You Can Make Me Poor

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Hi everyone, this is Sterling Shea from Barron's, and thanks for joining us for another episode of The Way Forward. This week we're talking to a really special guest, Drew Freitas of UBS. Drew and his team run a multi-billion-dollar AUM private wealth management-focused team in Los Angeles, California. He's a veteran of the business for a long period of time, and one thing he's done quite well, he and his team have achieved outstanding long-term organic growth through different market cycles. And they've done that while maintaining almost impeccable client retention. So he's gonna share a few of his views on managing the business and talking to clients in the environment we find ourselves in. Drew, thanks so much for making time to join us today.

Thank you for having me, appreciate it.

You know, it's such an interesting time. And just when you thought 2020 couldn't get any stranger, here we have an election cycle. That's brought lots of uncertainty. A good part of that has been wrapped up with the conclusion of the election and the election of Joe Biden.

We hope.

We hope, yeah, yet to be seen. But I am sure like a lot of other people were expecting some intense volatility to go with all that uncertainty. And look, we have a market that's rebounding in the opposite direction, which is good news, but it makes it nonetheless complex. Put that into context for us. What are you talking to clients about? The perspective of the prospect of further volatility and more uncertainty for the remainder of this year.

As you can imagine, we've been dealing with this for a number of months, obviously leading up to the election. Now, with hopefully this what appears to be the results of the election, and obviously some of that still as of yet to be determined, especially with the two seats in Georgia. To us, that's what we think is key. And then obviously with the pandemic on top of that, there's been just continued discussions. And I think we're constantly making sure clients are comfortable with the portfolios in that it's not too volatile. They like the way the portfolio feels to them and they can really handle potentially increased volatility. I know coming into This year, clients are, I would say, always pushing back on their fixed income allocations and other of the more conservative investments. As you might imagine, after March rolled around, people are now a lot more, I would say, open-minded to our balance that we're always putting into our portfolios. And now they realize the role it plays. And I think for us, as we've discussed in the past, We're not in the get-rich game, we're in the stay-rich game. And as one of our earliest clients stated, I'll never forget a few years ago, actually now 20-plus years ago when I was back in Vegas starting the business, one of our clients said to us, "Son, just remember you can't make me rich, but you can make me poor. I'm already rich." And I think through this whole pandemic and the volatility and the uncertainty and the headline risks, It just really once again reinforces that we need a long-term plan and not to dramatically deviate from that and make sure you're comfortable with that plan. So when we do hit these times of dramatic volatility, that they're not reactive. And that has really been the, excuse me, the difference in our portfolios.

Yeah, you make some excellent points there. And one thing I've heard from some advisors who, like you, cater to the ultra-high net worth segment, But I've also heard directly from some, some very wealthy individuals that I know out there. They, in the beginning of this year, moved a lot of their holdings to cash, some of it opportunistically with the hopes that they might buy higher-priced assets at lower valuations, some of it conservatively. They just wanted a cushion of cash. How do you talk to clients who might be in that boat about what's an entry point? What should they look for to start putting more of that cash to work?

Another good question. And again, we try to make sure our clients, for lack of better word, don't sit in cash. But if they're not using the money to invest, let's make sure it's in fixed income so we're at least generating some yield. And obviously with cash right now at 2 basis points, that even if we're using some shorter-term fixed income vehicles, we're getting close to 1%. And then obviously if we're in a little longer duration, the one thing we always try to reinforce to our clients is typically if equity markets take a plummet, fixed income markets are going to rally. Yeah. And that exactly, as you can imagine, happened in March. And for those we had in munis and other investment-grade fixed income, it was a great opportunity for us to rebalance. And as an analytical team, we're always looking to rebalance and find the low-hanging fruit.

Say, for example, though, that if you got a new client who just came from a referral or something and said, "Yeah, I'm multimillionaire and I'm sitting in 70% cash." When do you look for the opportunity to start getting that allocated?

If you look historically and if you're really truly a long-term investor, the market timing, which we all try to do, basically gives you zero net value. But that said, when it comes to a comfort factor for clients, Putting all the money to work right now is obviously going to give them a bit of an uncomfortable feeling. So one thing we're trying to do on a timing basis, so literally try to put some money to work on a monthly basis. And then on top of that, we're just looking for pullbacks in the market. And as you've seen, every time we've gotten a 5, 6, 7% pullback in the markets, they've rebounded. So we've typically put in somewhere between, I would say, 15% and 25% anytime we've gotten significant pullbacks of their equity exposure. So if you assume someone wants 60% or 70% equities, we'll put roughly a quarter of that at most to work anytime we get one of these significant pullbacks.

Got it. Now let's talk about your approach to talking to clients in general. You strike me, Drew, as someone I know well, probably really thrives on that interpersonal, over-the-table, look-you-in-the-eye kind of engagement, but obviously we're not having that now. Talk to us a little bit about how you make that emotional connection with your clients to talk to them about and mitigate fears and that kind of uncertainty you're referring to in the digital engagement. How have you adapted your approach to interacting with clients these days?

No, I think to your point, it's extremely important because in an email you don't get a tone. You don't really hear into how they're speaking and what's important to them and what's concerning. So anytime I get emails from clients, and as you can imagine, with people not working nearly as much, et cetera, we're getting tons of emails. And I pick up the phone 99% of the time and call the client right back. And they're like, oh, that was quick. Why are you calling? And I said, because I want to have a discussion with you. I don't want to do this by email. So I can understand where you're coming from and just feel your comfort factor when we can. As you can imagine, we're using Skype and other video chats. And look, I won't lie to you, per your comment there, as soon as the world returns to semi-normal, I've got a lot of traveling I have to do because I want to get back in front of our clients and, and just put them at ease that we're on top of things. I actually have— we have two new clients One of them I've never met in person. I mean, we signed him on. It's a new football recruit who's playing professional football and signed him on right in the beginning of the pandemic and have done a million video calls with him, but I've yet to actually meet him in person. So to me, I'm looking forward to that opportunity. But I think it's just using any of the means that are possible just to hear their voice, hear their intonation, and just try to connect with them as best as possible.

Well, you're talking about a lot of things that you're doing that I think are really smart and really good, trying to be that behavioral coach, trying to manage decisions, trying to make that deeper connection. You're keeping good allocations. Talk to us about some of the things that you tell your team and yourself that you don't want to do in this environment. Where do inexperienced advisors go wrong these days?

So I think really playing off of what we've just talked about to an extent is feeling too complacent and feeling too comfortable to not reach out to your clients and to just do it by email. Email may be great as a starter, but I just think, again, that connection, the personal contact, there's no substitute for it. And I think also is just reaching out to clients constantly, putting them at ease that we have a plan, that we're not being reactive, We may see this in the headline and the election may go this way, it may go that way. The pandemic may give us this curveball or that one, but really just reinforcing to them, remember, we put a plan in place. There's a reason why we have this plan in place. We may rebalance, we may tactically overweight and underweight on the periphery, but we really need to stick to this plan and not let the news and the headlines really rattle us. And I think those that try to be just too cute and too tactical, I think they just end up paying a dear price. I mean, who knew today you were going to have, you know, a vaccine announced by Pfizer?

Yeah.

And, you know, if you had a client who, you know, went mostly fixed income because they were worried about the fact that Biden won, well, guess where they are right now? You know, so I think it's important to stick to your, stick to your, your knitting.

That's great advice. Another thing I want to ask you about is If you think about, you know, your activity set as a leader of your team, you know, moving from how you work in the business to how you work on the business, if you think about the strategy of your team's business, what areas and functions of your business right now are shifting in priority? If you think about how you used to allocate your time maybe 5 years ago across the different parts of your business, What are you spending more of your time and attention on now than you used to?

So I think if anything, what we've been doing more now than ever is nothing has changed on the investment side, still doing the due diligence and still keeping the same level of analysis. But I think what's really increased is on the strategic planning, on the estate planning, on the tax planning, on the philanthropy. And really making sure that we have a plan in place that direction, especially, obviously there was a fear of a blue wave and what changes could present themselves on the estate side. So we've really been having extensive conversations with clients on what they should be thinking about doing to take advantage of opportunities that may not be existing in a few months. And obviously that fear has eased somewhat But again, I still think it's out there for clients that if you have some intentions of doing some planning, probably sooner than later is a better time to do it just because we don't know what we don't know. And we've also, by the way, as a team done a lot more on the liability side.

Expand on that.

Absolutely. So our team has been big believers on looking at both sides of the balance sheet and obviously making sure we've got the investment and the asset side well taken care of. But looking into on the debt side and making sure, especially in the environment we're in where interest rates are so low, any real estate acquisitions, if you want to acquire new real estate, now is a great time to do it. If you want to refinance, making sure your balance sheet is optimized, now is a great time. As a firm, UBS has been very proactive in offering some great fixed-term lending with rates so low. So locking in some floating to fixed rate and just making sure we're constantly looking at both sides of the balance sheet. And again, with this unexpected drop in interest rates that we've had since March, let's make sure we take advantage of it and lock it in.

Yeah, I mean, I would— that sounds like a great idea that you're looking at the totality of that client need set in a different way. But to make the allocation of your personal time plus whatever resources towards planning and estate planning and philanthropy, as you say, you know, it's harder to know immediately that that's working and adding value for you. What are some of the touchpoints and kind of KPIs and things that you look at to make sure that you're— that that work is being rewarded?

So one thing I think, and it's more probably me from a comfort standpoint, is it just ingrains you much closer to your clients, for one. You're not just depending on performance results to maintain the clients. And two, frankly, you're adding so much more value. If we can save more in taxes than we're ever going to make investing, if we help them defer and minimize their future taxes. And I can just tell you from an appreciation standpoint, some of our biggest clients just can't believe the depth and breadth of knowledge that we have here. At our firm and just really what it does in setting them up long term. Because the most— I'd say the biggest conversation we have with our clients when you hit a certain level of net worth is, what are your goals? You have all this money. You could never spend it all. So what do you want to do with it? What do you want to do with your kids? How do you want to set up the ensuing generations? What philanthropic goals do you have? And so I think taking that step back, it helps us figure out Just what is the plan and how do we invest? So I think it's the more we do these types of planning and strategizing with our clients, the better we're serving them.

Drew, can you talk a little bit about the growth function within your business, how you've thought about it historically and how maybe it might have changed since, since the beginning of the pandemic? You mentioned you onboarded a couple of clients that you haven't met. Congratulations on that. I think it's a really interesting time to be thinking about growth because I think a lot of money is either in motion or about to go in motion.

To your point, I think there's a lot of opportunities in this market, whether it be money in motion. And we've seen a number of transactions close because people, frankly, in this environment, I think, are just a little more skittish. And if they were contemplating getting something done, they're a little bit more proactive in executing. But I also think unfortunately other advisors who are not doing a great job of staying in front of their clients and making them feel comfortable, there's definitely opportunities there as well. So we've really looked at this as an opportunity to grow and, and knock on wood, have been fortunate to continue that process. I mean, our goal all the time with our business is growing, and I think we're all kind of athletes by nature and feel like if you're not getting bigger, you're going to get smaller. And it's probably more fear of failure than anything, but you just want to keep growing the business. And it's just how we're wired as a team.

Has anything else about your business since the beginning of the pandemic surprised you or worked out a little differently than you anticipated?

Oh, that's a good question. Probably not too much. We've obviously found it's a little bit more difficult to get some of the, for lack of a better word, more mundane administrative tasks done. And unfortunately, that's fallen more on the support staff than it does on me. But I think it's just let our team— we're big communicators, we're big in making sure that everybody's involved and knows what's going on. So I think it's let our team excel. And I think we've benefited from a lot of the processes we have in place and not succumb to, obviously, the circumstances. But I will say, me personally, I know everybody says, yeah, working from home works, et cetera. For our business, when you're in the client service business, I think this reinforces that it does work. But I do think when we come back, the more coordinated we are as a team in person, just the more efficient we are, the more we can get done. And I think the better the client experience. We're trying to do what we can under the circumstances. But I'm definitely looking forward to having our team back on our trading desk over time and kind of, for lack of a better word, make it like old times.

Well, yeah, you say that you're big communicators and you put a lot of attention into making sure everyone's on the same page. Begs a question about leadership in this kind of environment. I think that's a skill that both now and before COVID was greatly underrated on advisory teams. Teams, but it was absolutely a hallmark and consistency among those teams that achieved the best long-term success. What are your thoughts about leading in this kind of environment right now, particularly in the work-from-home setup? I agree with you, we will be back before we even know it to an office environment, but maybe what's changed around your mindset around leadership because of what we've been through the last 8 months?

And I think, as you pointed out, it's more now, more important than ever. And the way our team is set up, I'm really fortunate. I've got a great partner who is more of the COO of the team. I'm more the CEO and he's more of the COO. So that division of responsibility really lets us both, I think, strive and give our, our team the communication and the comfort that there is leadership there. I talk and spend more time on strategically how we're going to take the business forward, where we're focusing our new business efforts, where we're trying to add the most value for our existing client base, and where we can find, again, the next opportunities and, and serve our clients. Where my partner Mike Kaniger spends more time operationally making sure We're executing on the business we've got and helping streamline and smooth out the processes that, that are not as smooth when people are working remotely. And I think having Mike's experience and his knowledge of the firm has not only benefited our team, but it actually is benefiting the firm. We've had the firm change some processes, go more east side. And less paper than we had a year ago. And just by pushing on the system and letting people know, here's where we're finding the hangups in execution, the firm has been, you know, very positive in helping us move. So I think my strengths coupled with my partner's really gives us two strong, hopeful, strong leaders to help keep the team intact and just make everyone feel a part of it.

That's the, that's the core of leadership.

Exactly.

Is there anything from a technology or operational standpoint that you envision being forever different, be it your fluency with Skype meetings or what have you? What will be the hallmarks of this period that will remain with us long into the future, even when COVID is a distant memory, in your opinion?

No, I think one of the things you touched upon right there is the video conferencing. I think there's going to be plenty of circumstances now where clients who were busy and really can't carve out the times per se for an in-person meeting will be more apt to just do it by video chat, do it a little bit more ad hoc, and just, uh, I would say save time. Um, again, I'm still a believer when we can of meeting in person, but I do think some of this, uh, for lack of a better word, residue will stand over, and hopefully it's going to increase our efficiency of our business going forward. I mean, if you think about it, if we can do what we can now with everyone remote, once we get everyone back, then we're gonna have time on our hands. And I think it's great because that's just gonna let us grow our business even more.

I agree. You also brought up this notion of the, the long-term strategy of your business, and I think that's something that's so important for advisors to think about, uh, to not be reactionary in their thinking or planning or the way they, they build or structure their team, but rather to be forward-looking and plan in 5-year increments, so to speak. Can you give us a little insight into the, the 5-year plan for your team?

What do you—

if you think about where you want the business to be in 5 years, what will be the difference and What will be the biggest challenge to overcome for your team over that period? Even if it's not a big challenge, what will be the challenge, uh, between getting where you are now and where you want to be in 5 years?

So I think our team's challenge is we're now at 14 people, and, uh, and again, that's 14 true partners. That's not people located, you know, in different offices where we've got kind of partnership arrangements with. That's 14 members of our team who sit hopefully someday exactly in our office. So for us, the challenge is we want to continue to grow and we're, you know, roughly a $25 million team now. We'd like to see ourselves at $35 million plus. So getting to that next hurdle is going to require obviously adding manpower, but I think also increasing our efficiency. And I can't believe I'm saying this because I never thought I'd say this, but looking generationally, to the transition of our business longer term. I mean, I've signed an agreement to be here at UBS for the next 18 years, but believe it or not, because I don't want to switch location, I think it's just too stressful and I don't think it's best for our clients. But on top of that, delegating, and for me that's been the hardest thing because I'm very hands-on. I really want to be involved and realizing that I need help and transitioning to younger advisors, bringing them on board our team. Helping with our younger clients and really just involving them in the business and being less day-to-day and more strategic. That's going to be my biggest personal challenge and one I welcome and one I have to adopt and really spend time in how I get there. But I think for us to continue to grow and for me to grow as a person, I think that's the next step is really how we become more efficient with our time so we can continue to grow.

Well, I'm so glad you brought that up. I think it's a point that is vitally important. It's something our team at Barron's has put as much emphasis on our content as we can, that notion of succession planning and authentic succession planning, because you can't wait as an advisor till you determine, oh, I'm going to go to start your succession planning. It has to be constantly updated and maintained. And it's not about what happens when you're not there. It's about building a, a true business that can live on and expand and continue to grow beyond any one individual. Uh, I think it's vitally important.

Exactly. Now, I told— look, I'm, I'm only 52, but the bottom line is, to your point, we want to have a plan. Been one of the things that I think has let our team perform well is we've always had a plan. And we may not stick to it exactly, but at least try to figure out where we're heading to next.

Do you think you're going to have to onboard people before we're all back to an office format? And if you, if you do, how do you approach such a thing?

So you laugh. We just are in the process of onboarding someone right now, and we actually took on a client analyst about 4 months ago, and who I've— I haven't met her face to face. And it was funny, she was a client analyst here who left the firm with another team when they switched, uh, shops, and that, uh, and then she decided to leave the business. And then we heard she left the business and we're like, ooh, she knows the UBS systems inside out and we wouldn't have to, uh, really orientate her. It would be great if we could get her back. And so she's joined our team helping us on the administrative side. And then, uh, on the analyst side, we refer to him as wealth strategist, but really it's kind of a more, less administrative, more analysis and portfolio management, et cetera. We literally about a week ago just brought on somebody, and again, we're hopeful he'll be in the office sooner than later. But until then, it'd just be nice to have another individual who just can continue to augment our capabilities. And over time, we definitely want him to become an advisor.

Well, that's great that you're hiring and having both the confidence, the wherewithal, and the vision to continue to expand your team in the midst of all this, because I agree with you, we're on the verge of some unprecedented opportunity in the business. Well, Drew, you've given us a lot of insight across a lot of different topics between the team management, what you're doing with clients, what you're doing with portfolios. I'm wondering if we can ask you in True Barron's tradition to end by offering the advisors who are listening in today and an actionable idea that they might think about and try and implement in their business?

So I'm guessing quite a few advisors have already done this, but I think on the estate planning standpoint, we've looked very closely and have had a number of clients implement what we call SLATs, which are spousal lifetime exclusion trusts. And if the estate tax laws do become revised and the lifetime exemption comes down, This is just a great vehicle that a number of our clients have implemented that gives them the ability to get assets out of their estate, but also if they get into some type of an emergency, can get access to those assets. So again, spousal lifetime exclusion trusts have been an item that we've done a number of. And again, originally we were trying to get them done before year end. It appears now that we won't have that stress with the way government's setting up. But we do think longer term it's still a good vehicle to have in place.

Wow, great suggestion. Well, Drew, thank you so much for, for joining us, for sharing your insights.

Thank you. Appreciate always having me. And anything we'd ever do, don't hesitate to ask.

You bet. Well, I'd like to also thank everyone for listening in today. We'll be back next week with another newsletter and another episode of The Way Forward.

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.