WEBVTT - Catherine Keating on Wealth Management (Podcast) 0:00:02.200 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:07.440 --> 0:00:10.640 This week on the podcast, I have an extra special guest, 0:00:10.840 --> 0:00:14.560 and once again it was a tour to fourth. Katherine 0:00:14.640 --> 0:00:19.079 Keating has quite the storied history UH in the financial 0:00:19.120 --> 0:00:23.160 services world. She's not only the CEO of the B 0:00:23.360 --> 0:00:27.640 and Y Melon's wealth management group, she is a regular 0:00:27.920 --> 0:00:30.880 on all of the most Powerful Women in Finance lists. 0:00:31.560 --> 0:00:37.720 Previously she was CEO UM. Previously she was Chief executive 0:00:37.760 --> 0:00:42.199 Officer of Common Funds and Head of Investment Management and 0:00:42.440 --> 0:00:46.360 CEO of the U s US Private Bank at JP Morrigan. 0:00:46.600 --> 0:00:50.839 She has really a fascinating background. They are one of 0:00:50.880 --> 0:00:55.960 the larger asset managers, and so what B and Y 0:00:56.040 --> 0:01:00.880 Melon does when it comes to UM, generational wealth transfer, 0:01:00.880 --> 0:01:05.640 and philanthropic planning and all these other areas related to 0:01:05.720 --> 0:01:09.200 the core of of wealth management. They are very much 0:01:09.400 --> 0:01:13.160 a thought leader in the space and and there actions 0:01:13.200 --> 0:01:16.720 have ripple effects throughout the industry. I found this to 0:01:16.800 --> 0:01:22.440 be just an absolutely fascinating conversation. We definitely went deep 0:01:22.480 --> 0:01:26.280 into the weeds discussing things like certain types of retaining 0:01:26.400 --> 0:01:30.960 test guarante r trusts, but generally everything was very accessible 0:01:31.000 --> 0:01:35.000 and quite fascinating. If you're remotely interested in the asset 0:01:35.040 --> 0:01:38.800 management business or financial planning, will strap yourself in because 0:01:38.840 --> 0:01:42.559 this is going to be absolutely fascinating. With no further ado, 0:01:43.080 --> 0:01:49.680 my conversation with Katherine Keating. This is Masters in Business 0:01:49.920 --> 0:01:54.360 with very Ridholts on Bloomberg Radio. My extra special guest 0:01:54.400 --> 0:01:57.840 this week is Kathleen Keating. She is the CEO of 0:01:57.920 --> 0:02:01.640 B and Y Melon's Wealth Management Group, which runs about 0:02:01.680 --> 0:02:05.600 two hundred and sixty five billion dollars in assets. Uh 0:02:05.880 --> 0:02:09.080 B and Y Melon manages two trillion dollars and has 0:02:09.120 --> 0:02:14.320 over thirty eight trillion dollars in assets custodied. The firm 0:02:14.520 --> 0:02:19.560 was founded in seventeen eighty four by Alexander Hamilton's. Keating 0:02:19.680 --> 0:02:24.280 previously was CEO at Common Funds and head of Investment 0:02:24.320 --> 0:02:29.400 management at the US private bank for JP Morgan. Katherine Keating, 0:02:29.800 --> 0:02:32.919 Welcome to Bloomberg. Thank you very great to be here. 0:02:33.280 --> 0:02:36.680 So you have a fascinating background and I want to 0:02:36.720 --> 0:02:40.040 start out delving into it. You were the first woman 0:02:40.200 --> 0:02:43.960 to be CEO at B and Y Melon Wealth Management, 0:02:44.600 --> 0:02:48.200 and you were one of the only women running investment 0:02:48.240 --> 0:02:51.920 management or the private banquet at JP Morgan tell Us 0:02:51.960 --> 0:02:54.840 about your journey. Well, thank you for asking it. You know, 0:02:54.919 --> 0:02:57.000 it's never about being the first. It's always about not 0:02:57.040 --> 0:02:59.440 being the last, right in anything you do. So let 0:02:59.480 --> 0:03:01.920 me stay with that. Let me start with that. You 0:03:01.919 --> 0:03:05.560 know here at UM at B and Y Melan. Interestingly enough, 0:03:05.600 --> 0:03:08.200 you mentioned Alexander Hamilton's You know, we've worked with strong 0:03:08.240 --> 0:03:11.320 women throughout our history. His widow, Eliza, was actually our 0:03:11.320 --> 0:03:14.240 first client. People don't know that she was a powerhouse 0:03:14.240 --> 0:03:16.320 in her own right, sounded the first orphanage here in 0:03:16.320 --> 0:03:19.640 New York City. Uh So