John Jennings – Balancing Customization and Scalability

John M. Jennings is President and Chief Strategist of The St. Louis Trust Company. In these roles, he leads the client service practice and is responsible for developing and implementing strategic initiatives.  John is a member of the firm’s Management Committee, on its Board of Directors, and also serves on the Investment, Risk Management and Trust Committees.  

John works closely with client families, advising them in all areas of wealth management. Prior to joining The St. Louis Trust Company as a founding principal, John gained varied professional experience in investments, tax, estate planning and trusts in the Private Client Service group at Arthur Andersen LLP and in the Estate Planning and Tax practices at the St. Louis-based law firm, Armstrong Teasdale LLP.  John earned both his Bachelor of Science in Finance and Banking (cum laude) and JD degrees from the University of Missouri.  

A past St. Louis Business Journal “40 under 40” honoree, John is a frequent speaker on investment, trust and various other family office topics. Personally, John is married, the father of two teenage daughters and an avid reader, skier, music lover and is vegan.  He serves on the Boards of Logos School and the St. Louis Community Foundation, where he chairs its investment committee. He is also a trustee of The Saint Louis Symphony Orchestra Endowment Trust. He is an instructor at the Olin Business School at Washington University in St. Louis. Daily he produces an “interesting fact of the day” which can be found at http://www.theifod.com. 

Additionally, John is a Forbes contributor writing about wealth management topics. https://www.stlouistrust.com/author/jjennings/

Transcript:

Seth Greene 0:00
Welcome to the podcast. This is your co host, Seth Green. Today I have the good fortune to be joined by john Jennings president and chief strategist of the St. Louis Trust Company. JOHN, thanks so much for joining us. I’m super happy to be here. So, all right, so for our folks watching and listening and tell us about the St. Louis company, St. Louis Trust Company, what do you guys do and who do you serve?

Unknown Speaker 0:21
Yeah, so we our multifamily office started about 19 years ago out of the ashes of Arthur Andersen. So, you know, I worked at Arthur Andersen for about four years. And when it was imploding in the wake of the Enron scandal, I was like, Oh, this is horrible. But looking back, selfishly, you know, personally for us, and I think other people that were there, it worked out really well. So. So being a multifamily office, we work with 60 client families, and we have 55 employees, so nearly a one to one ratio.

Seth Greene 0:51
That is awesome. That’s it? Yeah, that’s a great ratio. And so what is it that you think makes the St. Louis Trust Company other than the ratio obviously, stand out? And how do you differentiate yourself?

Unknown Speaker 1:04
Yeah, so I’m kind of to borrow from Peter Thiel, the venture capitalist, you know, he had this great book, zero to one and other venture capitals have talked about this, like, truly successful companies need to have a secret. And the definition of a secret in their parlance is what do you believe that most other people or businesses don’t believe? And if you told them that, you’d think that a sort of crazy so and pretty much every business, but especially financial services, there’s a trade off between customization and scalability. And the goal for most businesses, almost all of in the financial services industry is to increase scale. So for instance, we work with 60 client families and oversee and advise on about $13 billion of assets with 55 employees. So imagine just the profits, if we double that to 120 and 26 billion with the same 55 employees, we’d be like, where do we stack all our Benjamins? Right? What our secret is, is, we believe that if you are as customized as possible, and you don’t scale, that that’s a great business. And you can be profitable, and you can really be among the best in the entire country, or entire world, which would mean the entire solar system. And I don’t go further than that, because who knows what else is out there? Right. So

Seth Greene 2:35
that is an excellent point.

Unknown Speaker 2:37
So we want to be as close as possible for our client families to a single family office. And we’re able to do that, because we’re 60% owned by clients. So the main, you know, our main ownership group, you know what, it’s kind of nice when you know, they get a nice dividend. The number one thing is they want us to be customized and serve their families well.

Seth Greene 3:01
Alright, so that could that that’s very interesting, talked a little bit more about the and that’s probably another thing that differentiates you talk a little bit about the ownership structure.

