Intro to Ron Diamond
Why this conversation matters for families with wealth
Ron Diamond
You know, right now you’ve got $10 trillion in capital in family offices and you got $124 trillion moving downstream. And there’s so much emphasis on the investing. Let’s put this amount in private equity, this amount in whatever. Once you have a liquidity event, you shouldn’t even contemplate investing until you’ve done certain things.
Welcome to episode 32, where logic meets life and investing. I am Marcus Schafer and I am joined by Pat Collins for a super, super interesting conversation today with our guest, Ron Diamond.
Pat Collins
This was an episode where we, I’d say we veered a little bit off course of our typical topics of, you know, kind of in the weeds investing and financial planning topics. We got into family governance and how to start talking to your kids about wealth, inheritance, and all the things that go along with that. So it was really fascinating topic. It probably maybe started to morph into a little bit of ⁓ kind of therapy, parenting type things. But I think for a lot of our clients, this is a question we get.
all the time, which is how do I start talking to my kids about this money that they’re gonna inherit? How do I make sure they don’t become entitled? How do I make sure they still wanna work hard and achieve and do great things in the world and help other people? So Ron Diamond, who is our guest, was a fascinating guy. Ron has his own family office. And so for those of you who don’t know, family office is basically set up as, kind of like it sounds, it’s an office that you create.
with multiple people that are there to serve a family, just all the needs of a family because of the wealth that they’ve created, either through a business or the sale of a business or real estate or any other thing like that. So Ron comes from that background running his own family office. He also has developed the family office program at the Booth School of Business in Chicago, University of Chicago. So he’s done a lot of the research around it as well, which I think was really fascinating. And then the other thing
is he’s involved in an organization called Tiger 21, which is basically a consortium of family offices. So he’s basically lived in this space for a long time. And he has some really interesting insights from all the families he’s gotten to know about family dynamics, wealth, governance, things like that. What did you say? Was there any specific takeaways you got from the podcast?
Ron Diamond
My number one takeaway for somebody that works with and has seen the inside of over a hundred different family offices. was fascinating to me that the number one thing he’s thinking about when talking with families is not investments. That’s like the fourth thing on his list of, Hey, if you want to have a playbook, you actually don’t need to start with investments. That’s one of the big mistakes. And so I thought it was super interesting to hear his reasoning around why and what are the implications for.
for people that might be listening.
Pat Collins
I thought that was great insight. And as you listen to it, you’ll hear what he thinks that playbook should be, which I think is really, really fascinating stuff. My takeaway was really more about the discussions that you have with your children. Maybe this is just kind of near and to my heart. have two college age children, so they’re getting to that age where, you know, some of these conversations, ⁓ you know, should be happening. And so I thought the one thing that he mentioned, which was great, because I think the parent’s worst nightmare is having a child who is
especially if a parent who has some wealth is that this wealth actually is detrimental to kids. We’ve all seen it, the kid who’s entitled, who doesn’t want to work and whatnot, and that’s just a scary proposition for any parent. But I thought his insight around, you know, it’s less about what you say and it’s more about what you do because your kids are going to watch you. So if you’re lazy, your kids are going to be lazy. If you treat people poorly, your kids are going to treat people poorly. And I just think it’s such a great lesson for all of us, whether you have wealth or not, is that
Parenting is so much about setting a good example for your kids, whether it be in relationships that you have, your relationship with money, how you handle, you know, pretty much anything in life. So anyways, I thought all of those were really fascinating. We had a great wide ranging discussion. So without further ado, here’s Ron. Welcome Ron Diamond. Thank you for joining us. We’re here to talk about family governance, how to talk to your kids about money, how to think about inheritances.
and really just best practices that some of the leading families, wealthy families are doing around the country. So Ron, I thought maybe we could just start off because you do come across lots of ⁓ families, family offices, you see a lot of those in your day-to-day work. What do you see families that really are succeeding across generations? What are they doing maybe that’s different than a traditional family that struggles in this area?
Governance Before Investing
Why investing should not be the first step
Ron Diamond
Well, first, it’s a pleasure to be here. And I know your firm has done a terrific job with things like governance, which is really important. You know, one of the interesting things is that what you’re talking about is super important, but really not emphasized. happens is, you know, right now you’ve got $10 trillion in capital in family offices and you got $124 trillion moving downstream. And there’s so much emphasis on the investing. Let’s put this amount in private equity, this amount in whatever.
Ron Diamond
you shouldn’t, once you have a liquidity event, you shouldn’t even contemplate investing until you’ve done certain things. And the very first thing is what you’re talking about is governance. And governance has to do all family dynamics and succession and talking to children. I think that the most successful there is no exact playbook. But I think in general, the most successful families that I’ve seen, and we have a syndicate about 130 families between 250 million to 30 billion.
Ron Diamond
are those that are open that openly communicate, right? Not at five years old, but when you know when they’re old enough to understand that, you know, and it’s gonna be different. Some kids at 18, they’re ready to handle it. Some kids at 25, they’re ready to handle it. And you have to know that. But I think all the most successful ones, when you get that kind of money, there’s a professional facilitator, because it’s not when mom or dad comes and talks to the kids, that’s one thing when a professional facilitator comes in.
Ron Diamond
Sometimes they listen to professional facilitator as much or more than mom or dad because they look at that more. An open communication and having a professional facilitator engage the kids as soon as they’re emotionally ready, which could be anywhere from 15 to 80.
Talking to Children
When and how to discuss wealth with kids
Pat Collins
So maybe we could dive into that a little bit more, because I think it’s really, it’s an interesting kind of concept for a lot of people. I think we hear some clients say, you know, they want to be careful about introducing these concepts to their kids about the wealth that’s in that family and what their inheritance might look like or what the gifting may look like over time or their trusts or whatever it may be. The concern about entitlement, are they going to want to work? Are they going to want to achieve? Because I think a lot of times the
you know, kind of the G1 of that generation that maybe created a wealth sees a lot of value in hard work. And so how do you know when the kids are ready? And I guess the question is, how do you make sure that you’re not, as you’re educating, you’re not also creating potential entitlement that, my gosh, I have all this money, I don’t have to go work now.
Ron Diamond
That’s great question and that’s really the $64,000 question. know, the most important thing to do as a parent is to raise good kids who are grateful and productive members of society. The worst thing you could do is to raise an entitled kid. And I see that happen all the time. Where I grew up, I grew up in a relatively affluent geographic area. And I remember there were three kids who were given money
very early, it’s like, even before they were 16 years old, the trust fund kids, one’s dead, ⁓ from overdose. ⁓ one committed suicide. ⁓ and then the other one is doing actually very well and is a productive member of society and with his family. So I think that we don’t understand. mean, when you’re 15 years old and you have a hundred dollars or $500, that’s a lot of money. If you’re talking about
$20 million. It’s hard to fathom. It’s hard to get your arms around that. Well, I think that’s why, you know, there’s a whole field with psychologists who’ve come in here to do that. ⁓ There is no playbook. There is no, well, you should do it at this age and this is how much you should talk about and this is when you should do it because it’s going to be dependent on the kid. But I do think that as soon as the kid is ready, the more open dialogue, the more transparent you are, the better. And the other thing is
Ron Diamond
Children, ⁓ they watch you, right? So if I say to them, you have to work really hard and they just see me watching TV all day. They’re gonna do what I do. They mimic what you do, they mirror what you do. If they see me treating a waiter with respect and dignity, which I always do, and they don’t, they’re gonna be really punished for that.
Ron Diamond
In our family, least, we try to make it like we’re not better than anybody. Everybody’s, all in this together and you just have to be nice and kind and thoughtful and think of others. Again, there’s no playbook for it, but I think that what you’re talking about and what your firm does really good job at is the governance and the dealing with the kids because statistically, only 25 % of families make it to the second generation and 10 make it to the third and five make it to the fourth.
The Wrong Sequence
Why families often start in the wrong place
We’re talking about a model, 10 trillion in capital, 124 trillion over downstream, but the model doesn’t work. And why doesn’t it work? And one of the things is exactly what you’re touching on is rather than start investing from day one, you have to get the governance right and you have to get the kids prepared. So I think the way your firm does it, I think is very, very powerful. Yeah. And I think, ⁓ Ron, there’s kind of even a step forward.
the governance and the investing, there’s this step of, what is the purpose that you want for this money? And you gotta do that before you can figure out how you’re gonna actually transfer it. ⁓ Can you talk a little bit more about, I think one of the big hesitations and concerns from families is exactly what you alluded to, that short sleeves to short sleeves and three generations, that’s kind of one of the big hesitations and the stats you just mentioned are kind of alluding to it that.
Hey, significant wealth isn’t going to last forever. Is it overspending? What do you think is driving most of the inability for that wealth to be truly multi-generational? One, there’s no playbook. So here’s what happens. You have a liquidity event. Let’s say you saw your widget company for a billion dollars and it’s in the paper. It’s on the internet. Everybody knows it. And what happens is people start investing right away and then your friends hit you up. know, this guy’s got a
successful real estate fund, he’s your cousin’s got the good private equity fund. And he started investing from day one. And that’s really the last thing you do. So the problem is, there really is no play. I put together along with Paul Carbone and Steve Kaplan, a few other people, a program at University of Chicago Booth to create that playbook because right now there is no have a liquidity event, do a mission statement.
Ron Diamond
talk to an estate planning attorney, get governance, succession, next gen, philanthropy right, then invest. Because there is no playbook, it’s very hard for people to do. So you’ve got huge amounts of money in, in general, very inefficient hands. So just because you sold your widget company for a billion dollars, you might be an expert in that niche, doesn’t mean you know anything about private equity or venture capital or real estate or credit or investing. They’re two different skill sets. And I think a lot of this is driven truly by ego.
Ron Diamond
I argue that 85, 90 % of the family offices that exist objectively should not exist. And again, I don’t judge anybody. But what I saw happening is post pre-COVID, a lot of firms, a lot of family offices, I don’t care what you invested in, you made money. mean, interest rates were zero. It’s not hard to make money with real estate. Private equity went up, ⁓ venture capital went up, Bitcoin went up, the stock market up, real estate, everything went up. So families said, well, wait a minute, why do we need a firm like yours?
Ron Diamond
and pay 220 if we could do it ourselves and not pay anything. And they were right until they were wrong. And then what happened is three years ago, when they started jacking up interest rates, they realized there’s a skill set to firms like you. And there’s a reason why you’re compensated. And I think there’s going to be a pushback. So I think how it’s going to play out is many of these single family offices are starting to reevaluate how they’re doing it. They’re going to morph into the multifamily offices, the good ones such as yours.
And the large family offices are going to get larger and larger. They’ll club deals together and they will be able to compete directly with Blackstone Carlyle. Because the biggest advantage we have is something called patient capital. So when we buy a company, we don’t have a shot clock where we have to sell it in five years. And that’s by far the biggest advantage we have. The other advantage we have is most not everyone, but most of the if you look at the private equity firms right now, I’m a finance person, so there’s nothing wrong with finance people. But most of these people are finance guys.
Ron Diamond
To create Alpha, you need to operate. And most family offices have operated something. So I think that the model with the private equity firm and how it’s working today, private equity firm buys a company, garage door company in Des Moines. They hold it, I could tell you when they’re going to sell it because I know how they’re comped. ⁓ They can sell it in five years and they may sell it to a strategic, but they’ll probably sell it to another private equity firm. So if you look over the course of 20 years, this garage door company,
Ron Diamond
I’m saying let’s say it’s changes hands four times, which is about right every five years. If you look at the taxes and you look at the friction and you look at the disruption in business versus the family office, you could simply buy it, hold it and let it compound. The results are even close. It’s objectively a better model. The problem is very few families can execute. That’s going to change. So we’re at an inflection point right now. And where we are now in the family office space is I graduated from Northwestern in 1987.
And this is when private equity and venture capital didn’t really exist. They called the leverage buyouts and they were coming out of banks. That’s where we are now is private equity and venture capital disrupting the public markets in the late 80s. Family offices are starting to disrupt the private equity model because it’s actually become an AUM game. And there’s reasons why family offices, if they have the right team in place, are but it is a better model. So I think we’re at an inflection point.
Pat Collins
Thank you for that insight. think that’s fascinating. ⁓ We see it with our clients ⁓ that have for years basically been bought out by private equity firms, private companies. And we are seeing some family offices now stepping up and having an interest in purchasing the equity versus the private equity route. And there’s clearly some advantages, as you mentioned.
Family Offices vs. PE
How long-term family capital differs from private equity
you know, especially if you’re going to be remaining in the business, do you want a partner who’s going to be gone in five years or you want a partner that’s going to be there for the next 30 years?
Ron Diamond
Well, that’s a great, it’s a great point. mean, what was interesting is previously, if you’re going to sell your HVAC company, you had two options. You sell it to a strategic or you sell the private equity. Those are your two options. You now have a third option, which is family offices. And what I see, because we invest with, you know, a bunch of very large single family offices is that the family offices right now, if you’re going to sell your company,
and you want to make the most money in day one and just cash out as much as you can. And again, I’m not I don’t judge anybody on anything. You’re going to never sell their family office. You’re going to always sell their private equity firm because they’ll always overpay. And we had times where, you know, we were going to buy a company for one hundred and one hundred twenty million bucks and a private equity firm came in and spent almost two acts. Now, there’s no way it was worth that much money. But what happens is and what’s happened in the industry is it’s become an AUM game.
And these funds have become too big and they have two options. They can either deploy all the capital and many times they have to deploy it at really inflated prices or they can give the money back to the investors. Now I’ve never seen in 35 years a private equity firm give money back to the investors. So what they’re going to do is they’re going to deploy it. And I think that’s a problem. I had a close friend who did a roll up of logistics companies.
And he had a fabulous track record and he needed 150 million. The placement agent in New York was able to get him 500 million because his track record was $1. He said, great, I just need 150. Let’s get started. The placement agent came to his house and wrote down 2 % of 500 million equals X. 2 % of 150 equals Y. What am I missing? And what my friend said was a bit incredulous is what you’re missing is if I do what you want me to do and deploy the full 500,
Ron Diamond
I won’t have a fun too, because I can’t deploy the other 350. That’s a microcosm of what’s wrong with the industry. And that’s one of the reasons why family offices are objectively a better model and will disrupt it. But we’re still a long ways away from there.
Pat Collins
One follow up on that, just because I think it’s a really interesting thing that I think is kind of fairly new. So if I’m in a business and I am going, I plan on having some sort of liquidity event, and I’m interested in exploring kind of this option of a family office capital versus just private equity.
Do I just go to my investment banker or where am I finding these family offices that have an interest in buying just my company basically or group of family offices, consortiums, whatnot?