we've worked with strong women 0:03:19.680 --> 0:03:23.360 throughout our history. You know, as as far as my career, 0:03:23.440 --> 0:03:27.640 I guess like those people, I've gravitated to UM what 0:03:27.760 --> 0:03:30.200 interests me? Right, We work hard in this industry. We 0:03:30.200 --> 0:03:32.440 want to make a difference. I've had a tremendous passion 0:03:32.520 --> 0:03:36.520 for trying to help clients, whether it's individuals or institutions, 0:03:36.520 --> 0:03:39.920 have better financial outcomes. And that's really our purpose that 0:03:40.040 --> 0:03:41.880 this company. We log it every day and we see 0:03:41.880 --> 0:03:46.360 on our computers. Our our purpose is to power individuals 0:03:46.440 --> 0:03:49.960 and institutions to succeed in the financial world. And so 0:03:50.320 --> 0:03:53.280 UM that's a large part of what has motivated me. 0:03:53.880 --> 0:03:56.240 I also think that I just had experiences in my 0:03:56.320 --> 0:04:03.320 life that have demonstrated how important found financial advice is. Again, 0:04:03.360 --> 0:04:06.360 whether you're an institution or an individual. Um, when I 0:04:06.400 --> 0:04:10.520 was a young youngster, eight years old, my dad died 0:04:10.600 --> 0:04:12.360 very suddenly, and I watched my mom, I was the 0:04:12.360 --> 0:04:14.960 oldest of three kids. I watched her have to go 0:04:15.040 --> 0:04:17.880 back to work and then go back to school. She 0:04:17.880 --> 0:04:19.880 she was a school teacher, and she decided she wanted 0:04:19.920 --> 0:04:22.920 to go back to school and become a librarian. Um, 0:04:23.240 --> 0:04:25.159 that was a career that she loved so much. She 0:04:25.320 --> 0:04:27.919 just retired a couple of years ago at seventy nine, 0:04:28.040 --> 0:04:32.839 And so I've kind of watched how important good financial 0:04:32.839 --> 0:04:35.000 advice is. Obviously, she had to do things like by 0:04:35.040 --> 0:04:37.800 her own first car. She took us all to the 0:04:37.839 --> 0:04:40.880 Bolvo dealer. Had done her research Bolbo station wagons with 0:04:40.960 --> 0:04:43.960 a Sacist cars back in the nineteen seventies. She took 0:04:44.000 --> 0:04:46.560 us all to the car dealer, and I remember walking 0:04:46.560 --> 0:04:49.560 in and having the dealer look at her and say, um, 0:04:49.600 --> 0:04:52.320 where's Mr Kessler, And of course there wasn't a Mr Kesler. 0:04:52.360 --> 0:04:55.600 So again I've just seen you know how important um, 0:04:55.880 --> 0:05:00.760 sound financial planning, investment planning and decisions are in people's lives. 0:05:01.200 --> 0:05:03.400 I've also seen it an institution. You know, I was 0:05:03.480 --> 0:05:05.839 lucky enough to go to the college that paid for everything. 0:05:05.920 --> 0:05:08.960 I served on the board for years, including through the 0:05:09.000 --> 0:05:13.960 financial crisis, and I know how important sound financial management 0:05:14.000 --> 0:05:17.240 is institutions too. It enables them to make it through 0:05:17.279 --> 0:05:21.520 cycles and continue to accomplish their missions. So, um, a 0:05:21.560 --> 0:05:23.200 lot of it is just sort of the basics. What 0:05:23.240 --> 0:05:25.880 motivates you in the morning and how can you contribute 0:05:26.080 --> 0:05:28.760 to people's lives through your career. So let's talk about 0:05:28.839 --> 0:05:32.479 institutions for a moment. You spent a good part of 0:05:32.520 --> 0:05:36.039 your career as CEO of Common Fund, which was a 0:05:36.160 --> 0:05:41.480 nonprofit asset manager serving endowments, foundations and other financial institutions. 