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Ep016: Wealth With Purpose with Ali Nasser - Transcript

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Dave: Good morning, Ali.

Ali: Good morning, Dave. How are you?

Dave: I am great. Thank you for joining me on the IC-DISC Show today.

Ali: And I’m excited, very excited to be here.

Dave: So let me go ahead and start by reading the bio of Ali Nasser. So Ali is the CEO and founder of AltruVista and an instructor at Rice University’s CFP Graduate Program. He’s an expert on the environmental mindset and how it relates to wealth and financial strategy. His professional life is dedicated to helping business owners capture their life’s work. At AltruVista, Ali and his team provides specialized guidance to business owners who have outgrown the traditional sales based model of financial services. Using the trademark, Wealth With Purpose planning process, they help high net worth individual business owners align their business vision with their financial strategies while integrating their team of professional advisors. Ali’s upcoming book, The Business Owner’s Dilemma will uniquely address the critical decisions facing highly successful entrepreneurs. Well, so there’s your life’s work captured in 30 seconds, Ali. What do you think?

Ali: There you go. It’s always funny hearing your bio being read out loud when you somewhat write it yourself.

Dave: Sure, sure. Well, let’s get started. So how did you get into the financial services business?

Ali: So about 16 years ago, I was finishing up university at U of H in Houston and got accidentally started in a career in financial services. And I really, really enjoyed the consultative side of the business, helping individuals get to a better place, feeling like you could start a conversation and an hour later have a positive impact on the person that you’re working with. But what was very frustrating is the industry itself had so many conflicts of interest and I felt as though… You’ve experienced this and we’ve talked about this in the past Dave, that so much of the industry historically has been product focused and someone was selling an investment program or selling an insurance policy. And I noticed in the industry when I got started that people really needed guidance and advice, they needed those financial solutions, but what they needed more than anything else was a plan and a strategy to get there and to figure out what they needed to do before they start looking at what solutions might fit.
So seeing that issue I said, I love the consulting, getting a feel for the conflicts, why not just build a better model and create something that was more focused on what clients needed, which was a planning process, strategic guidance and advice, someone to help them understand their vision and their goals, and then build a plan to support it? So about five, six years into my career I decided to start AltruVista as a business that could help cater toward that type of solution and service versus the traditional sales focused aspects of the business.

Dave: That makes sense. And so I guess that’s been a little over 10 years ago that AltruVista was launched, right? I think you just celebrated your 10th anniversary.

Ali: That’s right. Last summer we had year 10. So it was exciting to have that first major milestone.

Dave: That is great. And you are correct that when I… between my original job out of school with Arthur Anderson here in Houston and getting into the IC-DISC business, I spent a number of years in financial services and one of the main reasons I left was for that inherent conflict of interest that you described. And I’ve discussed with you before that if AltruVista had existed at that time I very well might’ve stayed in the financial services arena and just shifted over to a firm like AltruVista. So yeah, I have a particularly good appreciation for what you all do. And-

Ali: Thank you.

Dave: … by the way, thank you for taking such good care of our clients. I’ve referred a number of clients to you Al and also thank you for what you’ve done for my wife and me through the years as well.

Ali: It’s been a pleasure. I love working with you and Christine as well as the mutual clients that we have. Then on the flip side, I know we’ll talk more about it in today’s talk, but yeah, the IC-DISC has been a huge win for several of our clients and a big tax saving opportunity that many of them come back and say, “Wow, I still can’t get over the fact that we saved as much money.”

Dave: Sure. Well, you are welcome. We’ve always tried to take good care of your clients as well. So let’s drill down a little bit. So let’s look at, you mentioned that you were set up to serve business owners but I’m guessing that you’re a little more focused on that. You’re not just looking for anybody who owns a business or are self employed. So what are the characteristics of the business owners that you find most benefit from your work or who most resonate with the value that you all provide?

