Wealth Actually

Private Placement Life Insurance (PPLI) is a life insurance policy used as a tax-efficient wrapper for long-term investments. It works best for families who have money they will never spend, who can commit about $10 million in premium, who hold the policy in an irrevocable trust, and who are willing to give up control of investment decisions. In this episode of Wealth Actually, JAY JUDAS, CEO of Life Insurance Strategies Group, explains how PPLI works, who it fits, where it gets missold, and how compounding inside a properly built policy can reach the third, fourth, and fifth generations. https://youtu.be/fIknhINvP5I https://open.spotify.com/episode/2RuIoiYqZw16xzGXNbY8nT?si=f6G_LpwHR9WiVbWCZbWsmA Episode Overview PPLI has moved from a niche product to one of the most discussed tools in ultra-high-net-worth planning. It now shows up in my own practice and in many conversations with trust and estate lawyers. I asked Jay Judas to help sort out the opportunities from the risks. Jay runs a fee-based consultancy that does not sell insurance. Well over 60% of his firm’s work now involves PPLI. Yet he says more than half of the people who come to him believing they need PPLI should be in something else, or in nothing at all. Our discussion covers why tax-inefficient alternatives such as private credit fit inside the policy, why the policy belongs in an irrevocable trust, and Jay’s “magic has a price” rule of thumb for minimum premium. We compare insurance-dedicated funds (IDFs) with separately managed accounts (SMAs), walk through the investor control and diversification rules, and look at why the “tax-free loans” pitch misses the point. We close with a case study: $50 million, three policies, and a 40-year runway. Key Takeaways PPLI is not for everybody. More than half of the prospects Jay’s firm evaluates are better served by another solution. Use money you will never touch. Jay says the right question is not what percentage of a portfolio to commit. It is which dollars are already set aside for children and grandchildren. Magic has a price. Jay’s practical minimum is about $10 million of premium, paid in as quickly as possible. Some low-cost carriers can make $5 million work. Tax-inefficient assets benefit most. Private credit, private equity, real estate, litigation finance, life settlements, and infrastructure can face combined tax rates above 50% for New York and California residents. Own the policy in an irrevocable trust. A policy held personally pulls the death benefit into the insured’s taxable estate. IDFs and SMAs offer two routes. An IDF is an insurance-only version of a fund and usually covers a single strategy. An SMA lets a manager, often the family’s existing RIA, run a discretionary mandate under a broad investment policy statement. Investor control is the real risk. You can choose an IDF or set broad goals with an SMA manager. You cannot direct trades, pick specific deals, or arrange a plan before the policy is issued. Emails can be subpoenaed. Diversification is policed for you. Under Section 817(h), one investment cannot exceed 55% of the account, two cannot exceed 70%, three cannot exceed 80%, and four cannot exceed 90%. Carriers hire fund administrators to monitor compliance. Policy loans are a weak selling point. In PPLI, the manager must sell assets to fund a loan, which can disrupt compounding and run into lockups. In 23 years, Jay has seen no more than 10 policies tapped for a distribution. Trustees and trust protectors need periodic reviews. Jay’s firm found one 30-year-old policy whose fees were double current market levels and got them reduced. Check who is selling. Most PPLI is now issued by established carriers and requires securities-licensed professionals. Be cautious of unlicensed producers who push offshore carriers. The prize is G3 to G5. In Jay’s illustration, $50 million compounding at 9% inside a policy reaches about $1.6 billion over 40 years. The same money in a taxable California account, after federal estate tax, reaches about $159 million. Chapters 00:00 Introduction and disclaimer 00:45 Why PPLI dominates UHNW planning conversations 01:26 Life Insurance Strategies Group and why most PPLI inquiries are not a fit 02:32 Asset location: tax-inefficient alternatives and the life insurance chassis 04:45 Why the policy belongs in an irrevocable trust 05:23 The ideal client and the “magic has a price” minimum 07:07 How much to commit: money you will never touch 08:06 Retail life insurance versus PPLI 10:28 Insurance-dedicated funds (IDFs) versus separately managed accounts (SMAs) 12:02 Why RIAs are embracing the SMA route 12:52 Investor control: what you can and cannot do 14:42 Diversification rules under Section 817(h) 16:17 Single assets, Webber v. Commissioner, and prearranged plans 17:53 It takes a village: the parties and their fees 19:31 The liquidity myth and the problem with policy loans 21:37 The trustee’s role and reviewing older policies 23:34 Borrowing from the policy and the last-bucket principle 26:23 Questions to ask before you buy 27:44 Case study: planning for G3, G4, and G5 30:10 Where to find Jay Judas Notable Quotes “More than half of the people who come to us thinking they should be in PPLI, it’s not appropriate for them.” (Jay Judas) “The price of PPLI magic, to make it work, is in my opinion a minimum commitment of $10 million, paid as quickly as you can into the policy.” (Jay Judas) “Pick the fund, but not what that fund is doing.” (Jay Judas) “In my 23 years of being involved in PPLI, I’ve seen no more than 10 policies ever touched for a distribution.” (Jay Judas) “The real attraction of PPLI is that I can now plan for G3, G4, and G5.” (Jay Judas) About the Guest Jay C. Judas is CEO of Life Insurance Strategies Group (LISG), a Boston-based independent life insurance advisory firm that does not sell products. LISG advises individuals, families, advisors, and carriers on private placement life insurance, advanced estate planning, executive benefits, and cross-border planning. Jay is a former senior executive with Old Mutual, where he served as Senior Vice President and Chief Distribution Officer of Global High-Net-Worth Distribution. He also held senior roles with Sun Life Financial, Crown Global Insurance Company, and BF&M Insurance Group (Philadelphia Estate Planning Council). He co-authors the annual U.S. PPLI Market Report with Lion Street. Jay holds a JD from Rutgers University School of Law, an M.Sc. in Leadership from Northeastern University, and a BA from the University of Northern Iowa. Resources Mentioned Life Insurance Strategies Group U.S. PPLI Market Report (Lion Street and LISG) Jay Judas on LinkedIn Diversification requirements, Treas. Reg. § 1.817-5 (Cornell LII) Rev. Rul. 2003-91, IRS guidance on investor control (IRS) Frequently Asked Questions What is private placement life insurance (PPLI)? PPLI is a variable life insurance policy offered privately to accredited investors and qualified purchasers. The premium is invested through insurance-dedicated funds or a separately managed account. Investment growth inside the policy is not currently taxed, and the death benefit generally passes income-tax-free, provided the policy meets the tax definition of life insurance and the owner does not control the investments. How much money do you need for PPLI? Jay Judas recommends a minimum commitment of about $10 million in premium, paid in as quickly as possible. At that level, carrier, manager, and broker fees are small enough to avoid a meaningful drag. Some lower-cost carriers can make about $5 million work. Who is PPLI a good fit for? PPLI fits families who hold long-term, tax-inefficient investments and have wealth they will not spend during their lifetimes. The best candidates plan to pass that money to children and grandchildren through an irrevocable trust. Jay estimates that more than half of the people who explore PPLI are better served by something else. What is the difference between an IDF and an SMA in PPLI? An insurance-dedicated fund (IDF) is an insurance-only version of a fund, usually a single strategy such as private credit. A separately managed account (SMA) is a discretionary mandate run by an investment manager, often the family’s existing RIA, under a broad investment policy statement. Both must comply with investor control and diversification rules. What is the investor control doctrine? The investor control doctrine holds that if the policyholder controls the investments inside the policy, the IRS can treat the policyholder as the owner and tax the investment income currently. Policyholders may choose among available funds or set broad goals. They may not direct specific trades, select specific deals, or set up a prearranged investment plan. What are the PPLI diversification rules? Under Section 817(h) and Treasury Regulation § 1.817-5, one investment cannot exceed 55% of the separate account’s value, two cannot exceed 70%, three cannot exceed 80%, and four cannot exceed 90%. In practice, this requires at least five investments. Carriers typically hire fund administrators to monitor compliance. Can you borrow from a PPLI policy? Yes, but it is rarely a good idea. In PPLI, the carrier does not advance cash. The investment manager must sell assets to fund a loan, which can interrupt compounding and run into lockups on private investments. Jay says he has seen no more than 10 policies tapped for distributions in 23 years. Why should a PPLI policy be held in an irrevocable trust? If the insured owns the policy personally, the death benefit is included in the insured’s taxable estate. An irrevocable trust, such as an ILIT, can keep the growing policy value and death benefit outside the estate for future generations. Who are the parties in a PPLI transaction? A typical transaction