Ron Diamond
That’s a great question. And that’s one of the of the problems. So we’re only in the second inning in the evolution of family offices. I mean, they’re very fragmented. They’re very siloed. They’re inefficient. And model is or and one of the problems is how do the smart people find the rich people? How do the rich people find the smart people? I can go to PitchBook and I could say, OK, one to one hundred, the top private equity firms. I can go one to one hundred, the top venture capital firms. I can’t do that for family offices because they’re allowed to be private.
Ron Diamond
you’re allowed to be private. But if you want to compete with some of these other firms, you let people know what you what you do and invest in. So we’ve got a couple of families in Chicago, multi billion dollar families, and what they’ve done, and I think this will be a playbook. On one sheet of paper, what they say is, here’s what we do, we invest in real estate, and in real estate, we invest in multifamily and student housing. Our average size check is $10 million.
We need minority majority or we don’t need majority. We need a board seat or we don’t need a board seat. It takes us 30 to 60 days to diligence, etc. And that way that they’re writing down so they’re letting the entrepreneurs know who’s investing. So now you’re an entrepreneur and you’re looking to raise capital from any family office that does that asset class. Right now, you just don’t know. You might there might be one or two people. So I think how this is going to ultimately play out.
Ron Diamond
If family offices want to compete directly with the private equity firms, which many of them do, you’re going to say more and more family offices put together on one sheet of paper, here’s what we invest in. So if I’ve got a med tech company or I’ve got an early stage ⁓ healthcare company, and I know these 18 families invest in it, I’m going to go to these 18 families. There’s no central networking right now. And that’s one of the many problems that family offices have. So…
Joining the Family Business
Should children work in or lead the business?
What I’m talking about, even though it’s objectively a better model, we have a long ways to go. And one of the things we have to get right is the networking. How do the smart people find the rich people and how do the rich people find the smart people? And that’s incumbent upon the family office. One of the things I think the model you’re talking about can do is it can help create multigenerational family businesses, right? Because I think one of the challenges, hey, if you start a business and you sell it to private equity,
you’re going to lose a lot of control and a lot of people do that as you mentioned to exit. What do you think are kind of best practices that families should be thinking about as they look to have their kids join the business with them and utilize the business as opportunities for the next generation? Well, first you have to find out and again, the kids might not want to be in the business and the kids might not even be competent to be in the business.
just because they’re your kids, right? And everyone’s got an ego and our kids are terrific. And, you know, I thought my daughter has been playing division one basketball and that didn’t work out so well. But so we think in again, you have to listen to the kids and if the kids want to get into the business, that’s great. But it doesn’t mean they’re entitled because their last name is Jones and they’re automatically become the CEO. You have to work them through it and they have to understand every aspect of the business and they have to understand that
either mom or dad or grandma or grandpa or great grandma or grandpa who worked, who did this, it’s to create a business. It’s very hard to create a business that lasts and sustains. And there’s a lot of work and effort that goes into it. And if the kids don’t understand how much effort and thought goes into the business, medium and long term, the business is probably, and they can inherit the business, it’s not going to work long term.
Ron Diamond
And that’s why only 25 % of families make it to the second gen and 10 to the third. So I think we have to change that, but that’s incumbent upon the parents to educate children about, look, yes, mom and dad or dad and whatever, we work really hard, but we also try to treat our employees very well. We try to give them stock options or we try to, you know, we want the whole thing. That’s something that I think is very, very important that the top families do and they get, they get that right.
The Governance Playbook
Mission, succession, values, and preparing the next generation
Pat Collins
I wanna get back to a comment you made a little bit earlier on governance. And I think it was a ⁓ really astute comment that people sometimes just start with the investing. They have this pile of money, it’s like, okay, I’m gonna go invest it. But starting backing up and having a plan around governance and a playbook is so important. You mentioned that word playbook and what you’re developing at Booth or have developed at Booth for family offices and wealthy families. What?
What does that look like in practice? So if I have this playbook, what does that look like if I’m a family, I’ve sold a business, I have a liquidity event? Maybe I haven’t sold a business. I just have a really big operating company that’s worth a lot of money and I have capital as well. But what does that playbook look like if I’m starting to think about governance for my family? Maybe I have at least one generation, maybe the second, know, the third generation has been born as well at this point.
Ron Diamond
The playbook starts before you sell the People ⁓ have a company and they’re laser focused on their ⁓ healthcare company. And if they’re contemplating selling the business, you should start doing the planning and talking to the estate planning attorney before you even have an LOI. Because once you’ve done a letter of intention, then there’s something packed. And a lot of the stuff that the trust and estate planning attorneys are able to do
Ron Diamond
get things out of your estate, do discount valuations. If you’ve signed an LOI, you can’t do. The first thing is you have to educate people before they even think about selling your business because then they could do a lot of estate planning. Once you’ve signed the LOI, maybe 10 or 15 % of what teeny attorneys have in their tool chest, they can implement, but they can’t do the major thing. So that’s number one. Number two, the playbook has got to be…
Ron Diamond
Here’s what you do. You have a liquidity event. You sell your company for X in order for to make economic sense to a single family office, which is your multifamily. But if it’s a single family, you need a minimum of 500 million. There are a ton of families that have less than 500 million that have family offices. And again, I don’t judge anybody. It just doesn’t make sense because if you do the math, if you have 200 million, which is a tremendous amount of money, but if you’ve got your own admin, your own team, your own tax team, whatever,
versus going to a firm like yours where you’re splitting the cost with 10, 20, 50 families, do the math. And the math says you need 500 million. So that’s first thing you need that in the playbook. Then you have to say you need a mission statement, as you mentioned earlier. Then you need together family dynamics. You need to talk to your estate planning. Your estate planning attorney, I would argue, is more important than the money manager in many instances, because that’s kind of structural alpha. People don’t understand that. When I ran my hedge fund in the 90s,
Ron Diamond
I was talking about my strategy to, they used to call them rich people, now they call them family officers. So the rich guy and I’m explaining the strategy and he brought us a state planning attorney in the meeting. And I was 32 and afterwards I just said, Mr. So and so, just with all due respect, why was the estate planning? Cause you know, I didn’t say it kind of suddenly, like he had no idea what I was talking about with the strategy. And then the guy kind of pats me on the back. goes,
you’ll understand someday because the goal is not to be a billionaire worth 10 billion. The goal is to be worth zero, but control as much as you can. And all these trust and estate attorneys do is get money out of your estate. And that’s what makes things last. And so if somebody comes out the Forbes 400, it doesn’t mean they did bad investment. It could have been they just did good planning.
Ron Diamond
Open my eyes to realize that how important estate planning and taxes play in the role of family offices that really, really get. And that’s what they have to do. Once they’ve done that, they’ve got everything done, maybe nine to 12 months down the road, then you could start investing. But you can’t start investing from day one. And yet there’s such a huge temptation to do it because everyone’s trying to hit you up. You want to be nice to your cousin, your best friend or whatever.
They do it backwards. So that’s what we’re trying to recreate. And that’s part of the reason 25 % make it the… What we’re trying to do is change that. It shouldn’t be 25 % make G2, 10 to G3 and 5 G4. We want to change those numbers.
Beyond Family Offices
How these ideas apply below ultra-wealthy families
Pat Collins
the concepts that you’re talking about, can that come downstream, do you think, to families that, let’s say, have enough for themselves? The mom and dad have said, we have more than we need. We’re never gonna consume all of this. But we don’t have 250 million or $200 million, but we have a good amount of money. We know there’s gonna be a big inheritance going to the next generation, maybe even that following generation after that. ⁓ But we’re not at the level where we can start a family office.
We may even be borderline to be multifamily office. ⁓ Are the concepts you’re talking about, can they be used, you think, by just generally wealthy families, not ultra, ultra high network?
Ron Diamond
be. mean, the growth is really not going to come in my world, which is the single family offices, the growth is going to come in your world, which is the multifamily offices. And I think what’s happening is I’m seeing a trend, a lot of these single family offices, you know, they have a liquidity event, and then they’re like, okay, I sold it, I made extramar dollars, and they take their foot off the gas pedal, which is fine. But if you’re going to do that, then give them money to a multifamily office like yours.
and don’t do it yourself. Unless you’re going to commit to running this family office as diligently as you did your actual business, just don’t do it. And again, I don’t judge anybody. If you’re planning to do that, that’s fine. If you have enough capital and you’re willing to do it. So I think in the industry with 124 trillion going downstream, I think a lot of that money is going to… Right now, what’s happening is the family office, single family offices who are not very efficient, and that’s not all of them, but many of them,
they’re re-evaluating and they’re going to pull back and go into multi-family offices. And what they should do is if they made their money in real estate, let them handle real estate. Don’t let you or anybody touch it and have you guys handle the rest of the stuff. They don’t do that now. I think that’s going to happen. And having said that, the big family offices are going to get bigger and bigger. I did a podcast with David Rubenstein and he’s, everybody knows Carlisle, but nobody knows or very few people know Declaration Partners, which is the name of his family office.
What he said is in 5, 7, 10 years, people will know declaration like a brand. And I think that’s gonna happen.
Pat Collins
Well, it comes full circle here because, you know, several episodes ago we had the president of the Baltimore Orioles who David Rubinstein just purchased with the investor groups. So for those who listen to that podcast, this is kind of how it’s all connected. But maybe what we could do is kind of go back to the, you know, kind of these conversations, the governance model with your children. You know, let’s say they’ve gotten to a point where obviously there’s some discussions happening.
Replacing Scarcity
What motivates children when money removes struggle
I think one of the things I hear from clients a decent amount is the clients grew up with scarcity. ⁓ know, the, the original kind of creators of the wealth grew up with scarcity. They grew up in adversity. That’s a lot of what drove them basically to be, to be able to build this wealth, build a great company. And they know that their kids aren’t going to grow up with that. It’s just the reality. Kids aren’t stupid. They see the wealth that’s been created. They probably have lived through that. So.
