New generations handling wealth in very different ways

William Finnerty, managing director and private wealth manager at UBS Private Wealth, discusses how the region's entrepreneurial growth has impacted people of v...

While entrepreneurship is on the rise, and is more often being considered as a go-to for people hoping to ensure their family’s comfort and help the world, it can be incredibly difficult and stressful to understand what to actually do with money once you have it. To learn more about how entrepreneurs should save and spend their money, we spoke with William Finnerty, managing director and private wealth manager at UBS Private Wealth.

ABERMAN: Well, how did you get into this line of work? Doesn’t seem very entrepreneurial to be managing wealth.

FINNERTY: So, I’m a native Washingtonian. Go Nats! I went to Georgetown to study finance in the early 90s, and my senior year I took a class called Entrepreneurship. It was from the guy that invented the mini bar. His name is Walter Benson, probably my first mentor other than my dad. He’s the one that really sort of shook me up as a young man, and directed me towards something that was more entrepreneurial in nature, and wealth management as an extension of that. So, I focused on finance, that led me to that industry, and it sort of went on from there.

ABERMAN: And I’ve actually sat in your class. You’ve paid it forward, and you’ve taught entrepreneurship at Georgetown for many years. So you’ve walked that walk. As you’ve gone along working with entrepreneurs, what’s the aspect of your career choice that’s surprised you the most?

FINNERTY: Yeah. So as an undergrad, and I think this happens quite a bit in business schools, a lot of young people are directed towards investment banking or consulting, which are great industries. Wealth management tends to be something that’s brought in later in life, and that’s a shame, especially for women. And this is an excellent industry for them as well. But wealth management, I think largely because you want a little gray hair if you’re going to turn your life savings over to somebody. And when I was 22, when I started, I looked like I was 15.

So, you know, the chances of actually developing a practice at that point are pretty rare. But I’m surprised that more people, more young people especially, aren’t interested in this as an industry. And I hope maybe some that listen to this take it into account.

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ABERMAN: What is it about it that you’ve found most satisfying?

FINNERTY: Well, this sounds corny, but service to people. I love working with people. Obviously, I have a strong interest in finance and entrepreneurship. And this is an industry where you can combine all three. At the end of the day, the largest wealth earners are entrepreneurs. And so, being an industry where we can serve them sort of brings all that together.

ABERMAN: Well, because you’ve been doing this for a while: what do you see here in D.C.? You’ve seen a lot of entrepreneurs now. Are there some examples of how you’ve seen entrepreneurship change in our region over those 25 years?

FINNERTY: Yeah. You started Amplifier Ventures in 2004, around the same time I started teaching the class. Our firm has done a great deal of research around this. We have a flagship quarterly publication called Investor Watch. And this is one we put out last year, but a really interesting insight into entrepreneurs, and how the whole concept of starting your own business has evolved over the years.

We found that about 60 percent of wealthy investors would consider starting a business. Now, that’s way, way up from where it used to be. Used to be, being a doctor or a lawyer was the most sought after line of work. Today, it’s 52 percent think entrepreneurship is where it’s at.

ABERMAN: So if I’m an aspiring college student, rather than become a doctor or lawyer these days, I think I’d rather start a business?

FINNERTY: Well, you know, the funny thing, John, is that although millennials really have a very strong draw to the concept of starting their own business, only about 1 out of 10 actually want to pull the trigger. So, there’s some real contrast there between the two.

ABERMAN: Is that what you find really? So if I went in my classroom today and I said, hey, how many do you want to start a business? Two thirds would raise their hands. But when push came to shove, only one in 10 would do it.

FINNERTY: Yeah, they want to be their own boss. They want to pursue something with passion. They want a chance to, for financial gain, make some money. But when push comes to shove, only one in 10 will actually give it a shot. And that’s a shame. I mean, this class from Georgetown that I was fortunate enough to be involved with, even so long ago, produced some really neat young entrepreneurs. Sweetgreen, Living Social. If you ever seen someone spinning a sign on the side of the street, that’s Arrow Advertising, that came out of my class. I’m really very proud of all of the students that took the class. But yeah, this is an area that’s grown quite a bit over the years, and I’m glad. We’re starting to see it as minors and majors. And that’s generating a whole new crowd of entrepreneurs.

ABERMAN: So if the statistic is one out of 10, rather than six out of 10, what do you think the impediments are? You know, you’ve taught entrepreneurship as have I. What is our region lacking that we don’t have more of them?

FINNERTY: Well, I think they’re scared. They’re scared of the risk. Yeah, it’s tough. And I think one of the things that’s challenging when you watch the news, and you see all these young men and women developing these massive successful companies, you don’t see the long list that have failed along the way. And so, yeah, I think that’s part of the initiative of entrepreneurship, and the development of the concept in the area and around the country. It’s that you’re going to inspire more young people to take the leap. But as our research plays out, wealthy investors in general like the concept more and more.

One of the contrasts that we see, John, is that older entrepreneurs, or baby boomers, are actually anxious to get out. So it’s going to be lots of opportunity. Now, part of that, they want to retire. They want to have a little bit more balance in their life. Many of them would like to leave their businesses to their children. But 82 percent of the children have no interest in actually inheriting the business. They’d rather take the cash.

ABERMAN: So, I’ve read statistics that family businesses are the largest employer in the United States in the private sector. I’ve read that. And I’ve also read that the baby boomers, roughly 70 percent of their businesses are going to turn over the next 10 years. And you’re telling me that most of those businesses, they don’t have kids who want to take them over?

FINNERTY: Yeah. And on top of that, they don’t have real plans. So sort of the tail end of the piece that we put out, 58 percent had never had their businesses appraised; 48 percent had no formal exit strategy in place at all; and 37 percent had no place to shield the sale proceeds. And that’s where, of course, wealth management comes in. That’s why the industry of wealth management and private wealth, which is where we set, is such a great industry to be in, in my opinion.

ABERMAN: It’s really interesting to me, because I see this phenomenon a lot, and family businesses are often started by an entrepreneur, or an entrepreneur and spouse, entrepreneur and brother, sister, and the business becomes a family cookie jar. It’s the only asset. And at some point, the generation ages out. The children don’t want to buy it. And then you have an asset. And what do you do with it? Right. And if they’re lucky, they sell it, and they have a pile of money with no instruction manual. New set of problems. You know, it’s a funny thing. Getting money doesn’t make you happy. You know, people say oh, world’s smallest violin, first world problems. But, you know, the reality is that, if somebody is suddenly successful, it’s not a happy moment without help, is it?

FINNERTY: No, it’s not. We find that in many of these transactions, first of all, getting a sense of what you want to do ahead of time is helpful. Getting an idea of what you want to do after this transaction will set some context to things. But we approach it with five questions, pretty straightforward. And I think all of us can ask ourselves these questions, either way. We begin with: what do you want to accomplish in your life?

Right. It’s a nice, open ended, easy one to get the thought process started. Who are the people that are most important to you? What concerns do you have? What do you plan to achieve with all of this? And then finally, what do you want your legacy to be? And those are fairly open, as I said, but they tend to lend themselves to conversations that direct towards goals and frameworks that you can actually invest in. And that sets the tone for the wealth management stuff.

ABERMAN: And at the end of the day, what we’re really talking about here is: people spend their lives trying to build something. And unless they really focus on what they’re going to do with it after they exit, they end up undermining all their life’s work. And that’s really what wealth management is about.

FINNERTY: Yeah, and investing is tricky, right? It can be emotional. There’s highs and lows. What we think investors should do, wherever they are, whether they’re doing it themselves or getting help, they should organize it in a way that they think. So, we develop strategies for families, entrepreneurs and their families, in really three buckets. The first one we call liquidity, which is just cash and really safe stuff. And that’s designed to map out a few years of spending. So, you’ve got that set aside. You don’t have to worry. The second bigger pile, we call longevity, and that’s like a pension fund.

That’s the money you’re setting aside based on your age and what you want to get done. And the last portion, which we call legacy, is really the money that you don’t necessarily need, that you’ll probably leave to your kids or philanthropy, or whatever it is that you want to do when you’re gone down the road. And by segregating those three piles separately, and establishing different risk mandates for each, you tend to manage your money the way you think about your money, as opposed to putting it all in one big pot and watching it go up and down.

ABERMAN: Last thing before I let you go: it seems to me that a missing piece in this is families. Parents should talk with their kids more, maybe either get them more involved in the wealth transition strategy, or get them involved in running the business. Seems like there’s a bit of a mismatch there.

FINNERTY: Yeah. One of my favorite quotes is that the biggest challenge with communication in families, is the idea that it’s actually taking place. All families have challenges, but especially when you’re dealing with the responsibility that comes with success and wealth, it’s really important to sit down and have conversations and communicate. We spend a great deal of time in family governance, and helping families walk through that. But you don’t necessarily need an expert to do that. It’s just a matter of taking the time to sit down and do it. And it’s super important.

ABERMAN: Well, it was great having you on the show today. I think we’ve now got a few instruction manuals for those of you that are wondering how to manage a transition, if you hit it big. WIll Finnerty, thanks for joining us.

FINNERTY: My pleasure. Great to be here.

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