Investing In The Great Wealth Transfer: Masters in Business with Adam Frank
Masters in Business
Adam Frank, Head of Wealth Planning at J.P. Morgan, discusses his transition from a legal career to wealth management and the evolution of t
Key takeaways
- Adam Frank's background in psychology and law informs his approach to understanding client motivations beyond simple market returns.
- The 2008 financial crisis was characterized by 'sheer mayhem,' specifically the collapse of Bear Stearns and the subsequent acquisition by J.P. Morgan.
Main topics
- Career transition from law to finance
- The 2008 Bear Stearns collapse
Notable quotes
It's not a way to build it necessarily, but it's definitely a way to preserve it.
Conclusion
The episode underscores that high-net-worth advisory is moving from tr
Transcript preview
Speaker 4 (0:00) Don't wait for headlines. Watch the news unfold in real time at Bloomberg's New Economy Forum, live from New Delhi, October 13th through the 15th. As global leaders come together to tackle the biggest issues shaping our future, from geopolitics and global trade, to technology and the world's new balance of power, you'll have a front row seat to the conversations that matter most. Watch live at BloombergNewEconomy.com. That's BloombergNewEconomy.com. Speaker 1 (0:32) Bloomberg Audio Studios. Speaker 2 (0:34) Podcasts. Radio. Speaker 4 (0:36) News. Speaker 2 (0:37) I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Adam Frank. He is the head of wealth planning and advice at J.P. Morgan. Previously, he held the same job at Bear Stearns. before JP Morgan acquired them. The group manages about $1.4 trillion and specializes in sophisticated family business and succession planning, estate and gift tax management, philanthropy, estate litigation, taxation, and employee stock option analysis. JP Morgan's combined asset and wealth management business, including global institutional, private bank and retail, is over $7 trillion. Speaker 2 (1:33) Adam Frank, welcome to Bloomberg. Speaker 1 (1:36) Barry, thanks. It's great to be here. Speaker 2 (1:37) It's great to have you. That was a mouthful to get out. I'm glad. That and $3 will get you on the subway. That's right. So before we delve into what you do at JPM, let's talk about your background because it's really very, very interesting. You earn a bachelor's in psychology at University of Pennsylvania, then a JD at Yale. I'm guessing the original Speaker 1 (1:59) plan wasn't wealth management. It was not. The original plan was practicing law because it was either that or being a doctor. One or the other. It was my mom's. Those my mom told me. Speaker 2 (2:10) And you didn't just practice law. You begin your career as a law clerk to Judge Jacob Mishler in the Eastern District of New York, a legendary court. And then you end up working with him for a year and a half, two years. Full clerkship. Tell Speaker 1 (2:27) us what that was like. It was very interesting because he was a senior judge at the time, so he got to generally choose his own cases. He wasn't really in the criminal wheel, so he mostly had civil cases. And it was fascinating to watch him from the bench or watch him on the bench objecting on behalf of parties because their lawyers weren't quick enough. Speaker 1 (2:53) And encountering him, thinking, watching him think through or talking with him and understanding his thought process of how he would get to a conclusion and then doing the research to back up that conclusion or sometimes tell him why I thought the conclusion was not right. But the biggest benefit of the fact that he was senior, he and his wife had a condo in a water hill in Florida. And so every year he got he would write to the. chief judge the chief justice of the supreme court who would appoint him to the southern district of florida in miami where he would sit for four months in each of his clerks there were two of us got to go down to miami on combat pay from the government so it was uh... it was a nice gig and that was a that was a very interesting court as well cuz he was in the criminal will there Speaker 2 (3:40) and and you know uh... i don't care how much you like or dislike florida there are worse things in the world than miami in Speaker 1 (3:48) In the winter. In the winter. And it was the winter of 1993, and there were seven or eight ice storms in New York. So my wife kept planning to come visit me in Florida, and she kept not being able to because the airports were closed and the weather was so bad. Felt a little bit guilty, but not that guilty. Not Speaker 2 (4:06) that Speaker 1 (4:06) guilty. No. Speaker 2 (4:07) So after you clerked, your first year at Sullivan and Cromwell, and then you were at Schulte, Roth, and Zabel, two highly regarded firms. You're focusing on high net worth clients and closely held businesses. Tell us a little bit about that practice. You can see how your progression is moving you towards wealth management. Speaker 1 (4:29) Well, it was interesting when I was in law school. My third year, I just took a trust in the states class because it fit into my schedule because I didn't want to have classes on Fridays. And the T &E course was Tuesday, Thursday. And it was fascinating because it's a casebook and it's stories that the judges have written about the litigants in front of them. And it was all of the families fighting over who mom loved best, using their money or their business or their restaurant as a proxy for that. And I just, it was... fascinating to me because it was a psychology major as an undergrad. I didn't want to go to grad school, which is why I ended up in law school. And I just thought it was a great intersection of law and property class, which I really enjoyed, and the psychology. And it was very human as opposed to a corporate practice or litigation practice, both of which are great if you're interested in them, but I wasn't in particular. So being at Sullivan, I did a bunch of work on estate litigation, actually. Speaker 2 (5:34) And Speaker 