Ali: Yeah, that’s a great question. So business owners was initially… it has been a focus of ours for I’d say eight or nine years now that we’ve really been a channel focused on business owners. The particular target from a mindset standpoint their best investment tends to be themselves or their own company. They are super focused on growing, building, developing a business that they have, and it tends to be one core company that they might’ve owned for 10, 20, 30 years that they’ve really been building up. It’s their core focus. And in some cases they may have already sold that company, or they’re just building it up and they’re generating really great cash flows.
The business owners that we deal with typically have already hit a substantial level of success. They’re not in startup mode, they’re not in more of a self employed business. They own an institution and they’ve built something that has a lot of value outside of just their efforts that are put into each day. They tend to have many different advisors. Usually when we meet someone, they have four to seven different professional advisors, tax, legal, financial. They tend to be very community and charity focused, whether it’s inspiring social change or being involved in their local community or religious institution or whatever it may be. They tend to be family and community oriented.
And I think a big mindset thing is the business owners we advise really enjoy maximizing success. They like finding opportunities to enhance their existing success, look for ways to continually leverage their best abilities and from an opportunity cost standpoint of always looking for their highest and best use. And usually the target, I’d say the majority of our business owner clients are in that 20 to 100 million of net worth, including their business value. Usually they’re not very liquid. Some are, they’ve had a liquidity event, but a lot of them aren’t. Typically about 20 to 100 million of net worth. And I’d say the range is from 10 million to 200 million. That’s our core client base. We do have some outliers that are above and below, but generally that’s the space.
And what we find with that group is that they’ve really outgrown the traditional sales based model of financial services. They’re not looking so much for someone to pitch them a portfolio or come up with an insurance plan. They’re looking first and foremost for more of a personal advisor or a personal CFO or a family CFO. And one of our clients mentioned that to us as a descriptor this past year, and it’s something that’s latched onto our business that we’re a family CFO. Anyone in their family, any decision that they’re making from a business or planning standpoint, they want our strategic input on to help them make that best decision. And we do everything with a plan, we develop a comprehensive strategy and plan for their whole balance sheet and their whole position and their life goals. And then we help execute that and whatever financial mechanisms are needed, they can fill the gaps. But the main thing that we’re doing is building that strategic plan for their whole life position.

Dave: Okay. Yeah. Thank you for succinctly describing that. So you’re really focused on these business owners and so you kind of touched on some of the characteristics of them, but what about… Let’s look at some of the biggest challenges they face. In your experience, what are the challenges these business owners face in regards to their planning or financial advisory needs?

Ali: I mean, the first thing is they’re so committed and focused on their core company and what they do every day and building a business is not easy. I’ve been building one in the past decade, over a decade now, and it is a difficult process to build a business and there’s a million things that you end up having to focus on and you end up being the catchall, even if you have the right people, there’s always a certain element or certain amount of work that you just will always get caught up in. And what tends to happen with that is personal planning gets put on the back burner. So most of the business owners that are out there they’re incredibly talented in their space and they’re focused every day on their space, but they’re usually not looking at their personal financial strategy. And the reality is every dollar of revenue that is generated in the company there’s a certain amount of filtration that goes through, and then the profit’s leftover. And we focus a lot on that in the business, top line revenue and bottom profitability.
But the true bottom line profitability is what ends up on your personal balance sheet and how you end up capturing your business’s success on your personal balance sheet. And for a lot of business owners, a big challenge that they face is they haven’t… and they may not even know they’re facing this challenge. They’re so business focused, they forget to have a capture strategy for their personal balance sheet to be able to capture the success that they’ve had in business. And I think that is kind of a leading, the reason that we exist is that whole notion of having someone to help guide you through the journey of capturing your success is a space that is often not filled. And that’s kind of an overarching challenge. And then within there, and I’ll talk about this a lot more in my book, but within there, there are three major business owners’ dilemmas that business owners will face throughout their lifecycle in a business.

Dave: And what are those three dilemmas?

Ali: So the first major one that hits is once a business owners come up, they’ve built their company, they have a proof of concept and making money, there’s revenue and profit coming in, the first major dilemma that a business owner faces is what I call the reinvestment dilemma. So this is where a business owner says I’ve made whatever the amount is, 500,000 or 5 million of profit from my company. What do I do with it? Do I buy real estate? Do I reinvest back in the company? Do I invest in the market? Do I park it in cash and wait for a deal to come along? What do I do with the success that I’ve created? And what’s that reinvestment strategy? And usually this will hit a business owner and without a clear plan, I could go in any which direction.
They might end up investing in 10 different startups. They might further invest in their company. They may put money in the market, et cetera. But that’s the first dilemma that they face is how do I reinvest and what is my next best opportunity for the capital that I’ve generated?
The second business owners’ dilemma is usually a little later in the life cycle where they’re asking questions about their legacy. What is this all for?

Dave: Sure.

Ali: Should I leave this to my children? Or to charity if they don’t have children or… whatever that goal. What is this all for? Why have I built this? I want to leave a legacy for my kids, but I don’t want them to be entitled. I want them to be empowered. And what happens to my company if I’m not around and who do I want to take up the tone? That’s that second major dilemma that goes on. I call it the legacy dilemma.

Dave: Okay. Yeah, I follow that.

Ali: And then the third dilemma is… it happens to some. To most, I would say at some point is the exit. And I did a Ted talk for Entrepreneurs’ Organization on this topic. But the big dilemma that comes up here is, should I, at the point that it arises, should I exit the company? We’re all going to have an exit, whether we like it or not, we all will have an exit at some point.

Dave: Yeah.