Unknown Speaker 3:11
Yeah. So when we started, we decided to be a Trust Company, and we needed working capital, but we also needed capital to be a Trust Company. And so we turned to, you know, we turned our initial set of clients. So they were, they were early investors in the company. And as we’ve grown, we’ve had some other clients that have bought in and we are overseen by a board that is all, you know, all but two of us are, you know, clients on our board. And so, you know, clients that are on our board, buy in, and and it’s really, it’s really great. The other 40% is owned by, you know, our primary founder owns a chuck chunk, who’s now retired, and the rest is principals of our firm. So

Seth Greene 4:02
and, obviously, we’re not asking you to break confidentiality to, quote, disclose any names, but what types of families do you work with? Yeah, so who is an ideal client for you?

Unknown Speaker 4:14
So it’s interesting. So if you look at the size of our clients, you know, I don’t believe we have anyone that just made a lot of income, like we don’t have any wealth generators that are doctors or lawyers. And we don’t really have anybody that just saved money and invested in the stock market really, really to create great wealth. You have to have equity in a single company usually. So you put together your you know, you’ve taken a big risk, you’ve been concentrated, you put your own sweat equity into it, and you get lucky. So our client families, somebody did that. Whether we’re working with a first generation or you know, we’ve worked with we have sixth and seventh generation. We will So they, they either started a company, and then over time it was was sold, and sometimes they start multiple, or they were an executive at a public company and and was able to buy in or be granted a lot of equity. So that’s who our clients are, or their descendants.

Seth Greene 5:17
What are you finding some of the biggest mistakes they’re making are that they’re coming to you to help fix, or that they want to help your help to avoid?

Unknown Speaker 5:28
Yeah, you know, we get, we get a quite a few client families interested in us that realize that they need a higher level of customization and service. And really, at this sort of wealth, the wealthy families that kind of the waters we’re swimming in, kind of use a shark reference. So yeah, it’s, there’s a lot of, there’s a lot of sharks out there. But the level of wealth we’re dealing with, there’s no real just platform they can be on. So if you go to a lot of investment firms, they’re like, okay, here’s the way we do things. And the family needs to fit into how we do things. And we flip that on its head, we say, you know, we’re going to help you invest and do everything else in your lives, the way that fits your values and your goals. Right. So that’s, that’s number one. And number two, we see a lot of client families have just really been burned in the financial industry, even if they’re working with, you know, some of the really big name, you know, kind of gold standard firms, they just feel like, you know, the desire is the firm, the investment firm, just throwing things at them, just trying to sell them. And it’s all about their profitability, the investment firm, rather than what the family needs. And so we were having come in, they may still work with that firm, but they’re like, okay, we need somebody to help us to look at all this stuff and say, Okay, this makes sense that doesn’t, and we really start focusing on fees and taxes and things that the investment industry really doesn’t like to talk about.

Seth Greene 6:53
Okay, so you say you segued into the next question perfectly. So what are the services that you offer beyond the traditional investment management that they’re attracted to? They go beyond that Main Street offering, right.

Unknown Speaker 7:09
So you know, one of the we have three main lines, one of the three is, you know, investment management. And, you know, we do a nice job of investment management, but you can find good investment managers all over the place. The second thing we do is family office, and I think a great thing. And we sort of, you know, we started in 2002, we rode this wave, where, you know, people didn’t know what a family office or multifamily office was, you know, nearly 20 years ago. And so we really wrote this way we were, we were sort of early. And I think what’s great for investors is pretty much every, you know, financial advisory firm or investment firm out there says, Okay, we’re going to provide some family officers, I think that’s great. But it’s hard to do, if you have 100, you know, every advisor works on 100, or 250 200 200. accounts. So the way we do family office, is each of our professionals only works with, you know, five to seven families. So it really allows you to dig in and do bill pay and cash flow and help with charitable planning and educate kids, you know, the next generations about wealth and put together a strategy, and on and on and on and on. I mean, there’s just all these these ones off, you know, private jet charter, and, you know, should I lease or buy my car, or, you know, the next generation, I’m starting a business, can you help me on that, and we do all that. The third line of business is we can either be trustee, which is a really a convenience for our clients, there’s different reasons, they may need a trustee, or they had it, have a corporate trustee, that’s, you know, some big institution that they don’t feel like they’re a fit with anymore, and they can move to us. But probably a bigger thing is a lot of family members serve as trustee for trusts, and, you know, partnerships and things like that. And we help them be good trustees or, you know, managers of their LLC and do all the legwork behind the scenes. And, and there’s liability, you know, I, you know, there’s, there’s all these cases you hear, you know, both around where I live and nationwide about, you know, families Sue each other, and there’s, there’s real liability when you’re trustee of a family, family trust, so we help them with with that. And by the way, real quick, you know, even though our name is St. Louis trust, and we’re actually in the middle of rebranding to St. Louis trust and family office. So it hasn’t really been released yet. But we have clients in 33 states and some some, you know, family members live out of out of the US and, you know, our biggest growth areas have actually been on the coast. So, notwithstanding our name, we are not a local organization. We are nationwide.

