And welcome everyone, to another Smart Money Circle episode. I'm Adam Sarhan. With me today is Chad Maggard, who's a managing director at Johnson Investment Council with approximately 20 billion in assets under management. Chad, thank you so much for taking the time and welcome to the Smart Money Circle. Thank you, Adam. Happy to be here. So, Chad, I always like to begin. Can you please tell us your story and how you got to where you are today?
Yeah, happy to. I'll, I'll go all the way back to age 10, which is when my dad started taking me with him to meetings with his financial advisor. Grew up in a small town and we had probably 2 small investment shops in our, in our little town at that point. And he thought it was important to begin instilling financial planning expertise or, or education rather from an early age. And I just kind of clung to it
from that first meeting. I liked looking at the colorful charts and I was always kind of into numbers and just slowly overtime gained more and more education around financial planning and investment topics and knew at a pretty early age that I wanted to get into the financial advisory or investment business. So out of high school went to Miami of Ohio for my undergrad. Majored in finance and
accounting. Had a business owner neighbor that had recommended that I add accounting to my finance degree just because of all the foundational important business
principles associated with that. So is that when I got out of Miami, I worked at an insurance company for a couple of years thinking it was more focused on financial planning and investments than it was, but knew pretty quickly that the depth of financial planning and investment advice wasn't exactly where I wanted it to be. So in October of 2009 on the back of the financial crisis was fortunate enough to have an opportunity to join Johnson Investment Council in our date
and location and that was an entry level role within our private client group. And since that time went through the charter financial analysts program.
So essentially a somewhat of a master's degree equivalent that's laser focused on investment management got promoted into an advisor role where I started to build my own book of clients that started around 20/13/2014 and then in 2016 was invited to join our family office group in our main location in Cincinnati. So shifted my book of clients or were the newer clients I was taking to be more in that at the time 10 million plus and assets under management was where we
define family office services that since has evolved to be more of a $20 million threshold. Just as wealth has grown, markets have grown, estate exemptions have grown over time and then was was asked to join our leadership team a few years back. So help oversee the strategic planning and management within our private client group. Wow, I love that. What a remarkable story. So a few questions here. What was what was your father's
profession? Yeah. So from a service standpoint and and and relationship standpoint, I was fortunate to have both of my parents kind of geared toward that in their careers. My mom worked in customer service and my dad was in sales for the majority of his career. And then for a manufacturing company.
Yeah, for manufacturing company based in the town where I grew up. And then the last, I would say 4-5 years of his career actually became president of that company, I believe it was in January of 2020. So you can imagine the challenges right away that he went through. So it's been invaluable both from a relationship standpoint to have their influence and also to be able to talk through things with my dad given his leadership experience. Wow, that is absolutely
remarkable. What a great time to take over Action Company. Wow. All right. I mean, you must be very proud of him and he must be very proud of you. So Congrats on that that. Is that 1? Yeah. So let's talk about the business. It's a perfect Segway. So I like the ultra high net worth focus and the family office and all that. Please let us know what your business is, what you do, and your investment strategy. Sure. So we are an independent RIA.
We were started in 1965. Our founder Tim Johnson says he can started the business accidentally or was a chicken entrepreneur because he was a finance professor, ended up at the University of Cincinnati and people whether were faculty or former students or folks in the community that he got to know, asked him to start managing their finances or help their finances on the side in addition to his teaching role.
So I would say it was really a visionary because from day one in 1965, we we were a fee only firm. So back then I think most of financial advice was more transactional in nature, Commission based, but he was charging fees based on assets under management from day one that grew overtime slowly, finally got kicked out of his kitchen by his wife who said you need to move into an office. And he hired his first portfolio manager to help take on additional clients in the early 80s.
And since then we've just slowly grown and innovative. We started our own Trust Company in the late 90s. We have our own charitable gift fund or donor advised fund. We've we've got our own asset management group, which is is somewhat unique. And just to give you a sense, when I started in 2009, we had just under 4 billion in assets
under management. And as I mentioned earlier, we've recently across the 20 billion threshold that has been mostly organic growth from client referrals and referrals from professionals and the community accountants, attorneys that we've gotten to know over time. We've done a a handful of small acquisitions, but it really has been mostly organic growth. Wow, congratulations. That's fantastic. So for the audience that that don't know what, please let us know what you said.
Family office services, what does that mean? And then the trust services, what does that mean? Yeah, Yeah. So I think it'd be helpful to break down kind of the divisions of our of our firm. So the asset management group, which is where our research staff is focused, we're managing funds for endowments, universities, foundations, pension plans. That group also is is made of about made-up of about 30
people. That group also provides a lot of research and investment resources for our private client group. So if one of round numbers, a third of our assets are in our institutional group, the remaining 2/3 are in are overarching private client group, which is traditional wealth management and family office services. And I would divide that essentially into 7 billion in assets in that wealth advisory group and 7 billion in family office services.
When you think about defining family office and how is that different than traditional wealth management, I would say it's, it encompasses all of the, the traditional wealth management services that you think of. So investment management looking at income tax planning, estate planning, gift planning, looking at clients insurance budgeting, cash flow needs. But as wealth increases, complexity increases and I would say from a family office standpoint, what are those enhanced services?
1 is a higher usage of alternative and private investments just given higher net worth for or liquid asset requirements and the ability for clients to build out or us to build out those portfolios on clients behalf. As part of the the overall mix integration with our Trust Company, we've got several attorneys on staff that provide counsel in in concert with clients, attorneys that they've worked with for years, but providing advice and counsel.
They are also the ability to act as corporate trustee or agent for trustee for estate planning that clients pursue an additional service would be more advanced charitable planning because we've got our own gift fund, we have the ability to customize plans for clients. So setting up endowments for helping administer foundations so that wealth that's earmarked for charity can, can continue for generations and incorporate in a board of trustees for foundation or family members or
a combination of the two. And helping administer those types of things with, with having your own gift fund. The other benefit is we have the ability to proactively plan with clients who have illiquid assets, maybe with large embedded capital gains where we can actually receive those unique or or illiquid assets as charitable donations, which really provides a lot of flexibility and planning that you might not find elsewhere. If you if we didn't have our own
gift fund. Additional service, additional service lines within the family office group is more day-to-day management of cash flow needs. So whether that's paying bills for clients, managing capital calls, helping with lending, all things that, that and reporting on those things are all, all part of what we do for clients on a on a regular basis. And then they're every day is unique with the complexity that comes with ultra high net worth clients.
So having the ability, if we don't have the answer in house, having a trusted partner where we can solve problems for clients and be that, you know, single point of contact to help coordinate things. So if a client's exploring whether or not to do private air travel and how best to do that based on their situation, having a trusted partner, if they need really high end in home care for a family member that's having a health issue, having a trusted partner there.
And the list goes on and on in terms of things that we run into on a regular basis that are that are unique where we where we need to find those trusted partnerships. Got it. No, makes perfect sense.
Thank you for clarifying. So let's talk about before I ask you about risk, when I ask you about difference between ultra high net worth families and everyday investors, what are some mistakes that investors make everyday investors that you've learned that ultra high net worth investors don't make or what's? How can we learn some lessons?
How about that? Let's do some timeless lessons from ultra high net worth, the planning, the asset management, the foundations, all of the holistic view that everyday investors can learn from. Yeah. I think looking at things holistically, which is an overused term and wealth management, but really either themselves or having an advisor that looks at the whole picture.
We've found within the last couple of years, clients are looking for clarity and a lot of cases and it's hard when you're doing planning if you don't have actual modeling and and the ability to run through deep scenario analysis with clients. So having an advisor that is good at coordination and looks at the whole picture is really important.
I'll give you an example. We've had several instances the last 6 to 12 months where clients in the high, ultra high net worth space have had some type of liquidity event, whether that's an inheritance or selling a business. And they've gone from essentially zero to 100 miles an hour. And it's, it's a very murky picture for them. They know they want to do some planning, but they don't know how much in the way of assets they need to retain for their lifetime.
They don't need to. They don't know what they want to want to contribute to charity. They don't fully understand their tax picture. They don't fully understand what it means to earmark some of the funds with within their estate plan to take advantage of
current estate tax laws. So the ability to coordinate all that information and then model out different scenarios is really, really key and go deep in planning, understand income tax implications, understand, OK, 50 years from now, what are the impacts of the planning I'm looking at today? And providing that clarity helps them with taking action.
So I think that's, that's 1/2. I I think there's more of a focus on long term planning and not getting focused on the day-to-day movement in the market, the OR shorter term movements in the market. Now part of that is the fact that maybe there's the ultra high net worth of spending needs that are very small percentage of the overall assets. So their appetite for risk is a little higher.
And in most cases our family office clients, there's the, the root of the wealth has been from some type of business or running a business or owning a, a, a private business that's been within the family. So they understand risk and single asset risk in a lot of cases. So tend to take a little longer term approach. That's been my, that's been my experience.
They're also, they're also very, I would say skeptical around private investments, one, because they, like I said, in a lot of cases have a single private investment that is generating the wealth or maybe a handful of companies that they own. I think the the private investment or alternatives landscape has has branched out into that sub 10 million or sub 5 million asset threshold.
So being really critical over what those opportunities look like, they promise higher returns and diversification. But in a lot of cases you're you're trading a lot of illiquidity for that and you may not even get that enhanced return, especially as alternative investments have have gotten more more popular among the masses. Got it. No, that makes perfect sense. Thank you for for sharing. Next question, let's talk about
risk management. How do you handle risk and what are some mistakes you see people make with respect to risk management? So our our overarching philosophy with and Johnson and with our asset management group is focusing on quality, which relates to quality investments, which relates to risk management. So when we say quality, that would apply to our stock selection and we also manage bond portfolios as well investment grade bond portfolios.
So ensuring that the companies we invest in meet the quality profile that that we require. So making sure that companies, whether it's stocks or bonds have healthy balance sheets. Management team has a good track record of returning value to shareholders through dividend growth, stock repurchases, debt reduction. They've have a proven ability to manage through recessions. We always look at valuation as well to make sure that's reasonable.
It's not the only factor. We also look at earnings volatility and what that track record has been over time. So focusing on that quality metric is, is really important to us and tends to help mitigate risk on the downside during turbulent markets, which our clients appreciate. From a from a risk standpoint, mistakes I've seen it's it's chasing returns and not sticking to a strategy that you lay out
upfront. I mean that over and over again has been has been the mistake I see people make clients make, not necessarily clients. We have the the good fortune of being able to you know, counsel them through periods where they're where they're concerned about risk and trying to get that right up front. But inevitably there are choppy periods where there's uncertainty. And we have to provide that counsel and remind folks that
this is a long term plan. We've built the portfolio with this in mind that we will experience turbulence and markets and a lot of times clients just need that reminder and reassurance. Wait, you mean it's not a good idea to chase the next shiny object that shows up and Ding Ding Ding Ding Ding Ding Yeah. Yeah, we, we have to remind people of that sometimes. Yeah, I love that. OK. So you said quality metrics, earnings, you mentioned earnings.
Let's say here's a stock XYZ specifically, how do you determine or just to educate the audience, whether that's a quote UN quote quality or good company or bad company to invest in? What are you looking for? Is it evaluations, earnings growth, revenue growth, you know, other metrics?
Please expand. Sure. So the we're, we're certainly looking at the fundamentals and earnings revenue expectations, doing modeling to determine our own price targets or what we feel is a reasonable value for the stock, stress testing those assumptions and and making sure that we're paying a reasonable price that the stock is not
priced to perfection. So as an example, at the end of at the end of last year, a lot of the tech stocks that we're all familiar with as part of the Magnificent 7, we either didn't own those or didn't own those to the weight that they were in the S&P 500. So just looking at the implied growth rates that those valuations would require and the risk that a company like NVIDIA not meeting those earnings expectations could really present risks to the portfolio.
So looking at the fundamental picture, looking at those quality metrics, making sure that the business is positioned in a somewhat of a defensive posture if we do reach a a challenging market environment. So like I said, have reasonable levels of debt, a track record of managing through those tough situations historically and returning value to to shareholders through various in various ways.
In addition to the modeling piece, looking at valuation, it's it's what our analysts spend all day doing and we've got analysts that specialize in specific industries and sectors. So they know, they know their sectors and they know the companies inside those sectors inside and out. Makes sense. Perfect. Thank you for that. So next question. What are some timeless lessons you've learned along the way that you'd like to share with the audience?
Anywhere you want to go? Markets, relationships, health, longevity. The doors wide open. OK, from a thinking through the ultra high net worth piece, you know the right now we're in an environment where the tax law is uncertain, particularly from an estate planning standpoint.
The amount that an individual can pass to the next generation, either at death or as a lifetime gift is 13.99 million, almost 28 million for a couple that if nothing changes with the tax law, is going to be cut to 14,000,000 likely for a couple or 7,000,000 for an individual starting January 1 of 2026.
So the sooner that clients can start thinking about this planning, especially when there's an illiquid portfolio or private business interest, family business, the sooner that they can get ahead of that planning, the better.
