#FASuccess Ep 182: How Private Wealth Management In A Multi-Family Office Differs From Traditional Financial Planning, with Richard Joyner

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

What You’ll Learn In This Podcast Episode

• How Financial Planning Differs With Multi-Generational Wealth Portfolios And What The Process Looks Like [00:03:02]
• The Primary Concerns Of Many Multi-Family Trusts, Skills That Are Required For Handling Multi-Generational Wealth, And The Layers Of Complexity That Come Along With It [00:06:53]
• What A Typical Multi-Family Private Wealth Profile Consists Of [00:16:10]
• What The Typical Advisor-Client Relationship Looks Like And How The Pandemic Has Shifted Interactions [00:27:44]
• How Tolleson Structures Their Fee Schedules [00:37:35]
• The History And Organizational Structure Of Tolleson And How Their Private Bank Operates [00:49:29]
• How To Build The Culture That Supports High-Level Clients And How Tolleson Finds The Right Talent [01:12:35]
• What A Typical Week In Richard’s Life Looks Like [01:28:32]
• Richard’s Top Advice For Getting Started In Multi-Family Wealth Management [01:37:54]
• How Richard Defines Success For Himself [01:40:02]

Resources Featured In This Episode:

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Full Transcript:

Michael: Welcome, Richard Joyner, to the “Financial Advisor Success” podcast.

Richard: Thank you, Michael. I’m delighted to be here.

How Financial Planning Differs With Multi-Generational Wealth Portfolios And What The Process Looks Like [00:03:02]

Michael: I’m really looking forward to today’s discussion around the world of multi-family offices. I know this is a world you have lived in for several decades now with an advisory firm of many billion dollars under management for, at least relative to some other firms, not necessarily a huge number of clients, just a few hundred clients with many hundreds of millions of dollars each.

And I think we talk about financial planning and wealth management, but these have sort of become loose labels that mean different things to different people. I know intuitively what you do for people with $200 million is different than what I do for clients with $2 million. But I feel like we never really talk about what financial planning wealth management looks like when you work with clients that have tens of millions of dollars, or even hundreds of millions of dollars or even moving up from there? What does it mean to do wealth management with those kinds of clients compared to the rest of the world of what we do in financial planning?

Richard: So it’s a great question. I’ll tell you out of the gate that for me, it’s just been a fabulous experience. I’ve been doing this for a long time. I can’t imagine doing anything other than what I’m doing right now. Working with these large families with significant assets, to me, the big point of distinction is that the wealth is generally multi-generational. So for me, there’s no real science to that term other than to say that the wealth is significant enough, that it will have an impact on several generations. And that frames a lot of the thought process for many of the things that we do. But in general, I would say that the process of working with families like this is very much the same as working with any family. It’s more an issue of scale.

And then when you bring in the multi-generational component, you’re still doing financial planning, you’re still doing the investment management, you’re still doing estate planning and tax planning, you’re still doing all those things, but it takes on a different dimension when you’re bringing several generations into the planning process. And often, a big part of the process is actually working with, communicating with, and facilitating a conversation with members of those multiple generations at the same time. So it’s…whereas it might focus on more of the wealth creator or executive in another world, in this case, the family unit is the unit that we pay attention to. And that really does drive a lot of what we do.

Michael: Interesting. So I feel like a lot of us talk about we’re multi-generational, like, “I have several clients where the clients passed away, and now I work with their kids, and they inherited the million dollars in dad’s $800,000 IRA.” I feel like a lot of firms have sort of tried to go down the family tree in working with more than one generation of the family when someone passes away, if only just to literally be able to hold on to the client dollars and family relationship. But I feel like what you’re talking about is different than what the rest of us talk about when we say like, “Well, yeah, I’ve done a meeting with the client’s kids, so they get to know us. And I once did an educational series for the…our clients’ younger kids to orient them about money.” What does multi-generational planning really mean in your world as distinct from what the rest of us may do to try to have some relationship with kids or grandkids of clients?

The Primary Concerns Of Multi-Family Trusts, Skills Required For Handling Multi-Generational Wealth, And The Corresponding Layers Of Complexity [00:06:53]

Richard: Probably the easiest way to understand it is to talk a little bit about the services in particular. So our firm is organized as a bank holding company. And within the bank, we have a small state-chartered bank. But we also have trusts. We offer trust services. So we can serve as a corporate trustee, and often do serve as a corporate trustee for a family. So when we serve as a corporate trustee for a significant multi-generational family, that drives the need to be involved with more than one generation almost from the beginning of the relationship. Because typically in a situation like that, you’re not only involved with the grantor, the original creator and funder of the trust, but you’re often working with more than one generation, generation two or three, helping them plan for how to work with a trust, how to determine how much they can afford for housing, how much they can expect to receive in trust distributions, how to integrate trust distributions into the rest of their financial lives, how to understand some of the technical elements of a generation-skipping trust. And so I think it’s probably, as much as anything, more a matter of depth and more a matter of how much you’re involved with multiple generations of the family from early in the relationship.

Michael: Interesting.

Richard: It definitely changes things.

Michael: Interesting. So the context for you in getting involved in families might be a patriarch the family has set up, whatever, a $50 million trust or even a larger number that’s going to go to 3 children who are young adults right now, and your firm may literally be the corporate trustee on this and has to actually communicate to them like, “So you’re the beneficiary of a $50 million trust. It does not mean you actually get to spend $50 million right now. So let’s talk about what that actually means and how trust distributions work and what you can expect from this and how you actually live your life when you’ve got this asset that’s going to put some money out to you, but it doesn’t always happen, or it’s not guaranteed, or the dollars may fluctuate, and there’s this other money, but you may not get it later, or it may only go to your grandchildren. And let’s help you figure out like, how do you actually live your life?”

I think some people sort of joke; I was going to say first-world problems, but like, “I’m the beneficiary of a $50 million trust” is even kind of above first-world problems. But they’re real problems, right? If you’re someone who built a business and built that wealth and spent all that time and effort building it up, the last thing you want to do is see it get blown or wasted or lost. So some controversies around judgments of wealth aside, just for people that have that kind of wealth, this is a really, really major issue and fear and concern, is how do I make sure my wealth lasts and has the impact in my family that I want to have? Which means someone’s got to help me make sure that my kids handle this properly because I didn’t grow up with this wealth unless you’re already a second-generation inheritor. Like, if I was the wealth creator, I didn’t grow up with wealth, I don’t know necessarily how to help my family, help my kids, help future generations do this “right.” So can you guys help me figure this out? How do we actually do this, right?

Richard: Absolutely. And it’s really kind of interesting. When you’re dealing with a family situation, like the one you’ve described, most parents will make the assumption that kids will react to learning of a trust for their benefit like they’ve won the lottery. “Woohoo, my life is going to be great.” In reality, sometimes it’s exactly the opposite. A child that learns they’re beneficiary of a trust is concerned about not screwing things up or not overspending or being responsible, not disappointing a parent. And so it can be a very, very difficult process for somebody that is just learning about something like this for the first time. And it does take preparation. Often the skills that it takes to build that kind of wealth don’t necessarily appear in every single generation. And the skills it takes to maintain it are not necessarily the same as the skills to build it.

Michael: That’s the famous shirtsleeves to shirtsleeves in three generations.

Richard: Yes, and it plays out every day. I think the challenge for families like that is to recognize that kind of phenomenon. But more importantly, to figure out if there’s anything that you either want to or can do to change the trajectory. And it’s a pretty involved process, and it’s one that requires a very different time horizon. We talk about the long-term time horizon in a lot of contexts. But for this purpose, teaching skills and training and getting experience for these kinds of life skills, you can be talking more than a few years. You can be talking, in some cases, a decade or more.

Michael: A decade or more of, “How am I going to help develop my client’s 26-year-old child who may be inheriting $20 million to be a responsible, productive adult?” Not fulfill at least all of those media images we create of trust fund babies who are irresponsible and blow the money and have all sorts of all unfortunate behaviors. How long is it going to take us to actually help develop that person into a productive adult who stewards the money and not an unproductive adult who blows the money?

Richard: Exactly. And often with families like this, even if there is a lot of financial wealth, there’s often an operating business involved as well. So at some point, there’s a transition issue, a succession issue within the business, and then all of the issues that come around with managing significant chunks of wealth. And most of the time, it’s not one person making all the decisions after the first generation. So you bring into the equation the fact that you’re having to learn the skills of making decisions together with either siblings, or sometimes more difficult, with cousins, and multiple family branches. And so the complexity of just the learning process and the things that have to occur for a family to continue operating successfully in that kind of environment. There’s a lot to it. It’s a very interesting process and one that takes time.

