Wealth Actually

Occasionally, I get to speak with someone in the industry that both affirms my experiences, but also pushes my thinking and worldview. DAVID C WELLS JR, CEO of Family Capital Strategy, fits that bill on the topic of advising families. I met him in Nashville early in 2020 and stayed in touch. When I heard he was writing a book, I knew we were kindred spirits having gone through that process myself. That book, “When Anything is Possible”, just came out and I couldn’t be happier for him. I think it is a terrific companion to those looking to forestall the “Shirtsleeves to Shirtsleeves” phenomenon and help business owners and their families structure and build lives of purpose. In this podcast, we discuss some of his insights and the book-writing process itself. https://www.amazon.com/When-Anything-Possible-Wealth-Strategic/dp/173568130X/ Introduction Chapter 1 Wealth Strategy: Defining the Terms Section One: Wealth Structure Chapter 2 Wealth and What It Is Chapter 3 Level of Wealth Chapter 4 Psychology: Money’s War on Our Brains Chapter 5 Coming Into Wealth Section Two: Wealth Identity Chapter 6 How You Feel About Yourself Affects How You Feel About Wealth Chapter 7 Defining Your Wealth Identity Section Three: Wealth Strategy Chapter 8 How to Spend It Chapter 9 How to Invest Chapter 10 Giving to the Next Generation Chapter 11 Philanthropy Chapter 12 Building a Life of Intention Here are a few recent blog posts which introduce concepts from the book: The Challenge and Complexity of Entitlement Adjusting to Life After The Liquidity Event Creating a Wealth Surplus to Pass to Future Generations What You Should Know Before Marrying Rich You can find David here: Book – whenanythingispossible.com Website: www.familycapitalstrategy.com Newsletter – FIFTEEN ON FRIDAY – Twitter: @DavidCWellsJr https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Here is the first video foray for the “Wealth Actually” podcast (a bit by accident! We had to switch formats midstream . . . so I decided to experiment with the video format). I interviewed Christopher Ott on #Cybersecurity for the Ultra High Net Worth, High Net Worth and Family Office space. We talk about how one should view their own digital risks, how to protect yourself, and what to do when you have been compromised. We kept it to 40 minutes and probably could have discussed issues for more than three hours. Chris is a partner at Rothwell Figg, the litigation firm based in Washington, D.C. Successfully litigating complex data security matters, conducting hundreds of investigations, and winning dozens of appeals, Prior to entering private practice, Mr. Ott held various influential positions at DOJ including Supervisory Cyber Counsel to the National Security Division of the DOJ, In these roles, he investigated and charged the largest known computer hacking and securities fraud scheme and the hack of Yahoo by Russian intelligence operatives, the largest data breach in history, https://youtu.be/XzYwkjA1qiA BASICS   Cybersecurity- the main concerns are around the ability to control access and use of information. Everybody has at least three types of information PREDICTIVE DATA This is data that will help predict what you are going to do. This is especially useful for hackers and other criminals as they figure out how to access your data. CONTROLLING DATA This is data that regulates the access to a client’s information. This can include: Passwords (and the need for two factor control, Phones (with automatic password access that can be migrated), and “Deep Fake” video and voice that can trick the gatekeepers into relinquishing access INFLUENCE This can include social, political, or economic influence. THREE TYPES OF ADVERSARIES Criminals Spies Hybrid hackers -Russian Type -Chinese Type SPECIAL CONCERNS FOR HNW INDIVIDUALS More data More control Much more influence ·         Direct socio-political ·         Indirect socio-political WHAT IS IMPORTANT? §  Control ·         Analog passwords ·         Never take shortcuts ·         Device security §  Two Factor INFORMATIONAL AUDITS (DATA MAPPING) §  What do I have? §  How do I control it? §  Who else has access to it? CONVENIENCE VS. SECURITY §  BEC §  Sim Jacking §  Deep fake audio and video WHAT TO DO WHEN YOU HAVE BEEN COMPROMISED Understand What You Have and What Your Risks Are Have Advisors In Place Don’t Panic- Assess the Situation Implement Action Plan Some Quick Ideas to Protect Yourself and Your Business . . . Establish an action plan in case of a breach or other compromise. Emphasize personal relationships with all business transactions. Make sure that you have personal relationships with your advisors and transactors so that there is layer of common sense behind communications. Audit what you and your family put out in the world of social media both from a cybersecurity AND from a PERSONAL security standpoint. Consider having a policy- even if informal- to prevent predators having access to physical information. Use multi-factor authentication procedure to confirm and verify instructions (ESPECIALLY for wire transfers or money transactions). Encrypt emails that include private information such as bank details, credit card numbers, Social Security numbers, etc.  Back up all data off-site on a regular basis. Regularly change passwords and use different passwords for platforms so that one breach doesn’t turn into a cascading data breach on other systems. Perform regular cyber audits to make sure confidential information is secure and that accessible information to the public is properly scrutinized. Avoid clicking on links and being suspicious of attachments. Run drills to make sure employees have well-ingrained good habits. Don’t conduct personal business using work email. This may seem obvious, but don’t store sensitive company information on personal devices or share it on social media. Avoid public Wi-Fi connections for work purposes. Run “fire drills” to test the effectiveness of your response plan in the event of a cyber attack. Review the state of your Cyber-insurance in case something goes wrong. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

After a slew of podcasts about structuring, estate planning, investment themes and politics, I thought it would be fun to dive into a sport with a long, regal. and unusual history- COURT TENNIS (or “Real Tennis”). Descended from handball, and equal parts tennis (players face each other unlike squash and racquetball), platform tennis (where the walls are part of the court), the sport has all sorts of peculiar rules. It has strange looking racquets, arcane rules and courts with unusual and idiosyncratic dimensions. There are less than 50 courts in the world and roughly 10,000 players. Longtime friend of the podcast, Haven Pell, joins us to talk about its interesting origins, where the sport is now and where it’s going. He is part of a team that is building a new court in Washington and has written about that process in his blog, THE PUNDIFICATOR. He even shares the story of how Court Tennis gave us the Left and Right side of the aisle in American politics! https://pundificator.com/around-the-world-in-50-courts-a-brief-detour/ We cover . . . the equipment The “Off-Center” Racquet The Rules The Crazy Dimensions of the Courts The History of the Sport Some of the Best and Most Famous Players in the World And here is a little sample of some high level play: https://www.youtube.com/watch?v=p1RK9fuGZgI https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

For a few years, the wealth advisory and asset management worlds have been captivated by three letters . . . ESG: Environmental, Social, and Governance. ESG has been an exploding trend as investors want to align their personal values with their investments. The principle is that one’s investments can do well by “doing good.” Against that backdrop, asset managers are looking for new criteria to evaluate investment opportunities in the context of ever increasing difficulties in beating indexes over time. To some, ESG is a marketing gambit. To others, it is a framework to unlock greater returns and create positive social impact while doing it. To many, it is somewhere in between. To help make sense of this phenomenon, I spoke with John Rosenberg who has direct experience in asset management and the ESG world. John worked for the Federal Reserve Bank of San Francisco and has had a long career in banking and now works as an investment manager at a single family office and manages the LOUGHLIN WATER PARTNERS LP – an investment fund focused on technologies and assets that provide clean water and alternative energy. (Early on, John worked as a ski bum which he declares to be the most honest job on the resume!) Outline Could you give me some background on ESG Investing? We hear a lot of different terms bandied about such as Sustainable, Impact, ESG, or even SRI. Where did the term come from and how has it evolved? Are ESG stocks different from other stocks? Is there some particular differentiation? Are the letters all equal? A few weeks ago marked the 50th Anniversary of the Milton Friedman’s essay on Shareholder Theory where he states that the corporation’s social responsibility should be focused on profits. (The Social Responsibility of Business is to Increase its Profits). Do you agree with that? Milton Friedman thought corporations should be focused on profits, not other social responsibility initiatives. What is the driving theory behind ESG investing? Do you believe it actually promotes virtuous behavior? How do you parse the difference between a company that does many things well, but has a problem underpinning it’s ESG score (i.e. tobacco bonds that fund good causes, but have dubious sources of revenue or a top notch company with an executive with a checkered record?) Are there data services to evaluate whether or not companies are engaging in responsible behavior? How does one deal with one data service vs another? How much of the analysis is qualitative? How do you get past the “check the box” or “greenwashing” phenomenon? You have been doing this, in one form, for a while now. What do you think of new entrants to the space? Jeff Uben, formerly of Value Act, made some comments critical of ESG investors awhile back. What do you think about that?  https://www.barrons.com/articles/activist-investor-jeff-ubben-departs-valueact-to-focus-on-esg-51592936937 Do you think we are entering our could enter an ESG Bubble much like every other style of investing that catches on? Are the ESG criteria factorable and therefore quickly assimilated into indexes? ESG- Fad, Trend, or Is It Here to Stay? Fun Question. Additional reading on the pros and cons of ESG in investment performance and the role of corporations and the assimilation of ESG principles. Morningstar indicates that ESG Funds Outperform Their Indexes How Strong are the Links between ESG factors and Outperformance? Wharton: Why ESG Investors are Happy to Settle for Lower Returns https://frazerrice.com/blog/january-2014-book-review-lynn-stouts-the-shareholder-value-myth/ https://www.amazon.com/dp/B007PIZ8IO/ https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

It’s important to speak to people who are having success exploiting other asymmetries. Many opportunities come when the world devolves into chaos. (Bill Ackman recently made gigantic money by buying insurance against corporate defaults related to COVID.) Sometimes there are opportunities when economies start to recover. Enter PHILIP READE. He is the Co-Manager of HELM INVESTMENT PARTNERS, an investment firm that focuses on emerging markets that collapsed and have developed a narrative for recovery. What made Philip’s story interesting to me was not only his half Brazilian / half British geopolitical bent, but his application of recovery narratives into usable investment themes. Philip’s Background Co-Manager the Partnership (Helm Investment Partners). Investor and board member of Cultura Inglesa Rio de Janeiro, one of Brazil’s leading English as a second language school networks, backed by 3G founder Jorge Paulo Lemann. For 7 years, until February 2016, Philip was a Partner, Co-Portfolio Manager and Co-Head of the Investment Team at Tarpon Investimentos, Brazil´s largest independent equities fund with over USD 3 billion (21.7% US$ net annual return, May/2002-April/2017). At Tarpon Philip served as: Chairman of the Board of Omega, Tarpon´s renewable energy platform / Chairman of the Board of Cremer, a publicly traded company and Brazil´s leader in the disposable health care sector / Chairman of the Board of Somos Educação, a publicly traded company and Brazil´s leader in the K12 educational market / Board Member of Tarpon Investimentos, the publicly traded GP / Board Member of Metalúrgica Gerdau, a publicly traded company and the largest long steel producer in the Americas and the second largest globally / Board member of Tempo Participações, a publicly traded company and Brazil´s leader in the Roadside and Home assistance businesses Prior to Tarpon, Philip was the Head of the Brazilian operations of a NY-based hedge fund, Marathon Asset Management, focused on private and public equities as well as structured credit. Prior to Marathon, Philip worked for Goldman Sachs in Sao Paulo, as part of the Investment Banking division, participating in over 20 M&A and capital market transactions in Financial Services, Real Estate, Telecom, Power Generation and Consumer. Before that, Philip founded and ran Brasilis Seafood, a company that financed seafood processing plants in Brazil and raised US$ 2 million in venture capital from one of Brazil’s larger institutional investors. Philip started his career at Brazilian Banco Garantia, founded by Brazilian entrepreneur and 3G founder Jorge Paulo Lemann and then at McKinsey & Co. He went to Sevenoaks School in England, holds an Economics Degree from the University of Sao Paulo (top ranked student in the history of the University, as of 1996 graduation, award for the best graduation thesis and class representative) and an MBA from Stanford. Helm Investment Partners Tell us about the firm and where did you see the opportunity? What does a typical EM manager do?  How do you differ? You look for Crisis conditions . . . what does a crisis look like to you?  How do you quantify “trouble”? When screening for good or bad governments, what do you look for?  What are the countries you are focused on? Ex. Argentina, Greece, et al . . . The Concept of Going from “horrible” to “bad” Process Down 50% “Country-wide”  What does this actually mean?  How do you account for currency?  If a currency devalues, how do you stay away from the trap that it will rarely recover? Looking for Narratives that Change Perception- what do those look like? Finding ways to invest in that narrative- what is the “bottoms-up approach” to finding companies?  Why do you focus on Utilities, Telco, Retail, Consumers, and Banks? Trying to avoid being too early – how do you prevent tactical “short term downward swings” from battering your longer term positions? It feels like there aren’t many people doing this – benchmarking must be a problematic discussion.  How should investors evaluate your success? What is the best way to stay in touch? PHILIP READE HELM INVESTMENT PARTNERS https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

The election is finally past us and for wealth advisors the work and the uncertainty is probably just beginning. JORY BARD ZIMMERMAN joins us to discuss some of the tools to help wealthy clients take advantage of the tools available in 2020, incorporate philanthropy in in one’s planning and get a rolling head start into an interesting looking 2021. Jory is an attorney with expertise in trusts, estates and wealth planning. She has deep experience in advising high net-worth clients on their personal, tax savings and philanthropic goals. Here is the outline of our discussion: —> Year-end gift planning: eg. using exemptions now, if possible, before they change: Applicable Federal estate and gift tax exemption for persons dying or gifts made in 2020 is $11.58 Million per individual, or @$23MM per couple (no claw-back).  For transfers made after December 31, 2025, Federal exemption will revert to $5M, adjusted for inflation (@ $6MM in 2026), or maybe back to $3.5MM Current thinking: exemptions may be reduced as early as next year to provide funds needed for stimulus and due to COVID. Interest Rates plus lower Asset Valuations: Pandemic volatility in the financial markets plus low interest rates may be an opportunity to consider transferring depressed-value investments to family members through a GRAT, where little or no exemption may be required to effect the gift; remainder at end of GRAT term may go to family or a continuing trust. Will unused exemptions be lost? It’s not exactly 2012 again: Most clients made gifts outright back in 2012; Now more clients are using a trust to receive gifts (control + access) Don’t forget about the Annual Exclusion! $15K or $30K per couple per beneficiary  (that can add up quickly) – using the Educational / Medical exemptions are also a powerful tool. For New York: $5.85MM estate tax exemption with an ESTATE TAX CLIFF, tax over @$6.2MM in assets (no gift tax but 3 year add-back until 12/2025). See more about how that works HERE: —> Charitable planning and COVID: In these uncertain times, charitable organizations need assistance more than ever plus clients may be seeking an income tax advantage (deduction). This is the time when charities need you the most. For 2020 (CARES Act), $300 per individual above the line deduction ($600 married couple, no itemizers, no AGI % limitation, must be to public charity, not a Donor Advised Fund. Also, 100% of cash contributions, no AGI % limitation (consider contributions of Long Term Capital Gain property subject to 30% of AGI), must be to public charity, not Donor Advised Fund. For 2020 (SECURE Act), no more â€œstretch IRA’s” (limited to 10 years + certain eligible beneficiaries), may name CRUT as an IRA beneficiary to mimic the “stretch”. This is the time to review and revise IRA beneficiary designations. Biden is talking about eliminating capital gains and taxing them as ordinary income (proposed rate of 39%), may be better to donate appreciated assets to charity (proposals from the Obama Green Book, e.g.., carryover basis, cap gains at death, like a sale, roll-back exclusion, GST’s limited to 50 years so no dynasty trusts). Time will tell what this looks like with a divided government. For New Yorkers, consider giving a dollar amount of the estate over â€œcliff” to charity, so that you don’t fall off the cliff and create an additional NYS estate tax burden. —> Diversifying trusts by situs + Directed Trusts:  Trust friendly jurisdictions with no income tax, e.g.. Delaware (basically) and Tennessee appeal to greater NY-area grantors, South Dakota and Nevada are used more by California clients. For example, creating SLAT’s (Spousal Lifetime Access Trusts), each spouse create a trust for the other. There is a need to diversify by different states to enhance creditor protection and to use different terms, jurisdictions assets and trustees to avoid the IRS’s reciprocal trust doctrine. The reciprocal trust doctrine can defeat SLAT planning. Consider self-settled jurisdictions, eg. Connecticut & Delaware; distinguish from â€˜asset protection’ trusts which have specific rules in DE, FLA, NH, WY, etc. Many states have a Directed Trust statute (DE, Tenn, NJ, CT, etc., not NYS). They are used  most commonly to give a third-party advisor the ability to direct the investment management decisions or to hire a professional money manager for the trust assets. Then the appointed trustee only performs the administrative functions of the trust and may have other fiduciary oversight responsibility depending on the nature of the drafting.   Trend: Increasing utilization of Trust Protectors:  Trust Protectors are an independent, third-party or other person (not the named trustee or beneficiaries) with authority over the trust for designated decisions, eg.: directing investments, modifying +/or terminating a trust, changing tax situs, changing trustees, etc.   The powers of a Trust Protector (which is based on the British concept) may be narrow or broad depending on the terms of the trust agreement, as circumstances warrant.   The Trust Protector often a family member (e.g.. an uncle), but may be an independent individual (e.g.., a friend or advisor) to provide an objective voice in the mix. Directed Trusts work well for clients who want to appoint a corporate trustee for a trust but also want to have someone other than the corporate trustee control certain decisions with respect to the management of the trust, for example: A family with a long-standing relationship with a successful money manager might want that manager (not the corporate trustee) to make investment management decisions for trust assets. If a client funds an inter vivos trust with stock in the family company, he or she might want to continue to make decisions regarding the purchase, sale, and voting of such stock. A client might want someone other than the corporate trustee to decide when to make income or principal distributions to beneficiaries. Final Remarks: Careful review of client’s facts and circumstances (where they reside, own property, types of assets, etc.) together with local law is critical before selecting situs/ jurisdictions. Fun Question: Jory- when things start opening up again, what is the first thing you’re going to do for yourself? https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