Seth Greene 9:38
Understood. Now, you talked about a lot of the majority of the families be having a at some point in their history. There was a business that was started perhaps there’s some liquidity event or something that qualifies them to have the cash to work with a fat multifamily office like yours. How are you helping them because I mean, there’s a stereotypes and cliches of shirt sleeves to shirt sleeves in three generations, and how many businesses don’t make it past generation three? How are you helping them bridge that gap?

Unknown Speaker 10:09
Yeah, that is that is a real issue. And really what drives shirt sleeves to shirt sleeves, and you know, three, or four or five up here, stated different ways, is is a big part of that as math. So I’ll give you an example. So there’s a CLI family we’re with its, I think the main, the main ones we work with are depending on how you count fifth or sixth generation. And if you look at their, you know, this, this generations grandmother, so the grandmother and the grandfather, so they had a big chunk of wealth. And then they had six kids, and they paid a state tax. So the six kids then had one six of the wealth, less tax. And so the grant, the grandparents lived amazingly well, like they had just money just flowing it, the six kids, also very wealthy lived well, but it was a step down, right. And then those six kids, it varies between having two to six kids for each of those six kids. And then that drops down and there was a state tax. So a lot of it is math, that you know, even even if you invest well, and you control your spending, you know, some of it’s just math, and where we see some families not go shirt sleeve shirt sleeve, some of it is just because they don’t have as many descendants. So if the grandparents had one child who turned out had two children, you know, you can out earn that math, so part of it is just looking at the math and setting expectations, and just telling a lower generation, by the way, you know, even when all the money flows down to you, just because of the math, you probably can’t live as your parents did. And you definitely can’t live as your grandparents did. So that’s the first thing. So some of us just, it is what it is. The second thing is, is fees, and taxes are huge. So limiting fees, and taxes is is is really important. Investing well. And investing well isn’t just always, okay, I’m going to go out and you know, I’m going to find the next Facebook while it’s private or beyond meat or whatever, you know, Tesla and SpaceX is gonna be all this, this growth. I mean, that’s great. But that’s really hard to do. Part of it is just not making big investment mistakes. That’s, that’s, that’s a big deal. And then a state planning. So the way the estate tax laws are in wealth transfer tax laws are now you know, paying a state tax is largely optional, if you plan it early, and often, and you’re willing to do what it takes. And we’ve seen this time and time again, people that have 10s of millions of projected estate tax liability, and 10 or 20, late years later, it’s it’s zero. So, you know, we’ll see what the future tax laws hold. But it it really is optional. And all the time we see people that wait till they’re their 60s or 70s, or have a family owned business, and they’ve done little estate planning, and it can just be devastating, again, in terms of the math, and how that that passes down. So that was a long answer. I could talk more on it. But I think that’s it’s probably pretty good.

Seth Greene 13:16
How has the COVID pandemic affected your business and your clients?

Unknown Speaker 13:25
If you would have told me 18 months ago that this was gonna happen, you’re gonna have this pandemic, and we’re going to work virtually and we couldn’t visit, even our clients live locally because of, of health concerns, I would have been like, Okay, this is good, it’s gonna be devastating. And what has been surprising is how well it’s gone. So we’ve been able to, we transition remotely, you know, over a three day period last March. And our people just done a great job. You know, meeting with our clients virtually, and staying in contact with them, you know, we call them a lot. They didn’t call, it’s gone really well. Now, I will tell you that my analogy I use is both in terms of our company culture and working together and client relationships. I felt like we were running on battery power. So it was working. But I felt like the battery was degrading and training over time, right? And I wouldn’t want to do this for you know, two years or five years. And we are, you know, with the vaccines and almost everybody in our company is vaccinated, more people are coming back to the office. We’re bringing them, you know, everybody’s gonna start coming back to the office more The day after summer solstice. So he didn’t want to interfere with summer solstice celebrations, but it’s going to be the day after the summer solstice. We’re traveling to meet clients, we’re meeting him in person. It’s really fantastic to see everybody again, but again, I was just stunned that there wasn’t more of a disruption and how well it went. And I just think about him. What if this was, you know, even 10 or 15 years ago? And we didn’t have all the technology we do, it would just be a far different situation.

Seth Greene 15:06
Absolutely. How has it changed the investment advice you’re giving your clients?

Unknown Speaker 15:11
I don’t, it really hasn’t really hasn’t, you know, going in even going into the pandemic, you know, we’re big on on the belief that, you know, the financial industry, models risk and returns using the standard bell curve, or the normal distribution, the Gaussian distribution, that doesn’t work, that math does not work, you cannot take projections and and say, Oh, well, this is your downside risk, or this is what’s going to happen. So we’re very big on investing. Acknowledging the uncertainty of the future, part of that means having an adequate margin of safety. And so when we hit the nearly 35% doubt, and just over 30 days, so, you know, the the, the 30% down that occurred in it was the fastest drop in the stock market ever, even faster than some of the times in 1929 1930. So, really, No, none of our clients panicked. And some of them rebalanced and really rode the, you know, sold high and our, you know, take to liquidity and bought low thing. So, you know, they really did quite well, or did fine through it. Now, if it had gone instead of 34% down, if it had gone 70% down. Yeah, that would have been, you know, it would have been, it would have been more difficult, but it just really reminds you just the folly of trying to forecast when investment returns are. And a lot of the industry says okay, well, you know, and I did it. I am also a contributor for Forbes, I wrote an article wrote a few hours, I’ve written a few articles kind of lambasted this idea that you can predict and a common excuse that people give when they predict is, well, I couldn’t have foreseen that, I could, I didn’t know that there was gonna be a pandemic, or that, you know, going back that you know, 4% of the mortgage market of some Prime’s would be one of the main things that led to, you know, unraveled the, you know, the entire financial system, almost or, you know, who had on their, their, their scorecard for 2021, that a boat, we get stuck in the Suez Canal and further disrupt global supply chains, or that a tsunami would take down the, the reactor in Japan, you know, and these things happen. And it just reminds again, with a pandemic, you, you should invest in a way that’s robust to the unexpected. So it’s just, it’s really been a great lesson. And if you don’t mind me saying another lesson that just says home again. So the stock market and economy are not correlated, you can’t look at what’s going on in the world or the economy or even geopolitically and say, now I’m going to make investment decisions. And three days after, in retrospect, what was the bottom, I wrote an article in Forbes, and it was advice we were giving their clients and reiterate with the clients, that they’re just not correlated. And the point of the article was, we’re heading into a really bad recession, unemployment was spiking. The stock market was dropping, everything just seemed horrible. But the point was, is you shouldn’t sell out of your portfolio, just because the news is bad is going to get worse. Because they’re not correlated. And then what happened is, you know, turned around and had a, you know, 70 some odd percent gain from about the time that I wrote that article, and what people have said to me is, Jennings, how did you know, we had bottom? And I said, No, you don’t understand the point of the article is, I didn’t know and that nobody knows. And you should invest, like you don’t know. And a challenge we have sometimes is talking to prospective client families that want us to give them the certainty of, we know what’s gonna happen. Instead, we say, we don’t know what’s going to happen. And we’re going to invest that way. And we find that our clients that are very sophisticated investment wise, love that. And some investors that are less sophisticated, you know, don’t choose us, they want to go to the big bank or investment firm that says, you know, here’s our chief strategist, and you know, the s&p is going to be up 14% this year, and blah, blah, blah, blah. And they like that certainty. Because as humans, we don’t like uncertainty. If somebody says, I know what the future is going to be, we get this dopamine rush or like, we feel good. So, again, I’m just like, sorry,

Seth Greene 19:30
that’s quite a fascinating answer. When you are not serving as president, what do you I know that you are an avid reader? What are a couple of the best books you’ve ever read that had the biggest impact on your career?