1 (5:34) it was the same thing. It was families fighting over who mom loved best. One of the people in the case that I worked on had found out about a year and a half before her mother died that she was adopted. Speaker 2 (5:50) Really? Speaker 1 (5:50) And so she and her son, the older woman's grandson, sort of moved in, took over. Bad behavior. They stole money. They did a lot of bad things. Which is terrible, and it was a terrible story. But as a third party, it was so interesting. And so, like, it's other people's problems, right? And that was, I enjoyed it. Hey, soap operas Speaker 2 (6:16) are popular for a Speaker 1 (6:17) reason, Speaker 2 (6:17) right? Speaker 1 (6:17) And so that was it. It was a big soap opera. And then I ended up finishing that litigation successfully. And then working, as you said, on wealthy families, inheritors of wealth. creators of wealth, business owners, people wanting to create a family compound or do whatever. And so it was a very varied practice. Sullivan called it the Estates and Personals Group because we did a lot of personal work. I sued a dry cleaner once because he ruined a couture dress by ironing out the pleats. Speaker 2 (6:54) So this is very rich veins for a lot of our later discussion. How do you get from Schulte Roth to Bear Stearns? If I read your bio correctly, you joined Bear in the legal and the states department, not as wealth management? Speaker 1 (7:12) So the team that I run now, the wealth planning team and the wealth management team that I ran at Bear, is the team of former – it's generally – So practicing trust estate and tax lawyers, CFP professionals, CPAs, and other designations of people who are enthusiastic about bigger picture planning, Speaker 5 (7:33) helping Speaker 1 (7:34) advisors work with their clients in the areas that advisors aren't necessarily great at talking about. So Bayer at the time, it was the late 90s, it was like 2000 when I started talking to them. Was still very much in the transaction mode it was they had stockbrokers calling clients to say got this great bond or we've got this great stock idea and What they wanted was people who could talk to wealthy people about something other than the next stock or bond idea their kids their plans their goals their estate documents their ownership structure right all of the ancillary things that are critically important to somebody, but you're not necessarily going to your financial advisor for that unless you know that they have it. So I was hired into Bayer to basically start that group up or help start that group up. And it grew significantly while we were at Bayer. So the... Speaker 1 (8:35) fee based revenue, which is how we measured the success. When I got to bear in 2001, early 01 was about 3 % of the net revenue of private client. And by the time 2006 ended, it was about 37%. That's a big move. It's a huge move. And we hired the right people, the right advisors, the right planners. But it was really changing the culture of how the advisors interacted with their clients, as well as bringing on managed platforms, which Bayer didn't really have when I joined. And then we hired a group of people from Oppenheimer when they got sold to Fonstock. Or when they got sold to CIBC, tried to sell them to Fonstock, and we brought a lot of them over. So it grew significantly. And then after 06 is when Bayer started. The beginning of 07 is when Bayer started having trouble. It's when the housing market first started to crack. And through the summer of 07, our stock price continued to fall. We'll talk more about Speaker 2 (9:31) that a little bit. I want to ask you about that transition. But I want to stay with lawyering for a bit. You're lawyering for years for very wealthy families. How does that tee you up to run a wealth management practice? And what does it teach you about what the industry just gets wrong about what wealthy people need? Speaker 1 (9:54) I don't know that it's what they get, what the industry gets wrong. It's even now there's a little bit of a blind spot. Speaker 1 (10:02) Because the focus of the wealth management industry broadly is investment product and investment success measured against, and part of this is regulatory and it's partly the... Speaker 1 (10:18) result of the kinds of oversight that we have at the governmental levels. But it's a focus on relative performance relative to an index, relative to a benchmark, relative to something to prove how good an investor you are. And at this point, I think people expect that their investments will perform in some way relative to the S &P. Everybody can see you, CNBC, Bloomberg, right? Everybody has all of the news at their fingertips and the democratization of information that came about with the internet and decimalization of pricing has caused a lot of people to become more knowledgeable generally. Speaker 1 (11:06) But the industry still attracts people who are really interested in investing and thinking about why am I going to buy this company versus that company or why am I going to buy this manager versus that manager, this fund versus that fund. And what I see, what I saw in the legal practice and moving over into wealth management is really people have a purpose for their money or people have an idea about what they want their money to be able to do for them. Speaker 1 (11:34) And if you can talk about what are your goals, like what's the intent of your money? What's this for, really? Why do you need to beat the S &P? Well, I want to make sure that I can retire well and maintain my three homes and make sure my kids go to the best schools and make sure my grandkids are taken care of. And if you can show them that they can do all of that and more, they can give charitably. They can... get a fourth home. They do whatever. It's very freeing for them to not have to focus on investment returns. But it's not the same skill set usually for somebody to be comfortable talking about the numbers, talking about Speaker 1 (12:23) the underlying fundamentals of a company or the alpha that this manager brings, right? And using Greek letters to people who are very smart, but they're not trained in finance is like you're talking Greek to them, right? Literally. And a lot of times people smile and nod because nobody wants you to think that they don't understand what you've told them. But at the same time, a lot of times they don't really. Speaker 1 (12:49) But if you take away all of that and say, what's the purpose of the money? And does it need to grow at this amount? Or if it doesn't, here's what happens. Like if your money never grows again, you can live your life as you have it today with inflation for the next hundred years and you'll be fine. And people, then you can see people like say, huh, I haven't thought about it that way. Nobody's told me, nobody's thought about it or given me that framework. Speaker 1 (13:20) let's talk about what I want to do, what I've thought about in the background but have not been able to. I didn't think I had the freedom to do that. Speaker 2 (13:29) I'm so glad you framed it this way. Let's both agree that the industry overemphasizes investing and are we beating the benchmark? Where are we? What do you think the industry, you mentioned a blind spot, but what is it? under-emphasize? Is it taxes? Is it estate planning? Or is it the whole family dynamics around succession planning and generational wealth transfer? Where should there be greater emphasis if there's too much emphasis on, hey, how'd my portfolio do this week? Speaker 1 (14:08) I'm in a unique position because I think JP Morgan is in many regards at the forefront of this. And we're not like the first mover, but we focus a lot and ask our advisors to focus on exactly those things, the estate planning, the succession planning, the family dynamics. We have a team dedicated to family engagement and governance. Thinking about the purposes of your wealth and how to make sure that your plan, your estate plan, your financial plan is successfully transitioned from generation one to generation two to generation three, because it's usually not a failure, usually isn't the result of bad documents or poor drafting or a bad investment plan. It's the people who aren't prepared or the people who aren't executing what you thought they would execute because they're not you and maybe you didn't train them enough. So I think generally the blind spot is more of an emphasis on purpose and intent and goals. The industry has moved from transactions to fees and managed money. And the conversation around managed money is generally what are your goals? What's the time period you need? What's your risk tolerance? The Speaker 2 (15:31) financial plan de-emphasizes this quarter, this year. Right. Speaker 1 (15:37) Which is good, and it's a step in the right direction. I still think that it could be taken further to say, here's the overall financial plan, but you've got some short-term needs, you've got medium-term needs, you've got longer-term needs. Let's think about this and whether it's a bucket framework or whatever you want to call it. And then particularly for... legacy, the legacy bucket, the succession bucket, whatever it is. Speaker 2 (16:03) Philanthropy, wealth transfer, down the whole list. Speaker 1 (16:06) How do you effect that? Because that's the stuff, the short-term spending, I want to put an addition on my garage, I want to get a third home, I need another car. That's spending money. You can plan for that, but that's what people are doing in their day-to-day lives. If you can help them, that's great. And if you could help get their cash, move your cash out of a savings account into... an investment account where you're getting an extra few percentage points. That's great, and that's very useful at the margins. Once you start talking to people about their kids, or nieces, nephews, their pets, their grandkids, then you're talking about the things that people really care about. And a lot of people think of their businesses as a child and really care about their business. You can talk about the business and how they can think about transitioning the business, whether the succession plan is giving it to one of their kids or more than one of their kids or selling it to a third party or employees. Speaker 1 (17:04) Once you start talking about those things, the conversation turns, and I think that's where you end up developing the much stronger relationship that doesn't rely, even if it's not quarter to quarter, it's year to year and still relative performance to something. Speaker 2 (17:19) So when did you realize that your psychology degree was going to be more valuable than the law degree? Speaker 1 (17:25) It was probably a couple years in once I realized what Speaker 2 (17:26) I was supposed to Speaker 1 (17:27) be Speaker 2 (17:27) doing. Really, really fascinating. Coming up, we continue our conversation with Adam Frank. head of wealth planning and advice at J.P. Morgan, talking about how J.P. Morgan Wealth Management grew from a small part of the firm to a substantial entity. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. Speaker 3 (17:49) The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. Speaker 6 (17:54) My fellow Americans, this is Liberation Day. Speaker 3 (17:58) Stories that move markets. Chair Speaker 5 (18:00) Powell Speaker 6 (18:00) opened the door to this Speaker 5 (18:02) first interest rate cut. Speaker 3 (18:03) Impact politics. Change businesses. This is a really stunning development for the AI world. And how you think about your bottom line. Listen to The Big Take from Bloomberg News every weekday afternoon. on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Speaker 2 (18:21) I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Adam Frank. He's head of wealth planning and advice at J.P. Morgan. His group runs about one point four trillion dollars in client assets. So I want to talk a bit about Bear, which led you to J.P.M. You ran a very similar wealth management group there.