And the more thoughtful the planning, the less rushed, the more they can think through the what we call internally, what we call the three questions, thinking through what do I need to retain and have access to asset wise to make me feel financially secure during my lifetime. Second question, what do I want to pass to family members, future generations and how do I want to do that? And 3rd, what do I want to do with the rest.
And those are very simple, high level questions, but they take a lot of conversation, a lot of analysis to help clients answer those questions. I would also say in tandem with that, the more clients can articulate, and we oftentimes ask them to do this in writing, articulate their values as it comes to the family's wealth, what their vision for that wealth is and how they feel or what they feel is a responsible
use of those funds. If they can articulate that and still that in their family members. And we, we help along the way as we're educating them and often times kind of slowly revealing the picture of the family's wealth in the next generations. We found that's a really helpful exercise. And the same thing goes for charitable planning, articulating what your values are from a charitable standpoint.
And we found that the that charitable piece is oftentimes a really good way for that next generation to be introduced to us, but also just start with it's kind of like practicing management of the wealth. So we put together a family committee that helps direct maybe annual grants that are coming from their donor advised funds so they can talk through what are their shared values, what are their individual values and interests as it relates to charities.
And it's, it's a good way to collaborate and start to get educated on the wealth. So that looking at that overall picture, asking those questions, starting to think through those questions and then finding ways to fold in fold in the family as part of that process is really important.
The other, the other thing I've come to realize, I mentioned that you know, we've had several instances where clients have had a sudden liquidity event where maybe they haven't had liquid assets up until this point and then all of a sudden $30 million of cash lands in their portfolio as a result of sale of a business. As an example, they've managed or run an individual company, which they don't view to be as risky as putting their money into the stock market where they
have no control. Even though it's a diversified portfolio of quality companies, they they feel that they don't have control over. It makes them very uncomfortable in a lot of cases. So spending the time to kind of start from Square 1 educating them on what to expect.
And a lot of clients have been more comfortable just kind of with slow walking the investment of that cash and maybe even starting off more conservatively than they otherwise could just based on what their cash flow needs are related to the overall asset pool. Because and I which I think is a a very reasonable approach because I think the worst thing that could happen is $30 million gets invested day one and we see a 20 or 30% market correction that can really be damaging
psychologically. And I think can interrupt the the long term plan or have that plan be less than optimal versus kind of slow walking it like I said. And taking a, a measured approach to how much risk we include in the portfolio at least at the outset. And then maybe we shift that to a little more aggressive posture overtime depending on the client's comfort level. Yeah, I love that. And then next question for you,
what about timeless mistakes? I'm assuming not doing what you just said, but any other timeless mistakes come to mind. I think it goes back to having having family get involved in a
really thoughtful way. I would say some of the, the, the mistakes that stand out are where that wealth wasn't transferred in a measured way There, there wasn't a lot of education involved maybe prior to parents passing away and and they're being, you know, a $20 million portfolio for the benefit of their child or children.
I think some of the which which in my experience has led to to clients who maybe have never had to work or just don't have a healthy relationship with, with the money because they were never educated upfront on what it means, what the vision for the funds are over multiple generations.
So revealing that picture with a, with a basis of education just around your basics of financial planning alongside that, you know, family wealth and a legacy plan, as we call it. So there's, there's more context around how it was generated, how much risk was taken to generate it and what the vision is for, for that wealth overtime versus, you know, kind of going in blind.
That's, that's been a pretty unhealthy approach that is going to lead to some, you know, I would say adverse outcomes as a result. OK. Thank you for that. OK, final question for you today, Chad. What is the best piece of advice you'd like to give the audience or your 30 year old self? That's a good question, Adam. I would just emphasize the importance of relationships. I mean, my, my dad from from when I was a kid, I mean, it was a it was kind of a joke.
He would always say, you know, people are just people and you know, I've I've come to learn that more and more and just really the relationships, whether it's with my clients, my family, my colleagues, just as the most important thing in life and is really, really enriched my life. And, you know, we deal with a lot of wealthy, very wealthy
people. And my 30 year old self, which is right around the time that I joined our family office group or or younger, I would emphasize that that is so true. And they have, you know, regardless of how much money you have, the, the wants and desires and concerns are all the same. They just come in, you know, slightly different flavors. So approach it with confidence and and appreciate the relationships you have that. Is really powerful.
Well, thank you so much Chad for coming on the show and hopefully we'll have you on again soon. Congrats all. This all right. Thanks a lot, Adam. I appreciate it.