Michael: And so I guess part of your point around the fundamental difference is the depth of the multi-generational aspects of like, no, we’re really in there with kids with a relationship that could be years or a decade or more because we’re trying to help prepare the family for transitioning the family business to the next generation, or perhaps even more challenging, transitioning the family business to not be led by the next generation and not have the family meltdown when the kids find out that they’re not actually going to get to run dad’s business in the future.

Or, how do we make sure if they’re going to inherit tens of millions of dollars, they don’t end out like trust fund babies that have other dysfunctions that come with it? How do we actually make sure they turn out to be productive young adults? And the firm is literally trying to play a role in those kinds of development dynamics.

Richard: Correct. And so it shifts the focus in my mind. Often in the planning world, we’re focused on designing a plan. In our world, it’s got to be the design and execution of the plan. And execution or implementation of the plan takes place over a longer period of time. So whether the process includes meetings with family members multiple times a year, or whether it’s only one touchpoint a year, whether…how much of the focus is on learning? How much of the focus is on making operating decisions together? It really does change the focus of the work so that it’s much more about execution and implementation over longer periods of time.

Michael: With, I guess, the big star or the big asterisk, is we’ve all dealt with clients where I did the analysis and crafted the planning recommendations but doggone it, they didn’t do them. They went off in their own squirrelly direction. That for some of us, that may just be a reality of life or depending on our model, we may just be on the planning advice side and not necessarily on the implementation side. My role is to give the advice, it’s ultimately their decision about what to do, whether to follow it.

You live in a world where, hey, if we’re doing this on a long-term, multi-generational end, it’s not enough to say, “Well, I gave the family the recommendations, and they didn’t implement them, or they went some weird direction because of those screwy family personalities,” you have to actually be in there and deal with those screwy family personalities and figure out like, “Here are the real human beings on the ground, okay, now how are we actually going to get them to implement this plan?”

Richard: Well said. You said it exactly right.

What A Typical Multi-Family Private Wealth Profile Consists Of [00:16:10]

Michael: So help us understand, what does a typical family profile look like? As we continue this conversation, we’re trying to put in our heads the quintessential Richard Joyner multi-family office private wealth client. Can you paint a picture for us of what that looks like?

Richard: Sure. A typical client…let’s see. A typical client has often built, developed a business, sold the business, either entirely or in part. The family that owns it is, for us, typically multi-generational. It’s often the case that we’re working with families that have kids in their early 20s and that type of age. So they’re going to be getting married and having kids, and they’re going to be having their own families and starting their own families at some point. But often when we start the relationship, that hasn’t occurred.

Michael: And I guess part of that is just natural age function; like the founder made the business in their 20s or early 30s, built the business for 20 years, is now in their 50s, has had a liquidity event, and now their kids are probably in their 20s because just that’s how the ages line up for that sequence.

Richard: I think that’s exactly right. Typical family for us has a lot of complexity, whether it’s the existing complexity or it’s just the complexity of having the wealth that is so significant. When you have that degree of wealth, there are obviously a lot more…there are a lot more issues that come up, there are a lot more opportunities that come up, whether it’s in the estate planning context and you’re dealing with planning for multi-generational trusts or whether it’s because you have a $50 million liquid portfolio, you have more opportunities to allocate to direct investments, to private equity, to things like that, to things that may not necessarily fit for every single client.

So there are a lot more opportunities, and there are a lot more issues that come up. We consequently find ourselves in situations where the family has a lot of technical complexity. There’s a lot of different entities, entities that have been created either through the business operations or because of the planning strategies and the things that you’re trying to implement over time. So a lot more of our focus seems to be around planning structures and executing those structures successfully to get the benefits that the client really was attempting to obtain.

So it’s bigger…it seems to be a family, it tends to be more complex. It tends to have assets in many different buckets. So for us, retirement planning and planning for retirement accounts, for example, are often not as significant an issue as it is in other types of clients because most of the assets come from different places. And it’s much more common for us to be planning around trusts than it is IRAs, for example. So it’s just a different set of issues and opportunities.

Michael: And is there a typical, either liquid portfolio or total net worth, as we’re trying to envision what this client situation looks like?

Richard: Sure. I would say the average client probably has a $30 million portfolio and probably similar amounts in other types of assets. So $30 million in business interests, in real estate, in other types of non-liquid investments. So their typical net worth is probably $70 million to $75 million with about half of it liquid and half non-liquid.

Michael: Okay. So yeah, it sort of makes the point in that context. Like, we are not in a, “Can I afford retirement?” realm. We’re not in a, “Well, a $30 million portfolio at a 4% withdrawal rate would be $1.2 million a year, about $100,000 a month. It’s like, we’re going to start you there, and then we’ll adjust for inflation every year.” That’s not really the conversation at this point. Like, we got more than enough wealth to live our lifestyle. Well, I guess that’s something to check because I’m sure you’ve got a few that still manage to outspend that. But for a lot, I would presume there’s more than enough dollars to cover our lifestyle. Even if I’m doing retirement planning, this is less, “What can I afford in retirement?” and more of like, “Of my $70 million, how much do I need to earmark to check the retirement box? Because I’ve got three other businesses I want to start, and I need to know how much money I’m allowed to invest in them without screwing up the rest of my retirement.”

Richard: Right, it becomes much more a conversation about goals. What is it specifically you want this money to do? Is it there to create a legacy for the next generation within your family? Is it there to fund current or future philanthropic goals, or are you investing in the next business? Are you a serial entrepreneur and investing in several businesses? If you’re a serial entrepreneur, how much do you need to set aside to make sure that you maintain the lifestyle that you’re comfortable with? And therefore, then how much do you have to invest in the next business? How much can you afford to be illiquid for the next 10 years? So you’re having a much more focused conversation around specific goals. Not so much about running out of money, but much more about the choices that you’re making along the way and how they all fit together.

Michael: That’s an interesting framing; I feel like you surfaced up three kinds of high-level goals. This may be a family legacy thing planned down the family tree, this may be externally giving-oriented about current or future philanthropy, or this is essentially a reinvestment discussion, like, my goal with my wealth is to continue to compound and maximize it or just, I want to deploy the dollars in a way where I can have the personal impact while I’m here on this earth. So I want to make the next business entity, the next endeavor, and then you split these up. This may be overgeneralizing, but there are the giving clients, there are the family legacy clients, and there are the serial businesses kinds of clients. Is that a fair way to frame it?

Richard: That’s a very fair way to frame it. And each of them has significantly different issues.

Michael: So now help us understand from the business perspective, what does this look like? Like when you’re in a typical client engagement, what does that mean? What are you doing for these clients in practice when we talk about goals and private equity investment opportunities and serial businesses and managing trusts and family members that have to be responsible inheritors, or you’re trying to develop them to be responsible inheritors? What does this mean in practice in how you actually execute and deliver services in a client engagement?

Richard: So the way I bucket or think about those services, investment management is always a significant component of the things that we do. And that’s fairly common and pretty well understood, I think. The second sort of big bucket of services is what I would call financial management in general. And so a lot of our clients will have us pay their bills, monitor and measure their spending for them. In some cases, prepare full financials for them. And so I think there’s a process around just having sort of an excellent financial management process that provides the client family with the information they need to make decisions as frequently as they need to make those decisions. So I have some clients who want to see their spending weekly. I have some clients who don’t want to see it but once a year. Periodically, we want them to see a snapshot of their net worth. We want to talk them through how that’s changed, what decisions they need to make. So investments, financial management, and I would call another bucket sort of the legacy-related issues. So philanthropy and philanthropy support is another big area for our clients, as is trust and estate planning. So all of those things fit together.

And then I think the last one is sort of what I would call loosely family learning. And family learning gets back to what we were talking about a little earlier in terms of leadership development within the family, skill-building, preparing the next generation for what’s coming their way. And so all of these services typically are delivered through a single team that’s probably at its core three or four people. The client has a primary advisor. There’s usually a junior advisor, in many cases, a portfolio advisor. And then there’s somebody that probably supports a lot of the day-to-day operational aspects of the engagement, money movement, trading, those kinds of things.

Michael: Which I guess at the end of the day, that’s not necessarily that different from a lot of other advisory firms, at least from a team perspective. Like, a lead advisor, a support advisor, operations support, and someone that ties in from the portfolio. I guess part of the distinction, though, is like, how many clients does a team like that service and support?

Richard: A team like that will serve about somewhere between 20 and 30 families, depending upon the complexity of the family. So I don’t know exactly how that compares. But in addition to that core team, I think one of the major differences then becomes the size and the breadth of the specialty services that surround the core team but are internal to the firm.

So we have a fully functioning tax team. We do tax preparation; we do tax planning. That’s 12 to 14 people. We have a fully dedicated trust team with trust and estate attorneys and people that have experience in trust administration. And so each of these specialty areas has a number of people that go very deep in terms of their technical knowledge and are involved with the core team in delivering those services to the client families.

