Wealth Actually

EUAN RELLIE is on the podcast today. We went around the world in half an hour and probably could have solved the worlds problems over drinks if we had the time. Alas, we only get a taste of Euan's informed worldview and his story of building a business and advising clients as they solve the puzzle of doing business in Asia and around the world successfully. We do get a hear a bit about of his love for Arsenal Football at the end.

For those who want to hear more from Euan, he is an excellent twitter follow . . . @EUANRELLIE. He is quoted often on matters of finance, fashion and culture- recently in the New York Times and the South China Morning Post.

In his day job, Euan is an investment banker with the firm he founded, BDA Partners. Since founding BDA in 1996, he has lived in New York and London, and Singapore, and has worked in China, Taiwan, Korea, Japan, India and across the Middle East. 1990-1996, he worked for Schroders, the UK investment bank now part of Citigroup, in New York, London and Singapore. He was Head of SE Asia Execution for Schroders Asia-Pacific Regional Advisory Group.

Our discussion covered a wide range of topics- I wish we had longer!

Economic Outlook

What are some of the good and difficult data points that you are focussing on?

Background-

How did you get into the world? How did your London background prepare you for New York?

BDA's Function

Focus on Asia and helping firms on the sell side. Helping firms access the capital and expertise in Asia and around the world

Prospects for Asia-

What does the U.S./China dynamic look like long term? What do American businesses get wrong doing business far from home?

United States Politics-

What should we take away from this tumultuous last few months? What can we expect in the post-Trump world? What should we feel optimistic about?

Arsenal Football

How do the prospects for this season look? What does the future look like?

BDA Partners Website: https://www.bdapartners.com/

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

Occasionally, I get to speak with someone in the industry that both affirms my experiences, but also pushes my thinking and worldview. DAVID C WELLS JR, CEO of Family Capital Strategy, fits that bill on the topic of advising families. I met him in Nashville early in 2020 and stayed in touch. When I heard he was writing a book, I knew we were kindred spirits having gone through that process myself. That book, "When Anything is Possible", just came out and I couldn't be happier for him. I think it is a terrific companion to those looking to forestall the "Shirtsleeves to Shirtsleeves" phenomenon and help business owners and their families structure and build lives of purpose. In this podcast, we discuss some of his insights and the book-writing process itself.

https://www.amazon.com/When-Anything-Possible-Wealth-Strategic/dp/173568130X/

Introduction

Chapter 1 Wealth Strategy: Defining the Terms

Section One: Wealth Structure

Chapter 2 Wealth and What It Is

Chapter 3 Level of Wealth

Chapter 4 Psychology: Money’s War on Our Brains

Chapter 5 Coming Into Wealth

Section Two: Wealth Identity

Chapter 6 How You Feel About Yourself Affects How You Feel About Wealth

Chapter 7 Defining Your Wealth Identity

Section Three: Wealth Strategy

Chapter 8 How to Spend It

Chapter 9 How to Invest

Chapter 10 Giving to the Next Generation

Chapter 11 Philanthropy

Chapter 12 Building a Life of Intention

Here are a few recent blog posts which introduce concepts from the book:

The Challenge and Complexity of Entitlement

Adjusting to Life After The Liquidity Event

Creating a Wealth Surplus to Pass to Future Generations

What You Should Know Before Marrying Rich

You can find David here:

Book - whenanythingispossible.com

Website: www.familycapitalstrategy.com

Newsletter - FIFTEEN ON FRIDAY -

Twitter: @DavidCWellsJr

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

Here is the first video foray for the "Wealth Actually" podcast (a bit by accident! We had to switch formats midstream . . . so I decided to experiment with the video format).

I interviewed Christopher Ott on #Cybersecurity for the Ultra High Net Worth, High Net Worth and Family Office space. We talk about how one should view their own digital risks, how to protect yourself, and what to do when you have been compromised. We kept it to 40 minutes and probably could have discussed issues for more than three hours.

Chris is a partner at Rothwell Figg, the litigation firm based in Washington, D.C.

Successfully

litigating complex data security matters, conducting hundreds of

investigations, and winning dozens of appeals,

Prior

to entering private practice, Mr. Ott held various influential positions at DOJ

including Supervisory Cyber Counsel to the National Security Division of the

DOJ,

In these roles, he investigated and charged the largest known computer hacking and securities fraud scheme and the hack of Yahoo by Russian intelligence operatives, the largest data breach in history,

https://youtu.be/XzYwkjA1qiA

BASICS  

Cybersecurity- the main concerns are around the ability to control access and use of information. Everybody has at least three types of information

PREDICTIVE DATA

This is data that will help predict what you are going to do. This is especially useful for hackers and other criminals as they figure out how to access your data.