Ali: Whether voluntary or not. But for the voluntary exit, there’s a big decision that comes in as to do I sell the company and take this deal or opportunity? Do I take the capital or do I continue to build my life’s work, or is the business I’m in not really my longterm vision and should I sell? So that exit dilemma, which is one of the most difficult, if not the most difficult of the three. So we got the reinvestment dilemma as the first, the legacy dilemma as a second and then exit or liquidity dilemma is the third. So those are the, I would say the major things usually any business start at any point in time that has hit success. Just prior to success, they can be thinking all about how do I get this business to be successful? But once it’s been successful, I find that most business owners are in one of those three places and helping them develop strategy and the right conversation around those topics, asking the right questions can be enormously impactful to a business owner at those stages.

Dave: Sure. So just to check for understanding, there’s three main dilemmas you’ve identified in your experience of business owners’ experience. One is what do they do with excess profits in the business that they don’t need for kind of immediate financial support of their family? Do they reinvest that in the business? Do they diversify it away from the business? And if so, where do they put it? The second piece is legacy questions that they might have, they’re just trying to figure out kind of what the meaning and what they want to be their legacy from the business. And the third and what you’d indicated was the most difficult is that exit decision in recognizing that everybody will exit the business at some point, either on their terms or not on their terms. When is the right time for that? And that that creates a lot of… in some ways, that’s the most stressful of the three dilemmas. Is that about encompass it?

Ali: Wow, that was about the most perfect regurgitation I’ve ever heard of those three. That’s pinpoint on the spot. And that’s what the book I’m releasing that we’ll cover in depth what goes on in these stages and how to think through it, as I feel at the end of the day if you can give an owner better perspective and better clarity over their entire position, they’ll inevitably make better decisions. Because the business owner knows how to make… they know how to make decisions, but their decisions are part input and part instinct. And I think as business owners, we make a lot of decisions based on instinct and the amount of input that we have. But I think if we can have the right input delivered to us in the right way, then that allows us to make our decisions with much more clarity. And I’ve never known any time in life when having more clarity ever led to a bad decision.

Dave: Sure.

Ali: More clarity always leads to a better decision.

Dave: Sure, sure. Well, that makes sense. Well, I’d like to go back now to something that we touched on a bit earlier. And I think you’ve mentioned that the average client of yours, when they come on board, they have four to seven advisors currently. Was that the correct number?

Ali: Well, I mean it’s a range. Sure. Yes.

Dave: But that’s kind of typical, right?

Ali: Mm-hmm.

Dave: So my question is… I’m sorry, go ahead.

Ali: No, I think you’re… Keep going.

Dave: So with that number of planners, does that create any challenges for the coordination within the planning? I mean, is there any… is one of those advisors kind of the quarterback overseeing all the other advisors?

Ali: That’s a great question and I can tell you’ve got insightful background here, but what typically happens is these four to seven advisors come from different disciplines and there might be a CPA there that’s been around since the business was started 25 years ago and there maybe an attorney that’s been there for 10 years and then investment and insurance advisor they’ve been there a few years. What we typically find is the business owner goes to each professional on their own, and they all work in silo. So they get the tax input and then they got the legal input and they get financial input and then the business owner is left with having to sort through, organize these ideas and make a decision.
And what we find ends up happening is because all of the advice was given in the silo, there are major planning gaps that happen at the intersection or where these different professionals overlap. And usually these planning gaps are costing the business owner, a substantial amount of money or a substantial amount of risk and they’re unaware of it altogether. And it’s not until a catalyst comes along that the business owner realizes that there’s a problem. And a catalyst might be they just had a big jump in income. It might be that they sell their company. It could be a lawsuit. It could be a divorce. There could be anything, or God forbid it could be someone passing away. And it’s at that point that all the advisors in the family realize there’s these major planning gaps and why did no one catch this and that this situation I just described is the reason behind us creating Wealth With Purpose 10 years ago is that business owners need a process to help extract their vision and align their professional advisors to one plan. And that way everyone’s pulling in the same direction.
I use this analogy with… Let’s say you have a business owner that has a net worth of $50 million, right? Highly successful business owner. Well, if you met somebody that had a $50 million company and their C-suite of executives had never met, what would you tell them?

Dave: I’d tell them that they’ve got a problem.

Ali: They’ve got a problem. It’s pretty crazy if your C-suite has never met and you have a $50 million revenue company.

Dave: Sure.

Ali: Well, when you have a $50 million personal balance sheet and your tax, legal, financial, investment advisors have never met and they’ve never collaboratively worked together, I think you’re dealing with a similar situation. And the reality is, is that once you’ve built up that level of net worth, and you have the optionality to where you could, if you wanted to not to say you would, you could sell the company and have enough capital to be financially independent forever. You could do that, but hypothetically you’re dealing with enough personal capital at this point that you need integrated guidance and advice. And if you don’t get that integrated guidance and advice, what you’re probably already doing is there’s gaps and issues that are costing you money or creating risks and you’re not able to fully maximize your success.

Dave: Sure.

Ali: So going back to your initial question with, is there someone that usually quarterbacks this? The short answer is no, there’s not usually a quarterback. There’s usually one advisor that is, I would say the most trusted, or is the greatest confidant to the business owner. Oftentimes that’s their CPA that they’ve spent their 20, 30 years with. And they may not be a quarterback, but they may be the person that the business owner goes to for the most guidance. What we try to do in our Wealth With Purpose process is we know we do not have a monopoly on good ideas and the greatest way to success for the business owner is to get their trusted team of professionals working together.
So within our process, as we build out the planning strategy and we align with the business owner and usually their spouse to figure out what their life’s vision and goals are, we get an inventory of their position and then we bring their tax and legal advisors to the table with us so that we can work together and say, here’s what the client has expressed as their current vision. And I know they’ve expressed five other visions over the last 20 years in five different conversations, but here’s where they are today. Here are the key obstacles that we face and what additional obstacles might you see on your end. And usually tax and legal advisors are adding in their things as well. And then as a team, knowing the client’s goals and objectives, how do we best accomplish the most effective outcome? So that we’re looking at all of this and wondering how do we work together to build this?
And what happens in that meeting is nothing short of magic because you have advisors that really care about the clients. Some that have known them decades and decades. You have aligned goals, you have a clear balance sheet and financial position, and then you have the right structure in the meeting to where you’re not spending time arguing over why I want to do this versus I want to do that. You’re saying, here are the key issues, what’s the most effective solution? And then you can have some very collaborative conversation about the how, and what usually ends up leaving that conversation is, wow, he may have been a tough hourly bill for the two or three hours, but we created huge opportunities for success that are usually exponentially higher than the time and cost invested. And I think that’s something that is really great about an integrated planning process. Because you discover things that you otherwise wouldn’t have. And when you put three or four great minds, professional minds in a room at the right format the business owner wins.
And I think that’s something that when we get done with our process, many owners will come back and say, “Man, that meeting, it really helped. Every time I talked to my CPA now, and my attorney, we’re all speaking the same language on why and where we’re going.” And I think that is really powerful.

Dave: Yeah. And it sounds like you may end up being that catalyst that you discussed earlier. That person who brings everybody together.

Ali: Yeah. And that’s usually are… I find that the CPAs and attorneys, once they know we don’t file tax returns, we don’t do legal documents, but we understand them and we can help do planning. I think a lot of times they really enjoy us being someone that is pulling all the pieces together for the business owner and getting a lot of things teed up so that when we can have a meeting, they can focus on their technical tax or legal strategy and how it applies versus trying to get the business owner to go through a process, to actually get to the point of making the right decisions. Because I think a lot of time in relationships so much time is spent in the back and forth and there’s a lot of wheel spin. So when there’s one structured process that helps motivate the right actions, it just allows everybody to get better traction.
We typically do service at quarterback, I would say that’s the norm. And if-

Dave: Yeah, that’s-

Ali: … the CPA or an attorney.

Dave: Yeah, I was just going to say that that was going to be my next question is how do the advisors respond? Are they threatened by your presence? Are they like, “Hey, who’s the new kid on the block? We’ve been working with this guy for 20 years. But it sounds like they generally appreciate the role that you play once they realize that you’re not a competitive threat to their piece of the puzzle.

Ali: Right. I think you said it, you nailed it on the head there is once they realize we’re not a competitive threat. We do have some attorneys and CPAs at the moment they hear about us, their guards go up and they want to convince everyone at the table or convince the client that they’re the… They want to prove their value, which I totally understand. But I think once they see that we’re all looking for the same outcome for the business owner and we’re not competing with them and we don’t do their services, it shifts the paradigm and it is sometimes, maybe one out of three, or one out of five clients, and I’m making up a number here, but one out of five clients advisory team might have someone that feels a little threatened. But by the time that first meeting’s over, the collaborative meeting, I find that we’re all on the same page and the norm is how do we work together versus anything else?

Dave: No, that makes a lot of sense. Well, now we come to my favorite part of these interviews and that is the real life examples. So could you give us some examples of some ways you’ve helped business owners and I’ve got some ideas, but I’ll just let you just kind of run with some that come to mind.

Ali: Sure. I mean, I certainly can run with a few, but I love ideas. So if you’ve got something you want to start with, I am happy to piggyback off of that.

Dave: Sure, sure. So what about from owners that liquidity seems to be one of their biggest issues as far as short term. And by liquidity, meaning either what to do with their excess liquidity or insufficient short term liquidity, either one. What do you… And actually I’m more… Let me shift that question. I’m actually more interested in what they do with the excess liquidity. So do you have an example of that, where you’ve worked with a client on that excess liquidity?

Ali: Yeah. Yeah, we actually… So one of our talks for… we do talks for CEOs groups, and one of our most popular talks is The 10 Biggest Mistakes Business Owners Make with their wealth. And the number one mistake, the first one on the list is they have no buckets and no boundaries is what we call it, which is a lack of any cash flow or liquidity strategy. And I’ll explain this briefly. So most business owners, what ends up happening is they generate profits in their company and they have a big chunk of cash sitting inside their company account, or a big chunk of cash sitting inside their personal savings. And when you ask a business owner, what’s this cash for, this huge chunk of money? And they’ll say, it actually either, “I might want to expand the company. I might want to buy some real estate. If the market falls I might want to put money in the market. And it’s just a rainy day fund.”
Well, how’d you come up with that number? It might be $2 million in that bucket. “Well, that’s just what… That’s the excess. I’m not sure what I want to do with it, but I need it to be liquid and I need it to be available at any time.” And that’s the typical situation I’ll see from someone with excess cash. Well, while it’s great to have that excess cash liquid and available, I think all things being equal, you’d rather have efficiency on that cash, than not have efficiency.

Dave: Sure.

Ali: So what ends up… What you ideally want to create is your working capital, which is really what is the capital that you need for the next 12 months to operate your company or your personal life? And that can be liquid sitting in a reserve account or cash management or checking account, whatever it may be. But then there’s that second bucket which is, this is capital that’s really, most of the time we find is one to five year, and it might be for the examples I gave earlier about real estate or business expansion, and that capital that doesn’t have to make nothing in a bank account. You could make one to 3% in a very illiquid, very low risk account, very secure and that’s one to five year capital. And then if it’s over five years and you don’t need… it’s not your working capital, it’s not something you plan to spend in the next one to five years.
Well then by definition, that’s excess. And that really should be dedicated to your longterm capital, which could generate a much higher return, that might generate 5, 10, 15% return, whatever it may be in that longer term bucket. So for the question you mentioned about the excess liquidity. That one to five year liquidity, if you’re making 3% on a million dollars, that’s 30 grand a year. And I find most business owners have been sitting on that excess cash for three to five years. On a million dollars that would be 90 to $150,000 of excess cash that they could have made in interest just by repositioning the cash that was in their business. And this isn’t taking on special risk. This isn’t losing access to their capital. This isn’t buying a illiquid product. This is just having a liquidity strategy. And something like that, that could be the first hundred thousand dollars, the benefit that a business owner gets just purely from better management of their cash or their reserves inside the company.

Dave: And you even have… I believe you have a solution, a strategy around that exact challenge, don’t you with the business owners fund?

Ali: Yeah, yeah, we do. We noticed this about five years ago and essentially some clients want something that’s no risk and they’d rather sit in U.S. treasuries and make one and a half percent. Some say I’m comfortable with a very, very small amount of risk, but I need it to be liquid and available at any time. So we launched a simple portfolio called Business Owners Fund, and that’s a way for business owners to generate 2 to 3% on their liquid cash without having it be tied up and being at ultra short term, ultra low risk. And that’s been very successful for our clients. It’s saved a lot of… Actually made them a lot of money on something that otherwise would have made zero at the bank.

Dave: Okay. What comes to mind is an example of say maybe a client who was the most extreme that the cash they had effectively earning nothing or very little was just way outsized to what… like their one year needs are. Do you have an example that you could just share like the numbers of?

Ali: Yeah, it’s interesting how the brain works, because the moment you said that I thought of the most extreme example, and it was from years ago. But a business owner is going through our process. He had multiple different financial advisors. So his thing was he had met multiple advisors over his career and had a few millions here, a few million there, a few million in this 401(k) and pension. Kind of everything was spread out, but he had a very large portfolio with different advisors and then have three or four different companies within his business and each one of those companies had kind of their operating and savings accounts.
So I remember going through Wealth With Purpose with him, and we got to a point where we had aggregated all of the different accounts and… I’ll call it 20 different places and we aggregated everything together. And I said to him, “How much cash do you think you have between all your different accounts?” And he said, “Probably around 2 million, maybe three.” And I said, “The number is six. You got $6 million of capital completely in cash between all these combined accounts that you have.”

Dave: Oh wow.

Ali: Because they were in different places with different advisors in different companies, he had never really pulled it all together to see what his true cash allocation was. And I remember this so clearly because it was the end of 2013 when we went through his planning process and in 2013, the market was up about 30% and then his portfolio allocation was about half stocks, half bonds. So I remember him in the conversation thinking of himself or saying, “The market was up 30% this year, if I’m half stocks I would have made 15.” And he was doing the math on the 15% on 6 million.

Dave: Right.

Ali: Then it was right in this moment where it’s like, it doesn’t matter how you performed relative to a benchmark, just having efficiency of your planning and cash that’s 90% of the battle, is just having the right structure in place. It doesn’t matter if you’ve made 12 or 15 or 18, it was about not having it in cash. So I hadn’t revisited that story in years. So thank you for that question.

Dave: Oh, you’re welcome. And I can understand how that happens where you’ve got your money spread out in different areas and it’s not like they’re getting a report each month saying, “Hey, this is your excess cash and it’s total $6 million.” So it doesn’t really… It’s not really top of mind to them. How about another example of a business owner that you really felt like you were able to really make a big impact on? And it doesn’t necessarily have to be around liquidity, it can be around tax minimization or just helping them have clarity. So let’s look at another kind of real life anonymous example. I find those tend to be the most interesting way to understand your business.

Ali: And I’ll give a couple of broad struck ones, just so that your different listeners can hear from different angles. So one of them is having a true balance sheet strategy, and so… I’ll call it 90 plus percent of the financial service providers will really focus on what’s your allocation for an account or portfolio. And the reality is for most business owners, their largest stock is their company and the business that they own. So it really, if you’re worth $30 million and you’re a business owner, I would gear to guess that over 70%, 80% of your net worth is in one stock and it’s the stock that you founded. So when you’re investing or you’re planning, or you’re developing a strategy, not taking into consideration your stock in the company as your main asset, you’re really missing out on the greatest planning opportunity. So what we-

Dave: So let me just make sure I understand where you’re going with this. So for example, you’re saying if 80% of their wealth is in their company, if you look at it from an objective perspective, you’re saying, “Hey, not only do you have 80% of your wealth in small cap stocks, it’s all in a single small cap stock.”

Ali: Right.

Dave: And with that in mind, they perhaps don’t need any small cap exposure in the market, right? I mean, they may have all these small cap exposure they need, and perhaps their market exposure needs to be more conservative and recognize their huge concentration risks and small cap risk that they already have. Is that where you’re going with this?

Ali: Yeah. Well, that could be, what you just described could be the solution. I think that what you captured there was right on is that you have to take into consideration what you have right now and what your exposure is when you’re developing your strategy. So for some people, it might be, well, you know what? I’ve got so many exposure at my company I want all of my personal liquidity to be extraordinarily conservative because it has to barbell the risks that I have in my business. And you may have someone else that says, you know what? I am comfortable with the amount of risk that I have in the business and as long as I have enough liquidity separate from the company that I’m financially independent, I don’t mind having excess risk. But the key thing is, are you factoring in your business and your personal assets on your balance sheet when you’re making decisions on your total allocation.

Dave: And this is why this plan… It all comes back to the plan, right? Because depending on their age and their charitable inclinations and other things will dictate, right? You could have two people, one’s 35 and one’s 65 with seemingly identical portfolios that because of what they may want to do with the business, they’re in dramatically different situations, or even two 35 year olds that look very similar, but one has a plan to exit the business in five years and one as a plan to bring his children into the business. Right?

Ali: Right.

Dave: And that’s what all come… all comes back to the plan, right? Without the plan, you don’t know where to guide them or to assist them.

Ali: That’s exactly correct, Dave. And one little example I’ll give, there is a gentleman I was working with a couple of years back, he was telling me about his company and he said, 90% of our business comes from one, extraordinary large retailer. And I won’t give the name just because privacy, you never know who’s listening.

Dave: Sure.

Ali: It’s a very large retailer and it was 90% of his business. And his entire personal portfolio, and when I say entire personal portfolio, I mean, 100% was in treasuries and high quality municipals. Because he said, I don’t care what return I make on my personal capital, I have so much risk in my business and it’s all 90% with one customer. I need my personal capital to be as stable and secure as possible. I don’t care what the return is.

Dave: Sure.

Ali: And that can sometimes be the solution for that person and sometimes it can be totally different. All depends on the profile, the critical thing is making sure that you factor in the business risk as part of that total balance sheet strategy.

Dave: Well, and it would also matter, right? Like just the magnitude of that dollar amount, right? If their net worth outside the business or their investible assets outside the business was a million dollars they might have a greater desire to be hyper conservative than someone whose investible assets are a hundred million dollars outside the business. Right?

Ali: Right. Absolutely. That matters too. And at the end of the day for a lot of these business areas where the greatest opportunity for savings comes in, we can do all the planning. It’s how you position things from a tax standpoint that can sometimes be a big impact to the net dollar saved. There’s about a half dozen… maybe even a little more than that, but about a half dozen major tax minimization strategies that we utilize for business owners. And through a combination of those, we may have two people with the same plan, but one of them is deploying the tax minimization strategies. They both might generate the same return from their business and their personal investments, but one is netting 30% more return than the other because of tax positioning. And that can add a lot of outflow to their balance sheet.
And that’s something that when we think about like our work with you with the IC-DISC, the IC-DISC is one of those half dozen tax strategies that can really help a business owner keep more of their net return through their business versus just on a personal balance sheet. So that’s another way that’s like a real life example of tax minimization is using a strategy like that can end up just… You’re making $10, you can keep six after tax or you can keep eight after tax. The difference is how you do your planning.

Dave: Right. Right. Well, that is helpful. But boy, I can’t believe how fast the time is going. We’ve got about 15 minutes left. So why don’t we talk about a couple of misconceptions that people may have about your service? What are some misconceptions that come to mind?

Ali: I think the first and most common is the perception of what an advisory firm… We call ourselves a family CFO, an entrepreneurial wealth planning, but the moment you say wealth, everybody thinks money management, product, some stockbroker or insurance agent trying to pick something. And that is by far, the most challenging misconception of our services is that it’s very focused on money management, liquidity, product. And the reality is it’s 90% of what we do, and I’m not speaking for the industry, but specifically for AltruVista. It’s really more of a consulting and planning and helping a business owner and their family get aligned with their advisor team, with their goals, figuring out the nuances of their balance sheet position and maybe 10 or 20% is time spent on the actual end solution. Because so much is really in that creative side of the planning and consulting. So that’s probably the largest misconception.
And the second thing is that business owners feeling as though they need to be planned or have their ducks in a row before they come to us. That, “Oh, I really need to get organized and when things have the right time, then we can talk. Right now things are crazy.” And the reality is, is that the planning process, it’s a process. It’s not an event. It’s not one meeting. When we engage someone, it sometimes takes us nine months, 12 months, 18 months to get all the way to the finish line. But during that process, we’re having multiple meetings to make progress and we get progress, we get momentum and it gives the business owner the time and space to really think and rethink about their goals. I find that many business owners can make a decision if they want to in a microwave, but most of them prefer to make it in a crockpot-

Dave: Sure.

Ali: … and take their time and revisit the decision again and again. So they really have certainty it’s the right thing. So you don’t have to be in a position where, I have everything organized and then what I want to do, now I want to meet with someone. Actually it can be more beneficial to say, “I’m not exactly sure what I want, and I’d rather take this slow and go through this process.” And I think that works out really well because they get the space and time to think, and we can really learn about them and not make immediate decisions that we could one day end up on doing, but really be intentional about what we’re doing.

Dave: No, that makes sense. What is the typical… You’ve made me think of something, what’s the typical relationship like over the first 10 years? Like, how many meetings do you have a year? What are the purpose of the meetings? I think kind of really your people have context of how the service works.

Ali: Yeah. That’s a great question. And I really appreciate that question, because I don’t think I’ve ever been asked that before, what a decade might look like. Year one is our trademark year of Wealth with Purpose, where the very first thing that we want to do is determine what your goals are and really work with you and your spouse, figure out what it is that you want to accomplish and why and where your current positioning is. Who’s on your advisor team and how do we take your vision and your goals and identify the major gaps, considerations, opportunities within your position. So think of a SWOT analysis. We want to look at your overall entire financial position and say, what are the best strengths, weaknesses, opportunities, threats to kind of keep it straightforward and get everyone on your team agreed that we’re going to pull in the same direction. And that year one is doing that process and getting alignment from our clients that this accurately reflects your goals, vision, and values and you’re now in a position to say, let’s execute and let’s make the changes that we need to make.
This is typically going to involve revisiting your tax strategy, revisiting your estate plan, revisiting your investment strategy, looking at your cash flow and developing the right cashflow structure, looking at risk management and asset protection. Something like if you got sued tomorrow, how are your assets positioned? Every aspect of your balance sheet planning and personal life planning as a business owner will be addressed. And we won’t necessarily have a solution for 100% of the things year one. We might have 60 or 70% that we solve in year one and then the rest carry over to year two.
Then once we’ve built out that plan and blueprint, then we’re implementing or working with your tax and legal team, we’re implementing on the financial side, they’re implementing on a tax and legal side, and we are navigating through getting all of those key obstacles addressed and executing those. Then ongoing, I’ll call it… once we’ve implemented and this may be year two, year three, year four. Once you’ve got through the major portion of implementing, then we’re managing this plan for change. Because I can guarantee you this as a business owner, you are going to have change and economically there is going to be a change. The tax law is going to change, your business value is going to change, your cashflow. Economically, things are going to change and that plan that we build has to be fluid enough to adapt to the changes in your position and the changes in the marketplace.
So each year we are looking at ways to revisit that plan and continually create more value. So not just updating the plan, but updating the strategy. And I’ll give you a small example of this because we went through it together actually a few years ago with some of our clients in oil and gas. 2014, 15, 16 was a very tumultuous time for oil and gas. And some people that I knew that were making profits hand over fist in 2015 were losing money.

Dave: Sure.

