https://youtu.be/FU5IvtBbtCY

JOHN SAMUELS from WELLWORTH ADVISORS discusses “HEALTH AS AN ASSET CLASS” and the nuances of personalized healthcare management for high-net-worth individuals. We contrast concierge medicine with comprehensive health advisory services. Learn about his book “WEALTHCARE” which lays out the frameworks of his practice. Finally, John goes into how expert navigation, team-based care, and strategic planning can significantly improve health outcomes and client relationships. Finally we hear a little bit about what his favorite medical shows are on TV!

Key Topics

Differences between concierge medicine and health advisory services
Team-based care and specialist involvement
Integrating healthcare with wealth management
Debunking myths about healthcare access and VIP treatment
Strategies for managing mental health and complex conditions

Key Frameworks of Health as an Asset Class

Team-based healthcare approach
Evidence-based treatment decision-making

Action Items

Review your healthcare risk factors and create a plan.
Organize your medical records and update legal documents.
Engage a healthcare advisor to understand your coverage and treatment options.

Chapters in “Health as an Asset Class”

00:00 Understanding Concierge Medicine vs. Health Advisory
02:11 The Importance of Team-Based Care
03:49 Collaborating with Client Advisors
06:23 Navigating Complex Healthcare Needs
08:07 Addressing Client Misinformation
09:40 Challenges in Mental Health Treatment
12:24 The Purpose Behind the Book
14:26 Debunking Myths in Healthcare
16:31 Preparing for Healthcare Interactions
20:56 Managing Healthcare Risks
23:05 Finding Resources and Support

Resources

Wellworth Advisors – https://wellworthadvisors.com
John Samuels’ Book on Healthcare Management – https://www.amazon.com/Healthcare-Management-Advisor-Guide/dp/B09XYZ1234

More From John on “Wealth Actually”: https://frazerrice.com/ep-126-john-samuels/

Guest links

Website – https://wellworthadvisors.com
Email – mailto:[email protected]

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Keywords

healthcare, concierge medicine, health advisory, high-net-worth individuals, patient navigation, mental health, healthcare risk, medical research, healthcare myths, health insurance

Titles

Beyond Concierge: The Future of Personalized Healthcare for Wealthy Clients
How Expert Care Navigation Transforms High-Net-Worth Healthcare

Sound Bites

“We map out the cost of treatment for clients.”
“We focus on evidence-based treatment options.”
“VIP care often doesn’t mean better care.”

“Breaking the Glass Ceiling: Julia Carreon’s Fight Against Corporate Gaslighting”

In this episode, Frazer Rice sits down with Julia Carreon to explore her recent high-profile litigation against a major financial institution and her powerful insights on women in leadership, corporate culture, and overcoming systemic barriers.

YOUTUBE

https://youtu.be/e05k7SVQ2xI

We discuss:

• Julia’s experience with workplace gaslighting and her litigation journey with Wells Fargo
• The importance of transparency, accountability, and protecting yourself in corporate environments
• How societal and corporate cultures disadvantage women, especially around motherhood and leadership
• The themes and motivations behind Julia’s book, Walking on Broken Glass
• Practical strategies women can use to build political capital and safeguard their careers
• The significance of external networks and understanding your personal strengths
• The evolving landscape of equity, ownership, and governance in corporations
• How to proactively prepare for and respond to systemic workplace challenges

SPOTIFY

https://open.spotify.com/episode/5c546gs6Qctx4bGOvalgXj?si=1dDyJxnwSyu4tnhXxpzVxg

Timestamps:

• 00:00 – Introduction: Julia’s litigation and book overview
• 02:03 – Gaslighting in corporate culture and early experiences
• 04:14 – Dealing with systemic backstage politics and fighting for justice
• 05:10 – Motivations for writing Walking on Broken Glass
• 08:08 – Diagnosing workplace culture and gender dynamics
• 09:33 – The weaponized HR department and accountability
• 11:38 – Protecting yourself: cultural awareness and bias
• 13:12 – Demographics, gender disparities, and moving forward
• 15:12 – Institutional misogyny and societal shifts
• 16:05 – Motherhood, work-life balance, and corporate support
• 18:28 – Questions of corporate culture change post-COVID
• 22:21 – The fear factor and change in workplace loyalty
• 27:12 – Tactical career strategies and building political capital
• 28:15 – Always Be Executing (ABE) and tracking success
• 30:53 – The ownership mentality and equity’s role in career resilience
• 34:45 – Building internal and external networks for support
• 36:49 – Understanding personal aptitudes through testing and reflection
• 40:12 – Leveraging political capital and seizing opportunities
• 43:31 – How to follow Julia and stay updated on her journey

Transcript

Frazer Rice (00:01.004)
Welcome aboard, Julia.

Julia (00:03.32)
Thanks for having me.

Frazer Rice (00:04.652)
Well, as I said in the opening, the concept of gaslighting in the boardroom is something that certainly isn’t new, but it doesn’t make it any more comfortable for the people who deal with it on a day-to-day basis or as part of their career. And you’re in the midst of litigation right now with a major financial services company. Maybe talk a little bit about what’s going on there.

Julia (00:24.801)
Yeah, so I am in a high profile lawsuit with my former employer. I would say this is not a path that anyone chooses on purpose. In my particular case, Frazer, I spent 20 years at Wells Fargo, 15 of which were pretty spectacular. I have come to realize almost maybe fairy tale like in terms of my experience.

I want to talk about some of the things later on that made it a fairy tale. So yeah, I wouldn’t have chosen this. I did not see the culture at my former employer coming for me. I was blindsided by it and it got ugly quickly. One of the things that I think I am doing here. Or at least trying to do is not be shy about it. Not hide from it. Try to show women a different way for how to deal with these situations. Because I have very strong feelings about the fact. With the rollback of DEI and the current administration’s point of view on women, that we’re going backwards. If women don’t start fighting for ourselves in a more public way and without fear, then I don’t know where we’re going to be in the next five to 10 years.

I am soldiering on and it’s not easy to your point. But it is what it is and it’s a fight that I believe is worthy.

Frazer Rice (02:03.608)
So it’s a daunting task taking on a big bank. Big financial services firm, whether it’s in this situation or frankly any. It’s just these well-resourced big behemoths. What has been the experience been like so far? As far as gathering information? Of getting the walls built that you need to in order to live your life while you go through this conflict with this bank?

Julia (02:29.822)
It’s hat that is the million dollar question. Right? I will say that in my case i got really fortunate and came across a quote. It’s going to sound really strange. But i came across a quote that said fear is fake and danger is real but fear is fake. I believe that the patriarchy wants women to be afraid.

So it tells us these bad things are going to happen if you take on a big firm like this. It is grueling. The days are long sometimes. But once I internalize the reality that it is all fake in terms of all of the bad things that you think could happen really can’t happen. Worst case scenario, there’s nothing

Like I’m not going to die. They’re not going to, you know, take away my family. Like all of these things, right? We tell ourselves that it could get really nasty. And in my case, I have to stay really grounded in the fact that what I’m doing is worthy. We tried my lawyer and I tried for 14 months to come to a different answer. And so in a way, not just telling myself fear is fake. But in another way, I kind of feel like it’s my destiny.

Because, I just want to say this real quick, I had 20 years at a place that was not toxic. And so I know what good looks like, and this is not good. So in that way, I really feel like it’s my destiny. And so that’s what you do, and you have to have a good support network. I have a great husband, so that really helps.

Frazer Rice (04:14.21)
The, as I’ve told people, sometimes doing the right thing or going after something that upholds justice. It can be expensive and hard. I give you kudos for standing up. Not only for yourself, but others who are going through a difficult situation. Where you’ve had a significant wrong done to you.

You’ve written a book about this experience as well. We can take some time to think, to talk about what the book tries to do. First of all, writing one in tandem with the process here, I think is a bit unusual. Some people do it after the fact. To go through a catharsis after going through a difficult process. Talk about first the why of the book.thhen we’ll talk a little bit about what you talk about in it.

Julia (05:17.241)
The book is called Walking on Broken Glass: Navigating the Aftermath of the Glass Ceiling.” It was co-written with a fabulous woman named Shannon Nutter. I hope people follow on LinkedIn. The book is not squarely about what happened to me the book came together.

With Shannon and I meeting on LinkedIn. Then discovering that we had a lot of the same shared experiences as we are Gen X. in hindsight. Our generation has had the opportunity to have the most benefit of the Gloria Steinem Women’s Movement.

Think about the fact that we got the advantage of the birth control and all of the DEI efforts that have been in the last 15, 20 years. And we really felt like there was still a long way to go. Then all of that is starting to go backwards. So last year when we met or the year before, we’re like, my God, the idea that we got the best of the best is shocking to us. And so what are we going to do about it?

We really wanted the book to speak to women of all ages in their career. But it was written from a lens of two then 53 year old women who had seen a lot. We wanted to give the book as a love letter or a gift to our 35 year old self. To say, this is what we should have or wish we had known 20 years ago. Because we would have done things differently if we had really faced kind of what the challenges were that women are facing at work. In a real way right not in a way that sugarcoats it or pretends to throw it under the rug.

And or always makes it the woman’s fault like the woman always has to be changing and evolving in order to adapt to the systems and i you know it’s exhausting right so the book was written for that reason and it does tap into a lot of the things that we both experienced.

Julia (07:35.17)
But it isn’t a kind of a personal journal of what happened to me with my former employer.

Frazer Rice (07:39.82)
Right, one of the things that I found useful about the book is you divided it into three sections. I think it brings us sort of clarity into what you’re trying to achieve here. The first one is just diagnosing the situation that you’re in. Maybe talk a little bit about that. Part one the understanding of your surroundings. What’s happening around you. The conditions that women are facing as they embark on these big situations in the workplace.

Julia (08:08.982)
Yeah. So the first part of the book does give a primer on kind of the history of feminism and how did we get here and what are some of the big open questions that are still left to answer. We also want to set the stage that makes it very clear that women are accountable for our actions in the workplace.

Like this is not in any way a book that seeks to make someone who’s failing feel good about the fact that they’re failing, right?

Shannon and I both reached really high levels of corporate success at major global firm. There is a lot of work to do. So we really try to dimension how, what are some effective ways for you to approach that work? What are some of the pitfalls and how are some of the ways that you can handle that?

In a way that’s kind of clear-eyed, but never about putting the blame or the onus on the company. And if you don’t mind, I want to say something about that because it relates to my lawsuit. One of the things that I’ve heard criticisms about is that people on social media often I saw when I kind of scanned the landscape of it recently are, this woman is naive. She thinks.

HR is her friend because one of the things that I have sued my former employer for is a weaponized HR department and I want to get very clear. mean, Frazer, you don’t manage hundreds of people in 13 states like I did for a very long time successfully innovating, having great client experience team scores and having great employee team scores, right? If you believe HR is your friend.

So that’s not what i’m trying to say what i’m trying to say in my lawsuit is. HR shouldn’t be picking off people for political reasons either. We are saying all the way along there is shared accountability between the employer and the employee. That’s really important. I think that you know one of the backlash is going too far field here.

Julia (10:27.401)
We went so far politically correct on some things that some employees do show up to work and think that they just need things handed to them. And I do think that that was part of the backlash, right? So I just am always striving for balance. I think we should all be always striving for balance.

Frazer Rice (10:45.13)
One of the concepts too, I think in the book that I sort of grabbed onto and enjoyed was the idea of taking steps to protect yourself. You’re dealing with a lot of different asymmetries when you work for a big company. You’re dealing with information asymmetry, you’re dealing with political asymmetry, you’re dealing with resource asymmetry. Sometimes you’re even dealing with just…

Accountability asymmetry in terms of, you some people get free passes at other times people are judged on things or unfairly judged on different criteria that just don’t make a lot of sense.

If we step back for a second and for people who are trying to understand, I’ll put it in quotes, how the world works and how to how to be aware of one’s and to protect yourself, what would be the first couple of things that you would tell people to think about on that back?

Julia (11:38.471)
The number one thing is I would be very aware of the kind of culture that you’re operating in. And it’s very easy to take for granted what a culture really is, what your own personal bias and history is, and then how is it that you are fitting. into that culture with your own shared history.

So I love to be candid, right? And provocative about my own situation. If I could do something different, I would be very aware of what my biases were going into Citi with 20 years of being at a place where

It was a really fair game, but probably because I had a lot of political capital and I grew up there. So I understood it. But I went into that place thinking that I was a fancy managing director, that obviously I was hired to be a change maker. I can do a lot of great things.

And I was, you know, doing my thing, not realizing that I was swimming in a different lake and that lake was filled. with a lot of different kinds of wildlife that I was unprepared for. So, I mean, that’s really important.

Frazer Rice (13:12.398)
As we talk a little bit about some sort of bullet questions as far as how your experience has gone, the demographics of the workplace are different and changing. On one hand, college graduates are now majority women or higher in just about every college situation. Yet institutions like the CFP, the women make up…

Believe the number is somewhere in the 24 % range. So you have this weird dichotomy of more women entering the workplace, but not in the numbers necessarily that would indicate that they are in places to make as much change as they would like.

They are still in the vast minority in terms of boards of directors and executive positions at almost every Fortune 500 company that I can think of. As we chart a path forward where, let’s call it merit.

Julia (13:58.813)
Mm-hmm.

Frazer Rice (14:04.494)
presides over sort of misogyny and I guess I would call it sort of political gamesmanship. How do you think about that in terms of advice for people entering the workforce?

Julia (14:16.461)
Yeah, look, so nobody gets to say that women aren’t in the pipeline, right? I mean, that just, doesn’t hold up, especially at the more junior levels, right, of entering the workforce after college. What starts to happen is that it starts to go downhill as you get higher and higher up into hierarchy.

And I believe that there is a mismatch between women who want to work and do the right thing. And we’re going to talk about this. Then what does it mean to also then become a mother and give birth and have to manage all of that?

And then coming up against institutional misogyny. Obviously my perspective in the last 18 months has changed about the degree to which institutional misogyny exists.

Because I had a fairy tale experience before I was able to be willfully blind about the realities. so a really direct way of answering your question is that our book is seeking to hit women in the face with the realities of this because I don’t think we’re gonna change it overnight, right? And it is so entrenched, it’s getting worse and it will get worse.

Before it gets better, but I do believe that it will get better eventually because the old system that’s, know, aging out, baby boomers are aging out. Like I think that there’s going to be cracks in that. And then there would be a tsunami of change. But right now the old guard is hanging on and, we are going backwards. And so we just have to be realistic about what it requires to go forward. And we talk about what that is.

Frazer Rice (16:05.58)
One of the things, right, and so let’s touch back on the motherhood issue, is, that is biology. And so women who go that route and have kids. Which is frankly one of the big precepts in society. Unfortunately. n some ways takes you out of the normal trajectory of a corporate path, just from a time perspective.

Certainly, the balance of work that happens at the household level. Where that ends up alling usually, creates a stress that is not well understood or received at the corporate level.

What are your thoughts on that front? As far as charting a path that recognizes that reality and at the same time doesn’t put upon going the other direction necessarily in terms of favoring one outcome or the other.

Julia (17:02.019)
I know a lot of women who did not have children because they felt like that it would, it would harm their career. And, um, certainly it’s a personal issue and there’s no judgment from me. I don’t think I would have had children if I hadn’t met my husband. He was willing to do 50 % of the workload and he has, and, always has probably does maybe more than 50.

It is a very deeply personal issue. What I have strong feelings about the fact that companies who lean in to, don’t expect the woman to lean in, but the company leans in to supporting pregnant women, have higher loyalty scores. They have better team member satisfaction. They get a lot from those women that they have supported.

This is a crazy story, Frazer. I was pregnant and or just coming back from maternity leave all three times I got major promotions at Wells. I mean, think about that. And I now, because I lived my life kind of in a vacuum for a long time, I didn’t realize that this wasn’t happening to other people, right? So look at me now. I am 25 years from when I got hired, still saying that Wells is a great company.

because of my own personal experience. And they got a lot out of me, but I gave a lot back. So to me, supporting women who are pregnant doesn’t have to be a zero sum game. Yet somehow that is the narrative. And I would love to ask you why that is. Like, I mean, what has happened to corporate culture that this is such a pervasive issue when

If you were to scan a lot of my Gen X friends, we did not have the same experience.

Frazer Rice (19:04.147)
I mean, from my perspective, I don’t know. I think that I blame some of this a little bit on the COVID blip in the sense that managers of all types just have no idea where to go as far as how to treat people fairly, either from a work from home experience or how that reconciles with…

women in particular who are having careers and families in addition to what’s going on with other folks like the men in the world. My short answer is I don’t know. The longer answer is that I think between the shorter news cycle, social media, work from home, there are a lot of different change agents out there that have taken the focus off of.

maybe the issues that worth talking about right now. And as a managerial class, especially as millennials are taking up the mantle on that front, they’re either forgetting about this particular issue and understanding the importance that it has, or they are just so overwhelmed by change at this point and self-preservation that it’s just an area where they’re triaging the different issues that they can deal with.

Julia (20:22.492)
Do you do you at all think that it is a problem of losing common sense and like letting rigid ideology take over from common sense. I certainly was benefited from working from home for most of my career, right? So it’s fascinating.

Frazer Rice (20:46.061)
Common sense isn’t common. And depending on the institution that you’re dealing with, work from home is either an excellent tool or a cover to hide under if you’re a mediocre performer. If you’re a manager out of sight, out of mind is a difficult place to be.

I think that we’re I think everyone is reconciling to the relative absence of work and sort of acclimating to Zoom phone calls and things like that. And that gets you then away from taking care of the real issues, which is to make sure that the company’s doing right, the employees are doing right by the company, and at the same time that people are being treated fairly, because I think when people are so disparate, it just becomes a real management challenge.

What we’re talking about as far as making sure that women are treated fairly in the workplace,

Combine that with, I would say, message confusion that occurs in social media, where some loud voices may not be the right voices to be taking up this mantle, versus some of the quieter, stable people who are really the exemplars that we’d really like to point to. Sometimes that gets mixed. And I think the brew, if you stir it together, I think is created.

Maybe if we think that there was progress since the 70s on through the 80s, 90s, 2000s for fairness and women progressing within the corporate ladder nicely, I think this the COVID blip has been a bit of a toe stub on that front. That’s an opinion, extremely uninformed, but more of an observation.

Julia (22:35.713)
No, no, but well, listen, I just I love it because I do want to unpack it just a little bit. It’s what’s fascinating to me is that I negotiated 15 years before covid to work remote and then my boss knowing that I had to be on the road three to four weeks a month regardless was like, I’d rather you be happy where you live because you’re to be on the road regardless. So

I got to work from home and then during COVID when they tried to bring everybody back, they’re like, well, you can’t be the only exception. And I’m like, okay, I have been an exception for 15 years. So that’s where I go back to, know, where is this right balance? did, I mean, COVID is as good a reason as any that it’s things are upside down. I mean, really it’s a great theory.

Frazer Rice (23:22.671)
Well, it also bespeaks different corporations have different cultures and certainly some people are worried about other things than others. Muriel Siebert, who I think is an amazing example of someone who took a look at Wall Street and said, look, I refuse to be held back by anything here. She started her own company and to call it a company is to not give it the respect it’s due. She’s a major absolute force in Wall Street and one of the real legends.

To me, entrepreneurism is one way through this. to create the company that you want to work in is, in some ways, to me, one of the solutions for people who are having difficulty in a corporate environment that they’re in right now.

Whether they’re able to be the change agent within, which is often hard at a big, you know, bulky company that turns with the agility of a battleship as opposed to being nimble in doing things or going out and starting on their own, which involves its own risks.

That to me is one of the solutions. But again, not without risk, not easy by any stretch. Where did that fit into your mindset as you were thinking about this?

Julia (24:37.16)
Well, so, so she is an icon, not just because of what she was able to accomplish, but she also did it, I think, without a college degree. And she did it. And this is important. She did it fearlessly. And what I would love to go back in time and have a conversation with her about where did she tap into that fearlessness? And you will start to see.

Frazer Rice (24:48.665)
Mm-hmm.

Julia (25:06.77)
On my own social media, am trying to tap into that whole mindset of women need to lose fear. I’ve already talked about it, but here’s what’s important to know, right? By 2030 in the US alone, women will control $34 trillion of investable assets. I believe that that is when you start seeing the game change.

Look at how Mackenzie Scott is giving without glory. I posted that in a remark that’s gone semi-viral on LinkedIn. Like she is giving without glory. She wants to give, she wants to be anonymous almost about it, and she’s giving without handcuffs. And what is she giving to? She’s giving to communities, she’s giving to schools, she’s giving to healthcare. I mean, it gives me goosebumps every single time. And so I feel like women

When we start to control more, we’ll start giving in, Alice Walton is the same way, giving in a different way to change society in a more meaningful way at scale.

And Muriel was a pioneer in that regard. And she is someone I think we need the next generation to know about. because she was so fearless and it’s an inspiration. But you and i both know that all kinds of things that women have accomplished are never spoken about in the same way that they are about man and about men.

I do think that that’s one of the great things about some of we can go into social media some of the social media change that we see happening with alpha female and all of these great accounts that are just starting to say, know what ladies, we don’t have to buy into the patriarchy.

We can do it our own way. And so I think we will finally see change, but I wanna be very clear, Frazer, it’s going to get worse before it gets better.

Frazer Rice (27:12.195)
Got it. So for people who are in a corporate structure, corporate environment, aren’t ready to make the leap to starting their own business, which is obviously a difficult decision, but when you’re in there, what are the things tactically that one can do to prepare, not only prepare themselves, but protect themselves against these forces that are out there?

One of the thoughts I had is making sure that in the job description that you’re able to point to numerical or formulaic successes so that if a narrative is being built against you, you can point to dollars created or jobs saved or metrics that in the boardroom.

Not only just qualitative successes, but also quantitative ones that makes it difficult for people to ignore you from a pure dollar perspective. Things like that, what pops up in your mind? That you would tell people to think about in terms of art directing their career.

Julia (28:15.023)
Yeah, well, the number one thing that I always say, and I’m kind of, it’s kind of a legend for it. So it’s ABE and it stands for Always Be Executing. And when I look back and see how successful I was in a corporate setting, of course, in my case, it was that I had a great boss and a great mentor and sponsor in him.

But actually, I was always focused on executing and doing it in a way that is collaborative so that you don’t have the knives coming for you from every direction. think a lot of people who the more successful that you get in your career, you think, I’m fabulous because I’m fabulous. No.

You need a mindset of I’m fabulous because I am creating a team around me, no matter who I am, even if I’m not the boss, to protect each other and help each other and lift each other up. if you are always executing and you hit on it, right, as a woman, you should always be keeping track of your metrics in a way that is tangible and defensible. But you also should

never take for granted the fact that no matter how senior you are, you need to be getting something done. And I do think that it is a big mistake for people to get high on their own supply and forget that. And then, and then the sharks will come for you. So always do something. And this is just a final thing, cause I have lots of people that I mentor. They’re like, just name one thing. I’m going to give you one thing. Send meeting notes.

If you go to a meeting, and everybody’s on a call, 15 people are on a call. If you’re the one who sends meeting notes and this is a hot button, right? For women, they’re like, well, I’m not the secretary. I don’t wanna take me. You know what? Put your ego, park it in a parking lot and send meeting notes. You would be shocked how much goodwill and how effective you’re perceived when those notes, like say a project is going downhill and somebody goes, but.

Julia (30:30.157)
Such and so committed to this and you’re like, those meeting notes were written by Julia Carrion. Nobody has to do that. But corporations get unwieldy. lot of churn happens. A lot of stuff doesn’t get done in a day. If you can demonstrate that you are someone who is acting in good faith and doing small things to keep the needle moving, somebody in senior management is going to notice that, I promise.

Frazer Rice (30:53.763)
The other thing I sort of, and this doesn’t just go for women, this is for people generally, is the ownership mentality and the move toward equity, and by equity I mean stock equity, where the mindset to me shifts when you move from sort of salary and bonus to equity in the firm.

And that subtle shift suddenly puts you in a different position in terms of sitting at the same table as someone who is, let’s call it quote unquote, making the decisions. When you’re there and your ownership of the firm, however small it is, is rendered unimportant.

First of all, that tells you to go. Second of all, I just feel like the people who exist on that plane bring up different things and then are thought of differently. Does that track with your experience?

Julia (31:48.819)
It does, but I think that this goes to kind of how is the corporate world changing and then how does that impact employees? So, and where I’m going with this is when I was at Wells, my compensation was a third, a third, a third. So it was a third cash, a third cash bonus and a third in stock. Do you want to know what’s going on?

And I don’t know if you know what’s happened on Wall Street.

Every single major bank is moving to you only get a quarter in equity and the rest of it is cash. So I think that the onus to here is on corporations to be thinking about how they’re treating employees. And to your point, what, what does that mean when you show up and how vested are you in the option? Just real quick, I want to give a shout out to Maureen Clough.

I don’t know if you follow her, she just yesterday did an amazing six minute post on why companies are losing loyalty from employees. so like, again, this goes back to is everybody backsliding right now because these corporations have to realize that in order to keep good talent, you want them to have a stake in the game, but that’s winnowing, I think.

Frazer Rice (33:11.819)
I know. I agree. Frankly you know to me at the larger institutions that aren’t willing to sort of play ball as far as involving people in the ownership that’s a signal and when it’s a signal then you know if you’re good at your job and you bring things to bear you know there are other there are other places out there.

I think those places that value you want you around and they want you to be able to participate and how the broader governance of the company works. It’s a lot like how Goldman Sachs was back when it was in the partnership days.

Everyone who was a partner there understood how everything else was working and ultimately that meant that, I don’t know, I feel like Goldman still does well now, but it’s a different climate, different firm where you’re completely involved in everything else and therefore the information is out there and… it’s something that you’re not blindsided as much by what’s happening in other divisions within your firm.

Julia (34:15.472)
Yeah, totally agree.

Frazer Rice (34:16.911)
One other thought that as we were sort of squiring through this was the idea that it’s important to have information sources or networks both within your company that are outside of your reporting line, but also information networks and support outside your company.

I call it sort of the kitchen cabinet of people who are similarly situated or in different spots so that you have context into which to sort of find out what your what you’re up against both inside the company and outside of it. Is that something that makes sense to you or is it something that was lacking in your current situation? How did you think about that?

Julia (34:57.906)
Hmm. I love that because in 2017, I took stock of the fact that I had become too comfortable in my lane and I was seeing that my influence at Wells was waning for whatever reason.

And so I started blogging on LinkedIn in 2017. Because of a conversation with a Harvard sociologist that I write a lot about. Fscinating guy who predicted the current turmoil 10 years, almost 10 years ago. And so I started networking outside and I could not agree with you more that you need to be building your networks, not just inside. That goes without saying, right? Like I had a great career partly because I was a boss at gaining political capital at Wells all the time, right?

Giving goodwill and getting it back but outside is critical. during our book, what we found out is, that women are more likely to put that aside. Because we feel like we’ve got too many other things going on, work, know, kids, all of the pressures, trying not to, you know, have a nervous breakdown on any given day, trying to stay fit, dealing with menopause. Which of course is a whole other thing that is a whole other bag of tricks.

And so we don’t do it as much and it hurts us. So I absolutely think being deliberate about an external network is essential. When women ask me how to do that, I say to commit to a certain number of hours, half an hour to two hour, whatever you can give a week to doing it deliberately. I wish I had done that earlier in my career for sure. So it’s great advice.

Frazer Rice (36:49.865)
Along that line, I’m a big believer in being aware of your surroundings. In a sense aware of yourself and what your skills. Things that you’re annoyed are at are and what you’re good at and what you’re not good at. Did you take any tests or anything to understand what your aptitudes were or what you were interested in or more importantly not interested in or how you interact with other people personality wise and

Is that something that resonates with you? sort of am a big sports fan. Dan Quinn, who’s the Washington commander coach. He got fired from the Falcons. He did a real deep soul searching and went in and got tested on a whole bunch of different things and where he came up short, where he was really good. And that allowed him to get hired again and to have at least some initial success with the team and hopefully going forward from my rooting perspective.

But where does that fit into your analysis for people?

Julia (37:50.351)
Did somebody set that question up? That’s what I want to know. I am a huge believer in strength finders. Some people take discs, some do Myers-Briggs. The reason I asked if it was a setup is because strength finders saved my life. I was deemed top talent when I was like 34 years old at Wells and they gave me a career coach who by the way was Sarah Grady is her name. and she was Dick Kvasevich’s legend on Wall Street.

She was his leadership coach and she gave me strength finders and I very quickly was very clear my top five strengths and then my bottom five strengths are not a surprise. Like I am zero. I’m like negative zero at woo. I was like, it won’t even shock you for a minute.

Yes i do think that those kinds of valuations are critical and in fact i’m gonna talk to my twenty year old son about taking one i think you’ll end up taking disk but. One thousand percent if you if you do not know what you’re good at and why then try to find out because it can save your life i mean the awareness and the learnings that i got about myself.

From taking one test have stayed with me for 25 years. And I’m gonna be really blunt here. I forgot those lessons when I stepped into a new culture and it was painful. So I think you have to also be disciplined about…

Take it again, remind yourself, reread whatever book helps you stay grounded in who you are and how you’re showing up. And get some friends to give you feedback.

Frazer Rice (39:44.111)
Well, mean, people get better or change or worse at certain things. And so you’re not the same person you were 20 years ago. And, you know, it merits revisiting every once in a while. As we wind down here, unfortunately, we probably could go on for about three hours, which I wish we could do.

But one of the things that I think is interesting, too, you talked about political capital and building it up, is that I think one piece of advice that I tend to give to people who are starting out and might be useful in the situation that we’re describing here is that when you have political capital, you’ve got to be willing to spend it occasionally.

Careers, in my experience, take quantum leaps in that you’ll be going around for a while and then something good will happen and then you’ve got to kind of take advantage of the advantage while you have the advantage of having the advantage and moving up and then reestablishing the plane.

And it’s a little bit like a ratchet where when the wrench turns, it doesn’t turn backward. You can kind of continue to elevate on that point. Is that something that you saw where, you know, as you were making the moves up the ladder that didn’t happen at the last situation that maybe might’ve been something that could’ve turned out differently?

Julia (41:01.791)
Yes, and I think that being more aware of my surroundings would have helped. I don’t think it would have changed the outcome in the other example. But the political capital that I was able to gain is that I got promoted every single time Wells did a major merger when people were panicking about their jobs.

Frazer Rice (41:08.623)
Mm-hmm.

Julia (41:31.061)
And one of the things that I did that you and I could probably discuss for two days is I gave up control of trying to manage the outcome. In other words, I went to senior management with two major mergers and I said, you know what? I don’t care what I do for the time that the companies are trying to come together. You give me something hard to do and ugly and I will get it done the right way.

And then you decide whether I get rewarded or not. And when I crushed both of those tasks, I got major promotions. So I think it, I think a lot of people think, I’m going, I had a, had an employee who told me I should just get promoted because I’m sitting here and I’ve been sitting here for two years. mean, it really, life just really doesn’t work that way.

In my experience, you got to work your ass off for it. And, and you have to put your ego aside and you have to hope that the universe is gonna pay you back. And I believe that because the universe always has. I believe that even now with my current situation, like everything that has brought me here has made me a spokesperson for like a better way because of what happened to me, right? I had 20 years of goodness and then I had something really hard happen.

And I’m trying to make lemonade out of a very difficult situation because it is the only way, the only way out is through. So I just have to keep going through and I love the idea of yes, you’ve got to spend your political capital. can’t, know, George Bush said that you can’t just collect it. What are you collecting it for? If you’re not going to spend it.

Frazer Rice (43:17.817)
Exactly. Okay, we have to disembark here, unfortunately. How should people keep track of your situation? How do they find the book? And how do people get in touch?

Julia (43:31.846)
Yep. I have, um, I’m on LinkedIn. I have a website, juliacarrion.com. If you are looking for, I’m doing some consulting on a digital transformation always and org design or whatever. So you can find me there. And then, um, you know, today’s a big day. We are filing today or tomorrow, a response to my lawsuit.

So it would probably make the news. Thank you to you for being a great ally to women and having me on. The book is walking on broken glass.com. It’s such a great name. So you can order the book on the website from any of your favorite book resellers.

Frazer Rice (44:14.639)
Super, well good luck with the legal proceedings. All of your information will have that in the show notes so people can find it easily. I think you’re coming off of a difficult situation. I think you’re gonna turn it into something far more transformative. Even you’re envisioning it right now. So I’m hoping for the best here.

Resources & Links:

• Walking on Broken Glass: Navigating the Aftermath of the Glass Ceiling
• StrengthsFinder Assessment
• Julia Carrion on LinkedIn
• Julia Carrion’s Website

Connect with Julia:

• LinkedIn
• Website

Stay tuned for updates on her legal case and ongoing advocacy efforts. Don’t miss her insights into transforming adversity into empowerment and systemic change.