CONTROLLING DATA

This is data that regulates the access to a client's information.

This can include: Passwords (and the need for two factor control, Phones (with automatic password access that can be migrated), and "Deep Fake" video and voice that can trick the gatekeepers into relinquishing access

INFLUENCE

This can include social, political, or economic influence.

THREE TYPES OF ADVERSARIES

Criminals

Spies

Hybrid hackers

-Russian Type

-Chinese Type

SPECIAL CONCERNS FOR HNW INDIVIDUALS

More data

More control

Much more influence

·         Direct socio-political

·         Indirect socio-political

WHAT IS IMPORTANT?

§  Control

·         Analog passwords

·         Never take shortcuts

·         Device security

§  Two

Factor

INFORMATIONAL AUDITS (DATA MAPPING)

§  What

do I have?

§  How

do I control it?

§  Who

else has access to it?

CONVENIENCE VS. SECURITY

§  BEC

§  Sim

Jacking

§  Deep fake audio and video

WHAT TO DO WHEN YOU HAVE BEEN COMPROMISED

Understand What You Have and What Your Risks Are

Have Advisors In Place

Don't Panic- Assess the Situation

Implement Action Plan

Some Quick Ideas to Protect Yourself and Your Business . . .

Establish an action plan in case of a breach or other compromise.

Emphasize personal relationships with all business transactions. Make sure that you have personal relationships with your advisors and transactors so that there is layer of common sense behind communications.

Audit what you and your family put out in the world of social media both from a cybersecurity AND from a PERSONAL security standpoint. Consider having a policy- even if informal- to prevent predators having access to physical information.

Use multi-factor authentication procedure to confirm and verify instructions (ESPECIALLY for wire transfers or money transactions).

Encrypt emails that include private information such as bank details, credit card numbers, Social Security numbers, etc. 

Back up all data off-site on a regular basis.

Regularly change passwords and use different passwords for platforms so that one breach doesn't turn into a cascading data breach on other systems.

Perform regular cyber audits to make sure confidential information is secure and that accessible information to the public is properly scrutinized.

Avoid clicking on links and being suspicious of attachments. Run drills to make sure employees have well-ingrained good habits.

Don't conduct personal business using work email.

This may seem obvious, but don't store sensitive company information on personal devices or share it on social media.

Avoid public Wi-Fi connections for work purposes.

Run "fire drills" to test the effectiveness of your response plan in the event of a cyber attack.

Review the state of your Cyber-insurance in case something goes wrong.

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

After a slew of podcasts about structuring, estate planning, investment themes and politics, I thought it would be fun to dive into a sport with a long, regal. and unusual history- COURT TENNIS (or "Real Tennis"). Descended from handball, and equal parts tennis (players face each other unlike squash and racquetball), platform tennis (where the walls are part of the court), the sport has all sorts of peculiar rules. It has strange looking racquets, arcane rules and courts with unusual and idiosyncratic dimensions. There are less than 50 courts in the world and roughly 10,000 players.

Longtime friend of the podcast, Haven Pell, joins us to talk about its interesting origins, where the sport is now and where it's going. He is part of a team that is building a new court in Washington and has written about that process in his blog, THE PUNDIFICATOR.

He even shares the story of how Court Tennis gave us the Left and Right side of the aisle in American politics!

https://pundificator.com/around-the-world-in-50-courts-a-brief-detour/

We cover . . . the equipment

The "Off-Center" Racquet

The Rules

The Crazy Dimensions of the Courts

The History of the Sport

Some of the Best and Most Famous Players in the World

And here is a little sample of some high level play:

https://www.youtube.com/watch?v=p1RK9fuGZgI

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

For a few years, the wealth advisory and asset management worlds have been captivated by three letters . . . ESG: Environmental, Social, and Governance. ESG has been an exploding trend as investors want to align their personal values with their investments. The principle is that one's investments can do well by "doing good." Against that backdrop, asset managers are looking for new criteria to evaluate investment opportunities in the context of ever increasing difficulties in beating indexes over time. To some, ESG is a marketing gambit. To others, it is a framework to unlock greater returns and create positive social impact while doing it. To many, it is somewhere in between.

To help make sense of this phenomenon, I spoke with John Rosenberg who has direct experience in asset management and the ESG world.

John worked for the Federal Reserve Bank of San Francisco and has had a long career in banking and now works as an investment manager at a single family office and manages the LOUGHLIN WATER PARTNERS LP - an investment fund focused on technologies and assets that provide clean water and alternative energy. (Early on, John worked as a ski bum which he declares to be the most honest job on the resume!)