Ali: And I had some clients that were business owners and they said, “Ali, look, I am underwater this year. We’ve had losses in the company.” Some even Hurricane Harvey in 2017 had lost money and they said, “We really don’t need to do planning. We’re losing money right now.” And I convinced them otherwise and I’ll explain why. Sometimes when you have down years or economically you go through a tough period, it’s the best time to plan. And years like 2015 or 16 are great opportunities where a business owner may have a negative tax return and they might be able to recognize gains on their portfolio with no tax. And even when they convert. They could convert an IRA to loss and pay no tax because they had no income that year. There’s great opportunities to do strategic planning and save a lot of money in those bad years. And sometimes from a gift and estate planning standpoint, those are great times when values are depressed to do any gifting or selling of assets that you have confidence in longterm.
So the maintenance stage in the plan really is a maintenance, it’s all about strategic update. So in summary year one, develop your blueprint plan and strategy and implement the critical items. Year two, let all the dust settle from the changes, help conform to the new norm, help a business owner understand now that we’ve done what we’ve done, here’s your new normal. And then year three onward it’s how do we maintain and manage the strategy for change and continually make sure that we’re staying ahead of the curve. So if there is a change in tax law where that firm is looking at the tax law and saying, how does this impact a business owner and how can we bring strategic thought and guidance to business owners to say, here’s what this looks like, here are your opportunities and let’s get some momentum toward capturing and capitalizing on change?

Dave: No, got it. That’s a great summary that I think will help people kind of paint a picture of what they would expect over the next 10 years, working with you versus say what the last 10 years have looked like without your input. Well, as we wrap up here…

Ali: I was going to say one little thing when you said 10 years again I realized kids or children, I should say. A lot of times when our clients have been with us a decade plus is that we’re now getting their children more involved in planning. And sometimes there’s multigenerational planning going on and translating expectations and values to children and being that partner as they steward their wealth to the next generation. So it’s another aspect I didn’t touch on, but it is definitely a core part of our work.

Dave: Excellent. Well, as we wrap up, if somebody is interested in exploring a relationship with you and your firm, what would you suggest they do?

Ali: Well, they’ve got a few options. They can come to our website, which is, A-L-T-R-U-V-I-S-T And basically there’s four ways they can connect with us. We have a guide specifically created for business owners on hiring an advisor for high net worth business owners. They can download that guide. It’s free to them to help kind of give them the… Empower them to know what to look for, more questions to ask, what to be aware of. So the advisor guide. They can go to our website and complete a scorecard to help them assess their current position and answer a few questions to get an idea of what kind of value and what kind of change might I get from this Wealth With Purpose planning process or from a personal CFO, a family CFO team. What does that look like? So we can do a scorecard.
They’re always welcome to reach out to us to schedule a meeting. We offer… our first stage in our processes to identify where gaps and considerations may be and kind of provide a initial written proposal like what planning process might look like and where their major considerations are. So it’s a meeting. And then the fourth one, if they’d love to connect with you and us together when we have our next CEOs’ lunch, they can come to one of our CEOs’ lunches as a guest of Dave Spray and we’ll have a seat and a meal ready for you and one of your podcast guests. So four ways guide, download, scorecard completion on the website, set up a meeting or attend one of our CEOs’ lunches or event with Dave.

Dave: Great. And otherwise my only complaint about your lunches is that they’re not frequent enough. These are amazing events. You’re always having them at a nice restaurant. You’ve got to eat lunch anyway, very informative. It’s a small group, but there’s still some opportunity to meet new people. Yeah. So kudos to you and your team. Those are always great.

Ali: Thanks Dave. We appreciate that. Appreciate your support at those as well.

Dave: So what’s the main phone number if they want to just call up the office?

Ali: Sure. (713) 581-2440. (713) 581-2440. And we’ll be happy to chat with them or set up an initial call and our meeting and take it from there.

Dave: And if they heard about this from the podcast, maybe just mention that. Just for context when you schedule a meeting.

Ali: Absolutely.

Dave: And I’m sure you’re curious to know how people come to you. Awesome-

Ali: 100% of our clients come from introductions from either an existing client or a professional alliance like yourself. So we always… First thing we want to know about anyone is how did you hear about us? And that’s always… I feel like your best clients and your best relationships tend to breed the next best relationship. So that’s something that’s been great.

Dave: Sure. I would agree. Well, is there anything else we need to add before we wrap up?

Ali: Oh, I think this has been great. I sincerely appreciate the time and the opportunity to speak to your audience. We’ve had a tremendous amount of benefit for our clients using the IC-DISC and that’s definitely a tax strategy that where it makes sense it’s hugely valuable for business owners. So it’s great to be able to partner on something like that. And thank you so much for the call.

Dave: Oh, you’re welcome. Hey, one last quick question. Your clients you’re looking for, do you… I know that they tend to be more in Houston and Texas because that’s where you’re located, but do you have clients outside of Texas that you’re still able to work with and provide value?

Ali: Yeah, we do. We have clients in different states and we do business… We’re licensed to do business across the U.S. It really just depends on their needs and engagement, but we can certainly have that discussion and call and with meeting technology nowadays, it’s so easy to meet virtually or to fly in and have a meeting, whatever it may be, but we’re absolutely open to having clients outside of Houston. Just have a conversation and we’ll take things from there.

Dave: That sounds great. Well, hey, thank you so much for your time, Ali and thank you for being on the IC-DISC Show.

Ali: My pleasure. Thank you, Dave. Appreciate you, sir.

Dave: All right, bye.

Ali: Okay. Bye.