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Keywords:

Gaslighting, Corporate Culture, Women in Leadership, Workplace Equity, Julia Carreon, Wells Fargo, Citi, Legal Battle, Glass Ceiling, Political Capital, StrengthsFinder, Work-Life Balance, Systemic Change, Weaponized HR

There is a storm coming with the challenges of navigating the TRUSTEE CRISIS. It is one of the biggest blind spots in the “GREAT WEALTH TRANSFER” and will be the source of mountains of litigation for the unwary,

https://youtu.be/hwQev88A03M

Summary

In this conversation, Frazer Rice and Jennifer Zelvin McCloskey discuss the current crisis in trusteeship, highlighting the shortage of qualified trustees amidst a significant wealth transfer. They explore the importance of modern trust planning, the challenges faced by individual trustees, and the need for better education and training in the field. The discussion also covers the emotional and interpersonal aspects of trusteeship, the functions and responsibilities of trustees, and the necessity of managing risk effectively. They emphasize the importance of building a pipeline for future trustees and improving the perception of the profession, while also identifying opportunities within the trust industry.

https://open.spotify.com/episode/4qpkrVdaUa2AfDxgl7j3yN?si=XVgG3jE_Qpqq2JTqi8XLXQ

Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠)

Takeaways

• The coming crisis in trusteeship is already here.
• There is a significant shortage of qualified trustees.
• Trusteeship requires strong interpersonal skills and emotional intelligence.
• Managing risk is a fundamental aspect of trusteeship.
• Trustees critically need education and training.
• The role of a trustee is evolving with increasing complexity.
• Beneficiaries need to understand their rights and the trustee’s role.
• Custodial responsibilities are essential for asset protection.
• There are many opportunities for growth in the trust industry.
• Trust law and investment management are distinct fields.

This Episode is for . . .

• Anyone that has an estate plan with a trust in it and doesn’t know what a trustee does
• Any advisor who works w/ multi-generational situations (that’s everybody in wealth management)
• Any RIA looking to sell
• Financial types worried about compliance world
• Fiduciary litigators

Chapters of “THE TRUSTEE CRISIS: Navigating the Challenges”

00:00 The Coming Crisis in Trusteeship

02:06 Importance of Modern Trust Planning

04:11 Challenges with Individual Trustees

08:03 The Dwindling Pool of Qualified Trustees

10:06 Functions and Responsibilities of a Trustee

12:20 The Emotional and Interpersonal Aspects of Trusteeship

16:05 Managing Risk in Trusteeship

19:07 Building a Pipeline for Future Trustees

22:10 The Role of Education in Trusteeship

25:07 Improving the Perception of Trusteeship

28:19 The Need for Better Trust Education

30:39 Bifurcation of Trustee Functions

33:26 Distribution Functions and Beneficiary Relations

36:52 Custodial Responsibilities in Trusteeship

40:19 Consequences of Poor Asset Management

46:41 Curriculum for Trustee Education

52:13 Opportunities in the Trust Industry

Transcript of “THE TRUSTEE CRISIS: Navigating the Challenges”

Frazer Rice (00:01.068)
Welcome aboard, Jennifer.

Jennifer Zelvin McCloskey (00:02.723)
Thanks Frazer, how are you today?

Frazer Rice (00:04.782)
I am doing great. We’re going to dive into a topic that is near and dear to both of our hearts. And that is what I’m describing as the coming crisis in trusteeship, but I think it’s already here. Which is the concept of qualified trustees being in short supply, right in the face of a gigantic wealth transfer. And first of all, before we get into that, just describe what you do on a day to day basis first.

Jennifer Zelvin McCloskey (00:33.445)
Sure, I actually wear a bunch of hats. Day to day, right now, I’m a full-time practicing trust and estate attorney. I’m also an individual trustee for a variety of trusts that need either somebody here physically located in Delaware for a short period of time or even a successor trustee. But I’ve also spent many, many years building programs in trust management and trust administration.

Because there is this crisis of human capital that just does not exist. I built multiple programs. They’re housed out of the University of Delaware. So I act as a trust and estate attorney, do planning, administration, I teach in the area, I build programs in the area, and I serve as a trustee.

PEAK TRUST MANAGEMENT CERTIFICATE

Frazer Rice (01:23.182)
A full plate to be sure. To me, I came out of Wilmington Trust and another trust company served an individual trustee too. I’ve seen all these different flavors of trusteeship. My general sort of bon mot around that is that the individual trustees. I’d say 95 % or higher don’t really have an appreciation of the risk and responsibility that they’re taking on. And then the corporates have their own issues, which we’ll get into in a little bit. If we pull back even further, modern trust planning in wealth management, why is this so important?

Jennifer Zelvin McCloskey (02:06.275)
That’s massively important. It’s not just for the mass affluent or the ultra high net worth. It’s for everybody. We have all of these assets that we have this hyperfocus on building and increasing our wealth. Making sure that we have the ability to sustain ourselves throughout our entire lives.

But if we don’t do this type of planning, if we don’t have structures and implementation for when we die, then our assets that we’ve planned so diligently for will fall off of a cliff. We lose the ability to control ultimately what happens to those assets.

Layered on top of that, of course, is the tax component for ultra high net worth folks who are trying to really focus and direct their assets to make and create generational wealth transfers.

Without this type of functionality and wealth planning and estate planning long-term, people lose control of what they’ve spent so much time building.

Frazer Rice (03:13.338)
One of the things I tell people as far as trusts are concerned is that, you know, we’re putting these structures together. They’re durable enough to withstand taxation or creditors or other asset protection features, create some guidelines around distributing the assets to the next generation or other constituencies. But also have some flexibility to be able to deal with the things we can’t look into the crystal ball and figure out over time.

And that those three things just putting a document together that tries to do all that is hard enough, but then to put it in the hands of somebody or something to administer and to exercise discretion around it. That’s where the real art and science kind of stitched together and create this issue.

You know, as we think about that too, the idea, the history of these types of scenarios kind of goes back to, you know, you’d put a structure in place and then you’d go hire a bank and they’d take care of everything.

How do you look at that and say, all right, we’ve gone well past banks to individuals and then to dedicated institutions. What is the problem there?

Jennifer Zelvin McCloskey (04:22.956)
Now the problem, there’s two problems. In my opinion, what I see is that, you know, your individual trustee by and large is Uncle Joe, right? He’s the guy that everybody goes to in the family. The responsible one. He’s the smart one. The wealthy one who, great, doesn’t know what the fiduciary duties are. He doesn’t know that he has a duty of impartiality. He doesn’t know that…

Frazer Rice (04:32.419)
Right.

Jennifer Zelvin McCloskey (04:48.475)
He can’t self deal unless the instrument says so. Doesn’t understand how the instrument works. He doesn’t understand the nuance and the legalese written into the instrument. But he’s flying by the seat of his pants and everybody looks to him as the respected one in the family. No one knows that they have the ability to challenge him.

So with your individual run of the mill trustee named in the instrument, they just don’t have the expertise, they don’t have the technical knowledge. Don’t know what they don’t know. They can get into trouble in that way. The other problem that you have with professional individual trustees oftentimes is that they are not formally trained.

They may be an attorney who is working in that area, who’s doing plans for people who may or may not know what the full scope of being a trustee is. They may not realize, I have to get a special insurance policy because my malpractice insurance policy doesn’t actually cover this type of fiduciary engagement. There’s a lot of landmines that individuals can run into when they’re doing this type of work. On the corporate side, the problems that we run into is that there’s just a complete and utter lack.

Frazer Rice (05:50.061)
Hmm.

Jennifer Zelvin McCloskey (06:12.059)
Of available educational programs to teach people the proper way to be able to understand trusteeship. It has always been, and it just has developed over time through, you know, oh, we’ll give it to the bank, the bank will do it. This apprenticeship model, and that just does not scale well because if you learn improperly at the edge of a desk from somebody that learned improperly at the edge of the desk. Then the person that you’re teaching now at the edge of the desk is learning what you learned improperly.

So anecdotally, I did karate for a long, long time. And the man who taught me karate, I’m almost a secondary black belt to like, was serious in karate. And the man who taught me karate said, you practice, it makes permanent. Don’t practice wrong. Because when you’re practicing wrong, you’re making permanent wrong things.

And that’s what the apprenticeship model has the risk of lending itself to. It’s not that every trustee that learns at the edge of the desk learns wrong, but the risk is too high because the fiduciary responsibilities and the duties are too high to run that risk.

The other problem is that we have a dwindling pool of really qualified senior trust officers because of just the nature of the job. You’re a human being, you’re an individual, you age, you retire. And it’s not something that people go to school and say, when I grow up, I want to be a trustee. They fall into it sideways. And unless there are academic programs that are out there that people are aware of and that they can get some formal training, some formal education to enter into the field.

Frazer Rice (07:49.742)
Yeah

Jennifer Zelvin McCloskey (08:03.82)
Separate and distinct from, I’m in the field and now I want to get a CTFA. I want to earn my certification to really show that I have the chops in this area. We have this shrinking pool of expertise. We have a lack of knowledge, a lack of formal education, and an apprenticeship model that doesn’t scale. On top of, with the individual side and the corporate side, this massive wealth transfer and an explosion of trust complexity that’s all taking place at the same time.

Frazer Rice (08:31.918)
One of the issues at the corporate level too is that as you say that the impregnance model is not necessarily the best way to do it. They’re cutting back on training programs. The business model around being a trustee or even a specific trustee does not make the big money.

And so the ability for those types of institutions to develop the people.who ultimately are now in a very sort of pro-employee environment where there’s such a demand for trustees that they can kind of switch around and get a 10 or 20 % bump each time they go because people are desperate to have them.

There’s a real cavern there to try to create the permanence that you’re looking for in a structure that really rewards consistency over time, especially as it relates to discretion and process of decision-making.

Jennifer Zelvin McCloskey (09:23.15)
Yeah, that’s exactly right. And that leads to this revolving door in the industry, because people are just trying to make more money and they’re going and bouncing to different trust companies. And there isn’t that backfill.

Just because it’s a trust company and there’s policies and procedures, trusteeship is about relationships that you make with your beneficiaries, the relationships that you develop with multiple generations in a family. And when you have somebody that’s acting and serving in that and they move, they leave, they’re no longer acting and serving in that capacity, a new personality comes into the mix and it can really be disruptive. So having that consistency and minimizing the attrition is so valuable.

Frazer Rice (10:06.766)
The other thing I try to bring up, especially to individual trustees, is that the thing that you’re signing up for is probably going to look a lot different in five or 10 or 15 years when people are aged on, they remarry, they have kids, etc. That the conditions are a lot different than what they were before. And it’s going to be difficult to take on a structure that has eight people when before there were two.

Jennifer Zelvin McCloskey (10:37.517)
Yes, and that’s that complexity, that increased sophistication and complexity of trust structures that are available now to people. With the increase in the exemption, these trust structures, they’re not necessarily changed. For example, qualified personal residence trust, if people really need that anymore, but there’s a ton of them sitting around there. Are trustees properly administering it? Did you actually transfer the real estate into the trust at the time?

So there’s all kinds of sophisticated structures that the trustees may or may not have the right skills. But they’re saddled with having to do it.

Frazer Rice (11:19.47)
Let’s take a step back and just talk about the functions of a trustee for a second. I break them down basically into three. Which is the first one. You have to administer the trust, meaning you have to dot the I’s, cross the T’s, make sure things get executed, tax returns are filed, statements get sent out to the extent that that happens, and that the administration of a structure like that occurs.

Then I talk about the concept that the investments have to be made monitored moved around decided and that they’re appropriate for all classes of beneficiary that are in there and then the distribution function which is The assets have to be distributed according to the law. First the trust then maybe the intent or the law if everything is silent and that those three things are very different components and that it’s tough to find somebody who’s great at all three housed within one brain.

Jennifer Zelvin McCloskey (12:20.217)
Yeah, I agree with that 100%. It is a three legged stool. It’s the investments, the administration and the distributions. And in that administration umbrella in and of itself, there’s a tremendous amount of work that sort of goes unsung. know, it’s not the sexy stuff where you’re investing and making a bunch of money for your income beneficiaries and managing to preserve the corpus for your principal or your remainder beneficiaries.

And it’s certainly not the personal interaction that you’re doing with your beneficiary day to day. Making distributions, helping them, seeing the product of that help. It’s the making sure you file ax returns are properly. Understanding how to read that tax return. Even if you’re not preparing it, making a proper selection on the accountant that you’re using to prepare those tax returns if you’re not preparing it.

Make sure to set up statements properly, make sure that in this world of silent trust documents that you’re not sending a statement to somebody who’s not supposed to have it. Communicating with beneficiaries on an even keel. Making sure that you’re not inadvertently violating your duty of impartiality because it’s more than just a substantive duty, there’s a procedural duty as well.

That’s really, really challenging to find within one human being, let alone add on top of it somebody who’s financially savvy enough to understand investments and all of the different complex investment tools that are out there, as well as having the personality and the interpersonal skills to keep beneficiaries engaged and happy.

Frazer Rice (13:56.426)
Just on top of that, the EQ, the bedside manner, and the ability to simplify the complex, et cetera. At the same time, that dedicated note taker that is able to document everything that happens within a decision. Whether distribution or investment or otherwise, that it’s just two different people most times. I find that something falls apart as time goes on. Ultimately if things aren’t laid out correctly, that’s when conflict starts to simmer. Then you know if there is something that’s wrong. That’s allowed to compound that’s where you get into a huge problem later on.

Jennifer Zelvin McCloskey (14:36.922)
It’s all that feeling. People are behaving in ways that they may or may not be able to articulate their emotional proximity to. When you’re talking with beneficiaries. There’s something simmering under the surface that you inherited because you’re a trustee. You may not even be aware of it because the beneficiaries may not even be able to articulate it.

You have to have a certain sense. A gut check of feelings of rntuitively being able to read what’s going on under the surface. To pull it out of people in a very balanced and even keel way. It’s not an easy job by any stretch of the imagination. On top of financial literacy and personal liability and executive functioning skills, being detail oriented, making sure your documentation is not overly explicit. isn’t, you know, scarce. You’re now wondering how and why did you make those decisions?

People don’t think about the decisions that they make on a day to day basis. We don’t think in a way to articulate why I made this decision. Why I exercised this type of judgment. And that’s what we’re being asked to do as trustees is to document what is my decision making process? Why am I making the decision? What are my factors involved in making that decision in a way that’s defensible. If we ever need to defend it.

Frazer Rice (16:05.292)
Well, in favoring one class of people over another is usually where the rubber hits the road on this. People who are used to seeing the income from a trust and don’t want that touched come hell or high water. Then future beneficiaries who’d like to see the trust go from X to 2X to 5X. So that they have something larger to enjoy.

You have a natural tension that you have to manage. It’s just not easy. If you don’t document the hows and whys of what you’re doing, you set yourself up for a problem. From one class or another looking at you saying, you you should have done it differently. To go back to that liability component. You’re the only one who sits in the chair of having made that decision. You’re the one with the bullseye on your back when it’s called to account.

Jennifer Zelvin McCloskey (16:53.093)
That’s right, that is exactly right. And now add on top of it, you’re just named because you’re Uncle Joe and everybody goes to Uncle Joe. You have no technical background and you just don’t know the landmines that are there. You don’t know what you don’t know.

Wouldn’t it be wonderful if we were able to create a pipeline of really sophisticated entry level employees or folks that are, you know sophisticated in financial literacy that now want to take the job to become trustees, that we were able to give them this technical roadmap for what the job actually is and then have them get the ability to apprentice on all of those policies and procedures. What does this corporation do? How do we document things?

When you’re trying to learn it all at one time, it’s like drinking from a fire hose. Let’s give people the ability to really have a chance at doing it successfully.

Frazer Rice (17:53.048)
So let’s dive into that pipeline issue for a second. We already diagnosed that the, let’s call it the trust companies or the banks are, they’re just not resourced enough. They can’t run people through an internal school to do it quote unquote correctly. The apprentice model really kicks in. Which means you’re at the sort of mercy of what people are good at, not good at, et cetera. People turn over quickly so that apprenticeship doesn’t even work anymore.

The RIAs I think are the worst place to learn about this type of thing. They have a completely different modus operandi as far as keeping clients happy.

The word fiduciary means something so different to them than it does to an actual trustee. I wouldn’t feel good about the training on that front to sort of create trustees

And then so law schools. They’re they’re just trying to create people the trust in the states vertical as a general matter. Let alone trying to delineate into a trustee situation. You’re putting the pipeline together and you put these programs together. How do you stitch together the needs and what does that manifest itself into?

Jennifer Zelvin McCloskey (19:07.642)
So that’s a really, really good question. I think that the very first place that we start with answering that question is advising on a trust as an attorney. It’s different from the administration of a trust and the skills that you need for that.

So when you create a program like this where you’re trying to teach about trust management. You have to start with the technical skill. The legal side of what is it that we’re even doing? What is a trust? What are the fiduciary duties? Where do they come from? Then we have to, after we teach or create a structure or foundation on what the legality is. Now we go into how does this translate into administration?

So when I created the programs, I looked at what’s the law they need to know? What is the level of sophistication of the student? And what do I need to, from a foundational perspective, teach first? What are the building blocks? And then how do I translate that into administration? The one thing that I have found is trust law does not equal investment management. So if people are coming along…

Frazer Rice (20:26.254)
No question. I’m nodding audibly at that comment. I like that.

Jennifer Zelvin McCloskey (20:31.226)
Your fiduciary duties as a trustee are fundamentally different than those of an RIA, where some RIAs are not even fiduciaries by law. They’re not. So being able to delineate and explain where that line is, what makes you a fiduciary, what are those duties, after you know the legal basics.

And taught to you at a level that you can understand. I don’t expect everybody to be a lawyer. And people have asked me time and time again, do I need to be a lawyer to know this? No, you don’t need to be a lawyer because you’re not advising on the law. You’re advising on the administration of a legal structure and how that administration affects the fiduciary duties that are inherent in the relationship.

Then how those fiduciary duties are translated out to the beneficiary. That’s the way that I’ve always built these programs. Where do I start? Start with the law. Where do I go from there? Start with how the administration translates the law. And then how does that administration get heard by the beneficiary? Where does the RIA come into the mix? The RIA should not be dabbling in advising on trusts. They should know that they need to bring in somebody who has this particular skill. And if they’re not doing that, they’re doing the client a disservice by trying to give one-stop shop advice.

Frazer Rice (22:06.85)
Yep, no question about it. One of the things that…we delve into the world of trusts and their function, et cetera, is that you’re dealing with an ecosystem from client to outside advisor, whether RIA or even accountant, et cetera, that they’re looking for certainty and airtight. quality to these structures that you put them in place and then everything runs like a clock going forward.

When in actuality, I think there is a bandwidth of risk around everything. And so it’s the poor trust officer or individual trustee who sometimes has to be the bearer of bad news to say, yeah, you know, I think this is going to work 98 % of the time, but there’s a 2 % problem here or we’ve got this to fix or something like that and everybody else sort of sighs with disappointment and gets mad at the administrative function when in actuality they’re really doing their job and trying to, you know, keep a lot of things that are spinning out of control kind of within view.

How do you get a trust officer or that administrative function or even the full trustee function to be comfortable with that risk and everything that’s involved with that?

Jennifer Zelvin McCloskey (23:20.504)
You have to start with explaining that there is risk and we’re not our job is not as a trustee to eliminate risk. Our job is to manage and identify risk. It is inherent in the job. There is going to be risk. No matter what you do, you cannot divorce risk from trusteeship. It’s a matter of identifying perceived risk and actual risk. And if you can teach that, if you can teach

These are the things that are going to trigger a likely outcome. They’re gonna trigger a likely risk. Then you can essentially, you can’t foresee everything. I mean, there are things that are just gonna happen. But in a trust instrument, you’ve got contingency plan upon contingency plan upon contingency plan. That’s what the flexibility of those structures are building. We need to, as trustees, be able to recognize What is the risk with contingency plan A? The risk with B? What is the risk with C? How can we minimize the risk? And how can we make sure that we’re managing perception of risk versus actual risk?

Frazer Rice (24:29.31)
as someone who’s been in trust companies, advised trust companies, advised trustees, and advised clients, the lack of appreciation for the management of that risk and that that as the intersection of the business model of trusteeship and risk management and use of discretion and making hard decisions and even kind of an insurance quality around these structures, how do you fix that, where people place a level of respect on the job that I think is completely lacking in the wealth management ecosystem?

Jennifer Zelvin McCloskey (25:09.089)
Absolutely. It’s a tough one to answer. How do you fix it? First and foremost, I think that it’s a top-down fix, especially at a corporate trust company, a bank, and even an independent trust company that’s not affiliated with a bank.

The management has to… really understand the function of the trust company. For so long, it’s been just an extra service that we provide and and we’ll do this, the back office trust company. It’s really, really important that the management recognizes what the functionality of the trust company is and stops treating it as sort of a back office stepchild. From the corporate level, I think that’s the very first place we start.

Frazer Rice (25:38.478)
Mm-hmm.

Jennifer Zelvin McCloskey (25:57.818)
The second place we start is investing in our trust officers, investing in the team, giving them the education that they need, continuing to give them education, providing training programs, whether they be in-house, external, bring in trainers.

None of this is set it and forget it. At the individual level, I think it’s really, really important to have functions like the Individual Trustee Alliance, groups like that, where you have an ability to talk to other professionals that are doing what you’re doing. That’s another way to impress upon people that we have to manage the risk and we can’t do it all alone. Nobody knows everything. You really have to, you have to talk to other people.

You have to engage. have to, what is it called when we were practicing law and we’re a little bit outside of our comfort zone, we have to consult with other people who know more than we do. It’s our obligation as lawyers. It’s the same thing with a trust company, with a trustee, whether you’re an individual or you’re not. Widen that circle.

Frazer Rice (27:08.474)
I think this is my idea for the day that there’s got to be a bit of a public relations campaign sort of describing what’s going on here because I think especially when we go into the family members that sort of occupy these roles, they have no earthly idea what they’re doing. They’re usually doing it for free. Everything’s hunky dory up until a point and everyone hopes that everyone is not going to sue each other if something goes wrong.

But the level of wealth that’s being transferred now is now so significant that everyone sort of talks about, AI is going to get rid of lawyers. Nope, not in fiduciary litigation. I think that’s a medium term growth industry, especially around insurance, around ILITs, around revocable trusts, around elder care.

But this is my advertisement for people who are in law school looking for a productive way to go. I think that one is going to be, I think that one’s recession proof, at least for a while until I retire anyway. So my thought is that awareness over these things, and it’s probably going to take a very difficult case or a class action suit, something like that, where somebody really gets hurt in order for that awareness to come up.

Jennifer Zelvin McCloskey (28:24.922)
Yeah, I would agree. think that some of the solutions would include better trust education, you know, whether it be for RIAs, lawyers. Trust in the states is a throwaway class in law school. And there are so many law schools that are essentially rolling it back because bar exams aren’t testing it anymore in a variety of states. And ACTEC is definitely working with the law schools to try and increase trust in the states being taught and certainly being tested.

So education for lawyers coming out of law school, education for RIAs that are advising on trusts, education for trust officers, for trust administrators, trust professionals in general, clear role delineation. What is the role of the RIA? The role of the trust officer?

What is the role of the trustee if they’re an individual trustee? And then creating a culture of collaboration on what we’re doing as a team for the beneficiary, not substitution, but collaboration with the advisors and the trustees.

Frazer Rice (29:32.59)
Let’s go into the role delineation for a second. About 20 or 30 years ago, the concept of bifurcating or sort of cordoning off the different functions I described before the investment, the administration and the distribution has come into vogue.

I think that came out of frustration with bank trust companies where you got one set of advice for every trust that they had as far as investments and distributions and administration and a lot of modern larger families wanted something a little bit more specific to their needs.

And that’s really turned, it’s exploded as an industry for increasing sophistication and size of wealth. Along those different functions, where maybe the administration goes to a professional trust company or a trust officer in the state that you want,

Then there’s some intersection maybe in the distribution committee. And then the investment side of it is a bit of a free for all, think, depending on what you’re, dealing with. How do you educate the, that continued the delineation, but the coordination within those types of structures.

Jennifer Zelvin McCloskey (30:41.275)
Yeah, I think it’s really important. And I’m a Delaware lawyer. I’m licensed in multiple states, but Delaware is my home. It’s where I learned how to be a lawyer. It’s where I grew up as a lawyer. So this directed trust model that you’re describing, where you’re bifurcating, truly bifurcating these particular functionalities of a trustee, it originated in Delaware. sort of, we didn’t, I mean, we invented it, right? We codified it. It was being done, but we codified it.

The idea of making sure that everybody understands what their function is and knowing that there’s a limit of liability that’s built into the instrument and communicating what that means to the RIA that is named in the document. I can’t tell you how many times I have heard companies, heard trust companies say, we’re advisor friendly. And I’m like, not unless you’re directed, you’re not.

Frazer Rice (31:37.528) “THE TRUSTEE CRISIS: Navigating the Challenges”
Yeah.

Jennifer Zelvin McCloskey (31:40.439)
If you are directed, you are 100 % advisor friendly because there’s no chance that that trustee is going to try and take the investment management. They’re not a portfolio manager. Not a clerical administrator. They’re not a passive rule follower. We need to identify what does that trustee actually do when they are an administrative or directed trustee.

Clarify that role so that people who are engaged in this bifurcation, this structure where we’ve got a distribution committee, maybe it’s individuals who are close to the family, close to the beneficiaries, where you don’t have somebody who’s objectively uninvolved with the family members making decisions as to whether or not there’s a distribution that should be made.

But also advising those rolls those advisors that your administrative trustee is not just a pencil put a paper pusher. Not just checking boxes. They really do add value to the role that they provide and making sure that everybody understands what each other are doing, having regular meetings amongst the team instead of operating in a vacuum or operating in a silo.

And taking the approach of it’s not my job, misunderstanding trustee powers and the advisor’s authority. So when that’s delineated, when that’s really understood, not just by the advisors, but also by the beneficiaries, there are so many beneficiaries out there, Frazer, that have absolutely no idea that they actually hold all the cards. They don’t know.

Frazer Rice (33:25.87)
Along that line, so in the administrative, we just walked through pretty nicely. The distribution function is one that, let’s talk a little bit for a second about what it means to ask a trustee for a distribution and maybe the difference between income and principal and why having a steady hand at the wheel within that function, whether it’s a corporate trust company of qualified individual or family input in that function, why real good thought needs to go into how that’s staffed.

Jennifer Zelvin McCloskey (34:04.73)
Yeah, absolutely. 100%. In a corporate trustee ship or a corporate trust company structure, there’s always going to be distribution committees, right? So if you are the trustee, you’re going to have to go through a committee that’s looking at what your reasoning is for making that distribution. They’re asking questions about what have been the prior distributions?

Have they come from principal? Have they come from income? What is the spend rate on that trust? How is this going to affect long-term spend rate? Is this an aberration? Is this something that’s gonna become a habit? Really understanding what the distribution, the guidelines are in the trust. What is the distribution standard?

Making that decision? What are our factors? And how many people are at the table? Who’s communicating that to the beneficiary? Does the beneficiary know that the trust officer alone does not have the ability to say yes or no? That when they’re in this ecosystem of a corporate trust company, they have their checks and balances to make sure that that risk is being managed.

So when you’re looking at corporate trust companies, are a lot of layers behind understanding what the distribution standard is, whether it’s hems or if it’s purely discretionary. The other thing that you need to look at when it’s not a corporate trustee and it’s an individual trustee is, how is that individual trustee making that decision?

Are they doing it in a vacuum? Alone? Are they favoring one beneficiary over another because they like them more, you need to have some communication to the beneficiaries so that they understand what they are, what their interest is, what they are entitled to, if anything, and why the trustee stands in that position as the gatekeeper. And I really think in my heart of hearts, we need to make a shift from a gatekeeper trustee

Jennifer Zelvin McCloskey (36:16.708)
to a beneficiary enhancement trustee, where the beneficiary is really taking on the understanding that the trustee is there to facilitate enhancing the beneficiary’s life. That even though the trust may have started at the outset as a tax strategy or something that the grantor decided they needed to do with the advice of counsel.

At the end of the day, you wouldn’t have been named as the beneficiary if there wasn’t some sense of love or obligation even, that it’s for your benefit. It’s in the name. Beneficiary. Trustees need to understand that and beneficiaries need to be taught.

Frazer Rice (36:54.958)
Right.

Frazer Rice (37:00.646)
And it goes to the circle back to the notion of making sure that you write down the whys of the decision because ultimately if the concepts of favoritism or you didn’t communicate this or anything, the idea of having the beneficiary submit a budget but having them understand why they are submitting a budget and then if there is some discretion that’s happening around that decision that the data points that are informing that discretion, that’s gonna keep everybody safe a lot later on.

Jennifer Zelvin McCloskey (37:32.666)
Absolutely. I break it down into a couple of different factors. It’s fiduciary decision making. How is that fiduciary making the decisions they’re making? Why are they making those decisions? And who is being affected by the decisions? Document interpretation. Do you understand the document that you’re administering? If you don’t understand the document you’re administering, hopefully best case scenario, you know what you don’t know and you ask.

But if you don’t understand the document and you don’t even have the wherewithal to say, hey, I need help to understand the document, it’s really problematic. The third part, balancing beneficiary interests. Really taking on board this idea of the principal income problem that all the assets in the trust are not the same. That some of it doesn’t at all in any way affect a certain class of beneficiaries.

And at the same time, it’s inextricably intertwined in the way that it affects another class of beneficiaries. And then risk management and governance. How is this being governed? How are we managing perceived and actual risk as a trustee?

Frazer Rice (38:40.13)
The investment function, which I alluded to before, I see storm clouds on that horizon, not really at the RIA level, because I think there’s sort of a default mode that investment policy statements are in place. Diversification is a true commodity at this point. And I never really worry about an RIA sort of understanding how to invest to get to a certain expected return and deal with the risks and drawdown and all that stuff.

The storm cloud I see is when individuals sit in that role and they are being tasked with, let’s call it quote unquote, overseeing concentration, meaning that trust is holding a building, farmland, a nuclear reactor, crypto, all of these different things that sometimes can be, A, they have their own different maintenance responsibilities that are not just looking at a fidelity statement, but that they also have their own volatility

And, you know, in the case of a building, you got to make sure it’s managed correctly. are they going to get sued or the windows kept up, all of that stuff, and that there’s a whole different component there. And I’m waiting for the shoe to drop on some fact pattern there where somebody is sitting in the role of an investment advisor. It doesn’t say trustee in the document, so they don’t really think that they have trustee liability.

But. they sit in that role and all of a sudden somebody finds 10 55 gallon drums of green fluid in the basement of a building and all of a sudden the trust has a big set of red brackets that say minus $100 million that you owe to the federal government and the EPA. How do you think about that?

Jennifer Zelvin McCloskey (40:21.454)
Hmm.

Jennifer Zelvin McCloskey (40:25.242)
That’s a heavy question. so the Delaware stock answer, obviously, direct it, right? It’s just to get the trust, cut off the liability. At the first, at the inception of your hypothetical is bad drafting, right? So if there’s no statement as to whether or not your investment advisor is acting as a fiduciary or not,

Frazer Rice (40:35.042)
Right.

Jennifer Zelvin McCloskey (40:52.836)
What does your statute say? Does your statute impose that they are as a default a fiduciary or not? So that’s the very first step. That’s bad drafting. We need to know. But if it’s silent, let’s say it’s just a lousy document, there’s, God knows. Anybody who’s seen trust documents knows that, you’ve seen them all, right? And everything in between. Some are good, some are bad. If this is a bad one.

Frazer Rice (41:13.08)
Seen good and you’ve seen bad.

Jennifer Zelvin McCloskey (41:20.079)
Then we need to document the statute. If we can correct it, modify the document, let’s modify it. But if all of that can’t happen, then I would say the best way to handle it, make sure you have adequate insurance. mean, over-insure that, over-insure it. Make sure that there’s regular checks on the actual…

Assets that are in the trust, if you have a concentration and that concentration is real estate, get the advice of counsel, put that bad boy into an LLC, get yourself some distance from the actual asset itself being held in the trust, hold an interest, hold a financial interest, push it down to the corporate level. But if you can’t do all of that and you’ve got those 500 gallon drums of green fluid and now you’re…

Frazer Rice (42:14.286)
You

Jennifer Zelvin McCloskey (42:15.371)
You you’ve got a super fun site. What do you do? You don’t shy away from it. Have to address it head on. You got to take the accountability. You got to communicate and document, communicate and document some more. Talk to your beneficiaries. Make sure that they’re aware of where it went wrong, why it went wrong. Because I have found in my exposure in the industry over time and in reading case law, it’s when you’re trying to cover stuff up.

Frazer Rice (42:43.913)
Jennifer Zelvin McCloskey (42:44.027)
You’re just making more problems. Bad news doesn’t age well. It doesn’t get better over time. You have to approach it head on and make sure that there’s communication and documentation. Meet with your beneficiaries. If there’s a trusteeship where you are appointed as a trustee individually and you’re not having at least quarterly meetings with your beneficiaries,

If you’re not going out and seeing the asset, if you’re not going out and making sure that the asset is properly custodyed, you’re not, you’re violating your fiduciary duty. You are not doing what you’re supposed to do.