involves the insurance carrier, a securities-licensed insurance broker, the investment manager, a custodian, and often a fund administrator. Trustees, estate attorneys, and accountants also play a role. Each party charges fees, so the total cost should be negotiated and monitored. Editor’s Notes These notes add context to statements made during the recording. The transcript reflects what was said on air. Origins of investor control. The IRS first articulated the investor control doctrine in revenue rulings beginning in 1977. Rev. Rul. 2003-91 (IRS) provides a safe-harbor example. The Tax Court reaffirmed the doctrine in Webber v. Commissioner (2015) (Society of Actuaries, Taxing Times). The 2021 tax law change. Congress revised the Section 7702 interest-rate assumptions in the Consolidated Appropriations Act, 2021, which was enacted in late 2020 and applies to contracts issued on or after January 1, 2021 (American Academy of Actuaries). Illustrative figures. The $159 million and $1.6 billion figures are Jay’s illustration based on a 9% assumed return. They are not a projection or a guarantee. This content is for educational purposes only and is not investment, legal, or tax advice. Steven Zeiger on Life Insurance and Rule 187 in New York Andreas Steuermann on Life Insurance and ILITS Jennifer Zelvin on Trustee Challenges and ILITS Full Transcript [00:00] Announcer: Welcome back to the Wealth Actually podcast, the show that features experts, entrepreneurs, and commentators that will give you the right knowledge, planning, and guidance so you can preserve your assets and enjoy your wealth. Learn more and subscribe today at WealthActually.com. This podcast is for educational and entertainment purposes. It is neither investment, legal, nor tax advice and does not represent the opinions of the employers or the host or guests. [00:45] Frazer Rice: Welcome back. Private placement life insurance is one of the hottest topics in the ultra-high-net-worth set. Jay Judas, noted expert, is going to help us sort through the issues, the opportunities, and the risks. Welcome aboard, Jay. [00:55] Jay Judas: Frazer, thank you for having me. [00:58] Frazer Rice: It’s been a long time coming, because PPLI has really started to dominate not only the headlines but certainly my practice, practices around me, and a lot of what trust and estate lawyers are talking about. And it really is your practice in a nutshell. Maybe quickly talk a little bit about what you do day-job-wise and how you advise RIAs and clients and others about how to think about it. [01:26] Jay Judas: Sure, Frazer. Our company is Life Insurance Strategies Group. We’re a fee-based consultancy, so we don’t sell products. We’re not licensed to sell products. Generally, we’re hired by wealthy individuals and companies to evaluate whether they need a life insurance solution. If they do, we sit on their side of the ledger and run that transaction on their behalf. We help them vet brokers, we help supervise the selection of products, and we negotiate fees where we can. We sit in the background behind their attorney and their accountants and help with the structuring. So we’re very much an even playing field in terms of information. [02:04] Jay Judas: Now, because of PPLI’s increase in popularity, I was looking at our books the other day, and well over 60% of our business now is people getting into PPLI. And I will say that more than half of the people who come to us thinking they should be in PPLI, it’s not appropriate for them. They should be in something else or nothing at all. So I do want to level-set there: this is popular, but it’s not for everybody. [02:32] Frazer Rice: Let’s start at the beginning: private placement life insurance. Let’s talk a little bit about why it has become so interesting. There are features of life insurance that are interesting where we’ve gone beyond income replacement and funding estate taxes to an investment chassis, which is one of the reasons it’s interesting for folks. But then it stitches nicely with estate planning generally, and then asset location, as far as investing in alternatives that are not great to hold as an individual taxpayer, like a New Yorker holding private credit. That type of scenario. [03:08] Jay Judas: Obviously, there are a lot of attractive asset classes to invest in out there. A lot of them, though, are highly tax-inefficient. The private markets are great examples. Like you said, private credit, private equity, real estate, and then other things you might have an interest in, like litigation funds, life settlements, infrastructure, all of that. [03:34] Jay Judas: If you’re in New York or California, you might have an effective tax rate of around 53%, and a lot of those investments are taxed at ordinary rates. So it makes a lot of sense, if you’re able to, as you have the cash available, to make those investments under a life insurance chassis so that you recharacterize a taxable investment as life insurance. Now, I’ve just made that sound really easy, and you know it’s not. I know we’ll talk about it. There are ups and downs. There’s a lot of risk to it. But that’s the thinking here: 52.65% tax rates are really unattractive. But if I’m willing to hold on to these investments for a long period of time, usually for the rest of my life, and have my children and grandchildren benefit from that, then PPLI might be a solution. [04:20] Frazer Rice: It stitches nicely with estate planning and generation-skipping planning, where if the assets are allowed to grow in the life insurance component, and you put it into a structure like a life insurance trust, it allows that asset to grow tax-free and also outside of the estate. That’s one of the draws that I think a lot of our clients are seeing. [04:45] Jay Judas: No, absolutely. You wouldn’t buy a private placement life insurance policy and hold it individually. That’s because this is life insurance, and that means you need to meet the IRS’s definition of life insurance. So in the first five, six, seven, eight years, you have to hold a lot of life insurance coverage. And I think we all know that if you die personally holding a life insurance policy, that death benefit gets included in your estate calculation. So that just defeats the whole purpose. You definitely want to own a private placement life insurance policy in an irrevocable trust outside of your estate. [05:23] Frazer Rice: The way I think about the people this addresses, from a thumbnail approach, is to say the premium to make this work probably involves $5 million or so. Is that the kind of money that is in an absolutely-last-to-spend bucket, and can you also use your gift exemption to get it into that kind of outside-your-estate trust? Any other thoughts on that in terms of the ideal avatar? [05:58] Jay Judas: You stumbled on the two questions I always get. The first is: what’s the minimum I can do private placement life insurance with? The minimum amount of premium I can commit. And so I go back to the ABC series from about 15 years ago, the television series Once Upon a Time. They have the expression “magic has a price.” The price of PPLI magic, to make it work, is in my opinion a minimum commitment of $10 million, paid as quickly as you can into the policy. I’ll come back to why. [06:32] Jay Judas: There are brand-name carriers coming out with very low prices in this market, so $5 million may be magical also. But at $10 million, everybody involved in the transaction is likely going to be happy. The policyholder is likely going to see results that make them happy. And all of the counterparties that I know we’re going to talk about can charge a fee that doesn’t stick out and doesn’t cause a drag. So they’ll be happy. That’s what I say: $10 million is the magic, although there may still be magic at $5 million. [07:07] Jay Judas: The other question I get is: how much of my portfolio should I dedicate to PPLI? They’re looking for me to say 25% or 50%. And I’ll tell you what it is. Ninety-five percent of PPLI is really about identifying wealth in your portfolio, money that you are not going to touch again in your lifetime. It’s money you’ve already mentally set aside for your beneficiaries, for your kids or grandkids. Since you’re not going to touch that money again, it’s sort of like you’re paying tax on it anyway. But what if you went forward, as you had liquidity, and invested it under a life insurance structure? You’re not touching it again, so now it’s growing tax-free for the rest of your life, maybe 40 years, 30 years, 20 years, what have you, and it’s passing to your heirs in the trust. So it’s not a percentage of your portfolio. It’s really those funds you have identified that you’re not going to touch again in your lifetime. [08:06] Frazer Rice: One of the things I think is the major difference between regular life insurance and private placement life insurance is that, typically, the cash value, the asset value within the policy in traditional life insurance, is invested through the life insurance company and the options it has. One of the innovations of the private placement life insurance chassis is that those investments can take place in different asset classes, different vehicles, et cetera. Maybe talk a little bit about the different modes where that can happen, let’s call that the IDF versus SMA component, but also why that’s not a free lunch, and why there are technical aspects that don’t make it quite as easy as it sounds. [08:57] Jay Judas: Let me walk into that, because what you set up was important. You really differentiated between a retail policy and PPLI. And you’re right. In a retail policy, say you bought a Northwestern Mutual policy from somebody you went to college with. Who hasn’t done that? With that retail policy, you identified an amount of death benefit