David Wells works as an advisor to individuals, families, and organizations to help them wrestle with and answer the strategic questions they face to grow and succeed into the future. With over 15 years' experience, David leverages his background as an equity analyst, 4x entrepreneur, and Board member to collaborate with senior leaders across the US.
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[00:00:29] BA: Hello, and welcome to The Conversation on Colloquium. Today, I've got an old friend of mine, David Wells, with me. David, how are you today?
[00:00:36] DW: I'm doing well, Brian. Doing well.
[00:00:38] BA: Thanks for joining us. David and I have known each other for, gosh, longer than I probably care to admit. But he is always been exceedingly thoughtful, smart, hardworking, and I am so happy for him that he is doing well with his consulting business. And he is put together this book, which I think is really needed right now.
So, before we get into the conversation, I'm going to do a little bit of background. David is the founder and CEO of Family Capital Strategy, which is a boutique consultancy, that provides strategic insight, investment, governance, development, and family office design for families facing liquidity events, generational transitions and other significant changes.
Prior to founding the firm, David has an extensive background conducting strategic and investment analysis. And he served as a partner and Portfolio Manager at a 20-year-old asset management firm, co-founded a long short hedge fund, and was also a senior equity analyst working with large hedge fund and private equity clients. So, a very diverse background and I think given all of that, this will be a very compelling conversation.
Before we get into it, the biggest takeaway I had from reading your book, which is called When Anything Is Possible, and I encourage anybody listening to go check it out. And I'm sure we’ll, at the end of this, provide you some opportunities to connect with David and also access the book. But this is a light motif throughout your book, which is it's all about the why. So, maybe before we get into the guts of the book itself, why did you sit down and write this thing?
[00:02:11] DW: Yeah, great question. I think it comes down to a couple of things, appreciate the bit of bio on my end and I've been very fortunate over the course of my career to work with a lot of different types of investors, a lot of different types of families. And I think what I was struck with was, we would have conversations and even when I was was a portfolio manager, managing portfolios for clients, you would sit down and have a conversation with someone and as a portfolio manager, you're kind of like a chef, where you've got a bunch of different ingredients that you can put together to build a portfolio. But until you know whether the client wants Chinese food, Italian, or hamburger, it's really tough to put something out there that's going to be aligned. And what I found was, you would get into a conversation with a client, begin to start walking down this path of what are you trying to accomplish with your wealth? What's really the priority set? It's a really squishy nebulous kind of ephemeral concept. And the challenge was that almost to a tee, that conversation would be something that families would say, “I want to make sure that I can travel”, in which pre-COVID, such an important part of modern life is, it's so easy to get around the world, they want to see their grandkids, and they may have a few philanthropic causes that they care about. But that was it, that was kind of the full total of the conversation.
And really whatever level of net worth you are, I think you've got a pretty broad range of choices, especially once you start getting into what's called kind of the ultra-high net worth category, which is typically kind of around the $25 million mark, especially as you go from there on up into the multi hundred millions, the question then is not okay, “Well, can I travel to the level of which I'm accustomed?” Yes, you could do that. You could live abroad. The answer is yes or can I see my grandkids and be involved in their lives? Absolutely.
So, you lay out those funding priorities, and then there's still a, there's still this massive amount of wealth that's left over. And nobody really knows what to do with it. Maybe it's held for longer term estate planning, maybe it's held for some philanthropic priorities. But for the most part, I think what happens is, as people end up with portfolios, or just an overall view of their wealth, that's not as strategically aligned with what's most important, because it's really hard to surface those kinds of core level priorities that are there, because it it's a little bit of art, and – well, maybe it's a little bit of science and a lot of art, to help people think through those things. And I think in general, the financial community, some folks are more willing to have those conversations, some are not and and the reality is what I found when working with families in my current business, having a series of these dialogues, it may take 15 to 20 hours with the client to really walk through things to lay out priorities, and that's before you even start saying, “Okay, what does that mean in terms of stocks and bonds?” It's just Just kind of getting everything to the table for the first time.
So, that was really the genesis of the book was, okay, it seems like people need some sort of a framework of how to have these conversations. My poor wife, I try out all my ideas on her and we've had a lot of these conversations, just in our household, what are we trying to do with our kids? We can do these things from a travel perspective. We can do these things from a house perspective. How do we surface our values as we make decisions, and it's nebulous, because I think there's great financial advice for folks who have a spending problem. Dave Ramsey, right here in Nashville has done so much for helping getting folks out of debt. It's harder to find folks that can offer a really thoughtful, “What do I do after that?”, as you end up in places where you've got more than you “need”, then you're making decisions based off of some other metric. And I just personally found it hard to find something that was a tool that I could use, either at home, with conversations with friends or with clients. So, it seemed like a book that needed to be written.
