January 15, 2024
What this quarter’s newsletter is not, is my swan song, although it might read as such.
Since first becoming licensed in the securities business in 1963 (John F. Kennedy was President), I have never not been in some version of the investment/investment management/investment advisory business.
It is true that over these many years “some version” has come in a variety of different “versions,” most of which have been grounded in a sense of purpose that motivated me from day one (although, it must be said, it would take me some years to articulate it clearly).
In grandiose language, the prominent German/English banker Siegmund Warburg spoke for this sense of purpose when he wrote, describing his own business motivation in the 1920’s, “(I) had looked forward with confidence … to having a significant career in the firm that bore our name, always regarding the firm not as an instrument for making money, but as an important part of the German and world economy and community.”
Warburg wrote from the perspective of thirty thousand feet above ground. I write from the perspective of someone who has spent most of his career in the practical, day-to-day. But if you correct for our respective perspectives, and substitute “the German and world economy and community” for “an important part of the financial lives of our clients, their families and heirs,” you will understand what has been WEIL’s foundational cultural commitment and business purpose from day one.
Sidebar #1. There was a stretch (1968 to 1971) when my own sense of business purpose had to be set aside. I was on someone else’s payroll and subject to someone else’s business purpose and culture. It was not a coincidence that I hated every day of my employment and felt that I had sold my soul to … well, not to the devil, but to a business and particularly to its ownership whose values were not my values and whose purposes were not my purposes.
Sidebar #2. Arguably, Siegmund Warburg was entitled to his grandiosity. His family had been a force in commercial and investment banking for generations and were often compared to the Rothchilds in terms of their influence. At one time or another, various family members managed banking operations in Germany, Holland, France, England and New York. In 1914, his uncle Paul was named the first chairman of the newly established U.S. Federal Reserve Board.
When I heard in one of Peter Drucker’s lectures that in business “profit was not to be pursued directly but rather was a by-product of something more fundamental, namely performance” it came across as an affirmation of the Warburg quote. It also explained why I was so uncomfortable in the employ of a firm devoted to the pursuit of profit as its number one priority.
I will say more about “performance” below but one of its elements, insofar as our firm is concerned, can be summed up in what has become almost a mantra with us: “Take care of the client and profit will take care of itself.”
Sidebar #3. Unrelated to the subject of this commentary (or not) is another noteworthy gem from Drucker. During the Q & A session following a public lecture an audience member asked him this question. “Dr. Drucker, don’t you think a government should be run more like a business?” Without missing a beat, Drucker replied “No, a government should be run more like a government.” Amen to that.
A digression. What Drucker meant by “performance” (and what I mean by “performance”) is not what most people in our business mean by “performance,” where the word refers only to investment performance. Often investors will use investment performance (and often short-term investment performance) as a determining factor in selecting investments, both selecting what to buy and what to sell. It makes the complex problems associated with investment analysis seem so simple. I am reminded of this from H.L. Mencken: “For every complex problem there is a solution which is clear, simple and wrong.” And there is, by the way, an important corollary to the Mencken quote. I don’t know who said it but he or she knew a thing or two about how the real world works. “The farther away you are from a problem the more certain you are about how to solve it.” Most investors are miles away from the true complexities of the investment selection process. Many of these investors, therefore, “solve” the selection “problem” by adopting a simple and readily available method. My experience suggests that this method consistently disappoints, but it has yet to be discarded by many of its users. Too clear and simple, perhaps.
In many cases, this style of decision-making shares a common characteristic with what at first blush would seem unrelated phenomena. This characteristic is the motivation, shared by many people, to accelerate the wealth accumulation process. Examples abound: it drives penny stock traders, buyers of lottery tickets, crypto “investors,” day traders, venture capital investors, buyers of exotic assets, participants in gold rushes, gamblers and those whose impatience with what they deem to be inadequate investment performance replace this week’s/month’s/year’s “underperformers” with this week’s/month’s/year’s market leaders.
Built into the way the world works is an inflexible law which, over-simply, goes like this: “Every financial reward you seek carries with it a corresponding risk (of permanent value impairment or total loss). Some risks are modest, some huge, but always present.”
Because we hear far more about examples of successful acceleration than we do about the failures therewith, we are misled into believing the probabilities of success when seeking reward are far higher than in fact they are. This doesn’t mean you shouldn’t take the occasional shot. It does mean that you would be well served to seek the advice of people who have deep experience in risk assessment (that’s us) before you do. At the very least, this should result in your going into the opportunity with the rose coloring eliminated from your glasses.
Which is an appropriate segue to what this report is really about: enterprise performance.
If I had to define enterprise performance in a few words it would be “excellence in the execution of all enterprise functions in the service of client wellbeing.” A book could be written on the specifics of excellence in enterprise function. Here are three as they apply to us. First, we do not have enterprise profit centers and we do not have enterprise cost centers. Every center (we call them teams) has one fundamental purpose; supporting the wellbeing of the client. Second, we don’t have any mass market-type alternatives to personal client interactions (no robo-advisors, no call centers, no wait times, no indifferent or under-qualified staff). We know that automation can be both a blessing and a curse. So we are careful to automate only where it serves the client’s wellbeing and avoid it when it does not. Third, we don’t forget that the test of a culture of optimum performance must translate into enhanced client wellbeing. Sometimes an element of the “translation” is short-term and clear cut (improved cash management, for example). Sometimes it is long-term and complex (securing economic independence, for example). Measurement of client wellbeing is at best an art and certainly not a science but if, over time, clients remain comfortable with our advisory relationship and feel they are being well served, then we take it as a sign we are all going in the right direction. In this respect, I think it fair to say, we have been successful.
We have a commitment, in all aspects of client relationships, to perform with excellence and, importantly, to performance improvement when needed. Performance is not one thing but an aggregate of enterprise attitudes, decisions and acts arising from a culture whose employees have highly developed “hard” (professional) and “soft” (people-oriented) skills. Excellence in our business gets diluted unless the enterprise operates within a state-of-the-art technological infrastructure.
As a firm, we have three expectations when we discuss an advisory relationship with clients. First, we expect they will be totally forthcoming so we can understand their reasons for undertaking an engagement with us. Second, we expect to understand, in detail, their financial, family and business circumstances. And third, we expect lines of communication to stay open for the duration of our relationship (which we hope means forever) so we are always current with client life-changing circumstances and are therefore in a position to advise appropriately on a current basis.
As a generality, we have found that the client who experiences WEIL as an excellent service provider is one who accesses all or most of the areas in which we have expertise. These include securities portfolio management, real estate advisory, philanthropy planning, tax planning, estate planning, retirement planning, institutional quality private equity, next generation education and planning, and, recently added, Estate Transition Services.
As our clientele ages we have found that an increasing number of clients are accessing all or most of our suite of services as a consequence of an event which has altered what has been heretofore their normal routines. Some examples of such events include:
o Death of a family member
o Disability or incapacity of a family member
o Business sale
o Substantial inheritance
o Changing residence(s)
o Newly established trusteeships or guardianships
We have found that when we discuss our “client event” capabilities, even if no event is current or on the known horizon, responses have been very positive. Just knowing that there is a competent helper and guide in place as and when any such event or transition should arise has proven to be important to clients and so “Estate Transition Services” is a logical addition to our suite of advisory services.
As all who have had to deal with the often complex issues (and impenetrable paper work) arising from certain “events” will attest, the presence of “a competent helper and guide in place” can make the difference between a smooth and rocky transition, between efficiency and inefficiency, between low costs and high costs. Trust me on this.
And about that swan song. One would think that after a 60+ year working life, enough would be enough. True for most but not for me (at least for so long as I am capable of working physically and intellectually). But what about hobbies? I used to dislike confessing that work is my hobby but so it is and I’ve settled for it. But what about travel? I have an agreement with my wife that I can work as much as I want and we can travel as much as she wants. This has worked out pretty well (except recently when we took a trip to Athens and the Greek Islands where I managed to contract COVID and was isolated for six days). But what about philanthropy? Right. This is more than a hobby; it is an important, albeit part-time, vocation. But what about family? My wife and I are incredibly fortunate to have had our three children, their spouses and our grandchildren as they were growing up nearby. Our children each invite us to their home for dinner once a week. So, between our weekly dinners and the fact that the three children have been involved in our business for years, we have a very gratifying family life already.
If truth be told, I find the lives of the people we do business with endlessly fascinating. Tolstoy has written that “happy families are all alike; every unhappy family is unhappy in its own way.” I would borrow from him to say “happy families are all alike; every well-to-do family is well-to-do in its own way.” One consequence insofar as WEIL is concerned is that all of our relationships are unique and many of the services we provide are custom. This precludes us from running a “one size fits all” operation.
So as long as my colleagues will have me, I intend to stick around, doing what I find fascinating: listening to clients and prospective clients, pondering (with members of our team) how we would deal with the issues they face; assessing the impact of our advice on their lives.
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