you needed, maybe to take care of your family when you died or to pay estate taxes. And the carrier, Northwestern Mutual, said, “Frazer, here’s the premium you have to pay for this amount of death benefit.” The carrier takes the premium and invests it. They choose the investments, and whatever return they get, they share some of that with your policy. They give it a crediting rate increase or a dividend. And they make all the decisions. [09:46] Jay Judas: In private placement life insurance, you’re not buying this for the death benefit. In fact, you’re buying the minimum amount of death benefit you’re required to have by law. With PPLI, you’re thinking, “I have $10 million to commit.” You give it to the carrier and tell the carrier, “Hey, I’m going to make a lot of the decisions here. I need you, carrier, to provide the risk so we can call this life insurance. But I’m going to tell you the manager to sign up with. The manager is going to make those investments and pick the custodians. We’re going to make a return, and we’ll share a little bit of that return with you as a fee. But otherwise, I, the policyholder, am taking all the risk here.” And obviously the policyholder is usually the trust. [10:28] Jay Judas: So what are we going into? When you tell the carrier, “I’m going to pick a manager,” that comes in one of two forms. It comes either as the insurance-dedicated fund that you mentioned, which is an insurance version of a popular, taxable available fund. I’ll give you an example: Golub has a popular private credit taxable investment, and they also have a Golub insurance private credit fund that’s only available for investment by PPLI policies or by life insurance companies investing for themselves. IDFs are usually single strategies. Like I just said, it’s Golub’s private credit or Neuberger Berman’s private credit or [unclear manager name]. So, and we’ll get into diversification and investor control, if you want to do more than one strategy in your policy, you need to buy more than one IDF. [11:24] Jay Judas: The other thing you can do under your policy is a separately managed account, just like you would in a taxable account. If you’re with Goldman Sachs or Morgan Stanley in your taxable account, you could have the insurance company sign up with that same manager, who can then make decisions about what to buy under your policy, subject to a very broad investment policy statement. I mean, it’s not like a wild, wild West of things you get to invest in. These are regulated structures. [12:02] Frazer Rice: And just for the audience, this SMA approach, at least in my experience, has really taken off in the last couple of years as more RIAs and investment advisors become more comfortable with it. As a way for RIAs to gather assets and perform an in-life-insurance function, I think it’s only going to increase, at least in the short to intermediate term. But to get back to the investor control and diversification requirements: this is not a free lunch where the client can run the show by proxy and move things around. There’s a regulatory environment that allows this life insurance characterization of these assets to actually happen. [12:52] Jay Judas: That’s right. Going back to 1940, I forget the name of the Securities Act. I think it’s a big one. They said you can’t have control over the investments in a variable insurance product. So this goes back almost 90 years now. Let me give you some examples. With an insurance-dedicated fund, the policyholder can pick the actual insurance-dedicated fund. They could pick the Golub private credit insurance-dedicated fund. What they [can’t] do is dictate to Golub what private credit deals to make or not make under that fund. I want to be clear there: pick the fund, but not what that fund is doing. [13:38] Jay Judas: In a managed account, you have even less control. You can meet with the manager quarterly and talk about your tolerance, your goals, things you broadly like. “I like private credit. I don’t like the gambling industry.” And they will make investments based on that kind of very broad investment policy statement. But you can’t call up your manager or email them and say, “Here we go, go buy Nvidia or SpaceX.” That’s investor control. So it really has to be a discretionary arrangement. If that’s not for you, this isn’t for you. If you violate investor control, you no longer get to call this life insurance. And I think, Frazer, if there’s so much of your net worth involved in the transaction, the IRS can look back six years, not just three, in assessing back taxes and penalties. [14:42] Jay Judas: So that’s investor control. The other rule is diversification, and this is less of a problem. This is in the code at 817(h), and what it means is you just can’t have one investment under a variable insurance product, including PPLI. When I started in this business, we’d say you just can’t invest in Coca-Cola. Today we say you just can’t invest in Nvidia. You have to have at least five different investments, and they have to stay within certain percentage thresholds. As an example, one investment can’t be worth more than 55% of the value of your PPLI, two can’t be more than 70%, and then it’s 80% and 90%. [15:25] Jay Judas: In an IDF, you can pick one fund, but that fund has to have more than five deals inside of it. What you’re going to find is that IDFs have maybe a hundred, maybe hundreds of deals in them. A private credit fund would probably have more than 100. In a regular managed account, your manager’s not in just five things. They’re probably in dozens of things. Insurance companies have all hired fund administration companies to monitor this, for a fee charged to the policy. So it’s not really something we’re worried about, because again, it’s being policed, and it’s a very rare occurrence. Investor control, though, is something we are worried about. [16:17] Frazer Rice: It’s come up before where people are interested in putting single assets, like companies or exotic assets, into the policy. When that’s come across my desk, I’ve looked askance at it as being pretty aggressive. What’s the difference between a fund and an investment like a specific business, or even a specific deal? How do you think about that? [16:41] Jay Judas: People look to the U.S. Tax Court decision in 2015, Webber v. Commissioner. It laid out three things to look for to determine an investor control violation, and it was really about who has the ability to control the decisions of an investment. If you’re investing in a company and I’m a board member of that company, or a shareholder with some influence, that’s an investor control violation. Also, having the ability to get cash out of an investment: if I dictate sending money from a fund, that’s investor control. [17:18] Jay Judas: But what people forget is that, going back to 1983, there was a private letter ruling that’s been very controlling. What it says is you can’t have a prearranged plan about what you’re going to go into. So if you’re telling your investment manager, “Hey, once we get in this policy,” and you think, “We don’t have the policy yet, so we’re not breaking any rules,” “you need to invest in A, B, C, and D,” that’s a prearranged plan. If you’re audited, all the Service has to do is subpoena your emails to check out all these conversations, and that’s it. That’s the ball game. [17:53] Frazer Rice: For a lot of people, the logic of this makes a ton of sense. If you’re locating private assets in a vehicle that is tax-advantaged, and you’re locating them out of the estate, that all works. Maybe take us through the different constituencies needed to make this structure work. I’m talking about the lawyers, the accountants, the trustees, the administrators that you talked about. I think where a lot of people trip up is that how they access this product dictates their experience. And then they’re surprised that so many people have to be around it in order for it to be executed correctly. [18:38] Jay Judas: Hillary Clinton would be surprised that we’re using her words to describe this, but it takes a village. First of all, let’s talk about the people involved in the fees around PPLI, setting aside your lawyer and accountant. You’ve got the insurance broker. You’ve got your investment manager, whom you’re probably going to have anyway, and the custodian costs that go with the investments. Again, those are probably things you’d have if you didn’t do PPLI. But then you have the carrier, which gets a fee, and you have to buy some insurance. These are all what I call the counterparties to your transaction. They’re low fees, but you need to make sure they stay low. That’s what our firm does: we handle those negotiations and get pretty good deals for our clients. But they can add up, so they always have to be monitored and watched. [19:31] Jay Judas: A lot of PPLI is sold the way they sell a retail variable product. They say, “Hey, if this product is a non-modified endowment, you can take tax-free loans from the policy. You can get up to 90% of the cash in the policy out tax-free, and as long as the policy is in force, there’s no tax.” Well, in a retail policy, when you want to take a distribution, you go online to the insurance company’s website and ask for a loan, and they advance the cash to you. They wire it to you that afternoon or the next day. [20:06] Jay Judas: Remember when I was talking about how PPLI differs from retail? The policyholder went to the insurance company and said, “Hey, slow your roll. We don’t need anything from you. We just need you to provide risk.” Well, if you come to them for a loan, they’re going to say, “We’re not going to advance you money. You didn’t need us for anything.” If you want liquidity under this policy, your investment manager has to order something sold to get