Unknown Speaker 19:44
So, you know, the Black Swan by Nassim Taleb had a huge effect. I read that shortly after it came out in in 2007. I’d like to say that I read it was like, Oh my gosh, I see you know, 2008 coming, but let’s, let’s at least open my eyes to it. And it really last few years, one of the books that has, you know, just, I was just like, wow, just really, you know, knocked me as like I’ve learned so much and really caused me to see the world a bit differently. There’s a book called scale, by Geoffrey West, who was a physicist at Los Alamos, and then went over to the Santa Fe Institute, and was the head of the Santa Fe Institute, if you don’t want the Santa Fe Institute is it’s a academic think tank and their, their main area of research is complex adaptive systems. It’s how things interact, when you have intelligent agents and feedback loops and everything, which is really how the stock market works, by the way, why we that’s why we can’t predict it. But this book is all about scale, like power laws, it’s on about organisms and businesses and things and what a power law really is, is, I’ll use an example of let’s let’s use the example of book sales, you can look and say the, you know, that there’s, you know, how many ever books published in the USA, every year, it’s, you know, hundreds of 1000s. And you can say, the average book, you know, sales 10,000 copies. And if you think in terms of a bell curve, you’re thinking, Oh, you know, there’s, you know, kind of, if you’re listening, I’m sorry, I’m like drawing a bell curve with my hands, high in some low, but a lot around the $10. That’s not how it works. You have people like Stephen King, and JK Rowling, you know, you have this very small percentage of authors that sell a ton of books, and then drops off immensely, we have this very long tail of most books selling, you know, less than 2000 copies, less than 1000 copies. So that’s a that’s a power law distribution, or think about wealth. So, you know, if you take a, you know, you go to a concert venue that has like, 2000 people, and you go, okay, the average income of these are that, let’s say, the average wealth of these people is, you know, $250,000, if you average it, right body, and if you think bell curve, you’re like, oh, okay, but imagine if, you know, Bill Gates walks into the room, okay, the average just skyrocketed. And it doesn’t tell you anything about what everybody else has. And, and that’s the way wealth works in America, too, is at every stage, you know, you look at the top 50 versus the low 50. And then the top 10%, the top 1%. At every stage, there’s a few number of people that are massively out of range that that affect everything else. So this book is all about that is a little technical. Like I’ve, I’ve talked before about how much I liked this book, I’ve had people that have like I couldn’t get through it. So if you want to just really expand your mind, but it’s work scale by Geoffrey West.

Seth Greene 22:40
Great recommended patients fascinating interview, and anything else want to share that we didn’t think to ask you yet.

Unknown Speaker 22:46
Well, I would just like to, if I could plug my blog, of course, please. So I write a blog a few days a week, it’s called the interesting fact of the day, it really should be called what Jenny’s thinks is interesting, but I get a you know, it’s very well received. And it’s just all sorts of different things. Some some times as things on leadership, sometimes it’s as simple as its national Grilled Cheese Day, you should go eat grilled cheese, and, you know, today’s sent out as a rerun because my daughter guys, graduates from college tomorrow, and it’s on the five best commencement speeches. So it’s just a lot of different eclectic thing you can think you can find it

Seth Greene 23:22
at V th e.

Unknown Speaker 23:25
iPod, which stands for interesting fact of the day. So th e, i fo D calm, feel free to subscribe, feel free to unsubscribe. But just me, I find that people say that it kind of kind of tickles their interest in things. So.

Seth Greene 23:39
All right, well, this has been Seth Green with john Jennings of the St. Louis Trust Company. JOHN, thanks so much for joining us. Thank you so much. Thanks, everybody for watching or listening. We’ll see you next time.

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