Frazer Rice (43:21.804)
You brought up an interesting word there, custody, which is the administrative function, whether held corporately or individually, one of the major things you have to do is to safeguard the assets. And that’s a big two syllable word that carries a lot of weight with it. That custodial function, how do you teach the trust officers or the individual trustees where that starts and stops?

Jennifer Zelvin McCloskey (43:48.579)
Yeah, mean, custody is super, it’s a really touchy, touchy subject, especially with the dynamic way that trusts have developed in the current climate from tangibles. You know, I’ve got artwork and my beneficiary wants to hang the artwork in their house. Well, do you have custody?

Has it been assigned to the trustee and how do you maintain that asset? Make sure nothing’s happening to it. Do make an appointment, go over to the, visit your artwork? What if it’s prize horses, you know? What if it’s, you know, a stud that, you know, we’re gonna need to breed and it’s gonna be the next Triple Crown winner? How do you make sure that the barn is properly safeguarded?

It’s a really touchy subject, especially with things like tangibles and things like assets held away when you technically custody the asset, but you don’t have control over the asset. I think in the education part for custodying, what I do in my programs and when I teach this is I make sure that we talk about different types of asset classes.

And what the risks, again, what are the risks that you run with these asset classes? How can we manage the actual and the perceived risk of holding that asset? Even if you have custody and name only, but you don’t have physical custody, how do you maintain your control over that asset? Because it’s really the C’s, right? The custody and control. Just because you don’t have custody doesn’t mean you don’t have control.

So we have to make sure that there’s an education that’s provided about the different asset classes, whether it’s tangibles, intangibles, assets held away, if it’s a concentration of stock, if it’s crypto, and most trust companies are not taking crypto. I think that there’s like a circuitous way that they’re getting in right now, but it all boils down to education, isolating what the issue is and educating people on it.

Frazer Rice (45:59.586)
I’ll give you a third C, it’s consequences, which is what happens when you don’t understand these functions. on the crypto side of things,

Jennifer Zelvin McCloskey (46:01.786)
Uhhh

Frazer Rice (46:11.544)
Holds the key to get to the crypto. What happens if that trust officer quits and walks away with the key and they’re like, well, multi-sigil figure this out. I’m like, okay, that’s not that. That doesn’t make me feel great at the moment. And now there have been some advances, which is good, but traps for the unwary to be sure. the good news too for crypto is for people who want exposure, the spot ETFs take away 90 % of the problems with that.

But as we start to think about winding down here, because I have a feeling we could probably talk for four or five hours on this subject, when putting your programs together, what does a curriculum look like? And we don’t have to go through it bit by bit, but how does that work when someone comes to your program? How much time does it take? What’s the commitment?

Jennifer Zelvin McCloskey (46:47.172)
Yeah, I think so.

Frazer Rice (46:54.851)
Mm-hmm.

Jennifer Zelvin McCloskey (47:06.33)
So the program that I created that’s really available anywhere across the country is called the Peak Trust Management Certificate Program. Peak Trust Company, may be familiar with it. They have name rights because they gave the donation to the University of Delaware for me to build the program. So it’s housed at the Lerner College at the University of Delaware, but bears the name of Peak Trust Company. I look at five different things.

The first thing is trust law and administration. So like I said previously when we were talking, you lay that foundation of what is the legal component of this? What is the baseline that people have to know? And then what is the administration?

The second component is, and it’s inextricably intertwined as taxation. What is the income tax? What are the deductions? And now let’s take all of that income tax knowledge, individual income tax knowledge, and build on it with fiduciary income tax. What is DNI? What is FAI? How does it go out to the beneficiary? What’s the character of the distribution? How do we manage that? What are we deducting in the trust? So teaching taxation and not because trustees necessarily are tax preparers, but because the trustees obligation is to be able to understand and read that tax return, they need to know how to spot problems.

So from my perspective, teaching fiduciary income tax is a critical component. It also helps. Yeah.

Frazer Rice (48:38.828)
No, no, I was gonna say no question about that. And there are elections to make, just because it doesn’t just go on autopilot, there are choices to be made so that if you’re the trustee, you may not have to prepare the tax return, but you may have to make a choice on the tax return and you’ve got to be informed because that can be an issue.

Jennifer Zelvin McCloskey (48:58.651)
65 day elections, perfect example, right? You just, you need to understand what your role is and how it overlaps with that of the CPA.

The third part, of course, investments. Investments are inextricably intertwined, whether you’re doing it yourself as the trustee or you’re directed or even delegated, which is like the hairy scaries of every trusteeship known to man, because you’re not actually in control, but you’re responsible. So it’s the gray. When I build a program, because of the, you know, the directed trusteeship being so popular in today’s day and age, we have to talk about not just investments of, you know, marketable securities, not just the custody of tangibles, but also subscription documents, because so many alternatives are held in trust right now. unique assets, need to know how the trustee is actually carrying out their fiduciary duty when it comes to engaging in an investment that is an alternative investment.

The fourth component is of course compliance. We cannot ever get away from compliance and I think we could do a whole nother podcast on compliance in trusteeship but.

You know, it’s a regulated entity. And even if you’re an individual trustee and you’re not using what those compliance frameworks are, what the guidelines are by OCC, Reg 9, FDIC, if you’re not looking at that and using that as a guideline, don’t do the job. understanding KYC, BSA, AML, all of those compliance components that have tentacles.

That’s the fourth part.

And then for the fifth part of this program, because it’s specifically geared toward trustee education in trust companies, although it can be applicable, very applicable to individuals, is operations. I was very fortunate that I was able to partner with SCI on building the operations component. So we license their platform called Plato. It’s essentially their training platform.

Jennifer Zelvin McCloskey (51:12.888)
so that trustees can see how fees are set up, fees, that’s a whole other podcast, fees, statements, distributions, how are we doing this? How are we documenting everything? What are the logistics of the day-to-day operations? So that’s how I built the program and it’s available anywhere in the country. It’s 10 weeks, how long does it take? I would say from three to five hours a week of an investment that you’re making at a bare minimum.

Obviously there’s a whole lot more of depth that you can go into. The resources are built in. But I would say 10 weeks, about 50 hours of time where you’re actually engaging with the material. And then I bring in guest lecturers on each different area of expertise for lack of a better description.

And they get a certificate at the end, they get a digital badge, and now they really have something where they can add value day one in a trust company or as a trustee.

Frazer Rice (52:17.902)
With Delaware being, you one of the real gold standards as far as trust jurisdiction, I assume that everything that comes out of this program is pretty transportable to the other useful jurisdictions, let’s call it, within the country. know, the Tennessee’s, the South Dakota’s, the Nevada’s, the Alaska’s, Wyoming’s, New Hampshire’s, et cetera. Obviously, there are hairs to split with different foibles in their law, but everything that you’re describing sounds like works everywhere else.

Jennifer Zelvin McCloskey (52:47.928)
And I’ve always taken the approach, you’re 100 % correct, I’ve always taken the approach of UTC. I base everything off of UTC and if there’s something different or unique based upon the jurisdiction that you’re in, I always encourage people you have to look at your statute, you have to look at the jurisdiction that you’re actually practicing this in and administering in. I use Delaware, South Dakota, Alaska as examples quite often when we’re talking about the directed stuff, but

By and large, it’s UTC.

Frazer Rice (53:20.966)
It just a weird subset. So special needs trusts and islets, which are two types of trusts, very specific. One holds life insurance. The other is designed to really take care of people who can’t take care of themselves. And they are types of trusts that a lot of trust companies don’t like to take on because the liability is harder or the profit margin is less.

For those individuals who get the opportunity to participate in those and I put that in air quotes. How would you advise people to get ready for those types of situations?

Jennifer Zelvin McCloskey (53:58.308)
People who are in need of those types of trusts.

Frazer Rice (54:02.122)
Well, maybe both. The people who need those trusts, you know, they’re going to, they, you know, it’s almost like they get set up and then the staffing gets kind of figured out later, barely. And then, you know, the, for the people who end up taking on that role, they really have no idea of what they’re in for in a sense. Is there sort of like a mini, I’m not going to say a full course like you’re describing, but a crash course in, in what’s going on here and what can I do to keep myself safe?

Jennifer Zelvin McCloskey (54:30.271)
Unfortunately, no, I don’t know of one. and there isn’t much built in. there’s, we talk about a little bit in the program that I built, but, those are specialized and eyelets we talk about a little bit more there, you eyelets had their day and sort of they has done ish. but special needs trust. It’s a whole other ball game because

It really incorporates state law and social security and Medicaid, all of those government benefits that I think you would need something more specialized than my program that I developed. And I don’t have a great answer for that, I’m sorry.

Frazer Rice (55:12.482)
No, there’s not a great answer for it because it’s tough. it’s a, all of which is to say for someone who’s involved with those things and feels confused by what’s going on, that’s one where it’s worth it to spend the money to lean on a dedicated Medicaid elder care, special needs type of lawyer on that front because there are traps for the unwary. Okay, now we’re starting to butt up against an hour here of.

Jennifer Zelvin McCloskey (55:29.764)
Yes . . .

Frazer Rice (55:38.827)
Four hours. No, I’m kidding listeners. We’re not going to talk for four hours, but How do people find your program and and then I’ll ask a bonus question at the end

Jennifer Zelvin McCloskey (55:49.339)
So the program is on the University of Delaware’s website. You just type in peak trust management certificate and it’ll pop up. My name will be there. I think my picture might be there. It’s all over my LinkedIn. So if you look me up, you’re going to see the peak trust management certificate program. You can always email me, jennifer at zeldenlaw.com. Happy to push people into it. start, I’m in the new cohort right now. We’re two weeks into a 10 week program.

But we have a new cohort starting in May. I think it’s May 4th. So may the fourth be with you.

Frazer Rice (56:24.622)
Terrific. So the final question here is really more of a crystal ball question. In this trust industry, trustee industry, what are the real, I’m going to say opportunities out there, and we’ve sort of painted a picture of doom and gloom and its low profit margin and things like that. Where can someone who is thinking from a business perspective about this find something?

Once they’re properly educated about it and being able to participate in it.

Jennifer Zelvin McCloskey (56:57.582)
There are so many opportunities. There is an absolute need for good trustees everywhere. Trust companies from coast to coast, individual trustee alliance. People really, really need trustees. There’s tremendous opportunity with Heritage Institute, not the Heritage Foundation, but the Heritage Institute.

There’s opportunities with…various family offices and various trust companies for education, for beneficiary education. So many opportunities out there. Trust companies are just clamoring for people. So if people are interested in becoming a trustee, getting that education, you will not have a hard time finding a job. Like you said, it’s basically recession proof. This wealth is going to transfer. We need sophisticated, knowledgeable trustees. on the receiving end of that transfer so that it happens correctly.

Frazer Rice (57:56.578)
I’d go so far as to say financial advisors. I just gotta say, a CFP is useful, CFA is on your investment side, but something like this, you know so much more about how intergenerational wealth works than what’s happening in those particular situations that I think it helps people stand out when I see something like that on a resume.

Jennifer Zelvin McCloskey (58:00.302) “THE TRUSTEE CRISIS: Navigating the Challenges”
That’s all the podcast. I hear you. I hear you.

Frazer Rice (58:24.386) “THE TRUSTEE CRISIS: Navigating the Challenges”
All right, with that, Jennifer, it’s great to catch up and I will have all of your information on the show notes and I will either see you at the ITA conference in Dallas or what I’m down in Delaware next.

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https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Keywords for THE TRUSTEE CRISIS: Navigating the Challenges

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Frazer Rice and Bram Weinstein, the “Voice of the Washington Commanders,” discuss the shift in sports media for entrepreneurs. The current state of sports journalism is in flux, especially with the decline of the Washington Post’s sports section and its implications for local coverage. We explore the opportunities that come from this void. (Including the potential for new media ventures and the challenges of monetizing content in a fractured media landscape). The discussion also touches on the future of the Washington Commanders, the importance of audience engagement, and the evolving nature of podcasting and digital media.

https://youtu.be/O0syDGcSkvU https://open.spotify.com/episode/3Ut9QRj7X9QD1pGEA6y6qt?si=39nLO2reQ8SK_nj0zenzDA

Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠)

Takeaways

• The Washington Post’s sports section closure is seen as a significant loss.
• There is a growing opportunity for new media companies to fill the coverage void.
• Monetizing media ventures requires innovative strategies and diverse revenue streams.
• Podcasters face challenges in gaining audience traction and monetization.
• The Commanders’ future depends on effective roster changes and health improvements.
• Engagement with the audience is crucial for media success.
• Digital platforms like YouTube provide exposure but limited revenue.
• The media landscape is rapidly changing, requiring adaptability.
• Local sports coverage is essential for community engagement.
• The importance of maintaining journalistic integrity in a changing media environment.

SPORTS MEDIA FOR ENTREPRENEURS CHAPTERS

00:00 The State of Sports Journalism

02:59 Opportunities in Media

06:07 Monetizing Media Ventures

09:05 Navigating Podcasting Challenges

11:59 The Future of the Commanders

15:06 Engaging with the Audience

DISCOVERING BRAM, THE COMMANDERS, AND AMPIRE MEDIA

BRAM on SPOTIFY

AMPIRE MEDIA ON YOUTUBE

AMPIRE MEDIA WEBSITE

Transcript of “SPORTS MEDIA FOR ENTREPRENEURS”

Frazer Rice (00:00.686)
Welcome aboard, Bram.

Bram N Weinstein (00:02.551)
Hey, Frazer, how are you?

Frazer Rice (00:03.736)
Doing great. The last time we spoke it was about three days before the Chicago Hail Mary, so I’m viewing that as good luck. That must have been something having to call that game.

Bram N Weinstein (00:14.071)
That was part of the most magical season I’ve ever been a part of. Not only first ever for the franchise, but 12 and five, NFC championship game, hadn’t done that in a generation. It was pretty incredible, yeah.

Frazer Rice (00:28.652)
No, as a skins fan, now commander’s fan, it’s been a long time, but it was a wild ride. One of the things that’s happened recently, which I know strikes near and dear to your heart, and frankly, for people who grew up sort of following it, has been, I guess, kind of the evisceration of the Washington Post sports section. And it’s got all sorts of impacts.

But from your perspective, How do you make sense of that and what does it look like going forward for a city essentially that has all the major sports and the major paper not really covering it?

Bram N Weinstein (01:09.719)
I don’t make sense of it. I don’t understand it. I think at its core, The Washington Post is two things. It’s one of the most important publications in the world as the paper of record in the most powerful city in the world and the democratic center of the world. But it also is a local newspaper for one of the top 10 markets, top five markets in the country.

And the idea that it would not cover its sports teams, or Metro desk, which, I know, you know, for our purposes, we focused a lot on the sports desk being shuttered. The Metro desk is too. So the Washington Post not covering the mayor’s office, city council meetings like in especially in these political times where, you know, the district budget is held by the federal government.

To me, it doesn’t even it doesn’t compute that that wouldn’t exist. as far as like the sports section goes, which I think is like the lesser of the two real problems with this, but obviously is a real problem is, you I think for me, it feels like a death. I grew up reading the Washington Post. A lot of the reasons why I wanted to do what I wanted to do was through osmosis of reading Tony Kornheiser and Michael Wilbon and Tom Boswell and all of the great writers that came through the Washington Post.

And I just don’t really understand how it’s not within the business model to be part of this. At the same time, you know, it does open opportunities for entrepreneurs like myself who have media companies and are always looking for new talent and always looking for openings. And I can tell you that void is going to get filled.

But I do think it is sad that the Washington Post could not figure out a way to modernize itself to allow its coverage to continue for its loyal readership. This is a local paper that isn’t covering local news. That is astoundingly terrible in terms of a business practice to me.

Frazer Rice (03:14.317)
It’s weird because from my perch here in New York, I work across the street from the New York Times building and there’s a little bit of sort of guffawing that the New York Times has turned into a gaming company and sort of a media company second, which has helped to subsidize its continued commitment to long form journalism. But even then, I mean, it’s really focusing on arts and leisure and cookbooks and wordel and all sorts of things like that.

And it’s a shame that the Washington Post either couldn’t pivot in that direction or otherwise make sense of things.

Bram N Weinstein (03:48.727)
Is the business model of media the same that was no. so there are a few things that play here to be fair. I’m not asking Jeff Bezos to lose money. You know, like, or just be the beneficiary to subsidize something, but you do bring up a point, which is.

And I read this quote recently from, the old ownership group, the Graham family, who basically said. “You know, the newspaper is a grocery store. Like you are supposed to go in there and pick all the different things that you want. And hopefully there’s something for everybody or hopefully a number of things for everybody. And in modern times, the New York Times has done a very good job of putting together a new modern grocery store for people. So there’s a variety of different things that does subsidize the important work that it does. And in the end, like to me, the New York Times and the Washington Post and maybe the Wall Street Journal.

Are the three most important newspaper entities, if you can call them that, in the United States of America. And for one of them to not understand their role in protecting democracy, in covering our world, in informing the readership, whether it’s locally or nationally, to me is an absconding responsibility. So I don’t know what the answer is.

Again, I’m not like demanding Jeff Bezos just…money to keep things subsidized. Like it is a business and I understand that, but there must have been better ways to go about it or maybe, you know, sell it to someone who does have ideas because it’s important for its foundations to remain intact. And so I just, you know, for me, it’s, been hard to digest, honestly. And like to your original question of like, like, how do you make sense of it? I really don’t. I don’t make any sense of it.

Frazer Rice (05:39.692)
Well, you also now have a fledgling media company and I’m a devourer of yours and Kim’s and Standix podcasts and I learned something from it each time. I see an opportunity there if major component of the media establishment in the area is abdicating its role, not only to the major sports that aren’t getting covered as much.

There’s an opportunity there. But even like the local hotbed sports like lacrosse, they’re completely ignored, I would imagine. And that might be a way to sort of get some grassroots component going.

Bram N Weinstein (06:17.195)
Yeah, we also here with my company Empire see the opportunity, unfortunately, but we do. And there’s a lot of talent that is available. There is a void in coverage. We know, you know, the size of our community, the appetite for sports. And so, you know, I don’t want to say too much, but we are actively seeking partners to expand in a pretty large way if possible. So

Frazer Rice (06:24.045)
Right.

Bram N Weinstein (06:46.067)
We’re working towards that and I’ve been working towards that and moving very fast in the hopes that we’re not the only ones thinking this like you. There’s a lot of people thinking there’s an opportunity here. I wish it wasn’t the opportunity that it is, but it has presented itself and it’s an opportunity that we intend to see through. So we are actively speaking to a number of different interested parties about funding a major expansion of what we’re doing.

Frazer Rice (07:11.379)
Really cool. Well, I’ll be sure to keep an eye on that as it develops. When you’re thinking about sort of the money making aspect of it, we don’t do things for free and it’d be lovely if we all had time and disposable income to do that without giving away the playbook because you’re raising money and you don’t want to give that up necessarily. But how do you think about that in terms of delivering value for sponsors or advertisers or the general audience? Have you made any…sort of commitment strategy-wise there.

Bram N Weinstein (07:42.197)
Yes, digital audio video forward. You know, I also believe in enterprise journalism. I also very much believe in long form journalism, but the audience appetite for it is limited. And so you do have to subsidize it. And that comes in the form of a number of different properties repurposed for different platforms in various ways, podcasts, video shows, YouTube.

All offer opportunities to monetize the same content. I have been studying very closely the things the New York Times has done and thought about what kind of engagement tools would be necessary to be an added perk for those who would end up probably subscribing to a situation like this. So there are a lot of different types of financial models.

One is subscriptions. in a variety of different ways, whether it’s premium content, newsletters, one of them is obviously advertising, which would come with YouTube or different streaming channel, streaming network, podcasts, obviously, sponsorship, which could go across the board for all of the different categories. And, lastly, live events. And this is something that we are very capable of doing as well.

So there are a tremendous amount of different models to make money. None of them are easy. And because the audiences are so fractured, I think you have to find ways to make financial streams in the same content in various different forms. But we’re willing to do that. And we’ve already kind of done that with what I’ve done with Empire on a very limited role, which is why we think we’re ready to make this expansion and move.

But we need an investor to buy in and to the investors, I would say to them, we intend to make you money and we intend to be something that could be purchased in a three to five to 10 year plan. So we understand the importance of making sure that the investment is paid off in the end as well.

Frazer Rice (09:52.205)
Cool. Are you thinking about expanding into other subject matter areas? you’re in DC, so politics, guess, would be a natural fit. Right.

Bram N Weinstein (09:59.965)
Not really. And I wouldn’t personally, like, I just don’t feel like that’s my expertise. So no, but like, could we be something like the ringer where you’re looking into culture, you’re looking into arts, music, dining, those types of things? Yeah, I think like that’s something I’m not sure that I would move fast into a realm like that. Like we see the void in sports coverage for this marketplace. We would like to fill that void.

And whatever we do after that would be dabbling in those spaces to try to, again, find new ways to find new audiences. But we want to go with our core products first. And certainly for me personally, the politics world is completely above my pay grade. So I’m out of that. Yeah.

Frazer Rice (10:46.028)
It’s above everybody’s I think if anybody could figure it out It’s it’s one of those Rubik’s cubes that it’s not worth solving oftentimes So, you know one of the things I don’t know if I’d struggle with or I’m Would like to expand on my front is just getting my podcast out to more people and the concept of discover ability and one of the strengths that I think you have Is you know your current position in traditional media with the commanders?

Keim has it a little bit with ESPN, Ben Stendig has it with his Substack, which isn’t traditional media, but there’s different outflows on that front. How do you view that competitive advantage in terms of getting the message out and almost having a bit of a head start over some of the other possibilities out there?

Bram N Weinstein (11:30.175)
Yeah, well, I think there was always like, you know, for the podcast world. Yes, anybody can do a show and you know, they could be good. The reality is, though, you know, the people who already have stakes in the marketplace, at least from name value, are always going to have a head start. It’s going to come down to how you market yourself and how you go about getting your show out there as much as possible.

The reality is you need some level of a robust social presence to get to as many eyeballs or ears as possible. And if you don’t, then you typically have to kind of go down a paid route of making sure that it gets into algorithms. And so it’s a hard climb, like for sure. You know, like when podcasts and kind of open the gates for everybody, same thing with YouTube, like

Frazer Rice (12:14.54)
Mm.

Bram N Weinstein (12:23.444)
You know, there’s going to be a lot of success stories. There’s going to be a lot more people who are either doing it for love of the game, but not for money. And that’s just the reality of how much time any person has to give up to content. And secondarily, who can get to enough of an audience to make it worthwhile? As you probably know, you need thousands of downloads to really make any kind of real money at all on a podcast episode.

Getting to thousands of downloads. doesn’t sound like a big, like if I said, you have to get to a thousand, like a thousand doesn’t sound like a lot for one episode, but it’s way harder to do. wager a guess that 90 % of podcasts do not reach 1000 downloads per episode. So it’s a very hard number to reach. And if you really want to make money, money on it, we’re talking about getting 10,000 an episode.

Sure, anybody like myself that has various different platforms I can use to promote my own shows has a head start in that manner. And that would always have been for anybody in traditional media who had a following to start with, if they were willing to jump into the digital side quickly, they were always going to have a head start because they already had an audience that was built in. It was just converting them.

Frazer Rice (13:39.572)
You know, and for me, the conversion isn’t so much, you know, buying pillows or mattresses from the advertising that comes on the show. I don’t have any advertisers. The ROI for me is, in a client, one client, maybe listening to it and then calling up. And all of a sudden that pays for everything, in sort of my day job.

Bram N Weinstein (13:52.992)
Yes.

Bram N Weinstein (13:57.813)
Yeah, well, I think you’re actually looking at it the right way. Like, could your show end up having a big audience? Yeah, of course it could. But like, the reality is for most people who are doing podcasts for the other purpose, which is either marketing, client curation, branding, like those have extraordinary value to like my company’s done a lot of B2B type podcasts. And I explained this, you know, to them, and most of the people I work with aren’t looking, they don’t think they’re going to be Pat McAfee. But like, they understand that like,

The value in doing this well is going to get paid back exponentially in client curation, marketing, entering new market spaces, expanding business opportunity, because it done well, it can really have that kind of benefit for you.

Frazer Rice (14:43.563)
How do you make sense of all the different platforms that are out there? You know, I converted to video because ignoring YouTube meant basically ignoring Google and I was like, well, that’s dumb. I know, Spotify’s out there. iTunes has just converted to video.

And then you’ve got all the different podcasts, platforms, et cetera, et cetera, et cetera. How do you, it just seems like it changes weekly in many ways as to what’s in favor, what’s not. When you’re making a bet on your company, how do you deal with that?

Bram N Weinstein (15:06.996)
Yeah. Yeah, think. Yeah, it’s hard. Things have changed a lot. Like, for the most part, we double up our podcasts now and they’re taped on video. So they’re disseminated with not a tremendous amount of production value behind them. And of course, you know, used as audio podcasts as well. So it’s a two in one situation.

And we find that YouTube. The advertising dollars there are very small, but the exposure, not unlike when we were talking about kind of marketing yourself, the exposure of being there, if you can get thousands of views, often offers up a lot of different opportunities. Sponsors prefer to be visually seen than just audibly heard. So like in both of those cases, they can be beneficial. like we don’t frankly make a lot of like we have on YouTube.

We only have two primary shows with Empire Media that are on YouTube on our channel. We have about 18,000 subscribers now and we get on an average month like 127,000 views between just the two shows, which is a lot, know, especially for like a niche thing where we’re really just talking about one thing, the commander. So we’re like, we’re not expanding out much more than that. So it’s a very niche thing and yet we’re getting a really, really sizable number.

Frazer Rice (16:11.787)
That’s good.

Bram N Weinstein (16:25.15)
If I told you how much money we get paid for that, you’d laugh like it’s it’s pennies on the dollar. But the exposure of having it and the amount of views and impressions that it generates gets us sponsorship opportunities because people want to be part of that. And that’s where the real opportunity comes with YouTube. As far as like using Facebook Live, IG, like TikTok, I suppose. Like. I don’t know, like I don’t think you can be everywhere.

I think the idea is to try to be, I think you’re talking to different audiences on each of these things. So I don’t think it’s one size fits all. And it has to be worth it. For me, it has to be worthwhile. Like, is there a reason why we’re there other than we’re just trying to get people but if there’s no benefit of a carryover beyond it and it just happens to hit their feed, but we’re not getting any sponsorship money out of it or any activation out of it? Well, then what was the point?

So I’m always looking for right places to be. But there has to be an incentive structure that makes sense, either true carryover audience growth or obvious sponsorship opportunity.

Frazer Rice (17:32.076)
The cost of coordination of all of that too starts to overwhelm. I know you’ve got a schedule to keep here. I would be silly not to ask about my commanders a little bit. Two new assistant coaches, offensive and defensive coordinator, lots of changes coming in terms of personnel and hopefully sort of a rethink of Jaden and hopefully a lot better health going into next year. But…

Bram N Weinstein (17:36.17)
Yes. Yeah.

Frazer Rice (17:59.84)
Potentially better division in many ways, how do you see things going forward?

Bram N Weinstein (18:04.71)
I don’t know what their team looks like yet. So this is like a hard question to answer because I think they’re going to be very aggressive in free agency and then obviously they have the seventh overall pick. I kind of need to see what their roster looks like before knowing. I you know, David Blough been here the last couple of years. He is one of these very young, very impressive people. I’m glad they kept him in the building. It’s a big ask to jump from where he was to go to offensive

He at least is talking a big game like he’s ready for this and I hope he is, you know, like we’ll have to see. I think a lot of it will have to do with the quarterback stays healthy and that just didn’t happen a year ago and the whole team didn’t stay healthy. So they fell apart and you know, like I don’t think health was the only reason they had the record they had, but I think the health made it worse than it could have been like their record probably would have been a little more respectable if the health wasn’t as bad as it was.

Hopefully Jayden stays healthy. He’s fine now. So hopefully he stays healthy and on defense Deonte Jones. This is his first opportunity doing this but he’s actually been in the league for 20 years and he’s worked with every almost every major defensive coordinator up until this point So he feels like someone that’s been overdue for an opportunity. I like the system He’s coming out of does he have the personnel to win with I don’t think right now and that’s why I’m like Let me see what they do in free agency. How much money do they spend at what positions?

How are they looking to upgrade that side of the ball? And if they bring in what I think will be two, three, four new starters, whether it’s via the draft and free agency combined, then I think we could have a different conversation about what I think it’s gonna look like, because I kinda need to see what the roster looks like first.

Frazer Rice (19:44.691)
No, there’s so many holes in the free agency component.

Not to pin you down on a record going into next year, because we don’t even know what the components are going to be. To that end, as you said, the injuries were a real problem. Everything that possibly could go right in 2024 didn’t in 2025. How does that work over the course of time in terms of regression to the mean? Is just every season completely different or is there something that carries over?

Bram N Weinstein (20:19.542)
So 2023 was nothing like 2024, which was nothing like 2025. So we’ve had a roller coaster for sure. Um I last year was a surprise like. If you had told me the beginning of the season look like the schedules too hard. They had too many injuries. They went 9889 didn’t make the playoffs. I would have believed you. You know, like it’s just things were just harder to try to replicate. I didn’t expect what ended up.

So can they flip that back around and be more competitive again? I do believe so. I also agree with something you said, which was. Right now and again don’t know what the teams look like exactly yet, but I do think the division on the whole will be better. The Giants will be better coached for sure. They have a lot of defensive talent and we’ll see if Jaxson Dart takes another step. And if that’s the case, the Giants may be more formidable than they’ve been in 10 years. The Eagles are still going to have a very, good roster. No matter

Frazer Rice (21:04.938)
Mm-hmm.

Bram N Weinstein (21:16.106)
Whatever they do this off season, even if it includes moving off of a couple of primary people, they still have an extremely strong high level roster. And I like how the Cowboys pivoted from Micah Parsons. I know it hurt them last year, but I do like what they did in the return that they got since. So they play their cards right. They could be in line to really make a jump back this year. Like they’re the ones that feel kind of ready to me.

If they play their cards right and if they don’t end up, which is the second part, which is never they avoid, they never avoid this. They turn themselves into a circus. So if they could ever stop turning themselves into a circus, I think it would serve them. You know, I think it would be a very positive outcome for them, but their owner doesn’t live in that world. He likes to be a ringmaster. And, you know, I think that that’s probably more than anything been the hindrance to them winning a Super Bowl over the last.

Frazer Rice (21:55.004)
You

Bram N Weinstein (22:14.422)
30 years, they’ve had good enough teams to do it. They just don’t and I think they get in their own way. But you know, maybe this year’s a little different for them.

Frazer Rice (22:21.364)
No question.

Alright, how do people find Ampire and sample all the different media that you’re putting out there?

Bram N Weinstein (22:31.766)
YouTube is Empire Media AMPIRE. We have our YouTube page. You can find that there. My show is under my name, Bram Weisside Show. John Keim Report covers the commanders and Last Man Standing is Ben Standing’s show. And who knows, maybe in four to six months, we’ve got some new offerings. I’m hoping that’s gonna be the case pretty soon.

Frazer Rice (22:51.466)
Terrific. Thanks for coming on, Bram, and rootin’ for your success.

Bram N Weinstein (22:55.414)
Thanks a lot. Take care

BRAM on “WEALTH ACTUALLY” three days before the JAYDEN HAIL MARY

Keywords:

sports journalism, Washington Post, media opportunities, podcasting, Commanders, monetization, audience engagement, digital media, sports coverage, media landscape

Titles

• The Decline of Sports Journalism
• Seizing Media Opportunities

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

This conversation delves into the intricacies of Qualified Small Business Stock (QSBS) and its significant tax benefits for founders. MICHAEL ARLEIN, Partner at Patterson Belknap, explains the eligibility criteria, the importance of strategic planning, and the potential pitfalls that can arise. The discussion also covers the implications of state taxes and the advantages of gifting strategies. We cover innovative approaches like the “GOAT” trust to maximize tax-free gains. Founders are encouraged to engage with legal experts early in their business journey to fully leverage QSBS opportunities.

https://youtu.be/lfBt0j7BlW0?si=LufZ8j2YtgdspLMJ

Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠)

Takeaways from “QSBS For Founders”

QSBS is a powerful tax benefit for founders.
The maximum exclusion amount has increased to $15 million.
Careful planning is essential to avoid QSBS pitfalls.
Gifting QSBS stock can multiply tax exemptions.
State tax implications vary; California does not recognize QSBS.
Discounting shares can aid in estate planning.
Converting from an S-Corp to a C-Corp can preserve QSBS benefits.
Early engagement with legal counsel is crucial for founders.
Innovative strategies like the GOAT trust can maximize benefits.
Almost all businesses should consider QSBS eligibility.

Chapters

00:00 Understanding QSBS: A Founder’s Guide.
02:56 Navigating the QSBS Landscape: Common Pitfalls.
06:07 Maximizing QSBS Benefits: Stacking Strategies.
08:42 The Importance of Timing: Gifting and Valuation.
12:03 State Tax Implications: The QSBS Challenge.
14:52 Entity Structures and QSBS: What Founders Need to Know.
17:37 Transitioning to C-Corp: Strategies for S-Corps and LLCs.
20:29 Who Should Pay Attention to QSBS?
23:44 Innovative Business Structures: Technology and QSBS-
26:36 Early Stage Strategies: Cloning Yourself on the Cap Table-

Transcript of “QSBS for Founders”

Frazer Rice (00:01.109)
Welcome aboard, Michael.

Michael Arlein (00:03.096)
Thank you. Good to be here.

Frazer Rice (00:04.617)
So let’s get started here. QSBS, Qualified Small Business Stock, is something that certainly all founders should be aware of. It’s a tax feature. It’s probably one of the nicest goodies that the federal government gives to people who are starting businesses. Take us through a little bit about what happens there.

For founders, you’re going to hear the numbers 1202, which is the section that is quoted here. Take us through a little bit about what happens at QSBS and why it’s a powerful feature.

Michael Arlein (00:37.496)
Sure, that sounds good.

To your point, the New York Times called QSBS a lavish tax dodge that is easily multiplied. And I happen to. I’m not aware of any other provision of the tax code that can save anyone as much money as QSBS. It’s really incredible.

I think the policy reasons behind the provisions are that they’re designed to encourage entrepreneurship. Everyone on both sides of the political aisle is in favor of. The basic premise of it is that if you create a company.You own the stock for five years. The company’s in the form of a C corporation,

It’s not in one of a series of restricted industries. Mainly service industries, that when you sell the stock, you can exclude from paying tax $10 million, the first $10 million of your gain. That’s the old rule, which I’m still dealing with, that that’s for stock that was issued before July 4th, 2025. And now QSBS has gotten even better.

So if you get stock after that date. You hold it for actually now three years, you can exclude ultimately up to $15 million from tax. So we’re now dealing with two different regimes. I’m still stuck in the old regime. Most of the people I’m dealing with got their stock before last July. But I’ll try and point out the differences as we go along.

Frazer Rice (02:29.066)
Sure, as you said, there are a bunch of things you have to jump through. To make sure that you can sort of apply and then to further comply with the rules associated with it. Things like services. Making sure that maybe you don’t have too much cash and that it’s deployed correctly. Making sure that the original stock issuance persists throughout.

What are some of the things that you tell your clients? How do you walk them through the process so that they don’t trip on themselves and lose this nice tax advantage?

Michael Arlein (03:09.676)
Yeah, there are some landmines, things that you can step on and blow it. There’s some weird rules around redemptions. Like if you have redemptions. Let’s say you create a company and then there’s three co-founders. Then very early on, one of the co-founders wants out or you want to kick them out.

And then the mechanism for that is the company kind of buys back their stock. You know, there’s complicated rules that can, you know, blow up QSBS for the entire company. I think some people start their businesses as LLCs or S-Corps or things like that, and then later convert them. And that has to be done very, very carefully with good tax advice.

Otherwise that can also blow things up. When I talk to founders, it’s pretty clear their business qualifies. They didn’t screw anything up.

Frazer Rice (04:19.626)
So the OBBBA in a sense turbocharged a little bit the tax savings. That five year requirement that you talked about. You can now get some of the benefits even as early as three years. And then the dollar amounts got expanded. In addition, and this was not necessarily OBBBA related. The ability to take one exemption and maybe multiply it via stacking continues to be a powerful tool.

For those people who are walking into your office now. How do you get them when they sit down situated so that they do that planning upfront?

Michael Arlein (05:08.598)
Yeah, that’s, you we kind of buried the lead.

The benefit of QSBS: it would be incredible if you could just pay no tax on 10 or $15 million. But what’s even more incredible is that you can stack or multiply the number of exemptions. You have using a provision of the code. It says that if you gift QSBS stock to some other person or entity. That that person or entity can take their own up to 10 or 15, their own QSBS exemption.

I’m just gonna say it’s 15. We understand that’s for newly stocked. So, classic move for a founder would be to set up trusts for children. There’s a special kind of a trust for a spouse. You can do this with sometimes people make trust for their parents, their siblings.

There are certain states where you can actually make a trust for yourself. Usually when people come to my office, the conversation is around creating entities. Typically trusts, and then gifting shares to those trusts. that

As a family, you could go from 15 million tax free to 30 or 45 or 60 million tax free. The record I had one guy who had a very large family. He married, he had kids and was very close not only with his parents. With his siblings, his nieces, his nephews, even his aunts, uncles, and cousins. He created 23 trusts, which on paper at least would save up to $230 million. Wow. Yeah.

Frazer Rice (07:08.896)
There’s a danger with that though, with those 23 trusts had to be different. I imagine the IRS would say, wait a minute, we see what you’re doing. Stacking all of these different things is theoretically nice and all, but is there a way to create differences within those trusts so that the IRS doesn’t view them as one big pot?

Michael Arlein (07:39.692)
Yeah, great question. So you can’t create multiple identical trusts. Meaning I can’t create five trusts for my child. The IRS has rules that consider those trusts as one trust and would have only one exemptions. So, one of the limiting factors on creating trust is often, who are the people you’re willing to gift to? You know, so this guy with the 23, he actually was willing to create trust for his cousins, his aunts, uncles.

Now, those individuals were the beneficiaries of the trusts, which means that they were eligible to receive money from the trust. But those trusts were designed so that when those people passed away, the money would circulate back to his children. So, you we never talked about it, but it’s possible that in his head, his plan was that he would maybe provide some benefit to his cousin.

Maybe he’d say to his cousin, hey, if there’s $5 million in this trust and you need a little money, I’ll make some distributions to you, but I’m going to request that the trustee kind of withhold most of the money. And then when you die, it’ll come back and benefit my kids. So there are nuances there.

But generally speaking, most people aren’t willing to do that. They’re not close enough with their cousins and their aunts and their uncles. So they end up maybe creating trusts, you know, for their kids, for their parents, sometimes, you know, for their spouse and maybe sometimes they go a little beyond that, but not that far. One thing that’s important is that the U.S.

Frazer Rice (09:33.472)
One thing that’s important is that the the QSBS is a capital gains tax Concept meaning you’re you’re saving on the tax. From a QSBS for Founders standpoint when the the founder sells the business, and you have to pay capital gains tax on that front. Part of the reason I’m skewing this toward founders is that there’s an gift in a state exemption of 15 million dollars.

So it’s important to get these assets into these trusts as early as possible and with as low evaluation as possible. That in many ways is where the real leverage is. Does that square with your thinking?

Michael Arlein (10:11.019)
Yeah, absolutely. We have a permanent $15 million lifetime gifting limit. $30 million for spouses. And when you gift stock into these trusts, you’re typically gifting at a common stock valuation.

People are familiar, founders are familiar with common stock valuations because they do that for purposes of issuing stock options, you know, the so-called 409A valuation. Now, a gift tax appraisal is different than a 409A valuation, but in many ways, they’re very similar.

S0 founders know that, you know, they could be raising a preferred round at $10 a share, but their 409A common stock valuation is still $2 a share. So you can get a lot of gifting done. You can give a lot of shares away.

You know, using your $15 million exemption, even if the company is very valuable. So we see founders doing this sort of gifting, you know, late in the game, even right before a transaction or an IPO. But if you had a crystal ball, or at least, you know, you were willing to take some risk, obviously, the earlier you do it, the better, because you could gift…

I mean, theoretically, if you set up trusts and you gifted shares the day after you created your company, they would be worth essentially nothing. And so you wouldn’t have to use hardly any of your gifting exemption.

The problem is most people, A, aren’t thinking about that on the day they create their company. They don’t have anyone whispering in their ear and telling them to do that. And number two, they wouldn’t want to spend the money on legal fees to set up structures because at that point they’re like, don’t know what this is going to be worth. This could be zero. This could go out of business in a year.

So there’s a trade off that I see between doing this later in the process where you’re gaining visibility into outcomes, maybe for younger people sometimes, you know, there’s visibility into their family lives. Maybe when they founded the company they were single. Then if they wait five years they marry, they’ll have children, i.e. people who they could create trust for. But the cost of doing that is that you’re gifting at a higher value.

Frazer Rice (12:46.591)
One of the considerations that people don’t understand is the state tax implication. QSBS is a federal concept that a lot of states join onto and link to. But a state like California isn’t. And so sometimes that can be an untoward surprise to people that there’s a state tax that happens that they may not have expected.

Michael Arlein (13:16.299)
Yeah, it’s kind of bizarre that California, the home of Silicon Valley, doesn’t recognize QSBS. But most states do. My home state of New Jersey, in fact, very recently joined the QSBS club and now recognizes it at the state level. There are a few other states, I think.

Pennsylvania, I don’t think recognizes it, but the vast majority of states do. But unfortunately, if you live in California, you’re probably only in quotes saving the federal tax. But the federal tax on $15 million, 23.8 % of 15 is a pretty big number.

Frazer Rice (14:01.086)
No question and absolutely worth doing. one of the things that I find happens is that from an income capital gains tax perspective, we’re on top of it with the QSBS. When we get into the estate planning world, we use the concept of discounting, meaning putting QSBS shares or any shares for that matter into other entities so that you get discounting for lack of marketability and the ability to make decisions around it.

Are there any tripwires on that front as far as putting things into other LLCs so that you don’t, maybe in a sense that in trying to really maximize the estate planning and the estate tax avoidance that you create issues that might cause problems with your QSBS tax avoidance usefulness there.

Michael Arlein (15:02.413)
Yes. Again, the rules under Section 1202 of the code for QSBS have some strange traps for the unwary and some gray areas. And one of those gray areas is around transferring interests in partnership type entities, which would mean like an LLC or a partnership. that owns QSBS.

So essentially, it’s very clear that if you have QSBS stock and you gift it into one of these entities we’ve been talking about, that that entity would take the QSBS attribute and be able to enjoy the benefits of QSBS. If the QSBS is held in an entity like an LLC, let’s say you set up a, well. Let’s say a realistic example is that you made an investment in a venture capital fund that invested in an early stage company that’s QSBS.

And now you’re a limited partner in that fund and you know that that fund is going to have a large exit in this QSBS position and that you’re going to get the benefits of that, but it’s going to exceed $15 million. So you say, what I should do is I should take my interest in this venture capital fund. I should give them to trust for my kids so that when the fund distributes those shares or distributes the proceeds from selling that company, it’ll be split among various entities and I’ll be able to stack QSPS. The transfer of an interest in a fund that owns QSPS, there’s a gray area about whether the recipient of that fund interest would actually have QSPS and it’s generally viewed as something to be avoided.

Frazer Rice (17:08.944)
In a sense putting it at risk. A question that I think pops up is that there are people who started businesses maybe pre that July 4th date that you were talking about and maybe they chose an entity like an S Corp or an LLC that isn’t sort of a good qualifying C Corp and they’re looking and saying you know what I may be able to sell this business three to five years or beyond and take advantage of this QSBS. Are there avenues to be able to change that tax elections so that you can begin that QSBS and what’s the analysis around?

Michael Arlein (17:44.972)
Yeah, in fact, a fairly common structure is, and we haven’t really gotten into these details, but it’s a great question.

So QSBS is actually the greater of $15 million or 10 times your basis. Now we ignore the basis rule for the most part because the vast majority of founders do not have basis. They create their company and they put nothing into it.

With a bank account with $10,000 in it, and they’re not contributing actual dollars into their business. And so the 10 times basis rule doesn’t actually apply.

But there’s a way for a founder to take advantage of that, and this strategy is actually called PACKING.

And the packing strategy involves starting your business as an LLC and with an LLC and then converting it to a C corporation. with an LLC, when you convert, there’s an attribution of basis to the founder based on the value of the LLC’s assets.

Theoretically, if you started off as an LLC, and before the LLC hit $75 million value of its assets, $75 million being sort of the cutoff for qualifying for small business, you have to acquire your stock before your company assets are worth $75 million. Theoretically, let’s say you did that when it was $74 million, then if your basis was $74 million,

10 times your basis would be $740 million, you would have up to $740 million tax free. So people kind of play this game. I think for a lot of companies, it’s not realistic to be an LLC because venture cap, if you’re going to raise venture funds, they want you to be a C Corp. This works for bootstrapped companies, but most companies are forming a C corporations.

You know, there is a path to convert from an S-Corp to a C-Corp and preserve QSPS for Founders. I’m no expert in that. All I can tell you is that it has to be done very carefully and very specifically. And I’ve seen a lot of people who didn’t know they needed to do anything specific and they do not qualify for QSPS.

Frazer Rice (20:45.085)
As we sort of, I’m not going to say wind down here because we may have some other topics that pop up. But when someone walks through their door, I guess maybe the way to think about it is, who does this apply to?

You said the services industry. So accounting, finance, that type of thing- NO. For those things that venture tries to invest in, whether it’s software or other processes, who is really should be paying attention to this?

Michael Arlein (21:16.491)
I mean, I think almost anyone should be paying attention to this because it may be that you don’t qualify, but often people do. And more often than not, you do. This has broad application for most businesses. There are excluded industries, architects and lawyers and accountants. But if you’re doing something in the tech world, you’re probably going to qualify.

It’s good to get some advice from the corporate lawyer who’s helping you create your business. I think one of the considerations of whether you form as a C Corp or an LLC is probably the availability of QSBS status. You know, I think stacking strategies, it’s worth having a conversation probably sooner than later with a lawyer to find out what the menu of stacking options is.

I talk to people all the time and we decide it’s premature for them to do something. And then they call me back a year or two later and all the time I’m calls from people who say, hey, we spoke a few years ago and now

Frazer Rice (22:34.013)
Alright.

Michael Arlein (22:39.913)
the time is right. So it’s good to get educated, learn what the options are. QSBS stacking is not just about giving shares to your kids. There are strategies that are specifically designed for single people where you can create these benefits for yourself and

You know, it’s too good to be missed. if you, I do talk to people who say to me, they’re usually on their second venture or third venture and they say to me, I really screwed this up the first time around.

I paid no attention to it and I was focused on my business and I just screwed it up. I literally cost myself millions or tens of millions of dollars had I done it correctly. And now that’s why I’m calling you, because I want to do it correctly the second time around.

Frazer Rice (23:33.278)
Part and parcel with that, I ran into somebody really more of what’s called a media personality. And usually the way I think of it is that the QSBS isn’t necessarily available for people whose value is centered around them as a personality or them as a brand.

But I said, you know what, the QSBS component, while it might not apply here, if your business morphs into something where you’re developing other things, slash maybe you turn into a media production company or, youbecome involved in a technology that drives other things, that you shouldn’t dismiss that.

The pivot in the business from sort of a personality generated to something a little bit more business process generated might be something to think about, not only from a strategy standpoint, not that you necessarily wanna do things purely for tax reasons, but if that’s a natural consequence, that’s something to think about. Has that ever popped up in your world?

Michael Arlein (24:31.915)
Yeah, for sure. Every business these days is technology enabled. And I think sometimes businesses that you wouldn’t think of as being technology businesses are doing enough technology things that they can claim that they’re a technology business and not a business providing a particular kind of service. So, you know, with the help of a clever accountant or a tax lawyer, this is not an area that I operate in.

I’m more about multiplying QSBS once you have it. But there are tax lawyers and corporate lawyers and accountants who can advise you how to make your business eligible for QSBS by leaning into, as you said, things that you’re doing that may be…you know, eligible versus other parts of your business that would not be.

Also, you know, you can, sometimes you see companies that are divided, right? Like, so there’s a company who provides counseling services, like, you know, they’re actually hire psychotherapists that will counsel you, you know, online, like on a Zoom. and their business is split.

There’s a medical services company that employs all the counselors and medical services is one of the excluded industries. But then they also have a completely separate business that is their technology platform. And the way they structured it, the value is really in the technology platform. That business is QSBS eligible because it’s a completely separate company.

Frazer Rice (26:28.771)
That’s a great example. part of the purpose of the question was to elicit that, is that people may say, well, we fall squarely into one classification when maybe some underlying thought might lend itself to structuring from a tax perspective that might be useful later on. OK, now as we wind down, for someone who is, at this point, starting a company when they’re forming these things, not that you, QSBS for Founders should drive the world, but how do they get involved with the discussions so that they do the right things early?

Michael Arlein (27:06.401)
Yeah, I mean, I do have a very specific strategy that I love for people who are about to form a company. And it really works best in that scenario of an early stage company that’s just about to launch.

The way I describe this to founders is that you can and should clone yourself on the cap table. So if you start off a company and you own all of the shares, you’re basically eligible for 15 million tax free. That’s great. But what if you could clone yourself and there were three Frazers on the cap table, then Frazer would have $45 million tax free. So how do you do this?

You can do it with trusts. And the beautiful thing is if you have other people create trust for you, then you can be the beneficiary of the trust and control it as well. And I have sort of branded and named this strategy a GOAT trust, which of course has the double meaning, know, greatest of all time.

Frazer Rice (28:21.02) QSBS for Founders
Right.

Michael Arlein (28:21.165) QSBS for Founders
But actually stands for gift optimized to alleviate taxes. The essentials of it are is that we would work with your parents, the founders parents, we would work with your grandma, your uncle, and we would spin up some trusts that they create for the benefit of you as the founder. You would have all sorts of control and access to those trusts and they make a gift into those trusts, probably something fairly modest. Then those trusts on the day of formation buy up some of the common stock. And so those are your clones.

You know, you’re having your cake and eating it too. You’re getting, you know, QSBS stacking for Founders. You’re getting some other benefits we haven’t even talked about. Those trusts can be exempt from a state tax and state level income tax. And you control those trusts and benefit from them. So we’ve essentially cloned you on the cap table. And that is a beautiful strategy that most people miss out on because they don’t do it. And then they come to me a few years later and they own the stock and it’s valuable and then we have to do the more traditional stacking strategies.

Frazer Rice (29:40.432)
Really cool stuff. Michael, how do people get in touch with you if they have these problems slash opportunities?

Michael Arlein (29:48.525)
Sure, well they can Google me. I have a nice web presence. We have our…Founder Focus Practice Group that I lead at the firm, which is very specifically tailored to provide legal services to founders, personal legal services. And I focus on the tax side of that and QSBS stacking for Founders. My email, msarlein at pbwt.com. Phone number 212-336-2588.

Frazer Rice (30:23.324) QSBS For Founders
That will all be in the show notes. Michael, thanks for being on.

Michael Arlein (30:26.753) QSBS For Founders
Thank you.

FAMILY OFFICE MYTHS

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

QSBS for Founders

QSBS for Founders

Foreign Options for US Citizens Summary:

https://www.youtube.com/watch?v=d-Jnr3Go2Gg

Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠)

In this conversation, Frazer Rice of Next Vantage and Judi Galst of Henley and Partners discuss the increasing interest among U.S. citizens in exploring global mobility options amidst geopolitical chaos. We delve into the distinctions between residency and citizenship, the implications of U.S. taxation, and the motivations driving individuals to seek alternative living arrangements. The discussion also covers the potential for citizenship through ancestry, popular destinations for relocation, and investment opportunities in countries like New Zealand and Australia. Judi emphasizes the importance of understanding the legal and practical aspects of relocating, as well as the need for personal exploration before making significant decisions.

Takeaways

• Interest in global mobility has surged among U.S. citizens.
• Many seek residency as an insurance policy rather than leaving the U.S.
• Understanding residency vs. citizenship is crucial for potential expatriates.
• Residency can lead to citizenship but often requires time and investment.
• Tax implications are complex; relocating should not be primarily for tax benefits.
• Ancestry can provide a pathway to citizenship in several countries.
• Popular destinations for U.S. citizens include Europe, the Caribbean, and New Zealand.
• Investment opportunities exist in countries like New Zealand and Australia.
• Emerging markets in South America and Asia are gaining attention.
• Practical steps include consulting experts and visiting potential countries.

Chapters

00:00 Navigating Geopolitical Chaos: The Rise of Global Mobility

02:55 Understanding Residency vs. Citizenship: Key Differences

06:06 Tax Implications and Motivations for Seeking Alternatives

08:48 Exploring Ancestry-Based Citizenship: Opportunities and Challenges

11:54 Popular Destinations for U.S. Citizens: Europe, Caribbean, and Beyond

15:10 Investment Opportunities: New Zealand and Australia

17:59 Emerging Trends in South America and Asia

20:50 Practical Steps for U.S. Citizens Considering Relocation

Transcript

I’m Frazer Rice. We’re certainly living in crazy political times right now, and a lot of US citizens are worried about what’s happening here and abroad. And they’re starting to think about other residencies and citizenship options. I talked to Judy Gost at Henley and Partners about what is and isn’t possible on that front. By the end of this, you’re going to understand the locations that are interesting, the difference between residency and citizenship, and why that may matter as you make choices for your retirement and your location long-term, both for yourself and for your kids.

Frazer Rice (00:00.874)
Welcome aboard, Judy.

Judi Galst (00:03.022)
Thanks for having me.

Frazer Rice (00:04.244)
Well, we’re in the midst of a lot of geopolitical chaos, and I think you have seen and I’ve seen a lot of interest in United States citizens looking abroad for either places to live or other situations to either get away from the chaos or try to address some other needs in their lives. What is the state of the union? assume interest has ticked up.

Judi Galst (00:27.874)
Yes, I’ve seen more business than I could have ever predicted, but it’s not necessarily people that are leaving the United States. For the most part, most of the clients that I’m working with are doing it as an insurance policy. A lot of the conversations I have with a client start out with them saying, I don’t want to leave the United States, but I’m feeling unsettled and the way to mitigate the way that I’m feeling is to have options.

So they want to understand what if I did want to have a guaranteed right to go live in another part of the world? What is available to me? How do I pursue this? How long will it take?

Frazer Rice (01:08.434)
And we’ll get into some of the technical aspects here, but one of the concepts is understanding the difference between being able to reside somewhere else and being a citizen of another country, and then how that interacts with being a citizen of the United States. Maybe take us through the comparison of residents versus citizenship.

Judi Galst (01:28.748)
Yeah, that’s actually a really important distinction. And it doesn’t mean that one is better than the other, but they do have different benefits. And so it’s important to understand the difference. So let’s start with residents. Residents doesn’t mean the ability to have a house in another country. It means the ability to reside legally in another country. So the US passport is very strong. You can go into a lot of different countries even without having a visa. But we can’t stay there forever. We have limits, for example, in Europe.

We can go in for 90 days, but then we have to leave for 90 days before we can go back in for another 90 days. So if you become a legal resident of another country, you have the ability to live there unlimited for a certain period of time. Residency is not permanent unless there’s a path to permanent residency. So usually you’re going to have to renew it and there may be some conditions in order to maintain it. Now, how frequently you have to renew it is going to vary by the country.

For example, in Greece, you can become a Greek resident via a golden visa and that is good for five years and you’ll renew for another five years. In Italy, it’s good for two years. Then you renew for another three years. In Portugal, it’s good for two years. Then you renew for another three years. And as I said, there could be conditions. So in Greece, you qualify via purchasing real estate. If you sell the real estate, you’re going to lose your golden visa, not be able to renew it. In Italy, you qualify via purchasing stock.

Frazer Rice (02:51.925)
Right.

Judi Galst (02:55.945)
If you sell the stock, you’re not going to be able to renew it. You can get some travel rights by being a resident. Usually this benefit is not as important to a U.S. person because we already have really good travel benefits with our U.S. passport. But it can often be a strategy for someone from a country with a weaker passport, say even someone living in the United States that has only a Chinese passport. If they want to go into Europe, they have to get a Schenken visa.

So a strategy for them might be let me become a resident of say Greece and then I gain Schengen access. Not unlimited, but I get that 90 days out of 180 days. Finally, I would say that residency can have a path to citizenship. Usually it’s a pretty arduous path. For example, in Italy, you can become a resident. You have to live in the country of Italy for six months a year for 10 years before you’d be eligible to apply. In Greece, six months a year for seven years.

But there is ultimately a path in most residency programs.

Frazer Rice (03:56.755)
So let’s dive into citizenship, which my predilection on that is that it’s a much more permanent component, but it’s also a much more difficult process in general.

Judi Galst (04:05.646)
It doesn’t necessarily have to be difficult. It really depends on what program you’re doing. But you’re right. It’s a guaranteed right. It’s very difficult for a country to take away someone’s citizenship. The other big difference is that you get a passport. So in addition to gaining the ability to live in the country that you’re a citizen of, you also get another travel document. So depending upon what treaties have been done between your country of citizenship and other countries, it may really improve your mobility.

Again, U.S. passport is pretty strong. you’re U.S. passport holder, unless there’s something unexpected like a pandemic when borders close to Americans, you already have a good travel document. But it can be another mobility option. Perhaps you’re going into a country you don’t want to identify as a U.S. passport holder, or perhaps you have a weaker passport and you want to travel on a secondary citizenship passport that might improve your mobility. Where citizenship is particularly powerful is in Europe.

Because if you become a citizen of one country in the European Union, you gain the right to reside and work in any country in Europe.

Frazer Rice (05:11.104)
And just to distinguish, how does that impact UK people after they Brexited?

Judi Galst (05:16.942)
Sadly, with Brexit, the UK is no longer part of the EU. So many people in the UK are quite upset about this because no, you’re not going to gain the ability as a citizen of an EU country to live in the UK, nor are citizens of the UK now able to live anywhere in the European Union as they were previously.

Frazer Rice (05:36.992)
So let’s apply this directly to US citizens. So US citizen taxed on worldwide wealth. Let’s start with that. sure because I just got a Twitter fight with somebody who said, well, if you’re crypto, you can move away and you’re not out of the system. I’m like, that’s just no. We’ll start with that. But taxed on worldwide wealth, good passport can travel, but there are limitations as far as how long you can stay in various countries, probably around

Judi Galst (05:52.622)
Mm-hmm.

Frazer Rice (06:06.578)
Investment options, land ownership, things like that, depending on it. Where are the benefits of that U.S. person looking for another place to either reside or gain citizenship?

Judi Galst (06:20.312)
Well, it’s not a tax benefit. You started out with taxes and I know when someone, a client calls and says, you know, can you tell me what my options are? I’m really sick of paying us taxes. I’m like, well, this isn’t the right call for you. Yeah. So, but it’s important to understand. It doesn’t mean you’re going to be double taxed because that is a misconception that many people have about whether they should pursue a strategy of alternative residents or citizenship, because unlike the U S and Eritrea,

Frazer Rice (06:22.079)
Right.

Frazer Rice (06:30.08)
Puerto Rico that that’s it. That’s your best bet if you’re gonna try if you’re gonna try to play games

Judi Galst (06:49.774)
Every other country in the world, you don’t automatically become a tax resident by being a legal resident or even by being a citizen. Usually, you’re not going to trigger tax residency unless you reside 183 days in another country, but there are some exceptions. Switzerland is 90 days. Some, like New Zealand, will say it’s 183 days, but in a 12-month period, not necessarily in a year. I’m not licensed to give tax advice, so I’m giving high-level answer to this question.

But in general, just by pursuing an alternative residence or citizenship, there’s no tax consequences. And if you were to become a tax resident, many of the countries that we support programs in have treaties. So it doesn’t necessarily mean that you’re going to pay double tax, but it does mean it has to be looked at. If I am talking to a client and they really have full intention of relocating to another country, immediately I want them to have a local tax consultation, which I set up for them to understand what, if any, consequences they have to be aware of.

Frazer Rice (07:50.322)
And those consequences can change. did an episode probably about six months ago on the change in law in the UK. And it’s a different environment than it was even six months ago for people either going in or coming out of that country as it relates to their US intersection. So I think that the summary on all of that is, look, if you’re going there, A, don’t do it for tax purposes, B,

If you’re going to do it, make sure you get local tax counsel because those relationships can be complicated and will affect your planning.

Judi Galst (08:25.198)
Let’s talk about why people are doing it because taxes is not the strategy. And I would say, and my clients are almost exclusively Americans. So why are people calling me about this? There’s really four key motivators that tend to come up in the conversation. The first is because they do want another mobility option. They kind of have some PTSD still from the pandemic. They remember that feeling.

Frazer Rice (08:27.935)
Mm.

Judi Galst (08:48.226)
We could all work remotely. You had the vacation house in Italy or you had the private plane and all of a sudden you couldn’t take advantage of it because all the borders are closed to you and we could only stay in the United States. So some people are just realizing there is some risk to having one mobility option and they want to have an alternative. But I would say 90 % of the conversations I have there’s some reference to a plan B. People are feeling unsettled for so many different reasons.

You know, I talked to people whose family fled the Holocaust. It is literally in their DNA where their family thought it could never happen here. And that comes up in every conversation with them. But I have same sex, you know, couples, have transgender clients, I have people whose family lived in other countries where they saw the fall of democracy. And then I just have a lot of wealthy clients, and they’re diversifying their assets right now. And they want to diversify their mobility. They pay a lot of money in insurance and they say, Judy, this is just another line item.

Frazer Rice (09:45.896)
You

Judi Galst (09:46.703)
I’d say some are thinking not just about themselves, but they’re thinking about protecting generational opportunity and legacy. Some say, you know, I’m a student of history and yeah, maybe it’s going to take 10, 15, 20 years, but I’ve seen this happen before. And I want to know that my kids and my grandkids are going to have options to either live a life in another part of the world for cultural or educational opportunities or in a worst case scenario, because the U.S. isn’t where they actually want to be.

And finally, I’d say it fits nicely in a diversification of asset strategy, which many, many people are thinking about right now. Maybe they don’t want to hold all their money in the United States. Maybe they don’t want to all their real estate in the United States. And there can be strategies that are separate from what I do in terms of opening bank accounts in Switzerland or Singapore or other parts of the world. But really, all the programs that I do require you to move some assets. You’re either investing in stock or venture capital or private equity or real estate. So it does complement a diversification of asset strategy.

Frazer Rice (10:42.911)
Cool, so let’s think about, we sort of beat the tax horse to death a little bit here, but relocating versus renouncing. And different things, know, people probably come up to you with questions, do I have to fully leave? Do I have to renounce my US citizenship? How does all of that

Judi Galst (10:51.608)
Mm-hmm.

Judi Galst (10:58.222)
Great questions. So I’ve never had a client renounce. The US right now does not limit the number of passports one can have or citizenships one can have or how many residences they can have. Now, there is a congressperson who has just decided he wants to introduce some sort of bill that’s going to eliminate dual citizenship for Americans, although most constitutional scholars feel that’s like dead on arrival. But I have to acknowledge that.

So no, you don’t need to renounce. And frankly, if you have a lot of money, renouncing is quite complicated and expensive, and you need really good counsel to make that very, very significant decision. In terms of relocation, almost all of the programs that we support require little to no physical presence. You’re always going to probably have to go for biometrics and give fingerprints. But a lot of these programs, you don’t actually have to come back to that country again, except to renew it.

So for people that really want it as a Plan B and have no intention of really going to live in another part of the world at this stage in their lives, there’s not an obligation for you to spend time in order to maintain the ability to live in another country if you so choose.

Frazer Rice (12:08.017)
One thing that comes up that people ask me about and I only vaguely understand it is the concept of being able to get citizenship via ancestry. Comes up with a lot of people of Irish descent, Germany and Austrian especially. What’s the state of that and how realistic is it across different countries?

Judi Galst (12:15.993)
Mm. Mm-hmm.

Judi Galst (12:26.767)
It’s very realistic. And in fact, I’m doing German citizenship for myself. So for anyone whose family fled due to Nazi persecution from Germany and Austria, you and all future generations are entitled to citizenship. And my friends are like, why do you want German passport? But first of all, my kids got it. So my kids can go now live and work in Europe if they want, which is great, tremendous optionality. If you remember, I said before, it’s not just Germany. It’s any country in the European Union.

Frazer Rice (12:30.473)
Okay.

Frazer Rice (12:47.956)
Right.

Judi Galst (12:56.899)
And it’s very affordable if you actually are entitled to it. At Henley and Partners, we have established relationships with experts, lawyers in several countries that specialize in citizenship by ancestry. It’s very complex. And every country has different rules about like, it was passed down on the mother’s side, or if there was a break in the bloodline, or if it was passed a certain generation, or if there was a name change, there’s a lot of complexity to it.

But clients who think they may be eligible can contact us and we will have an assessment done. And if there is a case, we’ll refer them to someone that can help them through the process. And, you know, it can cost around 5,000, 7,500 euros versus I have clients getting EU citizenship through, you know, Malta and they’re 1.5 million out of pocket. So if you can qualify via Ancestry, I’d say certainly it’s worth considering.

Frazer Rice (13:50.879)
Terrific.

Judi Galst (13:51.311)
But don’t call me and say, like, I did 23andMe and I’m Irish. Because you do actually have to produce documents. Not a humongous list of documents, but you’re going to need naturalization certificates for the descendant. You’re going to need marriage certificates, birth certificates, and other documents.

Frazer Rice (13:55.187)
Ha ha ha!

Frazer Rice (14:10.844)
So there’s definitely an exercise involved with it, but if you can legitimately trace lineage, you may have a shot. So let’s talk about what jurisdictions are popular with United States citizens. We talked a little bit about Europe, and I’m sure there’s some, let’s call it, some that are easier than others. But then Caribbean, South America, Australia, New Zealand, maybe even Asia, what comes across your desk as being

Judi Galst (14:14.094)
Mm-mm.

Exactly.

Frazer Rice (14:40.488)
more reasonable than others maybe.

Judi Galst (14:43.246)
So I’d say clients that I’m talking to are basically going in one of four different directions. One is Europe. For residency, we’re looking at Portugal, Greece, Italy, and Malta. Those are all great programs because they require little to no time in the country to maintain the residency rights. So for people that really have no intention of spending significant time in another country, they’re really good solutions. And for citizenship in Europe, there very limited options. There’s ancestry, which we just talked about.

But the concept of citizenship by investment in Europe essentially was killed by the European Court of Justice in the spring of 2025. To give a little bit of explanation, Malta used to have a citizenship by investment program. And it basically said, do these three things, make a large gift to the Maltese economy, rent a property for six years and spend somewhere around 21 days in the country. And you will have a path.

to citizenship in Malta, which is an EU country. And the EU hated it. They felt it was transactional, that the passport was being sold, and they felt that people were being granted citizenship that didn’t show a tie to the country. And when this court ruling came out and deemed Malta’s program illegal, it essentially killed citizenship by investment programs in Europe. So I don’t think you’re going to see any European Union country have a citizenship by investment program, nor any country that wants to join the EU have one.

But many countries in Europe have provisions in their constitution that say, if you are an exceptional person that make an exceptional contribution to our country or to humanity, we have discretionary ability to grant you citizenship. And so there are some paths to citizenship via merit, specifically through Malta and Austria right now, as well as some other places. So that’s Europe, snapshot of Europe. Let’s talk a little bit about Caribbean, which you specifically brought up.

Frazer Rice (16:35.581)
Right.

Judi Galst (16:40.862)
So Caribbean is a path to citizenship. If you remember, said citizenship, lifelong, right? Not many countries have a path to citizenship. It’s very fast. It’s very affordable. What does it give you? So there are five countries in the Caribbean that have programs St. Kitts, Antigua, Grenada, Dominica, St. Lucia. It gives you citizenship in one of those countries. A passport, another passport that you can travel on. Right now, it’s pretty strong.

You can go into Europe with it, the UK, Ireland, not unlimited, same as the US, limited amount of time. Although I’m not sure the strength of the Caribbean passports is always going to be.

as strong as it is today. Europe doesn’t love these programs. And I wouldn’t be surprised if the Caribbean passports tend to get weaker. However, for a client that says to me, this is purely an insurance policy. I want to cover my kids and my kids are in their 20s because a lot of times these program kids are going to need their own investment if they’re over the age of 18 or 21. Caribbean wouldn’t be a bad place for us if we felt we wanted to get out of town for a little while.

Frazer Rice (17:23.23)
Sure.

Judi Galst (17:50.031)
The Caribbean’s a great solution for a very affordable amount, maybe 400,000 for family. You can get and make an investment in real estate that you can sell in five or seven years and your entire family can gain citizenship. So that’s Caribbean. I can pivot to something else that you want to ask a question. OK, so I actually love the program that New Zealand has out right now, especially for a high net worth person.

Frazer Rice (18:05.342)
Okay, no, let’s try Australia and New Zealand.

Judi Galst (18:18.414)
I think every high net worth person should do New Zealand. And for a couple of reasons. First of all, it’s purely investment driven. You have to move a lot of money. So it has to be for a high net worth person because they’re going to move three million US dollars to be invested in private equity, venture capital and private credit in New Zealand for around a three year period. And children up to the age of 25, provided that they’re single and not working full time can be included in that investment.

There’s very little time that the family needs to spend in New Zealand. As soon as you move the money there, you gain the right to live unlimited in New Zealand. But the main applicant only has to do 21 days, and the other family members only have to enter and exit for one day in the first year. At the end of three years, provided you didn’t invest in things that have a longer holding period, but from an immigration perspective, you can liquidate your investment. And then you can become a permanent resident.

So you have a lifelong right at any time to relocate to New Zealand, or you never have to go back again. English speaking, good healthcare, good education. You could have a life there, unlike I don’t think people really want to envision spending 10 years in the Caribbean. But 10 years in New Zealand, you know, there’s many industries and many things that you could be doing. And you could have a quality of life, maybe not akin to the United States, but good. So I love the New Zealand program.

Australia used to have a citizenship by investment program. They do not have one any longer. There is a route that they extend to people, which they call sort of like a talent visa. So there are certain sectors that are important to Australia and they would very much like to attract talent in those sectors. Usually it’s younger talent. So when I’m talking to a client that’s over 55, it can be difficult to get you approved for it.

But I’ve had people over 55 that have gotten approved. And if you have the background that Australia deems valuable, they’ll grant you a five-year visa for you and your family at no cost. Children have to be under the age of 18 or financially dependent up to age 23 to be included. But this is a visa that’s only good for five years. And if you don’t contribute to Australian society, it’s not getting renewed.

Judi Galst (20:38.082)
But I’ve had people from Hollywood, I’ve had songwriters, I’ve had producers, directors, people in private equity that specialize in sectors that are important to Australia. People in finance have been approved. So it’s worth considering if the idea of being able to live in Australia means something to you. Interestingly with that visa, you can also live in New Zealand.

Frazer Rice (20:58.095)
Okay, it’s one of those things too. If people aren’t forcing you to say, don’t hate me because I’m beautiful, that might not be a good route, but if you are talented or bring something to bear, it may be worth taking a stab at. Is it reciprocal? If you’re in New Zealand, can you go to Australia? Got it. So let’s pivot to Asia and or South America, which you hear about Singapore, you hear about…

Judi Galst (21:16.194)
No. Good question.

Frazer Rice (21:27.131)
Other different sort of haveny types of places where people place their wealth or establish family offices and South America I think is, know, think about like Uruguay and places like that which, you know, have the reputation of being the Switzerland of South America. What’s the state of play there?

Judi Galst (21:44.527)
So I have actually had a few clients that have done residency in Uruguay. They don’t have a formalized program, although I think a more formalized program is going to come out of there. Henley and Partners actually has a government advisory line of business, so we design a lot of these programs and we’re very active in South America. There’s a lot of interest in South America to have citizenship and residence by investment programs, so I think you’re going to see a lot coming from that region in the near term. But Uruguay does have a path to residency. You have to spend time there.

Frazer Rice (21:58.611)
Mm-hmm.

Frazer Rice (22:12.893)
Judi Galst (22:13.251)
And they don’t tell you exactly how much. Yeah. But most of my clients went with the expectation that maybe they’d have to stay for 30 days and they ended up getting the visa approved faster. You have to go back every year for a period of time or not renew renewing it. But yes, there is a path in Uruguay and more in Central America. People are doing Panama.

Frazer Rice (22:36.637)
Costa Rica.

Judi Galst (22:37.773)
Costa Rica is really interesting, very affordable. know we wanted to talk a little bit about the range, but in Costa Rica, you can gain temporary residence by demonstrating you have $2,500 a month in passive income. Many people will have that with interest and dividend income. Or you could invest $150,000 in real estate. It’s a temporary residence for two years, and then you renew for another two years. But at three years, you can transition to permanent residence.

As a temporary resident, cannot work for a company in Costa Rica, so you’d have to be able to work remotely. And then once you become a permanent resident, that requirement disappears. Once you are approved, you do have to pay into Social Security in Costa Rica that gives you access to health care. So it’s about $300 per application per month. But Costa Rica is very interesting, I think.

Frazer Rice (23:26.67)
As we go back, pivot back to Asia, are there any countries with Singapore or others that are possibilities for people in the US?

Judi Galst (23:33.722)
So Singapore is a possibility. However, you have to move a family office with over 200 million there, or investment levels are around 30 million, and you have to relocate, and the ability to renew it is contingent upon how much time you spend in Singapore. So I would say a very niche client could do Singapore. A more affordable option might be Thailand, which you can get a residence permit very…

Frazer Rice (23:44.125)
Mm-hmm.

Frazer Rice (23:52.605)
To be sure.

Okay.

Judi Galst (24:00.782)
Inexpensively. mean, a five-year permit for $25,000.

Frazer Rice (24:05.159)
Wow. And to round out our tour of the world here, Middle East countries, maybe the UAE, you hear about that as a place where a lot of Europeans go to move their wealth. Is that becoming popular with United States citizens?

Judi Galst (24:16.463)
Mm-hmm.

Judi Galst (24:22.381)
Golden Visa in Dubai is very popular. Honestly, not so much among Americans. It’s usually people from other parts of the world. mean, my firm has 70 offices around the world and we do a lot of UAE Golden Visas. I don’t have a huge amount of interest from Americans. I’ve done a couple of them. It’s not hard. You do have to spend time, like 30 days as part of the process there.

Frazer Rice (24:26.525)
Mm-hmm.

Judi Galst (24:46.703)
You can invest in real estate at 550,000, but there’s like 19 different visa types. You can set up a company. If you’re a member of YPO, Young Presidents Organization, they’re deemed talented and they don’t even make an investment. So, you know, it’s an option and we could certainly help it. But to be honest, I don’t see huge demand among Americans.

Frazer Rice (25:03.259)
Interesting. So let’s round this out a little bit here. For a U.S. citizen who is feeling unsettled or is just curious what’s out there. They want the ability to go live in Madeira, buy a place there. And to be able to go unfettered or something like that. What’s a good thought process or sequence of events for them to go through in order to make that happen?

Judi Galst (25:31.344)
I mean, we don’t charge for consultations. So I don’t know if you’re going to share my email at the end of this, but just hit me up. To me, any client conversation is about educating. This is generally a new topic for someone. It’s very rare that someone calls me and they really understand what is available to them and also what would be a good fit for them.

They may not understand if they want to include their children. There are going to be some that are going to be better fits for them than other based on the ages of the kids. They may not understand how much time they have to spend in a country to make it happen. How much it’s going to cost, and just learn about it. Learn what your options are. I can usually pretty quickly. Once I understand a client’s objectives, tell them. This is a strategy that I think makes sense for you and exactly how it would

Frazer Rice (26:14.206)
And it strikes me too, that for people who are exploring different places, it’s probably a good idea to have visited them first before just jumping in, jumping in feet first and sort of solving a problem without understanding what actually implementing the solution looks like.

Judi Galst (26:21.111)
Yeah.

Yeah.

Judi Galst (26:29.177)
For sure. I because many of the clients that I work with are of higher wealth, they usually have done a fair amount of traveling. So the idea of envisioning, know, residency in Italy, they’ve been to Italy. But when I talk to clients, especially about the Caribbean, where they might be investing in real estate and they have to decide between which country makes the most sense, I always tell them they should try and go because it can be a lifestyle decision. And they want to see where they could actually envision themselves if, in fact, they triggered this insurance policy.

Frazer Rice (26:58.59)
Judy, great stuff. Here it is. Put your email out there in case people want to reach out and find out more.

Judi Galst (27:05.099)
Okay, amazing. So my email is my first name, Judy, J-U-D-I dot my last name, GALST, G-A-L-S as in Sam T, at henleyglobal.com, H-E-N-L-E-Y, global.com, or you can give me a call at 646-856-3712.

Frazer Rice (27:29.406)
Great stuff. We’re going to have that in the show notes too so people can look on webpage, etc. to get that information. Thank you so much. It’s something, you know, when you’re at the desk and dreaming wistfully about what life looks like, what you’re done working, if you’re done working, my calculation is I’ll be able to retire when I’m 127. But it’s great just to sort of envision what that looks like. the expertise is out there. Thanks for being on.

Judi Galst (27:56.047)
My pleasure.

HENLEY & PARTNERS

DAVID LESPERANCE ON CITIZENSHIP DIVERSIFICATION

DAVID LESPERANCE ON US EXPATRIATION

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

#familyoffices #citizenship #residency #residencybyinvestment #citizenshipbyinvestment #austriancitizenship #newzealand #portugalproperty #portugalresidency #uscitizens #stkitts #malta #eucitizenship #wealthcitizenship #Californiawealthtax #puertorico #puertoricotax

In this episode, 10 Family Office Myths exposed (and debunked).

https://youtu.be/j1cgcZZcRBM

Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠)

Welcome back and Happy New Year on the Wealth Actually podcast. I’m Frazer Rice. We have a fun show today where we talk about 10 myths in the family office space. Mark Tepsich, who runs the family office governance practice at UBS is here as we dish into the ideas and concepts that are misunderstood in the family office world.

Summary

This conversation delves into the complexities and myths surrounding family offices, exploring their structure, governance, and the unique challenges they face in wealth management. The discussion highlights the importance of understanding the specific needs of families and the role of family offices in managing complexity and preserving wealth across generations. It also addresses common misconceptions about family offices, including their necessity, governance, and their relationship with institutional investors.

Takeaways

Family offices are established to manage complexity in wealth.
Not all family offices are the same; each has unique needs.
Governance frameworks are essential for effective family office management.
Many family offices outsource functions rather than internalizing them.
The myth that 85-90% of family offices shouldn’t exist is false.
Shirt sleeves to shirt sleeves is a debated concept in wealth preservation.
Family offices need to adapt to the evolving needs of families.
Investment functions in family offices are often secondary to administrative roles.
Family offices are driven by complexity rather than just size.
The future of family offices may involve more direct investment opportunities.

Chapters: Family Office Confidential

00:00 Understanding Family Offices: Myths and Realities
02:02 The Complexity of Family Office Structures
04:37 Debunking Common Myths About Family Offices
06:17 The Role of Outsourcing in Family Offices
07:54 Generational Wealth: The Shirt Sleeves Myth
10:51 Flexibility vs. Permanence in Family Offices
12:48 Governance and Decision-Making in Family Offices
15:49 Investment Functions in Family Offices
18:05 Size vs. Complexity in Family Offices
20:09 Family Offices vs. Institutional Capital
21:19 The Aspirational Nature of Family Offices
23:30 The Relationship Between Family Offices and Institutions
25:36 Technology in Family Offices: Current Trends
29:03 Family Offices and Private Equity: A Comparative Analysis

Myths

• 85-95% of FO’s should not exist vs. “there is no such thing as a family office’
• Family office internalize everything
• A Family Office Anchored by an operating business is the same that is one funded solely by liquidity event
• Shirtsleeves to Shirtsleeves is myth
• Family offices are designed to be permanent’
• Family Offices don’t need high end (almost SOX) like governance
• Family Offices are driven by net worth (no, by complexity)
• Family Offices are built on a robust investment function (no, it”s complexity management- often rooted in bookkeeping and accounting)
• Family Offices are like institutional Capital (no, many more motivations than pure returns- including whimsy and the knee-jerk ability to override the IPS)
• Family Offices are the right result for a career (they could be, but it is extremely unlikely- a lot of things have to be “just right” and there is little to know patience for development
• Family Offices make great wealth clients (very much depends on the function and the product- they can be difficult consumers)
• Family office tech is best – in – breed (No and it probably never will be)
• Family offices shun Large institutions (Surprisingly, no- needed for deals, expertise, and most importnatly financing and introductions)

Keywords

family offices, wealth management, governance, investment strategies, family dynamics, myths, financial planning, family wealth, complexity management, family governance

Transcript: Family Office Myths Busted

Frazer Rice (00:04.462):

Welcome board, Mark.

Mark Tepsich:

Hey, Frazer, good to see you again. Appreciate the opportunity.

Frazer Rice:

Likewise. So let’s get started first. We’re going to go into some of the myths around family offices. But you really participate in kind of an interesting subset of that in terms of helping families design and govern them. What exactly does that mean on a day-to-day basis for you?

Mark Tepsich:

Yeah, good question. So, you know, it means a couple of things, right? So if you think about a family office, you have families that are at the inception point, right? Where things are getting too complex for them. They need to set up some sort of infrastructure. And it’s really like, what is a family office? What can it do for me? What are the pros, cons, and trade-offs? Where do I start? What’s the infrastructure, the systems? Who do I hire? How do I structure a compensation? So you’ve got families maybe coming at it.

From post liquidity event, maybe coming at it from, we need to lift up, lift out this embedded family office out of the business to, hey, we’re an existing family office. We’ve got, you know, we’re evolving, right? The family’s growing, their enterprise is changing, the world around us is changing. People are leaving the family office, the next gen’s getting incorporated into the family office in some way. We’ve got some questions that could be, how do we engage the next generation through the family office?

Mark Tepsich (01:21.614):

How do we make decisions, communicate around our shared assets and resources, which could be a portfolio, maybe even a business, or hey, how do we come together and hire? What is this profile of this person look like? Who should we hire and not hire? What’s the structure of their compensation, carry co-investment, leverage co-investment? What’s the tech stack look like across accounting, consulting, reporting? Now, how do we insource and outsource?

So it’s sort of. I like to call it organizational capabilities. So, you know, sometimes it’s soup to nuts, like starting from zero, other times it’s, we’ve been around for a long time, but we have a couple of questions. So that’s kind of my day to day. And, you know, I’ve been living this really since 2008 pre-global financial crisis.

Frazer Rice

So we’re going to go into, I think, some of the craziness of the family office ecosystem where we have people who wear many hats, people who wear masks, some people who are jokers and other people who are really good technicians and provide a lot of great insight. One of the things you were talking about is that the different types of mandate can be different. And I think maybe one of the first myths we should tackle is the

The bromide that if you’ve seen one family office, you’ve seen one family office, which is thrown around at every family office conference and everybody chuckles for a minute and then it sort of washes away and no one cares anymore. What do you think about that statement?

Mark Tespich (03:19.006):

So I don’t necessarily think it’s true. And here’s what I mean. Let’s make an analogy to this, right? A business needs certain core infrastructure to just operate, right? And using accounting back office, you know the inflows, the outflows, you know, if you’re make a decision, these are the steps you have to go through. And so a family office, right?

It needs to incorporate that, but it needs to incorporate it with the family and the family enterprise that is existing for that family, right? So, yeah, each family office is different because each family is different, but that’s like saying you’ve seen one business, you’ve seen one business, right? The strategy could be, the culture could be different, but, you still need some core operating infrastructure. And again, there’s accounting infrastructure, and that’s the basics, right? So there’s a curl of truth, but largely I think that it is false.

Well, and at the same time, yes, families are different, but in general, families are trying to get to the same place, which is, know, they want to steward the wealth. They want to make sure it benefits the family and the other constituencies.

And they want to make sure that it’s preserved over time. And those functions, you know, it’s very infrequent. You’d find the functions not there. And so how you get from A to B may be different, as you said, but there are a lot of universal truths to setting one of these things up.

Frazer Rice

So one of the other myths that we’ve come across is the idea that 80 to 90 percent of family offices shouldn’t exist. is, people and families set these up for, let’s call it the wrong reasons. Maybe it’s fear of missing out, maybe it’s great cocktail party chatter, maybe it’s an overdiagnosis of their needs. What do you think about that?

Mark Tepsich

Again, false. know, family offices are largely a function. They largely exist because there’s a market scale here. And what I mean by that is when you look under the hood at a family office, you’ve got basics of an accounting firm. You’ve got basics of an investment slash wealth management firm. You’ve got the basics of a legal slash tax firm. And then you’ve got essentially everything in between. And when you look at professional service firms out there,

They can’t provide all of those under one roof, whether compliance or regulatory reasons. But the other reason is because no business model out there can really scale the complexity that each one of these families has. So yeah, you could outforce a lot of this stuff, but at the end of the day, family offices often exist because of a market failure. so, false, 85 to 90 % of family offices should exist.

Frazer Rice (05:41.164)

One of the other things, I’ve been around enough of these getting set up, is that the family office, if we get into sort of a technical structure, such that you set up a structure so that you’re able to deduct the expenses related to administering the wealth around that, that’s a valid reason to do things in addition to the organizational component. So I agree with you that there’s, to say that they shouldn’t exist is sort of belying the notion that these functions should take place internally. And I think you spoke to that. And I guess that gets to another myth, which is that family offices should internalize all of these functions. You just talked about it a little bit, that that’s not a great business model either.

Mark Tepsich

No, mean, yeah, so, you know, 85 to 90 % of family members out there, you just use that statistic, outsource a fair amount of things, right? And what that means is let’s just use tax counsel, for instance, right? This is something that these issues exist in every family office, they exist for every individual, but at the end of the day, should you have, you know, a tax counsel in-house in a family office that’s only doing, you know, income tax advisor work? Probably not.

For 95 % of family offices because the frequency just isn’t there, right? So, you if you look at general councils alone, right? So they should have a broader mandate than income tax. should have well-transferred estate planning. Every family has those issues, but do they have the frequency to warrant bringing that individual, that professional and the rate, the cost? Probably not. a lot, you know, most family offices outsource a fair amount of whether it’s investment management, manager selection and due diligence. So false. Most fair amount offices do outsource a fair amount.

Frazer Rice (07:31.374)

One the things, this is one of my favorite controversial topics in the family office ecosystem of vendors that are out there is this notion that shirt sleeves to shirt sleeves is a myth. that the, and for those who don’t know what that means is, know, the first generation has generated the wealth, the second one enjoys it. And then the third one for a variety of reasons is ill-equipped to carry the wealth forward. And then everyone kind of goes back. It transcends culture. It’s lily pad to lily pad.

You know, there’s a British version and a Russian version and whatever version. But the advice ecosystem around this is such that there’s a lot of debate about the statistics that have, quote unquote, proven that. And I can listen to that and say, yes, those may be very narrow. But there is a myth out there that shirt sleeves to shirt sleeves is a myth. Maybe you have some comments on that.

Mark Tepsich

Man, this is a tough one. I will say this will probably be the toughest one. So I think once a family becomes wealthy, right? And you can kind of define that as, the wealth, meaning the financial wealth will last a few generations with really out, with really nobody working, right? Let’s just define it that way. It’ll last a couple of generations if you make some not dumb decisions, we’ll call it.

I think such as the financial markets today, right, as long as you’re diversified, you will stay wealthy. Does that mean you are going to have the same amount per capita over time? Maybe not, right? So if you look at it today, is a nuclear family of four, and you look at it 50 years from now, and the family is 30 people, right? I don’t know what the growth rate would have to be on those assets.

So I think the family will remain wealthy whether they remain, you know, on a per capita basis, right? That’s a different story. I think what this is missing, however, I think the numbers kind of overshadow what this is getting at. I think when you look at it, when you take a step back, that first generation wealth creator, right? Will the family continue to be builders and entrepreneurs down the road?

Frazer Rice (09:50.26)

That I think that’s the question. Will they continue to kind of reach their full potential? I think that is that should be the focus. I’m going to punt on this one. I think it’s TBD and it’s there’s no set answer. I think the idea that the returns, To get back to your point is that as you go from generation to generation, the complexity increases, I’d say geometrically. Whereas the assets in many ways are going to be designed to increase linearly. And so at some point it may be 14 generations down the line when you’ve got 300 people that you have to take care of, are those assets gonna be in place to be able to support the level of living that people expected in generation one, two, and three?

I think that’s the equation we’re all trying to fight. And so I’d say while Shirt Sleeves to Shirt Sleeves isn’t necessarily a prophecy, it’s definitely something that has to be addressed. So I’m gonna say that the fact that Shirt Sleeves to Shirt Sleeves is a myth, I think that’s the myth.

Mark Tepsich

So that’s where I draw my line in the sand there. think there’s an equation you constantly have to fight. Okay, so here’s another one. Family offices are designed to be permanent. I happen to think that they start out trying to be permanent, but in actuality, they really have to be more flexible and flex with the needs of the family, even at the first or second generation.

Yeah, I would agree. Often they’re established for a good reason, right? That reason is complexity. Whether that complexity continues to exist for the family is a different story, right? You might have a business being sold. The family might just say, “hey, we don’t need to do all these direct investments, these alternate investments. Let’s just keep it simple, keep it passive.”

I don’t think they’re designed to be permanent. I think families don’t really think about that too much. They want to exist for probably the existing generation that’s leveraging it and they wanna transition it, to your point, be flexible over time. But I don’t think anyone like a business, right? If you think about a business, the business generally speaking, it’s meant to exist in a perpetuity. That’s why you have a business, right? It’s not a sole proprietorship, but a family office, I think it’s TBD, right? So, you know. I don’t think anyone’s setting up a family that will say this is going to exist a thousand years from now. And I think if they came out and said that, think that it would add question and motivations.

Frazer Rice

Maybe we may be welcoming the Martians, we may be speaking Mandarin. There’s a thousand things that could happen in between here and then, that’s for sure. Here’s a myth that I think you and I are both going to agree is one, which is that family offices, for the ones that we think are going to try to persist, don’t demand necessarily Sarbanes-Oxley or high-end governance.

Mark Tepsich

I think as family offices mature, meaning as the family evolves, they do need some sort of decision-making framework. Especially if they’re going to really come together and act like somewhat of an institution. What I mean by that is, under the hood of a family office or under the hood of a family, let’s say there’s 10 family members. Let’s say there’s 20 to 25 trusts within that.

You know, you could come together and pull your assets, right? And pull your resources. That’s part of the reason for having a family office. And so you just have a larger pool of capital. When you’re doing that, you do need governance. Okay? But if you’re gonna have, it’s just like, hey, we’re gonna have our separate portfolios. We’re not gonna come together and have pooled investment vehicles. You might not need an investment company, okay?

And there might be good reasons to have an investment committee. In fact, many the investment committees I see, they’re not like college endowments where, we got eight people or nine people on here. We need to agree at least have five people to agree to allocate to this manager or change the allocation or change the IPS, depending on where that authority resides.

I often see many investment committees for families, hey, we’re just collaborative in nature. We’ll get together. We’re going to have a meeting and talk about different strategies. Different advisors, things we should be doing. But if they’ve always had to agree at the family business level, they might not wanna have that same construct in the family office slash investment portfolio.

If they’ve always struggled, know, come into agreement at the family business, now they’re gonna like, hey, we’re gonna recreate this dynamic. don’t have a binding construct. In fact, we ran a report, it’s coming out hopefully in the next couple of weeks. on family enterprise governance and a component obviously is the investment committee.

70 % of the investment committees out there are advisory in nature, meaning they don’t make binding decisions. They take it back to the trustees or whoever the authority is and they say, hey, here’s what we think, right? So individual family investors, whoever that is, co-trustees, it’s a, okay. So I do think governance is important, but it depends on what you mean by that, right?

Should there be an IPS in place? I 100 % think that each family investor should have an IPS in place. The biggest mistake I see there is, hey, we’ve got this shared pool of capital. We’ve got 50 trusts. We’ve got one single IPS, right? I think that is a big mistake. don’t think that’s good governance. So it really depends on what you mean, but I think, yes, there should be some decision-making framework that you’re following. Otherwise, what exactly are you? Adhering to it, right? Like, what is your framework? What is your decision making tree?

Frazer Rice (15:53.902)

On top of that, possible myth. Family offices are built on a robust investment function.

I mean, yes, there are some that are like that, right? You know, there’s a big names out there, MSD, Pritzker, so on and so forth. Those are the exceptions rather than the rule. Most family offices, 85 to 90 % are formed to manage the complexity, right? So again, otherwise you’re gonna have all these outsourced providers and that just doesn’t make sense when you’re trying to make a decision, because you need all the different parts to come together.

They’re often built as administrative functions first, rather than, we’re gonna go start the next, you know, a private equity firm. that’s false.

Frazer Rice

The, as I like to say, probably to the boredom of a lot of people who talk to me a lot is that a lot of these really are built on a bookkeeping or an accounting spine. You’ve got to manage the inflows and outflows of everything and keep track of what you have or else you can have a great investment function, but things are going to spill all over the place.

Mark Tepsich (17:30.872)

I’ll never say, yeah. mean, and that actually goes back to good governance, right? So I always say, it’s not provocative. I’ll say, listen, this is not a provocative answer, but you need to create that first. And most of the people that are considering this rate are business owners. So they’ll intuitively get that. In fact, that function might exist somewhere at the business, but it’s really not organized. And without that function, like, it’s hard to make a decision, right?

If you’re going to allocate 20 % of your portfolio, to private equity drawdown vehicles. got cap calls, capital commitments, distributions, like that needs to be budgeted and forecasting, right? So a lot of these families will have, one nuclear family can have three to four homes, 10 bank accounts, 20 entities. It’s not like a single piggy bank that you could take cash out of and move it every which way, right? Those are owned by different vehicles, different trusts, different assets and things like that, so.

Frazer Rice

Here’s a myth that I espouse which is Family offices and whether you have one or not is driven solely by size whether you have five billion or two hundred million or something like that that if you aren’t a certain size you shouldn’t have one and if you’re Of a certain size you must have one.

Mark Tepsich

That’s a myth. It’s driven by complexity first. I’ve seen, I’ve spoken to people that are worth two to $3 billion. It’s concentrated in a few stocks, meaning like they were early stage employees, right? They’re still in it. They’re getting a healthy dividend at this point. Guy talked to couple years ago. He had two homes, two cars, probably 95 % of his network was tied up into two separate securities that were probably traded.

And he’s like, I don’t think I need a family office. You want to know what one was, what it could do from. And I’m like, listen, if you don’t have the complexity, it probably doesn’t make sense. Okay, if you can make a decision within whatever framework you have, whatever complex you have. Now, the other, you know, there is a cost factor to it, right? It gets easier to start a family office, meaning hire a couple of people, if you’ve got the… asset base for it to make sense on a cost perspective. So most of the time it’s driven by complexity, but cost does become a factor, right? If you’re worth a hundred million dollars, you’re to go hire 10 people. That probably doesn’t make sense.

Frazer Rice (19:28.342)

Right. Well, on top of that too, if you, and there’s a sort of the difference between a family office driven by a liquidity event and meeting that’s, that’s all you have versus a family office that’s tethered or sorry, a family business that’s tethered to it, that is also generating cash flows to help pay for things that that’s a big part of the decision. Because if you’re hiring people, you know, a CIO minimum, absolute minimum is probably $500,000.

They’re going to need people, you know, you’re looking at at least 3 million. just to get the thing up and running before you start figuring out what you actually have to do. And so the concept that the size is going to dictate completely, it underscores sort of that cost component that you described there.

Frazer Rice

This is an interesting one and I like this concept to talk about. Family offices are like institutional capital as investors.

Mark Tepsich

Again, myth, there are some, again, there are some that are like institutions. They have the size and the sophistication. Oftentimes you see them, they’re former PE or hedge fund founders, right? That just aren’t doing any more of it. They made their wealth in the financial ecosystem, in the markets. And so they’re very sophisticated. But by and large, I mean, they’re sort of quasi-institutional, right? So I’ve seen multi-billion dollar family offices that

Again, they’re more of the administrative hub rather than, we’re gonna be splashing around and playing in the markets and using a lot of leverage and doing a lot of control equity investments. So by and large, it’s the myth. 85 to 90 % are institutional-like. They are there to fill a need and that need is complexity management.

Frazer Rice

Here’s one on a different angle, which is family offices are the goal for people in the wealth management industry to work for, meaning family offices are a great aspiration for people who work in the industry and that that’s universal.

Mark Tepsich (21:34.35)

Myth, I think it’s an option. I think it’s interesting. I think it is a growing opportunity for folks that work in, you know, maybe wealth management or investment management or the financial ecosystem. But you didn’t, again, family has been around for a long time, but they’ve really only became, you know, kind of popular post global financial crisis with the rise of PE because of ZERP. You know,

I’ll talk to a lot of people that are like in the hedge fund ecosystem looking for a change, right? And I say like, listen, like these opportunities for you are out there, but it depends on the family. It depends on their compensation philosophy as on the culture that you’re going to have to live within. There’s a lot of key man risk. Is it an opportunity? Yes. But again, it is, it is family office by family office.

Frazer Rice

I tell people too, it’s for people who are used to having lots of clients or lots of institutional support that is going to be a shift. It’s different to have one client. It’s different to have a scenario where the business of a family office, the business model of that particular family office can change on a dime. And if you don’t share the last name of the family you’re working for, you could be in a tough spot.

Mark Tepsich

Yeah, “we’re gonna build out a sustainability impact portfolio. We’re gonna build out, we’re gonna have a direct investment initiative. We’re gonna allocate whatever, a few hundred million dollars to it.” That person, that professional gets there and then a year or two or three years goes by and the strategy changes because a family member too had to change a heart. And then it becomes, okay, why am I here? Where am I gonna go now? So again, they could be great opportunities. I had a great experience.but it really just depends on the family.

Frazer Rice (23:26.894)

Here’s one, and you’ve got UBS over your shoulder there, so this is dramatic foreshadowing in some ways, but I think it bears talking about. It’s that family offices shun the large institutions, and that they want it bespoke, they want something peculiar all the time. What do you think about that?

Mark Tepsich

No, I mean, it goes back to the earlier myth that, you know, basically we’re saying family office should, family office do outsource a lot, right? So again, most family offices are five to eight people, right? I call it family office island, meaning you’re there on the island and you’re like, what is going on outside of the island or off of the island? You know your island really well, right? You know the family, know all the facts inside and out, but they are, I mean, there’s a reason why all these institutions, including UBS, has built out the resources to cater to family offices, right? I’m the perfect example. They brought me on to help our clients build family offices, right?

They would not do that if it was gonna cannibalize their business. So they could be great clients and other times it’s like, hey, we’re very insular and we’re gonna keep everything close to the vest. Again, it’s family office to family office. But by and large, they’re great wealth clients.

Frazer Rice

No, and they also, you know, they need institutions to partner with of size, whether it’s at custody or lending or any number of other functions that are out there. Sometimes, you know, the RIA space is such that, you know, they try to be all things to all people and the appeal of being in, you know, the billionaire space.

It takes a lot of people and a lot of effort and frankly a different business model to deal with that and to just sort of wander in and say we’re great and we can do these things. I think that’s a short road for a lot of institutions.

Frazer Rice (25:17.602)

Again, like we are brutally honest too. And I’ll, and here’s what I mean by that. Well, like we’re rated a lot of things, but I’ll say like, listen, there’s things that we can’t do for you. We can’t be your accounting back office, right? Like we just don’t offer that. We don’t have it. We’ve got a couple firms that would do that. They’re pure plays on it. So they’ve got to be good at it. but you know, use the various institutions for what they’re good for. They’re, know, again, that’s why you’ve got a family office. You can kind of pick or choose and be agnostic as to what you’re using them for.

Frazer Rice

If we wind down here a couple of last ones: The tech that family offices rely on is going to be best in breed.

Mark Tepsich

I, listen, I have this power station all the time with family office meeting, like what, what, you know, what tech providers should we be looking at? Listen, family office have grown in, right over the past 10, 15 years that there’s not a question. they’re historically, right. had to use in a family office, had to take basically institutional tools, try to repurpose them for the family office and they just, they’re just kind of clunky, right? The family office is still a cottage industry.

If you’re trying to sell the family offices, you’re selling the two firms with five to eight employees, right? So the tools are going to continue to get better. But in my opinion, they’re always going to lag the institutional tools and kind of sophistication. But that’s also because institutional tools are very kind of narrow and deep, whereas the family office tech tools, you’ve got the accelerated reporting, but it needs to link to the accounting.

That’s an issue. And so the family of standard day is left with like a bunch of disparate fragmented systems that have a challenge talking to each other. With that said, AI, I’ve been talking to a lot of these sort of mom and pop shops, I’ll call them. They’re firms that are trying to incorporate AI to break down these walls. So it’s not fragmented disparate systems. I use the analogy of it’s like jailbreaking an iPhone. I don’t know where this is gonna be in a couple of years, but I think the tools are going to continue to improve. But again, you’re probably not going to take a family office tech tool and deploy it at institutional scale. So if that answers your question, I guess it’s a measure.

Frazer Rice

First of all, I think it’s going to take a long time before something, quote unquote, replaces Excel, which is still a powerful tool that is flexible and does what it says it’s going to do. And people use it sometimes at their own peril to be the underpinning of everything. the one thing I would add is that the mom and pop software components, I think, have a lot of great ideas. The total market to sell into that, though, does not necessarily make for a great software business.

As you say, to get those tools that are specific and required at the family office level to be profitable, you got to figure out a way to sell that into something bigger. I’m not sure there is anything bigger.

Mark Tepsich (28:49.358)

Yeah, I mean, you’d be better selling it to, you know, small businesses, right? So, I mean, the tools are going to get better, but there’s been a lot of interest recently in the past couple years. I don’t think, I think most of them are not going to survive. I don’t want to say there’s only going to be a couple winners, but on the Consolidated Reported Front, I really think there’s only going be a couple winners because you need scale.

And again, family office, if you’re looking to make a decision, you’re like, well, okay, well,
5,000 users use Adapar and 50 use this other platform. So which one are you gonna choose? You don’t wanna onboard to the one that has 50 and then three years down the road, they’re out of business, or there’s fold or something like that. So with scale comes a little bit of security that at least you know that a lot of other people are using. You could point to that.

Frazer Rice

Last question. Family offices will rival PE firms in terms of influence in the investing market?

85 to 90 % will not rival PE firms. That’s not what they’re set up for. That’s not the goal of most family offices. Again, it’s complexity management. Will some rival PE firms? Yeah. But again, you… Listen, I’ve seen some family office go out there and raise their party capital. When they do that, they’re not a family office anymore. They might have a component in there, but they’re private equity firms.

What you’re getting at is private equity firms are raising a fund every couple of years. Can a family office do that? No, because once they do that, they will be a private equity firm. So PE by and large has an infinite capital source, as long as they are good at what they do, right? So with that said, you know, there’s a lot of entrepreneurs that are are post liquidity events have played in the direct investment space, they really wanna do it. They’re still young, right?

They’re billers, operators created. They wanna do it from a different vantage point. They’re coming to a realization: “that w”We need to start a fund.” I really love that story because again, they’re founders and operators. They didn’t come from the financial ecosystem first to do this. So I think they’re putting a different spin on PE. I think it’s great for the PE industry as a whole, by the way.

And I think, if you’re a founder or a business owner, you might have an easier time taking an equity investment from somebody like that, who’s known in that specific industry that they made their money in, who’s had to make payroll. And they probably have a different timeline than normal PE that’s looking to flip every three to five years.

So I think as an investor, I think that would be an interesting investment opportunity, right? And so it’s like, okay, well, part of my PE allocation, you know, This might look interesting. I hesitate to make, you know, I’m not an investment person, so.

Frazer Rice

Great stuff. Mark, how do people find you and reach out?

Mark Tepsich

I’m on LinkedIn. I would attempt to just spell my name with my email address at ubs.com, but it’s very lengthy. You just hit me up on LinkedIn. But, Frasier, I appreciate the time. This was great.

Frazer Rice

I’ll have that in the show notes and as a final parting, we sort of listen to people say, the family space is getting loud. I’m not sure it is. I think the vendors are more loud than the family offices are. I don’t know what your experience is there.

Mark Tepsich

100%, the family members themselves are still quiet. You don’t see them out there on LinkedIn. It is the ecosystem to your point around them that is getting loud, right? It’s LinkedIn. It’s like, you know, every time I’m on there, it’s like somebody’s got something to say about families, which is good. Again, if you think about every boom in history, they attract people, right? You could say the same thing about AI, right?

But again, it’s become loud, but that’s the industry. It’s not the family offices themselves.

Frazer Rice

Great stuff. Thanks, Mark.

Mark Tepsich

Thank you, Frazer. Appreciate it.

FAMILY OFFICE DEFINED

MORE ON FAMILY OFFICE DESIGN WITH ED MARSHALL

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

We have Mike Monaghan on the show today and covering the “Birth of an ETF.” He’s going to talk about the Founders ETF and its new launch. We’re also going to talk a little bit about what it takes to get an ETF up and running. From a compliance perspective, remember, there’s no guarantee of future performance.

https://youtu.be/o-m3PYHKXqk?si=qBaHkJpUt7xgdpjG

Transcript of “The Birth of an ETF”

00:00 The Founders ETF

Frazer Rice (00:00.986)
Welcome back, Mike.

Michael Monaghan (00:02.616)
Frazer, it’s great to be back.

Frazer Rice (00:04.4)
You are at an interesting point in time right now. You’re about to start up Founders ETF and I think you’re about to get trading authorization to get going. Maybe tell us a little bit about the process to set up an ETF. Then we’ll dive into the strategy a little bit.

Michael (00:21.25)
Yeah, absolutely right. We should start trading on the SIBO Thursday, so two days from now. And we’ve launched our first fund, the Founders 100, that owns the 100 best founder-led companies. I’d be happy to go through some of the process that it takes to set up an ETF.

Frazer Rice (00:40.014)
Love it. ETFs are the main way to go now in terms of getting an inveestment cvhicle up and running. What has your experience been around?

The Popularity of the ETF Structure

Michael (00:52.014)
Yeah, so ETFs have become the primary investment vehicle for a few reasons. Let’s outline those reasons. Then we can go through some of the steps that it takes to set up an ETF. So on the advantage side of an ETF, they’re typically a bit lower cost than traditional mutual fund products. Importantly, they’re tax advantaged. So there’s no gains or losses that occur during the normal ETF growth phase.

Everything that happens within the ETF is done with what’s called an authorized participant. So you do exchanges. And so there’s no capital gains that are assigned to the investors. As long as they hold the ETF, a tax trigger only occurs when they actually sell the ETF.

Finally, it’s a great way to get exposure to the market. So whether you want to own a broad market index, one of the legacy indexes, or a vehicle like ours. That gives you in one single trade, rather than having to guess who’s going to win. Is Nvidia going to win or Palantir who’s going to win? You can own a hundred of the best winners in the market in one single stock ticker. In our case, FFF.

Frazer Rice (02:07.364)
So let’s dive into that theme a little bit. As you said, it’s the top hundred founder led companies. First and foremost, public I assume, private, you’re not diving in those waters.

Public vs Private

Michael (02:20.59)
Correct. So these are the hundred best publicly traded founder led stocks. And we generally fish from the 200 largest founder led publicly traded stocks. So a lot of these are names and founders that are very well recognized. Whether it’s Elon at Tesla or a Mark at Metta, Larry at Oracle, Rich Fairbanks at Capital One. These are all very well known founders.

They’re great entrepreneurs who are leading highly scalable, very high performing publicly traded stocks.

02:53 Understanding Founder-Led Companies

Frazer Rice (02:53.914)
So let’s define founder a little bit. Obviously we have sort of the cult of personality around high-end CEOs. It sounds like you’re identifying companies that have been founded. The people who are running them not only founded them, but they scaled them. They have now gotten them to a level of maturity. That’s different from the typical public company that we find in the S &P 500.

Definition of Founder

Michael (03:19.104)
Yeah. So first let’s define a founder. Then let’s talk about why we think the founder led companies outperform a traditional S&P company. We define the founder as being a chief executive leader. It could be chief executive officer, could be chief technology officer. Sometimes that say a scientific or medical company, would be the chief scientific or chief medical officer. And that person conceived and founded the company, took it from zero to one.

It’s their imprint that has guided it over its 10 or 20 or 30 year period. That’s taken it from a small private company to a venture backed company to a large publicly traded company. And so the idea being the person that founded it continues to run it to this day. We talk about the fact that we own an Nvidia that Jensen still runs. But we don’t own Intel. We own Meta because Mark still runs it, but we don’t own Google.

We own Dell computer because Michael Dell still runs it. But we don’t own Apple. We own Capital One because Rich Fairbank still runs it, but we don’t own American Express.

Investment Process

Frazer Rice (04:25.86)
Got it. So lots of things to get into here. How does it a company get on your radar screen? And then ultimately, how does it get off of it?

Michael (04:35.806)
Great question. the getting on the screen is fairly mechanical. We look at the 200 largest by market capitalization founder led stocks. So we look at all U.S. listed. So it could be listed on the New York Stock Exchange or NASDAQ, but it has to be U.S. listed. We then look at the 200 largest. And from there, we select the 100 best using a quantitative factor model. So I’m

have a Sanford Bernstein background and so do some of the folks here. And so for folks who are familiar with Bernstein’s research, we use a Bernstein factor model to pick the best, the hundred best names out of the 200 largest. That’s how they get on our radar. And to get off is quite simple if they retire. So if a CEO announces he’s retiring, per the prospectus, we have 90 days to sell the stock. once we, so for example, Mr. Buffett recently stepped down from Berkshire Hathaway.

And so we sell Berkshire Hathaway on his announcement and no longer own the stock.

Frazer Rice (05:38.0)
things like corporate mergers or divestitures or maybe even a reclassification of stock where the founder stays on in some capacity but their decision making has been reduced. How do you analyze that?

05:54 The Investment Strategy Behind the ETF

Michael (05:54.326)
Yeah, so there is some human overlay judgment calls here and the founder has to be an executive officer leading the company. So they can’t just run a division. They can’t just be chairman of the board. They have to be the executive in charge of running the company.

Frazer Rice (06:14.0)
And if for, I guess one of the exits possibly would be if, and I don’t know if this is even possible, but if NVIDIA were to take over Meta and there isn’t room for Jensen and Mark in the same suite, how do you analyze something like that?

Michael (06:34.253)
So in the business combinations where you have two founder-led companies or a non-founder-led company swallowed up by a founder-led company, as long as an original founder remains, it remains in the portfolio. So we’ve had some stocks that had, say, three to four co-founders. And as long as one of those co-founder remains, it remains in the portfolio.

Voting Shares

Frazer Rice (06:58.352)
So one of the things that’s a bee in my bonnet is the concept of having shares where, in a sense, they’re super majority or voting components and then shareholders that have less decision making authority to act as a check and balance around the company. Is that something you’re not really that worried about or is it something that may be a factor that’s important later on?

Michael (07:24.525)
So we actually think that’s one of the opportunities that this exists. Like one of the things that we haven’t talked about yet is why is all this alpha there? Why is this uncaptured alpha there for us to go get? And we think historically in the past, active money managers have sometimes shied away from these founder led companies because to your point, Frazier, oftentimes the founder has managed to have super voting control, 10 to one shares, 101 shares. So they completely control the company.

And some of these larger active money management complexes have said, well, we as the shareholder, we need to be able to have a vote and we’re going to underown these stocks. We have the opposite view. We think these founders are special. So we think that by the time a Mark or a Elon has driven their company into the public markets, they’ve showed that they know how to set the vision, ruthlessly execute and generate value for the shareholders.

Concerns?

And so we’re not concerned by super voting structures. Oftentimes those are the stocks that we want to own because it’s the founder that’s in control and setting the direction of the business and generating high returns for the shareholders.

We view it as you either believe in them and you own the stock or you don’t believe in them and sell the stock. We’re not interested in other people’s getting on the board and monkeying with the decisions of the founders.

Frazer Rice (08:30.255)
Is this it? What is it about the founders, especially for those that go from zero to one, then to scale, and then to shepherding a mature business? What makes them better and what drives the alpha that you’re trying to seek? In terms of putting together a portfolio of these types of companies?

09:01 The Importance of Founders in Business

Michael (09:02.891)
Yeah, so the great ones tend to be a bit irreverent. They tend to be highly visionary. They tend to be charismatic communicators and relentless in their execution ability. They’ve got a great ability to pivot if a change needs to be made. And rthe moral authority to set a tone to generate very high rates of return. We see it sort of over and over and over in these founder led companies. And if you look at some of the studies that we’ve done.

There’s a study that Bain Capital, Bain had done years ago in combination with Harvard Business Review, founder led companies tend to outperform non-founder led companies in say the S &P 500 by 3X. So it’s this personality type of high vision and high execution tends to drive outsize returns. And it’s a bit of a self-selecting process.

What makes Founders Unique?

If you think about it by the time any of these founders that we own or talk about have got to the public market. They first had to identify an opportunity to go after. They had to develop a great product by listening to their customers. And they’ve shown that they can scale all the way from a series A round, B, C, D, all the way investing and generating high rates of return in the private markets.

Transitions of Founders to Executives

They get to the public markets, continue to do that. And now you get a little bit of an effect of a echo of that, of now all of sudden you’re in the public markets. If you get enough scale, you have this highly effective business. Now you’re getting relatively cheap capital that you’re feeding into your business through the public markets. And now you continue to grow.

Frazer Rice (10:42.096)
Just to summarize at least what I’m hearing is that they’ve gotten to the point of becoming public. They’ve been able to say no to losing control in exchange for either putting some liquidity back in their pocket or otherwise moving on. And so they’ve almost ratified their vision and message and they keep going. And by the fact that they’re public, there’s enough liquidity for everyone else out there in terms of their investments. So it ends up being a win-win.

Michael (11:11.157)
I think so. That’s what we see.

Frazer Rice (11:13.316)
So one thing that I’ve been sort of reading about and thinking about is the concept that the number of public companies is becoming less, well, it’s decreasing, and that many people are able to stay private for longer. Do you worry that your universe is going to get too small to provide sort of a canvas for your ideas here?

12:02 Market Trends and Future Outlook

Michael (11:37.549)
Let’s talk about three phases of that. We don’t, we actually see the data showing that there’s more and more opportunities within founder led. So let’s look at history and then let’s move to the future. So historically, probably about the time you and I joined the securities business, they would actually take the, to your point, they would take the founder, they would kick out this charismatic founder.

They would put in some mid-level proctor or GE middle level manager to be the you know, the suit in the room to take the company public. And that was sort of in the late nineties and people figured out that wasn’t such a good idea. So if you actually look at the chart, there’s more and more founders staying and leading their public, their, their publicly traded companies.

That’s number one. Number two. Yes. We have seen some companies stay private, obviously Stripe, SpaceX, but we are now seeing, for example, SpaceX coming to the public markets. Eli is talking about coming next year. so we, we haven’t seen it so far impact the pool with which we can fish in. And as I mentioned, that’s what we saw historically.

Public Markets and the Future

In the future, think, Frazer, I think we’re going to start to see a conversion of public and private markets, meaning these private mega cap companies have liquidity. And I think that you’ll see more and more ability to trade those stocks almost in public liquidity. So I think these two markets are converging. So I think that

Not only do we have plenty of founders in the traditional public markets, I think that the liquidity and the big privates is going to converge to a public market style shortly anyway.

Frazer Rice (13:13.232)
You’re in a curious time as far as launching an ETF around this concept. I know a lot of people are wary of Mag-7 and ultra valuations and issues related to that. How do you respond to that concept that a lot of the growth has taken place in seven, maybe seven out of the hundred that you’ve chosen?

Debunking the Mag-7 (to the Mag-3)

Michael (13:33.356)
Yeah, so that’s a misconception. We see Mike Saylor get on TV and wave his arms around it, but it’s not really true. First of all, what’s interesting, if you tear apart the Mag-7, it’s actually the Mag-3. The outperformance in the Mag-7 has come from Meta, Tesla, and NVIDIA. So it’s not just the Mag-7, it’s a founder led. And now you say, well, that’s a small sample set. Let’s look at a bigger sample set. So if you look at the NASDAQ 100, for example,

It’s actually the 20 founder led companies have driven most of the outperformance over the last 25 years. And what I’m about to tell you about the S &P 500 probably won’t surprise you. It’s the 37 founder led companies that have driven most of the outperforming the S &P 500. So the outperformance is coming from founders, not from any specific part of the market. And one of the things that we think is great about this ETF is to avoid concentration.

14:50 Risk Management

I know you’re really familiar with the concept of active share and that’s how different you are than the S &P 500. We have an 85 % active share to the S &P 500. So if you own the founders 100 ETF, you have much different exposure to the market than say the S &P 500. And so we think it helps reduce some of that concentration. We’ve done some things to make sure that we are diversified. First of all, we do own 100 stocks.

Diversification

So really good diversification across that. And then number two, while we run a market weight portfolio, we cap. No stock can be bigger than 7 % of the portfolio, so we don’t get out of balance at any point. So we think that we mitigate some of those concentration risks and we allow people to invest in innovation without being over concentrated to any one name, say the MAG-7, for example. So we think that we’re giving our investors really good exposure to innovation through the founders, but not exposing them to pre-existing market concentrations. And then finally remind everyone

It’s not the MAG-7, it’s not the NASDAQ-100, it’s not the S &P-500, it’s the founders within each of these are what are driving the outsized performance in those analytical groups.

Frazer Rice (15:36.218)
So from a diversification standpoint, obviously not everything in one name, the 7 % cap you described, do you have sector concentration guidelines as well?

Michael (15:45.749)
We don’t have sector concentration guidelines, but if you look at the nature of the portfolio, we were fairly well diversified. We’re slightly overweight tech and financials versus say the S &P, but we own healthcare stocks, own consumer stocks, we own energy stocks. So we’re giving you a broad exposure to the market.

Leverage

Frazer Rice (16:05.924)
Let’s talk about leverage for a second. I know a lot of people are trying to juice returns by piggybacking off of other people’s money on that front. Does that have a place in your ETF?

Michael (16:17.004)
So there’s no leverage in the ETF. We sort of believe in get rich the slow way. I like to tell people that it’s very hard to make money in the stock market over the short term, but it’s not particularly difficult over the very long term. think Mr. Munger and Mr. Buffett used to talk about this. the idea being, leverage can impact you in times that are not favorable.

So we believe in just owning the stocks unlevered, let them compound over very long periods of time. And we think that by doing that, we and our shareholder, we think our shareholders can generate wealth over very long periods of time.

Taxes

Frazer Rice (16:54.98)
So tax efficiency, the concept of holding period, does that play into your process at all?

Michael (17:04.316)
So remember within the ETF, as long as you’re managing your trading properly within the ETF, there’s no tax implications inside of it for your shareholders. Your shareholders only would be impacted at selling. So assuming they hold the stocks for over a year, any gains would be long-term capital gains treatment.

Frazer Rice (17:27.024)
And when you’re describing the investor profile that you’re looking to attract here, who is this for?

Michael (17:35.916)
Yeah, so the person that, you we really think it’s appropriate for you if you have a five year or more holding period and you want to have long-term capital appreciation. You know, if your goal is to be exposed to the best minds and public securities, that’s the founder led companies, and you want to compound your wealth over a very long period of time and have a high probability of outperforming the traditional broad market indexes, this ETF is designed for you.

17:59 Investor Profile and ETF Positioning

Frazer Rice (18:04.705)
And as you’re sort of outlining that profile and for those people who are trying to figure out where this fits in from an equity allocation perspective, you’re in charge in many ways of the spoke of a hub and spoke component of people are really sort of looking at indexes as the base of their equity portfolio. What are you looking for? What kind of benchmarks do you sort of measure yourself against?

Michael (18:35.007)
Yeah, so we think this is absolutely a core holding. So if you’re looking to build out you or your client’s portfolio, we think this should sit at the core. It is on the growth side, so it’s core growth. We think that it is a one-for-one replacement for, the NASDAQ 100. Or, for example, somebody holding the triple Qs. We think this is a better holding than the triple Qs. So we benchmark ourselves against them and against the S &P 500. Ee look at beating those two broad market indexes, generating better risk return for our investors.

Frazer Rice (19:13.019)
For those listeners that are out there and want to find out more, what’s the best way that they can either get a hold of you or maybe even better, do you have a ticker symbol ready that people can discover?

FFF and Contact Information

Michael (19:25.215)
Yeah, absolutely. So the ticker is FFF. So that’s the FFF ETF that we’ll trade on. And investors can find that at their favorite brokerage firm, whether they’re Schwab customers, Interactive Brokers customers, Fidelity customers, trades under one ticker, just like a stock.

Frazer Rice (19:44.365)
And let’s take, we have a few minutes to go here, which is great. Your experience in terms of establishing the ETF, maybe a couple of some of the touch points when you went from vision to execution here, what was the process?

Michael (20:00.106)
Yeah, so ETF has a few basic processes that are regulated under the 1940 Securities Act. And so a lot of those rules are set up to protect the end investors. So for example, the securities live within a trust. So we set up our own trust. Some people use a mingled trust.

We thought it was better for our end investors to have our own trust that we set up that has an independent trust board that oversees to make sure that we’re executing our strategies as we’ve outlined in the prospectus to make sure that we’re Doing the best we can for our investors.

You’ve got to set that up There’s a few firms that do the plumbing for the for the ETFs would say US Bank is probably the largest player. So US Bank provides our our fund custody and fund administration and then there’s just a few other vendors in the space that sort of help with all the plumbing to make sure that the ETF runs smoothly. So it’s probably a six month process if you stay really focused to get all of that set up.

20:58 Navigating the ETF Launch Process

Frazer Rice (21:03.313)
You get that set up, how do you approach the Schwabs and the Fidelitys and the other platforms to make sure that people can access, buy, sell, whatever they want to do with your ETF?

Michael (21:14.347)
Yeah, that’s a great question. So the online brokerages typically put you on the platform as soon as you’re listed on a major US exchange. So you’ve got to get listed on NASDAQ, NYSE or CIBO. We chose CIBO.

So again, on the traditional online brokers, you’re there day one. And then the big wire houses, JP Morgan, Goldman, Morgan Stanley, BAML, they typically have a few hurdles that you’ve got to get through, whether it’s daily trading liquidity assets under management.

And over time, as you run the wickets through their process, you’re added to those platforms.

Macro Issues?

Frazer Rice (21:48.721)
We live in a political age and a time when there’s just chaos everywhere, different types of rules in order to allocate capital. If you’re an investor trying to guess what’s happening politically, et cetera, that are difficult, you must be positive as far as the environment for founders to find success in this country and beyond. Is there anything that you’re looking for to make sure that those conditions hold?

Michael (22:18.225)
Yeah, we don’t really look at the macro or political backgrounds. think over very long periods of time, U.S. innovation outperforms. so we sort of we think that, again, one of the great things with investing in founders is they keep adapting as the background changes behind them. So we think over very long periods of time, the U.S. has great economic growth. And for those people that have worried about little blips along the way, we think the founders are the absolute best at mitigating those blips.

Frazer Rice (22:48.334)
I like to say you bet against America at your own peril and it sounds like from a founder perspective it’s still a great place for them to locate their businesses and grow them here.

Michael (23:01.042)
Absolutely.

23:50 Final Thoughts and Contact Information

Frazer Rice (23:02.971)
Just to reiterate, FFF is the ticker symbol for people to find it. any other contact points for people to find you if they’re interested in what you’re putting together.

Michael (23:15.613)
Yeah, so we have a great website at FounderETFs.com. can go check out there or anyone’s happy to email me, just michael at FounderETFs.com. Happy to chat with anyone who has interest about the portfolio, the strategy, or what we’re building.

Frazer Rice (23:32.197)
Well, great to have you back on, Mike. Thank you for putting up with my attempt at looking like Steve Jobs. It’s 25 degrees in New York here, and I am the stupid one who’s not in California or somewhere warm. appreciate you taking the time to be on and talking about your new product.

Michael (23:48.011)
Yeah, it was great to be on here. Really a huge fan of your podcast and just the level of guests that you’re able to interview and help educate your viewers.

Frazer Rice (23:56.849)
Mike, thanks for being on.

Michael (23:59.061)
Thanks a lot, Frazer.

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Previously with Mike Monaghan

ETF EDUCATION ARTICLES ON ETF.COM

BROOKE SUMMERHILL has written a new book to address “Divorce and the Wealthy Woman.”

https://youtu.be/FFSeBg3XT8M

In this conversation, Brooke discusses the complexities of divorce, particularly focusing on the financial aspects that wealthy women face. She emphasizes the importance of understanding one’s balance sheet, hiring the right professionals, and navigating complex assets during divorce. The discussion also covers the emotional components of divorce, the significance of having a supportive team, and the benefits of open conversations about finances, including the role of prenups.

Takeaways from “DIVORCE FOR THE WEALTHY WOMAN”

• Divorce can be a daunting process, especially regarding finances.
• Understanding your balance sheet is crucial during divorce.
• Breathing and staying calm can help alleviate anxiety.
• Hiring the right professionals is essential for navigating divorce.
• Complex assets require specialized knowledge and support.
• Cash flow planning is vital for post-divorce stability.
• Parenting during divorce needs careful planning and support.
• Open conversations about finances can strengthen relationships.
• Prenups can facilitate healthy discussions about money.
• Divorce is a journey that can become easier with the right support.

Chapters

• 00:00 Introduction to Divorce and Finances
• 02:58 Understanding the Balance Sheet
• 05:45 Navigating Complex Assets in Divorce
• 09:05 Building Your Professional Team
• 12:04 The Emotional Component of Divorce
• 15:09 Modeling Settlements and Cash Flow Planning
• 17:56 Parenting and Financial Responsibilities
• 20:41 Preventative Measures and Financial Awareness
• 23:53 The Role of Prenups in Marriage and Divorce

Transcript of “DIVORCE FOR THE WEALTHY WOMAN”

Frazer Rice (00:01.186)

Welcome back, Brooke.

Brooke Summerhill (00:03.378)

Hi, thanks so much for having me. I’m so excited to be here. Let’s chat about the most fun topics in the world. Divorce and finances, right?

Frazer Rice (00:09.952)
Well, and codified in your new book, Divorce for the Wealthy Woman. I have already started, and I think it’s a winner for a bunch of reasons. The big one really is addressing a viewpoint that I think has been missed by the financial books generally speaking,

Brooke Summerhill (00:15.794)
Mm-hmm.

Frazer Rice (00:31.086)
It really corrects a problem, I think, around information asymmetry in finances generally. And unfortunately, we’ve both been around it from a divorce perspective. Tell me what, first of all, let’s let our listeners remind themselves of your practice. And what do you do there? And then what was the book trying to accomplish?

https://www.amazon.com/Divorce-Wealthy-Women-costs-that-ebook/dp/B0G1ZMFVCN/

Brooke Summerhill (00:53.554)
Okay, so hi, I’m Brooke Summerhill. I do specifically for the last like 15 years in finance. Specifcially in the last five specifically in divorce and finance for wealthy women. So I’m not very creative my book specifically and my podcast is literally called divorce for the wealthy woman. I love being able to understand the perspective of someone going through divorce,not feeling the fire, and creating a years long fight.

I help alleviate the stress of divorce and go through the finances, the emotional aspect, I’m in financial psychology. I’ve been doing that and I plan on continuing doing that. It’s a fun, fun, fun career path for me.

Frazer Rice (01:40.526)
One of the great things I think about your book is it starts where I start. You really have to be comfortable with what your balance sheet looks like.

Take us through a little bit about your experience in helping wealthy women get acquainted with something they weren’t familiar with initially. However, they have to get familiar with it real fast.

Brooke Summerhill (02:03.014)
So typically, you go to a lawyer . You’re about to get divorced and it was blindsided in your face. my god, what is going on? He wants to get divorced or she wants to get divorced. Doesn’t matter who you are, heterosexual couple or not. It does not matter.

You might not know where the finances are, right? And you’re going to a lawyer. You expect them to help you out, but you don’t even know where the assets are. You don’t know it’s on the balance sheet. So the first step is breathing.

Let’s not get into this sympathetic nervous system. No fight or flight, freeze, thaw, and let’s not go there if we can’t avoid it. And really just breathe and understand it’s going to be OK.

That’s the first thing I want to just point out is you can do the work on yourself without having to do hard interval training. You can just breathe. So you’re going to breathe and understand, OK, the balance sheet. I can figure this out. You got it.

And you might need to hire someone like myself who’s a certified divorce financial analyst, you might have your lawyer help you. You might ask your soon to be ex if they’re willing and amicable to understand the balance sheet. You might go to a financial advisor, wealth manager, your family office and ask some questions.

So this is a time of learning and it’s okay that you don’t know where everything is. And the balance sheet is terrifying for most people. 98 % of us have money anxiety. It’s okay. Breathe.

Get help and support where you can. The foundation is the balance sheet. If this is the only thing you take from today, is just breathe and know that the foundation is your budget, your expenses, what’s coming in, what’s going out.

Can you figure that out? Even though you might not know where your assets are. Do you have Bitcoin? Or have different properties? Do you even know if there’s liens, mortgages, loans on them? That all will get figured out. But you’ve got to know what you’re spending.

I would say, you tell me if you have a different experience. But most clients do not know their budget. And that’s OK. Doesn’t matter your wealth, income, anything. Most people, at least in America, do not know what they spend every month.

So that’s the foundation is to start theirs. Understand, what are you spending? Just keep a little log. It can be old fashioned. And I have plenty of technological apps that can help with this. But keep it old fashioned. Just write down, what are you spending? And keep that for a week.

Brooke Summerhill (04:28.752)
That can help you in your divorce process and remember to breathe. There you go.

Frazer Rice (04:32.91)
And it’s part of my process, I think, is to just understand what you’re spending. And then the next step is really understand where it comes from to help support that spending. It’s like analyzing someone who earned 100 million dollars from this movie. It’s like, OK, that’s the headline. Now it’s a lot different in reality. Certainly taxes, how it’s paid to you.

We’ll get into this in a second, and sometimes it’s not in cash.

Sometimes it’s in different types of assets. Whether it’s stock or maybe you own homes, and it may not be necessarily liquid right up front. It sounds like we’re parking our cars in the same garage on that front.

Brooke Summerhill (05:19.154)
Absolutely, absolutely agree with you.

Frazer Rice (05:22.114)
So maybe let’s go through some of the complex assets that you think about that come up in any, not all divorce situations, but definitely in many of them. Many times people have grown their wealth through a private business. so even, you know, the number that is settled upon in the divorce settlement may not be readily available from a cash payout perspective. How do you take people through that?

Brooke Summerhill (05:47.473)
Oof. So I have an entire chapter on businesses because majority of my clients, I’m going to be very sexist here and say majority of my clients, husbands in a heterosexual relationship do own a business or have just been bought out of a business or are starting a startup or have something behind the scenes that they’re aware of or maybe not even aware of. So businesses are huge thing. That’s why I put a chunk of it in my book because

The biggest advice I can give is hire, I’m going to be a repetitive throughout this whole podcast today is hire the right professionals if you can, because you don’t know what you don’t know and that’s okay. You’re going to breathe through that and acknowledge you don’t have to be an expert in divorce. But when you have a business reading, listening to podcasts, doing all of those exercises are wonderful and hiring an expert.

So getting someone who’s understanding the finances in a divorce specifically, so business valuator, or just having a consultation. That’s enough to understand, this, I need a forensic accountant, because I don’t know anything that’s going on within this part of the businesses that I’m a part of, but I’m not really a part of, or I need a business valuator. Let’s just have a consultation. It could be really a non serious, non threatening, non emotional way to start it.

I’m just going to have a consultation to understand, do I need this business valuator? I would just at least have those conversations to understand more about your husband’s business or your business in general on what are the numbers behind it? Because it is very complex, just as you’re saying. Businesses, absolutely, you want the right experts involved.

Frazer Rice (07:30.506)
And sort of as a broader business, or not really business, but sort of as a broader sort of contextual situation here, the type of wealth, whether it’s private funds, people who are invested in private equity or hedge funds or stock options or RSUs for people who are in the tech world, things that are held in trust, there’s the concept of carried interest and real estate and concentrated stock.

This is to go back to your comment that there are people out there that can help you. Understand those assets, I guess for lack of better word, can and can’t do. As far as either provide cash flow or are easily divisible in a divorce settlement. Does that square with your thinking on that?

Brooke Summerhill (08:13.522)
Absolutely. And my role is to really divide assets in a creative way that benefits both parties. They can move on, clean the slate, know, not have fights for years to come. So when you talk about dividing assets, that is spot on. Get the right professionals involved, understand your options and the scenarios, and then you can drive the car with control off the right highway scenario, or you can continue down that highway to another off ramp.

If that suits you in that creative solution of dividing the assets with complex assets like RSUs. And RSUs, restricted stock units, we can go into some of these definitions that are complex, or we can just say, reach out to us if you have questions on what is RSU or what is stock option, or what is these terminology things that you guys are saying. Because it’s very complex and scary, but it doesn’t have to be if you get the right professionals involved, understanding your options.

Frazer Rice (09:07.564)
So let’s pull back a second in terms of assembling your team. If you’re going, you’ve been side swiped by sort of potential for divorce, you’ve hired a divorce lawyer probably right off the bat. But that you really, in my opinion, you need more than that. We talked about the financial advisor to help you work through what’s owned and how it’s owned and what cashflow it can throw off and whether it can support you or not.

I would argue that this is a good time to reengage a trust and estates planner because when you go through a situation, know, divorce situation, the things that you have in place don’t necessarily apply in the same force that they did before and definitely need a look.

Your accountant, of course, if you don’t have one, it’s probably worth it to get started thinking about that because how you receive assets are gonna be important and how you pay taxes on them.

You’re gonna be on your own going forward. And so it’s gonna be important to understand those ramifications. What other people do you have in your cabinet there?

Brooke Summerhill (10:10.547)
Okay, so if we’re on a yacht and we have crew members, we have to have a few of them like you mentioned. I would say nowadays, if we go into the differences of litigation versus arbitration versus mediation versus collaborative divorce, there’s different types of lawyers that we would hire.

So we can go into that, but we’ll just say, you’re gonna hire the right attorney for you to help you with the divorce process, understand the law, and it’s not going to look the same for everyone because you might not need someone who’s going to litigate and really be your advocate every second when you can hire a mediator that can help you both get creative and neutral setting wise, get you divorced faster potentially. You hire the right divorce arena lawyer, advocate or mediator, someone in that nature.

And then yes, you absolutely need the accountant, CPA, tax attorney, sometimes the complex assets require hiring some consultants within the tax arena to understand what the private equity actually means within the contracts because they don’t even understand it. It can be very convoluted. So hiring the right teams with a tax standpoint is very important within the state that you are in or that business is in. That’s just another arena. The other crew member you want in a lot of

Frazer Rice (11:16.046)
Definitely.

Brooke Summerhill (11:36.691)
times I’m the one who’s bringing them in is absolutely trust the states. You might need a whole team and a crew around that because if you have dynasty stress that you didn’t even know you were signing off on for your children, you know, five to 10 years ago, you need someone to understand what that means. Or if you have an estate plan that is in the midst of there’s a lot of creative solutions here that you need the right team members. So trust in the states, like you said, big, big, big deal. Then we have therapists.

Frazer Rice (12:05.454)
No, I was just going to dive in and say dramatic foreshadowing talking about the emotional component of this. so divorce is a dramatic situation. To me, being a good user of professional services is using the right person for the right situation. I’ve gone through it and had friends go through it. I’ve had clients go through it where

Brooke Summerhill (12:06.792)
Go on.

Frazer Rice (12:27.212)
Sometimes they go through and they use the divorce attorney as their therapist and that’s an expensive and not very productive way to do that. Whereas having a therapist in your crew and using that person who’s trained for that and can get you from here to there in that journey of recovery.

It’s an important part and one that shouldn’t be neglected, especially when you’re facing… maximum stress legally and maximum stress emotionally and if you’re trying to sort of manage the firehose of information in order to make good decisions.

Brooke Summerhill (13:03.731)
Absolutely. Well said. I agree. So therapist is a tool. Parenting coaches, I utilize that a lot of the times. I’m a divorce mediator, but I don’t like to practice it because I like to stay in my financial analyst realm and helping women on that end. And so I’ll bring in, you know, divorce coach and a parenting coordinator.

So there’s a lot of little rules that you don’t think about that might be necessary to help a mediator, to help your divorce attorney and you, as the client understand what’s best for you, your children and your emotional setting during this financial whirlwind. And you mentioned financial advisor. I’m going to just put a little caveat there. It cannot just be a general financial advisor.

There’s tens of thousands of those all over the United States. I absolutely have a bias here, but it has to be someone who is specialized in divorce and someone who understands complex assets.

You cannot go with someone who is non-experience in the higher to ultra high net worth realm because they will not grasp what you need as quickly or as efficiently as someone who’s done this for years in that bracket. It’s definitely something that I like to point out all the time.

Frazer Rice (14:19.245)
No, and it’s absolutely just such truth right there because the assets are complex, the machinery around it can be complex and whether you can or can’t do things, you have to understand that quickly.

The tax ramifications of even dividing assets can be net less to everyone involved. And so we’re going to talk about modeling settlements in a second.

But then the other thing I tell people is that sometimes people walk into these situations having done trust in the state’s planning in conjunction with theoretical asset protection planning, maybe in lieu of a prenup or something like that.

And that’s not necessarily a sure thing. Family law is such that judges can take a look at certain situations and say, hey, you know what, this isn’t equitable. We’re going to go in a different direction here and you may owe it anyway. And so to have that

I hate the word holistic, but I’m going to use it here. The broader view of not only how the numbers work, but how it relates to the different legal and structural things in place. It’s vital to have, especially at the numbers that we’re used to talking about, because those mistakes, even unintentional ones, can be really expensive.

Brooke Summerhill (15:29.523)
expensive is the word there. It could be extremely, extremely devastating to not only you, but in the future, your children are going to most likely be part of that legacy or your philanthropic endeavors.

And if you’re making mistakes, even with your team unintentionally hiring the wrong people that don’t understand the complexities or the tax ramifications, that’s devastating for not only you, but yeah, yours to come and your family and charitable giving.

Frazer Rice (15:57.071)
So once we compartmentalize, it seems to be an important thing here. You have to be able to sort of put different things in different boxes as you step into the different components of settlement that are in place here. So let’s say you’ve got the emotional part kind of addressed in the sense that you’re working on those issues that you need to work on to come out the other side. You’ve got your team together from attacks and legal and trust in the states and divorce settlement.

Now, to me, is the notion where you have to step in and say, OK, this is now becoming a bit of a business arrangement where you have to model a settlement that is going to work for you and it’s going to work for your soon to be ex-spouse so that, as you say, you can move on rapidly, but in an orderly fashion. So you come out the other side and have something that’s workable so you can move on in both of your situations.

from the modeling settlement part of it, how much do you go into that cashflow planning, knowing what you cost and making sure that those things are funded so that you can enjoy your life going forward?

Brooke Summerhill (17:03.271)
Think that is the foundation of the house. think that again, I have a bias coming into it, seeing what can happen when it goes wrong and I’m coming in after the divorce and helping with money coaching. really is devastating to see, wow, you took this, this, this, this, and they didn’t model what would happen with your cashflow if you didn’t take this, this, this. It’s devastating.

Why I do what I do is really to be that precursor to look at those options before you make decisions. And there’s others that do what I do, you know, as a certified divorce financial analyst, we model out scenarios with the cash flow. So you have to understand your expenses and income and what’s going to be coming in and out basically. And that’s okay. Again, you are like most people and you don’t know what it is.

You can hire someone to help you through that and really work on it in a very easy and manageable step-by-step manner, where once you understand what you’re spending and what you need to live off of, then you can model out those cashflow scenarios with the different assets coming through.

And the software that I utilize makes it really easy and more fun and crisp and clean. Calculations are not hard. We’re not doing it by an Excel sheet, managing it every second for hours. It’s just, let’s look at this scenario for five minutes. And then

Frazer Rice (18:21.423)
you

Brooke Summerhill (18:26.939)
Again, let’s go off the highway. You’re steering the car. You have the foot on the gas. You tell me your values. And client, let’s go see if this highway will match. Let’s look in my software and see. Will it match your values if we took this scenario versus this other scenario? So she, for me, it’s a she.

She’s getting to make those decisions. But I’m there in the passenger seat making sure. You’re not going to come to someone in six months to a year and be devastated because you don’t have the cash flow. You’re going to take the right settlement.

Or present it to your student to be X, where it’s best for both of you. You both can move on and not fight in court year after year. Because you didn’t get what you deserved, right? That’s resentment building. We don’t need emotions in it if we can make it part of the business thinking process.

Frazer Rice (19:12.751)
No, and it’s important to underscore the difference between owning assets versus generating cash flow. You can be wealthy on paper, but if you’re having trouble getting the tuition payments made. Or if that hasn’t been discussed as to where certain financial requirements are being taken care of either at one spouse level or the other, that’s when you end up tripping over things that might have been dealt with with a little bit more organized approach going forward.

Brooke Summerhill (19:44.787)
Absolutely, hire the right team members to help you through that. Because if you’re listening right now and your anxiety is spiking a little bit. Because you’re like, my gosh, I don’t know, I don’t know, I don’t know, it’s okay, breathe. This is all you need to hear is hire someone or at least consult with some people in this divorce world and you’ll get through it.

Frazer Rice (20:04.719)
So the part that I know least about, I don’t have kids. from a parenting and support component, I can sort of look from afar and have an opinion on it. But it’s quite a bit different when you have your own kids and you’re making sure that they’re taken care of, that their five, 10, 20 year plans are squared away going forward.

The emotional component of shared parenting, the establishing a schedule post divorce, those types of things which seem obvious in some ways but aren’t because suddenly you and your soon to be ex-spouse are going to be having different schedules and different priorities, etc. How do you take your clients through that?

Brooke Summerhill (20:46.653)
OK, great question. That’s a whole chapter in the book as well, children. And that is a difficult journey for most clients right at the start. And it gets easier. So if you’re listening to this and you’re just thinking of divorce.Oor you are just hit with papers and you are about to go through a divorce, or you’re in the middle of it and you still feel like it’s crunchy and it’s really difficult and you’re walking through mud in a way, it gets easier. It really does.

The first step is again, you can hire the right professionals. So hire a therapist for yourself. And it’s better than just friends and family because friends and family might fuel the fire. That is a mistake that I see a lot of men and women make as they divorce. So hiring a therapist for yourself, then parents and coaches, parenting coordinators, those who can really understand where you’re at and level with you to make those decisions or hiring the right mediator or divorce attorney.

Work specifically with those who have children because it gets way more complex with children, especially when you have bigger assets, then you need to understand what’s going to happen with the cash flow for schooling. mean, private schools, let’s just say you have two, three children, you’re going to have hundreds of thousands going out a year for just schooling, curricular, extracurricular activities, right? And things like that, you need to prepare who’s paying for that.

And it’s non-emotional, but it is very emotional, right? So we want to say it’s non-emotional, but it is absolutely going to be in preparation, hiring the right professionals around you, and knowing it will get easier. Because when we look at this from a standpoint of, OK, how do we talk about with our children? How do we work through this, our scheduling? All these things can be a lot easier and simplified if you have the right professionals guiding you on that path.

Frazer Rice (22:34.211)
One of the things I liked about your book is that even if you’re not getting a divorce, I think a lot of the things that you have in place are very useful in terms of a spouse who knows less about the financial situation.

This book in many ways brings, in my opinion, kind of a good framework from which to discuss things and how to ask questions.

There’s another book I just read which I like called MONEY TOGETHER by Doug and Heather Bonaparte and so this one I’m going to recommend pairs extremely well with that in terms of building, just really building a knowledge base. For those who aren’t in DEFCON 5 and are facing a divorce and so on and they’re able to maybe get to you ahead of time to say, you know what, everything’s good. But I don’t feel comfortable.

How do you talk to those types of people?

Brooke Summerhill (23:31.44)
My favorite part of the role is if we can be preventative because if we get in at the right time in our thought process of thinking maybe about divorce, most likely you could shift your mindset and understand more about the finances and gain confidence and clarity and then that control can just whirlwind into, I know my options and I want to stay married.

Like I’m happy in this. really uncovering and discovering what your values are around money and yourself, understanding your own memories around money and how you deal with money. So your money scripts as, okay, how did you deal with money as a child? That’s some of the questions I go into is, okay, and are those still popping up right now?

Have you seen some patterns and behaviors around money as a kid and as a teenager and as a young adult that are still affecting you now? And do we want to shift some of those behaviors and patterns so that you can stay in this relationship?

And also we want to uncover the finances in a way of, let’s be open and understand. Maybe we bring in your spouse to these conversations so we have an open conversation about where the money is, how you’re going to be living the next few years with your values.

Together you guys can build that relationship. Because most of the time, one of the person in the relationship does not want to deal with the money, or they’re scared of the money, or there’s some kind of script around money that’s scary. And so they put their head in the sand, or they turn out the light and they don’t deal with it. The other person is more in control of the money, right?

That person is making the money or dealing with the finances. So if we can bring them together during marriage, when they’re thinking of divorce or before that, that’s the best part. And then they can see they’re gonna be okay as long as they both understand it and have the support.

Frazer Rice (25:17.327)
As we wind down here, we’ve gone from divorce during marriage and now before marriage. Preenups, I in general, if the discussion can happen, I like the idea of having them. And I think frankly, it accelerates good discussion ahead of time anyway and helps get that information to both spouses. And as you say, give them confidence within the relationship. That’s such a great, I like that narrative a lot. What’s your predisposition there?

Brooke Summerhill (25:48.308)
There’s so much stigma around having a prenup. There’s so much stigma. There’s so much potential though in my mind in a positive light of having these tough, scary financial conversations. If you have a prenup or if you’re thinking about a prenup, if you guys can be open around the finances, how can you not both benefit from that? Talking with a lawyer or with someone in the financial realm with the lawyer paired in a room, having these really, really intense conversations.

And I say intense because it’s about money and that’s usually intense at the beginning and then it gets easier. If you can do that, how are you not gonna be set up for success? And you’re gonna most likely be well prepared for that marriage and stay married. I wish there was some research I could say, like this is the statistic. If you have a prenup and you actually, you didn’t just do the prenup because your parents are the wealthy ones and you wanna keep the money in the family.

It was for the right reasons of I wanna understand my asseets. I want you to understand your assets, I want to understand that we’re in a marriage because we love each other. Here’s the financial ramifications of this and that. And you guys have open conversations well before marriage conversation, like not the day before the marriage, right? And have it be an open dialogue with professionals. I think that’s a wonderful way to keep you both in this beautiful marriage for long term, where it’s healthy. That’s I agree with you having a prenup and that’s in my book too is

Frazer Rice (26:59.907)
Got it.

Brooke Summerhill (27:14.621)
Preenups can be a very, very positive tool. And in divorce, on the other side, understanding what you signed before you get divorced, or if you are thinking of divorce, understanding and going to the right lawyer, maybe the one who drafted it, who you trust, is a very good idea, too. Beware, they will most likely have to talk to both of you. you guys, long story short, go to the right attorney, make sure if it’s a neutral person that you both worked with, which is rare.

That should be a red flag. But if you both worked with the attorney, you both are in the room understanding the prenup before you get divorced so that you understand the ramifications of what you chose to do and what you chose to sign. So divorce, you need to know the prenup. But before you get married, get a prenup and have those really tough, scary conversations upfront.

Frazer Rice (28:01.871)
Terrific. Brooke, so glad we got to catch up again. What is the best way for people to find your book and otherwise find you?

Brooke Summerhill (28:10.887)
You know, I think nowadays Amazon is really an easy target to type in right there. Divorce for the Wealthy Woman is my book. And my phone number is in the book. My email is in the book. I’m very open. People have questions, conversations to be had. I’m right there for you. So they can reach out on my website. Just type in Brooke Summerhill. You’ll find me or buy the book online and learn something new.

Frazer Rice (28:36.111) – Divorce for the Wealthy Woman
All of that will be in the show notes. Great stuff, Brooke. Thanks for being on.

Brooke Summerhill (28:40.519) – Divorce for the Wealthy Woman
Thank you for having me.

PREVIOUS DISCUSSIONS WITH BROOKE

BROOKE’S FIRM

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Wealthy families are discovering Tennessee’s legal and tax ecosystem as a key component for their long term wealth strategy. I spoke with ANDREA CHOMAKOS from Pendleton Square Trust on Tennessee around these advantages that the Tennessee Wealth Ecosystem provides in the context of other states’ legal systems and economies. We cover directed trusts and Tennessee situs, and even a tip like the Community Property Trust, which is interesting in both prenuptial tax planning and estate planning contexts.

https://youtu.be/CiR8eoAG-iI

“The Tennessee Wealth Ecosystem” Transcript

Frazer Rice (00:00.814)
Welcome aboard, Andrea.

Andrea Chomakos (00:03.128)
Thanks, Frazer, happy to be here.

Frazer Rice (00:04.696)
Well, glad to have you on. Always happy to talk to friends of mine at Pendleton, talk about Tennessee and trust administration generally. Our listeners are probably pretty well versed as far as the idea of trusts, but I don’t think it hurts to go and talk a little bit about what the trustee function normally entails as we talk about what is interesting about Tennessee and other jurisdictional issues.

Andrea Chomakos (00:29.358)
Absolutely. So Frazer, it’s great to be here and share some conversation with you and your audience. While I have been in the professional fiduciary role for several years, for several decades before that, I was a practicing attorney. So I would often have conversations with my clients and drafting their documents and asking them decisions about who to appoint as a trustee. One of the very first conversations we would have is what does it mean to be a trustee?

As I have now come over to the other side, broadly stating that the trustee has the responsibility to administer the trust for the sole benefit of the named trust beneficiaries in accordance with the trust terms. That seems like a lot of really big words that don’t make a lot of sense to the average person. I get it.

When I was practicing, a lot of my clients, their reaction would be, okay, so you’re just telling me that this person is the person who makes the decisions about distributions and that’s great. I can go, you know, no big deal. And the reality is, yeah, the reality is it is a big deal. Because it’s more than just making distribution decisions or making them in a vacuum. You have to look at the broader picture.

Frazer Rice (01:41.228)
It’s more than that though.

Andrea Chomakos (01:55.598)
But it also entails managing the trust assets and investments. It means making those important distribution decisions and understanding the impacts those are going to have not just in the short term but the long term. Filing and paying tax returns for the trust. Communicating with trust beneficiaries, providing reports and accounts. And even all of that sometimes seems like not that big of a laundry list but

Let me give like an example that I ran into. Everybody loves a good example. So when I say a trustee is responsible for investing and managing all of the assets of the trust, that also means the protection and preservation of those assets. And it’s incredibly common to see a trust hold some real estate, oftentimes a residence that a trustee or a beneficiary lives in.

Frazer Rice (02:24.58)
That’d be great.

Andrea Chomakos (02:51.094)
And you may say, OK, well, no big deal. Like if something happens, we’ll just get it fixed. Well, it’s more than that, right? You need to really understand what that means and the risks you’re taking and the potential liability you’re taking if you don’t manage those issues in a way maybe different than you would if it was just your own house. So I was at a prior institution and

that institution was serving as co-trustee with a beneficiary who resided in some trust-owned property. And lo and behold, you know, got a call from that beneficiary saying, hey, there was a leak with one of the pipes in the house. So I just went out and got some duct tape and put that around the pipe to stave off the leak, but now it’s gotten really bad. And you’re just sort of like, well, wait a minute. Like that’s.

Frazer Rice (03:34.276)
Hmm.

Andrea Chomakos (03:47.573)
As a trustee, that’s not an appropriate response to fixing a leak, it’s not a roll of duct tape. So it’s things like that that trustees are responsible for.

Frazer Rice (04:00.004)
One of the things too that’s happened in modern legislation is that those three functions you talked about, the investment, the distribution, and the administration have been in many states you’re able to, we like to call it bifurcate them, so that you can put an expert maybe in the investment role, maybe a family member with a corporate trustee in the distribution role, and then a corporate trustee in the administration role who, you know, they’re used to doing the paperwork and the tax filings and the eye dotting and T-crossing.

And in your, I guess in your experiences, we’ve gone through that. How have trust companies evolved to take into account this new flexibility?

Andrea Chomakos (04:42.254)
Absolutely, think you hit the right word. I always say the same thing, Frazier. It’s a bifurcation of those duties and responsibilities. And so there are more trust companies who are embracing what we call the Directed Trust Model, where the corporate trustee is handling the administrative functions.

So the reporting, the trust beneficiary communications, filing the tax returns, all of those very important functions, but ones that oftentimes are overlooked, their importance is overlooked. And other people are given the role of either distribution advisor, and sometimes the corporate trustees in these roles will make distribution decisions.

But certainly the investment function is one. And as you see arise in individuals, families, using private equity for investments, other alternative investments, you see them using RIAs, multifamily offices, to manage their investments that, and those entities don’t have that trustee function. There are more corporate trustees who are filling that role. And I think that we’re only going to see that market increase and that demand increase.

Frazer Rice (06:11.196)
I don’t think I could agree more with that statement. I think the idea of people having all of those functions under one umbrella really ignores just the way wealth is being managed these days, whether it’s sort of peculiar assets or even, you know, regular run of the mill stocks and bonds, people have their advisors and they don’t want to necessarily give that up to take advantage of trust situs and professional trustee services.

Andrea Chomakos (06:21.998)
Listen.

Frazer Rice (06:36.524)
As I talk to people around this topic, the culture of a good trustee, and especially sort of a good corporate or a good administrative trustee, there are a lot of things that go into that. In your experience, what is it that makes a good sort of corporate or administrative trustee for particular family?

Andrea Chomakos (07:01.422)
There’s I mean, that’s a great question. And it should be top of mind for all clients. Right. I think there’s a couple of things. One is the institutional professionalism that a corporate trustee, independent corporate trustee provides, as well as the skill, the background and then the lack of conflict of interest. So when you think about an administrative trustee that’s not managing the investments, we have no dog in that fight as they say about what’s going on with the investments, how they’re being managed, how they’re being allocated.

We, Pendleton Square and others are here to serve the beneficiaries, to facilitate communication, to help beneficiary wealth education, to continue the continuum of family values and conversations, as well as be some be a person who can sit there alongside them and educate them about the trust, about the wealth, about the impact the distributions from the trust are having on their own estate, on their own lifestyle, and really honing in on the things that they’re really good at. And I think predominantly it is that being free of conflict. We don’t have any other interest in the trust.

Frazer Rice (08:28.252)
I think the concept of staying in your lane is important. I think in the old world where the big trust companies did everything and they would allocate resources to that because doing everything required good integration and so on, it made a lot of sense. But nowadays, as we talked about the bifurcation just now, the provision of the administrative trustee functions and the distribution committees, et cetera, that feels more like an accommodation.

Andrea Chomakos (08:30.913)
I’m sorry.

Frazer Rice (08:56.696)
than a sort of focus for them. And so these trust companies that have developed, the new ones that are less worried about the investment function, that that focus is now a strength in the sense that people hire experts in that field in order to get what they need from an estate planning perspective or a site of choice, et cetera, but then to really effectuate that culture we just talked about.

Andrea Chomakos (09:26.956)
Yeah, I mean, think there’s a couple of nuances there that you touch on that always resonate with me. And so one is.

Trust business, it’s a business, we all have to admit that it’s a business, but is it relational or is it transactional? And at its core it’s really relational. You’re working alongside a family for hopefully multiple generations and as an institution you can carry forward that historic bank of knowledge in the grantor’s intent, the family values as you’re administering the trust.

But in many larger institutions, because of just structural considerations and constraints, sometimes you have a lot of turnover in personnel. You have some loss of historic knowledge and information. And you have a compression of what it takes.

not just the skills, but the technology and what it takes to execute on trust to meet the needs of the beneficiaries. And so sometimes those decisions get kind of kicked down the road to a committee that maybe only meets once a month or every couple of weeks, since you may not have an immediate decision. having a more nimble corporate trustee who recognizes that and values the relational side of the trust business is…

really ideal and really the flip side of the coin I think the thing that a lot of clients and some of their professional advisors advocate for is don’t name an entity name a person as trustee and that’s where I think the staying in your lane part gets really complicated. A lot of opportunity for you know the wheel to drift over to the other lane and

Frazer Rice (11:29.816)
Well, as you alluded to before, institutions that have a trust capability but have a lot of other things going on, found that, I use the analogy, sometimes the anaconda of maybe the commercial bank or the investment bank finds the sleeping bunny of the wealth management arm and then by extension the trust company. And then you start getting things, start getting business metrics applied to that part of the business that maybe aren’t.appropriate for the 50 to 100 year nature of what’s going on there.

Andrea Chomakos (12:00.526)
Sure. Yeah, absolutely. And the reality is that the profitability margins in the wealth business in general, and then when you push it down to the trust business in particular, are even close to the margins of financial institution sees from their lending line of business. Because that’s what banks are. Banks are, they’re in the business of lending money, taking in deposits and lending it back out. That’s how they make their money. And so

Frazer Rice (12:28.281)
Right.

Andrea Chomakos (12:30.712)
When you look at an institution, whether it’s Pendleton Square or someone else that is solely a trust company, what we’ve said is we know our lane and we’re sticking to it. Because we’re just gonna do it really well. That’s all we’re gonna do.

Frazer Rice (12:45.902)
So in general estate planning circles, there are lot of favored jurisdictions. Many people know about Delaware, sometimes from the corporate law standpoint, Nevada, South Dakota, et cetera. But Tennessee, especially in the last five to 10 years, has become one of the real top jurisdictions for trust planning and general wealth planning. What are the parts of Tennessee’s attributes, whether tax or legal structure, that makes it appealing these days?

Andrea Chomakos (13:15.838)
I think there’s a laundry list, Frazier. So as a former state planning professional, I went through an exercise probably about six or seven years ago with a client looking at different jurisdictions for them. Specifically, they wanted to establish some trusts and were interested in going outside of their home jurisdiction, which is a state that does not appear on any of these lists.

Frazer Rice (13:41.572)
I live in one, so yes, I can empathize.

Andrea Chomakos (13:44.663)
You really do live in one. At any rate, we briefly looked at Tennessee, we ended up going to a different jurisdiction for other reasons, but let’s start going through the list. And if you even take out specifically what I think Tennessee’s state laws have done well, if you’re a planning professional or a client, these are some of the things that you’re generally gonna look at.

Number one probably should be, doesn’t always hit number one, but number one probably should be state income taxes. The state income taxation of trusts is very complex and sometimes it cannot be entirely avoided just based on where a grantor resides, where some beneficiaries reside, depending on each state’s laws, which just FYI to the listeners are not uniform between states and very complex and

If you want to have a separate podcast about that, happy to. I talk about it all the time.

Frazer Rice (14:43.716)
No- I’m, acutely aware of being from New York, which really hamstrings you sometimes on that.

Andrea Chomakos (14:46.318)
Yeah, no bueno. So, but, you know, Tennessee does not have an income taxation on trust. And when you look at the ability to, and there is the ability in many circumstances to extricate a trust from the tax grips of one jurisdiction and move them out of that, you know, people…overlook the importance of state income taxation.

That can be anywhere you’re in a jurisdiction where it can be as high as like 12 plus percent. That’s a big drag on a trust’s return if you’re having to pay out 12 percent every year and just in state income taxes. The next thing that a lot of people look at is how long can this trust last?

The legal terminology for that is the dreaded rule against perpetuities. I’m not gonna get into the rule against perpetuities, nobody wants to hear it. But basically, let’s just distill it down, like how long can my trust last? Can it last 100 years? Or 360 years? Can it last indefinitely? For some clients and families, they want to take advantage of that and have that trust last for as long as possible. Because if structured properly, that means wealth can transfer

Frazer Rice (15:38.838)
I’m getting it.

Andrea Chomakos (16:03.886)
for an infinite to an infinite number, indefinite number of generations without estate taxes. So Tennessee’s law is a little bit unique and I’ll distill it this way. If a trust is established in Tennessee, the default rule is a 360 year term for the trust. can last for 360 years, which is probably, you know.

five to six generations, maybe seven, depending on the longevity of your family line.

Frazer Rice (16:37.092)
By the way, the US is going to be 250 years old next year for context.

Andrea Chomakos (16:41.836)
Yeah, that great context. I love it. I love it. So, 360 years. But two years ago, Tennessee modified its statute on this point to say if a trust is moving to Tennessee from a jurisdiction where it had previously been administered, that allows for a longer duration of trust, including an indefinite one then that would be recognized by Tennessee.

In other words, you’re not shortening the duration of your trust’s longevity by moving it from a jurisdiction like Delaware that allows indefinite trust terms. By moving it to Tennessee, you don’t lose out on that. Which I think is a really interesting and important point and shows and demonstrates how proactive Tennessee is in updating its trust laws.

Frazer Rice (17:36.613)
The flexibility that Tennessee gives the practitioner. In terms of being able to decant or modify or change trusts. That started out doing one thing but life evolves, people evolve, the family’s needs evolve, and sometimes these things need tinkering. Tennessee, as I understand it, just continues to have a pretty broad array of tools in the toolkit.

Andrea Chomakos (18:00.417)
It sure does. I think I’ve been impressed with, as a practitioner who’s licensed in North Carolina that does not have as flexible of laws as Tennessee does. It’s really nice to be able to take advantage of Tennessee’s flexibility to modify trusts. A lot of times just from an administrative perspective to say, hey,

This was always at, always anticipated, this trust always anticipated a corporate trustee that invested the assets and handled everything. But now it’s appropriate for us to look at this bifurcated structure we just talked about earlier. In Tennessee, you can do that. You can modify the trust to bifurcate that trustee structure by an agreement of the beneficiaries. You don’t have to go to court. And you don’t have to do anything funky or elaborate to accomplish that objective.

Frazer Rice (18:56.396)

One of the current bees in my bonnet is around the intersection of post nuptial planning and longer term trust planning. And I know that there’s a community property feature to Tennessee’s law that is interesting in certain components of that.

Andrea Chomakos (19:15.278)
Yep, absolutely. I think to put in context for folks, a lot of people talk a lot about the estate tax. The reality is that the estate tax exemption has more than tripled in the last about 12 years. And from the time I started practicing law,

When I started practicing law, the estate tax exemption amount was $600,000. And it will be $15 million in six weeks per person. Per married, know, spouse and a married couple, so 30 million. For man people, including wealthy people, estate taxes are not as much of an issue as maybe income taxes. And so a lot of…

Planners, attorneys, advisors, CPAs are focusing more on income tax planning for clients in concert with their estate planning. And a nuance to the basis step up rule, so people know. When you die and asset is included in your estate, that asset’s basis adjusts to fair market value as of date of death. So that, everyone knows that.

For community property, because property that’s classified as community property, it’s considered owned by both spouses. Not like jointly with the rights of survivorship, but more as like they both own 100 % of it. When one spouse dies with community property, it gets a full step up in basis. Even though the spouse inherits 100 % of it.

So doing tax income tax basis planning with low basis assets. If you’re not in a community property jurisdiction, which is just a handful of states, you can implement that same benefit. By establishing a community property trust in a jurisdiction like Tennessee.

With that trust agreement, you are creating a community property interest in that asset. You contribute it to the trust. The trust terms can provide specifically what would happen if the married couple dissolved their marriage and who would get that asset back.

So for instance, if it were a separate property asset, you can contribute the property to a community property trust. The asset to a community property trust and get the full set of a basis. Howver, the trust agreement could provide if the marriage dissolves, that asset goes 100 % back to the contributing spouse.

It can address both issues, because a lot of people have that issue, and I get it.

Frazer Rice (22:08.361)
It’s a nice feature to have. When you’re doing your estate planning or pre/post nuptial planning, it’s a good idea to have both sets of expertise in the room. You can have one document that’s at odds with what you’re thinking is supposed to happen in another document. That creates a real unwind situation. See it. See it all the time.

Andrea Chomakos (22:30.869)
Mm-hmm. Yes.

Frazer Rice (22:33.253)
We alluded to some of the things that Tennessee does to stay modern in the trust jurisdiction wars. The Nevadas and the Delawares, et cetera, that make constant revisions. Tennessee stays on top of it as well. Are there any other features that you see in that that are on the horizon or that just taken place?

Andrea Chomakos (22:58.35)
I’m not aware of anything on the horizon. Another adjustment to the statute late last year, is a provision around grantor, irrevocable grantor trusts. In that situation, the grantor of the trust reports all the tax attributes of that trust on their own personal return. They will have potentially, usually most likely, tax implications from that and tax liability.

We estate planners, I still consider myself a state planner, always said like, that’s great. That’s a gift tax free gift, know, paying the grantor, paying the tax on the trust. Assets, but sometimes the grantor gets to a point where that’s a little heavy for them to bear. Many estate planners like myself would not draft a trust to include a tax reimbursement provision. Not in the trust back to the grantor. There had been some IRS rulings that were all over the place about whether that created a problem

The IRS has seemed to kind of backed off of that. In particular when there’s an independent trustee who doesn’t have the obligation to make the payments but can in their discretion reimburse the grantor for the taxes. That seems to be a pass muster with the IRS.

So Tennessee has now included a statute in their trust code. It tatutorily gives trustees the ability to reimburse grantors for their tax liability. That can be really beneficial for a grantor who’s maybe hitting that pain point. However, she doesn’t necessarily want to toggle off grantor trust status or could not without some other adverse tax consequences. And the trust agreement doesn’t include that reimbursement provision.

By resitusing in Tennessee and having the independent trustee, they would have the automatic right to get those tax reimbursements. So, a nice feature for people in those circumstances.

Frazer Rice (25:03.319)
Nice feature. So as we wind down here. What is the best way for people to find out about Pendleton? Yourself? If they want to know more about the Tennessee features? Or otherwise need a corporate or administrative trustee? What’s the best way to find you?

Andrea Chomakos (25:22.85)
That’s great question. We have a really nice website, Pendleton Square Trust Company dot com. We have a great insight page which has a lot of this information we talked about. It has a lot of posts and blogs and insights on the Tennessee advantages. I’m listed on there. You can always find me on LinkedIn, Andrea Chomakos, C-H-O-M-A-K-O-S.

I’m the only Andrea Chimekis in the world, so pretty easy to find me. Yeah, yeah. So always happy to respond to a reach out either through Pendleton Square. Or through LinkedIn and always happy to have the opportunity to share this great valuable information, Frazeer. Thanks for the really insightful questions.

Frazer Rice (25:54.493)
There are multiple Fraser Rices in the world, which always surprised me, but alas.

Frazer Rice (26:17.925) – The Tennessee Wealth Ecosystem
Thank you. All of your information will be in the show notes. Andrea, thanks so much for being on and say hello to my friends back at Pendleton for me.

Andrea Chomakos (26:26.326) – The Tennessee Wealth Ecosystem
I sure will. Thank you.

BUILDING A TRUST COMPANY WITH BETSY BROWN

PENDLETON SQUARE TRUST

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Musician and label owner, Blake Morgan, discusses the Music Business and the importance of “Reputation over Fame.”

Ever wondered how musicians really make money? It’s a tough journey filled with losses and small wins, but it’s all about persistence! In this episode, Blake Morgan shares that every small gamble counts, and eventually, one big win can turn it all around.: “The people who are “for real” have no choice.”

https://youtu.be/j8vf5dI-cbE

Transcript

Frazer Rice (00:01.135)
Welcome aboard, Blake.

Blake Morgan (00:02.946)
Good to be here.

Frazer Rice (00:04.111)
Well, it’s really nice for you to be here. You were nice enough to invite me to your show, your residency downtown. And I was glad to reconnect and remind myself how talented A, that you are and B, that musicians are. And it got me thinking about business and how musicians and the world of music works these days. So it’s a treat to have you on there.

Blake Morgan (00:27.714)
Thanks so much. I’m glad you could make it to the show and it’s great to talk to you again.

Frazer Rice (00:32.155)
So let’s start at the beginning. So if you’re a musician, you’ve been bitten by the bug, you’re talented, and you get that wonderful curse, what are the ways that musicians really make money and support themselves? I imagine it goes from a spectrum of busking and performing and having your guitar case open and taking…

donations from there on up to the professional musician and then to the actual creator of the music itself. How do you think about that?

Blake Morgan (01:01.858)
Right. So, you know, I think I’m thinking about your audience and finance people and business people, you know, right off the bat, of course, for starters, the marriage between commerce and art has always been, shall we say, an interesting one, or it’s been it’s been a conflicted one. And it’s mostly been conflicted for the artists. But the reality is, you know, I think

Frazer Rice (01:22.747)
Sure.

Blake Morgan (01:32.897)
in a lot of ways and I do have something of an eagle eye view because I’m an artist, I’m a songwriter, I’m a record producer and I’m a record label owner. And so whether you’ve had a career and are having one like I am or like the person that you’re imagining who’s just getting, who’s just starting out, I think your experience basically it’s very similar to quantitative finance.

in that you’re acquiring a lot of small bets that rarely pay off, but when one does, they make up for all the other losses. And every part of being a musician is very much that experience. So when you’re first starting out, whatever that means, if you’re making, if you’re building tracks on your laptop, if you’re, you know, I think the days of busking on the street are,

probably behind us because I don’t see it very much, honestly, in New York. And we can talk about why we don’t see it very much later. But the reality is however you’re getting into it, you’re immediately in a position where you know you’re going to be taking a loss. And what you’re hoping is that there will be a payoff at some point so great that it will pay for all or most or some of your losses that you’ve

Frazer Rice (02:30.203)
Right.

Blake Morgan (02:58.414)
crude. And the truth is that really never ends. And I think that that really also kind of never ends if you’re a superstar. That’s really that’s that’s that’s the gig. I don’t see I don’t see billionaire investors usually sort of hang up their investment coat jacket. I don’t know what it is, but I don’t see them hang up their cape and say, I’m out. You know, they’re still trying to somehow leverage what they have into something else.

Frazer Rice (03:20.279)
Bye.

Blake Morgan (03:27.822)
And so that’s the financial part of it, which is that, you know, I think especially now, if you were talking about the beautiful curse, like I think especially now there is this feeling in music that musicians make music, you know, for fun. And I’ve never, I’m not a musician who makes music for fun. I’ve never met a musician who makes music for fun. We make music because we’re compelled to. That’s the beautiful curse. It’s not because, hey, I’ve got

I’m thinking about doing this and it’s just the people who are for real have no choice. And so I often say that my relationship to making music, and this was true when I was a kid, when I was just starting, my relationship to making music is exactly like my relationship to breathing, which is that I really like doing it. But if I didn’t, it wouldn’t matter because I’d still have to do it to be alive. It’s a part of who I am, right?

Frazer Rice (04:21.403)
Sure.

Blake Morgan (04:23.894)
And the thing about breathing is we aren’t in a position to being like, how’s the breathing industry? How am going to leverage my breathing into some sort of better form of breathing that would keep the lights on? We’re all doing that, I guess, with our lives in some form. But that’s that awkward marriage of commerce and art, which is that our strength as artists, as musicians, comes from the fact that we have an absolute bedrock. We are compelled, a bedrock need.

to continue to make music no matter what, no matter what’s thrown at us. And then that’s also exploited because the people who exploit us know that we’re still gonna do it no matter what, in whatever form that takes. So that was like 20 pounds of answer to a one ounce question. But that’s the real truth, which is I think if you’re starting out, you really are hoping that

you’re gonna you’re gonna start trying things basically to get some kind of a career off the ground, some kind of path forward to be able to make more music, some path forward where you’re gonna be able to make music where you wouldn’t want to have to do something outside of your own profession. People don’t tend to set out to be in a profession with the overwhelming feeling like they’re gonna have another profession that they’re gonna have to have to pay for their bills for their actual profession.

Frazer Rice (05:52.611)
No question. How do you graduate from hobby to commitment in many ways?

Blake Morgan (05:53.39)
So.

Blake Morgan (05:58.734)
Exactly, exactly. And so right out of the gate, you’re hoping that your ideas and your talent and your perspiration and your inspiration are going to be enough to leverage the next moment and the next moment and the next moment. Moments where you know, and you know, a 13 year old who’s trying to write their first song or pick up a violin and practice, they know that they’re going to lose and lose and lose.

and lose and they’re hoping that somewhere down the line they win and that pays for these losses and this is financial a financial truth and an emotional truth to like I’ve taken I often say to people like I’m a good humored person generally speaking but like I’m 96 % scar tissue at this point and so I still the joy offsets the scar tissue right I don’t want to be bitter and and and I’m and I’m not but

Frazer Rice (06:47.62)
you

Blake Morgan (06:56.969)
The moments of artistic wonder and satisfaction, just like the moments of financial hope, like, my God, this actually is hitting or this actually works. This really gets the monkey off my back to be able to do more of this, right? It’s very, very much the same, whether it’s financial, emotional, or temporal. The time you’ve put in to try to do something pays off when it works.

Frazer Rice (07:26.731)
So this massive investment, time, emotion, skill, dollars, et cetera, what are the ways that you start to get into the green and turn it into a situation where you’re actually sort of making money on what you love here?

Blake Morgan (07:47.832)
So if there was an easy answer to that, I would hope that you would have it and you could teach me what it was, but there’s a complicated answer to it. And it’s harder than ever. Art and music are devalued more than ever. The rungs under the ladder of where I’ve been able to get in my career have been kicked out. It’s harder for people to get to where I am. The world has changed because of piracy and streaming and

Frazer Rice (07:52.89)
Right.

Blake Morgan (08:16.043)
now AI and you know, we can touch on all of these things. But I do think that there’s an important panacea that will lift every facet of this. And in a world where we’re seemingly fixated on followers and likes and streams and these kinds of numbers, the reality is the place that I get paid

As a label owner, as a record producer, as an artist, as a singer, as a guitar player, as a bass player, as a piano player, all the jobs I have, the place that I get paid is that I have a reputation. And we live in a fame-obsessed business, music, and a fame-obsessed culture, but reputation and fame are not the same thing. And…

When you’re in, for lack of a better way to describe it, when you’re living in sort of in a Mad Max world, the music world has turned into this kind of wasteland in a lot of ways, unfortunately. When you can prove that you know where the fresh water is and you have some fuel for your car, you know how to evade the raiders on the highway, when you actually have a reputation.

Frazer Rice (09:28.603)
You

Blake Morgan (09:35.278)
there’s any numbers of ways that that winds up being valuable. And that could be a reputation of just being an incredibly professional singer who on short notice can go and sing a national anthem. That can be a reputation to say, we’ve been trying to make this record for months. We can’t get out of our own way. We’re screwed. We need someone who actually is from the before times who knows how to make a freaking record as opposed to just generating one. Right?

Frazer Rice (09:48.581)
Mm-hmm.

Blake Morgan (10:04.683)
Why would you go to a doctor? You’d go to a doctor because you need something. You can’t do it yourself. Home dentistry, bad idea. Home lobotomy, bad idea. And then you’re going to say, well, which one of these doctors has a reputation that I could trust to put this part of my life in their hands, right? So I think that’s always been true for musicians to some degree, but as other opportunities to make money.

Frazer Rice (10:12.187)
Home, home, home heart surgery. Yeah, not great.

Blake Morgan (10:32.961)
have really just evaporated. think for me personally, in my musical life and in my music business life, as a label owner and a label runner, it’s our reputation that matters most. if I’m gonna be honest, like we don’t really look for artists. We don’t look for business opportunities. They come to us and I don’t mean that in any other way than the exact words I’m using.

It’s the reputation that’s the calling card, and you can’t have one until you build one. And so there’s an irony where all of those speculative bets that you’re making that turn out to be losses, along the way, if they’re consistent and they paint a picture of a vision or a plan, in whatever way you’re a musical artist,

Over time, that’s the temporal part of it, over time, they have a chance to create a reputation and consistency. I think in music, three really important parameters are originality, quality, and consistency. And it’s the consistency that people drop the ball on. And it’s the consistency that is where the money is, because you have to be able to be counted on, whether you’re a session player or a label president.

Frazer Rice (11:47.013)
Sure.

Frazer Rice (11:55.772)
So many parallels in my sort of world too, where it’s, you know, sometimes you work on things that don’t amount to much, but the experience, it helps. It may not be immediately profitable, but somewhere down the line, maybe a future client, you know, has some sort of problem and either the connection you made to try to solve the previous issue comes to bear or, you know, just one guiding word puts them in the right frame.

Blake Morgan (11:58.891)
Of

Blake Morgan (12:19.948)
Sure. And we understand this and I think we just sort of inherently understand this in your part of the world. We would also understand this from a very, very good poker player. A very good poker player wins like 52 % of the time, 51%. There’s luck involved, there’s force majeure involved, but there’s also knowing that you’re going to over time

eke out that 1 % along the way of wins versus losses.

Frazer Rice (12:55.077)
So when you’re putting, as you own a label, you’re a successful musician, you grew up in it, and you’ve sort of absorbed the arrows of being in the industry from that view. Right. The evolution of forming a label and being there for musicians and providing the comfortable environment from which to.

Blake Morgan (13:08.197)
Hence the scar tissue, yes.

Frazer Rice (13:21.26)
have them develop what they’re doing, then you’re not in it for a hobby either. You need to be able to eat and live and be in New York and that type of stuff. Maybe take us through that journey a little bit.

Blake Morgan (13:32.47)
So I think the cliche is necessity is the mother of invention. And that’s true. For me, it was desperation. Desperation is also the mother of invention. And I had a big record deal at the beginning of my career. And parts of that really worked out and parts of that really didn’t. Bizarrely, the artistic part of it really worked out. I made a record I loved with people I loved. The record did well. It started my reputation. It didn’t do particularly well commercially or really at all.

but it was really good. And so immediately I was an artist who had made a really good debut record on an upstart label with major label distribution founded by Phil Ramone. So there’s reputation too. Phil Ramone. Well, he’s got a huge track record. and this young guy who’s starting out, he’s made a really good record with Terry Manning who made Led Zeppelin III, right? So there’s reputation there. And it was critically acclaimed.

Frazer Rice (14:15.612)
Mm-hmm.

Blake Morgan (14:30.134)
people definitely recognize that for a first time out, I hit the ball soundly, you know? And then some business parts to the label. The good part is that the label didn’t really know what it was doing. And so I got to do some things artistically that really paid off. The bad news is they didn’t know what they were doing. And so from a business standpoint, they made some poor decisions that also hurt the health of the record out in the world.

Frazer Rice (14:36.901)
All

Blake Morgan (14:59.242)
And soon after that, about a year or so after that, I really had to fight my way off that record label. And I did. Unacrimoniously, it was very complicated. was very painful for me because to follow through on that baseball, you know, image, you know, I felt like I was hitting white balls for batting practice. I was really getting somewhere. And then it felt like, I’m I’m back in the minor leagues. What do I do?

Frazer Rice (15:10.457)
but complicated and laborious and…

Blake Morgan (15:29.376)
And I, you know, my management at the time was like, we’re gonna get another record deal. It was very difficult for me because I actually knew that I’d gotten pretty lucky with that deal because I was able to do what I wanted to do artistically and it had worked. I felt that it was gonna sort of be the same thing. And I did get some offers, but they really weren’t A-list offers from A-list labels. It was gonna feel like a step down. And I was walking down the street here in Manhattan with my mother and I said, you know, I’m producing all of these demos for all these other artists.

you know, if I had any guts, I’d just start my own label. I wouldn’t ask permission from anybody to do this. And all the mistakes that would happen would be at my own, and I could learn from them, right? Our victories would be sweeter. And all these demos I’m producing, what if they weren’t demos? What if they were records? And we just figured out, I don’t know anything about how to do this, but what if I just had any guts, that’s what I would do. She said, yeah, you know, if you had any guts, that is what you would do.

And it wasn’t hostile, was just sort of like, okay, gauntlet thrown. I remember standing on the corner of Fifth Avenue and 11th Street and I put my hands on my knees and I just went, there’s gonna be like, all that scar tissue I had, you know, right? And that was really what it was. I really just didn’t have a choice. I didn’t feel that I was gonna get a record deal that was going to propel me forward. Really at the end of…

Frazer Rice (16:29.884)
Exactly.

Blake Morgan (16:55.116)
some of my rope and I did showcase the very last label showcase I did. My lawyer called me on a Friday at 6 p.m. and after days of not being able to get in touch with him and he was like oh yeah well you know the fallout from the showcase like listen man I don’t want to tell you to stop doing what you’re doing but you know hey you know all right cool all right man and I was like okay hung up the phone.

And I think that conversation with my mother was like the next day. Right? So it really just felt like I was out of options. And that’s a very, that is a place that any musician listening to this and any musician I’ve ever met is familiar with in one form or another. The orchestra I’ve been playing with is going out of business. My band’s breaking up. What do I?

I, my recording studio burned to the ground. Whatever the emergency is, it feels like, my God, this is it. This is that evolutionary moment where I can’t, I can’t move forward.

Frazer Rice (18:00.668)
Yeah, you’ve got to cross the Rubicon because you’ve got 10,000 troops about ready to stab you in the back if it doesn’t work.

Blake Morgan (18:06.922)
Right. Exactly. And so I started a label on my laptop on like a Wednesday. It had the right spirit. And all those people I was recording with in those early days, we put out records. We printed CDs and we posted it online. And this was prior to the streaming era, but in the iTunes era, you know, the download era.

And it’s grown since then and basically the commitment has never stopped, which is trying to elevate the music of artists I believe in, records I believe in, and trying to find a Mad Max way to keep that work alive and keep the artists who are making that work alive so that we can make more stuff, so that we can actually operate in our profession, right?

Frazer Rice (18:57.8)
When you start the label and you’ve got artists that you’re supporting and helping them create and they’re looking at you to be the business end and really the distribution end, I guess. How did you learn that part? I mean, you knew a little bit from your previous experience and some of the scar tissue that you built up over that. How did you get to the point where you could get the music distributed, make that sort of saleable? And I guess the follow-up question is, then the streaming

component kicks in and you have to kind of relearn a whole different thing.

Blake Morgan (19:29.269)
Sure. So how did I look the first part of your question? How did I learn that I started with two things. The first is I learned immediately from the mistakes that the record label I had been on had made. They had put me on the back cover of Billboard magazine. They spent one hundred thousand dollars to put a full back cover ad for me on Billboard to make a splash. And they thought I’d be thrilled. And I was horrified because the cost of that one ad that would be in that magazine for one week.

Frazer Rice (19:42.129)
Mm-hmm.

Blake Morgan (19:57.91)
could have put me on the road for two years. So financial responsibility, we’ve got to rub two nickels together and come up with a plan. So I learned from all of their mistakes. And I tried to answer every question that I had about how I was going to do this with what would I want if I was an artist on this label? wait a minute. I am an artist on this label. So what would I want my label to explain to me? What was so painful to me with the lawyers and managers and labels that I had worked with in the past? Lack of communication.

lack of transparency, lack of clarification. What does that mean? Having artists in all the meetings. Even to this day, Monday, we have all of our artist meetings, 11 o’clock, 12 o’clock, one o’clock. And once a week, I talk to every artist I work with and explain to them what’s going on. Right? And that’s good business sense because then the artists know and you’re building trust and you also are on the same page about what the plan is. In terms of

How did I get our first real distribution? It was reputation. A small distributor with larger distribution behind them cold called and said, you’re putting out this record that you made with Leslie Gore. Do you have physical distribution for it? And I said, no. And they said, would you like some? I was like, well, what would that look like? We started talking. And that led to digital distribution once the streaming era began.

you know, somewhere in 2011, 12, something like this. We rebranded our label from Engine Company Records to ECR Music Group because we started signing smaller labels. We’d grown to a certain size and these labels didn’t know what they were doing. And they saw that we were doing, what we were doing was working even just 1%. Well, can we help, can we get, so once again, it’s reputation and it’s exemplifying

forward motion at whatever speed that is, know, Tom Waits once said there’s no status quo in the music business. There’s you’re either moving up or you’re moving down and Even if you’re moving up One mile an hour or one millimeter higher You’re moving up and people can feel that and so it was really reputation that got us our first legitimate distribution which kind of broke us into the the new shape that this label

Blake Morgan (22:28.135)
was in and now we’ve been with the Orchard for years. We left that smaller distributor and the Orchard is, you know, is Sony Music. So it’s major label distribution for this fiercely independent boutique record label in Greenwich Village.

Frazer Rice (22:43.288)
So one of the things growing up sort of did some work really more academic on the music industry and you know the distinction between you know the sort of performing and where the revenue comes from that the mechanicals used to be CDs and records and so on and now streams and then the copyright the songwriting the let’s call it the sheet music or intellectual property behind the song

and then the merchandise, is sort of a spillover way to make money with, you for a musician. As a label owner and the, I guess the first question is how does it really break down in terms of, you know, selling of streams, and which is how most people consume their music now versus the use and exploitation, and I mean that in a good way, of the copyright slash sheet music.

How do you think about that in terms of sort of your overall strategy?

Blake Morgan (23:41.323)
So it’s different for every artist because every artist’s reputation is different, where they’re at on that ladder is different. There used to be a playbook that you could run and it would vary based on audience reaction, based on an artist. There used to be at least some kind of playbook that you could run that you would tailor. And I guess there still is, but not really. It’s more like a cheat sheet or a bullet point list and you’re really trying things.

Frazer Rice (23:51.484)
Mm-hmm.

Blake Morgan (24:10.622)
And I often think of an image of a balloon animal. You know, it’s like you squeeze, where if you squeeze it here, you know, it pops out over here and then you squeeze it here and it pops out over there, you know? And trying to make money in the music business is exactly like that, except it’s the opposite. It’s the downward pressure squeezes here and squeezes here and you’re more and more compacted. So the old revenue streams, even Spotify when they launched, they’re like, you don’t have to make money or

and certainly piracy, the Napster crisis was like, don’t need money on this, just sell t-shirts. And this is an argument back from 2006 and 2007. We’re not going to revisit that. streaming, just so your listeners understand, the math with streaming is it takes a million streams to generate about $3,500 of total revenue. A million streams, $3,500.

Right? So you need something like four or 500,000 streams a month to make minimum wage. It’s a minimum wage job. And by the way, 400, 500,000 streams a month is a large number. So that’s not a legitimate revenue stream. It’s something. Right. It’s nowhere close. It’s something.

Frazer Rice (25:33.02)
No more clothes.

Blake Morgan (25:38.632)
Now if you’re an artist who is built up

something of a following where Where and I mean like if you’re an artist from the before times if you grew up in the major label system And you’ve gone indie if you grew up, you know And you are someone who can do smaller shows where you’re selling vinyl or CDs or t-shirts or something You can still do that, but that’s not break the bank money either that’s something else

So again, what you’re really doing is you’re cobbling together all of these different things, and then you’re hoping for, my God, my track is in a major television show. It’s in a movie. It’s in the trailer of a movie. You’re trying any way to push back against this reverse balloon animal of pressure, because each of these revenue streams, the revenue from songwriting, the revenue from performing,

Frazer Rice (26:31.536)
Right.

Blake Morgan (26:38.954)
80 % of small venues in this country have gone out of business. 50 % of professional musicians have gone out of business in the last 10 years. 80 % of professional songwriters have gone out of business. And this is all prior to the arrival of AI, which is an existential threat, to all of the means that musicians use inside their profession to continue to move forward so that they can do what they most want in that profession.

Right. So there isn’t a really clear answer. But here with the label and just in my own career as president of the label, but also as an artist, you came to see me at a very well attended show in Greenwich Village. I’m not making money at that show. I got to pay my band. The venue takes a cut as they need to. You have to publicize the show. We spent more money publicizing the show. Then I could possibly make it the show even before I pay my band or pay for rehearsals. Right. But what am I doing?

I’m making a speculative bet. It’s quantitative finance. I know I’m going to lose money at that show. But the reputation from the show will build it in a way where someone’s going to want me to produce their record or they’re going to want to come or an artist of a different size is going to want to come aboard the label. Or one of our artists recently, the National Hockey League called and wanted her to sing the national anthem at All-Star Games for their All-Star tournament.

So there it is. It’s like you’re making all of these bets that are losing, boom, something happens. Okay, well that paid for that. It’s a good example of that, you know? But each of those streams that you mentioned, each one of them hasn’t dried up completely, and it is different for each artist, but every one of them has dried up substantively, if that makes sense.

Frazer Rice (28:28.526)
So we’ve already busted through what I thought would be a great time limit here, because I could talk about this for three hours. But let’s dive into the AI and maybe some of the technological aspects that threaten other creative pursuits by introducing, let’s call it cheap skill, into the creative process. How do you defend yourself against that? How do you, on one hand, think AI, you know,

brings lots of people into it, but then the value of authenticity and what I would call quote unquote actual skill skyrockets if you position it correctly. How are you thinking about supporting your artists and defending them going forward?

Blake Morgan (29:09.022)
Well, think, sure, you know, this is not my line, but I think it’s the best line that I’ve heard to describe AI. The underlying purpose of AI is to allow wealth to access skill while removing from the skilled any ability to access wealth.

Frazer Rice (29:30.917)
the

Blake Morgan (29:32.36)
That’s it. And to pretend that it’s anything other than that is really just to pretend. Right. We don’t need music teachers. We’re just going to have AI teachers. We don’t need you the proponents. Of this advancement. I’m making air quotes for the people who aren’t watching this. You know they know exactly what they’re doing right. But that’s what it is right. It’s it’s to give it’s to give.

Frazer Rice (29:53.584)
Right.

Blake Morgan (30:03.464)
It’s to allow wealth to access all of the skill that we’ve spent our lives accruing while removing from us the ability to accrue wealth. And the second part of that does not have to be necessary. I mean, the first part doesn’t have to be necessary either, AI is a tool that can possibly change the course of our species in a positive way.

but it doesn’t have to rob us of our humanity. And I do think that that is very much what’s happening. Everybody knows that there’s about 100,000 tracks that are uploaded every day to streaming services, 100,000 tracks every day. But there’s another 150 to 200,000 tracks that are now being uploaded every day that are just generated by AI.

This is bad on so many levels. It’s bad for musicians. Bad for recording studios. It’s bad. But I’ll even skip over all of that. It’s just bad for us. Because the greatest power I have as an artist is that I have the power to make you feel something. And I use the word make because I mean it. I have the power to get you to have a feeling involuntarily by a piece of music if I know what I’m doing and if I do my job well.

And part of the feeling is your understanding as a listener that I’ve experienced something that speaks to something that you’ve experienced. Our humanity is brought closer. Music unites us.

Blake Morgan (31:46.408)
And when you listen to an AI track, however deft its mimicry is of the Beatles or the Stones or of Nina Simone or of Beethoven or of anybody, that is fundamentally lacking because it wasn’t generated by an individual or a group of individuals who had a human experience and who are then speaking to that experience and speaking it out loud so that you can experience it so that you’ve shared something so that you become united. And that’s what’s

the most dangerous thing in music. And of course it’s dangerous financially and of course it’s existentially from a how is this all going to work standpoint from a business perspective. But at the heart of any healthy business is some piece of humanity that then draws people to that business and makes them want to do it. And you know I think that that people talk about AI in terms of theft.

and in terms of mimicry and you know what it actually reminds me of, Frazier, it reminds me of that 70s movie that Charlton Heston was in, Soylent Green, and I don’t mean to spoil the movie for people, but if you haven’t seen the movie by now, it’s been out for a while. It’s 50 years old and it’s a dystopic vision of the future in this movie where people are starving, but the city and the government is feeding people with a substance called Soylent Green and it comes in these tablets and these little bars and everything.

Frazer Rice (32:54.492)
It’s 50 years old. think people can find it out.

Blake Morgan (33:13.581)
And it’s revealed towards the end of the movie that Soylent Green is actually made out of people. And that’s the famous line, you know, it’s, it’s people, it’s made out of people. Well, that’s what AI is doing. That’s what these people want to be doing. It’s not so much that they’re stealing us. They are, they’re feeding us back to ourselves.

Frazer Rice (33:21.638)
It’s people,

Frazer Rice (33:34.652)
No, and you can’t algorithm a soul, which is, think the…

Blake Morgan (33:35.953)
It’s so… Exactly, exactly. And the people who think that you can, I’m sorry, because I’m a big fan of humanity and I’m a big fan of empathy. It’s very difficult to muster some humanity and empathy for the people who think that that’s a good idea. That these people who think that you can algorithmically produce a soul.

are the very people who were so unbelievably boring in junior high school and high school that they never formed a band and they never went to theater workshop and they never decided to try stand-up comedy and they didn’t go to the cool party and they really, it’s like they have this chip on their shoulder, but it’s not a chip on their shoulder because they wish they were cool too, although boy do they wish they were cool too. The chip on their shoulder, and I actually said this at the show that you were at, I think the chip on their shoulder is that artists and musicians specifically

Frazer Rice (34:18.172)
the

Blake Morgan (34:26.503)
especially when

You have a business mind and a cogent approach and attitude towards your own career as an artist. We have a unique power, which is that we really can unite people. We really can reach across barriers and bring our humanity into focus and bring what makes us human and what makes being alive

really worthwhile talk about a quantitative bet, right? For all that we all go through, we’d still rather be alive, generally speaking, than not, you know? And so I think that that is the existential threat to them, which is that we have this incredible power, whether we’re wealthy or not, whether we’re famous or not, to really make a difference in some people’s lives through music. And AI is not going to be able to do that.

But what AI is going, and no matter how smart or good it gets, it’s not gonna be able to do that. But what it is gonna be able to do is it’s going to be able to systematically remove the pieces that a musician is able to put together to form a career and to form that reputation and to form simply a methodology where you can keep the lights on and you can keep going. And that’s an existential threat.

to our business, just as it’s an existential threat to, you know, I know it’s a lot, but it’s not a hysterical thing. It is an existential threat to our humanity, which is what we’re all talking about. And it doesn’t have to be in a Terminator kind of way. It has to be.

Frazer Rice (36:15.842)
even worse, it’s death by a thousand cuts and you don’t see it coming. And all of a sudden you’re left with the carcasses of a lot of creative industries. I would even, you know, whether it’s law or accounting, maybe they don’t get a lot of credit for being, you know, fun and exciting, but, you know, we look in these spaces and AI is here to eat our lunch. And, you know, I’m not impressed with it yet, but I know it’s coming.

Blake Morgan (36:18.899)
Death by a thousand, that’s right.

Blake Morgan (36:41.277)
Right. think I think that objective truth and knowledge and expertise are good things and they’re all under attack. There is a violence being perpetrated against them. Expertise is a good thing. I remind people all the time. The word elite is a good thing. Elite is a good thing. An elite basketball player is that’s a good player. An elite surgeon. Once again this is a good thing. This means the best of. It doesn’t mean anything other than that.

You know, and skill and craft and art are some of the greatest and most wondrous achievements that human beings have been able to render. And I hope we get the chance to continue to do it.

Frazer Rice (37:26.566)
Well, as I like to hope, think and hope that that sort of creativity and authenticity, it’s the new beachfront property. In the sense, it’s not being made anymore. It can be under threat, but it’s extremely valuable. And when people see it and know it, they’re nourished by it. And I think, you know, that’s my hope is that as you keep going, keep going. It’s important.

Blake Morgan (37:34.696)
Yeah, I like that.

Blake Morgan (37:54.131)
Yeah, I think that’s a really good point. We’re probably just 1 % of 1 % into our AI journey, if that. But I can already feel that if I do something well on stage, already feels a little bit different. Like, wow, you’re really juggling those chainsaws. Huh. I mean, I’ve seen juggling chainsaws online, but I don’t know if it’s real or not. But I actually saw you do it.

And it’s not just the live experience, it’s making records, which we do here, making records that are made by people. It sounds like it. And it’s a very interesting thing when we get on a major playlist on Spotify or Apple and you listen to the other songs on that playlist, and then our track comes up, it does sound fundamentally different. That’s one of the reasons it does very, very well. Because whether people know it or not, or they dig into the story behind it or not, you know,

Listeners very often are like puppies, and I mean that in a good way. We all love puppies. something happens and they go, this doesn’t sound like all the other things that I, you know, this anodyne cookie cutter mimicked, soylent kind of thing. Right. This sounds this there’s actual food in this. Right. And so that’s part of our business model, too. You know, we’re not we’re not interested in being the embiggened bigness of the big thing.

Frazer Rice (39:08.901)
Exactly.

Blake Morgan (39:17.638)
We’re interested in being good and we’re interested in being the, you know, the Criterion Channel gives me so much hope in the cinema universe with all the Marvel movies out there that I love and all the Star Wars movies and shows that I love. I love that Criterion Channel is such a success. And they stream Truffaut and Hitchcock and Kurosawa and interviews with great directors and actors and cinematographers. It’s a huge success.

And that says something to me. That is a proof of concept for this record label. That’s what we’re trying to do in an indie rock and roll way here in Greenwich Village. That’s a business model.

Frazer Rice (39:57.946)
Really cool stuff. Blake, how do people find you?

Blake Morgan (40:00.968)
You can go to blakemorgan.com or I’m at the Blake Morgan on all social media come say hi

Frazer Rice (40:07.206)
Really good stuff. Blake, thanks for reaching back out. It was a treat to see you live. I mean, if you ever get a chance listeners and watchers to see Blake play, it’s terrific. And go out and buy music and go see the show. You’re supporting an important ecosystem.

Blake Morgan (40:26.63)
That means so much to me, especially coming from you. really appreciate it. It’s been great being here.

Frazer Rice (40:31.1)
Terrific. Thanks, Blake.

MY FIRST DISCUSSION WITH BLAKE ON ARTISTS RIGHTS

ARTICLE ON ARTIST MUSIC THEFT FOR AI TRAINING

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/