joel isaacson

Ep013 Building Client Relationships

Building A Client Base with Joel Isaacson

Joel S. Isaacson, Founder and Chairman Joel Isaacson & Co

Founder and Chairman, Joel Isaacson, is considered by many to be a leader in the industry, helping clients and their families achieve their goals and sharing his knowledge with colleagues and the next generation of industry leaders. As a teacher as well as a practitioner, 

Joel is active in many industry organizations, having served on numerous boards and speaking on topics to share his insights, including: the New York Chapter of the International Association for Financial Planning, now FPA; Chairman of the Personal Financial Planning Committee of the New York State Society of Certified Public Accountants; the American Institute of Certified Public Accountants and the Estate Planning Council. He has taught financial and tax planning at New York University, The New School in New York City, and Iona College.

He holds a BS in accounting from Lehigh University and a MBA in financial planning from Golden Gate University in San Francisco, where he was recently honored as their ‘man of the year’.

Frequently named one of America’s Top Financial Advisors by Worth magazine, Joel is often quoted in financial publications such as the Wall Street Journal, New York Times, Business Week and Fortune, as well as on radio and television.

Listen to this episode as Seth and Joel discuss:

  • The key factors that lead to the unprecedented growth of Joel’s firm.
  • Getting recognitions and accolades in press.
  • Post Covid challenges in the financial advisor industry.
  • Team Building and getting the most out of your staff.
  • The most common challenges that the industry faces now.

,,, and much more.


Seth Greene: 1:14
Let’s go back in time, how did you get started in the business?

Joel Isaacson 1:32
Wow, it was a different kind of a business back then. But I was I was working in San Francisco for an accounting firm. And one day I looked in the paper and there was a MBA in financial planning at a school in San Francisco Golden Gate University. At the time, it was the only one in the country offering financial planning as a degree. Back then I think the CFP, you could take, I don’t even think you had to take an exam. I don’t I think it was sort of like, you know, pretty straightforward. So I wanted to get the education. And I left my job with a big eight accounting firm, went through the grad school, and then came back to New York and, you know, took a job as an entry level position there.

Seth Greene 2:14
And then I’m sure the longer version is in some of those articles or the books, but then how did you get from there to where you are now.

Joel Isaacson 2:22
So when I came back to New York, I worked for so and I took a 50% salary cut, you know, because again, it was an entry level position. And you know, and I probably learned more in that year of what not to do, it was someone who was one of these people that charges a lot for the plan, and then didn’t have the ongoing revenues to you know, keep it going. And these were the days, it’s a little embarrassed to say we used to do plans by modem used to cost us 1500 hours each plan to do by modem to get them done. And so I started with this person. And while I was there, I got recruited. My background was accounting firms, I got recruited by one of the top accounting firms in New York to start their practice. And I believe we were the first one to register as an investment advisor was in 1985. And, and that was great, it was really good chance to, you know, kind of use the NBA use the opportunity to start a practice and I was only 26 at the time.

Seth Greene 3:24
And then how did you get from there to the you know, I mean, you’re a leader in the industry, how did that transition? How did that growth curve happen?

Joel Isaacson 3:35
Again, yeah, so you know, when, again, it was a, it was a great chance, because you know, as well as things where I started bringing in clients, but you know, when you’re an accounting firm, one of the things you you know, you always get promised by all your partners is they’re gonna keep bringing you clients and bringing your clients. One thing I really learned and I also started teaching back then I started teaching the CFP. But one thing I learned was don’t depend on your partners for business. So I started, you know, being able to bring in business. And then at the accounting firm, where they made me a partner after 10 years, I also saw how much the managing partners were making. And I said, there’s something wrong here. So I went out on a we went on my own with two of the people from the firm, you know, as partners, we started, and it started with three people and it just built up, you know, slowly by surely by always, you know, putting the client first. You know, we would never on the sales side, you know, always the planning side. And, you know, again, just a lot of hard work client by client building up, you know, to the point where now we have I think over $6 billion in assets under management.

Seth Greene 4:38
That is absolutely incredible. How have What do you think, have been some of the biggest factors responsible for such amazing growth?

Joel Isaacson 4:47
Yeah, I mean, I think, you know, again, also is like sort of was, to a certain extent, some of it being early, you know, back then I think it and I’m not sure I would say we’re a full profession yet. You know, I think that we still have to do more at the college. levels to get education into the schools for financial planning. But I think it was being early, I think it was also having a CPA and, you know, experience back then. And I also got involved with, you know, with teaching at schools, I got involved with the FPA back then it was called the ISP, I was present in the New York chapter. So it’s constantly hustling and networking, we didn’t do any marketing. But it was just really an opportunity to, you know, develop clients in New York, you know, and again, it was really one at a time, a couple things where we got into when I was teaching, I got introduced to some people that worked in the Benefits Office at IBM. So we got an opportunity to, you know, go off to some corporate programs, and some of my students did there. And through contact, we also got involved with equitable life insurance, which at one point, we probably had 20 executives from there, and they used to have a financial planning program. So you know, those type of relationships, and that’s really what it was, it was all relationships or referrals from, you know, people we met in the business, and they looked at us as a firm that was, again, fee only, you know, high quality. And, and I think also having the tax practice gave us a, you know, an edge also in being able to kind of be more of the one stop shop for individuals.

Seth Greene 6:18
That makes a lot of sense, how you’ve garnered a lot of press accolades over the years, how have you been able to get that recognition?