Michael: And so you’ve literally got like CPAs on staff doing tax prep, attorneys on staff drafting documents?

Richard: We do have CPAs on staff preparing tax returns. Because of the regulatory issues, we don’t actually draft legal documents. But we’re typically very involved in the process of designing the plan, working with outside counsel to execute the legal documents. We review them. And then again, we come back and make sure that the execution of the documents and what I call the care and feeding of all the entities are done over the long-term.

Michael: Okay. Right, the classic like, “Yeah, I’ve done all my estate planning. Here’s my revocable living trust.” Like, “There’s nothing titled in your revocable living trust, and you never signed the signature page. So this is not actually a valid trust.”

Richard: Exactly. And no beneficiary designations are changed. It’s all those things.

What The Typical Advisor-Client Relationship Looks Like And How The Pandemic Has Shifted Interactions [00:27:44]

Michael: So, what does engagement look like from a meeting perspective? How often do you meet with clients as just you’re doing all the different stuff? You were talking about at one point like, some clients want weekly reports on their spending. Are you actually down to the point of having weekly meetings with some clients at these wealth levels, or that, at least, is an automated report, but someone’s got to produce it? What is the actual advisor-client interaction?

Richard: So that is somewhat in a state of flux. So maybe…

Michael: Sure. So we have like the pre-pandemic answer and the post-pandemic answer. So, I guess, what was the pre-pandemic answer? And then I’m also curious how that’s changing in a shutdown world.

Richard: I think the pre-pandemic answer is that contact with most clients is probably on a quarterly basis when it comes to formal face-to-face meetings with the team. Increasingly, we are delivering reports to a secure portal. So the weekly spending reports, the monthly or quarterly investment performance reports, the net worth reports. Increasingly, all of that information is being delivered to a secure portal with some notification to the client they’re there. Often those interim communications that are weekly spending, “Can I afford to do this?” Those are phone calls, typically. The actual cadence of the meetings and the frequency of the meetings probably isn’t that much different from any other type of advisor relationship. If the engagement is more complex and we’re actually doing things like facilitating formal family meetings, where multiple generations are getting together for four to six hours, and they’re talking about long-term estate planning, they’re talking about the operation of the family business; those do kind of have a different cadence. Those typically are two to four times a year, depending on the family, and they tend to be longer meetings. So it’s not an hour or two, it’s four to six hours. And that’s all pre-pandemic.

Michael: So I’ll come to post-pandemic in a moment, but I just want to understand like, these family meetings as much as two-plus times a year, so what is going on in those meetings and what is the advisor’s role in those kinds of meetings?

Richard: So, the advisor’s role is central to the process. The advisor’s role is either a facilitator or actually is conducting what I would call the meat of the meeting. The content of a meeting like that can vary a lot, depending on the family. So I’ve got a client family, there are four members of the family. It’s basically mother, father, and two daughters. At least that’s the group that’s involved in these family meetings. The girls, the younger girls, are married, and at this point, they don’t include their spouses in these meetings.

These meetings tend to be twice a year, and they cover everything from updates on the family business, this is still an active business family, to discussions about the operation of their family foundation. Often we will make some decisions within that family meeting about giving from the foundation. They tend to do that as a family because of the magnitude of the dollars. And then there’s typically some sort of high-level financial update. We don’t do that every meeting because it loses its luster after a few. And we tend to just focus on changes. So we focus on how a particular transaction has done, how it’s been completed, and where it is in the execution process and things like that. So there’s usually a learning component, there’s often a philanthropy component, and in this case, there’s a business component.

And because the daughters, in this case, are in their early 30s, they don’t have a business background that would have necessarily prepared them to operate this business or to take a significant role in the business, a lot of what they’re learning is simply business concepts. How the patriarch thought about the business, how…we may actually pick a segment of the business and have somebody join us on the phone to talk about a segment of the business. So there’s a lot of learning that goes along with it. It varies a lot based on the size of the family.

Michael: An overall engagement with a client, I guess, so I’m just sort of trying to piece together interactions. Like, you may have quarterly meetings with, I was going call like the primary client, but I guess it’s not even for like the patriarch and matriarch of the founding generation of wealth builders.

You may have one or two other longer meetings with the…conducting family meetings that bring in other family members as well. Is that separate from meeting with the founding wealth generation clients quarterly as well, or part of the quarterly meetings is sometimes the family meetings and sometimes it’s just them?

Richard: It can be either way. So part of that is the preference of the family. If you have a bigger meeting that, say, four hours long, it’s possible to have segments of the meeting with different members of the family joining or different outside advisors joining, the family attorney may join for part of the meeting but not the entire meeting. So it can look different ways. But it’s all designed to meet the needs of the family and to make sure that they’re getting the information like that on a regular basis. To me, that regularity and consistency is part of what builds effectiveness. If we’re doing that kind of meeting and we’re doing it once a year for two hours with the entire family and trying to cover the whole waterfront of issues, it’s really hard to move the needle because there’s so much about repetition and discussing, reviewing things that were discussed previously and adding to them. It’s definitely an additive process.

Michael: Does that sort of cover the full scope of what interactions look like or are there other meetings or events or stuff that may be happening for a typical client through a one-year cycle?

Richard: I think if you look at a one-year cycle, that probably covers most of the interaction. There are always the day-to-day phone questions. There’s always the day-to-day, “We’re going to change the investment allocation, I need some cash,” whatever it may be.

Michael: And how often are those phone or email conversations coming up for you? Is that something that happens literally day-to-day or week-to-week? I think for a lot of us, like, hey, once my retired clients kind of set up, like, yes, I’m available for phone calls or emails when you need me, but any particular client, if there’s not stuff going on, might only reach out once or twice a year between meetings because there’s just not a lot of stuff going on. My impression is your level of interaction with clients is probably a lot more frequent than that.

Richard: I think in most cases, it is much more frequent than that. And that’s simply because of the volume of things that a typical family is dealing with. It just requires that to maintain it, keep it going.

Michael: Which means what? You may be having interactions with clients every month, every several times a month, every week? How intense does it actually get?

Richard: Weekly is probably the average. Some are monthly, but I think some are daily. A lot of it just depends on the time period, what issues are going on, but it’s not unusual to have some type of weekly activity going on. That’s not unusual at all.

Michael: Which is why you quickly come down to like, a team may only serve 20 or 30 families. So you’ve got like 10 to 15 clients per advisor on an advisory team because you really might be spending one or more hours per client per week on an ongoing basis, not even just because the meetings rotate through but just phone calls, emails, issues, stuff that’s coming up tying to all these different business and financial issues.

Richard: Yes, absolutely. And I think we take on a lot of the responsibility for monitoring the tasks that need to be done. And I think we take on a lot of that responsibility for not only tracking them but executing them. And I think that it just creates a lot of activity.

Michael: So in that context as well, if I think about the work and activity that happens for clients, how much of the client-facing activity versus all the support and behind-the-scenes activity that happens as well? Is it, for every hour I’m in with clients, I’ve probably got two hours behind-the-scenes work or four to six hours behind-the-scenes monitoring and implementing work, or even more than that? How intensive does the rest of the support work, the shadow work get?

Richard: It’s an interesting question. I’m not sure I’ve ever really thought of it exactly that way. But instinctively, I think it’s the four to six hours or more. There’s a lot of work that goes on behind the scenes to prepare for the conversations, decisions, and discussions that occur. So I think it’s pretty intense behind the scenes.

How Tolleson Structures Their Fee Schedules [00:37:35]

Michael: As we talk about the depth of these relationships and the amount of stuff that’s going on, help us now understand the business model. How do you charge and get paid? I’m assuming we’re not still in the proverbial, “Well, I charge 1% of assets. So since you have $37.4 million, let me pull out my calculator and calculate your fee.” How do fee schedules and charging work in this environment?

Richard: So, for what I would call the basic set of services, about two-thirds of our clients are on some type of asset-based fee. And about a third of them are in some sort of a fixed fee. That’s very heavily dependent on services that are provided. And then there are specific services that go beyond that sort of base fee that would be charged separately, things like preparing an income tax return, things like serving as a corporate trustee. There’s a particular fee schedule that goes along with that. And then there are a handful of other services that bring that additional fee. But the core service, which we try to wrap into a single fee, is either fixed or an asset-based fee. We’re trying to make that part simple, but it doesn’t always come across that way, or it doesn’t always work that way.

Michael: And so, I guess I’ll start on the asset-based fee side first. How does that fee schedule work? Is it just a flat percentage, a graduated fee schedule? Is it more customer-adapted than that?