that cash. [20:33] Jay Judas: That creates a couple of problems. Let’s say there’s an investment in there getting 5%, and your manager says, “Gosh, we’ll sell that. That’s not doing well.” Well, what if it had a lockup period? What if it was private credit locked up for five years, so you couldn’t sell it? Now your manager has to sell something else, maybe something that’s getting 18%. And once you sell something in PPLI, you’re not getting the benefit of that investment any longer. If something was earning 18%, now it’s earning zero. You begin to see how this could cause a cascade of problems for the policy. [21:11] Frazer Rice: You have a loan on top of it, if you’re borrowing off of it. [21:15] Jay Judas: Oh, yeah, and the loan. The power of compounding is not working for you anymore. It bothers me that it’s sold for that, because, first of all, the people buying it usually have wealth they’re never going to have to access. When they’re buying it, they think, “I’m going to be poor someday,” and they’re not. The other thing is that in my 23 years of being involved in PPLI, I’ve seen no more than 10 policies ever touched for a distribution. It just doesn’t happen. [21:37] Frazer Rice: So we’ve got the different people who take fees to help administer these things. I worry a lot from the trustee perspective. If you’ve put the policy into a trust for the benefit of beneficiaries going on down the line, the trustee has to make sure the mechanics are happening correctly. But in some sense, they also have a real mandate to make sure the investments are performing, that the policy is being reviewed correctly, that the reasons it was put in place continue to hold, and that the decisions made around it make sense, so that the policy doesn’t blow up later. How do you advise people who end up in that lovely role? [22:27] Jay Judas: This is all kind of a new thing, Frazer. If people saw the PPLI market report that we co-authored, because of a tax law change in 2021, more PPLI has been sold in the last four years than was sold in the 30 years prior. So we haven’t yet seen the results of poor trust oversight and planning. I will say our firm has been engaged by a couple of trust protectors. We just had one where the insured is 93. She had bought her policy almost 30 years ago, and it had done well, but the fees were from 30 years ago, and it hadn’t been reviewed. So we were able to go to the carrier and the investment manager and say, “Your fees are double what they should be today.” And they said, “Okay, you’re right.” [23:19] Jay Judas: Having that kind of proactive party for the client should not be underestimated. And I’ll be honest, Frazer, I haven’t given too much thought to that area, but now you’ve got me on alert. [23:34] Frazer Rice: That’s me, the sword of doom, worrying about stuff like that. One of the other things I think is important, when I try to relay this to people who are interested, is this: especially when the policy is in a trust and a grantor puts gift exemption into the trust to pay the premiums, to the extent you are borrowing from the policy, the money should not go toward the grantor’s lifestyle expenses. If you’re going that route, the assets, in a sense, have to stay in the trust. If you’re borrowing to make a different investment, I can kind of get with that if it makes sense. But if you’re borrowing to get money out of the trust to pay for grantor-level expenses, at that point you’re really shooting yourself in the foot. On that last-bucket principle, it really has to be the last bucket if you’re going that route, because your estate planning, I think, kind of goes out the window. You might have an incomplete gift. [24:48] Jay Judas: I think we talked about that. I guess we’ve been lucky. Some of our consulting clients who have put a lot of money into PPLI will say something like, “If my granddaughter needs a house, maybe she has to collect the first half of the down payment, and then we can take a policy loan,” with the granddaughter, of course, being a beneficiary of the trust, “to get a distribution.” So nobody’s talking about grantor-level gifts, at least among our clients. However, in the industry, this is sold as, “Hey, you can get tax-free income out of these policies.” And again, it’s not the greatest thing to do. It’s probably the last resort, as you say, and it’s rarely done. In that way, I feel it’s a little bit missold. But as a wealth transfer tool, it has real power. [25:45] Frazer Rice: If you’re making loans to benefit future beneficiaries, again, I can get with that, assuming you understand that you’re limiting the power of compounding by taking assets away from the underlying policy and creating a note against it. You just have to make sure everybody sees what the buckets are and where they line up before it gets put into place. [26:15] Jay Judas: Totally. That’s it. Touching that policy just begins to defeat its true purpose. [26:23] Frazer Rice: So once we’ve identified who the avatar might be, what are the questions a good client should ask when this is presented to them? And I guess it depends on who is presenting it. [26:40] Jay Judas: That’s true. Your viewpoint depends on who you spoke to last. We’ll have producers who don’t have FINRA licenses talking to people about PPLI, and you know where I’m going with this. They tell people they’ve got to buy from the offshore carriers that, of course, are not regulated by FINRA. To be honest, most PPLI purchased now is purchased from brand-name carriers like Prudential, Axcelus, Crown Global, and Vantage Life, all of which have been around a long time, and you are required to have securities licenses. So that’s the first thing we look for: when somebody has talked to a broker, we check who that broker is and make sure they have their licenses. And if you talk to your investment manager, they might understand the power of investing under the structure, but not the mechanics. So it’s really difficult. You have to talk to a lot of the people who put this together. [27:44] Frazer Rice: When it’s done well, just to circle the square as we wind down, the power of this is impressive to me. You have tax-free growth in alternative assets, done outside of the estate for future generations. You’ve got time and compounding really working for you. What else makes this so compelling? [28:13] Jay Judas: I think you hit the nail on the head there. Let me give you an example of a situation we had. We had G1 grandparents in their late 60s look at their portfolio and say, “Okay, we have $50 million we want to pass on to future generations.” They loaned the money to an ILIT, and the ILIT bought three policies on three of the kids and in-laws in generation two, who were in their late 30s. So these policies will now grow for 40 years. When liquidity comes into the trust, the grandkids, who at the time were between the ages of 1 and 12, will be between 41 and 53 when all this death benefit flows into the trust. They’ll have kids. They might even have a grandkid or two. So we’re not just planning for G2 with PPLI. The real attraction of PPLI is that I can now plan for G3, G4, and G5. [29:12] Jay Judas: As you know, Frazer, a lot of wealth in wealthy families is lost by G3. PPLI can actually create wealth for G3 and G4. Here’s an example of that compounding. That $50 million, if it were in a taxable account in California, after the federal estate tax, would be $159 million after 40 years at a 9% growth rate after expenses. If you invested it at 9% under a policy, you’re looking at about $1.6 billion after 40 years. Those are conservative numbers, because a lot of people in these investments want 12% or 13%. We don’t like to see models go above 9%. So to circle the square, as you say, compounding is important, but this is as much about wealth preservation and wealth creation as it is about anything else. [30:10] Frazer Rice: Really good stuff. Jay, how do listeners and watchers find you? [30:15] Jay Judas: Sure. Go to lifeinsurancestrategiesgroup.com. You can Google Jay Judas. You’ll find a lot of information about our company and a lot of free resources about PPLI. And if we can be of help, we’re always happy to have a chat with people. [30:29] Frazer Rice: Terrific. Jay, thanks for being on. [30:31] Jay Judas: Thanks, Frazer. This has been great. I really appreciate it. [30:35] Announcer: This podcast is for educational and entertainment purposes. It is neither investment, legal, nor tax advice. It does not represent the opinions of the employers or the host or guests. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