Joel Isaacson 6:28
Yeah, you know, again, nowadays is a lot tougher. But in the beginning, you know, part of one of the people got involved with was involved with the New York Times. And so back in the 80s, you know, and, and the journal, you know, we knew some of the people there also, but it was really just, you know, a lot of networking opportunities. So one that the times took a, you know, liking to me, and he used to write a column every Saturday on your money. And back, then it meant a lot to be in the press. Now, there’s so much press, and so much out there, PR wise was there. But if you got involved with the times, and you got that kind of prospect, then it became a good catalyst to other press and different things. And then I think, you know, again, a lot of the organizations were involved with with the right ones, you know, we were early, involved with nappo, with the FPA. And, you know, and again, it’s, you know, is always one of those things like we weren’t in this for the short run, we weren’t looking to make a big hit, we were in this for the long run. And we always felt if we took care of clients, that the rest would come there. And that’s also I think, part of the way is every time we got involved, like, we also didn’t find fire, the brokers we didn’t, you know, bring in new lawyers, we got to know the lawyers, we got to know the brokers. And some of those people that we met through clients actually became great referral sources to us over time.

Seth Greene 7:45
How has the COVID pandemic affected your clients in your business?

Joel Isaacson 7:52
So I think, you know, it’s, well, I think it’s changed our business fundamentally, as to how we deliver it, I think, you know, for a lot of our clients, you know, the zoom feature is something that I think they like, so, you know, that’s there, we also have a lot of young staff that are having babies. So we had been trying to, before the pandemic, figure out how to do remote work, and for people to be accountable for it and different things. And obviously, we get thrown into the fire with that. So it’s worked out? Well. Our business has been okay, you know, is, I mean, as the, you know, I would say the third big, black swan event in the last 20 years, it’s, I think it was more taxing this time, you know, from some of the other ones. And, you know, especially around New York last March and April, the kind of that dread and the you know, that it felt like the black cloud over the city in the whole country and different things, was a tough one. So I think we’ve, you know, we’re more valuable to our clients in tough markets than we are in a good market. 2019. You know, the market did amazing clients were happy, you know, no big deal. I think getting through clients through the tough times, these black swan events are, are the key for what we do, and to have had a build lasting relationship. And probably, I would say, this pandemic, for some reason, because I think, you know, it just hit people so close to home net, probably more people panicked a little bit this time than in the past. and stuff, but, you know, businesses, again, is we grow our top line, probably seven to 10% a year. So last year was a little bit different in, you know, the new business part, you know, we still, we still grew nicely, but I would say, you know, not necessarily referrals, but new business slowed down a little bit only from a standpoint of, you know, all the lunches that you have, and seeing people that I think, are a good catalyst from that stuff, but we’re starting to see it pick up again, and I think, you know, for our clients, a lot of it became is figuring out life, you know, do they stay in the city, do they, you know, they move the Hamptons, I’ve always spent a lot of time we deal with tax issues in New York and everybody thinks it’s easy to get out of New York. taxes because they’re living in Connecticut for a year or, you know, upstate New York or things like that. So, you know, sometimes we have to be the bearer of bad news on certain situations, but our clients been amazing, you know, they, they are our greatest resource. And, you know, I would say, you know, again, we got them all through good, I don’t think at the, you know, the middle of the pandemic, you know, back last March, April, I don’t think anyone would have felt that it would finish the year up like they did, it was a, you know, crazy year overall,

Seth Greene 10:31
absolutely, who’s an ideal client for your firm?

Joel Isaacson 10:36
You know, we, you know, it’s a, you know, for us somewhere, just someone that really could use kind of that one stop shop of, you know, having, you know, things all in one place, so, from corporate executives, to doctors, to lawyers, to anyone in the five to 25 million ranges, that kind of our bread and butter, and then probably 20% of our clients are in the 25 and up category. So, again, it’s, you know, for us, we also try and do sets a little different is, you know, fair fees for clients. So in that in a you m shop, generally, you know, so we try and do fair fee. So wherever we can add value for the money, that’s the most important thing, because, you know, what we find is with that kind of relationship where it’s more retainer based, that, you know, clients look at your as their advocate, and and, and that is an adversary, which I think sometimes with the IOM, you know, you’re always trying to take assets away from someone else with us, we don’t care what the assets are, as long as it’s the right thing for clients and the people that are handling money and doing the right thing. And again, you know, it’s, it’s, it’s nice sometimes to have co pilots on things,

Seth Greene 11:44
you’ve achieved so much success over the decades, what’s your biggest challenge now?

Joel Isaacson 11:50
Um, you know, I think part of this, Seth is, you know, and for some of those on the back nine, I think, you know, it’s, you know, like, right now, we are transitioning, like, I turned over a CEO role last year to one of my younger partners, because I think it was necessary on some of the technology and different things. And for me, to kind of get back into the, you know, into the area of just, you know, dealing with clients and mentoring staff and things like that, I think the biggest challenge going forward for the industry is finding good professionals, you know, people that, you know, want to make this into a profession want to have a career with this thing, and go forward. And then I think, you know, what we saw also is like, I don’t know, probably in the last few months, just the whole Bitcoin, you know, Reddit rally, you know, just dealing with clients who all sudden their kids are geniuses, you know, that a buying GameStop and different things. And everybody all sudden became a risk taker, you know, with the, you know, the Tesla’s of the world and all the, you know, all the crypto currency and everything like that. So, you know, it’s really, I think the challenging point now is just to really for clients to understand fundamentals, and that valuations matter, and investment fundamentals will be a sense, to me, part of it is, you know, whether, you know, on the investment side, you know, things change radically and every time you think that they do they kind of tend to you know, revert back to the old ways of doing things.

Seth Greene 13:14
Your Passion is obvious, what do you like best about what you do?