Richard: Yes. It’s all of those things. I think by far, the majority of the fees are a fixed percentage of all of the assets rather than a graduated scale. We’ve just found over the years that that’s simpler and easier for people to understand. And because we’re typically dealing with a more significant relationship, it just avoids a lot of issues that go along with a different type of fee schedule. Fixed-fee clients tend to be clients that are heavily focused on accounting and financial reporting and things like that that are historically more fixed fee kinds of services from other outside firms.

Michael: So there is still kind of a dynamic like more investment-oriented clients are on an AUM basis; more accounting and financial reporting clients are on a fixed fee basis?

Richard: There is a correlation there. No question.

Michael: Okay. And so, what does a typical…if they’re on the AUM side, what does a typical fee schedule, I guess like fee rate come out to be? I just have no context for what a typical AUM fee is? Is this still a 1% fee because your services are in-depth even for a significant worth? Is it 0.5%? Is it 0.25%? What does a typical AUM fee look like in this type of clientele?

Richard: I think it hovers around 0.5%. Significantly larger relationships could be lower than that, and smaller could be higher, but that’s pretty close.

Michael: Okay. So just as I think about this in real dollar terms, if I’ve got a client who’s got a $30 million portfolio, you may be talking about a client that has a $150,000 advisory fee to the firm. Are fixed-fee clients still in a similar domain, or do they tend to be smaller because they may need a more limited-scope relationship if they’re not doing investment-related stuff, and it’s solely on the accounting and financial reporting side? Or is that not necessarily true?

Richard: So I think the fees would hover in that same dollar range. I think $100,000 a year-plus would still be applicable for most of those clients. Yeah. It just depends a lot on the mix of services and so on. But it’s a similar ballpark.

Michael: So help me understand, how does the conversation go when you’re trying to justify a $150,000 advice fee? I get on the one hand, when your net worth is $75 million, $150,000 maybe doesn’t sound like as big of a number to them as it does to some others, but that’s a hefty fee. I’m sure there are a couple of people listening who are like, “I am willing to fall on my sword and take Richard’s clients for only $100,000 a year per client.” How do you have that fee conversation to explain and justify the fees that add up at that dollar?

Richard: Well, I think if you put the fees out there without the rest of the equation, it’s easy to come to that conclusion or to ask that question. I think that when you start looking at the actual work that goes into the relationship, it casts it in a whole different light. If you go through the list of services and you talk about a…back to our earlier discussion, if I’m spending an hour with my client and there are four to six hours of work to be done outside of that, maybe four to six is actually on the low end.

The explanation really is much more about the work than it is about the fee. Because if you took those fees and you looked at them on an hourly basis, you looked at them on a competitive market basis, looking at outside firms that do similar services, I don’t think you would say those fees are excessive. And honestly, when we have conversations about fees, it’s much more about the work that’s being done and much less about the fees themselves. I think most people conclude that they’re getting a lot of value. We don’t get a lot of feedback that’s different from that.

Michael: Because at some point, you just start adding up the sheer number of hours of work it takes across all the different teams, across all the different stuff. And for clients at this level, like, that work’s got to get outsourced somewhere. Like, they’re running a business and doing whatever else they’re doing. They’re not going to be doing the hundreds of hours of work that it takes to support the complex issues that are in their lives. So it’s going to quickly get down to, well, I can hire a person, right, for $150,000. I could literally hire a CFP to do my stuff, but they may not necessarily have the breadth of all the different areas of expertise because you’re dealing with philanthropy and trusts and estates and legacy issues and the daily or monthly cash flow, financial management issues. And you don’t necessarily want to have to train them on that.

Richard: Right. So if I’m a typical client family, I could go out and hire some number of other advisors and piecemeal the work and give part of it to CPA, part of it to an investment advisor, part of it to an estate attorney, whatever the mix might be. If you look at the cost of doing that, that’s certainly an option, but there’s a lot of information that has to be exchanged and handed off and things that have to be coordinated and executed. And so there’s a lot of value in having more of those things under one roof and together so that all the information’s in one place, all the execution’s in one place, you have one phone call to make instead of some number. The other option for many of the families as they become larger is to have their own family office, a single-family office in effect. And that becomes very much a decision about hiring somebody and actually building a lot of the infrastructure themselves. Some families will choose to do that. But as you know, with a business like that, it’s complicated to put all the infrastructure in place and manage the people and give all of them careers and deal with the complexity of the regulatory issues and so on.

Michael: And I guess that becomes part of the dynamic of how far up the net worth scale you go before that math does tend to shift, right? I’m just sort of thinking these numbers, like, okay, by the time I get to $100 million clients, even if maybe they’re getting a lower fee schedule breakpoint, like, now maybe they’re paying $300,000 or $400,000, like, “Well, geez, now I could hire like 2 or 3 people in my office.” If I’ve got $250 million, now almost any percentage starts adding up. I could easily hire three, four, five people, or more in my office. Is there some crossover you tend to find at the upper end where the dollars add up enough that the client just ends out saying, “You know what? I think I’m just going to hire my own half dozen people; it’s actually still more cost-effective than paying a firm externally?”

Richard: So I think what happens there, Michael, is when you go through that thought process, I think there is a point…if you’re a $500 million family or up, I think the economics can make sense. But you still have that threshold question of, “Do I want to be the one to run this? How do I make sure that I’ve got all of the various technical areas of expertise covered in sufficient depth and breadth for what my family needs?” You’ve got to have office space, you’ve got to have the technology, you’ve got to do compliance. You have all those same things that you’re doing that you’re not able to leverage off the cost of sharing the platform effectively.

Michael: And I guess, again, if you were focused enough as a business owner to build a business worth half a billion dollars, you probably didn’t do it by sweating the last bit of minutiae on who you’re hiring, right, about your personal finance also, right?

I’m just imagining, if I’ve got a half a billion dollars and this is my pain point, is saving $100,000 by opening up your own personal family office versus hiring an external firm to do it that already has the infrastructure and the focus, like, is that really where you want to save $100,000? I get it, $100,000 is a lot of money, but after the first half billion, I suspect you have more impact by spending your time somewhere else.

Richard: Yeah. I think that’s right. And I think that what happens when you work with, for example, a multi-family office, one of the things that I have found that’s really unique about that platform is the fact that you bring a lot of different expertise to the table, whether they’re under your roof or not. So if a client comes to me and they think of some fairly esoteric and relatively uncommon things, like I’m dealing with an aircraft-related issue, or I’m dealing with something very, very specialized in the trust world, whether it’s addiction or it’s…there are those kinds of things where having that network built of people that you trust, you know that you have a go-to team for things like that, there’s some value. There’s a lot of value that comes from that. If you’re starting all that from scratch, every time the question comes up for the first time, you’re starting at scratch, and you’ve got to go out and research those things and find out…

Michael: Right. Like, I’ve done the conversation with my clients, “Do you buy or lease your car?” I would still be working from scratch if I had to help my client figure out, “Do you buy or lease your aircraft?”

Richard: Right. Some of these issues are very, very unique – no question about it.

Michael: Whereas I would imagine you actually have done that analysis, that calculation more than once for clients over the years to show them like, “Here’s the buy versus lease decision on your aircraft.”

Richard: More than once.

The History And Organizational Structure Of Tolleson And How Their Private Bank Operates [00:49:29]

Michael: So help me understand the organizational structure. You had mentioned earlier that the firm is actually organized under a bank holding company structure, whereas I think most of us are used to like, I’m an RIA, or I work under a broker-dealer. So, what does a bank holding company structure mean? And what’s held in the bank holding company as part of this structure?

Richard: So first of all, the reason that we are organized the way we are, we started as a single-family office for the founding family.

Michael: And is that the Tolleson family because the firm is Tolleson Wealth?

Richard: It’s the Tolleson family.

Michael: Okay.

Richard: And the Tolleson family is several generations in as a banking family, so they know the banking business. When they opened the single-family office, the experience they had was that they had some difficulty finding a bank that would really do the kinds of things that they wanted a bank to do, and do them well. A lot of the major banks are focused on corporate banking and things like that and not at all in private banking. So they sort of backed into the banking business and added that after the family office was up and running, and then ultimately added corporate trustee services and other things. So having the bank, it’s a very simple private bank, but we don’t do a lot of the things that most big banks do. Corporate lending is an example. We focus on the needs of the families that we serve. And so having that bank really was the reason that we created or went into this bank holding company structure.

Michael: So, what does it mean to have a private bank, like literally a private bank for your private wealth management clients? What does it do for them? Or what do you do with a private bank under your umbrella?

Richard: It’s a great service. The bank is actually a pretty simple operation. It is purely taking deposits and making loans. And so we don’t do a lot of the more esoteric things that a lot of the big banks do, but we focus on those core things that clients actually need. They need somebody to take deposits and process checks and get them cash and all those kind of things.

And then when they need a loan, we can make them a loan and we can…the decision-makers are all in our offices. So if somebody needs to structure a loan in a more flexible way or a payment schedule in a more flexible way, we have the ability to make those decisions within our firm. And so it turns out to be a very high service level and a very flexible way to bank and meet the needs of most individuals that are members of the families that we serve.

