• Team Weil

3Q19 Quarterly Newsletter

Updated: Sep 16, 2019

July 15, 2019

Let's get granular: a list of examples of some of those things that might inhibit our rapid business growth but “are great for the clientele.” #financialadvisory #familyfinancialsummits #smallbusinessadvice #trustees #successortrustees #divorce #realestate #philanthropy #cwcculture #research #valuation #neutraladvisors #scalabilityisoverrated


There’s an old get-rich cliché: “find a niche and fill it.” But niches aren’t what they used to be (if they ever were). Niche businesses are often a satisfactory way of making a living, but they usually require that an owner/employee work longer hours than those worked by a typical employee. As well, revenues tend to “top out” at a certain point, usually around years five to seven, such that an owner/employee continues to work hard but net incomes stay more or less constant.

An up-to-date version of the cliché is: “find an opportunity and scale it.” Great idea, and one which, when successfully implemented, will lead to serious wealth. (Arguably, the wealth of most of today’s mega-wealthy can be attributed to an idea that was identified, implemented and scaled. But this is a subject for another day).

Today’s subject has to do with why a business would make the decision not to scale, particularly in light of the unquestioned acceptance by business people, business schools, the business press, Wall Street and investors that the ability to scale an enterprise is not just desirable but the be-all and end-all of wealth creation.

So ... I am having a conversation with one of our clients who happens to be a successful venture capitalist. In the course of our conversation she says that one of the things she likes about CWC is that we have chosen a business model that is not scalable. Wait, what? Yes, she says, I like the fact that you have a variety of services under one roof (advisory, including estate planning, tax planning, intergenerational education and transition, trust services, and Advisor-in-Waiting services. We also offer investment management, proprietary alternative investments, philanthropic consulting, and property management), each of which could be its own free-standing business. The way CWC delivers these services (by excellent staff, customized to the needs of individual clients) is great for your clientele but absolutely works against scalability, at least within any reasonable period of time.

“Concentration is the secret of economic success” said John Maynard Keynes (who ought to know). Ideally, this means that if you are interested in building serious wealth you offer one product or one service, from one dedicated product or service delivery platform, with one set of rigidly adhered to procedures, with a sales and marketing staff trained to do one thing well, with no tolerance for variability (that is, customization). You can have any color you want, said Henry Ford, as long as it’s black.

Variability is, as any management consultant will tell you, a particular productivity killer. To the extent you respond to individual requests for variability/customization you add costs. That’s all very well if your business involves delivering custom products to a limited market where prices cover costs, whether variable or fixed costs. Think high end home construction or haute couture.


But most businesses, CWC included, don’t have the luxury of such flexible pricing. If we choose, as we have, to “produce” a variety of advisory services, packaging them in a way that is custom to each client, and live within a relatively inflexible pricing structure, then our business model is not scalable, “at least not within any reasonable period of time.”

Well, so what? We aren’t going anywhere. If it takes us twenty or thirty years to get to scale, so be it. (Getting to scale means, among other things, arriving at that point in time where business revenue is sufficiently in excess of business costs such that each increment of additional revenue is largely cost free and the business becomes hugely profitable). In our case, not being at scale means that our costs tend to remain more or less the same percentage of our revenue, even as we grow. We aren’t complaining. We are profitable and we make good livings. But we are not at scale.

And, by the way, there are some real advantages to the way we do business. First, when we’re "in no hurry” this sets a tone or atmosphere (in fact, a culture) which we have found healthy for all concerned and has resulted in, among other things, CWC attracting competent employees with very low employee turnover. Second, when the temptation to scale rapidly does arise, we remind ourselves that there is always the corresponding risk that all of our time and energy becomes devoted to scaling demands such that other areas of our lives (marriages, children, community obligations, volunteerism, leisure) become neglected or underserved. And third, we like what we do and we particularly like the strong and enduring relationships we develop with many of our clients.

I thought it would be a worthwhile exercise to get granular and put together a list of examples of some of those things that might inhibit our rapid business growth but “are great for the clientele.” So I met with the rest of the CWC advisory team and asked them to list examples of specific advisory tasks undertaken on behalf of particular clients. The response? Eighty examples with more to come, until I said “enough.”

I set out below a small selection of team responses. In most cases, a line or two is all that is needed to describe the advisory service provided, but in some cases I add an explanatory narrative for clarification. Note that the examples of the various advisory services we provide are additive to what most people view as the “core” advisory activity investment management lexicon.

1. We conduct “family financial summits” for parents and (usually) adult children to discuss in detail the parent’s finances (assets, liabilities, sources and amounts of income, specifics of the family estate plan and their justifications, insurance, etc.). Summits are planned in advance with parents to assure that all disclosures are approved. Ample time is devoted to Q&A.

2. We provide advice to small business owner/clients as to appropriate prices and terms when business purchases and/or sales opportunities arise.

3. CWC advisory team members will serve as trustees, successor trustees and/or executors in accordance with client estate plans.

4. Occasionally, clients find themselves snared in difficult or confusing business deals, philanthropic complexities and/or troubled investment deal structures. Sometimes nothing can be done. Sometimes all we can do is point them to the lawyers. But sometimes we can help, particularly if the problems are managerial, administrative or operational in nature (poor reporting, poor relations with management, misunderstanding of investor rights, valuation issues, and so on). Having been around as long as we have, and having ourselves been involved in so many transactions, our advisory staff makes recommendations to clients that may offer relief where heretofore none was thought possible. Example: we devised a novel strategy that allowed a client to extract maximum value from a charitable remainder trust that otherwise would have failed in its intended purpose, while locking away the client’s contribution.

5. In uncontested divorces, we advise both parties as to an equitable division of assets. When contested, we provide the same service with the consent of both parties.

6. CWC principals have a long history of real estate investment. As a consequence, where clients’ own investment real estate, we advise them on such matters as lease terms, property management, capital expenditure budgets, financing, insurance coverages, acquisitions and dispositions, and so on. Basically, we bring another pair of qualified eyes to the service of clients with real estate holdings.

7. Various teams within CWC are involved in on-going research of two kinds: securities research (stocks, bonds, mutual funds, ETF’s) on behalf of client investment portfolios, and research/investigation across a variety of domains (estate planning, taxes, insurance, private equity, etc.) where we hope to uncover ideas that will enhance client wellbeing if acted on. Not all ideas have across-the-board applicability, but may prove useful in the lives of at least some clients. Two that we are looking at now: Opportunity Zones (“OZ”s) and direct indexing. Both deserve far more space than I can give them here, but I will give a brief (hopefully adequate) description of each. OZs are located in geographic areas that are generally under-served and under-invested and so, it is hoped, ripe for economic development. To encourage such development, the enabling legislation (which is complex and still pending certain necessary interpretations) provides, among other things, the opportunity for investors to realize capital gains on current holdings and invest such gains in OZs, which (again, among other things) allows for the deferral of tax on such gains and, if held for a sufficiently long term (usually ten years) allows for their forgiveness altogether. We like the idea in concept but note a variety of real world issues, not the least of which is what appears to be a relative modest supply of attractive opportunities versus a material investor demand. This is never a good sign (this kind of supply/demand imbalance can distort prices upward and so reduce the possibility of a successful investor outcome) and is one of the reasons we are moving slowly with regard to client recommendations. Direct indexing is a very clever idea, made possible by increasingly sophisticated technology. It is conceptually very simple. Take an index, any index. Investors buy indices all day long in the form of index mutual funds and ETFs. But suppose you could buy the individual stocks that make up any index directly, cloning, so to speak, the index without the mutual fund/ETF wrapper. There are a number of advantages. You can, for example, customize any index. “I want to own only the first 300 of the S&P 500.” Done. "I want to own an emerging markets portfolio but without Turkey.” Done. “I want to own the Dow but no oil.” Done. If you let your mind wander, you can imagine a huge amount of creative applications. There is another worthwhile benefit. Direct indexing allows an investor to tax manage far more efficiently than is the case when you own an index via a single security. With direct indexing you can pick and choose the individual securities you want to sell and/or keep, taking gains and/or losses strategically in light of your tax position in any given year. CWC is looking closely at both OZs and direct indexing in the hope that one or both will have application in the lives of selected clients. Stay tuned.

8. We provide estimates of value to clients owning private, hard to value assets (usually for purposes of divorce, charitable and inter-family gifting, gift tax, and estate valuation).


9. If a client becomes incapacitated, certain members of the CWC staff serve as neutral advisors as and when disputes arise among family members/heirs.

10. On those occasions when the retirement plan of a client’s company gets tangled up (administratively, managerially, regulatorily) we assist in untangling and re-establishing the plan on a sounder footing. If appropriate, we may recommend an alternative form of retirement plan.

11. We assist clients with tax-favored conversion and replacement of outdated life insurance policies, which can result in favorable pricing, additional coverage, and, in some cases, long term care provisions.

12. We routinely review third party investment proposals (private equity, venture, real estate) submitted to our clients by outside sponsors. We provide commentary on and clarification of such matters as the sponsor’s track record, pricing, compensation, reality of forecasts, character of the business opportunity and so on. One such third party proposal turned out to be a Ponzi scheme which the SEC shut down based on information we provided.

I could go on. There are 68 more examples available, and even more if I turned the faucet back on, but you get the point. Developing advisory relationships with clients is our reason for being in business. It is the source of our professional satisfaction. And when advice across the range of business and personal finance is provided in a timely and competent manner “it is great for the clientele.” Scalability be damned.

P.S. The recent seismic activity in Southern California prompted us to include our Grab ‘n’ Go Folder Checklist. If you live in earthquake country, or flood country, or fire country, or hurricane country, or probably any country, you will find this checklist useful.


Download the 3Q19 Newsletter here.

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Investment in mutual funds is also subject to market risk, investment style risk, investment adviser risk, market sector risk, equity securities risk, and portfolio turnover risks. More information about these risks and other risks can be found in the funds’ prospectus. You may obtain a prospectus for CWC's mutual funds by calling us toll-free at 800.355.9345 or visiting www.cweil.com. The prospectus should be read carefully before investing. CWC's mutual funds are distributed by Rafferty Capital Markets, LLC—Garden City, NY 11530. Nothing herein should be construed as legal or tax advice. You should consult an attorney or tax professional regarding your specific legal or tax situation. Christopher Weil & Company, Inc. may be contacted at 800.355.9345 or info@cweil.com.



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