https://thegamehers.com/ Video games were a formative part of my upbringing, but I have gotten away from them since my Atari 2600 and Nintendo/Sega habits. I was surprised to learn that the video game industry earned approximately $160B in 2019. It has out-earned the movie and music industries COMBINED for the last 10 years. It is estimated that there are over 2B gamers worldwide. Most telling, and maybe the most surprising to the uninitiated, women represent almost 50% of the gaming community. (The industry is made up of Publishers, Distributors, Retailers, Hardware Manufacturers, the Gamers themselves, and many other constituencies. Here is the Entertainment Software Association’s deeper dive into the emerging demographics of the Video Game Industry Data. And Newzoo’s is Here.) And if you weren’t sure if the female gaming community was ready to “cross-over”, Congresswomen, Alexandria Ocasio-Cortez and Ilhan Omar, played the video game “Among Us” on Twitch. With 12 hours notice, the event drew 440,000 concurrent viewers and represents one of the high-water marks in female gaming so far. Superstars like Pokimane (24yrs old) have gigantic followings (Twitter 2.5mm, IG 5.3mm, YouTube 5.8mm, Twitch 6.6mm). The major talent agencies like CAA, WME and UTA have divisions to represent these people. I wanted to find out more about this phenomenon, so I spoke with REBECCA DIXON one of the Co-Founders and Chief Marketing Officer at TheGAMEHERS. They can also be found on other social media platforms at @thegamehers (facebook, twitter, linkedin, twitch, youtube). Her company, TheGAMEHERs, is “a women-led community dedicated to amplifying and centering the voices of women, femme-identifying gamers and non-binary gamers who are comfortable in spaces that center women. This is a sexist-free space for the casual players, the hardcore gamers, the techies, the streamers, the designers, the cosplayers, the developers, and programmers. Their mission is to advance the role, voice, image, and power of all the*gameHERs in the gaming world.” Enjoy the discussion- I’m sure it will open your eyes! Rebecca and TheGameHers are a group to watch in the female gaming space. Introduction Rebecca, tell us a bit about your background . . . How did you get into the gaming world? What Does the Gaming World Look Like Now?   How do you break down the various gaming communities / size of the market? Women habitually underrepresented in the space- describe what the demographics in the space look like and what they look like for women? Intersection with Social Media- what are the relevant platforms? How are the platforms used?  And how does GameHers intersect with them? What is GameHers Intersection with the Gaming Companies? Whom do you get involved with in video game development?  What are they looking for? Talent Agencies? UTA, CAA, WME Who is big in female video-game field? @Pokimane @annhandLA @br The @Pokimane example ESports Twitch, Twitter, and the “Power Users” of Discord With open source coding and other tools, what are the avenues for women to get involved? What Are Some of GameHers’ Initiatives? Community, and Awards, Podcasts, Advocacy: combatting exclusion, bullying, and hypersexualization Advertising as their start to revenue and talent development. What is your path to revenue/profit? What is the next step for GameHers?   And how do we keep track of your Progress? @thegamehers (facebook, twitter, linkedin, twitch, youtube) Fun Question: What was your favorite video game growing up? The GAMEHER’s Co-Founders Laura Deutsch, Rebecca Dixon, Verta Maloney, and Heather Ouida https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Trustee Issues with Crypto-Currency (with Matthew McClintock) Family offices, trust companies and opportunistic individuals are dealing with a new and exciting asset class: cryptocurrencies. New Bitcoin multi-millionaires are “minted” by the day as interest in the space has captured the public’s imagination. It has created a host of challenges for the owners of that wealth as they use the usual wealth management tools for intergenerational planning, asset protection, and tax structuring. Bitcoin’s Meteoric Rise from 2010 (From ~$0 to ~$10,500 as of 10/2/20) (Here is a quick primer on Bitcoin – A HISTORY OF BITCOIN, INCLUDING PRICING. Today’s podcast isn’t a discussion of the merits of cryptocurrencies as investments or where they fit in a portfolio). Bitcoin and the other cryptocurrencies are controversial. Cryptocurrencies are grounded in a logical technology workflow (blockchain), but they have a shadowy origin and crypto’s intrinsic value is rooted in public confidence around that blockchain workflow, not the usual confidence in the strength of the country that supports fiat currency. However, crypto’s popularity has exploded and its value (and volatility) has rocketed along with it. What is unquestionable is that significant wealth has been created with the rapid increase in value of many crypto-currencies. The financial services industrial complex has not kept up and it puts many crypto-wealthholders at risk. There are 13,290 BTC addresses with more than $1mm according to this GlassNode REPORT and this does not include other coins like Ethereum, Ripple and the rest. Much of that wealth has been created in the last five years. Those owners are asking lawyers, accountants, and crypto-exchanges how to protect it, use it, borrow against it, diversify it and transfer it to the next generation or their selected interests. The owners of that crypto-currency wealth are getting older and looking for structures to protect this wealth for future generations. These structures include trusts and involve individual and corporate fiduciaries who have major responsibilities around the safeguarding and reporting of assets (including tricky ones like crypto-currency), the prudent investment of assets, and distribution of assets according to the terms of a trust and, where silent, in accordance with their best discretion. Besides the investment bona fides, what are the issues that these fiduciaries should be worried about? How do institutions, trustees, and others who have responsibility for others’ wealth deal with this complex asset. To find out more, I spoke with MATTHEW McCLINTOCK– Partner at the law firm of EVERGREEN LEGACY PLANNING. Based in Evergreen, CO and Newport Beach, CA. The firm focuses on generational wealth planning for affluent clients. Importantly, Matthew has on-the-ground experience planning for cryptocurrency wealth, including clients with crypto-wealth in nine figures. We talk a little bit about the asset class, but focus on spotting the issues for the advisors that have to help client’s navigate the high stakes world of crypto-wealth. The outline for our conversation: Matthew, tell us a little about your background- How did you get interested / experienced in cryptocurrency? What makes cryptocurrency so unique as an asset?  What are the properties that make it like a Currency? Property? Commodity? Very quickly, how does one buy, hold and sell crypto currency? How big are crypto-fortunes right now? With intergenerational wealth, often times trusts are used for tax, asset protection and other forms of planning. Trusts are “located” in a jurisdiction, contain assets, have a grantor, a trustee and beneficiaries. The Trustee must safeguard/custody, invest and distribute the assets per the trust. Are people funding trusts with Cryptocurrencies? Being responsible for crypto-wealth Dabbling in this space can be dangerous and mistakes costly. Trustees must be willing to invest the time to learn how crypto-currencies work. How secure is crypto-currency for those holding it personally? Encryption is the key for secured access Cold (Digital Storage that is disconnected from the internet and hackers) vs Hot Wallets (Exchanges with connectivity to the internet) How susceptible are exchanges to hacking? Custody- What makes cryptocurrencies a tricky asset for custoidans? Required encryption (which could get lost)- a positive and a negative. What if there are bad actors? Is Crypto-Currency risk really a human resources problem? Processes for storing and then transacting crypto-wealth should require checks and balances to access it- should you require multiple parties to effect a transaction? What if a trustee resigns or is fired and has access to the crypto information? Is this remedied by transferring the crypto to a different wallet? What does a good procedure look like for transfers and transactions involving crypto-wealth? (Once it is gone, it is extremely difficult to get back- a transposed number could destroy a firm) What does a good procedure look like when a crypto-holder dies? What should executors and powers of attorney be prepared for? If going from a cold wallet (secure) to a hot wallet to liquidate/trade/lend (yield farming), how does a trustee deal with that? Cryptocurrency is taxed as property and requires the tracking of basis. What systems do you need to effectuate this? Many estate plans make use of situs to effectuate goals like tax planning, asset protection and other goals. How do you maintain situs with a “non-physical asset”?  If improperly set up, state taxes on crypto capital gains (or estate/transfer taxes) could be significant. Is this a breach of fiduciary duty if a trustee or other fiduciary doesn’t effectuate the broader tax planning? Best Practices Is it total madness for an individual trustee to take this on? What are you seeing good trustees do when dealing with cryptocurrency wealth? What advisors should a crypto-wealth holder have and what questions should they ask? Is the right first question, “Do you have any cryptocurrency holdings?” Important partners: Accountant (and custodians that are able to track necessary information like basis and farmed income) Attorney used to tax, estate planning with experience in crypto Financial Institutions (and states) used to dealing with cryptocurrency Exchanges used to dealing with trusts States with legislation that cryptocurrency friendly (ex. Wyoming, Tennessee) Examples of weird state intersections What are the hot points should we look out for as this space develops? Fun question What three people living or dead (and not family) would be a fun dinner group for you? https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