And by the way, you don’t have to be a multi-family office client to use the bank at all. But it turns out to be a very popular service. It’s great. And it allows them to coordinate a lot of the work we’re doing under one roof. So if a client needs that loan, we’ve probably got their net worth information. We’ve got all their financial data in-house already.

Michael: And so you said this isn’t necessarily corporate lending. So this is like, I want to borrow money to buy a house, to buy a second house, to invest in real estate, I guess to finance my airplane, those kinds of loans? Not necessarily the like, I need to borrow $50 million to expand my business, because that would be corporate lending somewhere else?

Richard: Correct. You got it. Those are exactly the types of things we do.

Michael: Okay. And the idea being, just look, we have a private bank, this is literally all they do. And they’re built for our clients. Like, yes, you can go to JPMorgan Chase, or pick your large national bank, but you’re going to go through their underwriting process and get underwriter of the week, or you can work with us. And we know you, we know exactly what your family situation is, we have all of your financials and details. And we value you as a client, so we can probably give you better terms and more flexible, and it’ll be done quickly. And you don’t have to get aggravated at a banker who doesn’t know who you are.

Richard: You nailed it.

Michael: And so do you also still just have to compete on terms? Like, is this a high-yield deposit bank and you’ve still got yield pressure, and we have to compete on borrowing rates, but hey, our underwriting process is a little simpler since we know our clients, so we can compete on rates?

Is there a rate aspect to this as well, or is this, in practice, mostly a servicing and ease and convenience, and maybe customization of, we can just make loan terms for you because we know the banker, it’s our employee?

Richard: So everything that we do has a competitive element to it, but there’s also a service element. And some people, if it costs them 0.25% more on a loan and they’re able to close it in 5 days versus 35 days with no aggravation, then clients make those judgments. And so there is a service element to it that goes beyond just the pricing. But the pricing is always there. It’s not like a loan is going to carry a rate that’s a full percent higher than any other option. Because that just wouldn’t make any sense.

Michael: But you may end out a similar or a tiny slice higher, but you can justify that on convenience and the rest, and it consolidates that client relationship under one roof.

Richard: Yes. And the only thing I’d add to that is to say that it’s not always a higher cost. In some cases, it’s a lower cost because of the type of lending that we do. In a mortgage loan world, you don’t find a lot of lenders out there that will do asset-based lending. They’re all focused on your paycheck and your credit rating and all those things. And so if you’re self-employed and you have a variable stream of income, it may be hard to get a loan. In cases like that where some of the unique things we deal with, it might well be less expensive and easier.

Michael: Right. So the classic entrepreneur that has all of their net worth tied up in a business, it’s hard to value, not liquid, you look at their tax returns, and their income fluctuates wildly, and the bank sees like, “Oh, high risk, we can barely underwrite this person.” You’re looking and saying like, “Yeah, this guy runs his business incredibly well, has been doing it for 20 years, is worth $200 million. You can loan them the money for the house. It’s going to be okay. We know he’s good for it because we live in his family business.”

And so, I’m wondering a little bit just sort of the mechanics of the banking end. Does the bank end out with concentrated loan risk because there are only so many clients that you can lend to in this dynamic? Do you guys actually have to worry about the diversification of the loans when you’re doing large ultra-high-net-worth loans to a limited number of ultra-high-net-worth clients, or is the point they’re so financially stable, you’re just not going to really face any defaults that you’re worried about?

Richard: No, you still have to run the bank and run it well, and concentrations are always an issue in banking. So you would monitor those same kinds of things that you would in any institution.

Michael: Okay. And I guess from the flip side, what happens when it’s an existing client, and they really want a crazy loan, and you have to decline them?

Richard: It does happen. And we typically, in a situation like that, talk through with them the reasoning for our decision. But it happens. We don’t want to give anybody the impression that we’ll take any kind of loan on any terms and so on. We’re typically looking for safe loans, low-risk loans. And we’ll do a lot of things to accommodate terms, but we certainly don’t want to make any bad loans.

Michael: Which I guess to some extent become like, “Look, we just can’t do that loan for you here. I’m not saying you’re not worth it, just like, you have to call the other bank for that one. Like, we do these types of loans, and you don’t quite fit our loan parameters.” Right? Is that sort of the out? Like, “I’m not rejecting you, I’m just telling you we’re going to help you find a different bank to do that loan.”

Richard: I think that’s exactly right. We try to be in many things really clear about what we do. But as you know, being really clear about what you do often means being even clearer about what you don’t do. And so that’s the way we think about it. We are very specific about the areas we can have flexibility. But when it comes to credit risk or things like that that we think to go beyond our ability to underwrite or whatever it might be, then we try to be completely upfront about things like that.

Michael: So, Richard, help me understand the overall structure now. So the bank holding company kind of holds the private bank, but where does the wealth management advising stuff happen? Do you actually do that under the private bank? Is there a trust company? Is there still an RIA in the mix here somewhere? Just structurally, when you’re doing this sort of multi-family office environment, are there other entities under the umbrella? How does this actually work?

Richard: Yeah. So in our case, the bank holding company is at the top of the structure, and the bank holding company owns the bank itself as a subsidiary. And then a brother-sister subsidiary is the RIA, which is the entity in which the multi-family office operates. Then the trust powers, the trust powers come to us as within the bank. So the trust function itself is a department within the bank. Operationally, all those pieces run very, very integrated. But that’s how they fit together organizationally.

Michael: Okay. And so it’s basically those two entities? Like, in practice, there’s a bank holding company, it owns a bank that does banking and trust, and then it owns an RIA that does investment management because you’ve got actual portfolio stuff and sort of the broader advising and family dynamics that go with it.

Richard: Yes. That’s exactly the way it operates.

Michael: Okay. And so under that structure, we haven’t really talked much about just investing itself. What does investment management look like for a client that has $30 million? And what do you do in-house versus externally versus we find it for you versus we manage it? How does that come together in a firm like yours?

Richard: The core advisory team, the advisors that we talked about earlier, is supported by a 10-person investment team. The investment team does all of the strategy research, the manager research and due diligence, the ongoing monitoring, and so on. A typical client portfolio at that level probably doesn’t look that different than a portfolio in most other places. We have clients who execute a full portfolio that has equity strategies, fixed-income strategies, some specialty strategies. Probably the biggest difference in the portfolio itself is the existence and probably the degree of private equity you might see in a larger portfolio because they can withstand some of the illiquidity that goes along with private equity investing.

But from our perspective, we are a manager of managers. We’re helping set strategy. We’re working with clients to choose the allocation, identify the goals, constraints, and then we pick outside managers for execution. The only exception to that is that internally we manage the municipal bond-type portfolios. Anything other than that strategy, we would work with an outside manager.

Michael: So, what leads to the decision to be in that manager of managers model? Because I’m going to imagine at your size, that was a choice. Like, you could go hire a bunch of people and do it internally and adjust your fees accordingly, or you could position yourselves as manager of managers. So, what leads you to do that, especially in a world where you’re charging 0.5% of $30 million and not actually managing the money directly yourself, you’re a manager of managing, which means there’s another layer of fees for those folks to get paid? What leads to the decision to do that?

Richard: I think it comes from the experiences that we’ve had over the years and the realization that even if we put together…no matter what the team we put together internally, that there would be areas of the market that we couldn’t cover well, there would be strategies that we wouldn’t understand or execute as well. So I think it’s just the benefit of the experiences we’ve had over the years in looking at managers that do very specialized things in very specialized parts of the market. I think that has worked for us very well. We try to be what I would refer to as implementation agnostic if we have clients who want to go very low cost, very high transparency, tax-efficient portfolios, any of those kinds of things. We have the ability to execute an ETF-based portfolio or mutual fund portfolio, or really any kind of portfolio that the client prefers. So we have a variety of ways that we can go about that execution or implementation of the portfolio.

Michael: And so in the truest sense, like, look, you want us to build you a low-cost ETF portfolio, we’ll put our resources together to do that. And you want us to put together something with a bunch of private equity opportunities because you think there are still opportunities to do even more there, we’ll go do the due diligence work and put that portfolio together for you. Like, you pay us our dollars, we do the research and design and create the portfolio allocations and find the stuff to implement. You pay us for that, and then, yeah, the underlying ETF will get its ETF fee; the underlying private equity manager will get the private equity manager fee. But like, you pay them for their part, you pay us for our part.

Now, you did mention, “We choose specialized managers and specialized segments of the market.” So it sounds to me like the types of managers you use when you talk about being a manager of managers may be different than what other advisors use. You’re not necessarily pulling, or maybe you are, like, pulling from a list of managers at Schwab or Fidelity, or like pulling from a list of managers from Envestnet. What do specialized managers mean for you? And where do you find them? And actually, how do you create those portfolios?

