Wealth Actually

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/

Part of the fun of the Wealth Actually podcast is to delve into topics around wealth management and better ways to help families understand the intersection between wealth and the fulfillment of goals and ideals. I also get to speak to people as they describe their entrepreneurial journeys- which in itself provides many lessons on the path to success. Occasionally, you get both in one conversation. Enter Betsy Brown. In this episode, we talk about: Betsy’s background at larger institutions and the entrepreneur “bug” The changing Wealth Management Industry The desperate need for independence and customization for clients The appeal of Tennessee as a legal jurisdiction, a growing business haven, and a nexus for diversified businesses How this led her to the formation of Pendleton Square Trust Company. The development of her support system and the importance of having a community of entrepreneurs to lean on and share ideas (and opportunities!). The importance of story-telling in communicating, not just to the families she speaks with, but the market at large The influencers in her life that provide her “north star”. This is a particularly fun I get to see this up close as I work with Pendleton Square Trust Company to bring the message of benefits of Tennessee law to the advisors for family offices, foundations and fiduciaries in the Northeast and beyond. More information about the firm and Betsy can be found on the links below: LINKEDIN: BETSY BROWN Transcript Tell us about the origin of the firm and what makes it special: We chartered Pendleton Square Trust Company in October of 2015- so we are about to celebrate our 5 year anniversary! Happy Birthday, Pendleton Square! We are a chartered trust company regulated by the TN Department of Financial Institutions. The opportunity came about from listening to families frustrated with the traditional corporate trustee options.  We also studied and implemented accounting and administration technology platforms to build our dream independent trust company. I always use the term “we” because it took a team. My partner Derek Church is a genius- he is an attorney and oversees regulatory, compliance and operation side of the business- our board and investors believed in us and supported our plans to build a best in class independent trust company. Our trust officers and team members are serving our families and building efficient processes. I want to stress that we are an independent trust company– our definition of independent is that we are not affiliated with other banks or financial institutions- we focus on trust administration and we do not manage the liquid assets. As a fiduciary we are held by law to the highest standard of responsibility. Our model is designed to avoid conflicts of interest and provide a natural system of checks and balances, we are not managing assets or drafting estate planning documents. In addition- our fee structure is simple and transparent. I also want to share how the concept of INTERdependence is extremely important for our model. We are interdependent on the network of advisors surrounding the family- the financial advisors, estate planning attorneys, family CPAs, insurance specialists. There is constant communication and collaboration with our partners as we serve the family. In many cases, the financial advisor is the quarterback of the relationship- we are there to assist and provide the backbone of trust and estate services. How did you get into the trust business? I cannot believe that I am approaching 25 years in the financial services industry.  I grew up in the traditional big bank environment- and I am so thankful for my strong credit and analysis background. I spent 10 years in Debt Capital Markets- a true transaction business- but my mentor always told me I should be in the long-term relationship business. I transitioned to private wealth and trust business for the next 10. Reflecting back on the past 20 or so years- I like to think I have identified my spiritual gifts while serving as trustee or executor and helping families through life events: they are discernment, service, and administration. The team that we are building is focused on deepening relationships, establishing partnerships and helping others. Why Tennessee?  (Law, geography and business climate) I hail from the great state of TN- home of Dolly Parton, Grand Ole Opry, Graceland, Jack Daniels, Big Orange Country, the Great Smoky Mountains, and Pendleton Square. Frazer, when we met when you were in law school in our early 20’s- I grew up in TN- but it was in my rearview mirror. After living in Virginia and Atlanta, and brief stints in DC, New York and London- we moved home to raise our family. My eyes were opened to the very progressive and productive public/private partnerships in Tennessee. The Tennessee Bankers Association has been instrumental in leading or supporting many of the trust initiatives. Our legislature, regulatory body and Commissioner Gonzales are pro-business, pro-family and extremely collaborative. In the US News ranking of state fiscal stability- Tn is ranked #1 in long term fiscal health and we have a AAA credit rating.  