitability. And what really drove me into this area, Peter, was after several successful exits of other businesses, I found myself – I purchased the manufacturing company – and found myself deep in the mire of a business that it was very difficult. It was kind of like a roller coaster. And at the end of the day, we just weren’t able to produce the profits that we were able to. And through that lesson, that painful lesson, I realized that there were so many other entrepreneurs out there that were having difficulty figuring out how to, quite frankly, make a sizeable profit. And it’s something that I wanted to change.

Peter Harper: [00:04:39] And it’s actually it’s interesting, you know, when we first connected and we started to talk about this in a lot of depth, we’ve both been members of EO. The thing that kind of intrigued me about that organization was a lot of folks in there are obsessed with this idea of this big exit without spending the time and effort to really plan on one of the fundamental economic changes when it makes my business and my lifestyle to make that happen. And the thing I always love to talk about is, is that an exit is just an acceleration of cash flow. Right. If you take away cash flow from this side and you’ve got to preserve it on the other side, then that doesn’t necessarily seem very exciting to me and that’s actually what drove me into this idea of helping families with family office planning is one: making them really pull back and understand decisions that have been made historically around that were sort of, that were driving economic outcomes and really being focused on what their actual needs are.

Peter Harper: [00:05:54] And I think that’s one thing that that you do will when you bring back the accountability, it’s like, okay, what’s this all about? Why we why are we doing this? And I think we’ve talked about this a lot: Is the impact of accountability to the family unit. Regardless of the best-slated plans, if everyone doesn’t buy into buying what the family stands for, whether it’s financially motivated or not, and I do not hold each other accountable to those decisions, then you find yourself where you’ve got folks that are at cross purposes. And I mean, I imagine at a very simple level, people don’t ever seem to have don’t seem to have these issues when they’re talking about holding people accountable with their own business. But when it gets to the family dynamic, that that can that can change dramatically. Would you mind just sharing your thoughts and stories around seeing that kind of play out?

Thor Conklin: [00:07:10] Yeah, you know, one of the misconceptions I think a lot is, is that accountability is for those that haven’t made it yet. You know, you look at Fortune 500 CEOs, what do they have? They have accountability with their chairman. You take the best in sports. Michael Jordan, he had accountability to his other teammates and he had accountability with his coaches. They’re always having someone advisors around them that are holding them to the highest standard. You know, very few of us. Don’t know what to do, not what to do. We all know what to do, but we don’t do what we already know. Why is that? What does that change? Why aren’t we doing those things that we know we should be doing? Yeah, look, good health. It’s pretty easy, right? Great diet, exercise, we don’t need another diet book or an exercise book, but we need someone that’s going to hold us accountable and drive us towards those ultimate visions and those goals that we set for ourselves. And what I find is – it’s come up. I’m blessed to deal with and work with clients that have networks from ten to a quarter billion dollars. And what’s interesting is, is that very few of them have a plan of what they’re doing, why they’re doing what they’re doing, and very few are involving their family and their spouses and their kids. And I just had a client that I onboarded this morning, a matter of fact, that is basically inherited – his dad passed away – and inherited a very prominent Atlanta family business that’s been going on for one hundred years. And he found himself just kind of thrown into this position. It’s like here you have to now run this. And he’s like, I didn’t really dad never talk to me about running the business. I wasn’t involved in the business. Now he’s hiring me to help him become a business leader because there was no mentoring, there was no plan, there was no handoff. The death was not – there was a sickness and illness – so it wasn’t like a sudden event.

Thor Conklin: [00:09:23] But families that have substantial wealth need to have a plan. There needs to be a succession of, OK, why are you building this wealth, managing that wealth, and then advising and bringing the entire family in on the process?

Peter Harper: [00:09:43] Yeah, that’s a great story. On the last podcast, we had a gentleman Rick Harig, and he’s a legacy strategist and he talks about this concept of this arc – this story arc of an entrepreneur. Right. And so the challenge that he says a lot of children have with their parents is that they don’t buy in and understand the story arc.

Peter Harper: [00:10:18] And the reason for that is that a lot of parents are very bad at telling the really painful stories right now. In fact, it’s through the pain, if it’s through sharing the painful stories with the children that they can get to understand the challenges, that they start to feel empathy and maybe that they’re some common cause that they can get motivated around. I mean, that’s great.

Peter Harper: [00:10:40] I mean, one of the things that we’ve talked about and this is the cornerstone, I think, of what we’re we’re trying to collaborate with on together, is that when it comes to folks that are sitting in the ultra wealth category, it’s this notion of, well, I’ve got enough money to weather the storm and maybe I don’t care about the buying them on children because it’s just I’m going to live forever. That’s not something that’s front of mind or the buying of my spouse.

Peter Harper: [00:11:18] And so, you know, as you’ve talked about just now with this story, there’s a situation where they get to the latter part of their life and they’re trying to retrofit purpose in a very short period of time. Right. And I think the thing that we talk about that’s very impactful is that if you if the family builds a robust governance framework, they get each other to engage whether it’s through storytelling or shared experiences with the shared vision and then can build accountability frameworks around this. And this is like a business. This is a journey we’re trying to go on and this is the direction we’re hoping to go in, what success means to the family, then people a lot more willing to be accountable to that. I mean, is that your experience?

Thor Conklin: [00:12:17] Yeah, look, wealth building, wealth preservation, you know, think about it. Let’s look at it as a company. Let’s look at the family unit as a company, could you imagine running the company as the CEO or chairman and not involving anyone else in the organization about how things are done, where things are? I can’t tell you the number of clients that literally don’t know where everything is. It’s spread out all over the place. The client uncovered ten million dollars. He’s like, “I think I’ve got 10 million in a bank in London. Yeah, I think I’ve almost forgot about that account”. Like, it might be good to know where all your stuff is, the data is all over the place and you’ve got it in my mind.

Thor Conklin: [00:13:08] If you’re running a successful organization and a family is nothing more than an organization, what do you do with your organization? You bring people in. Your family is obviously already in, but you advise them: This is how we do business. This is what we stand for. This is where we’re going. This is our mission. These are the assets that we have. This is how we do what we do. And when it comes to the family unit, so often it’s the matriarch of that family that doesn’t share with the rest. And a big concern with a lot of clients is: “I’m going to be leaving my kids an awful lot of money. I don’t know who they’re going to be and what they’re going to do and are they prepared to be in that position to get this windfall? And who are they going to turn out to as individuals? How is this going to affect their lives? How is this going to affect the lives of my grandkids?”. These things need to be discussed, there needs to be a plan now.

Peter Harper: [00:14:07] I mean, it’s a really, really interesting point. I mean, I was having this exact discussion with a group of entrepreneurs about four to six weeks back, and we’re stepping to reach these things. We were talking about, you know, we were actually talking about the psychology of wealth. And, you know, some of the folks there were very motivated by money outwardly. And then others who had been in family environments where people were outwardly motivated by money were adversely impacted by that experience with like no money. They had this motivation to be more philanthropic in their their nature. I mean, I think the biggest thing that I think that’s consistently overlooked is that: You may not want to think that they are having an impact on the financial decisions of their children because they’re not discussing money, they absolutely are molding their children in a way. It might be – it might be by accident,

Thor Conklin: [00:15:15] Most times it is

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Peter Harper: [00:15:15] Yes, most times it is by accident. So, you know, that’s a big, big thing. It’s like everyone who has this big fear that the kid’s going to blow the money. It’s probably a pretty good chance they are going to blow the money because those people have not invested the time in being intentional in the way in which they should educate the kids and how they should be carrying on the legacy for the next generation.

Thor Conklin: [00:15:39] Yeah, and what most people don’t understand that they don’t have considerable wealth is that things don’t get easier as you get wealthier. Yes, you have more means, but there’s a lot more responsibility and burden that that comes with that. And one of the biggest issues that I have with my wealthiest client is they spend nothing. It’s almost that. Going back to the mindset, what is your mindset around money? What is it? What’s it used for? What’s the mindset? How is it established? What do you think about spending money? I got a client that is worth hundreds of millions that will never, has never – I don’t know never – but will not fly business because his whole mindset is, well, if the coach ticket to Europe is a thousand and the business class ticket is six thousand, that’s a five thousand dollar swing. Five thousand dollars invested for the next ten years at a 12 percent IRR is going to produce ____. I can’t do that.

Thor Conklin: [00:16:47] So they’ve lived their entire life. Their mindset around money has created the wealth. But now that they have it, it’s continuing and they’re miserable because they’re caught in this scarcity model. They have more than enough, and in this particular case, they spend three percent of their annual income, which is fine. So my next question to this individual was: “Why are you doing this? Are you trying to build up as much wealth as possible so you can give it to your kids? Fine. You want to give it away?” No answer. Not a clue, not a clue, but it was things that he picked up in his childhood, the things that he saw from his parents, he adopted their blueprint and it worked very successfully.

Thor Conklin: [00:17:42] But there comes a time in life where you might want to pull out the blueprint, Apple, Apple phone, right, great product. They all update their software generally 12 to 13 times a year. Why? Because the old model, the old blueprint was great for then, but now it needs to be updated. And most people haven’t looked at their financial blueprint and people that really should be living amazing, happy, successful, fulfilled lives, almost see wealth as a burden sometimes.

Peter Harper: [00:18:18] It’s really fascinating because this was actually another topic that came up recently where we had another colleague of mine and we were talking about purpose-driven minds. And I think a lot of a challenge for folks – everyone in the mine has an idea of what success looks like, and most of the time when folks get there, it’s what’s next for them. And so for people that adapt to this. Bill Gates, a great example of this. Right. He’s like “Okay. In order to still be driven by purpose, you need to find something that’s not attainable. So I’m going to get everyone who’s wealthy to give their money away.” I’m like, that’s a huge bag. Might not be able to achieve it, but he’s got a purpose – he’s got real purpose around that.

Peter Harper: [00:19:09] Where folks don’t make that next leap, right, They tend to look inward and tend to put their arms around their money and become quite protectionist in the way they live their lives. Because in many cases., they’ve hit their objective, they’ve hit their purpose, but they haven’t been able to reshape what their next steps look like.

Thor Conklin: [00:19:32] They live in fear.

Peter Harper: [00:19:33] Yeah, and, you know, I think I think the biggest thing I want folks to sort of take away from today is to say: “okay, it is wise to accept that everyone has some predetermined psychology that’s probably being developed in their childhood around money, right, and around accountability associated with it. That if you have children, there’s probably a pretty good chance that your children are going to have some – maybe carry some of the same issues you have if you don’t address it. And then, you know, financial habits for children will exist, whether you’re intentional about it or whether you do it by way of accident, right.”

Peter Harper: [00:20:31] So, again, the thing that when we first – when I first met you, we started doing the thing that was super impactful in the way in which you sort of drive accountability is, one, understanding the baseline for your existing blueprint: is it working or is the broken and then what does accountability have to look like for yourself in the broader family?

Thor Conklin: [00:20:58] Yeah.

Peter Harper: [00:21:00] So, Thor, the final sort of thing, I wanted to step through, question for you.

Peter Harper: [00:21:16] What are the three things, for folks that don’t have their accountability locked down and whether it’s fiscal accountability or some other part of their life that they’re not happy with, what would be the three things that you would suggest that they should focus on?

Thor Conklin: [00:21:32] Number one is you got to understand your approach to money. What is it? What has it been? What is it now and what does it need to be in order to achieve the vision that you have set and if you don’t have a vision? Well, we’ve got to start there. Where are you going? Where are you now? Where you’re going? What’s been your mindset for the money and what does it need to be? Does it need to change? Sometimes it doesn’t have to change. I’m always after – I believe success is happiness and fulfillment and wealth is a piece of it. But it’s a piece. And if you have the wealth piece but you don’t have the happiness and fulfillment piece, something needs to shift.

Thor Conklin: [00:22:11] Next is you’ve got to really understand the numbers. You’ve got to understand the data. You need to have a system where everything is captured in one place and you’re looking at this at a minimum of once a month. Once a month, you’ve got to be looking at everything, where are things, where are they going? What has been the performance? You’ve got a track and you’ve got to measure. And then based on that track and the measuring, you can start to make the adjustments. Most people don’t know what to do and what changes to make because they don’t understand the data.

Thor Conklin: [00:22:46] A client, a matter of fact, saying on Thursday, is he thought he was going broke. I was like, all right, well, let’s go through the numbers. So we did a best-case scenario, a normal case, and a worst-case. I said here’s basically what has to happen for you to go broke: You’re going to have to quadruple your spending; The housing market is going to have to go down by seventy five percent and remain there; Commercial assets have to go down at least seventy-five percent and remain there for the next 20 years; You’re going to have to make some bad investments; You’re probably going to lose all of your capital in a couple investments. And even when you’re done with all of that, you’re still not going to go broke. So. I’m not quite frankly, I don’t know how to make you go broke, if you wanted to go, but if your goal was: how do I end up losing all my money? I don’t know how to get you there. But he couldn’t sleep. He’s like, the world is ending and I’m going to go broke. It’s like – I can’t see it. I can’t come up with a scenario.

Thor Conklin: [00:23:51] And then finally is, and we talked about this earlier, is you’ve got to involve a family. Approach this as a family. What’s been interesting in the last probably 18 months, I’ve gotten engaged more than I would have thought to work with family members, work with college students, work with kids that are going getting ready to go to college. Because so often our educational system doesn’t train these kids, young adults, for the next phase of their life, who’s teaching them? Who is teaching them money management? They can’t even balance a checkbook.

Thor Conklin: [00:24:30] I said that to somebody recently. It was a millennial that is a very successful millennial. And she’s like, “I’ve never balance a checkbook”. She’s worth probably 20 million dollars. And she goes, “I did one”. And she’s trying to come up with a course to teach grammar school, middle school, high school and college students life skills and part of those life skills is financial management because they don’t get it and they’re not getting it’s not part of the school curriculum. So if you’re not getting in school, they’ve got to get it somewhere. And like you said before, they’re seeing what you’re doing as the leader of a family and they’re going to emulate that style, whatever that is. And it’s not what you say, it’s what you do.

Peter Harper: [00:25:20] Yeah, that’s fantastic. That’s great advice. And I couldn’t agree more with you. It’s all about data and getting what you measure mean. And you know, I think, when families who are intentional and focus on strong education for their children – teach them fiscal and life skills rather than saying, “Hey, this is a something that they have to worry about when they’re adults or whenever adulthood is these days”. I think those guys are the families that thrive. And win. 

Peter Harper: [00:25:55] And so Thor, thank you very, very much for joining us. It’s been an absolute pleasure to have you on, as always. I really enjoyed discussing this topic with you and looking forward to see you next time.

Thor Conklin: [00:26:08] Peter, I really appreciate it. As you can tell, I’m really passionate about this. It is such an important topic. And I just wish that more people would pay attention to it because it sets the direction for their kids. And as far as a parent, I think that’s so important.

Thor Conklin: [00:26:30] I tell a quick story and will sign off here. When my daughter was a senior in high school, she wanted to buy a car. And I said, well, I’m not the kind of dad that just buys cars and gives them to kids. I said, you can work for she goes, “Well, I’m in school. I’m supposed to be working doing that”. I said, “Fine, I’m going to hire you and I want you to do a P&L and a balance sheet every month, and I’ll pay you a salary to prevent that from her babysitting and all of the other jobs”. She hated it. She despised. And I said, “If you’re more than five days late, you don’t get your salary for the month before. And then if you don’t pay the car note, then the car gets repossessed”. And I actually even charged her 10 percent. My wife hated that idea. I’m like, “Look, this is real life, right? You know, banks don’t loan even money for no credit.” So now they almost loan it to you for nothing.

Thor Conklin: [00:27:21] But I’m like, I want to teach my kids life lessons. And she hated it. Even my wife hated that I was doing this. But she came to me – she was probably about twenty-three, twenty four. And she said “Dad, that was the best lesson ever” because she realized that she was spending too much money on Starbucks and she’s like, “you know, in the course of a year I spent seven hundred dollars on Starbucks, I could have taken that and I could have gone on vacation, I could have done something else with it.”

Thor Conklin: [00:27:50] So it wasn’t about her spending the money, it was about the realization of where it was going. And she started to understand. How many kids are senior in high school, and understand what a P&L and balance sheet are? Not many.

Peter Harper: [00:28:03] That’s fantastic. Really, really great stories, Thor. Thanks for being on.

Thor Conklin: [00:28:08] Thank you.

Peter Harper: [00:28:09] Bye

Thor Conklin: [00:28:09] Bye

Asena Advisors is launching “The 3 Pillars Podcast”, where our Managing Director and CEO Peter Harper discusses with a special guest the value of a family office. We shine a light on how a well-managed family office can perpetuate wealth creation, preservation, and education; and the value of being purpose-driven.

Today, Peter and special guest Rick Harig, discuss family values and how education and creating a narrative can enhance the longevity of your family office.

To watch or listen to the full podcast, click the link below or just press play:

https://asenaadvisors.podbean.com

TL;DR

Peter: [00:00:20] Folks, thanks for dialing in today, I’m here today with Rick Harig, the legacy strategist. I’ve known Rick now for probably close to six years.

Peter: [00:00:38] And when I first met Rick and he started to talk to me about what it was that he did, I don’t think I had a very true appreciation for the depth of experience and knowledge that he needed to do that.

Peter: [00:00:56] He needed to have to really add value in the way that he deals with clients. Until more recently and prior to kicking off, I was just talking to Rick about the journey that I’ve been on with a number of clients where I’ve been. Looking at the value of legacy and how it plays into the way in which families conduct themselves and grow. And the importance of values, so you know, what Rick and I are going to talk today is just that the importance of family values. And why it’s really, really key is that families have a clear understanding of how they want to conduct themselves as early as possible. So, Rick, thanks for joining us today.

Rick: [00:01:52] It’s my pleasure and I’m happy to be with you.

Peter: [00:01:56] Rick, just for the viewers, would you mind just giving us a brief background a bit about yourself and what it is that you do?

Rick: [00:02:03] Happy to. Thank you. I’m a legacy strategist, as you indicated. That’s a trademark I was able to secure when I returned from my third sojourn in Europe. It was during that time that I started thinking critically about legacy. I had the opportunity to hear the last living heir to the Hapsburg Empire speak, and he spoke in grand fashion about his thousand year family line, which is not something I, as a U.S. citizen, ever dreamed of ever hearing about. He was also the president of the Pan European Union and cast a vision for us in nineteen seventy three sorry, seventy five for what would become the European Union. So quite a visionary, quite a moment. And that secured the word legacy in my mind’s eye and in my heart to mean something far more than I ever thought before. So when I returned to the States in ninety four, I decided that I would seek to do something different than the traditional financial adviser. I would create a new category and trade market that became the legacy strategist. So beyond the important work that I do as a financial planner, I seek to help people think about the larger existential questions of wealth. Namely, what do you want it to mean? What do you want your wealth to impact? And if you could leave a legacy of significance, what might that look like for you? So I created a process to take an individual or a couple through this and on a journey really of the heart and with a reflection of the shaping forces of their life.

Peter: [00:04:00] And that’s a really good I mean, it’s a great synopsis. Thanks for sharing that. I mean, the thing that as I tried to add a few words down here to try and summarize what I thought, the legacy the idea of legacy means for me, I mean and to me, I think it’s a common values, bring alignment and create trust.

Peter: [00:04:22] Trust creates engagement and belief. Engagement develops into purpose and common purpose creates a legacy. Legacy does not develop in an environment where a shared purpose does not exist. Without common values, it is likely that your wealth will be destroyed after you die. And legacy can take many forms, but it needs to exist around a common and shared purpose. And I think, you know, it’s that point that, again, as I’ve been on this design journey of myself to try and really understand what you’ve devoted your consulting career to. You know, when a lot of people hear about legacy today, I think there’s there can be a lot of, sometimes, pressure around philanthropy, and I think that legacy can take many forms. Right. Rick, do you what do you think? When you think about legacy in the sense of a family that has significant means and thinking about how to instill common values and ensure that the wealth and use over time. How would you say that you would help your clients kind of guide them across a path to determine what legacy means to them?

Rick: [00:05:58] What I’ve learned and seen that works well is to take them on a journey of the heart and to reflect and have them reflect on the place where they’ve come from, where they want to go and what decisions need to be made. And when I refer to this notion of where you come from, I’m interested in learning about the shaping forces that have made them – have made us the people we are.

Rick: [00:06:34] So this includes the people in our lives, the places, the events, the times we’ve lived through; So my clients who have gone to war, Vietnam veterans, powerful shaping force. While my own son, who served in Afghanistan as an interpreter, has lived through something that will impact – and has already impacted – the rest of his life.

Rick: [00:07:08] So the times we live through are shaping force. Our education is a factor, a shaping force. The media can be a shaping force, certainly that we live in the Internet age. So social media as a shaping force and not always to the positive. 

Rick: [00:07:35] These things and the experiences in our lives combine to make us who we are. Hopefully, along the way, those who have influenced us have also extended unconditional love and forgiveness because that can moderate that the tough temper, the tough blows that we’ve taken, and have helped us grow in depth and in meaningful ways that everyone has the benefit of experiencing.

Rick: [00:08:15] So many factors go into it.

Rick: [00:08:17] And what I like to do is to help and facilitate a reflection on these personal narratives and invariably out of one’s personal narrative flows, something that is worth digging deeper on, worth examining at a level that left alone that might not have otherwise done.

Rick: [00:08:47] And this is something that’s really rich. And so what I find is that it’s difficult for each of us as subjective individuals to be objective about our subjective self.

Peter: [00:09:04] I’m sure

Rick: [00:09:04] But in facilitation, with somebody who’s willing to listen in and to ponder with us our personal journey, great things, surface

Peter: [00:09:21] And it’s amazing you say that, because one thing that really stuck out to me is you were talking was the narrative What I wanted to do today is to value systems. And I suspect you cannot define a clear value system unless you understand your own narrative. And you can peel out the things that maybe adversely impacted your narrative and positively impacted your narrative and then mold them into a system that the next generation can actually understand.

Peter: [00:10:01] I mean, How do you work with your families Is that something that evolves through that process? because I imagine that’s a really powerful thing for the individual.

Peter: [00:10:14] But how do you take that and use that as a meaningful structure that can then be impactful for another member of the family that maybe didn’t have the same experiences as a parent?

Rick: [00:10:27] Well, so what I find is it’s not uncommon for the husband to hear from the wife or vice versa as they’re reflecting on their lives this statement: Honey, you’ve never told me that before. And often it’s only in this context that the moments come alive and we reflect on those things that we may have set aside believing the time has passed when we can do anything about this or that issue. We’re resigned to go forward without having really cured something that needed attention or have discovered anew that it’s not only a nice to have, but it’s really a need to have and you become vitally alive to pursue something that absolutely must be redeemed or must be captured. And so I found in this work both things come alive and what the parents seem keen to do is to capture this. And so we work on this together, a written narrative of the shaping forces and then the family financial philosophy about the accumulation, preservation, use, and distribution of their wealth.

Rick: [00:12:22] And these, what I’ll call rational handles, help solidify emotional inclinations for what really matters. And the way I use that think about values since values are our preferences and they can even be goals, but they’re really subjective to who we are. That’s why a reflection upon the arc of our lives can be so valuable. And then once we have what I like to refer to as enhanced clarity about what matters most, we have a new orientation for what needs to happen next. And a narrative, so these stories, become moments that we want to share with our family members. Frequently, someone will share something that is so powerful and I’ll ask, do your children know about this? And they often say no, and I would suggest, do you think that might be a missed opportunity? And they say, yes, absolutely.

Peter: [00:13:43]  It’s fascinating you say that. I mean, this is the personal my own experience: I had a father who grew up being with not much and would walk to school each day being barefoot, and in a very rural part of Australia and has been successful financially.

Peter: [00:14:05] And I didn’t hear about these stories, about the challenges that he had a child until he was in his mid to late 60s, through my mother.

Peter: [00:14:17] Right. And they were extremely impactful to me. And it could have been something that could have easily been shared at an earlier point in time. And I’m sure it would’ve had a dramatic impact in the way I would have engaged and understood what he was about. The discussion in the framework, I’ve never actually heard this put like this as far as the values being subjective, and absent stories, really, what are they and I think that’s absolutely right. Because if you don’t have Buy-In from the children, the parents can have these values all day long but if their children don’t believe that these values are the right values or something that they should adhere to, I’m sure, then, that once the parents pass, maybe, there’s not going to be an adherence with value system.

Peter: [00:15:20] So it seems to me that what you’re saying is the narrative of these collective stories that are really the building blocks of your client’s value system really are a very, very powerful tool to get in the next gen engaged in this concept of legacy.

Rick: [00:15:46] I believe soAnd out of these stories often emerge traditions that can beand practiced and relished and repeated that reinforce the lessons learned at a time in the past. And the other aspect that I think is so important, are experiences. And Malcolm Gladwell, who’s just a brilliant author, has put this in words far better than I could so I pulled this out for our discussion today and he believes “You can’t share values with others until you share meaningful experiences with them. It is through these meaningful experiences that you come to know what their values are, those who agree with us and those who don’t. But the relationship, trust and friendship has been forged through experiences first.”

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Rick: [00:16:53] Now, I don’t know if he had the family unit in mind when he wrote this, but I really have seen it apply. So one of the things I encourage is the repetition of those experiences that were really marvelous for everybody in the family. And if there are too many of those that come to mind, all families are different; they’re all in a different arc, then I work with them to create moments. And I think life and experiences really boil down to moments, moments when we engage at a very deep level so that we experience one another in ways that talking about our golf game or the last rugby match may get us started, but may not be as consequent to what’s really going on and challenging in life. And to have the kind of interconnectedness where we’re coming together to solve problems is the best of all worlds.

Peter: [00:18:08]  Would you mind giving the listeners maybe example of one of the type of experiences that you’ve seen?  Clearly it’s very personal to find the arc of a particular client and narrative, but an example of an experience maybe where you’ve seen a family do something that’s been tremendously impactful to them.

Rick: [00:18:34] So a father and son were not speaking really, and this was troubling to dad, and so we discussed it at length and it turned out that son was in his 12th year of graduate school. He was just not able to finish. He was stalled. He was stuck, if you will. And so Dad and I hatched an idea that could get them instead of doing one of these, could get them walking side by side in something.

Rick: [00:19:20] And I said, what is it about which you both have a deep interest and might even be something you cannot not do that you could do together?

Rick: [00:19:35] And he said there is a challenge with our seacoast area here – they lived on the coast in Florida – and my son, frankly, would love to hear that I was as interested in this ecological challenge as he is. And I said, what do you think?

Rick: [00:19:58] Let’s figure this out. You know, and the dad got excited. And just as we were ready to tie a ribbon around it, he was getting on a plane and go see his son and tell him about it. He said to me, Rick, there’s probably something else you need to know.

Rick: [00:20:17] And I said, what’s that? He said. I never finished graduate school either. I said, does your son know that? He said he does. And I paused for a moment and He said, Rick, I’m not going back to graduate school, the man was in his sixties.

Rick: [00:20:40] I said I actually wasn’t going to go there.

Rick: [00:20:43] And I said, but I’m wondering, is there something else that your son may know about that you wanted to do and might get inspired to actually do or complete? And then he started shaking his head and he said, yes, there is. And I said, what’s that? He said, I’ve been writing a book for almost as long as my son’s been in graduate school and I didn’t say a word. He said, Do you think you think maybe I should complete it? And I asked him, what do you think? And he said, pounding his fists on the table, I’m going to do it. He wrote three chapters and then he got on the plane to see his son and it broke everything open. The son got his nose to the grindstone to finish his thesis for his degree. They worked on this ecological project together and they were walking in lockstep with one another for a common cause that gripped them both.

Peter: [00:21:52] That’s really cool.

Rick: [00:21:54] I believe these things are possible in every family.

Peter: [00:21:57] Yeah, that’s fantastic, really, really great story, Rick.

Peter: [00:22:03] Well, I wanted to just  switch gears slightly, and I mentioned before this at the start when I was talking about this idea of, you know, of legacy being maybe hinged around the family business and philanthropic means and there’s a book I’ve been reading recently, which has been brilliant. It’s written by a gentleman named James Hughes the book’s called “Family Wealth”. And I don’t know whether you’ve read it, but he’s a very, very experienced estate and legacy attorney in New York.

Peter: [00:22:56] And in that book, he’s talking about the context of making wealth last for a hundred years, this idea of perpetual wealth. And what struck me is interesting about the concept is that in order to have wealth be sustained for such a long period of time, yeah, there needs to be a strong focus around this idea of legacy within the family, right? And it starts with this idea of – someone starts with this idea of values and goes through the process with you.

Peter: [00:23:39] But then there’s got to be a process for that them being pushed down through multiple generations and getting folks to buy in, that may not necessarily be able to be directly delivered from the patriarch to a direct descendant. And what was interesting to me is that as I read more and more about this I think my view of the idea of perpetual wealth, maybe giving money away.Is evolving in the sense that it is very much a personal journey, right.

Peter: [00:24:21] What is it about the original, the entrepreneur or family that is driving the decision making to want to make wealth survive? I just think you’ve started this journey yourself and since you’ve been this consulting this industry for a long time, has your view of the legacy changed overtime? And in your experience, what role does philanthropy have as sort of a bedrock? If you look at the success of where families have been more successful than others, what role do you think philanthropy plays in that?

Rick: [00:25:05] Right, so philanthropy is fundamentally and in my view about being others-centered and seeing in the world things that need change. Philanthropy is about change. Something is going to change, either through our personal agency or through our resources or both.