0:05:42.040 --> 0:05:45.719 How has that experience colored how you view the world 0:05:45.720 --> 0:05:49.479 of institutions. So couple of things are important to know 0:05:49.560 --> 0:05:53.120 about institutional investors versus individuals. The first one is that 0:05:53.200 --> 0:05:56.480 every institutional investor knows what its goal is. So if 0:05:56.480 --> 0:05:59.080 you think about a college endowment, the goal of the 0:05:59.120 --> 0:06:02.800 college endowment is to earn enough on it's portfolio so 0:06:02.960 --> 0:06:05.800 that it can make distributions to support the mission. You know, 0:06:05.839 --> 0:06:08.120 typically four four and a half maybe five percent a 0:06:08.200 --> 0:06:13.000 year and still exceed inflation right, so called that you 0:06:13.000 --> 0:06:15.080 know it's inflations two percent and you want to distribute 0:06:15.120 --> 0:06:16.520 four and a half or five you want to have 0:06:16.600 --> 0:06:19.760 returns of over seven percent. They know what their goal is. 0:06:20.880 --> 0:06:24.040 The second thing about institutions that might be different than 0:06:24.080 --> 0:06:27.320 individuals is that they have governance and process right, boards 0:06:27.320 --> 0:06:30.640 and committees. When you think about individuals, neither of those 0:06:30.680 --> 0:06:33.440 things is necessarily the case. Nobody tells an individual what 0:06:33.480 --> 0:06:35.040 their goal has to be. They have to figure that 0:06:35.080 --> 0:06:36.800 out for themselves, and we spend a lot of time 0:06:36.839 --> 0:06:41.000 with clients about that, and you don't necessarily have the 0:06:41.080 --> 0:06:44.080 governance of a board and an investment committee standing in 0:06:44.120 --> 0:06:46.760 between you and making those decisions. So I think the 0:06:46.800 --> 0:06:50.640 two things about institutions that are so different is very 0:06:50.680 --> 0:06:54.359 focused on goals, very well defined, and have governance and 0:06:54.440 --> 0:06:57.840 process in place to help support it. So let's do 0:06:57.880 --> 0:07:01.520 a compare and contrast. What when you're working with an institution, 0:07:02.360 --> 0:07:04.520 you know who's the head of investing there, and you 0:07:04.560 --> 0:07:08.840 know who's managing a particular committee. What's that like when 0:07:08.960 --> 0:07:12.160 you are working with the family, where there might be 0:07:12.320 --> 0:07:15.200 very different group dynamics, there's going to be often a 0:07:15.280 --> 0:07:19.480 husband and a wife. Sometimes there's an active second generation 0:07:19.600 --> 0:07:24.040 or even third generation. How different is working with individuals 0:07:24.160 --> 0:07:27.920 versus institutions, So it's it's very different. And in fact, 0:07:27.960 --> 0:07:30.800 one of having worked in asset management with institutions and 0:07:30.880 --> 0:07:33.400 also in wealth management for the individuals, one of the 0:07:33.480 --> 0:07:35.800 things that I try to do is to bridge that 0:07:35.920 --> 0:07:39.960 gap and take the best practices that institutions have and 0:07:40.040 --> 0:07:42.240 try to adapt them to families. And so let me 0:07:42.240 --> 0:07:46.040 give you two real life examples, right, because two and 0:07:46.080 --> 0:07:49.120 eight a great example. Um, and I'll give you another one. 0:07:49.760 --> 0:07:51.280 So what happened in two thousand and eight? We all 0:07:51.320 --> 0:07:54.800 know the financial crisis, and I was on the board 0:07:54.840 --> 0:07:57.360 of my college at that time, and just by luck 0:07:57.400 --> 0:07:59.920 of the calendar, we happen to be having a board 0:08:00.000 --> 0:08:04.200 meeting and an investment committee meeting on Columbus Day in October, 0:08:04.360 --> 0:08:06.239 which if you take your mind back to two thousand 0:08:06.280 --> 0:08:08.440 and eight, you might remember that was the day that 0:08:08.560 --> 0:08:11.160 all the CEOs from the banks went down to Washington 0:08:11.280 --> 0:08:14.000 to take the tart money. So there we were having 0:08:14.000 --> 0:08:16.560 our regular board meeting and our investment committee meeting, and 0:08:16.600 --> 0:08:19.160 we had had we had done an enormous amount of 0:08:19.200 --> 0:08:23.080 work on asset allocation and the strategy for our portfolio, 0:08:23.280 --> 0:08:25.560 and we had done stress testing and all the things 0:08:25.560 --> 0:08:28.360 that you do as an institution. And so here we 0:08:28.360 --> 0:08:31.480 were in the depths of the financial crisis, with thanks 0:08:31.480 --> 0:08:34.600 CEO taking tart money, and we had to decide as 0:08:34.600 --> 0:08:36.559 a board and an investment committee, what were we going 0:08:36.600 --> 0:08:39.160 to do. We're we going to do what our