The CPA Desk

A Thought Leader Production by PKFTexas

David Friedman Discusses Using Data to Target the Ultra-Affluent

Russ:  This is PKF Texas Entrepreneur’s Playbook.  I’m Russ Capper, this week’s guest host, coming to you from the Gulf Coast Regional Family Forum and my guest is David Friedman who’s known as the Founder of Wealth-X but we’re going to get in deeper with him now; David, welcome to the Playbook.

David:  Russ thanks for having me in Houston.

Russ:  You bet.  So I say Founder of Wealth-X but as I understand it now you’ve gone way beyond that, share with us what you’re doing these days.

David:  That’s right.  So Wealth-X was kind of a first chapter and was focused on data on the ultra-affluent.  My Co-founder and I probably 6 years ago we started the company.  He was at Forbes which is where he originally came from and the notion was there really was no database of the ultra-affluent – people whose net worth are 30 million and up – primarily because their wealth is privately held; so it’s hard to find them, hard to value that.  So we did that; we built that manually, grew it up over the last 6 years.

And fortunately he and I sold a majority stake of that to a private equity fund in New York and then he and I both actually left in September.  So if you say the first chapter was kind of around the data, the next chapter for me is a portfolio of things looking at how that data and new data in wealth is going to disrupt across multiple industries.  So one of them, a Co-founder of LifeChain – LifeChain is looking at building a blockchain enabled platform around data for family offices and analyzing it, understanding it, presenting it in a new way; redefining really how families relate to capital.

Russ:  And that kind of opens it up for it to be transparent essentially?

David:  Well that’s a good question actually.  I would say that it actually allows them and gives them greater control so when they want to be transparent – or need to be – they can.  I think one of the primary things we’re going to be doing that’s unique is a holistic view of their life balance sheet; so integrating their performance reporting around their assets with their philanthropic giving.  That’s what we’ve been talking about today at this conference with David Robinson for example, so what are the KPIs around that.

Another layer is so many of my former clients – private banks, luxury brands globally, Ivy League schools, etc. – they always said we love the data, can you help us figure out strategies around the data for engaging this audience.  So I have a Co-founder, we’ve launched a company called Wealth Quotient which is a sales training platform and a strategy consulting platform for helping companies, enterprises, private banks, multi-family offices figure out how to engage this audience and better do it best practices across industries; across luxury, across financial services.

And then the final key area that I think innovation is going to happen based on wealth data driving is in that ad technology world.  The reality is up until now if you were a luxury brand or private bank you were unable to target someone who is ultra-affluent online from a digital advertising technology standpoint.  The whole ecosystem is based on scale, not based on targeting.  So Prem-X is a company I’ve Co-founded where we’re going to take all I’ve learned on the data side and integrate it into the existing ecosystem around ad technology and allow people to be targeted; allow brands to be targeted to really engage high net worth and ultra-high net worth individuals. Again, the existing ecosystem with ad agencies and everything that’s been built is geared against that so we’re going to build a completely new ecosystem in technology infrastructure around that.

Russ:  So Wealth Quotient and Prem-X are really marketing platforms for the ultra-high net worth, right?

David:  In many ways the portfolio that I have kind of all integrates and we’ll see how it all forms together but they’re all complimentary, but that’s right.  A lot of our clients at Wealth Quotient say we’re really interested in targeting this group digitally, can you help us?  And I say sure, we have a partner over here.

Russ:  Real interesting.  So the ultra-high net worth – you’ve already said this means they have a value of over 30 million.

David:  30 million net worth and up, that’s how we define it at Wealth-X.

Russ:  Tell us more about them.

David:  So there’s the old saying in the family office business if you’d seen one family office, you’d seen one family office, right?  So the reality is there are some common characteristics and impulses and what not, but every person is unique because they built their wealth in a different way.  But the macro – and I always like to talk about the macro view – is there’s about 212,000 of them around the world.  If you put all of their wealth together it’s about 30 trillion and as you heard me talk about earlier the way to think about that is think about a Nascar stadium of people that has twice the GDP of the U.S.  They represent about 37% of all the assets that are managed in the world, I’d say about 1 in 5 dollars on luxury is made by them, excluding residential real estate, and then I think it’s about 18% of all philanthropic giving.  And as I said earlier today, it’s not the 1%, it’s not the 0.1%, it’s not the 0.01%, it’s the 0.004%.  You got it, you were listening!

Russ:  Absolutely I was.