Outline

Could you give me some background on ESG Investing? We hear a lot of different terms bandied about such as Sustainable, Impact, ESG, or even SRI. Where did the term come from and how has it evolved?

Are ESG stocks different from other stocks? Is there some particular differentiation? Are the letters all equal?

A few weeks ago marked the 50th Anniversary of the Milton Friedman's essay on Shareholder Theory where he states that the corporation's social responsibility should be focused on profits. (The Social Responsibility of Business is to Increase its Profits). Do you agree with that?

Milton Friedman thought corporations should be focused on profits, not other social responsibility initiatives.

What is the driving theory behind ESG investing? Do you believe it actually promotes virtuous behavior? How do you parse the difference between a company that does many things well, but has a problem underpinning it's ESG score (i.e. tobacco bonds that fund good causes, but have dubious sources of revenue or a top notch company with an executive with a checkered record?)

Are there data services to evaluate whether or not companies are engaging in responsible behavior? How does one deal with one data service vs another? How much of the analysis is qualitative? How do you get past the "check the box" or "greenwashing" phenomenon?

You have been doing this, in one form, for a while now. What do you think of new entrants to the space?

Jeff Uben, formerly of Value Act, made some comments critical of ESG investors awhile back. What do you think about that?  https://www.barrons.com/articles/activist-investor-jeff-ubben-departs-valueact-to-focus-on-esg-51592936937

Do you think we are entering our could enter an ESG Bubble much like every other style of investing that catches on? Are the ESG criteria factorable and therefore quickly assimilated into indexes?

ESG- Fad, Trend, or Is It Here to Stay?

Fun Question.

Additional reading on the pros and cons of ESG in investment performance and the role of corporations and the assimilation of ESG principles.

Morningstar indicates that ESG Funds Outperform Their Indexes

How Strong are the Links between ESG factors and Outperformance?

Wharton: Why ESG Investors are Happy to Settle for Lower Returns

https://frazerrice.com/blog/january-2014-book-review-lynn-stouts-the-shareholder-value-myth/

https://www.amazon.com/dp/B007PIZ8IO/

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

It's important to speak to people who are having success exploiting other asymmetries. Many opportunities come when the world devolves into chaos. (Bill Ackman recently made gigantic money by buying insurance against corporate defaults related to COVID.) Sometimes there are opportunities when economies start to recover.

Enter PHILIP READE. He is the Co-Manager of HELM INVESTMENT PARTNERS, an investment firm that focuses on emerging markets that collapsed and have developed a narrative for recovery. What made Philip's story interesting to me was not only his half Brazilian / half British geopolitical bent, but his application of recovery narratives into usable investment themes.

Philip's Background

Co-Manager the Partnership (Helm Investment Partners).

Investor and board member of Cultura Inglesa Rio de Janeiro, one of Brazil’s leading English as a second language school networks, backed by 3G founder Jorge Paulo Lemann.

For 7 years, until February 2016, Philip was a Partner, Co-Portfolio Manager and Co-Head of the Investment Team at Tarpon Investimentos, Brazil´s largest independent equities fund with over USD 3 billion (21.7% US$ net annual return, May/2002-April/2017). At Tarpon Philip served as:

Chairman of the Board of Omega, Tarpon´s renewable energy platform / Chairman of the Board of Cremer, a publicly traded company and Brazil´s leader in the disposable health care sector / Chairman of the Board of Somos Educação, a publicly traded company and Brazil´s leader in the K12 educational market / Board Member of Tarpon Investimentos, the publicly traded GP / Board Member of Metalúrgica Gerdau, a publicly traded company and the largest long steel producer in the Americas and the second largest globally / Board member of Tempo Participações, a publicly traded company and Brazil´s leader in the Roadside and Home assistance businesses

Prior to Tarpon, Philip was the Head of the Brazilian operations of a NY-based hedge fund, Marathon Asset Management, focused on private and public equities as well as structured credit.

Prior to Marathon, Philip worked for Goldman Sachs in Sao Paulo, as part of the Investment Banking division, participating in over 20 M&A and capital market transactions in Financial Services, Real Estate, Telecom, Power Generation and Consumer.

Before that, Philip founded and ran Brasilis Seafood, a company that financed seafood processing plants in Brazil and raised US$ 2 million in venture capital from one of Brazil’s larger institutional investors.

Philip started his career at Brazilian Banco Garantia, founded by Brazilian entrepreneur and 3G founder Jorge Paulo Lemann and then at McKinsey & Co.

He went to Sevenoaks School in England, holds an Economics Degree from the University of Sao Paulo (top ranked student in the history of the University, as of 1996 graduation, award for the best graduation thesis and class representative) and an MBA from Stanford.

Helm Investment Partners

Tell us about the firm and where did you see the opportunity?

What does a typical EM manager do?  How do you differ?

You look for Crisis conditions . . . what does a crisis look like to you? 

How do you quantify "trouble"?

When screening for good or bad governments, what do you look for? 

What are the countries you are focused on? Ex. Argentina, Greece, et al . . .

The Concept of Going from "horrible" to "bad"

Process

Down 50% "Country-wide"  What does this actually mean? 

How do you account for currency?  If a currency devalues, how do you stay away from the trap that it will rarely recover?

Looking for Narratives that Change Perception- what do those look like?

Finding ways to invest in that narrative- what is the "bottoms-up approach" to finding companies?  Why do you focus on Utilities, Telco, Retail, Consumers, and Banks?

Trying to avoid being too early - how do you prevent tactical "short term downward swings" from battering your longer term positions?

It feels like there

aren't many people doing this - benchmarking must be a problematic

discussion.  How should investors evaluate your success?

What is the best way to stay in touch?

PHILIP READE

HELM INVESTMENT PARTNERS

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

The election is finally past us and for wealth advisors the work and the uncertainty is probably just beginning.

JORY BARD ZIMMERMAN joins us to discuss some of the tools to help wealthy clients take advantage of the tools available in 2020, incorporate philanthropy in in one's planning and get a rolling head start into an interesting looking 2021.

Jory is an attorney with expertise in trusts, estates and wealth planning. She has deep experience in advising high net-worth clients on their personal, tax savings and philanthropic goals.

Here is the outline of our discussion:

—> Year-end gift planning: eg. using

exemptions now, if possible, before they change:

Applicable Federal estate and gift tax exemption for persons dying or gifts made in 2020 is $11.58 Million per individual, or @$23MM per couple (no claw-back). 

For transfers made after December 31, 2025, Federal exemption will revert to $5M, adjusted for inflation (@ $6MM in 2026), or maybe back to $3.5MM

Current thinking: exemptions may be reduced as early as next year to provide funds needed for stimulus and due to COVID.

Interest Rates plus lower Asset Valuations: Pandemic volatility in the financial markets plus low interest rates may be an opportunity to consider transferring depressed-value investments to family members through a GRAT, where little or no exemption may be required to effect the gift; remainder at end of GRAT term may go to family or a continuing trust.

Will unused exemptions be lost?

It's not exactly 2012 again: Most clients made gifts outright back in 2012; Now more clients are using a trust to receive gifts (control + access)

Don't forget about the Annual Exclusion! $15K or $30K per couple per beneficiary  (that can add up quickly) - using the Educational / Medical exemptions are also a powerful tool.

For New York: $5.85MM estate tax exemption with an ESTATE TAX CLIFF, tax over @$6.2MM in assets (no gift tax but 3 year add-back until 12/2025). See more about how that works HERE:

—> Charitable planning and COVID:

In these uncertain times, charitable organizations need assistance more than ever plus clients may be seeking an income tax advantage (deduction). This is the time when charities need you the most.

For 2020 (CARES Act), $300 per individual above the line deduction ($600 married couple, no itemizers, no AGI % limitation, must be to public charity, not a Donor Advised Fund.

Also, 100% of cash contributions, no AGI % limitation (consider contributions of Long Term Capital Gain property subject to 30% of AGI), must be to public charity, not Donor Advised Fund.

For 2020 (SECURE Act), no more â€œstretch IRA’s” (limited to 10 years + certain eligible beneficiaries), may name CRUT as an IRA beneficiary to mimic the “stretch”. This is the time to review and revise IRA beneficiary designations.

Biden is talking about eliminating capital gains and taxing them as ordinary income (proposed rate of 39%), may be better to donate appreciated assets to charity (proposals from the Obama Green Book, e.g.., carryover basis, cap gains at death, like a sale, roll-back exclusion, GST’s limited to 50 years so no dynasty trusts). Time will tell what this looks like with a divided government.

For New Yorkers, consider giving a dollar amount of the estate over â€œcliff” to charity, so that you don't fall off the cliff and create an additional NYS estate tax burden.

—> Diversifying trusts by situs + Directed

Trusts: 

Trust friendly jurisdictions with no income tax, e.g.. Delaware (basically) and Tennessee appeal to greater NY-area grantors, South Dakota and Nevada are used more by California clients.

For example, creating SLAT’s (Spousal Lifetime Access Trusts), each spouse create a trust for the other. There is a need to diversify by different states to enhance creditor protection and to use different terms, jurisdictions assets and trustees to avoid the IRS's reciprocal trust doctrine. The reciprocal trust doctrine can defeat SLAT planning.

Consider self-settled jurisdictions, eg. Connecticut & Delaware; distinguish from â€˜asset protection’ trusts which have specific rules in DE, FLA, NH, WY, etc.

Many states have a Directed Trust statute (DE, Tenn, NJ, CT, etc., not NYS). They are used  most commonly to give a third-party advisor the ability to direct the investment management decisions or to hire a professional money manager for the trust assets. Then the appointed trustee only performs the administrative functions of the trust and may have other fiduciary oversight responsibility depending on the nature of the drafting.  

Trend: Increasing utilization of Trust Protectors:  Trust Protectors are an independent, third-party or other person (not the named trustee or beneficiaries) with authority over the trust for designated decisions, eg.: directing investments, modifying +/or terminating a trust, changing tax situs, changing trustees, etc.  

The powers of a Trust Protector (which is based on the British concept) may be narrow or broad depending on the terms of the trust agreement, as circumstances warrant.  

The Trust Protector often a family member (e.g.. an uncle), but may be an independent individual (e.g.., a friend or advisor) to provide an objective voice in the mix.

Directed Trusts work well for clients who want to appoint a corporate trustee for a trust but also want to have someone other than the corporate trustee control certain decisions with respect to the management of the trust, for example:

A family with a long-standing relationship with a successful money manager might want that manager (not the corporate trustee) to make investment management decisions for trust assets.

If a client funds an inter vivos trust with stock in the family company, he or she might want to continue to make decisions regarding the purchase, sale, and voting of such stock.

A client might want someone other than the corporate trustee to decide when to make income or principal distributions to beneficiaries.

Final Remarks:

Careful review of client’s facts and circumstances (where they reside, own property, types of assets, etc.) together with local law is critical before selecting situs/ jurisdictions.

Fun Question:

Jory- when things start opening up again, what is the first thing you're going to do for yourself?

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

https://thegamehers.com/

Video games were a formative part of my upbringing, but I have gotten away from them since my Atari 2600 and Nintendo/Sega habits. I was surprised to learn that the video game industry earned approximately $160B in 2019. It has out-earned the movie and music industries COMBINED for the last 10 years. It is estimated that there are over 2B gamers worldwide. Most telling, and maybe the most surprising to the uninitiated, women represent almost 50% of the gaming community.

(The industry is made up of Publishers, Distributors, Retailers, Hardware Manufacturers, the Gamers themselves, and many other constituencies. Here is the Entertainment Software Association's deeper dive into the emerging demographics of the Video Game Industry Data. And Newzoo's is Here.)

And if you weren't sure if the female gaming community was ready to "cross-over", Congresswomen, Alexandria Ocasio-Cortez and Ilhan Omar, played the video game "Among Us" on Twitch. With 12 hours notice, the event drew 440,000 concurrent viewers and represents one of the high-water marks in female gaming so far. Superstars like Pokimane (24yrs old) have gigantic followings (Twitter 2.5mm, IG 5.3mm, YouTube 5.8mm, Twitch 6.6mm). The major talent agencies like CAA, WME and UTA have divisions to represent these people.

I wanted to find out more about this phenomenon, so I spoke with REBECCA DIXON one of the Co-Founders and Chief Marketing Officer at TheGAMEHERS. They can also be found on other social media platforms at @thegamehers (facebook, twitter, linkedin, twitch, youtube).

Her company, TheGAMEHERs, is "a women-led community dedicated to amplifying and centering the voices of women, femme-identifying gamers and non-binary gamers who are comfortable in spaces that center women. This is a sexist-free space for the casual players, the hardcore gamers, the techies, the streamers, the designers, the cosplayers, the developers, and programmers. Their mission is to advance the role, voice, image, and power of all the*gameHERs in the gaming world."

Enjoy the discussion- I'm sure it will open your eyes! Rebecca and TheGameHers are a group to watch in the female gaming space.

Introduction

Rebecca, tell us a bit about your background . . .

How did you get into the gaming world?

What Does the Gaming World Look Like Now?  

How do you break down the various gaming communities / size

of the market?

Women habitually underrepresented in the space- describe

what the demographics in the space look like and what they look like for women?

Intersection with Social Media- what are the relevant platforms?

How are the platforms used?  And how does GameHers

intersect with them?

What is GameHers Intersection with the Gaming Companies?

Whom do you get involved with in video game development?  What are they looking for?

Talent Agencies? UTA, CAA, WME

Who is big in female video-game field? @Pokimane @annhandLA @br

The @Pokimane example

ESports

Twitch, Twitter, and the "Power Users" of Discord

With open source coding and other tools, what are the avenues for

women to get involved?

What Are Some of GameHers' Initiatives?

Community, and Awards, Podcasts,

Advocacy: combatting exclusion, bullying, and hypersexualization

Advertising as their start to revenue and talent development.

What is your path to revenue/profit?

What is the next step for GameHers?  

And how do we keep track of your Progress? @thegamehers (facebook, twitter, linkedin, twitch, youtube)

Fun Question:

What was your favorite video game growing up?

The GAMEHER's Co-Founders

Laura Deutsch, Rebecca Dixon, Verta Maloney, and Heather Ouida

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

Trustee Issues with Crypto-Currency (with Matthew McClintock)

Family offices, trust companies and opportunistic individuals are dealing with a new and exciting asset class: cryptocurrencies. New Bitcoin multi-millionaires are "minted" by the day as interest in the space has captured the public's imagination. It has created a host of challenges for the owners of that wealth as they use the usual wealth management tools for intergenerational planning, asset protection, and tax structuring.

Bitcoin's Meteoric Rise from 2010 (From ~$0 to ~$10,500 as of 10/2/20)

(Here is a quick primer on Bitcoin - A HISTORY OF BITCOIN, INCLUDING PRICING. Today's podcast isn't a discussion of the merits of cryptocurrencies as investments or where they fit in a portfolio).

Bitcoin and the other cryptocurrencies are controversial. Cryptocurrencies are grounded in a logical technology workflow (blockchain), but they have a shadowy origin and crypto's intrinsic value is rooted in public confidence around that blockchain workflow, not the usual confidence in the strength of the country that supports fiat currency. However, crypto's popularity has exploded and its value (and volatility) has rocketed along with it.

What is unquestionable is that significant wealth has been created with the rapid increase in value of many crypto-currencies. The financial services industrial complex has not kept up and it puts many crypto-wealthholders at risk. There are 13,290 BTC addresses with more than $1mm according to this GlassNode REPORT and this does not include other coins like Ethereum, Ripple and the rest. Much of that wealth has been created in the last five years. Those owners are asking lawyers, accountants, and crypto-exchanges how to protect it, use it, borrow against it, diversify it and transfer it to the next generation or their selected interests. The owners of that crypto-currency wealth are getting older and looking for structures to protect this wealth for future generations.

These structures include trusts and involve individual and corporate fiduciaries who have major responsibilities around the safeguarding and reporting of assets (including tricky ones like crypto-currency), the prudent investment of assets, and distribution of assets according to the terms of a trust and, where silent, in accordance with their best discretion.

Besides the investment bona fides, what are the issues that these fiduciaries should be worried about?

How do institutions, trustees, and others who have responsibility for others' wealth deal with this complex asset.

To find out more, I spoke with MATTHEW McCLINTOCK- Partner at the law firm of EVERGREEN LEGACY PLANNING. Based in Evergreen, CO and Newport Beach, CA. The firm focuses on generational wealth planning for affluent clients. Importantly, Matthew has on-the-ground experience planning for cryptocurrency wealth, including clients with crypto-wealth in nine figures.

We talk a little bit about the asset class, but focus on spotting the issues for the advisors that have to help client's navigate the high stakes world of crypto-wealth.

The outline for our conversation:

Matthew, tell us a little about your background-

How did you get interested / experienced in cryptocurrency?

What makes cryptocurrency so unique as an asset? 

What are the properties that make it like a Currency? Property? Commodity?

Very quickly, how does one buy, hold and sell crypto currency?

How big are crypto-fortunes right now?

With intergenerational wealth, often times trusts are used for tax, asset protection and other forms of planning.

Trusts are “located” in a jurisdiction, contain assets, have a grantor, a trustee and beneficiaries.

The Trustee must safeguard/custody, invest and distribute the assets per the trust.

Are people funding trusts with Cryptocurrencies?

Being responsible for crypto-wealth

Dabbling in this space can be dangerous and mistakes costly. Trustees must be willing to invest the time to learn how crypto-currencies work.

How secure is crypto-currency for those holding it personally?

Encryption is the key for secured access

Cold (Digital Storage that is disconnected from the internet and hackers) vs Hot Wallets (Exchanges with connectivity to the internet)

How susceptible are exchanges to hacking?

Custody- What makes cryptocurrencies a tricky asset for custoidans?

Required encryption (which could get lost)- a positive and a negative.

What if there are bad actors? Is Crypto-Currency risk really a human resources problem?

Processes for storing and then transacting crypto-wealth should require checks and balances to access it- should you require multiple parties to effect a transaction?

What if a trustee resigns or is fired and has access to the crypto information? Is this remedied by transferring the crypto to a different wallet?

What does a good procedure look like for transfers and transactions involving crypto-wealth? (Once it is gone, it is extremely difficult to get back- a transposed number could destroy a firm)

What does a good procedure look like when a crypto-holder dies? What should executors and powers of attorney be prepared for?

If going from a cold wallet (secure) to a hot wallet to liquidate/trade/lend (yield farming), how does a trustee deal with that?

Cryptocurrency is taxed as property and requires the tracking of basis. What systems do you need to effectuate this?

Many estate plans make use of situs to effectuate goals like tax planning, asset protection and other goals. How do you maintain situs with a "non-physical asset"?  If improperly set up, state taxes on crypto capital gains (or estate/transfer taxes) could be significant. Is this a breach of fiduciary duty if a trustee or other fiduciary doesn't effectuate the broader tax planning?

Best Practices

Is it total madness for an individual trustee to take this

on?

What are you seeing good trustees do when dealing with

cryptocurrency wealth?

What advisors should a crypto-wealth holder have and what questions should they ask? Is the right first question, "Do you have any cryptocurrency holdings?"

Important partners:

Accountant (and custodians that are able to track necessary information like basis and farmed income)

Attorney used to tax, estate planning with experience in crypto

Financial Institutions (and states) used to dealing with cryptocurrency

Exchanges used to dealing with trusts

States with legislation that cryptocurrency friendly (ex. Wyoming, Tennessee)

Examples of weird state intersections

What are the hot points should we look out for as this space

develops?

Fun question

What three people living or dead (and not family) would be a fun dinner group for you?

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

When you have the chance to spend an hour with Jim O'Shaughnessy, you grab it with both hands. Most of us feel like we know him personally based on his thoughtful opinions and Twitter acumen (@JPOSHAUGHNESSY). But Jim is obviously more than just memes and GIFS. Jim is the Principal, Chairman and Co-Chief Investment Officer, Portfolio Manager of O’Shaughnessy Asset Management ("OSAM"). He is a four-time author including the seminal investing book “What Works on Wall Street” and hosts the INFINITE LOOPS PODCAST with Jamie Catherwood.

https://www.amazon.com/dp/B005NASI8S/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1

I knew about a decent amount about his career and what his company does. However, Jim is a Renaissance Man and a perpetual student who's mind can't get enough. I wanted to get behind his thinking as he made the move from a once mighty investment bank to starting (and building) his own firm. How does someone with ferocious curiosity make joint decisions with family, with colleagues. How did he use his own attributes and processes that helped him build a successful business to help him build a successful family with his wife and kids? Finally, how does someone like Jim think about the inclusion of the family in his business? Who is going to run the business as he has gets older? Finally, how did he get to the ultimate decision of handing the reigns of the firm to his son, Patrick?

I hope you enjoy this episode. This is the story family businesses should hear. While the road is littered with family businesses left in tatters due to dysfunction, Jim talks about some of things that worked for him and his family.

I include our outline below, but beware. We veer away from the script early and often. Amazingly, by the time we are done we cover many of the questions I had.

Ownership and

Operational Succession

What does OSAM do?Background on your

expertise- Take us throughDevelopment of the CompanyWhat is the company

focusing on now?CANVASPositive SumInvest Like The Best /

Infinite LoopsCapital Camp

Managing Transition

You’re 60 now!  What has been your thought process

about where the company is?  And where

it’s going to be?It seems like you embrace

younger people – What does this do for you?

Energy, new ideas?How have youAt what point did you start

to think about the company with you not at the helm?How have you dealt with

your other kids on the participation of the business?Did they self-select in or

out? Skills?How do you reconcile what

you think vs what they want to do?How is your wife’s input on

your decision-making?When did Patrick start

looking ready to take on the roles that he’s taking?How have you handled it

when someone disappoints another?How do big decisions get

made at the company?What does a conflict look

like?  Who holds the tie-breaker vote?Do you have a board?  Formal or informal? One of your most endearing

traits is your open-mindedness.  How do

you get to say no?Managing portfolios vs

Managing the BusinessWhat are you good at?What are you bad at?Twinges of mortality- what

do you want your legacy to be when you look back on life?What are the values that

you want your kids and grandkids to have?What have been the

challenges there?  How do you get your

kids to communicate about the issues related to the business and their roles in

it?How have you involved

spouses in family decisions?Whom do you go to help you

think through the role of the business in the family?Friends, colleagues,

professional advisors?How do you think about the

ownership of the company going forward?What do you see as the

biggest challenge in managing the transition of the company and your role in it

going forward?

Fun Questions:

What haven’t you achieved

yet that you would like to?What does an average

Tuesday look like for you?Three people (excluding

family) alive or dead that you would invite to dinner.

I also went ahead and got a loose transcription for those who want to read the proceedings. This is a new one feature, so bear with me!

Transcription

FR: Welcome back to the "Wealth Actually" Podcast. I'm Frazer Rice. Today, we're joined by Jim O'Shaughnessy. He is an elder statesman on financial Twitter, but more importantly, he's the Principal, Chairman and Co-Chief Investment Officer and portfolio manager af O'Shaughnessy asset management. He's also a four-time author, including the seminal work, "What Works on Wall Street".

Jim, welcome aboard.

JOS: Well, thanks for having me. I'm delighted to be here.

FR: It's a treat for me, I've been following you on Twitter

for a while now, and you're one of the major voices of reason in a chaotic

platform.

JOS: It's my niche.

FR: (Laughter) Perfect!

I know you get a lot of questions about your investing style and how you manage assets and things like that, but one thing that I don't think people know about and that I'm interested in is how you grow your business and how you think about transitioning your business to the next generation and running it, once you think about retiring, which... Given your energy and the way you go about things... That's probably going to be in about 55 years or so. But at the same time, as you and I both know there are lots of factors to consider both with the business and the people that you employ and your customers, etcetera, to make sure that you have a tidy transition. I thought it would be interesting to hear a little bit about that from you.

JOS: Sure, O'Shaughnessy Asset Management was a group spun

out of Bear Stearns where I had been the Director of systematic equity for

several years, we came to a very amicable agreement with our friends at bear,

some people might sneak her at that, but it's actually true. We took a lot of

time because people don't really understand that Wall Street is kind of a small

place, and you really don't wanna burn any bridges, and so we spend a lot of

time getting that negotiated and then unfortunately prepare Stearns, we had the

financial crisis and it kinda looked like we knew ahead of time, we certainly

did not know ahead of time, it was just pure dumb luck that asset management

is... Our primary business is long world equities using entirely quantitative

investment methodologies to select securities, so basically, when people say,

Well, what's a normal day like at Sam? If a normal day at a traditional shop is

people talking to the CEO and trying to calculate discounted cash flows and checking

on competitors, etcetera, our team's normal day is spent doing quantitative

research. We take that very, very seriously. It's something that I believe must

be continual because we can never stop learning, things evolve.

So if you looked at our models when we formed OSM and 07,

you looked at them today, you'd see foundationally, they're the same in terms

of the underlying definitions of factors, the groups of factors, etcetera. I

think we've gotten significantly better through our research at getting to the

real kind of numbers that are going to have the highest chance for us to

succeed, in addition to long world equities. Mostly us, I should say, we are a

sub-advisor to the Royal Bank of Canada, the asset management arm up there,

where we run portfolios mutual funds under the ocean sea bus name, and I'm

delighted to say that's been a partnership that we have had since 1998. I

believe.

Wonderful, wonderful people. We always say, even though the

people have turned over and the CEO is much different now than it was in 97.

when we struck the deal, same kind of people, they are a delight to work with

their people of their word. I often say that if Harvard wants to do a case

study on a successful partnership, they should look at that because it's one of

those things where everyone performs like they say they're gonna perform well.

FR: And that sounds like an interesting example as you look

toward your organization, you've got a nice experience from a business partner

as to how things not only should run currently, but how you want them to look

culturally going forward so that you're building... You're not just building

the blueprint for the house, that you're building the house, and then as things

change and modify, you're able to sort of adapt to different conditions...

JOS: Absolutely, it's always been great for us to have the

resources of a much larger organization that we can just paint and we say, What

do you think about this? What do you think about this? And they've been very,

very helpful in that regard. Disclosure, they also own 10% of OSA.

But being just a straight plain vanilla long equity asset

manager was never even in my first iteration of this, which was a OSAM back in

1987, I always wanted to have a firm that offered not just long equities, but

other types of things opportunistically, as we found them, I'd like to tell you

about two. The first is what we call canvas, and there's a great hero quote

that says, The world is but a canvas for your imagination. And essentially,

that's what Canvas is, but for asset management, my son essentially came up

with this idea after becoming CEO and taking a look at what... I tried to do

something very similar with a company called Napoli in 1999, which was the

first online investment advisor, but I've always been a tech, I love

technology.

So when we spun out and we had the global financial crisis,

I looked at my people and I said, Well, my guess is we're probably not going to

sell too many long only equity portfolios over the next couple of years, let's

retain clients, but let's spend this time to build the absolute best technology

that we can... And we did, I still remember the day and my son came into my

office and he's like, then we built the Death Star to kill a mouse. And by

that, even as you might imagine, we have a ton of data that is pretty expensive

from a variety of data providers, but that's not all we have, we have hooks

into all the custodians,...