As a matter of fact, Tennessee gets its name from the Yuchi Indian word that means “meeting place.” I like to think that in our connected world, Tennessee will become a meeting place for families- and we will of course share Southern hospitality- good music, food and spirits- along the way. Over the past 2 decades, Tennessee has created a very attractive trust and tax environment. It is a 2-part strategy: provide additional flexibility for TN residents, and attract out of state families to maintain trusts in Tennessee. Timeline: The Uniform Trust Code 2004 Extension of rule against perpetuities (360 years) 2007 Asset Protection Trusts 2007 Community Property Trusts 2010 Trust protectors 2013 Tenancy by entirety trusts 2014 Special purpose entities as protectors/advisors 2019 Additionally, there is no state income tax for out of state beneficiaries- and Tennessee will join other states with no income tax Jan. 1st, 2021. Why is now an important time for estate planning ? The pandemic has of course reminded us to understand the importance of having our affairs in order, but on top of that . . . Low interest rate environment Volatile market/ low valuations Current federal gift and estate exemptions are high, but scheduled to be cut in half when the law sunsets in 2026 or even sooner. Delaware Case Study One example I would share is a family in New York that funded a family trust in November 2012- sound familiar? They chose Delaware as the jurisdiction- unhappy with the responsiveness and service of the administrative trustee- and it was a complex web of investments that needed consolidation and oversight reporting. Their investment advisor linked the family with us. We reviewed the governing document and accomplished the transition to Pendleton Square and Tennessee through a simple Non judicial settlement agreement and a Notice of Change of Situs. I encourage families to examine several components when looking for new trustees: Service- how am I current being served, how may that be improved? Does an individual have the resources to fulfill all of the duties as trustee? Is my family lost on the big bank restructurings? Situs- will changing situs improve flexibility, protection, fee structure? are there tax advantages? Succession- when my family goes through a transition, what type of team, or entity will I want to be there to help my family? What are some of the strategies that you are seeing clients use? Direct gift to an irrevocable trust to benefit a child Spousal limited access trust (SLAT) Installment sales to an irrevocable grantor trusts I would first analyze the cash flow impact of any gifting strategy. Of course it is very difficult to generalize. We encourage families to connect with their estate planning attorneys to discuss gifting strategies. Tell us a little bit about how you started and built the business and your influencers? I grew up as a child of a female entrepreneur. My Mother started a small business when I was 5 and grew it for 30 years. I worked there weekends and holidays. It was in this retail environment where I first learned about serving clients, employees and the community. Her motto was the customer is always right. My Father was an early adopter of the power of positivity. He woke me up every morning with quotes from Winston Churchill- Never give in- except to convictions of honor and good sense” or Zig Ziglar- “see you at the top.” To him attitude was everything. He was also very involved in the community and helped in the early stages of the Chattanooga Renaissance. I like to think I am following in his footsteps as a community contributor. Faith and family really are my inspirations- we have a very large extended family- there are 16 in my children’s cousins generation- so family means a lot to us. I like to say both professionally and personally- families matter. My husband Hugh is helping the team build the business- I could not manage family and work life without him. Our main mission is to set an example of service, hard work and faith for their three young children. Tell us about the JumpFund and your community of entrepreneurs One of my mantras is surround yourself with passionate and interesting people- In 2013 I joined a group of dynamic, passionate friends- true problem solvers with diverse backgrounds. We recognized that there was lack of capital available in the South for female entrepreneurs- less than 3% of venture capital in the Southeast was being allocated to female led growth ventures. Instead of starting another nonprofit, we know capital is king. We founded The JumpFund- an angel investment fund- and raised money from women to invest in women. We now have 2 funds and 24 active portfolio companies. From fintech to life sciences we have a well-diversified portfolio of scalable, high growth companies. One of our companies was acquired by Amazon- and several are growing and getting west coast attention. By watching our amazing female founders- I gained courage and the confidence to build a vision for Pendleton Square. We set out to raise capital and charter in 2015 from thinking big with my JumpFund Partners. THE JUMPFUND WEBSITE and we have a great PANDEMIC RESOURCE LINK for small businesses and women founders.  