David:  And that’s about 12% of all adult wealth in the world, so it’s a highly concentrated segment.

Russ:  So you use this term family office and it’s used a lot here at the forum and stuff, but I think a lot of people outside, maybe people in our audience, don’t know the definition of that.

David:  That’s a great question.  So it’s an amorphous concept but let me define it this way, when a family accumulates a significant amount of wealth they start to need infrastructure to deal with different parts of the family; things become more complex, they have more assets.  How they address those challenges represents different strategies.  Some people actually create their own single family office of people that they hire and investments and whatnot to focus just on their family.  Other people go and use what’s called a multi-family office platform; here in Houston you’ve got a Kanaly Trust for example.

So these are families that have joined together now sharing infrastructure, so it really just means infrastructure.  And what we call virtual family office is when you’ve got a company in San Antonio that’s doing something – whatever it is, outsource, human resource or whatever it is – and all of a sudden you see that company growing but the CFO or the Controller of the company all of a sudden becomes the person helping them with their personal finances or looking at deals the family is looking at.  So you’ve got this virtual family office before they’ve created an institutionalized real one.

Russ:  Okay, so ultra-affluent family investing it’s not without risk either and we live in fairly turbulent times these days, both geopolitically and in the technology space, there’s lots of talk about the disruptive technologies that are going to really have an impact on the economy.  Are these people immune to these issues?

David:  Well they’re never immune to them but I would say one of the things we saw over the last I’d say 5 years is a re-trenchment by luxury brands towards the ultra-affluent; they’ve come back around.  So if you look at Tiffany for example in particular, they are really coming back to trying to share the narrative of their brand with the ultra-affluent who many people just view them as silver and blue box.

Russ:  Right.

David:  But the reality is you can go to the mezzanine floor in the 5th Avenue store and you go in the back, they do a thing, a secret door opens, there’s a butler there and you can try on $20 million diamonds, or they sell the most Patek Philippe watches in the U.S.  So they’re uncovering that narrative again for the ultra-affluent who may not know that they’re out there.  But why are they retrenching?  They’re retrenching because these people are less prone to be affected by the gyrations in the equity markets.  It still impacts them psychologically but they have the money to spend so it’s tapping into that, and they will always spend.

Now they may be more concerned now than ever with optics about spending so during the 2008 – 2009 crisis if you owned a small factory and you were ultra-affluent and you let 20% of your workforce go you’re not going to drive up with a new Ferrari or a Lamborghini, but you may come up maybe in a Mazerati or maybe the AMG Mercedes, just very concerned with the optics at that point.  I’d say the leading indicator of luxury is yachts because yachts have no business – a jet you can kind of say is for business – so yacht growth has kind of ticked up over the last year which means as a leading indicator the optics shackle has kind of been thrown off a little bit more.  There’s now always going to be this sensitivity, especially as you saw the chairman talking about robots in place of middle class.  So that plays into this whole haves/have-nots inequality debate that’s happening.

Russ:  Okay, so just this whole thing about Wealth Quotient, do you develop a big database that kind of is representative of how many of them buy yachts, how many of them have airplanes, how many of them have Mazeratis?

Dave:  So Wealth Quotient is not a data company in any shape or fashion.  It’s purely focused on best practices and sales training for how to engage these individuals.  We’re agnostic; I think Wealth-X data is the best obviously, but there are other data sources out there that people use.  So whatever data you have we want to work with you on that.  But the reality is Wealth Quotient is based on a really interesting fact that at the core human nature there are fundamental principles if you will, there are natural laws of engaging this audience and they’re not rocket science.

But for example, referrals are the number one way you can reach this target; it is a core principle.  People will recognize it when you talk to them but they spend a lot of money on doing direct mail or doing other things where they think they’re going to engage that audience but when we sit down and you really push and you say where did you get your biggest clients, where is your biggest growth, they’re from referrals.  They do it reactively; they do a golf game, a beer and they say hey, you know anybody that’s looking, had a liquidity event and is looking for versus being proactive and strategic about if you know that’s where your client’s going coming from then find out data about that pool of people connected to your top client.  So it’s helping people do that.  They know it intuitively but they don’t have processes, methodologies or tools.

Russ:  Well David I really appreciate you sharing your perspective with us today.

David:  My pleasure Russ.

Russ:  You bet.  And that wraps up my discussion with David Friedman, the Co-founder of Wealth Quotient and Founder of LifeChain.  This has been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook.