Building Relationships
Two years ago, Darell Krasnoff, a founding member and a senior managing director with Los Angeles-based Bel Air Investment Advisors LLC, moved to the Bay Area to open and manage its San Francisco office. The firm, which has approximately $6 billion in assets under management and $1.4 billion of assets under advice, has a long history of working with entrepreneurs, which has evolved over time to include more tech-specific ones.
“In the last decade, there’s been pretty explosive growth of young tech entrepreneurs,” says Krasnoff, “and we’ve had a good amount of success in developing relationships with these folks.”
Longtime Bay Area investment professional Stephanie Withers, a former software research analyst and one of three advisors Krasnoff hired for Bel Air’s San Francisco office, says the team has been out in the community building relationships with the entrepreneurs and the advisors who surround technology companies, including attorneys, accountants and bankers.
Venture capital firms are also a critical audience. In technology, more so than in other industries, they are the curators for getting in touch with the entrepreneurs, says Krasnoff. “So we’ve spent a lot of time developing relationships with the VC firms for them to know who we are, what we do, how we do it and how we can help their young entrepreneurs,” he says. “It helps the VC to have their entrepreneurs thoughtfully cared for in their personal financial decision making.”
Bel Air Investment Advisors tends to work with clients whose portfolios are north of $20 million in liquid assets—or on the way to being there. “You have to be earlier in the life cycle of these clients in order to be part of their team to help them as things happen in their lives,” says Krasnoff. The problem of waiting until they’re rich in cash and not just on paper, he says, is by then they’ve likely formed deep relationships with other advisors.
Another advantage to getting in early with clients is “the growth right now of wealth in the hands of young tech entrepreneurs is faster than it’s ever been,” says Krasnoff.
They don’t have to sell as much of their company as was formerly necessary because businesses can be built with far less capital. Thanks to cloud computing, they can often rent database licenses, servers and data centers instead of having to set them up. “What you can get done in $10,000 today would’ve taken $1 million 20 years ago,” says Krasnoff, quoting a statistic he heard at a program he recently attended.
While tech entrepreneurs aren’t a new phenomenon, “this is a different moment in time,” he says, because they’re growing faster, it takes less capital, they have more ownership, and they need a lot of knowledge, information and service to take care of their new liquidity. They also need to get ready for this new liquidity, he says, “with the right structure and estate plan and things that people don’t really think about.”
Although young tech-preneurs often lack the exposure and experience of dealing with money, Withers notes that they familiarize themselves with the issues and often realize there is more they need to know. “They’ve done their homework online, they’ve talked to their peers and they kind of come to the relationship with some points of view,” she says, “which can be a really rewarding relationship for us because they’re well-educated consumers.”
They’re also a little different generationally from older clients, who “may have slogged away building a business for a much longer period of time,” says Krasnoff, and are ready to live a retirement lifestyle off the cash of a portfolio. Instead, says Withers, “many of these young entrepreneurs throw themselves into the next venture and are so comfortable taking higher risk and maybe sacrificing some liquidity for the opportunity for higher risk.”
They may wish to dedicate part of their portfolios to private equity, venture capital, hedge fund investments and private company stock and angel investing. That said, Bel Air Investment Advisors still does a lot of basic portfolio management for young tech clients, including building diversified portfolios that can grow over time and support them if they need it, says Withers.
The firm also offers a lot of advice on trust and estate planning. “If you’re speaking to a single company founder who’s going to live for another 50 years, that may not seem top of mind,” says Withers. But the opportunities to gift assets and grow them outside of an estate, she says, “are greater the younger you are.”
Realistic Expectations
San Jose, Calif.-based RIA firm Werba Rubin Wealth Management LLC, which manages approximately $325 million in assets for 300 clients, mostly retirees, is interested in attracting more young tech clients with sizable but not necessarily astronomical assets.
Approximately 5% to 10% of its existing clients are young Silicon Valley employees (mostly on the sales side) who through buyouts, IPOs or six-digit quarterly commission checks have hit “singles or doubles,” says Aaron Rubin, a senior wealth manager for Werba Rubin. He loosely defines singles as windfalls of $500,000 and puts solid doubles closer to $1 million.
“We tell people, ‘It’s unlikely you’re going to hit $10 million,’” he says. “‘Cherish your doubles and singles.’”
The biggest source of business for Werba Rubin is referrals, usually from friends and neighbors. The comprehensive wealth manager doesn’t aspire to convert young tech-preneurs who are fixated on return or prefer low-cost online investing services Wealthfront and Betterment. “If that’s what you want, we’re not the right firm,” says Rubin.
A new client with $8 million to $10 million in investable assets fired Werba Rubin when the balanced portfolio it built for the client underperformed the S&P 500’s double digits in 2014. “We can keep banging our heads,” says Rubin, “[but] I’d rather have a good long-term relationship.”
Many of Werba Rubin’s young tech clients are interested in buying a personal home or investing in rental real estate in the Bay Area—pricey endeavors for individuals who are richer on paper than in pocket. Rubin, a licensed CPA with a law degree, also speaks to these clients a lot about estate planning and taxes, helps them read the SEC filings that go into a buyout, and encourages them to diversify their portfolios.
Rubin, who is on the cusp of being a millennial and a Gen Xer, also offers this advice to his younger clients: “Don’t take the last few years of the stock market as the only data set available.”