https://www.thejumpfund.com/covid-19-resources Telling Treasures In our everyday conversations with families, we are helping them weave their own tapestry and legacy. The stories you remember are “telling” as they reveal what you and your family value most. Family relationships are sometimes difficult- and when you add wealth on top of it- psychology and counseling come in handy. Preparation and family education is vital to a successful transition. I appreciate the author of “The Ultimate Gift“ – Jim Stovall’s quote: “It is critical that people pass along their values before they pass along their valuables. Giving future generations resources without an emotional and informational foundation is like giving them a loaded weapon without instruction or caution.” Several years ago, we created an initiative called Telling Treasures. One of my dear friends is a teacher and writer and very interested in family stories, legacy letters and ethical wills.  By telling and retelling family stories, values are uncovered. . . these are valuable for family connection. I encourage families to write letters to beneficiaries and trustees to give heart and spirit to estate planning documents.   (For more about letters of wishes, click on the picture or link below) https://pendletonsquaretrust.com/dear-trustee-a-letter-of-wishes-adds-heart-and-spirit-to-your-trust-document/ Betsy, thank you for taking the time to tell you story! For more information about Pendleton Square Trust, you can visit the website here: PENDLETON SQUARE TRUST https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

As summer is starting to wane (before it ever really got going!), I took the time to try to look around the corners of wealth management for clients with BILL SWEET. We discussed today’s estate planning environment and the many challenges and opportunities that currently exist and why it’s important to get going on that process now. Bill is the CFO of RITHOLTZ WEALTH MANAGEMENT. Founded by Josh Brown and Barry Ritholtz, RWM has burst onto the wealth scene with a media savvy and marketing push that is different than most in the wealth management space. Bill manages the finances of RWM and is the resident expert on taxes for the firm’s clients. Bill was also a Captain in the U.S. Army where he presided over $12mm pieces of rolling thunder as a Tank Commander! Military Experience Bill’s Experience as a Tank Commander The benefits of hiring Veterans and people with military experience: Discipline Experience with Structure Responsibility Honor / Principles PhD in Getting Things Done Ready pool of experienced employees Links to Veterans Groups at the bottom for those with further interest. Our veterans are an amazing resource of talent in this country. The Estate Planning Environment Bill and I went into a wide-ranging discussion of the benefits of getting one’s estate planning done now and what might change in the near future. Interest Rates are at generational lows which provides extra leverage and flexibility in moving assets out of an estate. This applies to many estate planning and intrafamily loan techniques that have incredible estate and wealth planning power The current AFR rates are here: AFR RATES and IRS Valuations for assets are low due to the recent market volatility, which means a well-thought out plan can get more intrinsic value out of an estate. Federal Estate Tax Exemptions are at all-time highs: $11.58 million per individual, or $23.16 million per couple Federal and State finances are going to require more revenue implying an INCREASE IN TAXES. (and probably at all levels) The elections in November could have a massive impact on the generosity and flexibility of the current estate tax climate at the Federal AND State level. States hard hit by the COVID-19 epidemic may face particular economic and social concerns that require extra funding. (New York is a good example) There will be increased State scrutiny for those using low tax jurisdictions for INCOME AND CAPITAL GAINS TAX PLANNING. Very brief discussion of domicile and residence and the art and science of personal state tax planning It is more than just 180+ days and changing your car registration. Here is a recent Supreme Court Case on the potential for double taxation at the state level: Edelmans’ New York Connecticut Residency Tax Case There is going to be a mad rush for a lot of families to accomplish their estate planning before the end of the year (and thus a mad rush around the advisors to implement this planning) Beware of the 9/15 and 10/15 tax deadlines . . . accountants are just now catching their breath from PPP planning and the extended 7/15 deadline Lawyers and financial institutions have not seen a potential crush like this since 2012. We anticipate EXTREME stress on entity formation, trust drafting and reviews, KYC processes and account opening. Waiting until November could be a big mistake. NYS Estate Tax Cliff If you have a net worth of $5mm or higher in NYS, you need to revisit your plans to ensure that your STATE estate tax liability is as low as it can be and if there are any steps you can take