policy 0:08:39.240 --> 0:08:42.800 portfolio told us we ought to do, which is rebalance 0:08:43.120 --> 0:08:46.360 and continue to buy stocks as the market was going down, 0:08:47.200 --> 0:08:49.760 because that's what our policy had been tested for. And 0:08:50.200 --> 0:08:53.320 sure enough, we had to lock arms and um do 0:08:53.480 --> 0:08:55.520 something that was very hard, which was to buy and 0:08:55.559 --> 0:08:58.120 rebalance when the market was down. And you tend to 0:08:58.160 --> 0:09:01.720 see institutions do exactly that because of all of the 0:09:01.760 --> 0:09:04.679 time that has been spent on the policy portfolio, and 0:09:04.720 --> 0:09:08.400 because they know time and market is one of their 0:09:08.400 --> 0:09:11.880 biggest advantages. It's more important than timing the market. On 0:09:11.920 --> 0:09:14.840 the other hand, when you look at individuals, they don't 0:09:14.880 --> 0:09:20.840 necessarily have that governance and policy in place, and that's 0:09:20.880 --> 0:09:22.440 one of the things that we try to do with 0:09:22.480 --> 0:09:24.640 our clients. We have all of our clients adopt an 0:09:24.679 --> 0:09:27.560 investment policy statement and wealth management, just as if they 0:09:27.600 --> 0:09:30.480 were institutions, and then we try to help them stick 0:09:30.520 --> 0:09:33.280 with it when it's hardest. And you know, we can 0:09:33.360 --> 0:09:36.600 watch the industry fund flows and we can see whether 0:09:36.720 --> 0:09:39.600 clients actually do it. And in fact, interestingly enough, what 0:09:39.720 --> 0:09:42.600 you saw this year as the market was going down 0:09:42.640 --> 0:09:44.440 and you watch the flows as we do, right, you 0:09:44.480 --> 0:09:47.040 saw money flowing into cash. We saw record amounts of 0:09:47.080 --> 0:09:50.480 cash and money market funds. We saw money flowing into 0:09:50.520 --> 0:09:53.319 bond funds. Um, we really didn't see a lot of 0:09:53.360 --> 0:09:56.840 money flowing into equity funds when the market was down 0:09:56.840 --> 0:09:59.760 in March, and so we know how hard it is 0:10:00.440 --> 0:10:03.280 to stay with your portfolio through the cycle. We told 0:10:03.280 --> 0:10:06.160 our clients to do that and um, you know, if 0:10:06.200 --> 0:10:10.080 they did, they participated as the market has has come 0:10:10.080 --> 0:10:12.800 back to reach all time hives. So let me follow 0:10:12.880 --> 0:10:16.319 up with a question about exactly what you just described. 0:10:16.920 --> 0:10:21.360 When your investment committee and institution, which has a perpetual 0:10:21.440 --> 0:10:27.120 time horizon, is looking at a period like March oh 0:10:27.280 --> 0:10:30.960 nine or more recently this this past down draft in 0:10:32.760 --> 0:10:37.080 they're precluded from doing something silly because they have an 0:10:37.120 --> 0:10:41.599 investment policy statement which prevents them from market timing or 0:10:42.000 --> 0:10:45.400 there's no upside to a committee to say, sure, what 0:10:45.480 --> 0:10:47.080 the hell, let's jump in and out and see if 0:10:47.120 --> 0:10:49.600 we can pick up a couple extra basis points. There's 0:10:49.640 --> 0:10:53.360 no financial incentive, there's no glory. It violates their own rules, 0:10:53.440 --> 0:10:57.120 so they sort of are forced to behave. Well, how 0:10:57.160 --> 0:11:02.120 do you translate that better behavior to an individual when 0:11:02.120 --> 0:11:05.360 you're working with them and they're nervous in a period 0:11:05.440 --> 0:11:10.560 like February or March. Yeah, so it's a great question, Barry. 