What replaces scarcity as a driver for kids that don’t have scarcity, don’t have kind of adversity? What replaces that do you think to drive people to achieve?
Ron Diamond
I think as a parent, one of the things you want to do is every parent wants their children to have, no matter how good your life was, you want your children’s life to be better. No matter if your life is, wherever it is, you want your kids’ lives to be better. I think one of the things that we do is we spend, like right now, the people who created the wealth, their focus, what’s the most important thing is, you know, the work ethic, the discipline, et cetera. And then they make the amount of this wealth and then,
the values that many of them are trying to pass on to their kids is I want them to be enlightened and I want them to be happy and I want them to be fulfilled and I want them to be which is great. But if you’re going to do that and you’re going to not have any parameters on it in many instances it makes them too soft. So it’s really the parents in many instances because we want to we don’t want them to see how hard we had it. But sometimes being
is good. And that’s what drives. I think the families that are the most successful, can. A lot of things, a lot of material items and be working really, really hard and understanding how hard it is to work. But I think part of the problem is. People have a liquidity event. They think they had their lives were so hard, maybe it was. And they work 18 hours a day for 20 or whatever.
Ron Diamond
and they don’t want their kids to have to go through that. Well, then you’re going to make them in general.
Ron Diamond
So is the goal really just to make them enlightened and to give them everything they can? And it’s not, I’m not saying you don’t want your kid to be happy and enlightened, because you do, you want that. But there’s a balancing act. And that’s one of the things that I find interesting is that like, it took, they’re almost saying, I don’t want my kids to have to go through that. And I’m gonna make it so easy for them. And if I make it so easy for them,
Passing Down Values
Why values may matter more than assets
Ron Diamond
The intent is good, but the outcome usually not good. And this is what you’re talking about where it’s, hey, have a mission statement, have value statements, have a professional come in and help talk to your kids and talk to you about what ideals do you actually want to pass on to them? Do you want to pass down, as you said, enlightenment? Or do you want to pass down different characteristics and then actively work towards that? And I think what you’re saying is the focus is on being a parent.
not on focusing on your money. is. Look, the hardest that you know, they never gave us a playbook to be a parent, right? It’s hard and there’s no right way to raise a kid. But I do think that one of the things, the main thing was being a parent is just kids marry you. They watch what you do. If you tell your kids how important reading is and they never see you reading a book, they’re not going to read. If they see you.
going home at night and reading a lot of books, maybe they’ll get into books. If you tell your kids that exercise is super important and they see you once every three weeks on a treadmill, they’re not going to exercise. They’re going to watch what you do. But if they see you training for a marathon, they’re going to realize that’s important. So I think a lot of it is not so much what we say, but what we do. And kids mimic that. And even at age two or three, they’re
Ron Diamond
We’re all perceptive on what they do. We look at them as little blobs, but they understand things. And even when they get to be 8, 10, 12 years old, they’re watching you. my kids see I’m working very, hard. I love what I do. And they see me working very hard. If I just say to them, it’s important to work hard, but I don’t, they’re not gonna. So it’s what you do, not what you say.
Kids Mirror Behavior
Children follow what parents do, not say
Pat Collins
It’s such a great point. I’ve often said that maybe one of the best things we can do for our kids is to have healthy relationships with our spouse or whatnot. They see that, they mimic that, they understand what that looks like. I always told my kids the most important decision you’re gonna make is who you marry. ⁓ obviously if you have a good marriage, if you have a good relationship with your significant other, I think that obviously helps. Going back to some governance items, you talked about this, I kinda wanna keep going back to the playbook, but I’m really curious about this. As somebody kind of,
creates this playbook, obviously at the end of that, that’s kind of when you mentioned, that’s when you start to implement, which is investing and probably making sure all the trusts are set up and whatnot. What about after that? So we’ve got this structure in place, we’ve put together a mission statement for our family, we have the estate planning techniques set up, we’ve invested the funds. What are families that are successful? What does that look like, you know, year two, three, four, five after that? Is there a family meeting?
what do those meetings entail? What happens at those meetings? Who’s there? What are the conversations you’re having with the next generation, with your advisors, things like that.
Ron Diamond
I think the families that truly get it, ⁓ have, once they, let’s say they do the playbook, let’s say they get that right and they do governance, succession, next whatever, and then they start investing nine to 12 months down the road. And then let’s look out two to three years. So they’ve done not everything, but pretty much everything the way they’re supposed to do. Now you have to sustain it and families are complicated. You’ve got, I’ve had two daughters, they’re both incredible kids. They’re just wired differently.
doesn’t mean one better than the other, they’re just different. Some people have, you know, four or five kids and then you’ve got cousins and all that thing. So I think the next thing you have to do is family meetings ⁓ are really, really important to understand why you want this family office to be together. There’s been families that have been broken apart just because some T &E attorney tells a 20 year old that their dad’s taking money from their trust fund. They don’t understand what that is.