to reduce it. My quick primer is HERE. Having health directives etc . . . in place because of COVID illnesses I covered this in detail here: HEALTH DIRECTIVES Getting deposits in on nursing homes to make sure you have a spot locked in etc . . . Final thoughts on getting started even if you aren’t in the “1%” Veteran’s Groups For veteran’s employment programs especially in finance, Bill suggested that I highlight the work of Won Palisoul and Chris Mendez on the CFA SOCIETY’S VETERANS ROUNDTABLE. Their goal is to create a network to facilitate veterans transitioning to a career in finance: https://twitter.com/billsweet/status/1192247303022825473 For charitable organizations, Bill advocates for the FISHER HOUSE FOUNDATION – they provide zero-cost lodging for families who want to be near their service members while undergoing medical procedures and rehab. The DOD only provides room/board to the veteran / soldier themselves: https://twitter.com/billsweet/status/1162112234102972416 https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT

In the age of COVID-19, there has been a renewed focus on Health Care Directives. The communicability and finality of the disease have opened up all sorts of fears and uncertainty for many people- especially among the elderly. To that end, I am excited to present the conversation I had with TIFFANY MCKENZIE. She is a partner in the Private Client Group at Bryan Cave in Atlanta. We talked about planning in the COVID-19 environment with extra attention on the often-overlooked health care directives. Description of the Current COVID Environment for Planning The speed and communicability of the disease The higher death rates Many times people enter hospital unaccompanied A Quick Reminder for Listeners: What are the Usual Documents that Need Updating: Will Trusts Powers of Attorney And Health Care Directives Health Care Directives How are this different from a Power of Attorney? Designating Health Care Preferences Designating a Health Care Proxy Preferences- What criteria for decision-making should we include? What are  Proxy Who should be in this Role? When does this person make decisions? What should be considered in a COVID environment? Communication issues Being comfortable with remote methods Developing a relationship with doctors and institutions and their decision-making Preferences for choosing drugs, services Intubations –  What is the process for ventilators? Triage v. Best Efforts What else are should be thinking about in emergency situations? Where can we reach you and keep track of your writings? TIFFANY MCKENZIE BIO TIFFANY ON “HEALTH DIRECTIVES” CHAMBERS COMMENTS

Judy Pearson is the Founder and CEO of Nomadx. Nomadx helps fiduciaries, officers, directors, trust companies and law firms identify the risks in their practices and insure them against liability. She has over 37 years of experience with Chubb, AIG and was a pioneer in the development of directors and officers liability coverage for AON.   We’re going to be focussing on the liability issues facing fiduciaries, including individuals, law firms, corporate trustees and private trust companies. Trustee Roles and Responsibilities   The words Trust and Trustee- are big “all encompassing” words that mean different things to different people. Let’s try to break it down a bit:   A trust in general has three main roles: Grantor (Person forming the trust) Trustee (Person or entity in charge of running the trust) Beneficiaries (Those people who will benefit from the trust) Insurance Perspective From an insurance perspective, what do you see as the responsibility of the trustees?   What are the duties (i.e. who is the client reporting to?) and risks? Duty of Loyalty (to the trust) Duty of Care (to the trust and the different beneficiaries) Safeguarding the Assets Reporting on the Assets Prudently Investing the Assets Distributing the Assets When dealing with the risks, what do modern trustees do to protect themselves from liability? Good policies, procedures, record keeping around decision making and action (operating with the risks) Setting up good structures to shield liability and get adequate support from experienced trustee providers to help with the job (transferring the risk) Identifying reasonable risks and getting reasonable insurance (insuring against the risk) How does trustee liability insurance look? Are there parallels to E&O and D&O insurance)? And what are the common misconceptions of the trustee insurance market? You don’t need insurance Your umbrella policy covers you Your traditional E&O, D&O policies will cover you Trust Protector / Power of Attorney might not be in traditional insurance Belief of Indemnification – Is there an agreement? Can we indemnify beyond the law?  