When you have the chance to spend an hour with Jim O’Shaughnessy, you grab it with both hands. Most of us feel like we know him personally based on his thoughtful opinions and Twitter acumen (@JPOSHAUGHNESSY). But Jim is obviously more than just memes and GIFS. Jim is the Principal, Chairman and Co-Chief Investment Officer, Portfolio Manager of O’Shaughnessy Asset Management (“OSAM“). He is a four-time author including the seminal investing book “What Works on Wall Street” and hosts the INFINITE LOOPS PODCAST with Jamie Catherwood. https://www.amazon.com/dp/B005NASI8S/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 I knew about a decent amount about his career and what his company does. However, Jim is a Renaissance Man and a perpetual student who’s mind can’t get enough. I wanted to get behind his thinking as he made the move from a once mighty investment bank to starting (and building) his own firm. How does someone with ferocious curiosity make joint decisions with family, with colleagues. How did he use his own attributes and processes that helped him build a successful business to help him build a successful family with his wife and kids? Finally, how does someone like Jim think about the inclusion of the family in his business? Who is going to run the business as he has gets older? Finally, how did he get to the ultimate decision of handing the reigns of the firm to his son, Patrick? I hope you enjoy this episode. This is the story family businesses should hear. While the road is littered with family businesses left in tatters due to dysfunction, Jim talks about some of things that worked for him and his family. I include our outline below, but beware. We veer away from the script early and often. Amazingly, by the time we are done we cover many of the questions I had. Ownership and Operational Succession What does OSAM do? Background on your expertise- Take us through Development of the Company What is the company focusing on now? CANVAS Positive Sum Invest Like The Best / Infinite Loops Capital Camp Managing Transition You’re 60 now!  What has been your thought process about where the company is?  And where it’s going to be? It seems like you embrace younger people – What does this do for you? Energy, new ideas? How have you At what point did you start to think about the company with you not at the helm? How have you dealt with your other kids on the participation of the business? Did they self-select in or out? Skills? How do you reconcile what you think vs what they want to do? How is your wife’s input on your decision-making? When did Patrick start looking ready to take on the roles that he’s taking? How have you handled it when someone disappoints another? How do big decisions get made at the company? What does a conflict look like?  Who holds the tie-breaker vote? Do you have a board?  Formal or informal? One of your most endearing traits is your open-mindedness.  How do you get to say no? Managing portfolios vs Managing the Business What are you good at? What are you bad at? Twinges of mortality- what do you want your legacy to be when you look back on life? What are the values that you want your kids and grandkids to have? What have been the challenges there?  How do you get your kids to communicate about the issues related to the business and their roles in it? How have you involved spouses in family decisions? Whom do you go to help you think through the role of the business in the family? Friends, colleagues, professional advisors? How do you think about the ownership of the company going forward? What do you see as the biggest challenge in managing the transition of the company and your role in it going forward? Fun Questions: What haven’t you achieved yet that you would like to? What does an average Tuesday look like for you? Three people (excluding family) alive or dead that you would invite to dinner. I also went ahead and got a loose transcription for those who want to read the proceedings. This is a new one feature, so bear with me! Transcription FR: Welcome back to the “Wealth Actually” Podcast. I’m Frazer Rice. Today, we’re joined by Jim O’Shaughnessy. He is an elder statesman on financial Twitter, but more importantly, he’s the Principal, Chairman and Co-Chief Investment Officer and portfolio manager af O’Shaughnessy asset management. He’s also a four-time author, including the seminal work, “What Works on Wall Street”. Jim, welcome aboard. JOS: Well, thanks for having me. I’m delighted to be here. FR: It’s a treat for me, I’ve been following you on Twitter for a while now, and you’re one of the major voices of reason in a chaotic platform. JOS: It’s my niche. FR: (Laughter) Perfect! I know you get a lot of questions about your investing style and how you manage assets and things like that, but one thing that I don’t think people know about and that I’m interested in is how you grow your business and how you think about transitioning your business to the next generation and running it, once you think about retiring, which… Given your energy and the way you go about things… That’s probably going to be in about 55 years or so. But at the same time, as you and I both know there are lots of factors to consider both with the business and the people that you employ and your customers, etcetera, to make sure that you have a tidy transition. I thought it would be interesting to hear a little bit about that from you. JOS: Sure, O’Shaughnessy Asset Management was a group spun out of Bear Stearns where I had been the Director of systematic equity for several years, we came to a very amicable agreement with our friends at bear, some people might sneak her at that, but it’s actually true. We took a lot of time because people don’t really understand that Wall Street is kind of a small place, and you really don’t wanna burn any bridges, and so we spend a lot of time getting that negotiated and then unfortunately prepare Stearns, we had the financial crisis and it kinda looked like we knew ahead of time, we certainly did not know ahead of time, it was just pure dumb luck that asset management is… Our primary business is long world equities using entirely quantitative investment methodologies to select securities, so basically, when people say, Well, what’s a normal day like at Sam? If a normal day at a traditional shop is people talking to the CEO and trying to calculate discounted cash flows and checking on competitors, etcetera, our team’s normal day is spent doing quantitative research. We take that very, very seriously. It’s something that I believe must be continual because we can never stop learning, things evolve. So if you looked at our models when we formed OSM and 07, you looked at them today, you’d see foundationally, they’re the same in terms of the underlying definitions of factors, the groups of factors, etcetera. I think we’ve gotten significantly better through our research at getting to the real kind of numbers that are going to have the highest chance for us to succeed, in addition to long world equities. Mostly us, I should say, we are a sub-advisor to the Royal Bank of Canada, the asset management arm up there, where we run portfolios mutual funds under the ocean sea bus name, and I’m delighted to say that’s been a partnership that we have had since 1998. I believe. Wonderful, wonderful people. We always say, even though the people have turned over and the CEO is much different now than it was in 97. when we struck the deal, same kind of people, they are a delight to work with their people of their word. I often say that if Harvard wants to do a case study on a successful partnership, they should look at that because it’s one of those things where everyone performs like they say they’re gonna perform well. FR: And that sounds like an interesting example as you look toward your organization, you’ve got a nice experience from a business partner as to how things not only should run currently, but how you want them to look culturally going forward so that you’re building… You’re not just building the blueprint for the house, that you’re building the house, and then as things change and modify, you’re able to sort of adapt to different conditions… JOS: Absolutely, it’s always been great for us to have the resources of a much larger organization that we can just paint and we say, What do you think about this? What do you think about this? And they’ve been very, very helpful in that regard. Disclosure, they also own 10% of OSA. But being just a straight plain vanilla long equity asset manager was never even in my first iteration of this, which was a OSAM back in 1987, I always wanted to have a firm that offered not just long equities, but other types of things opportunistically, as we found them, I’d like to tell you about two. The first is what we call canvas, and there’s a great hero quote that says, The world is but a canvas for your imagination. And essentially, that’s what Canvas is, but for asset management, my son essentially came up with this idea after becoming CEO and taking a look at what… I tried to do something very similar with a company called Napoli in 1999, which was the first online investment advisor, but I’ve always been a tech, I love technology. So when we spun out and we had the global financial crisis, I looked at my people and I said, Well, my guess is we’re probably not going to sell too many long only equity portfolios over the next couple of years, let’s retain clients, but let’s spend this time to build the absolute best technology that we can… And we did, I still remember the day and my son came into my office and he’s like, then we built the Death Star to kill a mouse. And by that, even as you might imagine, we have a ton of data that is pretty expensive from a variety of data providers, but that’s not all we have, we have hooks into all the custodians, we have very sophisticated software for cleaning data, etcetera. And he said, I like this idea of letting advisors, because right now, we work exclusively with financial advisors. FR: the RIA community and others… JOS: Right, correct, yes. And what we saw coming was a desire for not only flexibility, but for the advisor to fully express their clients desires, what they like, what they didn’t like, and frankly, in packaged products, you really can’t do that, not really… FR: I was gonna say, one of the interesting things about it, and I ran through the Canvas demo in a past life, and I’ve sort of really focused on it, it really takes that behavioral finance component of customization of the client experience and translate it to the implementation of investment advice, that to me is what works if you’re a Google employee and you’ve got 90% of your net worth in the stock, you don’t wanna see Google show up in your investment implementation, and when you get packaged materials, essentially, you’re gonna get that overlap whether you want it or not, or if you’re afraid of international stocks, and that’s part of your behavioral hard-wiring, and it’s gonna take a long time for your financial advisor to undo that, that’s the way to step in and customize what’s happening in a way that, on the desktop, it makes it work? To me, what I liked about it was the idea that it’s sort of… For lack of long-term sort of active management 2.0, there’s sort of active management across the index and defeating the index to the extent you can on its own merits, but then there’s applying active management to the individual and their behavioral finance attributes. JOS: No question. And if you ever need another job, please give me a call or doing a very good job describing that… Yeah, essentially, what we want it to provide advisors with was a tool, as you say, that they could address the concentrated stock issue, packaged products can’t do that. Address tax alpha, you can consistently over a market, generate just through tax management, you can generate about 70 basis points of actual return for the client, now that’s an estimate, and it will be different with every client sector immunization. So let’s stay with the Google employee. Let’s say that he’s an active investor in other tech ventures or she… She might come in and say, You know what? No. Exposure to the tech sector. I’ve got that covered over here, we can do that for them. We can also do direct indexing in a way that allows