And I think that you have to put together, know, love is the most important thing for in life and for families. And you need to put boundaries together. And I think these meetings, usually once a year, sometimes twice a year with these professionals who put everything together and explain this is why we’re doing it. So the why is really important. It’s not just so we can hoard money. It’s because
We want to make a difference. You our thing is we want to invest in education or our thing is we want to improve housing or whatever it is. By having these meetings together, it becomes more of a team. So I think that’s really the important thing is to get these meetings set up and they’re done by professionals.
Pat Collins
You mentioned in the beginning, I thought was some impactful, the comment about the three people you knew growing up that inherited money and two out of three had just tragedy basically. Do you have some examples you can think of of families that have done this really well, governance and how it’s, you know, how it’s kind of played out for them? Obviously you can take names and off of that. And then on the flip side, have you seen it really work out poorly?
for families that didn’t get it right? And kind of what were some of the things that you noticed in the families that have done it well? And what are some of the things that you’ve seen in the examples, maybe of families that have really botched it?
Ron Diamond
the vast majority of families don’t get it right and few do. So ⁓ I’m a big believer in, you we have two ears and one mouth. It’s better to listen than to talk. And ⁓ one of the things that I do is if somebody has a liquidity event and they sell their company for $2 billion, the very first thing that I do is I don’t tell them, go to this estate planning attorney because they’re really good or
get the government ABC. The very first thing I do is I’ll introduce them to other family offices who’ve been doing it for a lot longer. And I don’t need to be on the call. I’m not on the call. And just talk to them because they could tell them, here’s what we got right. Here’s where we kind of screwed up. Listening to what other families have done and do right and wrong. That’s really the key.
Ron Diamond
The most valuable thing that I could do when somebody has a liquidity event and saying, okay, I’ve got enough money to have a family office and I tell them they do. The very first thing I do is I’ll introduce them to five to 10 families and every family, even the ones that get most of it right, have made mistakes and there’s unintended consequences. I think that you have to just talk to other family offices who’ve been through it before because they’re…
Bringing Kids In
How to involve children in the business
In most instances, like I said, statistics say this doesn’t work. So there’s more bad, poorly run family offices than well run. I think it’s starting to change. I think we’re at an inflection point. It’s not going to happen overnight. And we’re not going to go from 25 % make it to the second gen to 80%. But if we can get it from 25 % to 40 % to 45 % and kind of take piecemeal steps, that’s what we’re going to do. And I think it’s going to be incumbent upon us to have them
talk to other families. So most of them get more wrong than they get right. And the ones that really get it right, the new ones, are ones that listen to the ones that have already been successful. What did they get right and why did they get it right? When you think about some of the reasons why people are getting this wrong, what do you think is the number one reason why they’re getting it wrong? Is it what you were talking about, which they just jump into investing before they really understand what that means? Is it
lifestyle changes? What’s the what’s the number one thing you’re seeing that’s holding families back from getting it right? The ego of the founder. mean, look, I’m good at a couple things. I’m really bad at a lot of stuff ⁓ because I use Ty Warner as an example. Ty Warner was a brilliant businessman. He’s created being a baby. It was like a collectible and sold the company for a couple of billion dollars. And then he did that and he started investing right away and he tried to buy the four seasons and he got clobbered. That’s just one example.
Because you’re good at something doesn’t mean you’re good at everything. And I think that this the family office thing is people are going to learn more and more about why why wouldn’t you have going to a multifamily office like yours versus a family office? Well, sometimes people want to say they have a family office. Why just tell people you’re rich and outsource it to a multifamily office? mean, so I think the answer to your question is very simplistic and most people won’t say it outright. But the
biggest obstacle to many of these family offices is the ego of the matriarch or patriarch. And I think that’s got to change.
Pat Collins
Going back to some of the meetings that we were talking about, this idea of an annual meeting, family meeting, obviously families listening to this probably have kids at various stages of life. So may have some young kids, ⁓ somebody may have made a lot of wealth at a young age and they have five-year-olds and some may have 30-year-old kids or 40-year-old kids or whatnot. Do you see any successful families or traits of successful families, how they talk to kids?
at different stages of life. So obviously you’re gonna talk to a five-year-old a lot different than a 15 or a 20-year-old, but are there some concepts that families can take away to say, even when I have young kids, I can start to introduce some things to them now. And then as they get older, how does that evolve?
Ron Diamond
I think it’s really what you do, not what you say. If you sold your company for a lot of money and you treat waiters as second class citizens and you’re not respectful to everybody and you think because you’re wealthier and these people are serving you, kids see that and that’s really, really a bad thing. So I think it’s not so much what we tell them, but again, it goes back to what they see.