Gross Negligence? Good Insurance advances defense costs to get out of Gross Negligence Reasonable risks:  What are modern trustees worried about? TOLI’s and Life Insurance Distribution questions Interfamily loans Investing and reporting Reg BI Conflict between SEC and state standards 5 states of adopted their own rules and 12 additional states expected to adopt their own rules is 2020 Investment performance will be reviewed in 2020 hindsight Reporting to beneficiaries (look at SEC guidance) Cases to watch Divorce case testing South Dakota Privacy Laws and Asset Protection Breach of Fiduciary Duty Prudent investing internal funds vs. external funds Conflict of interest, mutual fund selection Direction Structures Deep understanding of roles and responsibilities Execution vs. structure of document Beneficiaries – making sure they are educated Future Trends Hybrid solutions with corporate trustees Special Purpose Entities Insurance pooling? Conclusion We’ve presented a lot of scary scenarios! For current trustees and future trustees what is a good first step they should take in analyzing their situation? How do we keep track of you and Nomadx? WEBSITE: NOMADX LINKEDIN: JUDITH PEARSON https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT

In this episode of “Wealth, Actually”, we get to dive into the comic-book industry with Gevian Dargan. Gevian is about to launch his comic imprint, Animated Concepts, which is focusing on getting some of the great comic stories from people of color that are out there, but not getting the attention they deserve. The industry itself is going through significant upheaval as the economics of developing IP come under considerable question and distribution systems face significant challenges with digital competitors and a new view of what makes a cool (and monetizable) story. Gevian and I tackle this subject as well as the magic of growing up with the excitement of going to your “local”, discovering characters and forming tastes. It’s this formative development that we wonder aloud that might be missing and may make it difficult to develop the next Marvel, DC, Harry Potter or other franchise. Here’s Gevian on the “Thinking Critical” podcast talking about reaching new black comic readers. (This is a terrific interview BTW) https://www.youtube.com/watch?v=rGQw9Z7qOO0 Here’s the outline of our fun conversation (we recorded for over an hour, spoke for two and probably could have gone on all day): Quick introduction- what are you’re doing now and dramatic foreshadowing of your Animated Concepts project- Where did the love of comics come from?  Talk about the relationship with the Comic Book Shop Where you used to buy comics and where you buy them now? Challengers Comics + Conversations: www.challengerscomics.com; First Aid Comics: www.firstaidcomics.com; Dark Tower Comics & Collectibles: www.darktowercomics.com; Alternate Reality Comics: www.myalternatereality.com Favorite Characters / and what drew you to them? Robin Shazam Favorite Issues/ Stories Favorite Artists   Who are the artists and writers we should really be looking out for? History, Craft, and Business of Comics (Diamond, New Readers, Promotion, Writing, Drawing, etc.)- How the COMIC BOOK industry has become so tribal politically, whereas before it used to be Marvel vs. DC vs. Indies (just weird now) MCU vs. DCEU  What does the future of the comic industry look like? Animated Concepts – Tell us the concept behind it and what are your plans for it? How do we keep in touch with you? INFO@ANIMATEDCONCEPTS.BIZ (Focus Groups are forming in July- reach out to Gevian for more information) FACEBOOK: GEVIAN DARGAN TWITTER: @GEVIANDARGAN A quick aside: many of you know of my love of comic books and the myth-making engine of that industry. My pal, Jim Harberson, and I (written under a pseudonym) dipped our toe in the water of the industry with our book, Stay Alive. We wrote our first (the horror/comedy, Stay Alive) and published it through the UK-based, Markosia Enterprises. It was a great experience to work with the multitalented and super-nice Stephen Baskerville. His art is amazing. The industry itself is tough. It’s opaque and the chances of publishing, let alone success, are slight. Here’s our first foray . . . https://www.amazon.com/Stay-Alive-Jim-Harberson/dp/1913359166/ and here are some of Gevian’s favorite covers:

As businesses and business owners struggle the impact of COVID-19 on operations going forward, I thought it would be useful to revisit the issue of asset protection for wealthy families. Liability is around every corner and the best laid plans can be wrecked with a car accident, an employee suit, or the discovery of asbestos in an investment property. Joining me is IKE DEVJI to discuss some of the ways to address this issue. He is a prominent attorney in Scottsdale, Arizona who focusses on asset protection for executives, business owners, athletes, entertainers, and other high visibility people that can be the object of creditors. Ike has personally practiced from Phoenix and Scottsdale, Arizona for over 17  years as an Asset Protection-only lawyer and helps protect a national client base of thousands of clients representing nearly $6 Billion in personal assets. He can be found at PRO ASSET PROTECTION DAVIS MILES MCGUIRE & GARDENER Twitter: @IKE_DEVJI Linkedin: IKE DEVJI A) What is there to worry about? Here are some real examples of the “impossible” that actually happened and resulted in large claims: Parents away for the weekend return to find that a teenager died at their home during a party their child had from the drugs he brought with him; Chiropractor adjusts a