Joel Isaacson 13:19
You know, it’s, it’s, it’s an interesting one, because you kind of think about stuff in life and say, like, did you do you make a difference on things? You know, I’ve been doing this for 40 years. And, you know, you, you know, you see all these people that are doing things in the military or in science, you know, Dr. Fauci and everyone fighting this virus, and you say, you know, are we just making rich people richer? But, you know, I think part of that I would say, Seth, is our relationship with our clients is that type is like, you know, like, I’m in the middle one of my clients died three weeks ago, where I’m the trustee, I’m the executor and now dealing with her, you know, her nieces and sister in law in different things. And it’s that kind of trust that people have in us in the relationships we have that are there. I mean, sometimes it’s, you know, it’s above and beyond certain things, like, you know, just dealing with having to watch someone, you know, slowly die is not an easy thing. But, you know, the intimacy of our relationship is is hard to, it’s hard to be, you know, it’s just that and I think that part of being, like being the client advocate and being on that side, I think, is the part that really is the driving force. And I you know, I think the pandemic for me set it up so that I look at this and say like, my dad retired, never really retired. He, he liked working, I mean, his clients started retiring, and dying off and different things, but I really like working with people and helping them and and i think that part of, you know, just seeing, you know, the family relationship and kind of working with people to get them like, again, another one my favorite clients was from publicity. In the 80s we were in the Daily News and someone that probably never made $60,000 or more than 60,000 our life she was a secretary of the firm and I don’t know I helped her with a, you know, project last week, she got very emotional about and stuff. But you know, someone that was just, you know, save scraps and you know, little bit in the 401k. And she’s, you know, she’s probably worth three or $4 million. Now, I’m not sure we would have taken her on as a client, like we did in the 80s. Now you know, where we started with it, but to see where she is, and be able to tell us go buy a car, don’t worry about it, you know, you don’t have to worry about money and different things and to see, you know, how smoothly we made her life has been very rewarding overall,

Seth Greene 15:30
that’s beautiful. You’ve also built an incredible team, how do you get everyone doing what they’re supposed to do at the right time? in the right way? How do you how do you develop yourself as a leader, because I know, you are always improving, you’re kind of committed to learning and committed to growing talk a little bit about that aspect of the business. You know, I

Joel Isaacson 15:54
and thank you for all the nice things you’re saying. So that’s, I think the part of, you know, for, you know, IT staff is, I think, for staff, a lot of it is that, you know, the on the job training, you know, that there’s not a lot of the people that came to us that necessarily thought of financial planning as career but through friends or, you know, relationships, they still work for us. And then I think the way they saw us treat clients and their relationships for clients was, I think that, you know, that’s our, that’s our greater resources, those relationships with clients. So it was always you know, was it you know, like, you see in some of the boiler room stuff, you know, where they treat him, like, you know, this is just way to get money and take money from people. In ours, it’s really the respect, that’s client in that part. And now, you know, I see the next generation is the relationship, our staff is having babies, and the clients are sending them gifts, and, you know, it’s like, it’s just a nice family relationship there. So I always treated you know, I think staff to learn, brought them into client relationships, I’ve had some people like, you know, within the first six months to sitting in meetings, and it’s just a, I think, a chance, and then, you know, they see these very high level executives and doctors and, you know, hospital, people that are running companies, and they, they see their reliance on us, and it’s a it’s a very heady thing, and it’s, it’s intoxicating, to, you know, to work with people and for them to listen. And, and again, we also learn from clients, I’ve, I had my anniversary, I actually thank my clients, because, you know, over time, I just seen their ethics and, and the treatment and the way they handle things in business, and they’ve inspired me.

Seth Greene 17:35
What else do you want to share that we didn’t think to ask you?

Joel Isaacson 17:39
Um, I would just say, you know, again, from a standpoint of the field, I do think that, you know, aspects of the field that there’s still more to be done with the schools, I don’t think the professional organizations necessarily do as much with the schools, but I do feel like with accounting, you know, the big thing will be is more and more of the undergraduate programs, and then, you know, kind of the job placement. So I think they try, like, again, there’s programs here, but it’s always kind of like dependent on who’s running the program and who they have relationships with. But I do feel like for the field, that is more and more that at the undergraduate level be helpful. And I think for people in school, you know, if they saw it that way, I think it kind of goes in a cycle to take it to that next level is profession. To me, the CFP is nice, but I don’t I don’t consider passing exam as really the thing that’s there. I think people need to learn more. And I’ve taught, and I remember when I used to teach, and I’d get off the curriculum a little bit, try and give practical knowledge. People didn’t really want to learn that way. They just really wanted to pass the test.

Transcribed by

John Jennings

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 

Additionally, John is a Forbes contributor writing about wealth management topics.


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.

Sasha Grutman

Sasha Grutman – Identifying Ideal LBO Candidates

The Private Equity Profits podcast with Cliff Locks Episode 002 Sasha Grutman The guest is Sasha Grutman founder and Partner of Middle March Partners. Sasha co-leads the firm’s merchant banking and investing efforts. He has spent his entire career investing and advising high-growth financial services and business services companies that leverage technology to create sustainable advantages.

At Middlemarch, Mr. Grutman advises clients on business and capital strategy issues, has sourced over $730M of capital for clients, and serves as a board member for a number of Middlemarch clients and portfolio companies. He has deep domain expertise in specialty finance and transaction processing, sectors where he has been exceptionally active both as a merchant banker and as a private equity investor since 2002. Active with both private and public companies, he has participated in over $3.2B of transactions over the course of his career as a merchant banker and private equity investor.

Prior to founding Middlemarch Partners, Mr. Grutman served as a Partner at TH Lee Putnam Ventures, a $1B growth equity fund, where he co-led the firm’s financial services investments in specialty finance, insurance services, and electronic capital markets investments. Previously, he was a Managing Director at Citigroup where he oversaw the firm’s on balance sheet financial services private equity holdings as well as managed the bank’s $6 billion private equity fund-of-funds business. He has also held private equity investment roles at Goldman Sachs and Frontline Capital.