[00:06:00] BA: Yeah, and I would agree as context, my wife's family has a single-family office here in Nashville. And I remember talking to my father-in-law when I first joined the family and learned about the partnership, he said, when he founded it in, I guess, formally, probably like the late ‘90s, the term family office didn't even exist, it just was a limited partnership based in Tennessee for the benefit of his lineal descendants. So, as this concept has really become de rigueur in the financial industry, and everyone seemingly is talking about family offices, et cetera, could you give us a definition of in your mind, what qualifies as a family office?
[00:06:41] DW: Sure, the most common saying in family office world is if you've seen a family office, you've seen one family office, or something around that. And while that may be true, I actually find it to be an almost an unhelpful kind of sentiment, because it makes it sound like there's nothing common across family offices at all, that they're so unique and individualized to the family that you can't say anything holistically about them. So, I actually don't think that's the case, I think there's a lot of commonalities around them. And in general, what I view is, the simplest way that I think to explain a family office, is a family office is a tool that the family uses to manage its complexity. And that's kind of full stop.
Now, what forms in what shape that complexity is really depends on the family, I typically see it fall into three buckets. One is like this bucket of planning, it's all of the moving pieces across all of the various entities that exist within that and it so it's making sure all the ducks are in a row, the i's are dotted, the T's are crossed. So, you've got that vertical, there's the investment piece, when the family decides to make the business of managing its wealth of second business, the natural home of that is in the family office.
And then the third piece is all of this kind of middle stuff, which I kind of call family support, which oftentimes people hear that and they say, “Okay. That's where the family office pays your bills, or walks your dog or books your travel.” And for some offices, that's true. But I think for a lot of families, it's becomes this, if the family has broader goals as a family that aren't necessarily tied to the business, who does that work? If the family wants to schedule time in the summer to get together, and host meetings, like who's going to coordinate that lift? If the family wants to make sure that next generation is having some sort of financial education or history and story of the family work that's done. It's really going to the family office, that's the arms and legs of making sure that work gets done, because I know you and I both are super involved with nonprofits in Nashville, when you've got volunteers in leadership on boards, there's just a finite amount of ask that you can make from people and especially with larger families of wealth.
There's just so many moving pieces that that work has to land somewhere. Now granted, it's got to have good oversight and involvement of the family to make sure that they're moving in lockstep, but it's really the family office that becomes the front line for making sure that all of the other priorities of the family are brought to bear.
[00:09:11] BA: Yeah, I like your term nebulous. People ask me my definition. And I kind of think of it as some form of small business corpus that is meant to maintain a certain quality of life along a multi-generational time horizon and avoid taxes.
[00:09:29] DW: Yeah.
[00:09:30] BA: But there's a lot more to it, obviously. And I really want to get into the why that you write wrote the book, but when you start, it's the motivation behind why we want the things that we want in life and associating some kind of purpose with that. Could you kind of unpack that concept a little bit because I think it drives the narrative the entire book.
[00:09:54] DW: Yeah, if you think about family offices, or you know, really and certainly you've got that on the largest, most complex, and I think any family that has means of some sort, is wrestling with this kind of three – there are three tensions that they're trying to keep in balance at the same time. The first is, is what is the individual's priority set that they want their wealth to accomplish in their life? The second is, is what is the family aligned on as its direction of where it's going as a group of people, through time and space? And then the third piece is, is that, “Okay, how do we achieve that from a business perspective.”
So, in a family system, you're constantly trying to manage those two dynamics, what happens is, is that most of the time, the business of the wealth, whether it's an actual business that's still operating, or it's a robust investment entity, there's always something to do there, there's always an interesting deal, little gap, there's a fire to fight. And so that dominates, that’s 80% of the conversation in a family. Family gets together for lunch, dinner, goes on vacation, we're going to talk about that kind of stuff.
Probably the next piece down is is the family, “Okay, let's get all the siblings around the table, let's get a bunch of the cousins together, you guys figure out what's important to you and we'll make it happen.” So, you may see a bit of that, but maybe that's the 20% that doesn't get covered with that. And a lot of times what happens is the individual is really left out of that. And the concern is, is that while families can function as a whole unit, if you disregard what's happening on the individual level, if those get too far out of whack, like that is a natural breeding ground for either disunity, in its lightest form, or like the big food fights and blow ups that you see in in the paper, or if you're a succession fan, like on HBO, you see the story of that family, like you've got individual dynamics that have dramatic impacts on the family itself.
So, in my mind, that's why with this book, it was like, “Alright, let's start with the individual and give them the set of tools so that when they are a member of the family, they don't lose their identity, they can bring all of the various pieces and priorities to that. And then they can make a hopefully a more eyes wide open decision about where they want to go as a group.”
That's the kind of broader context, I think, under which I was trying to write, but I think to your original question, it does get back to what Simon Sinek said, it's this idea of like, starting with why. What's your priority set? What are the various pieces of life that have to be brought into alignment? And I think that in itself is a really large question. I mean, and that's the work of a lifetime, is to answer that. What I was then trying to do was, “Okay, let's break that into a couple of different buckets. Let's think about what I call kind of a wealth structure, which is all of the stuff that’s going to – it’s kind of like the lines on a soccer field, they define where the game is going to happen. These are the things that are kind of fencing you in a little bit, let's then talk about this concept of wealth identity, what's really important to you, what’s your core values look like.” And then, take that to this next level of saying, “If I'm living out what's most important to me, and in line with my values, what does that look like in the big areas of life?” And there's really only a handful. I mean, on a personal level, it's your family, it's the work that you do, and it's the communities that you're a part of. If you're living authentically, if at the risk of using a kind of a buzzword, you would see some congruence between what's most important to you, and then how you are present in each of those phases.
Once you've kind of got that laid out, then you can then shift to the to the actual wealth question, begin to lay out a strategy around consumption investment, what you give to future generations what you give to philanthropy. But if you get that order out of whack, you end up sub optimizing frankly, you may either spend too much, your consumption may overspend what's actually important to you, or you may end up – we saw this a lot in the investment world is you may end up with a portfolio that's too conservative, countless stories of folks who make more money than they ever thought they would make. They end up in these investment allocations, which are designed for belt suspenders, a bunker. I mean, it's come hell or high water, nothing can happen to the portfolio, which I'm not saying that a degree of risk management isn't important, but there's a difference between underinvesting a pool of assets and over indexing on risk. And I think in many cases, I think, because individuals haven't articulated, here's what we're trying to do longer term with our family. Here's what we're trying to do philanthropically in a meaningful way, if they can make peace with that, and frankly, still feel that their investment portfolio can support their spending, suddenly, you actually have a lot more flexibility with that portfolio to do some interesting things other than just own a lot of municipal bonds that pay you essentially nothing.
You got to have some of that to make sure that you are risk managed. So, I think it’s kind of an unspoken tragedy to see a pool of assets that is limited on its ability to growth and therefore limited on its ability to make an impact elsewhere because you don't really know, is this aligned with what's most important to me or not?
So, that's really the kind of the heart of the why question is, yes, that's super important. But what does it look like to then try and answer that question in a way that certainly is informed by all of the softer parts of life if you're a person of faith, your faith practice your philosophical views on the world, that's all there, but it's then, “Okay, well, in light of that, what does that mean on a Monday morning? How do I make decisions based off of this?”
[00:15:27] BA: Right, and that lends itself in segues to this concept of having a strategic plan. And so, can you tell us how you define strategy and how you implement a strategic plan if you are a family of means?
[00:15:41] DW: Yeah, absolutely. I actually was asked to lead a session on strategic planning for families by YPO’s Global Family Business Group. And what I was trying to lay out with that group, and I think it's relevant here is that strategy at the end of the day is about making choices. And a lot of times, we have lost because there's a lot of great books out there, Good To Great, Built To Last. There are a lot of great books that are out there that talk a lot about corporate identity. They don't necessarily talk about strategy.
Why I love Good To Great, fantastic book, wonderful for thinking about the culture of the organization and how it's run. There's a lot of businesses that have said, “Okay, if I've done that work, then I've got a good strategy.” And there are plenty of examples, and actually, one of the most common knocks on those books is is that the great companies that get profiled, you play for 10 or 15 years, and they're not great anymore. So, what happened? Was it the culture that failed or was in a strategy that's failed? And I think, if you look at the business world, you've got a lot of businesses that don't adapt, they don't move forward. And so, strategy then ultimately is about making a very conscious set of choices around the things that we will do, and most importantly, the things that we will not do, in pursuit of what success looks like for us. And this is where it gets a little bit squishier and when I was writing the book, spent a lot of time trying to think through how do you define success – with a business, it's pretty easy to say growth and profits, return on invested capital, like there's a metric you can point to, and say like, “Okay, this is going to be our line that we're going to measure things against.”
In life, it's not that easy. There's not necessarily a single bottom line that you can point to, it probably is multiple bottom lines. If you over index on work and blow up your family, when the accounting is all said and done, you actually may say that you weren't successful, or I do think it's actually possible to over index on family and under index on work. And then there's consequences for that. It’s really how as an individual do you, A, articulate what the finish line is or what is that bottom line that you're going to measure things against? And then what are the choices that you're going to thoughtfully make, to then limit your options to say that, “Okay,...
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