We talk to a third-gen. family member of a Zurich and Tel Aviv wealth manager and author about the approach he favors for risk and wealth protection.

Family office consultant and regular contributor Joe Reilly speaks about risk-taking family offices and how to think about long-term wealth with Philippe J Weil, third generation family member, Zurich and Tel Aviv family wealth manager and author of Woes of the Rich, Seeing Beyond the Money.

The recent controversy about New York-based Archegos, which was structured as a family office and imploded after wrong-way bets in the equity market, raised alarms among some regulators, and prompted pushback from the family offices industry. More broadly, the saga puts a light on the extent of risk-taking that family offices ought to be involved in. (A few hedge fund tycoons, such as George Soros and Steve Cohen, have morphed their firms into family offices over the past decade, albeit for different reasons. (See here for a roundup.)

Joe Reilly: As we are doing this interview, a so-called family office is in the headlines after blowing up. Do you consider something like Archegos a family office?
PJW: The job of the family office is to look after the wealth of the family, not only after the assets. I am a steward of wealth rather than a wealth manager, and as Jay Hughes would say, I am looking after the intellectual, spiritual, social and human capital as well as the financial capital. As for the financial capital, our families have a different time horizon than a professional investment manager. We plan 50 to 100 years ahead, so to speak. So if I plan for 100 years ahead, I don't need to have leverage up to the roof, and I don't need to have financial engineering like hedge funds do, because I don't need the risk. I can strive to beat inflation and everything that I make above that is already a nice thing to happen. Once the family is wealthy, one must switch the strategy from “getting rich” to “staying rich”. Preservation is more important than making an extra buck.

What would you tell a client from the financial world who wants to be very aggressive?  
If he would come to me, I would give him a gentle warning and say, listen, it is very nice that you invest in high risk, and you should continue to invest because that's what you know how to do best. But maybe put some money aside, invest in a long-term investment. And by the way, have you spoken to your children about the money?  You sold your company for X million dollars, and people talk. So you had better prepare yourself for the talk about money with your family. I would address the other issues: the impact of sudden money, the four capitals, the meaning of wealth and philanthropy as well.

There have been tremendous fortunes made in Israel in the technology industry. Do you think they have a different attitude about wealth?
There is a great deal of sudden money in hi-tech industry indeed. A company is started and within two or three years they exit, and the founders find themselves with tens of millions personally. That never happened in the past.  

We used to think that making money has to do with lots of sweating and working hard and long. Nowadays, that's not true. Of course, if you create a hi-tech company, you most probably had some very hard days, but you're sitting in front of a computer writing code for a few years and developing new ideas. Then you sell the company for millions of dollars.  

Interestingly enough, these Millennials are not interested in money. They all start at the same  university or the same army unit in Israel, like the famous cyber or intelligence units, and they all start a startup either together or at about the same time. They compete to be the first to exit and not how much money they make - it is about who is the first to sell the startup to Yahoo! or Google, or Facebook or to do an IPO. That's their challenge. They don't necessarily change their lifestyle. At some point they will have to start managing their own money. In ten years they will ask how to write a last will, and how to prepare the next generation for the money. But it's only starting now. Just last week I had a conversation with a woman, a partner in a company that was bought by a SPAC for a lot of money. She told me that my book helped her understand the complexity beyond the money and the financial capital. She understood that she has to prepare herself and the family for this sudden blessing. As for the wealth creators of this generation, money doesn't really impress them unless, of course, they start losing it.

Lately impact investing is also a hot topic with the rising generation of wealth owners – all along the spectrum, it does not matter if it is inherited wealth or new money!

Are they different as clients?
Well, the banks come here, and they bring this sharp chief investment officer who gives a beautiful seminar at the best five-star hotel in town, and he comes with his tie and jacket. The hi-tech guy comes in his flip flops and a T-shirt and says, you know, give me the speech and I’ll go, thank you, I don't need the wine and dine and deep carpet treatment. These fancy mahogany offices with plush carpets and wood paneled lunchrooms just make them lose interest in ten minutes. They are looking for different investment opportunities. Venture capital, club deals, ESG and impact investing are the themes they are interested in.

They don't seem to aspire to joining whatever we used to call an upper class.  Do you think they will have a different conception of class going forward?
Of course. First of all, class, what is class? WASP’s? What is class - having a summer house upstate? They're not having mansions or their own golf course, that's over. No Florida, Cape Cod and the like. They have toys or trophy investments, of course, but mega-yachts or planes are an exception.  

Well, then what do you think about the privileges of the the newly wealthy? In your book you mentioned the fact that the wealthy have some responsibility toward society.    
Yes. You know, if we would give away all our money to the poor and the needy then we would have helped a thousand for a day, and then a day later we would have them poor and needy again, and we would join them as well. If it seems that the hi-tech crowd have a skill set to make money, then let them use that skill to be disruptive in the social sphere as well. They can continue to do what they know best and use their money to help and invest in social change and in things which create jobs and survival to the needy. A lot of people are depending on these businesses.

There was this one article about the owners of BMW, the Quandts. Stefan Quandt said people think that I'm sitting on a yacht and enjoying my billions, but I have 45,000 people working in our businesses. This is 45,000 families who are depending on the decisions I make. I have responsibilities to the larger society. 

There are many rich people who do a lot of good things and they are good wealthy people. And then there are the ones who are only taking and taking and taking and not giving back. It's the person you have to look at. A good person is a good person, whether poor or rich. 

My in-laws were never rich. My father-in-law was a carpenter and a bus driver and my mother-in-law was a worker in a factory.  Not a week goes by, that she doesn't give. She goes to her needy neighbors to cook for them, or she brings a half a chicken to another cousin who is sick. She's always giving because she's a giving person. She sees her glass half full. She sees people who have less than her, so she wants to help. And I think that's the thing, that is the philosophy of life.

You feel it is a strong sense of community?
One of the issues of the wealthy certainly seems to be this urge to isolate yourself. But this is new. In the past, business owners were more connected to society and played important roles.

If you go into Zurich, in the old industrial area, there was this famous factory called Escher-Wyss; they produce these massive turbines. There were these huge factories and at the corner of that plot there's a little villa. That was the owner’s house, he lived on the grounds of the factory. He didn't live in the fancy gated neighborhood.  He saw when the workers were coming in the morning, and when they clocked out in the evening. He knew everyone's name. He went to birthdays and he congratulated them. He most probably paid very badly, and they had to work 12 hours, seven days a week because that’s how it was 200 years ago. But he lived on the grounds, not in a castle.

The workers were very poor people. But the industrialist recognized the factory workers and rewarded them with his loyalty and he tried to integrate them into a better society and to leverage them up and to help them to become somewhat economically more stable, versus their previous generation. He took responsibility for his workers and their well-being. 

So we shouldn't lose that sort of belonging to society, of being an essential part of it, and our children need to know that. How does Churchill say: “We make a living by what we get, but we make a life by what we give.”