Ariana Bhatia: Investing for Multigenerational Families | Next Gen

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You know, if you have that qualified next-gen client and you don't offer them private investments, it's like taking them to a restaurant where they're offered this lavish brunch to everyone else, but you're giving them the continental breakfast.

Welcome to Barron's Advisor, The Way Forward: Next Generation, a special series spotlighting the emerging leaders shaping the future of financial advice. Twice a month, we'll be digging into the strategies, insights, and game-changing moves that will help you take your practice to the next level. I'm your host, Allison Tucci, and today with me is Ariana Bhatia, a private wealth advisor at Merrill Lynch. She brings a multigenerational lens to alternatives and investments. Welcome to the podcast.

Thank you for having me.

Can you just start by telling me a little bit more about your practice, the types of clients you have, just to give our listeners a little bit of background?

Yeah, for sure. I'm a partner of the Bhatia Group. We are a 12-person wealth management team housed within Merrill Private Wealth. We have 5 partners on the team and 7 support staff. We manage almost $3 billion across about 130 client families or so. We serve client families in usually one of 3 main categories. A third roughly are business owners and entrepreneurs. A third are corporate executives and seasoned professionals in their field. And a third might be multigenerational families.

How are you approaching building that business with not just the next generation, but the next, next generation?

Showing up is the first piece of it, really. Make sure you're in those meetings and you're traveling to see folks, whether near or far. For them to see that face and know that you're there in front of them and that you really care, not just over a Zoom screen, is first and foremost essential. And you'd be shocked the number of things that just come up by having that next generation in the room. So me being with my father that maybe they didn't bring up before because it didn't cross their minds. But now they're seeing me entering the family business and suddenly all these thoughts and questions about their own children whether it's entering their business or just taking over the family legacy, are also coming in their mind. So I think that has certainly been one byproduct and one way in which we've really engaged them. It's certainly deepened the roots of our relationships with several families who have since gotten their children involved.

Are there any key differences between Gen 1 and that next generation down in terms of portfolio construction?

Yeah, I think I have seen that quite a bit. Prior generations are used to working in jobs for maybe decades and looking at their portfolios often as a piggy bank or a rainy day fund for emergencies. And then of course for retirement later on. I think next-gen clients and next-gen wealth creators have a slightly different point of view. So they've grown up in the era of seeing wealth created sometimes seemingly overnight from the boy and girl wonders in Silicon Valley. They've seen the era of remote work. So I find that those clients tend to be more flexible in their lifestyles. They might change jobs, change locations, be more entrepreneurial. And this leads to them looking at their portfolios in a different way. So they often look at it as say, a dynamic tool that they can use to help shape the lifestyle they want.

How do you plan accordingly for someone who wants to use a little bit of their savings as opposed to just setting it and forgetting it for later use?

A lot of times you see folks looking at the portfolio as a concurrent resource along with their careers. So they might tap into it during a period of transition, let's say. So instead of, as you said, say, a setting and forgetting, you kind of have to think about portfolio construction very thoughtfully. So that might lend you to conversations on, say, asset location versus asset allocation. And what I mean by that is, where are we placing these different investments in your portfolio and how? So you might put something in an IRA that you're okay, say, not touching for a long period of time, whereas in the taxable accounts, you might want to have access to that earlier, so you might place something there. So I think it just lends itself to that thoughtful construction piece based on the use cases and how you can see this person using the portfolio in the future.

Can you give me an example of, you know, a next-generation client and how you walked them sort of through that location versus allocation piece?

It's always interesting when we have our kind of initial portfolio proposal meetings with folks. Everyone's heard of asset allocation. Everyone's heard of manager selection, but not a lot of people have heard of asset location. But it's very important. You know, we had one client that was an entrepreneur in his 40s, was thinking of changing jobs after one successful venture and thinking about, you know, how he could really maximize the use of, say, tax-efficient accounts like an IRA versus also getting income. So oftentimes we'll say put private credit or something with high ordinary income in an IRA to shield them from taxes. But if you want to use that income, you have to be mindful of that. So you might want it on the taxable side.

How do you think about alternative investing and integrating into your portfolios for clients?