0:11:10.600 --> 0:11:13.240 And again, what we really try to do here is 0:11:13.360 --> 0:11:17.679 we really try to court from the institutional asset management 0:11:17.880 --> 0:11:23.440 industry over into wealth management. The same institutional processes and 0:11:23.559 --> 0:11:27.160 tools been felt institutions for so long. So, as I said, 0:11:27.240 --> 0:11:29.560 every one of our wealth management clients, we've spent a 0:11:29.600 --> 0:11:32.760 lot of time with them to actually develop an investment 0:11:32.760 --> 0:11:36.079 policy statement, just as an institution would have. And how 0:11:36.080 --> 0:11:38.720 do we do that. We do that by by first 0:11:38.760 --> 0:11:41.360 and foremost having to figure out what their goal is, Right, 0:11:41.440 --> 0:11:43.520 every family is different. There's an adage that we can't 0:11:43.520 --> 0:11:45.880 see one wealthy family. You've seen one wealthy family, and 0:11:45.880 --> 0:11:49.600 that's true. Every family is different. Every family has a 0:11:49.640 --> 0:11:53.040 different near term and long term goal. So the first 0:11:53.080 --> 0:11:56.120 thing we try to do is really be clear on 0:11:56.160 --> 0:11:58.000 what that goal is. And most of the time we 0:11:58.040 --> 0:12:00.480 find that there's two aspects to a US like number 0:12:00.480 --> 0:12:02.640 one has to do with lifestyle. They want a certain 0:12:03.280 --> 0:12:06.360 um amount of income to support, you know, a lifestyle, 0:12:06.440 --> 0:12:09.560 particularly as they move into retirement. And then the second 0:12:09.559 --> 0:12:11.520 tends to be about legacy. What are the things that 0:12:11.600 --> 0:12:13.559 you want to preserve in your family and they could 0:12:13.600 --> 0:12:16.280 be financial or they could be not financial, um to 0:12:16.480 --> 0:12:20.040 preserve from one generation to the next. Because our clients 0:12:20.040 --> 0:12:22.960 have wealth set out with them, and so we focused 0:12:23.480 --> 0:12:27.200 very very hard on what is that goal, and then 0:12:27.400 --> 0:12:29.800 we use a lot of modeling tools to show all 0:12:29.840 --> 0:12:33.000 the variables that will impact that goal. Some of them 0:12:33.000 --> 0:12:36.480 are obvious, right the market and asset allocation right so 0:12:36.559 --> 0:12:40.559 well will trigger back and forth between different asset allocations 0:12:40.600 --> 0:12:43.440 to show the impact of them over time. Some of 0:12:43.480 --> 0:12:47.280 them are uniquely in your control spending rates. Every institutional 0:12:47.320 --> 0:12:51.920 investor has a policy on spending. Nobody requires an individual 0:12:52.000 --> 0:12:54.480 to have a policy or even a philosophy on spending, 0:12:54.480 --> 0:12:57.600 and yet it has an enormous amount of impact on 0:12:57.720 --> 0:13:01.320 the wealth that you accumulate over time. Increasingly we take 0:13:01.360 --> 0:13:05.120 into account borrowing, right, our clients don't have to borrow, 0:13:05.200 --> 0:13:07.959 but just like major companies, that might make sense from 0:13:08.000 --> 0:13:11.520 a capital allocation perspective. Another thing that we have to 0:13:11.520 --> 0:13:15.360 take into account is after tax returns. Institutions don't pay taxes. 0:13:15.400 --> 0:13:18.320 Our clients pay taxes every year and every generation. So 0:13:18.360 --> 0:13:21.520 you have to keep an eye on after tax returns. 0:13:21.559 --> 0:13:24.920 And so we've built models that help us to integrate 0:13:24.960 --> 0:13:27.679 all of these things and allow us to kind of 0:13:27.720 --> 0:13:33.760 show clients perspectively the impact of choices on asset allocations, 0:13:33.760 --> 0:13:38.360 on spending, on borrowing, on taxes, to try to help 0:13:38.400 --> 0:13:41.920 them chart not only the goal, but what are the 0:13:41.960 --> 0:13:44.040 things that I have to do to get there. Catherine, 0:13:44.120 --> 0:13:47.600 let's talk a little bit about the clients of of 0:13:47.720 --> 0:13:50.960 B and Y. Who who is the typical wealth management customer? 0:13:51.760 --> 0:13:55.320 Tell us about them? Sure, Berry, our typical client is 0:13:55.320 --> 0:13:59.400 a wealthy family. It might also be entities that you 0:13:59.600 --> 0:14:03.600 think of is being associated with wealthy families. Foundations, endowment's 0:14:03.640 --> 0:14:10.080 family offices, family businesses, even retirement plans potentially related to 0:14:10.160 --> 0:14:13.280 families and family entities. So think about the whole ecosystem 0:14:13.400 --> 0:14:17.320 surrounding wealthy families, the people, and the entities and that's 0:14:17.320 --> 0:14:19.960 really our clientation. So you guys have been around for 0:14:20.040 --> 0:14:25.960 quite a long time. Is a fantastic run. Most of 0:14:26.000 --> 0:14:31.240 your current clients, are they legacies of of B and 0:14:31.360 --> 0:14:33.480 Y being around as long as it has been? Are 0:14:33.520 --> 0:14:38.920 they referrals generational transfers? Where does the typical clients come 0:14:39.000 --> 0:14:43.040 from within the B and Y melon Um family? So 0:14:43.160 --> 0:14:46.440 great question, Barry about mostly half of our clients are 0:14:46.440 --> 0:14:50.960 referred to us from other clients or advisors to UM clients. 