He began his career at The Boston Consulting Group in its Financial Services and e-Commerce Practices. Mr. Grutman received an MBA from the Wharton School where he majored in Finance. He was a Fulbright Scholar in Italy where he pursued independent research on Dante. He graduated from Yale University magna cum laude with a BA in Humanities. He holds Series 7, 63, 79, and 24 FINRA registrations.

Listen to this informative Private Equity Profits episode with Sasha Grutman about Identifying Ideal LBO Candidates

Here are some of the beneficial topics covered on this week’s show:

• What makes a good private equity dealmaker, fundraiser, researcher, associate

• important personality traits in finding value where there doesn’t appear to be any.

• The worst investment mistake he ever made, and what he learned from it.

• The most rewarding part of doing what Sasha does.

• Leaving a personal legacy

Connect with Sasha Email:


Phone: (212-913-9660

Connect with Cliff Locks:

michael livian

Michael Livian – Combining Investing with Purpose and Fulfillment

The Private Equity Profits podcast with Cliff Locks Episode 001 Michael Livian The guest is Michael Livian, founder and CEO of LivianCo. an Investment and Wealth Management Company. Michael has over 20 years of experience in the financial services industry. He was the Chairman of the Executive Committee and Head of Asset Management at Safdie Investment Services Corp. (subsidiary of the Swiss private bank, Banque Safdie). Prior to this position he was a Managing Director at Speed Ventures, a primary pan-European private equity/VC firm. He also worked as an Associate Director for Bear Stearns & Co. in New York and in Italy with a special focus on fixed income and credit derivatives. He holds a summa cum-laude MSc degree in Economics from the University of Milan. Michael published several academic articles and books on quantitative finance, fixed income and equity valuation. He is a CFA charter holder, a member of the New York Society of Security Analysts (NYSSA) and the co-chairperson of the Private Wealth Management Committee at NYSSA. He lives in New York with his wife and three children.

Listen to this informative Private Equity Profits episode with Michael Livian about the growth of the alternative investments industry.

Here are some of the beneficial topics covered on this week’s show:

• How he helps clients achieve combining investing with purpose and fulfillment.

• The best percentage for time split between portfolio company analysis/operations and evaluation of new investment opportunities.

• Attributes that make a business a good candidate for a leveraged buyout.

• The typical capital structure prevalent in LBO transactions.

• Red flags you would look out for when assessing a potential investment opportunity.

Connect with Michael



Phone: (212) 319 8900

Connect with Cliff Locks:

Michael is the founder and CEO of Livian & Co. He has over 20 years of experience in the financial services industry. He was the Chairman of the Executive Committee and Head of Asset Management at Safdie Investment Services Corp. (subsidiary of the Swiss private bank, Banque Safdie). Prior to this position he was a Managing Director at Speed Ventures, a primary pan-European private equity/VC firm. He also worked as an Associate Director for Bear Stearns & Co. in New York and in Italy with a special focus on fixed income and credit derivatives. He holds a summa cum-laude MSc degree in Economics from the University of Milan. HeI published several academic articles and books on quantitative finance, fixed income and equity valuation.He is a CFA : charterholder, a member of the New York Society of Security Analysts (NYSSA) and the co-chairperson of the Private Wealth Management Committee at NYSSA.

Listen and subscribe:

Interview Transcript:

Cliff Locks 1:05
Welcome to the private equity profit podcast. I’m Cliff Locks your host and with me today is Michael Livian, the founder and CEO of a lending company, an investment in wealth management company. Michael, tell us a bit about your background and how you got started.

Michael Livian 1:20
Hi Cliff, thank you for having me on your show. Very excited to be here today started, actually in a different country. I was born in the US but raised in Europe. That’s where I started my career. And I moved to the US about 20 years ago, I started working for a big Wall Street firm, and I was more of an academic. I published a book with Italian Publishing Company of Bloomberg. And I was working with universities, I was very involved in the fixed income space. And then I transitioned more to the venture capital and private equity space. And in 2004, I was hired to run the asset management of a Swiss private bank here in the United States. And after several years of being involved with wealth individuals in the asset management industry, I decided to start my own firm with some partners, but large caliber large family offices. And that’s how I got started. The idea was to create an innovative business that caters to the needs or modern needs of wealthy families and business owners. And since then it’s been a phenomenal journey journey.

Cliff Locks 2:34
Fantastic. I’m glad you’re helping a lot of family offices to be able to help their high net worth individuals that are part of their team. So I’m assuming you’re also doing multifamily offices, and then single family offices.

Michael Livian 2:48
Among others. Yes, so multifamily offices, single family offices, that large wealth individuals, that that’s my basic client,

Cliff Locks 2:59
How do you help your clients achieve combining investing with purpose and fulfillment?

Michael Livian 3:05
It’s I think, understanding what wealth is for for a wealthy individual or for wealthy family is it’s a multi pronged exercise. It’s it’s not only about the money and your returns, think the wealthier people get, and the more complex needs become. And the larger the families, the discourse is elevated more to what the values are, what the purpose of that family or that individual is in life, what the legacy that they want to leave behind them is. So we work through several assessments, and help our clients, not every client is a good candidate, but many clients, they really want to address those type of issues. And more and more what we are seeing is there is an alignment between the value values and purpose in life and also the way they want to invest their funds. And the So in other words, ESG is playing a role now.

