In this episode, we sit down with Dan Tarlas, Senior Managing Director at Asset Consuting Group (ACG) to talk about what it takes to partner with families as investment consultants; managing risk appetites and creating an approach that is truly customized and objective.

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Listen Now: Investment Programs for Families with Dan Tarlas of Asset Consulting Group (ACG)

Below is a transcript from the conversation:

KC: Asset Consulting Group (ACG) is known for investment programs that are customized and objective. Can you start by describing your approach? How do you make sure you're always representing your clients’ best interests?

Dan Tarlas: Sure. So, when families engage an investment advisor or consultant—and we use those terms interchangeably—we think it's really important that the advisor is truly objective. Meaning that they are not incentivized to make any one recommendation over another to the client or to the family. What that really means is not putting ourselves in a position of having any other products or services—anything other than giving investment advice—that we could potentially be compensated on, and therefore, conflicted.

I liken our role is that of an agent. You know, we’re the agent that represents the family in any-and-all matters having to do with their investments. So we go to bat for them when it comes to negotiating fees, and terms, and access. We also help them sift through all the complexities of the investment world. The investment landscape continues to get more and more complicated and challenging. And if you don't do this every day, it’s almost impossible to be able to navigate through all that. So, that's a big part of our role, too—is sort of weeding out all the things the family shouldn't bothered by, or looking at, or getting distracted by, and helping them focus on those things that they should be really focused on.

KC: Talk about who your client is, as well. What are their challenges that you can address?

DT: In some ways there's really no typical family. They each have their own unique challenges. But every family has certain concerns. Some are more common that we see. I think one real common one is how to best engage and involve the next-generation of family members. That's a big one. And also, another one is whenever there's more than one or two family members—which there always is—how to solve for the needs and the priorities of the individual family members, while pursuing the broader family initiatives and goals. That that's a big one too, because every family wants to take advantage of the collective wealth that they have as a family, but yet not lose the sort of the individualization or the ability to solve for the needs of the individuals within the family. So, those are those are really big ones.

And then more specifically, investment-wise, currently just about everybody out there is nervous about the markets. We've all experienced a great run-up over the past decade. But with those greater valuations in the markets, there is greater unease about where we’re headed now. When's the next shoe going to drop? So everybody’s seeing more volatility day-to-day in the markets and we don't think that's going to end anytime soon. There are many other factors that influence the market movements or at least people's perceptions of the markets, such as geopolitical issues. So people are just nervous, really nervous right now. And wondering, since we've had this great run over the past decade, when and how is that all going to end? And are we going to have another crash? And if that happens, are we properly positioned to withstand that big drop in the markets? Have we battened down the hatches appropriately in our investment portfolio? So, that's a big one that I would say everybody's thinking about.

And then, what we've seen here in the past several years is that … you know, we talk a lot about diversification. And you have to spread out your eggs among many different investment baskets. But, what we've seen is that over these past several years,  diversification really hasn't worked that well. There have been certain investment asset classes like large-cap US stocks that have really dominated—done really, really well. And many of the other investment sub-asset classes or strategies haven't done so well. They’ve only taken away from returns. So, people are really wondering if diversification still makes sense for the long-run, or going forward. Or will it ever work again like it has in the past? That's that's another one we're talking to families a lot about.

And then another concern or something that we see families really wrestling with is private equity—how to best work private equity into their portfolio. So many families have have an interest, and even a passion, for private equity investing but they're not really sure in a lot of cases of how to best fit private equity investments into their broader investment plan. And so, you know, they are asking questions like: What do we do here internally within our own family office? What do we outsource? How do we best manage, and size, a private equity portfolio? That's something that we're talking to a lot of families about these days.

KC: Yeah, really big question on a lot of families’ minds and FOX families, as well. Can you talk a little bit about being a FOX Thought Leaders Council member and how you integrate that experience into what you do at ACG?

DT: Sure. So we've been FOX Thought Leaders probably for five years or-so now. And FOX does a great job of bringing the Thought Leaders together a couple times a year in an informal basis, and we share ideas and thoughts. It's really interesting because we all come from a little bit of a different angle and facet of the business. We each serve families in a little bit of a different capacity, so it's really interesting to hear what others have to say about families’ needs and concerns and what initiatives they're working on. But what's really fascinating is that even though we're all coming from a different angle, most of the time, the themes are very common between us.

We talk a lot about risk. Risk is a really big one. Families are thinking about what risks they are faced with and how they define risk. And it might not even be monetary. It could be other things, like cybersecurity or the risk of running out of money long-term. The risk of not getting that next generation engaged enough to keep that family legacy going strong through the next 2-or-3 iterations of the family, or generations. So, there's all different kinds of risk and it's really interesting hearing the Thought Leaders defining that, or talking about how their families think about risk. And that's one, I think, that's only going to become more prevalent as all of these things that we just touched on continue to perpetuate themselves.

KC: Definitely. ACG is celebrating this year 30 years in business—just like FOX. We're also celebrating 30 year anniversary this year. But, having been in business for that long, what are some major takeaways that you can share?

DT:Sure. I’ve talked about risk a lot, but that's a really big one. I remember back before the 2008 crash, we would always ask families up-front to help us understand their appetite or tolerance for risk. And we thought we did a pretty good job of tailoring or matching investment portfolios to each clients’ risk-appetite. But then after the market crashed, we had a whole new light on that. We found that many investors thought they had a bigger appetite for risk than they really did. After that experience they realized, many people realized, that they didn't have as strong of a stomach.

So what we did post-2008 was went back to every client and had a whole other conversation about that. And really talked about, what if that would happen again? How would they feel? And what do we need to do to adjust the portfolio? And really, the other side of that is the trade-off, right? So, the more risk you're willing to take, the more potential return you can get. But really what it comes down to, is how much return would you be willing to give up in an upmarket for having more protection in some very difficult markets? So when we get new clients now, we ask them a very simple question: What did you do post-2008?

KC: Yeah, you’ve got to know.

DT: Right. Did you freak out and sell everything? Did you hold tight? Or maybe, did you buy more? Did you use that as an opportunity to invest where many things had come down in value? And so that was really more of an opportunity. It’s really interesting to hear the answers to that question. So really honing in on risk and making sure we understand, and the client understands, what their true tolerance for risk is something that we've learned.

And then the other one is families. You know, we may not be the best fit for every family out there. So what we have found is that to the extent that families can determine, on the front-end, before they even go out in search for an advisor to partner with—what exactly they need in a partner. What services do they want from an investment consultant that will supplement what they’re doing in-house? So that's really the first question—what is it that they want to do themselves? And what is it that they need help with from an outside adviser? And that, if they can answer those questions up-front, that will help them sort of hone in on what type of an advisor would be the best match or fit for them. And sometimes we find that families don't do that on the front-end, and then they get into a situation where they're comparing apples, and oranges, and bananas, and kiwis … and it just doesn't make for the best search process.

KC: Knowing ACG, I know that you like to be in partnership with families for many, many years. It's probably a huge strength to know exactly how that family felt in 2008, because you were working with them. So can you talk about what the family needs in order to be a good match for you?

DT: Sure. That's a great question, actually. We want all of our clients to be thinking long-term. These are perpetual pools of assets that we are presumably advising them on. So we want our clients to not be caught up in  what's happening this week, what happened today in the markets, or next month. We want them to be in it for the long-haul and understand that all markets go through cycles. And while we're watching things on a regular basis, we're meeting on a regular basis, we still have our eye on the long-term ball. And that's what makes for the best investor—to be disciplined to not react to what's happening in the markets today, but to have a plan in place that will withstand the test of time.

KC: Absolutely and we at FOX couldn't agree more about taking a long-term view, that's totally our MO as well. Well, we're out of time, but thank you so much for joining me.

DT: You're welcome, thank you.