Richard: So to me, the specialized managers, an example would be we’re investing in a strategy and have for a while that focuses on community banks and the fact that mergers will occur over some period of time. There are some strategies in the fixed income arena. So in a high-yield portfolio, we’re typically more focused on high-yield municipals than we are traditional high yield because of where the market is and the types of things that have happened. We try to look for managers that are unique. They have a unique strategy, or their ability to execute is unique. We are able, in many cases, to access managers that other firms might not have access to because we typically have clients who are investing larger amounts. So we try to…

Michael: I guess larger amounts and less, in the industry terms, are hot money. Like, I’m going to assume when, short of someone having poor performance, your due diligence process strikes them out, you don’t exactly have the clients that are hot-swapping around on funds, if only because they’ve got other things to do with their time and money, like building their business. So they’re not trading stuff, which means you’re stable money for some specialty managers as well?

Richard: Absolutely. We source our managers ourselves. And so this team of 10 people on the investment team, they travel a lot. They have a lot of meetings. They talk with a lot of managers. Often we’re getting ideas from clients or from other family offices. So there’s this informal network. Sometimes it’ll be from other institutional investors where one of our senior management sits on the investment committee of a pension or an endowment or whatever it might be. But we have a pretty robust process of identifying and vetting those managers ourselves. And we like that. We like the fact that we are doing that work and doing it ourselves.

Michael: Interesting. But again, I think you make a good point about the depth when you say like, “Our investment team is traveling a lot.” I presume literally they do on-site due diligence. Like, let’s see how they actually manage the money and whether they run a tight ship because I’m literally going to show up and see how the ship is run.

Richard: We do everything that we feel like we need to do. We’ll do background checks, criminal checks. We want to be in their offices on a regular schedule. Experience, again, tells us over and over again that it’s not the same on the phone, or even on a virtual due diligence call. You need to be in their offices and see what’s around them and how the people are interacting. And you can tell a lot from that.

Michael: So investment implementation for clients is kind of this manager of managers framework, we’ll help you figure out overall allocations and risk. We’ll help you figure out even what style. Like, are you a low-cost ETF kind of client? Are you a high risk, let’s go for private equity home runs kind of client? And just help them get to whatever it is that they want to pursue.

Richard: Yes. And some of our clients will come to us with preferences for managers. They’ll bring existing managers into the mix, which, from our perspective, is no problem at all. We’ll go through and do whatever due diligence we feel like we need to do, but we’re trying to make the platform as open and flexible and transparent as we can for our clients.

Michael: Ultimately, the common theme for all of it to me as well is your clients kind of have a unique level of flexibility. Because when the dollars are more than you need to make retirement work and sort of afford your lifestyle, I guess you oddly get into a realm where like, I could make an equal place for the clients to be 100% fixed income or 100% private equity because they don’t need the cash, they don’t need the liquidity, and they don’t need the return, but the return couldn’t hurt. Like, they could just literally go anywhere on the spectrum because our traditional like, well, you need to invest for a certain level of risk in order to grow your portfolio to achieve your goals, like, that’s not actually part of the discussion for your clients, or at least it’s not framed that way?

Richard: It’s a very different conversation. And that particular part of the conversation is one that occurs regularly. If you don’t have to take the risk, why should you? The reality is that most clients want to take more risk for some reason, whether it’s to add to the portfolio that ultimately goes to charity or whatever it might be. But it is a different conversation because you’re often not talking about sufficiency, you’re talking about what’s optimal, what makes the most sense and what will achieve the goals that you’ve articulated.

Michael: And so, what does the firm look like overall now? Like, how many clients or assets or staff or revenue? I don’t know how you measure size since you’ve got some hefty fixed-fee clients. I don’t even know if AUM is a good measure for you. But how do you look at the size of the firm overall of what you’re doing and how many you’re reaching?

Richard: So the size of the firm overall, we serve about 180 families. That doesn’t necessarily give you a good indication of the actual number of family members. My largest family is about 80 people. Assets at the end of ’19 were $6.5 billion, something thereabouts. Obviously, that’s changed today. We have about 180 people in total.

Michael: One hundred and eighty people, that’s not just advisors, that’s investment team and operations staff and all the rest.

Richard: It is. It’s usually striking to people when you say that for the first time when you’re talking to a prospective client. They pick up on the fact that it’s very people-intense. But it is very people-intense, and it’s a more expensive way to do business because of all the other services we provide and the way we provide them.

Michael: So can you give me at least a rough breakdown of just how those people break out and group? Is that like, 10 of them are advisors, the other 170 are all the things that go on behind the scenes at a firm this size? Is this like 50 of them are advisors? How do 180 people break out when you’re supporting 180 families and $6.5 billion?

Richard: So if we start at 180 people, about 40 of those people are directly related to the bank. Ten of them are in trust, something like that. So that’s 50. The number of advisors and the people on those core teams that support them is probably about 60. The rest of them will be in one of the specialty teams, or we obviously have some corporate-level folks and IT and operations folks, compliance, and all those things. So the core team itself is probably 60 people.

Michael: Interesting. Interesting. And so even in that context, particularly when you get out of the trust company in the bank and into the core base, 120, 130 people of which upwards of half are either advisors or on specialty teams supporting advisory functions and less than half are actually the financial operations, compliance, administration end, which I guess speaks to just very high-net-worth families.

So again, for $6.5 billion, you don’t have a ton of people relative to other advisory firms that might have 1,000-plus clients simply to get to a billion dollars or 2,000 clients to get to a billion dollars. You’re at 180 clients across $6.5 billion-plus other wealth held outside that isn’t investable. So your staffing dynamics end out with lots of advisors relative to clients, right?

You essentially have, on average, three families per advisory staff because of the level of depth. Which I guess helps to explain why you end out averaging $150,000 of fees per client.

Richard: It’s a very different business model. Yeah, it really is.

How To Build The Culture That Supports High-Level Clients And How Tolleson Finds The Right Talent [01:12:35]

Michael: So, as you look at the business overall, how do people come into this kind of business environment? I get it for someone in your position who’s been doing this for 20-plus years and has learned how to connect with and relate to these types of clients. But I think even just for the average advisory firm, like, how do I train someone to put them in front of my A clients who have $1 million or $2 million for, I’ll call like average advisory firm? That’s still a stressful and challenging team and people development dynamic. You live a world like, how do I develop someone to put them in front of a $70 million client? How do you think about team and talent development and just getting people up to speed to be able to do what you do at that level of depth and complexity?

Richard: Such a good question. So you obviously know all the dynamics of the industry and the people supporting the industry. A couple, probably five or six years ago, we ultimately concluded it was very, very difficult to hire experienced people that came to us with a set of skills and experiences that we really needed.

So our focus has shifted over those years to hiring many more directly out of school, out of college, and training them. That means that we spend a lot of time and energy talking about how you develop those people, how you get them all of the areas of technical expertise you want and all of the other skills that they need, whether it’s relationship management or having difficult conversations or leading a team internally.

How do you build a culture that supports all that? I would say that we are very much a learning organization. We hired five years ago a chief talent and learning officer who does a lot of work internally on talent development, on training, on culture, culture development, and maintenance. It takes a lot of time and energy, and it costs. And it’s something we spend an enormous amount of time doing and trying to make sure that we do it well.

I won’t tell you it’s easy. It’s not; I think it’s hard. It takes a lot of time. The industry continues to change at a fairly rapid pace. I’m one of the older and more experienced advisors. We have a good group of younger advisors that are coming along, but you’ve always got to be looking at that talent pipeline and making sure that you’ve got enough people coming along to support not only the growth itself but the types of growth that you anticipate. And then hiring for some of the specialty teams, hiring members of a tax team, or a trust team. Very different, in many cases, how you go about hiring and training those people. So it’s a daunting thing to tackle.

Michael: So, what are you finding works? So I guess for either sourcing talent or vetting talent or developing talent. What’s actually working for you guys, having tried and tested this?

Richard: Hiring is always a challenge. We do as much sort of what I would call behavioral interviewing as we can. We try to think about the experience…

Michael: What do you mean by behavioral interviewing?

Richard: So interviewing people not just for their technical background and their degrees and their experiences specifically, but focusing on specific types of behaviors that are important to us and then asking them questions to essentially elicit descriptions of situations they’ve been in and how they’ve handled them and what worked and what didn’t.

It’s going much beyond just what I would call the resume information and trying to get examples of teamwork, for example. Give me an example of a time that you worked as a successful member of the team. Tell me what your contribution was? What you did well, what you didn’t do well, what you would do differently next time. It’s trying to dig into those things and really identify the specific traits that we’re looking for; for people that will succeed in our organization.