Yeah, yes, g i think ESG is, it’s definitely I think it’s an acronym that has a big appeal on people, I think that it’s aligning the value. So ESG, it may be everything and nothing. It depends what you include and how you define history. But it’s really determining defining what the purpose is, you know, for that family or that individual and investing in a way that is consistent with that. So it’s different families have different views and different interests. And it’s a transition not everybody is like that some people are still really looking just at at rates of return. They’re not making an impact. But I think that the way I will look at this when we’ve been doing a lot of work and Following the research of fidelity and Beynon company, and having been discussing this for many years with a lot of professionals, what we see changing is it’s for those people that actually started the business in school. And if you think of the Mazda three, turn, you know that there’s a pyramid and the base of the pyramid are really basic needs, you know, shelter food, as you get more comfortable, and you fulfill and meet those needs, your your needs evolve, and there are different things that you’re looking for in life. And the same applies to wealth. And I think that the as we change what we do, as generations changing, what we’ve seen is that that if you survey, a baby boomer, or for those participants, so that the podcast that did not know that those individuals that were born right after World War Two, their needs are very different their views their values than the Gen Xers and Gen Y, or millennials, you know, or generations that were born after 1960, they, they have a different view of the world, they are more or less worried about their their basic needs.

They’re specially among wealthy people, that our clients, they’re more interested about finding purpose, having more balance in their life and worker and retiring and having plans in place and, and doing things that are meaningful in their life. So I think, as we evolve, you know, as a society, as an affluent society, these topics are going to become more and more relevant.

Cliff Locks 6:50
That’s very interesting. In other words, when you look at the, we have parents, they’ve been successful at this point, they have the next generations, which is their children. So if you look at the time and the quality that can be put together, where they’re spinning knowledge and education together between the parents and the children at this point, to understand their responsibilities, and the wealth that’s within the family that will continue as a legacy to go forward to be able to do good, and also to support, you know, the next generations at this point. So us actually spend time with the other generations, I mean, the children have that wealthy family at this point to help them carve a plan together and be part of the fabric of what makes the family. Yes,

Michael Livian 7:36
yes, yes, yes. Yes, a lot of the research that that that we have been reading is that that there is a positive correlation between happiness of individuals and the next generation, and having a sense of the history of the family and the heritage and the legacy and creating that bridge. It’s also a way to make everybody happier, you know, it’s like,

Cliff Locks 8:03
so the family dynamics, when they work together with one of your team members is actually addressed at that point, it actually becomes a healthier and happier ecosystem, let’s say within the family at that point. Quick question, what are some of the biggest challenges your clients are facing now?

Michael Livian 8:20
I mean, I think that at this specific point in time, obviously COVID as the gigantic challenge, I would say, for some people financially, I think even very wealthy individuals that are heavily exposed to certain areas of the real estate market, I think they are a little challenge. But for most people, I think it’s not even financial, it’s really the level of anxiety and fear, fear of the future and the, you know, questioning, you know, their their lifestyles, and where they’re gonna live, if they want to stay. I mean, we’ve seen a lot of people move around in the last year or so it’s like, people that were very deeply rooted in in a location, and they just overnight are uprooted. And they move to different states or, and so there is a lot of anxiety yet not. And, and I think that that’s probably today that the biggest issue, but I do anticipate that with the rollout of the vaccines, these will actually pass and I think we’ll hopefully we’re closer to the end than the beginning of this problem. And so that is kind of one of the main issue specific to the current circumstances. And then you have general issues, I think, our clientele there prime, they’re mostly professional business owners and entrepreneurs. And I think that the speed of the change that technology is bringing About his displacing a lot of people, a lot of it’s, it’s it has become increasingly more challenging whatever industry you’re in, to deal with the disruption that technology is bringing about. So that is also a big area of concern for our clients, the lifecycle of products, the life cycle of their specific industry is changing. And, and they need to adapt. And it’s, I don’t think that previous generations were faced with this issue. And then that’s another area where we actually converse with the, with our clients, very smart people, business owners, but that they’d like to hear from us what what we see in the marketplace, you know, we were deeply involved with the companies of all kinds and all sides, and we listen to their management calls and participate, you know, to a lot of conferences and get to know really what is happening in a lot of like, the most successful firms and we share some of the findings with our business and our owner clients

Cliff Locks 11:08
are very good. I sit on the board of directors of five companies on finding the same type of disruption that takes place at this point. Most of the companies are more entrepreneurial in their understanding is we have to disrupt ourselves at this point, before you get disrupted. What we’re finding some of the technology that’s out there in hydrogen, some medical appliances, like some of its, you know, many decades old, the technology, it’s had incremental increases, but not exponential type of increase in renewing what that engineering looks like inside those products. And we’re finding it’s the entrepreneurs that are disrupting these these organizations. But you brought up something very, very important, the conferences, maybe the zoom calls that are out there at this point in time is a way to get educated. And I think, to be proactive at this point.

Michael Livian 12:00
Yeah, I’m very optimistic about the future, I think, I do think that whatever is going on today, in the world, and with technology and digitization of almost every process offers an opportunity for people to improve and not to be displaced by technology, because I think that that, as humans, we’re always going to be superior and, and

Cliff Locks 12:29
so it’s just about educating ourselves and upgrading our knowledge and our skills. I think you’re brilliant, I think you laid that out very, very nicely the idea of the individual, and those that own the companies need to take the initiative to understand we’re going to need to re educate the workforce. Some of the manufacturing may have something called a kobach, meaning there’s a robot but the individuals working next to it, the robots doing a lot of the menial, repeatable tasks, but they can coexist together and someone’s going to have to program and keep an eye on in run those robots at that point, it’s probably a technician at that point, which will get paid more than somebody, you know, running on the line. So let me ask you, what does the growth of the alternative investment industry look like from your perspective?

Michael Livian 13:20
It’s a very, very, very good, an interesting question. First of all, I think that it is important to define the alternative investment space. I think that that. Again, I think it’s easy to put like a label on something. But what is an alternative? Is it real estate, venture capital, private equity, hedge funds, commodities? cryptocurrency, what what is it? That is included in in the definition? And I think that each subcategory of what you may define alternative investments, they have, certainly different paths in their evolution. I think that first of all, the fact that you’re in an environment where structurally interest rates are low, despite the short term gyrations that you may have had recently with the 10 year Treasury, you are still in a low interest rate environment and you are in an environment where valuations in the public markets are pretty high. So there is a very large demand for alternative assets in general. And I think that’s going to continue and I think it is going to evolve Having said that, I do believe that within the asset, alternative asset space, there are a lot of players that don’t really deserve to be there. In the end there are there’s going to be a pretty stronger so say Natural selection and evolution. And I think that that, specifically, let’s say, any person can start a hedge fund, you know, it’s like, but there’s not that many great hedge fund managers. I mean, it’s really very few are very large. So I do think that that the the compensation structure in some of the hedge funds is going to change. Okay, it has started to change, I think there’s gonna be more consolidation. And, and I think that there’s always going to be a big appeal. But I think it’s gonna look very hedge fund industry is gonna look very different in the future. I do think in the private capital markets, both private equity and private credit, you still have tremendous opportunities, in a way becoming also more liquid. You know, there are marketplaces where you can exchange physicians and loans and you have a lot of participants. And you may get higher rates still very highly of sub sectors of the alternative space. And then I can go on, but I think probably these are the broadest categories are solid ation in the hedge fund world. Still expansion in private equity, VC, private credit, as long as credit remains cheap and available, you’re not gonna have a lot of hiccups there. But again, private markets are heavily dependent on credit. And we are, I would say, in the expansionary phase for credit, but this is not going to last forever. So I think it’s important to be very wise, as an investor, where you’re when you’re approached the space,

Cliff Locks 16:36
recognizing there’s a pressure to put money to work in the five year private equity cycle, what industries or strategies do you think make the most sense right now,

Michael Livian 16:46
clearly, I think what we have seen in the last year is a strong demonstration healthcare, biotech and Life Sciences space. There are phenomenal opportunities, it’s, it’s an industry that still offers a lot of opportunities for extra returns or additional returns, because it’s a little bit behind the other industries, when it comes to de innovation other than the pharmaceutical sector in particular, or the life science or the biotech, but the healthcare sector as a whole, because it is heavily regulated. So it has not evolved as fast as a lot of other areas. So the technology there can really create a lot of incremental returns. And there’s a lot of opportunities there. I think that’s certainly a very important area. So if you think of the two areas that you have a lot of regulation that kind of slows down the evolution of an industry, there’s these two giant areas of healthcare and the financial sector. So I think they both are probably in the early cycles of a massive evolution. And in that offers, obviously opportunities for returns for investors. So it’s, it’s, I would say probably a little bit more between the VC and the private equity, not your classic private equity, leveraged buyout, I do think also, when it comes to the private equity, space, logistic and infrastructure space offers incredible opportunities. I think, again, in the US, the percentage of ecommerce in retail sales is still pretty small, compared to the entire pool of retail sales that are happening. And in I do think that the backbone of e commerce is really the logistic that’s so you know, storage facilities, and transportation. So those are kind of assets generally offer good cash flows, and they’re pretty stable, and they have potential good growth rates. And I think those are private equity investors, the ideal candidates, you know, you can level them up and increase your rates of return. So those are the main things that come to mind. But there’s obviously a lot of other areas of interest. I think it depends also on the on the style and appetite of the private equity operator.

Cliff Locks 19:09
Tell me a little bit, what credit ratios do you look at when assessing the financial health of a borrower.

Michael Livian 19:17
This plays an area of great interest for us, we look combination of purely quantitative metrics that we can pull from the balance sheets. And I think we have a very close relationship with the NYU professor or former professor at Altman, that is a dear personal friend of mine and developed the z score model. So we use his model with many other evolutions. There’s another academic by the name of Campbell, that has developed other tools. So they they give us a little bit a more holistic sense of the health of firm then obviously alongside those, those are, I think they give you a much better probability of default. But alongside those, what we use are more traditional metrics. So we use will be data ratios, that to EBIT ratios, debt to assets, debts to capital, obviously we normalize the cash flows, we look at the kind of averages over time we look at peers. So there’s a number of things that go into that. And most recently, we have not employed utilize this tools, yet, but we are working closely with some FinTech companies, they are doing a lot of interesting work, I think that they are providing their accounting solutions to companies. And they pull the data almost instantaneously from their accounting systems and from their bank accounts. And they can actually, in real time, look at the evolution and credit worthiness of the borrower. And they even lend to borrowers based on those metrics. And so there’s a lot of old school classic stuff that goes into the analysis of the credit analysis for a borrower or issuer. But there’s more and more exciting stuff that is also coming online now.

Cliff Locks 21:23
Very, very positive. And I’ve seen one of my companies is utilizing those lines of credit. In other words, we’re on, they’re doing hundreds of 1000s of dollars a week in that line of credit was very, very important to be able to allow the continual growth in that particular market. So when Yes, they have access to our bank accounts, and they understand the cash flow that’s coming from Walmart into our accounts, and they lend against it. So it maps up very, very nicely. Michael, what are some of the red flags you would look out for when assessing a potential investment opportunity?

Michael Livian 21:56
red flags, I think that, first of all, what, what we have learned in after many years of dealing with borrowers companies and management and investments, is that probably the most important aspect that you want to look at when you evaluate a business or an opportunity is actually the industry and the industry dynamics. It’s not focusing on the specific product, or the management of the company. But the first thing that we would do to identify if there are red flags, we’re just going to look at the industry dynamic. How does this industry look like? in which direction? Is it going? Is it growing? I mean, how many participants are here? Is it prone to changes and disruptions are the companies that we’re looking at the re on top of their game, or they’re behind? So it’s not really a red flag, but that’s contextual, I mean, if an industry is going in the wrong direction, we’re not going to put money behind it. Now red flags is, first you start with the management. I mean, you want to have credible management that is honest, transparent, has the right incentives, communicates with investors, you know, sets proper goals and shows a track record of achievement when they fail to do that, or they’re not transparent, that is already too. And then you have a number of accounting metrics. You know, if you have big discrepancies between earnings and cash flows, that is typically a red flag for you. So I think it’s a, it’s not that difficult, but that, you know, there are tools that we have available at our disposal, when we look at the accounts, to see if things are off, you know, revenue recognition, discrepancy between cash flow and earnings ending on the specific industry, the working capital cycle starts to look off menu, you can start to pinpoint, but I think that that, before you look at the financials, you want to look at the business and the management. The financials are a consequence of what the management is in the business. It’s if you have poor management, low quality management. For us, it’s an awful red flag