Private markets have been such a substantial driver of wealth creation. That it's fueled the awareness and the appetite for it in itself. So when a qualified ultra-high-net-worth next-gen client comes to us, there's almost an expectation that private investments will be a part of the menu of options. You know, I was reading a study the other day that showed private equity globally has grown tenfold since 2000. That's a pretty formative period over the lives of most millennials, per se. So they're very aware, you know, if you have that qualified NextGen client and you don't offer them private investments, it's like I think of it as taking them to a restaurant where they're offered this lavish brunch to everyone else, but you're giving them the continental breakfast. So that's kind of how I think about it.

That's a great way to think about it. And where do you see that trend really going in terms of private markets now, given that interest rates are a little bit of a different spot than they were in 2022 and have risen?

Yeah, for sure. It certainly changes the equation a little bit, but look, there's still opportunity. I think the way you think about it is who gets the pieces of that pie and how are the pieces of the pie changing? So, you know, I used to be— I spent the better part of the last decade in private equity investing myself. So I have a fair bit of familiarity with private investments. And as you think about it, I mean, for our clients, where, you know, we have private equity and private credit in a slightly higher rate environment, you might have a marginally higher allocation to private credit. Now, why is that? Because the share of the return of any private deal is now being shared to a higher degree with the private credit investor or the lender than, say, only the equity investor. So it shifts kind of the piece of the pie that the different investors are getting. You need to be mindful of that when you create an allocation.

You're listening to Barron's Advisor, The Way Forward: Next Generation. We're going to take a short break. Stay with us.

Hi, I'm Kelly Cavanearo, Managing Director, Head of North America Institutional Distribution at Janus Henderson Investors. We believe working together is the way to work better, like combining your portfolio plans and our in-depth strategy. Your valued assets and our valuable insights, your mission and our vision, working in harmony to seek the right investment opportunities. Janus Henderson Investors, investing in a brighter future together.

Welcome back to Barron's Advisor: The Way Forward, Next Generation. Let's get back into the conversation. Now, in terms of misconceptions, I think there are a lot of misconceptions with alternatives that are out there. What is the most common misconception that you've seen that your clients have brought to you?

There's a notion that private investments means that your money is locked up for 10 years or 15 years and you're not going to see it till then. And I think that's been changing over time. We've increasingly seen newer structures for getting access to private markets. Including evergreen funds, which, you know, many of them have quarterly liquidity. So I think that's broadened the appetite for private investments generally and made it more accessible to folks.

What would you say would be, you know, a top trend that you would say in private credit in terms of either questions that are asked to your client or what you need to answer to make sure that you're prepared to give sort of an explanation in regards to the private credit?

You know, people are most familiar with private equity. That's what they've heard of. Those are the big two words out there. But there are a lot of other opportunities that can meet really good use cases for people's portfolios. You know, we've seen, broadly speaking, total returns that are similar to equity markets, but with much lower volatility. And a lot of that comes in the form of cash flow. Cash yield. Some folks may not love that it's taxed as ordinary income, but you can put that in an IRA, a tax-advantaged account. There are ways in order to use these differentiated asset classes, keeping that asset location in mind.

I'm assuming you probably have clients calling you all the time responding to news, market volatility, etc. A lot of folks really think cash is safe. And moving sort of into cash or cash equivalents during that time is, is something that they should do if they're scared. In that situation, what would you ask a client to make sure that the move that they're doing is in their best interest?

Yeah, I think a lot of people, especially in volatile times, will think about moving to cash. It's a natural instinct to want something safe that you understand. But I think it's important to stay invested. And that's a lot of where we spend our time working with clients, understanding that, you know, when you see those volatile moments or hurricanes in the market, as we like to call them, our team has lived through, say, 6 big hurricanes in the past, tech bubble burst, the great financial crisis, all of those. So when you see these gyrations in the market, you have to remind people all that planning that we did for you months and years ago was to prepare you for this moment so that the portfolio can withstand the volatility. That's why we're here, and that's why we put this plan in place. I think that people appreciate that because if you look at the research, if you miss out on those best 5 days of the year, that can really hinder your performance, and it's hard to come back from. Those are the kind of conversations we have.

What financial lesson would you hope this program would pass down to the next generation to either get them up to speed faster or make that conversation easier?

I'm always surprised by how little there is in terms of formal financial literacy training in school. But I think making that a conversation early and often with your kids is so important. And it's not the same at every age, right? When you're young, it's, "Okay, how much does that piece of candy cost?" Just so they start looking at the price tag. When they're older, it's, "Here's your allowance," or, "How much did you make from your summer job? What are you going to use that for?" It can be open-ended questions, but just so that those questions are asked and out in the open and talked about. In college, it's, you know, how much are you supporting yourself versus from the family? What is your first job going to look like? You know, the single most impactful question we ask, or we pose it to client families in this way and tell the parents this is a question that I really think you should ask your child, is can you afford yourself? So when you're picking the career you want, of course, follow your passion, be happy, but also make sure that you'll be happy with the resulting life that gives you, not just financially, but from a work-life balance perspective, from a flexibility perspective. Can you afford the lifestyle you want in every possible way?

How are you thinking about your own career for the next 5, 10 years?

Like, I entered this business very eyes wide open, understanding that my past is in private investing and I love private investing, but there's something so rewarding about working with people and the relationships. So in thinking about that trade-off of transactions versus getting to also have those relationships, that's been very worthwhile. And I've loved that about being on our team and in this business. So for me, getting to do that on a day-to-day basis is fun. And I would love to keep doing more of it for our clients, for their next gen, for other folks that, you know, we have yet to meet but will in the future. It's just a very rewarding way to spend my time and to apply the knowledge that I've built up thus far.

If you're a young advisor that's listening to this right now and you're part of a team, how would you approach that conversation with maybe the founding advisor or the partner to say, hey, you know, we should probably think about succession planning. I've heard XYZ. This is how we should probably do it.

Yeah, no, I think it's never too early to have that conversation if that's the path you want your career to take. I think it's important to be transparent about it and know that your team is on board and going to be supportive. I think we've always had a really open and honest culture on our team where we talk about it. All the time. It's not a taboo concept. And a part of that is just starting to attend those meetings together and showing your face, being there, being present and listening and understanding what those clients really want. You know, I think no matter how much younger you are or how long-standing that relationship has been, you can still add value. I mean, there's a family that we've worked with for over 20 years and The husband is a financial professional. The wife is a very successful attorney. And when I started joining those calls, I realized the wife wasn't on them. And it was very surprising to me, given she's such a power woman. And I had lunch with her and I asked her and said, you know, are you comfortable with what's going on? Confided in me that, look, while I really trust your team, there's a lot of financial jargon and I'm not always comfortable with that. So after talking with me, you know, I assured her I'd be there, I could answer her questions. She started rejoining those calls and she's participated a lot and much more a part of the process. So I think that oftentimes younger advisors think, oh, this is a 20-year relationship, how am I possibly going to be in the room? No, you can add a lot of value. That fresh perspective is really helpful sometimes. So I just encourage them to be a part of the conversation.

Is there anything else that you'd want to leave our listeners with, whether it be tips or tricks on private investing or succession planning specifically?

You know, I mentioned this earlier, but wealth management is a team effort. And I so strongly believe in that. The ability to leverage a team if you have one is so key. You know, when we prep for client meetings or prospect meetings, we always have a huddle, as we call them, beforehand. So the huddle is a meeting with our 5 partners where we go over the investment plan or whatever we're going to be talking about, even if not everyone's in that meeting. But we huddle on it. And it sounds so simple and so mundane, but the power of that team and getting ideas from people with different expertise and different perspectives is really key. You're leveraging the power of the Batia Group, not just one person. So we had a partner at a private equity firm come talk to us about— his personal wealth management. We were showing him a proposed portfolio. I set up that first draft for that meeting. Before we had the meeting, we had a huddle. During that huddle, one of our partners said, "Hey, this is another strategy that can enhance tax efficiency for him." Another one said, "Hey, you mentioned his kids are really important and he wants to get them involved. This is how we can get them involved." It's not that you're conferring with your team because you can't do it alone, but because you shouldn't. You know, that collaboration really sharpens the outcome, and I just so believe in that, and I have in everything that I've done, and it's so true in this industry that I would just say if you have a team, use it to your advantage. It is your strength.

Well, that's fantastic. Well, thank you so much for being here today, Arianna.

Thank you so much for having me.

The production team for Barron's Advisor: The Way Forward: Next Generation is Ellie Ismailidou, Rebecca Bisdale, Paul LeBlanc, Kinga Rojak, Joseph Lusby, and Alexis Moore. Melissa Haggerty is the executive producer. Jenna Mathis is the director of programming for Barron's Advisor Programs. Greg Bartalis is the editor-in-chief of Barron's Wealth and Asset Management Group. We'll be back soon with another episode. Thanks for listening.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.