Michael: And so does that become kind of an anchor question? Like, give me an example of a time you blank with some behavior or core value thing that you want to see. Give me an example of teamwork. Give me an example of when you dealt with a difficult situation with a client who wasn’t happy, like, what were they unhappy about? What did you do about it?

Richard: Exactly. Those are very, very common questions, and we try to do as much of that as we can. I think that really makes a difference. We also focus a lot of time and energy on building leadership behaviors internally, creating and supporting a culture that encourages people to be focused on learning, and I would say taking risks. It’s interesting to me that so many of our younger folks seem to struggle with the idea of taking a risk because I might fail. And if you’re running a business like this, you really need people to take smart risks. Not crazy risk, but you need them to take smart risks and try doing things different ways and experiment with what works and what doesn’t. Without that, I think a firm like ours, it’s very hard to grow and be successful over the long haul.

Michael: So, what do you do to try to build leadership behaviors internally?

Richard: It’s something we’ve spent a lot of time on. We do a whole host of things. So we have some internal training that we offer ourselves. So it might be a series of lunch and learns, it might be some formal training that occurs with people at different levels on skills, on communication skills, on how to have difficult conversations, on how to lead through a change process, the kinds of things you might anticipate, all of that kind of stuff.

So we do formal training, we do informal training. We try to have a lot of informal interactions where I try to interact with some of the younger folks in the organization to give them the benefit of experiences and storytelling and things like that. We do use some outside personality testing. We’ve used things like the DISC analysis as a great way for people to understand communication styles among the teams. We have had a series of leadership retreats over the years, where sometimes a client comes in.

Sometimes other outside speakers come in and talk about leadership. We’ve had some Navy SEALs come in and talk about leadership from their perspective. So it really is just a whole host of things that we do. And we’re always looking at the lists and trying to figure out how to do it better and more effectively.

Michael: And you’re tending to hire at this point straight out of college? Do you go that young or you like to get people who’ve been for a few years and then bring them into your environment?

Richard: Our tendency recently has been to hire more directly out of college and to really work hard on training them. Because there are so few firms that operate the way we do that having a couple of years of experience doesn’t seem to necessarily help them in the way that we’re looking for it.

Michael: Right. And as you look at that development cycle, how long do you envision it takes from like, “We hired a college student” until, “This person is going to productively be able to handle a client that might have $50 million-plus?”

Richard: That’s a really good question. The people that we promote to be that sort of junior advisors they’re anywhere from 8 to 10 years to get to that point where they are really handling a lot of the day-to-day client activities. Some will do it more quickly, and others not. It seems to be somewhere in that range.

Michael: So like, I don’t know, just from the business end, how do you justify eight years into someone who then may get developed and decide they want to go out and hang their own shingle or do their own thing or go somewhere else?

Richard: It’s always a challenge. It’s always a challenge because there are lots of opportunities out there because the supply-demand is what it is. There’s a lot of demand for the people that do this kind of work and have this kind of training. And it’s kind of ironic, the more we spend on training and the better job we do, the more attractive as candidates they are. So we’ve got…we try to do a lot of things not only to entice them to the organization but to try to retain them long-term.

Michael: And what do you find supports for retention, so you don’t hire them, train them and then have them leave?

Richard: I think it’s a lot of those same things. I think a lot of the things that we do to train and develop them simultaneously work to retain them. And I think a lot of it is the experience that they have and the challenge. The clients that we serve day-to-day are extremely interesting, very successful families, lots of interesting and challenging issues. We have to provide them with a valuable long-term career opportunity. So there’s always an element of compensation there, a whole hodgepodge of things.

Michael: And then where does it fit in? I know you have historically had a lot of involvement in Investments and Wealth Institute’s CPWA, Charter Private Wealth Advisor program as well. Where do you think about things like CFP certification or CPWA in the context of all the rest of what you’re talking about? Because like with the CFP, in particular, I still view it as a good anchor designation for being a financial planner, but like, we are not learning how to conduct multi-generational family meetings in CFP certification.

You really start getting into it a little bit with CPWA, but even CPWA still has a fairly heavy technical tilt to it of just all the technical stuff around how do you deal with ultra-high-net-worth clients in terms of estate planning and retirement accounts and the rest? So, how do you look at, I guess, like structured learning programs and involvement in something like CPWA versus what you do internally versus, just call like the school of hard knocks reality, like, some things you’re not really going to learn about how to handle a client until you manage to do it wrong and hopefully not blow up the relationship in the process and learn from it?

Richard: I think that all the things that you noted through there. I think the CFP program does a great job of providing broad-based information and knowledge to somebody who’s coming into our organization. So we support people not only getting the designation, but I think it’s equally important that they go through the classes. We have a variety of classes that are offered near our work location. And so we give them that training.

I was very involved in the creation of the CPWA, and in the creation of the designation itself, it was very much driven by what you alluded to, which is the type of clients that we serve. We need a lot more depth in certain areas than in others. And it was intended to supplement that CFP training and knowledge. So we actually use those things and support them, and support folks getting those designations as one of the parts of getting them the technical depth that we need them to have.

We’re always looking at other programs as well, whether it’s just one-off conferences or other things like that. From my perspective, I try to encourage people to make sure that it is relevant to what we do. It’s not only just the technical knowledge either; it’s the exposure to other people, the learning they get from people that are in the classes with them. And as you know, I think it just creates a great dynamic and a great learning process for people that are going through that development.

Michael: Are there other, I guess, like programs or conferences or organizations that you would highlight as being helpful to learn this stuff? Because I know for a lot of advisors even that want to go this direction, sort of the, “I have trouble getting a job in a firm that does this because I don’t have enough knowledge and experience. And I can’t figure out where to go to get the knowledge and experience because everyone says it’s experiential and there aren’t very many conferences and programs for it.” So for people who are looking for structured learning, because they don’t live in this environment already, it sounds like CPWA is one, because you were involved with it, but are there other conferences or programs or organizations or designations that you look at as being helpful in trying to learn some of this stuff?

Richard: So there are programs in some of the major universities that are helpful. So there are several family business programs around the country that I think some are very, very good. The organizations that focus on this family office world the most, the two that I would note would be the Family Office Exchange and then the Family Wealth Alliance, both out of Chicago. They offer membership programs, but they also offer various types of development, whether it’s webinars or other means of delivery. They offer fairly regular conferences and serve as a resource and perhaps even clearinghouses for jobs, those kinds of things. Both of them are very focused on this family office market. And so I think that’s a good place to start.

Michael: Including, I guess, even join, get some of the education, get involved, and then check out the job boards if you’re trying to figure out how to find a role.

Richard: Absolutely.

Michael: So, having done this now for nearly 20 years at Tolleson, what surprised you the most about trying to build and scale up a multi-family office business, living this model?

Richard: What has surprised me the most? It seems like there’s a surprise every day. It’s rewarding in so many ways. I thrive on challenges and learning new things and trying new things. And so I think it’s been amazing as an experience. The surprise, if there is one, probably is how hard some of the operational issues are.

Because in a firm like ours where we have this core advisory team and then we have a series of specialty teams, each one of them is looking for very different things, very different people, the way they interact is sometimes different, sometimes they’re more introverted, sometimes more extroverted. Making all of that work together effectively takes a lot of time. And in some cases, it’s challenging. That’s the hard work, is making all of it actually function together.

Michael: In what’s heavily a people dynamics issue because you’re a people business.

Richard: Yeah. I constantly tell people that our secret sauce is collaboration. It’s not really secret. But it’s critical that you get it right. We all know stories about sort of surface-level collaboration, but we require, for the things that we’re doing, we require very deep collaborative work from the very beginning of any client project.

When we’re designing an estate plan, we need to have a tax person there, estate planning person there, maybe an investment person in the room. And we’re trying to get the benefit of all of the different areas of expertise and put all of that together to benefit our client families. And it’s a harder process than it sounds like to get really what I would refer to as a deep collaboration.

What A Typical Week In Richard’s Life Looks Like [01:28:32]

Michael: What does a typical week look like for you at this point? So you have some management functions, you still have some client-facing functions. What does a week in the life of Richard Joyner look like at this point?

Richard: I would say on average, it looks something like…I’d probably divide it into thirds. About a third of my time is directly involved with clients. I’ve never given that up. And I hope I will never have to give that up. The second third, I would say, is working with other teams and team members. And so one of my personal fears was always that I had to give up client work to have a leadership role. And it hasn’t turned out to be that way at all. It’s really more a matter of redefining what that relationship is, and my involvement is.

So that second third is the chunk where I get involved with other teams. I consult with them when there are issues that arise. We’re doing our best to make sure that we’re bringing the best resources to a client and so on. And that final third I would call is just sort of the corporate leadership aspect of it. Working on strategy and financials and where we go next and that kind of thing. And yeah, it varies from week to week, but I think that’s a pretty good overview.