Cliff Locks 24:10
for a very good, well seasoned team is very, very important to have consistent results and maybe serial exits, maybe they’ve built and sold a few companies. Let’s look at some of the value your fine team brings forth. In other words, we’ve got a high net worth individual, they probably have a business that they’re running at this point, you know, they are starting to get into their 50s 60s you know, they need to look at succession planning. You know, do I continue to prepare, you know, the company to be able to be sold? Am I going to turn the business over to maybe one of my children? Am I going to bring somebody from the outside to run the company. Tell me more about your process to be able to help these high net worth individuals make the strategic decisions they need to make.

Michael Livian 24:55
Look, I think this is a topic again that I have very close to my heart. Cause approached by some strategic buyers. And you know, we are in the business that generates a nice steady cash flow. And we go and ask the same questions to myself. I said, you know, what? Where do I stand? I mean, do I want to build this business for my children? Do I want to pass it on to them? I mean, what’s the endgame and it’s a in I got involved institute that is known as the exit planning Institute. And I found out there is a science behind exit planning, building value for a firm for business owners, me it is medium sized, small sized business owners. And and I came to the realization a very, very large chunk of the businesses in the United States are owned by by private individuals, and that they are in their early 60s, almost, I would say, 75 80%, I don’t remember exactly the statistics, they expressed an interest to retire within the next 10 years. But if you ask them, if they do have a plan, or a written plan, again, 80% of them, they don’t have a plan, they just have an idea and the goal. And also, what were the statistics show is, most of those businesses, they end up not consuming a real transition, you know, they actually have problems before either there’s a disability, there’s some Distress, there’s an issue with the family, they, so they never, the transition does not come to fruition, we really prepared ourselves to work with clients using the science behind the transition planning, and that the numbers and the methodology to make this successful, and to also make it an enjoyable experience for the business owner, because also i’m quoting, Price Waterhouse, they did a survey of business owners that sold their business within 12 months of the sale. And a very large number of those business owners, they say they profoundly regret selling that regret selling the business, transitioning out of the business, whether it’s an external transition, it’s a sale or pass it on passing the business on to a partner or to the children, it requires three things requires emotional preparation, right? I think people do not realize that you know, what, you spend a lifetime building a business, and you’re been running every day, and you know, getting excited dealing with problems, clients making money, and all of a sudden you sell this I mean, your purpose is gone. You are your business if you’re a business owner. So there is some preparation that goes into that, you know, the financial component. I think that that many business owners are not aware of the structure of the transactions, how much they may get out of the transaction, the tax implications, the state implications. So all of these things need to be handled and prepared before you transition not while you’re transitioning. And lastly, I think the majority of business owners don’t really know what that they have an idea of what the value of their businesses, right, but they do not know really how much they can increase the value of their business and how much they can get in a transaction. So these three prongs are the foundations of a plan.

Cliff Locks 28:23
I think that’s very, very important. I mean, I’ve had the privilege of building three companies with successful exits, and it was a plan and there were advisors involved, find folks like yourself that helped guide me through that process. And it was a privilege to work with them. It was emotional. My last transaction, I sold the company to KKR, which is a large venture company company and became part of a fortune 500 Company, which was something new to me versus being entrepreneurial. And then we had the ability to add additional assets. And when we sold the company, again for 1.2 billion in cash. So when you look at things, it’s a process for the entrepreneur, and then the opportunity to do you want to stay with the acquiring company for a period of time. In my case, I stayed for 18 months contractually, and then go on and do something different the tax implications. Those were very, very large checks that had to get written and they need to get planned for.

Michael Livian 29:10
Absolutely, you’re absolutely right. 100%. Right. I think that what typically happens is that when you come to the deal table, the seller just feels very frustrated and pulls out because they just didn’t realize that most transactions, you have an urn out, you have sellers financing, you have taxes, you have commissions, if you do acid sale, you may be penalized and they get very frustrated and they boys up to the point that they may go to the table when they need to sign and you just decide to take a walk and live the negotiation in the deal. So

Cliff Locks 29:46
very interesting. Yeah, I’m on the nother one. Now I’m working with young people and we’re doing the acquiring side and we’re finding ability to stay very friendly with the seller and understand what their needs are. You bring up Something very, very important. See this on your website, know your gaps, you know, the three numbers you should know and manage to achieve your goal that lays out a very positive scenario. And I’d like to go into depth with a little bit from yourself, where this conversation really needs to happen with the seller at this point, because you don’t want buyer, you know, remorse, let’s say, and the seller remorse you don’t want having these conversations where the funds are going to go and understanding the period of time for the transition between the seller and the buyer. And maybe the seller becomes one of the board members, maybe they leave some equity in the company, understanding each other’s needs, I think can allow that transaction to flourish. So tell me more about that. No, you get

Michael Livian 30:43
I think, as a very successful business person yourself, you know, how the mind of, of a business owner works, I think that you need to always simplify things have clear numbers, clear things in your mind, that’s really how we need to have, we cannot deal with that with uncertainty and confusion, our mind always wants to have certainty, even if it’s the wrong certainty, facilitate the process of a business owner transitioning, I think there are three fundamental gaps that they should really have straight in front of their eyes all the time than they can be numerically calculated. They’re extremely important. The first one is what we call the wealth gap. So the wealth gap is essentially what financial planners use all the time is, how much money do I need to live my life the way I want to live it pretty easy to calculate with some trial simulations.

The second component of that calculation is how much do I have today that is liquid and investable, that can get me there, the vast majority of the times there’s a giant gap between the two specially for business owners element that was going to fill in that gap is the value of the business. So essentially, if you want to get to a point where you’re comfortable, and you know that you can really go on with your life and do whatever you want in peace, you need to make sure that that gap is filled by the value of your business after tax after transaction costs, if you do an exit, and that’s really what you are working towards. Now, this leads to the second part, which is what is the value of the business? Is it sufficient? Can they grow it enough to act as a plug to kind of close that wealth gap? So there’s two components that you want to evaluate? One is a profit gap. And then if you have a value gap, so what are these gaps? Today?

Luckily, we have a lot of tools and technology in databases, also in the private markets, as opposed to the public markets, where you can benchmark your business. So the income gap, essentially, is a measure of the difference between if you take the best in class company in your specific sector, and yourself, what is your EBITDA margin, or adjusted or recast the beta, you want to make sure that in the private business world that you need to make some adjustments is not like in the public markets. So you need to add back certain numbers remove them, so you need to fix calculation for your EBITDA. But what you’re looking at is, what is my EBITDA margin on the revenues that they have? And what is the EBITDA margin of the best in class company. And then I think part of the exercise is to see what levers Do I have to increase the profitability of my business, that’s kind of part of the exercise of accelerating buildup in value in your business. But it’s, it’s a number that you should know as, as I think that that when you have numbers in front of you, it gives you a different motivation. It’s not an idea, it’s not a concept, you can compare. So you know what my EBITDA margin is, like 15% the best in class companies, their EBITDA is 25%, maybe I can increase my profitability by 5% By doing this, this this this And lastly, is your your value gap is essentially the value of the best in class company in the same sector. Same type of business, if you apply a multiple to their EBITDA. And if you apply a multiple to your EBITDA, you can calculate the difference using the same level of sales. So if you have best in class margins, and best in class multiples, and you have your multiple and your margins, that gives you an idea of how much value creation you could aspire to achieve. get to that point, ultimately, if there’s sufficient money to close your wealth gap.

So this these three elements together, they work as a foundation to make to build a plan. They give you the right motivation, but also the Right tools, then to go deeper into some assessment and analysis at the business level as a personal finance level, and see, you know how you can adjust, I think it’s very important to start with simple, clean, good numbers. I think when business owners see these things, they’re Wow. Alright, now, I know what I need to do. And let’s work on this. And let’s work and there’s a whole process behind this, build all the different plans to close those value gaps and those income gaps and those wealth gaps.

Cliff Locks 35:32
Very, very comprehensive. I mean, you bring forth a lot of wealth of knowledge for that high net worth individual to really understand a vision of what success looks like, you know, as they continue to age and they got to make some decisions with their business, it would be very, very positive for our listeners to partner with you, Michael, what do you love about what you do? And what do you find most rewarding? personally?

Michael Livian 35:54
It’s a very good question. There’s two things that they’re always loved. And they think that’s why I went into this profession, I have a deeper intellectual curiosity. I like numbers, I like concepts, ideas, businesses, I like studying and researching. If I if my, my family makes fun of me, they say should be an academic, you know, it’s I should be teaching stuff. Because I really love learning. And I think being in the finance sector, it allows me to learn everyday more. I mean, there’s so much we can learn on the quantitative side, on the analytical side, and the research side, on the tax side, there’s so much you continuously learn and learn and learn. And I really enjoyed and I can share it obviously, with with my clients. So this is one thing that I like, really makes me happy that because of person I am, I really get enormous satisfaction when I can help people and I do something meaningful for them that and we have all sorts of people, all sorts of clients, we do get the often people will make a big change in their life very happy. And they’re very grateful. The reward that they get from that is priceless. It’s not a monetary reward. It’s like, you know, I feel like I really did accomplish something, you know, somebody that had some issues, and they need to fix things. And they had that. And they’re just grateful, you know, that I help them out, or we help them out as a team. I’m

Cliff Locks 37:12
not alone. I see you and your team cares about their investor. Now with COVID-19. Some of the economic disruptions tell our listeners about the program that provides an objective second opinion, from your trusted and professional team are hurt. There’s no fees, no stress, no obligations,

Michael Livian 37:28
things now are a little bit better. And obviously, I’m very happy that got out of the stressful times that we experienced at the beginning of COVID. For many people, this was just the catastrophic event that came out of nowhere, I think it was the economy was doing perfectly fine. Everything was doing perfectly fine. All of a sudden, you are faced with issues and problems that seem insurmountable. You cannot walk out of your house, you cannot walk out of your apartment, you think you’re extremely wealthy, because you you own a nice office building downtown, and all of a sudden you don’t have tenants. You have a hotel, and you know, they forced you to shut it down. A lot of people, their life changed overnight. We offered early days, our services for free to not all our services, but at least an initial review and assessment and financial situation of some of our clients. We offer them a free consultation to see where they stood, how they were invested if they had the proper investment plans, who are benefiting from all of the things that our government has been extending to people. So we just wanted to assist people.

Cliff Locks 38:40
I truly appreciate you spending this quality educational time with our listeners today. Michael, it is my pleasure, Cliff. Michael, can I share your contact information with our listeners, please? Yeah, absolutely. You can reach Michael Levin. His email is at m Levin at Levin Lubin co comm is spelled Li ve i a n m that’s Li ve i a n and you can also reach Michael at 212-319-8900. Again, Michael’s phone number is 212-319-8900 Thank you to our listeners. I look forward to being back with you shortly for another episode of the private equity profits podcast. The show has been produced by market domination LLC. I’ll see you next time. This is Cliff Fox