DAVID PAKMAN — political commentator, YouTube host, and author of the new book Pay Attention — joins me to talk about Algorithms, AI, and the Attention Economy. We break down how attention became the core commodity of the modern economy, why algorithms reward outrage over nuance, and what happens when AI starts cloning creators without their consent. David walks through the real story of “The Daniel Carter Show,” a YouTube channel that used AI voice-cloning to impersonate him and was algorithmically recommended to his own audience. From there, the conversation covers why right-wing messaging has a structural advantage on algorithmic platforms, what “behavioral surplus” means and how platforms monetize it, and the media-literacy habits families should be teaching the next generation before handing over unrestricted social media access. https://youtu.be/RTy2vuw7oe8 We also discuss anonymity and accountability online, why the “calm middle” is checking out of social media, and a simple “media diet” framework for staying informed without getting consumed. https://www.amazon.com/Pay-Attention-Algorithms-Suppressing-Rewiring/dp/0063569809/ https://open.spotify.com/episode/3ti3d6FvXAmgwqX1h4pMQQ?si=x8cwV2-DQNewJJX9yM6Vpw Themes Why attention is the defining commodity of the digital economy How “rented ground” platforms (YouTube, TikTok, podcasts) shape what creators can say The real story behind an AI deepfake impersonating David Pakman “Behavioral surplus”: how platforms monetize what you don’t even realize about yourself A practical media-diet framework — and how to talk to kids and aging parents about safe media use AI’s Impact on Video Timestamped Show Notes / Chapters 00:00 — Cold open: “You just have to learn how to play the game” — David on the political right’s platform advantage 00:15 — Wealth Actually intro & disclaimer 00:40 — Introducing David Pakman and today’s topic: algorithms, attention, and responsible media consumption 00:59 — David’s new book Pay Attention: why he wrote it and the “confessional” behind-the-curtain angle 02:38 — Attention as the “lingua franca” of the modern economy 03:25 — Creating content on “rented ground”: YouTube, TikTok, and podcasting platforms as landlords with no clear lease 04:44 — How Facebook’s shift from chronological feeds to algorithmic “For You” feeds rewired the entire incentive system 06:36 — Why boring-but-important topics (like housing policy) need an emotional hook to break through 07:37 — What the political right does better on these platforms — and why it’s about style, not substance 08:01 — The COVID vaccine messaging case study: fear and scapegoating vs. accurate-but-boring nuance 10:10 — From the traditional GOP to the “Trump party”: the John McCain/POW moment as an inflection point 11:05 — The pre-Trump roots of modern right-wing messaging (AM/low-power FM religious radio, Rush Limbaugh) — and the recent press-corps ban of CNN, Politico, and MSNBC from the White House briefing room 12:08 — Why the “calm middle” checks out of social media, and how outrage drives engagement 12:40 — The trap of over-weighting vocal-minority feedback: “98% of my Twitter replies are anti-social screeds” 14:29 — Online anonymity, accountability, and Jonathan Haidt’s real-identity proposal 14:55 — David’s own experiment: requiring a real email address cut toxic messages by 95–99% 16:10 — AI and deepfakes: the danger of synthetic content built on real people’s data and personalities 16:44 — The “Daniel Carter Show”: how an AI voice clone of David was algorithmically pushed to his own audience 18:59 — “Behavioral surplus” — how platforms monetize the gap between what you say and how you actually behave 21:31 — David’s media-diet “food pyramid”: proactive, vetted sources as the staple; algorithmic scrolling as junk food 24:09 — Advising families and next generations on safer, smarter media habits 25:17 — David’s own household rules on kids, screens, and delaying unrestricted social media access 27:12 — The financial-literacy parallel: media literacy as a life skill that should be taught early 27:58 — The media-literacy pyramid — and the Pew Research finding that most Americans (across party lines) struggle to tell fact from opinion 29:10 — The AI risk multiplier: outsourcing critical thinking to algorithms 29:32 — Where to find Pay Attention and follow David Pakman 30:19 — Closing thanks Transcript [00:00] “So I actually think that from a political standpoint, if what people are trying to do is use these platforms to get the ideas they believe in out, you just have to learn how to play the game. I don’t think there really is any other solution on the political side.” — David Pakman [00:15] [Show Intro] Welcome back to the Wealth Actually podcast, the show that features experts, entrepreneurs, and commentators that will give you the right knowledge, planning, and guidance so you can preserve your assets and enjoy your wealth. Learn more and subscribe today at WealthActually.com. This podcast is for educational and entertainment purposes. It is not investment, legal, or tax advice. It does not represent the opinions of the employers of the host or guests. David Pakman has a multimillion person following and an outsized presence with his online political talk show. He knows a lot about how the algorithms work across platforms like YouTube. We’re gonna talk a lot about that and also how to responsibly consume media in this day and age [00:56] Frazer Rice: David Pakman, thanks for coming on. [00:58] David Pakman: Thank you. [00:59] Frazer Rice: You’ve got a new book out. Pay Attention. By the time this podcast launches, it will be fully out and about on Amazon and wherever else everybody gets books. Tell us a little bit, just briefly, from the book writing process, your major voice in media, and what got you writing on this topic? [01:18] David Pakman: Well, there’s a confessional aspect to the book — just kind of explaining the compromises as a content creator that I have to make. And I say “have to” in the context of, if I want this to be my full-time job, if I wanna succeed at it, there are compromises that have to be made, as is the case in most jobs. So one aspect of the book is kind of pulling back the curtain a little bit. The other aspect is about best practices at the individual level, when so much of what we come to believe is true — and sometimes isn’t — is mediated by these digital platforms that are algorithmically delivering content in a way that is not impartial. It’s so important to understand why we are fed the things we are fed rather than other things, as a starting point for having conversations about what we want the world to look like. And then I also have a political interest in this — as someone on the political left, I think the political right naturally benefits from the way these algorithms work, not because of anything special they’ve done, but from their communication style. So if the political left wants to succeed — which I think it does, at least it claims to — it has to better learn how to conduct itself on these platforms. We’ll dive into that in a second. [02:38] Frazer Rice: One thing in your book — and I think generally that you talk about — is the commodity of attention, and how that has become really the lingua franca of the modern economy. Maybe dive into that a little bit about why that has become the case. [02:55] David Pakman: Tell me from which perspective do you want me to talk about it? ‘Cause that could go in a bunch of directions. [03:00] Frazer Rice: Well, I think the main thing is to say: if people are sort of used to oil or plastics or gold being a commodity, the idea of attention really driving, in many ways, economic decisions or allocation decisions around productivity — that seems to be something that’s a little bit more nuanced in the last, certainly five years, but maybe even back the last 10 or 15. [03:25] David Pakman: Well, I think that conversation kind of starts with understanding incentives. I create content on what I describe as “rented ground” — YouTube, TikTok, podcasting platforms — all of these platforms are basically lending me space, for as long as it’s at their pleasure to do so, to publish my content. And they’re landlords that don’t really give me a clear lease that tells me what I’m allowed to do and expected to do. I kind of have to figure it out by doing it. Their incentive is to keep users on the platform as long as possible — the longer users are there, the more money the platform makes. So when we look at the content we get from these platforms, it’s not because the content is true that we’re shown it. It’s not because the content makes society better or makes us better citizens. We’re shown the content that the algorithm determines is most likely to keep us on the platform. That’s really the starting point. One of the critical changes: I don’t know how early you were on Facebook, but at the start, when I was in college, if you were friends with 20 people, your home feed was a chronological feed of what your friends posted. Very simple — if you looked on Saturday, went back Sunday and scrolled, at some point you’d hit the last thing you saw Saturday, and you were kind of done. There was a clear break point — “okay, I’m caught up, I’m getting off Facebook.” That’s a real problem for a platform that wants to keep you on there as long as possible. So eventually Facebook and Twitter switched to an algorithmically recommended feed. TikTok calls it the “For You” page, and it’s just the default. What that does is show you content not in chronological order, but based on what keeps you watching. [05:52] Frazer Rice: At a much, much smaller scale than you do, I get frustrated oftentimes saying, I’m putting out things that I think are interesting and good that get a good response from a narrow set of people. But if I were Sydney Sweeney or a dancing bear and able to proliferate content in those terms, I’m sure it would be a lot more, I guess, metrically successful in terms of eyeballs and duration. And it sounds like as you go through and create your content, and you get the tools YouTube gives you — retention curve and things like that — that shapes, in many ways, not just the content but the delivery from your end. [06:36] David Pakman: I try to limit the degree to which it shapes the content, but it certainly shapes the delivery. If you take a topic like housing — extraordinarily important, because everybody needs a place to live, and it interacts between municipal, state, and federal law — how do we talk about housing in a way that’s interesting? Definitely not starting with zoning or building permits and regulations and Section 8. There has to be some emotional core to it. One of the ways the political left can more successfully address that: “Do we agree that if you work full-time somewhere, you should be able to afford to live in that same place rather than commute an hour away?” That gets to the emotional core, and then we fill in the “boring stuff.” So the way I try to say it is — we’re thinking about presentation style, not about ignoring important issues. [07:37] Frazer Rice: So as we start to think about left and right, and who’s — let’s call it — good at the platform and good at what’s happening, and maybe less good: what does the right wing have as an advantage in this space that the left wing doesn’t? And I’d go so far as to say the left wing’s experience in traditional media isn’t translating over into this new way of communicating. [08:01] David Pakman: Yeah, that second part is really important. I want to make clear — I’m not making value judgments here, just trying to analyze what is. One of the things right-wing messaging over the last couple of decades in the U.S. has done very well: number one, pithiness and simplicity, which naturally work better, especially in short-form, low-attention-span formats; generating anger or fear as an immediate visceral response, in a much better way than the political left does; and often implying — or sometimes overtly naming — the scapegoats, enemies, and villains we should be pointing to. I’ll give an example — and I know some people on the right will say “that’s not what I believe,” totally fine, but we’re talking at scale. Imagine the COVID vaccine messaging: there was a period where you had people like Tucker Carlson and others saying “this vaccine has killed millions of people.” It’s extraordinarily short. It makes people afraid — “wow, I could have been one of those millions.” It makes people angry — “who did that to us?” And it creates villains: was it Dr. Fauci? Was it Biden? Even though Trump was taking credit for the vaccines when convenient, then it became less convenient — but put that aside. It creates villains and scapegoats out of pharmaceutical companies. It happens to be completely untrue, but it naturally does really well on these platforms because of those characteristics. Now compare a message like: “It would be great if this vaccine prevented transmission — it’s not great at that, but it does keep people, for the most part, alive and out of the hospital. It’s also safe. It might make your arm hurt, you might feel flu-like for a couple days.” It’s long. I’m explaining. There’s no obvious person to be angry at. There’s no particular reason to share what I’m saying. So aside from the truth of any of this, that second message just doesn’t do as well by the incentive structure of these platforms. [10:10] Frazer Rice: Back on the Republican side for just a second — maybe not “Republican,” but right-wing. I get back to an example where the Republican party I grew up watching changed and turned into more of the Trump party. The messaging and mode of messaging — I can almost pinpoint a spot: when Trump went after John McCain and basically said, “I don’t want my war heroes to [have been] captured.” [10:40] David Pakman: Exactly. [10:41] Frazer Rice: And I looked at that and said, “well, game over for Trump.” It didn’t happen that way — he swept aside a whole party, and then his — let’s call it Roy Cohn-inspired — way of communicating took over. Is that really the right-wing component, or is there something more GOP-oriented, or a combination that gives them an advantage? [11:05] David Pakman: A lot of this stuff predates Trump. In my first book, I tell the story of how a lot of modern Republican messaging, even before Trump, came from the right wing picking up AM and low-power FM radio licenses early and putting religious content out. Churches were very early to AM and low-power radio — and eventually that led to Rush Limbaugh. The origins of this communication style are older than Trump. Now, I think you’re right that Trump changed it — he went much more populist in his messaging, and ultimately became significantly more authoritarian. As we’re recording this, CNN, Politico, and MSNBC were just banned from the White House press briefing room by the administration. George W. Bush wouldn’t have done that. So there’s definitely a significant change there — but the style, if not the substance, really predates Trump by several decades. [12:08] Frazer Rice: So as we get back to how the economics of this work — ultimately the platforms have to make money. They have to get the eyeballs, and then the attention beyond the eyeballs. We talked about how outrage drives acquisition and retention. What makes the “calm middle” close the app and move on, out of fatigue, I think? Does that make sense to you, or do you analyze it differently? [12:40] David Pakman: Yeah, I don’t know — to the extent the “calm middle” exists on social media, they’re still there, but underrepresented in participating. This is tough for me as a creator: I may be motivated to look at the feedback I see online, but I have to remember that represents a tiny portion of my audience. I’ve been on the internet for decades and maybe left 10 comments in my life, never written into a show — I have to remember I’m not hearing from most people. If I look at my Twitter replies, 98% of them are anti-social screeds — the kind that would get you fired or blacklisted from your social circle if you behaved that way in real life. That’s one of the really pernicious effects of these platforms: they narrow the scope of topics in the discourse, because a lot of stuff doesn’t do well; they generate disproportionately negative reactions to differences that, if we met in person, would probably feel far smaller; and they make people think disagreement is inherently uncomfortable, when it doesn’t have to be. I’m both Jewish and Argentinian — two cultures very much known for arguing and debating politics and religion all the time, and then going back to “how’d the brisket come out?” I think the way we engage in these conversations online makes people believe disagreement is so uncomfortable that we need to wall ourselves off from anyone with a different view — and that’s a dangerous impact. [14:29] Frazer Rice: Where do you come out on quasi-anonymity when people engage online? If you have a Twitter account that isn’t quickly traceable back to your actual self, I assume it unlocks fiery opinions that people would otherwise feel accountable for. Is there a world where that accountability shows up more than it does now? Jonathan Haidt has put out a number of ideas— [14:55] David Pakman: —as to how he’d change the way people exist and engage online. One thing he said is there really should be no fully anonymous users — that doesn’t mean you post under your real name, but the platform has to know who you really are. Even that would change the level of accountability people feel. On my own website, I used to have a contact form that just checked the email field for something that looked like an email address — so “[email protected]” would go through. When we changed it to require you to actually send a real email from a real address, the volume of angry, toxic messages dropped at least 95%, if not 99%. If you’re really motivated you can make a Hotmail account just to write to me, but most people won’t — most people are lazy. Just adding that layer of a traceable email address totally changed people’s behavior. There’s a lot to that idea. [16:10] Frazer Rice: Let’s talk a little bit about AI — the robots creating content under the auspices of somebody’s identity. I just did a podcast with some estate planners who talked about the idea that Facebook, et cetera, are going to have the tools to generate comments and responses out of people’s personalities even though they may be dead 10 years prior. The danger of generative AI using the data underpinning different users’ personalities — how do you relate to and diagnose that risk? [16:44] David Pakman: Well, it’s sort of the last section of the book. For creators, it’s a huge risk. We just dealt, over the last week, with a YouTube channel called “The Daniel Carter Show.” If you looked at it, there was a guy who looked sort of like me, in a studio that looked sort of like mine — and it was quite literally my voice, generated by a voice-cloning AI system, which are very good now. Written scripts were fed into the machine, which spit out this guy, “Daniel Carter,” who sounded just like me. Some audience members came across this — interesting, because it means it was algorithmically suggested to them: “if you’re watching the real David Pakman, here’s something else you might like.” They wrote to us about it; we reported it for using my likeness, and it was shut down. But it’s going to be very easy to generate a thousand of those, ten thousand of those — essentially a nearly limitless supply. I don’t know what the technological solution really is — it’s going to be AI detecting that stuff while AI is being used to make it. It feels like a race to the bottom. The one thing I write about in the book that I think is relevant: people do seem to recognize the importance of real connection. I’m doing some in-person book events right now, and I’m like, “who’s going to come out to hear me talk about my book?” — and all the events are oversold, selling out, because there’s a real desire to connect with people in a genuine way. I don’t think people are going to embrace synthetic creators and news people once they can tell that’s what they’re being fed. Now, if it gets so good no one can tell — that’s maybe a different story. [18:59] Frazer Rice: You talk a little bit about “behavioral surplus” — I’d like you to get into that concept, where the platform isn’t just extracting actual data, but the gap between data and behavior. [19:10] David Pakman: Yeah, there are a couple of different ways this happens. One of the things I try to do in the book is not become conspiratorial — there’s really no conspiracy behind this, it’s just that if you follow the incentives of the platforms, this is naturally what they’d do. Platforms monitor user behavior