0:14:50.960 --> 0:14:52.960 So think about its half and then the other half 0:14:52.960 --> 0:14:55.800 comes from all sorts of sources, right just you know, 0:14:55.840 --> 0:14:58.440 the dynamism of the market wealth is being created around 0:14:58.520 --> 0:15:02.960 us all the time. UM. We're obviously pursuing those opportunities. 0:15:02.960 --> 0:15:05.160 And we do have a combination of clients that have 0:15:05.280 --> 0:15:07.840 been with us many years. UM. We have a couple 0:15:07.880 --> 0:15:09.600 of families that have been with a six or seven 0:15:09.600 --> 0:15:13.920 generations now, which is just truly remarkable and something that 0:15:13.960 --> 0:15:16.320 we appreciate and try to earn every day. And then 0:15:16.360 --> 0:15:18.440 we have clients that you know, have just taken their 0:15:18.440 --> 0:15:21.360 companies public and our brand new clients this year. So 0:15:21.400 --> 0:15:23.720 it's really all the sources that you would expect in 0:15:23.760 --> 0:15:28.000 a long tenure in institution like ours, and and how 0:15:28.080 --> 0:15:32.680 have clients expectations changed over the years in terms of 0:15:33.280 --> 0:15:36.560 what they're looking for from you guys, in terms of communication, 0:15:37.080 --> 0:15:40.680 what they're expecting in terms of performance. Has that shifted 0:15:41.440 --> 0:15:46.360 over the past decade or two? So that's yes. The 0:15:46.400 --> 0:15:49.160 answer to that, barr Is is yes. You know, when 0:15:49.200 --> 0:15:51.720 I think about when I started my career in this 0:15:51.800 --> 0:15:55.680 industry back in the nine you know, the typical client 0:15:55.920 --> 0:16:00.160 might have been a CEO, a CFO with C, a 0:16:00.280 --> 0:16:05.600 senior corporate executive, and when that client retired, chances are 0:16:05.680 --> 0:16:07.680 he or she and very often it was the heat 0:16:08.120 --> 0:16:12.240 retired with a corporate pension plan, right, an annuity for 0:16:12.280 --> 0:16:16.440 the rest of his life and his spouses life, and 0:16:16.480 --> 0:16:20.120 also anything else that they've accumulated in their savings. So 0:16:20.280 --> 0:16:22.080 when I think of the nineties, I think of wealth 0:16:22.080 --> 0:16:24.560 management is kind of an and you had your you 0:16:24.600 --> 0:16:27.800 had your pension plan, and you had any savings that 0:16:27.840 --> 0:16:31.600 you've accumulated on your own. Well, fast forward to this 0:16:31.680 --> 0:16:33.680 decade that we're in, and what we see is that, 0:16:34.160 --> 0:16:37.480 you know, there are very few company provided pension plans 0:16:37.480 --> 0:16:41.080 anymore in corporate America. Corporate America is shifted from company 0:16:41.120 --> 0:16:45.720 provide attention plans to employee funded savings plans. So today 0:16:45.800 --> 0:16:49.840 everybody is responsible for their own financial futures. And that's 0:16:49.880 --> 0:16:53.000 a fundamental shift, and that's another reason very that we 0:16:53.080 --> 0:16:56.640 try to pour over into wealth management. All of the 0:16:56.720 --> 0:17:00.480 institutional asset management disciplines that you would have seeing a 0:17:00.560 --> 0:17:05.120 chief financial officer or a chief investment officer used when 0:17:05.200 --> 0:17:08.760 they were actually providing for people's long term retirements. That's 0:17:08.880 --> 0:17:11.800 much less common today. And so our mantra for clients is, 0:17:11.840 --> 0:17:13.760 you have to be your own CFO, you have to 0:17:13.800 --> 0:17:15.960 be your own c i O, and we're here to help. 0:17:17.240 --> 0:17:21.240 H Quite interesting, the past couple of decades have seen 0:17:21.960 --> 0:17:27.400 a big flow of capital into passive products and indexes. 