you to throw out stocks that you really don’t like or add stocks you love, we will tell you what the back test… That implications of that would be… So we don’t watch going in blind, and we don’t want you saying, Hey, yeah, I want this past of penny stocks in there as well, but we have the ability to show you everything that you might be thinking about ahead of time, and then as you say, get to customization. It’s a breeze with the canvas platform. And importantly, it’s ESG. Your way, not our way. It is what OSAM thinks ESG should be. It’s what you think ESG should be, for example. So I have two daughters, whom I love very much, and I grew up with four sisters. Well, guess what? I would like to see more women in C-Suites or on boards. And because of the programs that we have available to us, our list didn’t exist above… I don’t know, I think we did this 10 months ago, but one didn’t exist, and we told one of our machine learning guys, Hey, we need a list showing two or more and C-Suites are on the board. “When do you need that by? When do you think you can happen for us? We can get it this afternoon. So literally, you can come in and drill down on any of your passions, everyone is different, everyone has different things that they’re passionate about, so we try to remain absolutely neutral, because if you followed some of the other things that I write about on Twitter, I’m obsessed with words and labels, and some people read them one way and other people read them another way, and sometimes that gets lost in translation here, if you want a specific portfolio that even if it looks odd to us means something to you… We can pretty much effectuate that in the portfolio that we designed for you, so we think we’re trying to go pretty slowly with Canvas, because another thing, as Patrick, as the sort of King of financial podcasting has access to a ton of the brightest minds, and some of the best advice we got was from those minds saying, pick 10 great clients originally, and then don’t take any more until you’ve made those 10… Absolutely delighted. Boy, has that worked well. FR: Great advice. It reduces the data flow of a huge release and having 50% of the people who are mad at everything coming at you, and at the same time, it’s enough of a sample that you aren’t basing your whole company on one person’s experience or two people’s experience that may not scale, essentially. Exactly, and we also picked very different style advisors for the 10, we wanted to get input from as many different kind of view points, if you will, that we find an asset management, but it also led to an initiative that we have unveiled just a bit ago, which is a venture capital arm called Positive Sum, that had its own box on my first little outline of what I wanted an asset management company to look like, but I didn’t wanna just “do one”, I wanted to wait for an opportunity to present itself where we could actually add significant value through relationships, through insights, etcetera, and Patrick with invest like the best and his other endeavors, has put together an unbelievable group of not only VCs, but business people, CEOS, founders, etcetera, and we’ve gotten a unique insight into what we think, and obviously venture capital is risky, everyone knows that, but we’re gonna be doing mostly around style investing, and importantly, we have been doing it through OSAM as family partners, Patrick and myself. Doing the analysis since 07, so we’re not new with this, we’ve been doing it with our own money, we’re putting our own money in positive some, because another one of our beliefs is we should be parties with you, I mean, you might have less money in than we do or more money than we do, but we want exposure not only to the long only portfolios, but to anything we offer, we are super excited about the opportunities with positive some, because the network effect there is really, really quite strong. That’s another thing that we’re doing right now. The third thing would be, we’re learning a lot, and VC fits into this. But we’re learning a lot more about private markets because private markets are becoming more and more important, so for right now, we’ve done that through an investment with a guy of the name of Brent Beshore, which is private equity, but it’s not private equity, it’s so much… So not private equity, we called it… Or he called it permanent equity. Our goals are very different than a traditional private equity there to work with founders, they are to keep them around, and essentially what we’re looking for is a collection of businesses private that just throw off a tremendous amount of cash flow that gets returned to the investors on an annual basis. FR: So in an era with negative interest rates, we think things like that might be very interesting to the group of investors that we serve, so as we’re sort of canvassing, not to sort of throw the pun out there too quickly, but the overall landscape of your holdings and the business itself, you’ve got Patrick involved, you’ve got an interesting sort of subset to which I wanna focus on a little bit too, which reminds me a lot of Josh Brown and Barry Ritholtz’s ideas about having a media component which helps fuel not only the sales funnel, but the information funnel upon which you make decisions, which my guess is, is that you had that in the back of your mind somewhere as your career developed, but you wanted to implement it into your business overall, and then through Patrick and maybe through other people. You’re taking these ideas in and you’ve got the people to implement it beyond that, which you can do managing portfolios, good analysis or is it… Am I strained a little bit? JOS: Actually, a very good analysis. I joke that you can have the absolute best investment process in the world, and if nobody knows who you are and nobody knows what you’re saying, nobody’s gonna give you any money. So if you watched my career, I did a tremendous amount of traditional media in the late 1990s, early 2000s, when Marques was still alive, I co-hosted Squawk Box with him almost every other week, you had three hours back then, and you could get into really in-depth conversations and I did a lot of print media, I did a lot of… In addition to CNBC, we would do Bloomberg, we would do all that sort of thing, so we always understood the importance of having a voice, in addition to having a voice, you get to hear good feedback that sometimes is critical, you get to hear people say, I really like your idea about that, but I kind of think you’re off-base or off sides on this one. What do you say about that? And through that kind of constant iteration, our motto at the firm is learn, build, share, repeat, so it’s a continual circle and you can’t get feedback without the share component. Before What Works on Wall Street was published, I had an offer from a very large investment bank to… They wanted to buy my company, but their provision was, I may not publish what works on Wall Street, they wanted it to be proprietary, it ended up being a no-go, and one of the main reasons for that was, I passionately believe that you can have the best process in the world, and you’re still gonna have 80% of the people looking at you and saying, You’re an idiot. I don’t want that. And so I believe passionately in the power of ideas and the power to create better and better processes and better and better portfolio techniques, etcetera, that are in better companies through this ongoing process of sort of learning in public, you’re at when you do that. Because people might be on charitable, you have to have thick skin. Let’s put it that way. And I’ve been doing this for a long, long time, and I’ve gone from genius to idiot, genius to idiot so many times that it simply doesn’t bother me anymore as part of the market cycle, and so you have to have a thick skin, but if you do, the feedback is essential and amazing, and you also get access to a group of people, Patrick, in particular with invest like the best, but also me with infinite loops, we have two very different audiences and want different things from the podcast, but I’m a big believer. The more interesting people you talk to, guess what, you’re gonna learn more and more interesting things and a lot more when you’re not talking to anybody. FR: And to be cavalier, you become more interesting yourself, all of those ideas just… They fire different synapses and antiennae, I think it creates big pockets of creativity that fuel… The next thing, My hypothesis is that through your media exposure early on, in addition to what you were doing, that’s what you’re able to see around the corner a little bit and say When 2008 happens, you’re saying, You know what, we’ve gotta build another mouse trap here, because this game may be over and quantitative analysis, we may not be able to compete with Jim Simons and the Wang super computer over here and the Cray Super Computer over there, but we’ve gotta find something else that to me is where… In your podcast, you call it infinite loops, that’s how you break them, is you bring other people on and listen, like the Borg in Star Trek, assimilate all of that and then make it your own and move forward. JOS: Absolutely, you’ve nailed it. We are always searching for new and better ideas, we find that you’ve got to be what I would call radically open-minded, and by that I’ve done some threads on Twitter, there’s another thing I did all traditional media for the majority of my career, and then I started noticing something I started noticing that social media was becoming more and more important. Primarily, I think… And I’m specifically talking about Twitter here, it is a two-way conversation. It is not one-to many, it is often one-to-one, one-to-many or many to one. I still believe, and people tease me about this because there’s a lot of nonsense on Twitter, but I believe that Twitter has the capability of being the world’s first successful distributed intelligence network, and if you curate your feed… FR: Well, and you get the right people engaged in the conversation. JOS: My word, I mean, I have learned… For example, we have a research partner program, and we have what I would call one of the brightest minds working in finance today as a research partner, and guess what, he’s anonymous on Twitter and he doesn’t work in finance, and yet we vet all of his papers and their goals, we have the opportunity through these connections that we set up, both through podcasts and through Twitter and other social media, to the top of our funnel is huge, but we’re selective ’cause we can be… I’ll give another example. So I’ve been toying with some hypotheses about using large data sets and machine learning to identify things that traditional quant can’t identify, and we have a couple of machine learning experts also as research assistants who literally we could not hire. They retired from huge tech companies, they’re young people, they can only coach their kids soccer team for so long, and the thing that I find about these people that is very similar, is there graciously curious, and