not only during a specific session, but over periods of time. What we want to consume can be very mood-dependent, and often tied to time of day — are you at work or home, is it a weekend or weekday. There are times you’re more likely to buy a product advertised a certain way than at other times; times you’re looking for political content versus musical content. What these platforms are learning to do, in a programmatic rather than conspiratorial way, is figure out when there’s a “behavioral surplus” — an opening to nudge you into actions beyond just what you’re watching, in ways beyond even our own ability to perceive or understand. That gap — that delta — is directly monetizable. AI and big data are only going to make it easier to exploit that in ways so subtle and sophisticated that many of us wouldn’t even realize it. [20:47] Frazer Rice: Interesting, and scary. For some of us it wouldn’t be — I stay curious, and I view social media from a peculiar lens; it’s a great way to interact with people I have no idea about, and even useful with people I know as friends. But there are some people who just say “I give up, delete the account, I want no part of this, I’m going to hide under the covers and hope this all goes away.” That doesn’t seem like your direction either. How do you think about staying engaged without being defeated by the enormity of what we’re talking about? [21:31] David Pakman: It’s funny — a lot of people react to some of the suggestions I give in the book, which are: yeah, scrolling is fine, but think of it like a food pyramid — it should be the junk food. Mostly, your media diet should be things you’re proactively vetting: “these are the four podcasts, these are the four online magazines I’ve evaluated and trust” — pulling their content in rather than being fed by scrolling. That should make up the bulk of your media diet. But people sometimes write and say, “David, aren’t you worried you’re advocating people not watch shows like yours, putting yourself out of business?” I laugh, because if this book is wildly successful, maybe 100,000 people read it — relative to my existing audience and the number of people scrolling incessantly on these platforms, that’s such a small fraction that even if all 100,000 never go on YouTube again, I’ll be okay. And these platforms are so addictive, so tuned to sucking people in, that I have zero concern about saying “you really shouldn’t consume that much of this.” On a personal level, spending less time on these platforms is great — or getting off them entirely is a completely healthy choice, the only downside being the modest social component some people use them for, which most can find another way to maintain. Now, there’s also the political side of this… [24:09] Frazer Rice: …when the right wing would find themselves frustrated by traditional media, their solution was to take advantage of a new technology and opportunity — so it’s probably cyclical in terms of who benefits from the platform going forward. I deal a lot with advising people across generations, and there’s always a comment from the senior generation: “what can I do to make my kids safer, better users of platforms, better consumers of media, or protect them from the dangers out there?” There are a lot of things you can do, but the curated media diet is interesting to me — I like having different sources, different opinions I might not agree with, to test my priors and stay rational. What do you do yourself on this front? [25:17] David Pakman: I do try to get most of my content proactively — I’ve decided what I want to listen to, and that’s the bulk of my media diet. My own content isn’t on a lot of the scrolling apps, so I spend some time there but try to limit it. I have young kids too young for devices right now, but at some point, sooner than later, it’ll become an issue. I don’t know exactly where I’d put the age number, but what Cal Newport and Jonathan Haidt describe as “unrestricted” social media access shouldn’t come anytime soon for kids — and it may be a bigger problem for girls than boys, given how boys versus girls tend to interact with each other, though that gets into the weeds. One thing really missing in U.S. public education is media literacy — understanding: is this neutral content? Is this an advertisement, and what’s it trying to do? Is this opinion or a news report? And understanding the mechanics of why you see what you see on something like Instagram — that mom might see completely different content. That education has to happen, ideally well before kids get unrestricted access to these platforms. I don’t know exactly how we do that at scale, but that’s what I’m thinking about. [27:12] Frazer Rice: It dovetails nicely with the idea of financial literacy — the sooner you get ideas like compound interest into people’s hardwiring, the better able they are to spot deception and distortion out there. I really like the idea of a journalism class — something that lets you distinguish between the reporting of news and what goes into creating a story, the impact of editorial versus the writer, and what it means to be a responsible story versus purely opinion versus shouting into the wind via tweet. I might think about developing that myself. [27:58] David Pakman: The other thing, which is more from my first book: I think about this as a pyramid. At the top is algorithmic content you’re scrolling — below that is good journalism you’re proactively vetting; below that is the media literacy we’re discussing; and even below that, like a Maslow’s hierarchy, is basic critical thinking. There’s a Pew Research Center study where they showed people 10 statements and asked them to categorize each as a matter of fact or a matter of opinion — not whether you agree, but whether, say, “chocolate is the best ice cream” belongs to the universe of opinion or fact. The numbers were a little better for Democrats than Republicans, but pretty poor for everybody. Americans, at a basic level, aren’t that good at distinguishing fact from opinion — and how are we going to have nuanced, productive conversations about complex issues if we’re still fighting that battle? [29:10] Frazer Rice: The other thing that scares me is that as AI proliferates more, people outsource or delegate critical thinking — just punching in “is this right or wrong” and blindly trusting a different algorithm to tell them. That leaves you more and more exposed. All right, we’re coming to the end of our half hour here. How do we find your book, how do we purchase it, and how else do people stay in touch with you and your show? [29:42] David Pakman: Yep, the book is at davidpakman.com/attention. If people want signed copies, there’s a link for that. You can get it on Amazon, Barnes & Noble, Kindle — there’s also an audiobook, which I recorded myself. Unlike, say, Maggie Haberman or Jonathan Swan, who had a million-dollar publicity budget behind their books, mostly it’s me going on shows like this to promote it, and that will determine whether it succeeds. So I really appreciate people ordering it — by the time this goes live, it should actually be out. That’s also my website where people can see my other content. [30:19] Frazer Rice: David, thanks for being on. I’ve read the book and really enjoyed it — I think you’ve got a lot of pearls of wisdom in there that are not only educational, but that people can act on in their own lives to better themselves and their families going forward. Thank you so much. [30:34] David Pakman: I really appreciate it. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

What happens to your voice, image and online accounts after you die? In this episode of Wealth Actually, I welcome back NATALIA PARKER and TATYANA THURSTON of DEXIT to discuss digital identity and estate planning in the age of AI. https://youtu.be/MdnUcekE-08 The issue is bigger than recovering a password. An executor may have to decide whether to keep a book on sale, preserve a podcast, close a social media account or respond to an AI-generated version of the person who died. Those decisions can put income, reputation and family wishes in conflict. We discuss how to build a digital-asset inventory, document instructions for online accounts, protect against deepfake scams and think through the use of your name, image, likeness and voice. The practical question: does your estate plan give the next person enough information to make these decisions? What we cover Digital estate planning: Why books, podcasts, photographs, recordings and online accounts belong in the planning conversation. Instructions, not just an inventory: What an executor needs to know about the assets, the platforms and what you want done with each account. Deepfake fraud: Why a familiar face or voice should not replace verification when money or sensitive information is involved. AI after death: The questions raised by avatars, simulated social media activity and the reuse of a person’s creative work. Fiduciary judgment: How executors and trustees may have to weigh commercial value against reputation and the emotional impact on a family. A technology component: Why Natalia and Tatyana argue that technology planning belongs alongside wealth, tax and estate planning. Episode timestamps Timestamps refer to the supplied episode audio, including the opening preview and introduction. 