0:17:27.920 --> 0:17:30.719 What do you see from your perspective, how is that 0:17:30.880 --> 0:17:34.880 change in what's going on in the ultra high net 0:17:34.880 --> 0:17:39.760 worth investment family. So before we look at active or passive, 0:17:39.920 --> 0:17:43.080 we look at the ecosystem that we're investing in. Right, 0:17:43.200 --> 0:17:45.760 what's going on in the global economy, because that's really 0:17:45.760 --> 0:17:48.919 the ecosystem that we invest in. And in fact, at 0:17:48.920 --> 0:17:51.439 the beginning of this year, I sent a letter to 0:17:51.480 --> 0:17:53.520 all of our clients, not knowing of course, in the 0:17:53.520 --> 0:17:56.600 beginning of January what was going to hold for us. 0:17:56.640 --> 0:17:59.480 But recognizing that we were starting a new decades and 0:17:59.520 --> 0:18:03.399 as we've started this new decade, we looked at global economy, 0:18:03.520 --> 0:18:07.720 we looked at capital markets, and we we had forecap 0:18:07.920 --> 0:18:09.480 for our clients, you know, what do we think market 0:18:09.480 --> 0:18:12.000 returns are going to be in the next decade? And 0:18:12.040 --> 0:18:15.000 I actually quoted Bill Gates in that letter. He says, 0:18:15.440 --> 0:18:18.320 we always overestimate what's going to happen in the next 0:18:18.359 --> 0:18:20.720 two years and underestimate what's going to happen in the 0:18:20.720 --> 0:18:23.640 next ten. And one of the things that we said 0:18:23.680 --> 0:18:26.320 to our clients about the next ten years is that 0:18:26.359 --> 0:18:29.240 we thought that market returns we're going to be lower, 0:18:29.600 --> 0:18:34.560 incrementally lower, not significantly lower, but incrementally lower going forward. 0:18:34.960 --> 0:18:38.320 And there was one major reason for that, and that 0:18:38.560 --> 0:18:41.720 is that all of the largest economies in the world 0:18:41.800 --> 0:18:47.080 are aging at the same time, China, Europe, and the 0:18:47.160 --> 0:18:51.960 United States. And we know what happens when economy's age. 0:18:52.560 --> 0:18:56.000 Inflation tends to go down, interest rates tend to go down, 0:18:56.640 --> 0:19:00.280 yield curves tend to flatten, GDP growth tends to go down, 0:19:00.320 --> 0:19:03.280 and eventually market returns tend to go down. And we 0:19:03.440 --> 0:19:07.919 pointed out to our clients, but actually we've been seeing 0:19:07.960 --> 0:19:12.000 that through this whole new century we're in, I think 0:19:12.040 --> 0:19:14.520 about it right. Inflation has been coming down, interest rates 0:19:14.560 --> 0:19:17.560 have been coming down, GDP growth has been coming down, 0:19:18.359 --> 0:19:21.080 and market returns have come down incrementally. So what we 0:19:21.119 --> 0:19:24.800 said to our clients is that's the ecosystem that we 0:19:24.920 --> 0:19:27.880 think we're going to be in over this next decade. 0:19:28.400 --> 0:19:33.000 We still do. We've had some really unexpected and very 0:19:33.040 --> 0:19:37.439 important eventstasy are obviously with the global pandemic and the 0:19:37.520 --> 0:19:42.040 influence of Congress, the Cisco stimulus, and the Federal Reserve 0:19:42.119 --> 0:19:45.199 with monetary stimulus, and we actually think that that monetary 0:19:45.240 --> 0:19:49.200 stimulus and the low interest rates for longer are very 0:19:49.320 --> 0:19:53.920 very important to the outlets going forward. Interesting, We're gonna 0:19:53.960 --> 0:19:56.919 talk more about interest rates in a little bit, but 0:19:57.040 --> 0:20:00.520 I want to ask you um something that I found 0:20:00.560 --> 0:20:06.600 fascinating in my research, which was your description of five 0:20:06.760 --> 0:20:12.719 active wealth practices invests, spend, manage, borrow, protect. Tell us 0:20:12.720 --> 0:20:15.439 a little bit about what that group of five is 0:20:16.119 --> 0:20:21.000 and how does it manifest itself in a client's portfolio 0:20:21.280 --> 0:20:25.480 and their relationship with their advisor at B and Y. Melon. 