Michael: So you made a note there of what for you was a concern about, do I need to give up clients in order to take on a leadership role and, I think as you put it, finding that balance by changing the nature of the relationship that you have, that you still hold on to? So can you just talk about that a little bit more? How have you found that balance? I feel like this is a challenge and a fear for a lot of advisors, like, I did this to work with clients, I want to make a bigger thing. I’m told I’ve got to focus on the leadership stuff and give up the client stuff. I don’t really want to give up the client stuff. So, how have you managed to find a balance to do both?

Richard: So the way I describe it to most people that ask is that there are really two elements to it. The first element to me is deciding what you’re not going to do. And I tell people constantly that I think the decision about what you’re not going to do is the most important decision you make every day. And so I try not to let myself get sucked into things that don’t require my involvement, that I don’t really add much to, or whatever it may be. So to me, that’s a big, big, big first step, and I don’t see enough people working on that kind of thing.

The second piece is that in situations where I was for many years the primary or the lead advisor, and I was bringing somebody into the transition process, in each one of those, we spent a lot of time going through, in considerable detail, what my role would be vis-a-vis the rest of the team. So if I’m going to take on a lesser role, what does that mean? Does that mean I’m copied on every email exchange? Does it mean I see every trade that goes on? Does it mean I’m involved in every quarterly or important meeting with the client?

We actually had to go through, in most cases, a pretty detailed process around that. Some of it was trial and error. And so for me, it was making sure that I could maintain a level of involvement. Or I had members of the team that were briefing me on what I needed to know on a regular basis, to maintain the right level of involvement, not to be micromanaging the team, but also not to be so uninvolved that it feels to the client like I’m just showing up. There has to be some reason for me to be there that’s substantive.

Michael: So, where did you land on this? Like, do you still get every email, CC’d on every email? Do you still look at every trade? Are you still in every quarterly meeting with clients?

Richard: So on the clients that I continue to serve, they’re all a little bit different. So there are some shades of gray here, but I typically don’t get involved in all the day-to-day. I don’t see all the day-to-day emails. I don’t see all the day-to-day trades. The team does that. And the leader of the team is responsible for that. But I do, in most cases, have regular briefings. And so for me, those regular briefings are about issues. They’re about the status of the engagement or, “Where are we on the estate planning process?” They are, “Have we run into any problems? Do we have all the resources that we need?” So we’ve tried to define the things that I think I need to know to continue to be effective. It’s a little different from client to client, but it has worked extremely well. But it takes a lot of time and deliberate process around it.

Michael: So, how often do you do this client briefings structure? Is this a weekly meeting, a monthly meeting? Because I know things move fast for some of your clients.

Richard: It typically is some kind of a weekly check-in. That could be somebody just breezing by my office door saying, “Things are okay.” Every few weeks or maybe once a month-ish, we probably need to have a sit-down to actually talk about how the client processes are moving and some of the more detailed pieces of that. So it’s a combination of things.

Michael: So, what was the low point for you on this career journey of building in the multi-family office world?

Richard: That’s a good question. The low point actually probably was before that. I practiced in one of the big CPA firms for years, for over 20 years. And probably the lowest point was going through that thought process, whether a big CPA firm can actually put together a business that works, that essentially provides the services in a multi-family office. It became very, very hard to do, and I eventually moved to Tolleson, where I’ve been for quite a while.

Michael: So the low point was kind of that realization of, “Oh, wait, maybe the place I’ve spent the past 20 years building my career isn’t actually where I’m going to be in the long run?”

Richard: Yeah, yeah, exactly. Why did it take me 20 years to figure it out? I’m still debating that. I don’t know.

Michael: Was there a particular moment or trigger point of just, “Oh, okay, this is going to have to change?”

Richard: No, I think there were things going on in the CPA firm world that really precipitated it. Sarbanes-Oxley became law about the time I moved, and it was clear that they were not as focused on this set of services because of the potential for conflict between their audit clients and the executives and the senior people that ran and owned those businesses. So that probably was a precipitating factor. But once I saw what could be done in a sort of an independent firm like this, it’s been an amazing run. It’s not always easy. So there are ups and there are downs, just like there are with anything else. But on the whole, it’s been amazing.

Michael: So as you look back over having spent the past nearly 20 years building at Tolleson, is there anything you know now about what it took to build this and make it work that you wish you could go back and tell you from 20 years ago when you were getting started in the independent channel?

Richard: No doubt. I wouldn’t have been as afraid of making this transition that I made into more of a leadership role. And I think that would have been a really important thing for me to know at the time because it was just not something that I felt like I wanted to do because I felt like I was giving up too much.

I certainly wish I had had more training and leadership skills. When I took this particular role that I’m in, it was 2013, and I had to do a lot of learning about leading a bigger organization. And I don’t know that there’s a great way to learn that. You do a lot of reading, you do a lot of study, and you do a lot of trial and error. You try to talk to as many people that are good examples as you can talk to. I could have used that training a lot earlier in my career, really could have.

Michael: Any, I guess, like training or books or something that you read or went through that had a big impact in figuring that out for yourself?

Richard: I’d love to read anything by Patrick Lencioni. Great leadership author. There’s one book called “The Ideal Team Player” that I think is absolutely wonderful. Stanley McChrystal wrote a book called “Team of Teams.” I thought it was a great book. But I’m a big reader, so I’m constantly reading new things about leadership.

Michael: What’s the current read or sitting on the nightstand now?

Richard: The current read is, there’s one called “Traction” that somebody gave me that I’m about to start by Gino Wickman. I’m not familiar with it. And then there’s one by Michael Hyatt. I’ve forgotten the name, but it’s sitting downstairs, though. It’s “Vision Centered Leadership” or something like that.

Michael: Okay. Oh, “Vision Driven Leader.”

Richard: Yeah, that’s it. And I’m about two-thirds of the way through that, and that’s a really good book. I’ve really enjoyed that.

Richard’s Top Advice For Getting Started In Multi-Family Wealth Management [01:37:54]

Michael: Very cool. So for folks who are listening, this is episode 182. So if you go to kitces.com/182, we’ll have links out to some of those books. So you don’t have to like stop and pull over and write them down right now. We’ll have them for you so you can look them up later.

For younger or newer advisors coming in that want to be in this family office, ultra-high-net-worth environment or trying to figure out how they get from where they are to there, any advice that you would give about how you start going down this track if this is where you want to take your career if these are the kinds of clients you want to work with?

Richard: I think you have to make an effort to learn more about the industry and about this particular segment of the industry. How do you do that? I think you go to some of the organizations like the Family Office Exchange we mentioned earlier. I think networking with people who are already in this part of the industry is extremely helpful. It is different because it is so specialized and so focused on particular types of clients and their issues that I think doing that work and really learning from that kind of a process is probably the most critical thing. You have to find it. You have to go look for it. And by definition, most single-family offices, they try to keep a low profile. So sometimes it can be hard to find the organizations or the people that run them, but it’s worth the work.

Michael: So that’s either like, why you go to an organization like Family Office Exchange because they’re gathering there, because the organization is built for it. Or I guess it sounds like you’re saying even just try to be creative on the internet and figure out where single and multi-family offices are, wherever you are, and just what, reach out to them, say, “Can I take you out to lunch and learn more about what you do?”

Richard: That’s what I would do. I don’t know of any other way to sort of break into a group like that, because I don’t think the information is widespread or easily available. So you do have to do some work.

How Richard Defines Success For Himself [01:40:02]

Michael: So, as we wrap up, this is a podcast about success. And one of the things I’ve always observed is just that even the word “success” means different things to different people. Sometimes it changes for us as we go through our lives. So as someone who’s built their career in this and now leads a major multi-family office and has kind of checked the business success box, how do you define success for yourself at this point?

Richard: So I’m approaching 40 years in practice. And I can tell you at this point in my career, the way I define success is much more about what I leave for others. Giving back to people in the industry and to the industry itself has always been important to me, but it’s much more important now than it ever has been. So for me, that means creating an organization like Tolleson that is a sustainable organization that is full of people that are great leaders and with a passion for doing things right for their clients, motivated by the right things. If I can leave behind that sort of a sustainable organization, I will feel great about what I’ve done. But it’s more than just that. It is giving back to the industry. It’s continuing to build an industry that pays attention to the way they do things and creates those educational and learning opportunities for members of that community. I feel more passionate about that than I ever have.

Michael: Well, I love it. I love it. And certainly appreciate what you’ve given back for Investments and Wealth Institute and CPWA, where we’ve crossed paths a few times over the years. And really just appreciate you joining us to share the story on the “Financial Advisor Success” podcast.

Richard: Thank you, Michael. It’s been a delight.

Michael: Likewise. Thank you.