when you get that kind of mind and say, Hey, you wanna check out this data set, and they see this last series of data, they get very, very excited. So we’ve been able to understand the evolution, or at least what we look at as the evolution of media and dealing with other experts with the public, with clients, with our employees through these methodologies, and the results have been nothing short of staggering to me, at least, Jesse Livermore would be the name of our writer who… That’s his pseudonym, but we’ve had PhDs in Quantitative Economics and Finance say, You gotta tell us who this guy is! FR: Nothing wrong with your anonymous secret weapon in the back, right. JOS: So yeah, we definitely believe that the world is changing, we believe that we want to be a leader in that change as opposed a… That isn’t the way that’s done here, but you can’t have any sacred cows if you want to be that, so you can’t have me saying, But no, you’ve always gotta use this factor… No, no, you don’t. FR: No, Jeff Bezos is looking for your sacred cow Curran, you hold on to it too long and you just set yourself up for the car accident that you can’t see… JOS: Without a doubt, without a doubt. I was taught something by my grandfather, I was the youngest grandchild or grandson, I had a cousin who was the youngest granddaughter, a few months younger than I was, but I had the good fortune of living in the same town as he… And he was a very successful man, and one of the first things that he taught me about… What is this thing he called pre-meditation, you could kinda say it’s a mind manticore system, in which you think about, Okay, so what do I want? And then you vector out everything you can think of and you write it down… I find that very important, the writing aspect, because if you can’t clearly express yourself in writing, you don’t know what you think, that’s a rather out their opinion, but I just believe it. Again, for books, I believe very deeply in that if I had some information that I thought could level the playing field, let’s learn… Let’s build that out. So what were some Wall Street now… And it’s fourth addition. Let’s share the number of papers, the number of people who have called me with good advice on, Hey, did you ever think about doing it this way, who had read what works on Wall Street, you just open up the tents, and as long as you are incredibly open minded, which a lot of people, unfortunately are not, and that’s why I always write about a lot, the most successful people I’ve ever met in my life, with just a few exceptions, have had not big egos, they have been very, very… If anything, they were just curious, they were almost like my six-year-old grandson, Why papa? Why papa? Why papa? And I love it, and I just love learning when you’re like that, like finds like those are the kind of people that I have the great privilege and happy fortune to deal with. FR: I hate to use “age” in a public forum, that’s the fastest way to get a drink in your face or get your eye poked in, but you’re 60 now, and as you look at your business and you look at the values, and I hate to call it methodologies, but the concepts that help build it and that you’ve instilled in Patrick and your employees. How do you look at the business? Now, you’ve gotta feel good about where it is, you have to feel really good about its trajectory and the different things that you’re trying, and it sounds like your energy comes through, it sounds like it’s a great encapsulation of what is inside you… How did you get to that point in terms of including Patrick in it, and maybe talk a little bit about his development and how he came on board and how that worked with the rest of the family, because in my world, there are many extremely successful businesses that maybe are at this stage that you’re in right now, but the family dynamic or the lack of communication between siblings or baggage or different issues out there, create significant road blocks, and it sounds like you’ve got some of that figured out, I don’t know things perfect, but how did you get to that point and how did you sort of either build the team around you to help you push through the values and the guiding principles, how did you communicate that to the people around you? Not just your family, but your employees, your vendors, your customers, etcetera, so that they felt good about the transition… That you feel so good about. JOS: Sure, so I had the great good fortune of growing up in a family business, my grandfather was very successful in the oil business, did very, very well, I’m incredibly proud of him. He gave away 95% of his net worth during his own lifetime, he was doing what buffeted gates are doing, but he was doing it about 60 years ago, but I was pressured by my uncle who I loved, and he loved me to work for the family business and he wasn’t subtle about it, and I was very patient with him, and he was very patient with me, to be fair, and I finally convinced him that the oil business was just something I was not interested in, but I was super interested in the stock market and the investment world, and finally I got a smile out of him at dinner and he’s like, Well, you are persistent, and so my guess is you’re gonna do well in that… Of the world. But one of the things that taught me was that I was never going to even suggest as my children were growing up, that they should show and the interest in what I did for a living, I did that because I had seen other cousins who weren’t as persistent as me end up working for the family business, not being terribly happy about it, and I just saw it, well, I was a very lucky guy to learn this lesson early… Literally, I don’t think Patrick read “What Works on Wall Street” until he was out of college, to be honest, but he graduated from Notre Dame with a degree in Philosophy… And a lot of people will kind of sneaker at that. FR: Not me, I think it’s one of the best degrees you could have if you wanna be a good thinker, the mark of intelligence has two different types of thought over around the same concept at the same time and to be able to wrestle with both sides of them without injuring yourself… JOS: Exactly, and I was a huge fan of philosophy and I read a lot of it, even though my degree is in Economics, I love history, I love philosophy, and so we would have great conversations. Anyway, he came to me after graduating and said, Hey, could I be an intern at OSAM? And I’m like, Sure, do you wanna be? And he goes, Yeah, I read what works, I read how to retire rich. I’m pretty interested in this and I’m like, Okay, sure, you can be an intern, but here’s the deal, you are not gonna report to me, You’re gonna report to this person who was like several layers removed from me, and you have an expiration date, which is January of next year, and he was deal. And so, about four weeks into his internship, the guy who was working for was the Director of Research, and he came in to my office and said, Hey, Jim… Yeah, I think part is the only intern we’re not paying, and I think the only reason we’re not paying him is because he’s your son and he goes… I think he’s super valuable, and I really think that you need to pay him, and I was like, Okay, so we did it… Go forward. another month and a half, close to two months. Getting closer to that January deadline, the president of my company, Chris Lovelace, came in with the Director of Research, sat down and said, Jim, we have to hire a Patrick. I’m like, Okay, well, tell him you want… And he goes, ’cause we don’t know what it is. It might be genes, but this guy, he just gets quant, I just totally gets it and can articulate it in a manner that is amazing, so we hired him, but not… The advice came from my colleagues, it was not me saying we were gonna hire a Patrick, it was quite the opposite, and I did that intentionally because I wanted my colleagues to be his champion. I didn’t wanna be his champion, I was delighted that he was interested in the business, and I was delighted that he was as good at it as he was, but I felt with him being championed by his colleagues bosses at the time, they would look at him in a very different manner than if I had simply installed him because that would be an anathema to my way of doing something. FR: And then there was the great test… And the great test, I mentioned RBC earlier. So one of the things that’s marvelous about the folks up at RBC is the stereotypical Canadian is very nice and polite, and they are, but they’re also… No bullshit. In other words, if somebody is not up to snuff, you’re gonna get the call and you’re gonna be told that this person is not up to snuff, and so there was a week-long presentation series that one of my senior guys was supposed to do, and he got ill, so I got a call from the president of RBC Asset Management. Now, this is several years into Patrick working with OSA, and he goes, I think it’s time for you to send Patrick up here. And I’m like, Okay, knowing that that could be a very high-risk endeavor because they’re very, very high standards at RBC. I was on pins and needles. I did not call Patrick or bug him, I left him alone. And the senior guy was traveling with, and I didn’t speak for the whole week, was killing me, but I kept silent sitting Indian-style and… No question, no question. And so anyway, finally when Patrick got back, I was like, Well, so how to go? And Patrick looked at me, he goes, I think it went well. I’m like… FR: Okay, you’ll find out quickly. JOS: I will… And so I called the folks up at RBC and the head of asset management said, I have two things to tell you a gym, we thought he knocked the ball out of the park, and secondly, and this is not meant as an insult to you, but we want you to know how Ile think of him. We think when he matures and is that his best… He’s gonna be better than you at this. And to me, that was like, That’s the best thing you can hear… Exactly. It was music to my ears. Concurrent with this going on, I was the Chairman of the Chamber of Music Society of Lincoln Center. We had had a situation where we had the same chairman for a long, long time. I loved chamber music, I love Lincoln Center. But when asked whether I would succeed him, I was not reticent. But I said, Okay, I will, but I have two conditions. The first is, we have to have a succession plan in place before you announced that I’m the new chair, and the second thing is it’s gotta be a woman, because after all, Alice Tully was the first chair and the last female chair, which to me was absurd, and I said, Oh, and final thing, I’m terminating myself, because If I can’t accomplish in the next five to six years what you want me to accomplish, I failed, and you’ll wanna replace me. And so everyone agreed, and we explained to the community to our funders, to the musicians, to everyone who had a stake in the outcome of CMS remaining sort of the global leader in chamber music, everyone thought that that was a great plan, and it led to other conversations with colleagues of mine, both at OSM, but also on the board of CMS, and one fellow was a very high ranking