patient’s hip and the woman dies on table from cardiac arrest-he is sued for wrongful death; Long time, most trusted employee of medical practice molests a minor female patient during treatment; Employees of moving company get drunk and severely beat another employee and lock him in company truck in company yard over weekend; LLC for real estate development is pierced and a passive member is held jointly and severally liable for the actions of the other members; Dentist works on elderly patient who goes home and dies of unrelated heart attack hours later, dentist sued for wrongful death. B) What are Ike’s three layers to good Asset Protection planning? Clean Living Identifying the risks that are part of your daily life (and business) Being a good citizen and acting responsibly where at all possible Avoiding behavior that would cause harm and get you sued Putting in processes and procedures around riskier behavior Insure against the risks you can reasonably identify (and afford) Put structures around and compartmentalize your wealth C) What are the big tactical missteps people make that Ike sees? 1. FAILING TO ACT (Timing)  (AKA – waiting for the tort to happen) The importance of the term: Fraudulent Conveyance 2. THINKING YOU’RE NOT RICH ENOUGH   Many larger high net worth families can absorb a large hit to their net worth and not suffer a reduction in lifestyle For those people with net worths in the 500K-5mm range, a $1mm settlement can have catastrophic consequences on lifestyle 3. RELYING ON YOUR TRADITIONAL ESTATE PLANNING 4. TOO MANY EGGS IN ONE BASKET What happens if an accident happens on one investment property but you own 8 others? 5. SQUARE PEG ROUND HOLE – USING THE WRONG TOOL 6. DRAGGING LIABILITY INTO YOUR PLAN Ike brings up a terrific example where having your business own your vehicles may be great tax planning in allowing you to deduct those expenses, but it can be terrible asset protection planning if they are used personally and cause a lawsuit. The assets of the business will have been exposed to the action. 7. RELYING ON GIFTING TO RELATIVES (SEE ALSO FAILING TO ACT) 8. USING UNPROVEN, POORLY STRUCTURED TOOLS OR SCAMS LIKE “FRIENDLY LIENS” 9. RELYING ON INSURANCE ALONE OR FAILING TO ADEQUATELY INSURE. WHY CAN’T WE SIMPLY INSURE OUR WAY TO SAFETY? Premiums are expensive The “Business of Insurance” to collect premiums and try to pay out claims as little as possible) If you look hard enough you can find liability everywhere – there isn’t enough any to insure away EVERY risk. Having a good P&C Insurance expert is important to makes sure that you have enough insurance to cover high probability (and high damage) events AND to make sure that you aren’t overinsured for things you don’t have to worry about. D) The use of trusts in the asset protection world 1. Concept (erecting speed bumps for creditors); natural tension between protection and access 2. Using a jurisdiction with good law and good trustees 3. Reducing Nexus Issues and using good assets (real estate being a less desirable one) [FRAZER’S NOTE: We don’t get too much into the weeds on the trust topic (I’ll use another podcast for that), but it is important to note that trusts can be a flexible tool in an asset protection plan. It is also important to make sure that tax planning, estate planning, and asset protection planning are integrated. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT

With the tensions brought on by the confinement, new roles and financial pressures of the Coronavirus, I thought it would be good to take a new look at one of the greatest threats to wealth . . . Divorce. High-end family law attorney, EVAN SCHEIN, and I got to sit down and talk about what is happening in the world of divorce. Evan is an expert in the field as Partner and Head of the Litigation Department of New York-based divorce firm, BERKMAN BOTTGER NEWMAN and SCHEIN. He has seen it all in the space. Here is a quick outline of what we covered: Are confined spaces and the quarantine causing an increase in the interest in divorces- what are you seeing in your practice? How has the lockdown impacted the process of divorce? What is the process looking like in the new Zoom Conference world?Is there anything new in the legal landscape of divorce? Planning before the wedding generally- what are best practices? What is the best way to be a good client? Asset titling is this still a useful tool? The use of trusts- has this expanded in this day an age? What is the best way to integrate other advisors? Wealth Advisors, Lawyers, Accountants, Business Advisors, Agents? Pre and/or post nuptial agreements- how should one think about pre-nuptial agreements? How do you have that uncomfortable discussion? If you are feeling like divorce is becoming an option in your relationship, what should you do? How do you advise people in communicating with the children in this difficult circumstance? Any crazy stories that you can share? Personalities in the divorce practice?  EXTRA POINTS: Finally, (since I’m running this!), Evan and I take a quick tour of our favorite sports teams and how they are dealing with the sports disruption. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT