Katie Partridge: Financial Advice for Tech Founders | Next Gen

This podcast is 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.

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, I'm so excited, is Katie Partridge, Managing Director at Morgan Stanley's 545 Group exclusively focusing on tech founders. They have $50 billion assets under management. And today we're talking about how you can grow your business just like that. Katie, I am so excited for this conversation today.

Yeah, me too.

I want to dive into serving the tech founders because I think that's a very niche group of people that have very different, you know, uses of their capital, uses of potentially how they look at their personal life because they have that combination with their business. They also are very focused on. How do you approach serving the tech founders from a wealth management perspective?

Yeah, well, I think, I think even that has changed a lot since I, since I started in this business till, you know, what we're doing today. And I think it really, I think first and foremost, you know, this is not a part-time job if you're going to be working with founders. There are a number of things you have to build and kind of set in place kind of foundationally to do it. You know, one of the benefits that we had as a big team, a legacy team that's been, in Silicon Valley for over 4 decades now. Started as 2 partners, 2 assistants. It was like dialing for dollars to now 6 partners, 16-person team. We all have very distinct roles and responsibilities. And that is all kind of coordinated in order to serve this client base. And kind of with that, keeping in mind that founders from even a decade ago are looking different than founders like today. And I think, one, making sure that you've structured your team appropriately. Because you have to have kind of the expertise as far as like equity comp and, you know, how to, how to be thoughtful about kind of the tax implications of, of their equity and kind of knowing where they are in their life cycle and how to bring the right resources at the right time. So a lot of that is like you need to be a knowledge expert and the founders are wicked smart. So they're probably going to know more about almost everything than you do. So just, you know, you have to be kind of prepared for that kind of a dynamic. The other thing is having the right strategic partners. I think being humble enough to realize that, you know, You're not going to be everything to these clients, but they need a lot. And it's not just serving the founder. It's thinking about their company as well. So there's a lot that goes into kind of building the right kind of platform for them. And then the last piece is network. You're not going to be— I mean, some people could have success with this. I would say we've kind of tried and failed on the cold calling kind of approach to, oh, someone just raised capital. We're going to just send a blind email and try to get in touch with them. So much, especially in Silicon Valley, is built on relationships. And the longer you kind of spend kind of cultivating your network, something that's super unique, and I would say that's one of our more valuable assets. And we have 6 partners that are kind of focusing on that independently. And then we kind of bring that all to bear collectively. And that's how you get in front of them in the early days because most likely they're not going to be picking up some random email from someone that they don't know. It'll go to spam.

Especially at like a lifestyle event moment. You need to get them early on.

Yeah, you do. You do. And they are focused on who's going to be with me in this journey that I can build trust with, that has my best interest at heart, that's really going to take the time before I'm someone that 200 people are trying to call, but rather know they're taking a chance on me when not everyone is paying attention.

I'm going to go back to something that you said early on. Which was the founders now are different than the founders when you first got into the business. Can you dive into that into a little bit more detail? Yeah.

So I think the founder today, I think, has a lot more— they've, they've always been a kind of product tech first. And so there's, there's been a plethora of that available. I think today the, I think, emergence of AI and what they can use that for, even just going into an initial conversation, It used to be that we could kind of lead with information. You know, we can give them good ideas. More times than not, they have put their own situation into ChatGPT before they even come to a meeting to have a discussion. So they know exactly what to start asking us about. What do I need to know about QSBs stacking and how, you know, how do I think about a no down payment mortgage or, you know, kind of all these things. And that didn't used to happen. So what we need to do is kind of put ourselves in the founder mindset now and, you know, put our own prospects, you know, if we're going to be meeting with somebody, we put that prospect into ChatGPT ahead of time. So we will pretend we're the prospect. What is coming back so that we know the kinds of things that they're going to come to the meeting with. And then we need to elevate our creative solutions kind of above and beyond what they can get from kind of the tech at their fingertips. And the other piece is just how much more important, like, client service is. I would say the two things that ChatGPT fundamentally cannot do, it's this highly elevated creative solutions and the very high-touch client service that you have, like, a team that, you know, I can call them at any time and they're going to help me think through this. They're going to make my life easy. They're going to find a solution to my problem. And then the other is, oh, no one else has done something like that.

So I think that's a great piece of actionable advice for our audience where you can actually put the prospect into ChatGPT to sort of understand What they're going to be coming to the meeting with, what kind of questions they have coming in advance. Maybe use Claude, maybe use a different AI platform to have a more creative solution.

Yeah, this is not a plug for OpenAI. It could be anything. There are plenty of tools out there. I like that.

But let's go down to that example of a creative solution so that the audience maybe understands what you mean by that, because I think that's an area where financial advisors can still provide, to your point, a lot of value that's outside of just inputs in, what are you getting from an output side regardless of OpenAI, cloud, etc.? What is a creative solution that you've used before and can you share that example?

Yeah, you know, I can think of a handful of examples where we've kind of pioneered a solution for a client and it's usually driven by a client coming to us with a problem, something that they need to have solved and we're trying to go about it in kind of a different way.

It's an inbound request.

Inbound request. And because, you know, we also have the core foundation of what we do for clients, right? And that's part of our kind of day-to-day. And we take a lot of pride in what that is. But above and beyond that, it's the unique problems that come up. And, you know, we want to get those calls. There are a lot of advisors who would hear some of these questions that we get as an inbound and say, that's not something that we do. Yeah, like it's probably not the right approach with a founder to say it's not something we can do because what they're going to say is, why?

Exactly. Because they're already creative. They're already thinking about a bunch of different things. So they're probably thinking, why can't you be a creative partner in making solutions for me?

Okay. So, you know, that's kind of how, like, I think the mindset going into it. And then, you know, one example, we were working with a client for, you know, years in advance of an IPO. They went public in '21, late '21, and that was leading up into 2022, kind of tech in particular, tech stock market kind of meltdown for, you know, a period of time while the client was in lockup. So they were locked up in their stock and kind of watched it go from here to here. And they had a portion of their stock that was sitting in a charitable remainder trust. And for those of you that are familiar with using charitable remainder trusts, once, you know, like once they're active, every year you have to distribute 5% of the market value. Well, in order to do that, when 100% of the CRT is this stock, you don't want to be selling when it started up here and it's down here, but you're forced to do that because you need to create the liquidity. We wanted to come up with another solution, and we worked internally with a number of different teams at Morgan Stanley to figure out how could we create like a synthetic dividend on the CRT to be able to create the liquidity, the income off this trust to satisfy the distribution without having to have the client sell stock when they didn't want to. So long story short, we were able to find a solution by using options and working with a number of teams, as I mentioned, internally, coordinated a big coordinated effort. It had never been done before. And that client at the time is like still very wary of selling the stock. What ultimately ended up happening was a year after that, they sold the company. All of it got converted to liquidity. We maintained 100% of the assets, 75% of which are managed. So this has become one of our top 10 clients in this whole extended period of time. But the catalyst for all of those assets staying at Morgan Stanley was coming up with that solution when no one else could do it. So that's an example of something that, like, I would encourage anyone, you know, focusing on the founder demographic. One, never approach, you know, answering a request from a founder with, oh, we can't do that, or it's not been done before. Like, you have to kind of roll up your sleeves and realize that the people that you're working with are innovators to begin with. So they're going to want to trailblaze and figure out how to get something done. And then, and the other is finding the right strategic partners to help make sure you can, like, build this out, do it the right way. And it can lead to some really good outcomes.

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

Balance your trading strategy by adding futures. CME Group helps you manage risk and capture opportunities in all market environments. Capitalize on around-the-clock access to highly liquid global futures and options markets across all major asset classes. Visit your online broker to get started. See what adding futures can do for you at cmagroup.com/podcast. Derivatives are not suitable for all investors and involve risk of losing more than the amount originally deposited and any profit you may have made. This is not a recommendation or offer to buy, sell, or retain any specific investment or service.

Welcome back to Barron's Advisor: The Way Forward, Next Generation. Let's get back into the conversation. What's the sentiment like right now in Silicon Valley with AI and, you know, all the different technology technology that's now being rushed, I would say, to that area?

I mean, the first word that comes to mind is it's fun. It's really exciting. You know, we, it's been a moment since, you know, I think it was the last kind of wave of this was like the evolution of the smartphone and the whole smartphone economy. And all of a sudden, companies like Uber and Airbnb and they were popping up and like it was fun because you had this whole new like group of companies that were being created as a result of this fundamental kind of change and innovation. And we're seeing that with AI. The difference is it's bigger and it's faster and it's unbelievable. Like, you know, the numbers that we're seeing. So the— I think the level of optimism and excitement in the Valley is, is, is peak. I think the, you know, where, you know, we find the challenge is the humble aspect of, you know, looking at these numbers and, you know, we have young clients that are creating astronomical wealth and, you know, how do they think about it? How do they protect themselves? And what value can we add? And I think a lot of it is just, you know, for right now anyway, I mean, it's, you know, yes, you have some outcomes that are already materializing and, you know, in material wealth and not just paper wealth, but a lot of it's still paper wealth. And, you know, how do you think about, you know, taking advantage of opportunities to create some liquidity along the way, even though, you know, you're super bullish on the outcome for this, you know, your company and the mechanisms to be able to create that liquidity are becoming more like are becoming much more commonplace. Companies are staying private longer. And so kind of thinking about the liquidity solutions for clients like that, I think is really important. But also kind of knowing that you have this mindset where, you know, what happened in 2022, where a lot of the founders were kind of humbled by that market activity, that's like well in the rearview mirror. So now it's, oh, big optimism on this outcome. I don't want to diversify. I want to have everything in this company. This is like, you know, this is going to be the next great thing. But balancing that with there are solutions that can allow you to get some flexibility and liquidity for things like, oh, I want to start, I want to maybe buy my first home, or like, I'm, you know, maybe it does make sense to take a little off the table because frankly, you just, you never know. But it is becoming a little more difficult to have those discussions right now because clients just don't want it. They don't want to hear the, oh yeah, you know, you really should create some liquidity because you're going to need it.

Yeah. And they don't want to be that humbled in 2022, that area, especially when they see the valuation numbers. Of these AI companies. You touched on something that I want to make sure we give enough time to really talk about. Yeah, companies are staying private longer. And for individuals that have their wealth that you're working with that are tied up in their companies, in a lot of situations, the traditional means of getting liquidity like the IPO is no longer really as prolific as it used to be. So how do you deal with those conversations? How do— what are the tools that you actually leverage for them to get liquidity if their company is going to stay private for longer and they're taking private equity capital, etc.?

It's certainly been an evolution in the marketplace since, you know, since I started in the business. And a lot of that is just this idea that, you know, private markets have become so much more robust. The ability to access private capital is much easier. It's bigger. I mean, the sizes of these private raises, especially with the, you know, the LLMs has been, you know, I mean, record-setting. And, you know, with that, you also have to balance lifestyle needs for, you know, both your executives, your employees, and then, you know, retention. So what companies are doing, I think, is being much more focused on kind of regular periodic tender offer opportunities where the company is organizing it. And, you know, Morgan Stanley is one provider of kind of the tender offer advisory services. And, you know, they will help from a corporate perspective to create a program for liquidity that employees can participate in should they want to do that. There's also like access to, you know, secondary kind of market brokers. And again, Morgan Stanley has now built up this incredible, you know, trading platform for private shares, again, to solve for this, which we've accessed a number of times for our clients, both on buying and selling private shares. And then the last piece is, you know, borrowing. And, you know, the challenge with borrowing is what your company allows and what it doesn't allow. So, you know, this access to private stock loans, perhaps, is it an unsecured loan with a negative pledge and kind of just everything, you know, everything else that, you know, is potentially available. So there's just, there's a much more robust private markets liquidity market for, you know, lack of a better way of explaining it. And, you know, we're very active in talking to our clients about it. And I think the appetite for taking some money off the table or getting some liquidity along the way is becoming much more important just because, you know, the timeline is so much longer before there's an actual public market outcome of some kind.

If there is ever going to be a public market. Yeah, exactly. Because I think there's a lot of companies that that isn't— that's not a solution that they're even thinking about.

Or they're saying, well, why would we ever go public? We don't need to. And there's a couple of companies that are kind of famously out in the market saying that. But I think it's something where no matter what, you can't— at some point, there is a breaking point of I have this paper asset that is worth so much, but yet I can't make my rent. There's some imbalance there that maybe for a period of time you can do that, but at some point, there is kind of this breaking point in that behavior. So I think you're starting to see these solutions develop as answer to that.

How much do you bet on the person versus the company as you're talking about these founders? I'm sure you have to invest a lot of time in these relationships and you want to get them early, right? Not when they're going for IPO, not when they're trying to make a raise. So how much when you're, when you're talking to that person and you're thinking, okay, this could be a client of mine, do you think about the person versus the company's success, or does that not really matter?

Yeah, I think— I don't want to say we're like agnostic to the company, but we don't really care what the company does. And it goes back to, I think, kind of building your kind of your network and your strategic partnerships. A key part of that for us, we— I mean, coming from investment banking, I mean, I'm very close with a number of my former colleagues and the whole team. If our investment bankers are like spending time and curious about a company, That's like, okay, check. And then our venture capital relationships, you know, we sit on Sand Hill Road. We, you know, we know most of the firms there. We have, you know, we've got some great relationships. If certain venture firms are investing their capital in companies, again, look at the cap stack. Yeah, it's like, okay, another check. So there's just certain kind of, you know, I think things we do where it kind of narrows down, you know, that, that list for us. And you know, you get it. You get an instinct about the individual, too. And I think a key thing that we can all get caught up in is, you know, there should be a good fit, you know, and it's like if it feels like it's an unnatural act to be kind of working together and trying to help this person, probably whether it happens in a few months or a couple of years, like it's probably not going to be a relationship that's going to be mutually beneficial. You know, we're in, we're in the trust business. You know, ultimately it's personalities, it's people. So that is, that's important from that standpoint. But I do think, you know, this idea of kind of narrowing, you know, the founder kind of target group, if you will, is something that, you know, is really important to do because, you know, I hate to say it, but, you know, not every founder is going to have a really successful outcome. But there are ways that you can go about improving your probability of success.

What do you want to leave the audience with? Because I think there's so much that they can learn from just listening to this conversation.

You know, I think recognizing that it is really, I mean, it is a full-time effort to do this. It's going to be a lot of work up front. And, you know, for us, you know, again, I can speak about a lot of the successes, but the reality is a lot of the work we do is kind of loss-leading for years for the hope that there is an outcome where we can start to have a successful client relationship from a revenue perspective. But a lot of this time is kind of the long lead-up to, you know, the, you know, the big event and the opportunity for us. And it doesn't always work out that way. So, you know, there are a lot of failed attempts and time spent. And so I think you just need to kind of be prepared for that. But I think as you do it more and more, you get, I think, more targeted in, you know, where you're spending your time and have, you know, I think, improved success. But again, I think it's— I didn't want to like misspeak in any way that made this seem like it is easy because it is not. It takes a lot of time. And, you know, it's a very discerning client base, so, you know, the reality is that the hit rate is, you know, it can be challenging too because they're very discerning about who they want to work with. And so it's lots of advice, I guess, that I just provided, but I think that would kind of sum it up as far as, you know, build the team appropriately, know who your partners are, lean on the network. This is not a cold-calling business. And then I think just be prepared for like, you know, the long lead time before you get to the top of the mountain, you start rolling down the other side and it becomes easy. Or—

Well, Katie, thank you so much for joining me today in the podcast studio.

Thank you.

The production team for Barron's Advisor: The Way Forward: Next Generation is Ellie Ismailidou, Rebecca Bisdale, Paul LeBlanc, and Alexis Moore. Jenna Mathis is the director of programming for Barron's Advisor programs. Greg Bertollis is the editor-in-chief of Barron's Wealth and Asset Management Group. Allison Tucci is a freelance host for Barron's Advisor and SVP at AssetMarkt. We'll see you next time.

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.