executive at a Fortune 500 company, and he was saying to me, man, if we would only do that, if we would only have that kind of clarity around, who is going to succeed? whom and why? That would be a great help. So at that time, I started thinking about Patrick as the next CEO, and I tested that with my president, who has been with me since 1997. I tested that with another colleague, my director of sales, who has been with me since 1997, obviously long tenured, I respect the hell out of both of these guys, talked to my head trader, She was like, “Duh!”, but I really solicited their opinions, honestly, with that back pocket information that I got from a highly reliable resource in RBC, it was agreed that I was going to accelerate naming Patrick CEO to January of 2018. FR: You had it easy! JOS: I did, I really did because another one of my core attributes is that I’m really lazy. FR: Quick question, did you take the idea to a kitchen cabinet sort of outside the business world, you lawyers or friends who were entrepreneurs and things like that… JOS: Yes, yes, I did. Two friends and lawyers in particular, but the lawyers I brought it to were good friends and had been for a long time, wide experience, and he seen lots of in so many of these things gets screwed up, and so when we decided to accelerate his position as being elevated to CEO. We also decided that for the first six months, even though he was gonna be the CEO in name, I was still gonna be shadowing him, if you will, and Patrick and I are very, very lucky in that in addition to loving one another, we are very similar in our outlooks for how to run a business, how to treat people, you had mentioned you were kind enough to send some questions in advance, which we’ve only covered a few, which I love by the way, ’cause I’m really good extemporaneous, and when you want to script me, I’m like “GRRRRRR” FR: Let it flow, man, because that’s where the insight comes out. So anyway, one of the things that really was something that I passionately believe in and have all my life is I love young minds, and that isn’t meant as any kind of discriminatory statement against guys like me or 60… ’cause I think I’ve got a pretty good mind too, but if you know history, if you know when mathematical breakthroughs were made, if you know when physics and physical things were made apparent… One of the things that you just can’t get away from is that for the most part, these people had their best ideas when they were… Let’s call it under 45. and the enthusiasm, as well as the idea of… We had lived through a paradigm shift, so as you mentioned, I’m 60, I was an early adopter. I had one of the first membership IDs that CompuServe… I had the much covenant two-digit was like 74113, most have had three or four digits, I had two and that showed up, I was like one of the first guys, but their generation were true natives of this new digital environment, it’s hard to translate that into… Perfect examples. But it’s kind of like the fish who doesn’t understand water, because he lived in water all of his life, and he doesn’t have to say, Oh, what is this object? Dad, I don’t understand it. It’s part of them. And so the technology, the ability to manipulate code, all of those things were things that came very naturally to younger people, now I have senior people were working for me in their 50s and they do great jobs, so we’re not discriminating on age here. I don’t want anyone to get that impression ’cause I’ve had for me, I guess, but the point is, I want it to maximize the potential for Patrick to be able to do really interesting and business-changing things sooner rather than later. FR: What happens when the two of you disagree? It must happen. And have you disagreed on any major strategic issues, or is it something where the two of you think so similarly, in many ways, you kind of arrive at the same decision at the same time, and it works, but I am interested in how the two of you resolve conflict to the extent it ever exist… JOS: Sure, so very low conflict relationship between Patrick and myself, primarily because that’s the way I raised him and people would say, Hey, your kids all turned out great. What do you do? And I said, my wife and I talked about it at length, and we came up with a single line, the single line is, we want to raise great adults, and if you wanna raise great adults, that precludes all sorts of behaviors that parents engage in all the time, it precludes me saying, Because I’m your father, and I said So, it precludes me from saying, because you live under my house and my rules, it encourages Patrick, I want… It comes to me, I wanna do this. I think you shouldn’t do that. Give me some reasons, if the reasons aren’t good enough, I would say go back and think of some more, and he would come back and have a very well-reasoned argument at a very young age, so that kind of worked into the way we deal with one another, now, so we have different skill sets, were very symbolic in terms of vision, where we see things going, we couldn’t agree more closely on that in a little more theoretical than Patrick is. One of the things I’ve been working on right now is, I’ve always said that markets are complex adaptive systems with feedback loops, the reason they work so well is that for the most part, they are heterogeneous, in other words, people have different opinions, you might sell me apple and I’m buying Apple, but we could both be right, you could be selling it for a reason… That makes sense. I could be buying it for a reason that makes sense, Mark, it’s clear that way, and price is discovered, however, during certain periods in the market, usually in kind of a black swan type way or a bubble or a bus, what happens or information cascades take over. We as human beings are very mimetic creatures, in other words, we copy other people, and we could do a three-hour podcast on my thoughts on that, I’ve been studying it like mad, forever. Suffice it to say, we’re very mimetic when information cascades happen, they cause people to become very homogeneous about their ideas, we all have the same… All thinking the same thing. So it’s been one of my goals to look for a quantitative signal, the place I think I’m gonna find it is in these massive data sets that we’ve been retaining from social media, from news from a variety of sources, and we’re not trying to predict a black one by the way, because by its very definition, you can’t predict a black swan, all we’re looking for is confirmation that one has occurred, so this is a much more complex topic than you might think it is at first blush, and I love thinking about things like that. I love thinking about, Oh, if I had my way… What would I have… Well, I would have quantitative confirmations of these black ones because in my DNA, I’m such a quant, for example, during the real estate bubble, I would still a very stern… I was wanting to repair starts telling anyone to listen to me… Short your house. Short your house. But because I was such a quant and because I only invest in things that I offered to the public, I didn’t do anything about it. Patrick is extremely good at the very practical aspects of A, B and C, he’s very good at looking at understanding total addressable markets. The point being, we complement one another quite well, because when we’re looking at, say, I mentioned that once family partners has done venture investing since 07, A lot of those deals were sourced by Patrick, but then it was me doing the deep dive and asking the types of questions that might not naturally occur to Patrick, so I think that we’re incredibly symbolic, we have never had a major disagreement on minor disagreements, it depends on who it means more to… To be really honest, if I have a minor disagreement with Patrick, but he feels very passionately about something, and Patrick wins because he feels strongly about it, he expresses himself quite clearly and well to me, vice versa. So if we’re in something where we’re changing a model or whatever, one of the only things that I will never allow as the chairman and founder is we will never emotionally override any of our models ever. And I have a near 30-year track record of that. And we had a guy come from the old Leman brothers who were… He was a consultant, and he was a consultant to Quan as IT managers, and he told us, and this was in 09, that fully 64% of the quant managers he covered overrode their models emotionally. FR: That’s not quant anymore. JOS: No, exactly, exactly right. What I said was, they have no track record, all of their previous track record was negated because the only way they got that past track record was having the emotional fortitude to… Again, behavioral biases. So I wrote a funny thing for a friend of mine, it was like… He was writing about behavioral biases, and it was like the question was, what is your biggest behavioral biased? And he did this for a lot of people, What is your biggest behavior bias and how do you solve it? And I wrote, my biggest behavioral bias is being a human being, I saw it by being a quant… FR: Let me steer you in one direction here, ’cause I don’t wanna keep you from dinner, it’s actually it’s getting later than we thought, but… I appreciate it. JOS: Well, this is fine. FR: This is fun. I could talk to you for probably three hours- torrents of wisdom. Your wife and daughters, how did they witness all of this and were there any issues… Everything you described, it’s actually couldn’t go any smoother, frankly, but issues with your daughters and the path that they took? And your wife, you’re communicating with her as to the direction of the company and involving one child maybe at the exclusion of the other two, were there patterns of unfairness that you were worried about? How did you broach that with everybody from a communication standpoint? JOS I was very explicit with my daughters when I asked them the question, Are you interested in working for OSA, because if you are, you can… But here’s the process that you’re gonna be put under just like your brother, and you might get mad at me because the people who are telling me what they think of you might not think are the best… I don’t know, I think you are, but I’m your dad. And I was very blessed with the good fortune of having two daughters who had zero interest in asset management, my middle daughter cake has just published a marvelous middle grade fiction book, which is doing very, very well. She’s an author, already has a two-book deal, it looks like she’s going to be very successful in her chosen career. My youngest daughter, Lal, is a stand-up comedian, which I love. Because boy, if I want to know any of my shortcomings, she wants brings them out to me, but we also… When we formed OSAM family partners, each of the children have an equal stake in OSAM family partners, so none of them feel left out if Patrick succeeds wildly as CEO and ultimately when I’m shuffled off this mortal coil as Chair and running the place. They will have benefited from that almost as equally with Patrick himself, he’s gonna do a little bit better obviously because he will potentially own a little more the securities or the private securities, but both of my daughters and my wife were like, You mean… “Okay, so we are equal partners in OSAM? . Family partners?” Yes, you are. “So that means we benefit, if we get this great investment, we are Pari Passu?”