0:20:25.920 --> 0:20:27.639 Thanks for asking Barry, and we have a lot of 0:20:27.680 --> 0:20:31.200 passion around this because again, as I said, Um, we 0:20:31.280 --> 0:20:33.800 believe that part of our job, being you know, one 0:20:33.840 --> 0:20:36.960 of the largest institutional firms out there, is to help 0:20:36.960 --> 0:20:41.560 our clients benefit from the best institutional practices around those 0:20:41.600 --> 0:20:43.639 five things we took. You know, we have the great 0:20:43.760 --> 0:20:46.399 fortune of having a lot of experience working with wealthy 0:20:46.440 --> 0:20:49.119 families at this firm, all the way back to the 0:20:49.119 --> 0:20:52.320 Hamilton's family, as I said, and so you know, our 0:20:52.359 --> 0:20:56.200 brain trust of people have put their heads together and said, 0:20:56.240 --> 0:20:58.320 what have we learned over the years, what are the 0:20:58.440 --> 0:21:00.200 five things? And we didn't know if it was gonna 0:21:00.200 --> 0:21:01.480 be five. It could have been three, it could have 0:21:01.480 --> 0:21:04.960 been far. It turns out it's five that we see 0:21:05.160 --> 0:21:09.399 allow families to sustain their success every time. First and 0:21:09.440 --> 0:21:13.239 foremost investing your financial assets, your portfolio, having the right 0:21:13.280 --> 0:21:17.280 ASSEID allocation, and most importantly, sticking to it when it's hard. 0:21:18.119 --> 0:21:22.040 Number two, UM, spending. As I said, every institutional investor 0:21:22.359 --> 0:21:25.760 has a spending rate of spending policy. Understanding the impact 0:21:25.800 --> 0:21:29.720 of spending on long term returns is very very important. 0:21:30.040 --> 0:21:33.159 Number Three borrowing. Our clients don't typically have to borrow, 0:21:33.520 --> 0:21:35.119 but they can. And one of the things that we 0:21:35.200 --> 0:21:38.960 joke about is that we you can date yourself, um 0:21:39.160 --> 0:21:42.400 by saying what the interest rate was on the first 0:21:42.400 --> 0:21:45.000 mortgage you took out on a house. If it was 0:21:45.040 --> 0:21:47.360 in the double digits, cancers are, it was in the 0:21:47.440 --> 0:21:50.040 late eighties, early nineties. If it was in the mid 0:21:50.040 --> 0:21:52.280 single digits, it was in the nineties. If it, you know, 0:21:52.359 --> 0:21:56.040 drops even lower, it was sometime in this new um 0:21:56.320 --> 0:21:58.359 century we're in. And if it's below three percent, you 0:21:58.400 --> 0:22:01.080 took it out this year. So you know, our clients 0:22:01.119 --> 0:22:04.920 don't have to borrow, but they make capital allocation decisions 0:22:04.960 --> 0:22:07.520 just like any major company does, and so thinking about 0:22:07.560 --> 0:22:10.280 their balance sheets and thinking about when it might make 0:22:10.359 --> 0:22:14.480 sense to borrow, particularly when rates are low, for estate 0:22:14.480 --> 0:22:18.639 planning purposes, for liquidity purposes, for purchases, that's become a 0:22:18.680 --> 0:22:24.320 more important discipline. And that that's the third one for investing, sending, borrowing, 0:22:25.000 --> 0:22:28.320 managing for after tax returns because our clients do pay taxes, 0:22:28.359 --> 0:22:30.680 and part of that is related to your question about 0:22:30.680 --> 0:22:34.240 active and passive right passive vehicles um lower costs but 0:22:34.320 --> 0:22:37.200 also very tax efficient. And what we say to our 0:22:37.240 --> 0:22:40.000 clients is again with our investment outlook, you've got to 0:22:40.040 --> 0:22:43.760 eke out excess returns wherever you can, and there are 0:22:43.760 --> 0:22:47.159 certain classes where that may be less likely. You know, 0:22:47.160 --> 0:22:50.520 the US large cap market is very very efficient. Um, 0:22:50.600 --> 0:22:54.120 we would say, um, you can actually add tax alpha 0:22:54.240 --> 0:22:57.840 in the US large cap markets, perhaps more effectively and 0:22:57.880 --> 0:23:01.280 consistently than you can add invest an alpha. But then 0:23:01.280 --> 0:23:03.639 there are other classes as at classes where markets are 0:23:03.720 --> 0:23:05.880 much less efficient, and we do encourage them to go 0:23:06.240 --> 0:23:09.920 um for access returns. And then the last discipline protect 0:23:09.960 --> 0:23:14.000