Ron Diamond
If my kids were treated a waiter or a busboy or whatever, without the same respect that they treat you or a CEO of a company, they would be severely punished. because somebody is a CEO of a company doesn’t mean they’re better than a wait, the waiters serves a very important role too. And you have to instill in the kids that we’re all in this together. Nobody’s better than anybody. Yeah, there might’ve been people who’ve made more money and that’s fine, but
There’s not a direct correlation between the more money you have, the better person you are. And I think that’s something that has to get instilled in them. So I think that it’s really, ⁓ they watch what we do. And again, if we make eye contact with the waiter and the bus boy and, where are you from? I know you’re, I’m going to come, you’re at my country club. You just came from Brazil. Terrific. How’s your fit? If they start seeing you talk to them, like a part, like, you didn’t talk to other people, they get that.
And I think that’s the most important thing. So not what you say, but what you do. It’s fascinating to me because I think a lot of people have this concept like, hey, I don’t want to create entitled kids or I don’t want to do X or Y. And what you’re saying is, we have to look in a mirror before we start really think about how we’re acting, how we’re teaching them things. We have to focus on us. I didn’t expect this to be a parenting podcast, Ron, but here I am walking away.
a little frightened and a little excited. Well, look, it’s I mean, the best part of life is children, in my opinion. And you know, it’s also the most challenging part. I’ve got two beautiful daughters, 22 and 25. And they’re wired. They’re both great kids and they’re wired differently. And you just kind of figure out what makes them tick. You know, one of mine is more artistic. So we’re encouraging her to be more on the artistic side, one more analytical. So she’s going to get more into the business side, but find out what they like, what they enjoy.
don’t have it come from you. And just because you built the business doesn’t mean that they even have any interest in the business. They might have a huge interest in the business. And in that case, bring them in. But don’t bring them in and make them the CEO. Let them work for other people who understand stuff. Let them work in the back room. Let them work in accounting. Let them work in all the different areas and see how hard everything is. And then if they’re competent, then they could rise to the role someday of
perhaps running the business. But in many instances, the kid isn’t necessarily as qualified or driven as mom or dad or grandma or grandpa. And they shouldn’t be in it. And they can still be in the family office, but they shouldn’t be the CEO. The parent has to make the decision on who are their kids, how are they wired, and where is long-term going to be the best to do. Again, there’s not a playbook for it, but I think that’s really incumbent upon the parents.
Beyond Wealth Transfer
Why this is bigger than money alone
Pat Collins
I totally agree with Marcus that I know we were gonna talk a lot about governance and how to talk to your kids, but I think it’s a, I think what you’re saying is just, it’s not just for wealthy families. This is just, it’s just good advice for life. If you have children about how to raise your kids and do it in a way you can’t expect to have your kids see you do one thing and expect them to do something else basically, which I think is great advice.
Money and Purpose
Defining what wealth is actually for
Ron Diamond
You go out and, you know, couple cigarettes and try to hide it from the kids and they see it. They’re gonna smoke cigarettes. mean, it just, it’s human nature. I think we kind of tend to overcomplicate things. You know, money is just a commodity. And again, just to hit, you have to also understand the why, you know, Simon Sinek, who I follow closely is like, what’s the why? If the why is just the hoard and have as much money as possible.
To me, that’s not good. I mean, it’s not worth doing just to do that. Now, it is to grow the business and to develop the community and to find a philanthropy or two philanthropies that could really scale and help change things. That’s a really good thing. But most families, again, they have to… There is no playbook and that’s what we’re trying to do. But it does come back to…
The Core Pillars
Governance, succession, and next-generation preparation
Ron Diamond
I know governance and succession and next gen and family dynamics are the pillars of what you need to build. But if you’re not honest with your kids, they see through that and they’re going to mimic and mirror what you do. And when they see, my kids see me working, I I love what I do, but they see me working really hard. My children work really hard. I don’t know that it’s just because they see me working hard, but I think that if I didn’t work really hard,
my guess is, and I could be wrong, they probably wouldn’t be working as hard because I don’t have to do everything I did when I was 30 years old. I’m 60 and now they see me working the same amount of hours. But I am passionate about what I do and I love what I do and they see that. And I think that’s what we have to get right. can’t think of anything better than to end it on that statement. Figure out what’s what you’re passionate about. Figure out the values and go out there and make it happen.
Pat Collins
I totally agree. think there’s just been so many good nuggets. So I appreciate you coming on board or on this podcast and talking through it. I think the idea of getting a playbook before you actually go through any sort of event, if you have some wealth through it, through a business or through real estate, if there’s going to be a liquid event, you’ve got to, you’ve got to start working on that well before an event actually happens. And I think the other part that just kind of flowed through this whole podcast is
Just, you know, if you do the right things as a parent, your wealth shouldn’t be just completely damaging to your kids. ⁓ You have to do the right things as a parent first. And obviously there’s some, maybe additional complexities when you have some wealth, but start with the basics, which is treat people well, ⁓ you know, and the kids are going to mimic kind of how you operate basically in life, which I love. So thank you, Ron. Thanks for coming on this podcast. We really appreciate all the insights and wisdom that you’ve given us.
Ron Diamond
It’s pleasure. Thank you for having me.
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