… And they were fantastic. “This is great, we’re not interested, thank you for offering the opportunity to us, but we’re just not interested.” My wife actually worked with me for many years in the first iteration of OSAM capital management, I have never taken a major decision without an in-depth discussion with her about it. I’m very lucky, she edited all my books, graduated Summa Cum Laude in journalism, and is an enormously talented person… She has her own book coming out of New York street photography, so she is a Professional Street photographer in New York City. Aperture, which is considered probably one of the best publishers for that genre, is publishing the book. So we have this happy coincidence where we all had really different interests, except for Patrick and me, which we had the deep interest in investing, but I love art, I’m an art collector, so I love looking and helping my wife with selecting photos that are gonna go into the book or not, she… So this is my opinion, just a way, the same way I solicit her opinion on things that we’re doing as a sanity check, if nothing else, and so we have been extraordinarily blessed. FR: Just to sort of push in the level of communication that you have with your family, it strikes me as something, it’s many notches above what I hear on a frequent basis with many families, and so I would put that down as one of the main sources of your success in communicating and sort of transmitting the values that you wanted to and creating those decision-making processes to push not only your company forward… But your family forward now. JOS: I feel good about that, it’s something that I think is much more rare than you would think, and I’m sure we both have many cautionary tales that are around us on that front, where people don’t… Or financial conditions are hidden, or what people wanna do is hidden, and they’re not encouraged to sort of strike out on their own. FR: The part I would sort of score for a lot of my listeners is that the importance of communication, how you do it, how you build the honesty around the process by which decisions are made and by Which life events are sort of brought to the floor. That’s huge, because if you have that, if it goes on communicated, that’s where the baggage starts piling up, and that’s where it leads to conflict, and conflict leads to, in my opinion, the expensive awful word litigation, where people try to resolve bruised feelings, either through money or elsewhere, it’s just a difficult stop. JOS: I could not agree more and I… Again, listen, Frazer, I won the cosmic lottery because I have had the wonderful good fortune of not only having these three great kids, I love all three of my in-laws or soon to be in-laws, and we were talking about it, I was with Patrick for dinner the other night, and we were kinda looking at each other and we both kind of said, Do you realize how rare this is, and I do think, Look, maybe it’s ’cause we’re Irish… I don’t know, we don’t have a hard time having hard conversations, and we don’t have a hard time being very honest in a way that never, ever strays into, I’m going to make my love for you, conditional, I’m going to make the money you might receive from me conditional, I took all of that out of my hands when I did OSAM family partners, and I did it intentionally because I had seen as people on… No doubt, you’ve worked with and seen… I had seen so many parents using money as a weapon and using other tactics to get compliance. Look, I don’t have a political home, because if you went through all of my politics, you’d say you’re left winger, then you heard the economic ones, you’re all right wing or what I am is fiercely anti-authoritarian, and I’ve read the dial all my life, the day Jen and I read the Stoics, and they really formed my character, and so if you understand ahead of time, Oh, that might be a problem if you try to use money as a weapon. Oh, that might be a big problem if you withhold love and make it conditional. So we were just very, very lucky to have our kids turn out like that as Well, look, we encourage each other endlessly, I can’t wait for… My wife is like, “you’re gonna be the best salesman for my book ever, and you just not do it quite yet”, and same with my daughter and my other daughter who is doing so well in stand-up comedy and Patrick, it’s… Again, I think your insight is the takeaway here though, I think if you wanna learn anything from this, learn that real honest communication in an ongoing manner solves a lot of problems before they can even occur, and that’s one of the things that we found works very very well, that’s the way we run the company. It’s the way we deal with our colleagues, we have a fairly diversified group of members, it’s an LLC, so we don’t call them shareholders are called members in our senior ranks, everyone is a principal member, and so we’re trying to understand the best way to do these great things and have a lot of fun. That’s important too, but also do well for our clients. At the end of the day, one of the nicest compliments I ever got in my life was when I was up in Canada. And I gave a speech to a big group and it was a client, so it was customers of the bank, and two people came up to me afterwards once said… I just wanted to say to you, You bought my cottage, they called cabins attitudes up there, and another one said, my kids went through school at McGill, no debt, because we were invested with you. You can make a huge difference in people’s life. Does that mean you’re always gonna do well now, you’ve gotta take the times when you’re gonna do very poorly and get them to understand, yeah, we’re under-performing. Here is why again, don’t hide. One other rule we had for everyone or OSAM is you don’t have to talk endlessly to clients when we’re doing really, really well, you must talk endlessly to clients if we’re doing really, really poorly, and back to communication, this is not rocket science, and yet it has certainly put us in a good place in the world… FR: Well, let’s tie it up there, I’ve diverted you from the evening here, one last fun question, three people living or dead, who do you have to dinner? And where would you like to have dinner with? JOS: Those three, I would love to have dinner at my favorite restaurant in New York that is no longer open, Gotham Bar and Grill, and I would like to have Richard firemen, one of my heroes who worked on the Manhattan Project was an unbelievable character. He was the guy who figured out the Challenger why it exploded and did so quite simply by taking the O-ring material and putting it in ice and it dissolved great showman, Walt Whitman, the poet Madman, but visionary in terms of when he wrote… I wonder what he’d be today, I’d probably be a rapper! and ClaudeShannon, who’s finally getting some attention from people… Without ClaudeShannon, we’re not doing this. Without Claude Shannon, there are no iPhones. He’s the father of information theory, and he’s the guy who named it bit and bike, he’s also a Metis character. There’s a wonderful movie about him, I think on Amazon Prime Netflix called a “Bit Player”, and there’s a great book about him that I have up on Twitter, and I couldn’t believe that people didn’t know everything about Claude Shannon He invented the modern world, and yet people are just learning about them now, so those would be my three. FR: That is a really interesting trifecta there, Jim, thank you very much for taking the time. Everyone on Twitter learns a lot from you, and hopefully my listeners are going to learn a little bit about what makes your successful business tick and some of the lessons really in communication, because I think you’ve done a lot there that I think a lot of people could take from… So appreciate it, and thank you very much. JOS: Thank you. OUTRO. Thank you for listening to this episode of Wealth Actually hosted by Frazer rice, author of the book, “Wealth Actually” and a leading private wealth manager. Head on over to WEALTHACTUALLY.COM, or you can subscribe to this podcast. Get your own copy of the Wealth Actually book and connect with phrase directly. We’ll see you next time on “Wealth Actually”. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

In this episode of “Wealth Actually”, I speak with George Hubbard. George is the Managing Partner and Chief Investment Officer of Algonquin Advisors, a Registered Investment Adviser that focusses on large families, foundations, endowments and other pools of money. He and his firm bring a unique approach to family investment management that uses tried and true institutional principles. Pay special attention to our discussion around alternative assets and the role of the asset class for family investments. George also talks about bringing “trustee” principles to investment implementation. And in honor of the U.S. Open at Winged Foot, we talk about what his dream foursome would be and where it would be played. Introduction Algonquin Advisors T21 Trustees What are the differences between institutional investment thinking and HNW thinking? Taxation Issues Time horizons Liquidity needs (Yale model) Return expectations Access/Deal Flow Position sizing “Real” Due Diligence (how much time/resources should one expect to expend in researching a manager/deal?) The power of concentration to build wealth Where alternatives fit in asset allocation Function of Alternatives Diversification Other types of risk the traditional investor is missing? The ultimate importance of having the private equity portion of a portfolio fund future vintages out of current private equity distributions. (While this is obvious in the institutional world, this kind of thinking is largely absent from most advice to investors who are “sold” private equity!). What can be borrowed from institutional processes to help Individuals make fewer rookie mistakes? Starting at the Beginning: The Investment Policy Statement and The Asset Allocation The Importance of a “Forensic Review” What comprises a “Forensic Review”? The Importance of “Intentional” Investment Decisions How should a trustee think about these things in a true “fiduciary” capacity? Importance of cash management, lock-ups, multiple time horizons, multiple beneficiaries, multiple interests What are the Alternative Asset Classes that investors are focussing on now? -Private Equity (LBO, Venture) -Private Credit -Hedge Funds / derivatives -Managed Futures  -Commodities -Real Estate -Infrastructure -Collectibles -Insurance T21 and the Importance of Getting the Right People into Fiduciary Roles for Families George’s Golf Dream Foursome How do we keep track of George and the firms? ALGONQUIN ADVISORS GHUBBARD@ALGADV.COM T21 TRUSTEES GHUBBARD@T21TRUSTEES.COM https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/