Rick: [00:25:34] And one of the best things that can happen to an estate owner and something that I look to facilitate is they catch a vision for something that is greater than their capacity to fund it.

Rick: [00:25:55] The problem I’ve seen with the estate owners who built significant wealth, and that means different things to different people, but if it gets to a point that they have more wealth maybe than they ever imagined, gates often go up. There’s concern about people no longer wanting them, but really wanting their stuff or wanting their influence or wanting access to their networks but not wanting them. And this creates a fortress mentality for them. And then they hire people to ensure their safety. And it’s a troubled situation in my experience.

Rick: [00:26:45] But at the moment, you have a vision that exceeds your capacity to fund it and it has a driving purpose in your life, you suddenly need people again, you need others. And so my poster child for this story, if you’ll excuse the expression, is Melinda and Bill Gates.

Rick: [00:27:07] Their vision is so, so expansive, so profound that Warren Buffett comes alongside them and says, here, let me help. You’re better at this than I am. Lend a hand. And frankly, Peter, I believe all of us can have that kind of vision, regardless of what our wealth is. We just need to be caught up in something that’s larger than ourselves and with the enthusiasm and the spirit that if I and we don’t do this together, the pages of history will not be written as they should, which is a kind of immense exaggeration at one level. But with that kind of drive, people come together and important things get done.

Rick: [00:27:58] So I am keen to further this kind of thinking with clients, and that creates a legacy of values that inspires for some legacy is about the money they leave behind. For some, it’s about the legacy of purpose. I live in the land of Lincoln. That’s the model for Illinois. And it’s not because Lincoln left a fortune to the state. It’s because he left a life of inspiration and grit and of perseverance and of coming back from failure after failure. And so there are different kinds of legacies. And I think it’s important to further that understanding and thinking that regardless of where you are, there’s something that is important for you to do. We’re all here for a purpose. And sometimes I work with individuals to help them discover what that next purpose is.

Peter: [00:29:12] It’s actually brilliant. I mean, the point that I love and I think is I think any entrepreneur can actually listen to this is think bigger than you can imagine. Bigger and bigger than your capacity to spend. Right. And I mean, because I think when anyone, if they have an idea where they think they want to go and if they make their objective most entrepreneurs, when I get that, I feel a level of dissatisfaction, right, because a lot of their focus has been around achieving the goal, not necessarily the destination.

Peter: [00:29:54] Right. And so this idea that you’re trying to bite off something bigger than what you have the means to actually physically you spend money on, I think is really, really impactful and critical.

Peter: [00:30:08] It’s also all of the things you’re saying. I mean, I think that does apply across any anyone whether you’re thinking about legacy in the context of an extended family or philanthropy. 

Peter: [00:30:24] And one of the things that a gentleman in a concept I got introduced through Rick and I want to get Rick to talk about this briefly, because he’s recently been  a prominent president of the organizationthat I find really neatly ties into this whole concept is that, you know, this idea that you can for  family members, it may not ever have the ability to reach the goals or the heights that their parents did financially. I think it’s very natural in life that any anyone wants to better their parents or it’s just human nature. It’s it’s the way we were designed.

Peter: [00:31:19] Mr. Freud talked about it regularly and when that feels like an insurmountable, insurmountable odds of achieving that, how do we encourage next generation kids to be motivated to think: hey, listen, I might not be able to match my parents in creating money, in stacking up coins, but maybe through philanthropy or through these other measures, I can find a purpose that in a very different way is maybe bigger than the purpose that my parents set out to achieve.

Peter: [00:31:56] Do you do you mind? Quickly talking about Core, and maybe now you see that the idea, of causes are there in interacting within the construct of what you’ve been talking about.

Rick: [00:32:12] Thank you, I would love to. So Core Venture is a unique program. As far as I know, it’s the only immersive program there is. It extends over four and a half months and with three residential in three countries.

Rick: [00:32:30] And what we are keen to do is to help young inheritors think about their identity apart from their parents balance sheet, apart from the parents name, apart from the parents companies, and because they have, in our estimation, infinite value. Without any connection to those three items I just named, and to come alive with the knowledge and with the belief that they’re here for a purpose and that because they have infinite value, they have something to contribute to their families and their lives. They find their own voice in engaging with their parents and their siblings. And in the best of all worlds, they become interdependent.

Rick: [00:33:30] As parents, we want our children to grow and be independent of us. But with wealthy families, that independence can mean isolation. And what is of great concern to families of significant wealth and frankly, to their children is what they’re experiencing in terms of isolation. Do my friends want to be with me because of who I am or because of what I can do for them?

Peter: [00:34:01] Well, and that point’s really fascinating because you talked before about the fortress mentality of an entrepreneur. I think the challenging thing for a child is a place for an entrepreneur, for if they’ve made the money first-gen they’ve had that time when they didn’t have it. So they still know how to properly manage the leeches that live off us, as I like to call them, whereas I find if the next-gen they don’t have any of the core tools necessarily equipped to manage that.

Peter: [00:34:34] And if you’ve only ever experienced one factor where it’s people wanting you just for your money or for who you are and you’ve never had the experience of someone wanting you, just wanting you for you, it’s a very, very it’s an extremely challenging issue for kids to deal with.

Rick: [00:34:53] In my experience, it’s in mine, too, and we see this in our young adults who are part of our Core family, if you will. And so what we want to do is to create peer communities, and we do, we create peer communities where they can explore these very personal issues, very sensitive, very tender issues with each other. Other young adults who have come from families – who are from families of significant wealth – they may not be facing that issue, per say, but it may be one of resilience. How do you bounce back when you take a blow in life?

Rick: [00:35:40] What about the expectations of parents in terms of their children following in their footsteps in the family business? What if you weren’t made to follow in the footsteps – your father’s footsteps in the family business? Because you see your calling your purpose as being something very different from that. Your inclinations may take you left alone in a different direction.

Rick: [00:36:10] We want to serve this audience in core and we bring the best of the best academics from Stanford, academics from Oxford, and we help in the creative imagining of designing the life and its powerful.

Peter: [00:36:31]  I can imagine that, that it would be I mean, it’s you know, when I first heard about the program and it’s great to see you involved. I’ve been watching it very closely because I think it’s something that’s sorely needed.

Peter: [00:36:49] And I think for people that aren’t necessarily familiar and have familiarity with the issues, it’s very easy to say, oh, well, you know, listen, these children are being born into extreme wealth: They’ve got a lot and what a lot of these challenges are very real challenges.

Peter: [00:37:09] And it’s great to see that these programs like this that are that are being put forward to try and deal with them.

Rick: [00:37:21] And the community that they form once they go through our our curriculum is powerful. I attended a celebratory dinner last November when all of the members of the cohort from the previous summer gathered after a three month hiatus. And I was talking to a couple of them and then a couple of their peers entered the room. And you might as well I might as well have just disappeared because I didn’t exist as far as the rest of them were concerned. They were hugging and high five-ing and enjoying the moment when they could see each other again because of what they had been through. And so by building close knit communities where you don’t have to fear judgment, where you don’t have to fear being who you are and having experienced what you did. Safe communities, really, this is what we all need. It’s just hard to find when you are coming from significant wealth. None of those in our cohort.

Peter: [00:38:36] There’s not a phone book or secret line that you can call to draw and join the club.  I think the big thing is that

Peter: [00:38:47]  I hope everyone’s taking is is the overarching sort of way of thinking. As we’ve been talking, is that values start with this narrative or this arc from the parents. But as far as engagement with latter generations and buy into that, it’s really critical that the stories that have been that have impact parents are communicated to the next generation.

Peter: [00:39:21] And then secondly, that the appropriate tools to properly educate these kids about the challenges they’re going to have are given, because I think the single most important factor that I’ve sort of through my experience I’ve learned, is that the education piece of it. If you have an idea around legacy, that you think you want to want to commit to and you want your family to engage in, it really starts with educating the next generation and being as a family, committing to that and saying now this is all about education. It’s the most critical factor.Is that something that you agree with?

Rick: [00:40:03] Well, of course, education is is a big item. And along with that are the moments when we have the opportunity to solve problems together, whether the subject is about education or whether it’s about the mechanics of the estate or whether it’s about, you know, coming home with a with a black eye because somebody threw a fist while you were at school that day: inculcating wisdom to make wise choices where the war rules just don’t address these issues.

Rick: [00:40:52] The day will come when somebody is going to lose something that means a great deal to them. How do we respond? What does resilience look like in that context? And these are things that grow out the insights and the fortitude that difficult times require grow out of small experiences that serve to anchor us when the winds really blow. So it’s critical that there’s intentionality at a level maybe that most parents can’t imagine.

Rick: [00:41:27] So let me give you an example of the so I attended a fraternity in the here in the States where Prince Albert, soon to be the reigning monarch of Monaco, was a member of the fraternity. Now, he was in a different year than I was. But when he would talk about the way he was trained, the intentionality of having his own headmaster says he grew up handlers, if you will, to make sure that he was wired to what was coming was profound. Now, most of us don’t grow up in families with that level of intentionality, but who among us would say that our children are not worthy of it?

Peter: [00:42:18] You’re in the middle of a tough place. I mean, I think the thing is that, you know, in those families that have been around for extraordinary lengths of time and they have seen real trauma that’s been distributed through different minds that they recognize if this is about survival and ensuring that future generations can possibly avoid some of the challenges we’ve had in the past, we need to be intentional. I mean, that’s a great story.

Peter: [00:42:50] Well Rick, we might leave it there. It’s been an absolute pleasure to have you with this. Thoroughly enjoyed it. And it’s always great, great to talk about this stuff with you, with your depth of knowledge and again, I’m really grateful that you joined us today.

Rick: [00:43:13] It’s been my pleasure. I wish you all the best in your work. And we’ll do it again sometime if you like.

Peter: [00:43:21] Thanks, Rick. Bye.

Rick: [00:43:23] Bye.