00:00 Preview and introduction 00:52 Why AI belongs in the estate-planning conversation 03:36 Name, image and likeness beyond celebrities 04:56 Platform access, ownership and closing accounts 06:54 Deepfake fraud and verifying money transfers 08:48 Building a digital defense strategy 10:22 Digital-asset inventories and consent to AI recreation 13:15 Facebook, posthumous posting and the ethics of AI 15:46 Avatar businesses and the digital afterlife 18:50 Robin Williams and restrictions on likeness 21:02 Executors, trustees and the emotional cost to families 23:10 Adding a technology component to the estate plan 23:53 Where to find DEXIT and closing thoughts About the guests Natalia Parker and Tatyana Thurston are the co-founders of DEXIT, a digital succession-planning business. DEXIT works with clients, wealth advisors and estate planners on plans for online assets and accounts. (DEXIT founder profile; DEXIT) Resources and related episodes DEXIT: Learn about the guests’ work at dexitplan.com. Our earlier conversation: Digital Assets Estate Planning with Natalia Parker and Tatyana Thurston covers digital inheritance, account access and planning for executors. Related Wealth Actually episode: Technology and Estate Planning explores digital tools for estate-planning work. Questions from the episode What should a digital-asset inventory include? In this conversation, we discuss online accounts, publishing platforms, books, podcasts, images, recordings and intellectual property. The emphasis is on pairing the inventory with instructions about what should be preserved, closed or considered for continued use. What should I decide about an AI version of myself? The guests suggest documenting whether you want your voice, image or recordings used to recreate you digitally after death. They also discuss the tension between those wishes, an executor’s decisions and the family’s reaction to the result. Why is this an issue for people who are not celebrities? Our discussion includes family photographs, personal accounts, recordings and unpublished creative work. Their importance may be emotional rather than commercial, which is why the conversation extends beyond celebrity estates. What is the first planning conversation to have? Start with what exists, what matters to you and what you want done with it. The next question is who will have to carry out those instructions and whether they have a usable roadmap. Clarification on the Meta discussion The opening preview and the discussion around 13:15 refer to Meta’s patent for simulating a user’s social media activity, including after death. In February 2026, a Meta spokesperson told Business Insider, “We have no plans to move forward with this example”; the report distinguishes the patent from a decision to implement the technology. (Business Insider) The transcript below preserves the conversation as recorded. This clarification is separate from the speakers’ remarks. Transcript This transcript has been lightly edited for readability, removing filler words and repeated starts while preserving the substance of the conversation. Speaker timestamps are approximate navigation aids; examples and legal or technical statements reflect the discussion, not independently verified advice. [00:00] Tatyana Thurston: Facebook in 2060, they’ll have way more deceased user accounts than live user accounts. And Facebook needs to monetize that. It takes up space in their servers, and they’ve actually recently patented the right to use the content that has been posted by deceased users. And they will be reposting as if they were still around. [00:26] Announcer: Welcome back to the Wealth Actually podcast, the show that features experts, entrepreneurs, and commentators that will give you the right knowledge, planning, and guidance so you can preserve your assets and enjoy your wealth. Learn more and subscribe today at wealthactually.com. This podcast is for educational and entertainment purposes. It is not investment, legal, nor tax advice. It does not represent the opinions of the employers of the host or the guests. [00:52] Frazer Rice: Natalia, Tatyana, welcome back. [00:54] Natalia Parker: Thank you for having us. [00:55] Tatyana Thurston: Thanks for having us. [00:56] Frazer Rice: Well, our last discussion actually engendered a lot of feedback from people who, if they were stuck in the executor role or in the trustee role, I thought it was very helpful in terms of laying out the roles and responsibilities and what you have to do to keep yourself and the estates safe. I thought we’d talk a little bit today about the intersection of technology, which hits close to home to me. I’m a big user of AI and really helped move things along for clients that way. But for me, I have a lot of IP as well. [01:29] Frazer Rice: I’ve got podcasts, I’ve got books, I’ve got all sorts of images, et cetera. And there’s an AI component to some of that as well. Maybe take us through a little bit about how you think about preparing someone who has to preside over somebody else’s IP, their name, image, likeness, and that type of thing as a broader scope of issues as they get prepared going on this journey. [01:57] Natalia Parker: Yes. First of all, yes, you do have a lot. And right now, your executors will have to know which platforms you’re using. And they have to know what you would like to do with those accounts. Do you want to keep your book open for readers and keep collecting money? Do you want your podcast to stop podcasting? Everything has to be written down somewhere. And then you have to have a plan for each one of them. We had a case where we had to close their Amazon book account. That was difficult because there were several authors. [02:37] Frazer Rice: Oh, yikes. So a lot of cooks in the kitchen, and all of them have an opinion on what they want to do with it. [02:45] Natalia Parker: Yes. So that’s where the DEXIT plan comes in. [02:52] Frazer Rice: In terms of getting your arms around what it means to have digital assets nowadays, a lot of people, we talked before about social media accounts, images, maybe even voice recordings, et cetera, that may not be commercial, but they’re personal and important to them. And as we all know, AI is using every bit of data to train their LLMs and all the other things that they have at play to make their AI agents more effective. What is the state of the art as far as either using or protecting your own digital presence if you don’t want to be a part of AI, or how do you responsibly be engaged with it? [03:36] Tatyana Thurston: I think it depends on where the name, image, and likeness is being used and in what capacity. For example, we have kids today as young as in high school, and they have a social media presence. They’re gaining followers in their teens, and maybe their goal is to be a professional football player. All those platforms hold their data and their videos and their name. And maybe they’re making money from it even at a young age. [04:07] Tatyana Thurston: So even estate planning isn’t just for folks who are older. It could even start as early as young kids because they’re on platforms. Those are platforms which are public. The public platforms is a ripe source for scammers to take your name, image, and likeness and capitalize it in another way. So there’s a source of truth that some people are trying to do, especially celebrities. A lot of celebrities now are actually creating avatars of themselves so that the true representation of themselves is on record. It’s actually really interesting, but that’s part of preserving their digital presence online. [04:56] Frazer Rice: And to circle back a little bit to what we were talking about in the previous episode, when you’re intersecting with these platforms, usually the social media platforms, the Facebooks, the Twitters, the Instagrams, et cetera. Step one, obviously, is to catalog exactly where you are, which is its own full-time job in many ways. But then what exactly do you have on there? It’s images, it’s quotes, it’s things like that. How do you intersect with these companies to not only get the terms of service figured out and get things pointed in the right direction ownership-wise, but even establishing what it is that you own or what they own or how things are held? [05:37] Natalia Parker: Yes, it’s very difficult because with Meta especially, they will hold the data to death. You cannot erase everything from Meta permanently. You can close the account and delete samples, but everything, it’s almost impossible. And you are not even talking to customer service, there’s no real person, you’re talking to AI. [06:01] Frazer Rice: Right. [06:02] Natalia Parker: Which doesn’t really care. [06:05] Frazer Rice: No, there’s no human element when you’re talking to Meta. I dealt with something where we had to deal with them, and it was like a hostage exchange. You had to hold up a piece of paper with the person to say that you exist and that there’s identification. And essentially I had to use back channels to get to somebody to try to move it up the line to fix the issue, and it was not a pleasing experience. So I’m sure magnified times a hundred, you kind of get to it where an executor has to do all of that, it just gets that much more complicated. [06:36] Natalia Parker: Yes, but at the same time, it’s very easy to create a new account and post something which will harm the family. And extort and use the account for scamming people out of money and information, everything. [06:54] Tatyana Thurston: I just have a story to go with that. There’s a company, Arup, it’s an engineering firm. And this is just to show you that deepfakes have come a long way. And they’re very professional looking. Arup is a company, and out of their Hong Kong office, there was a Zoom call just like this. The call was from the CFO in the UK. And the person in Hong Kong thought indeed that that was the CFO of the company. Unfortunately, a wire of 25.6 million dollars was made and lost right out of the company account because it was not being able to be verified through the online exchanges. [07:39] Tatyana Thurston: So it’s so realistic, AI has accelerated all the technology that it looks so real that the real thing for families is that they really need to have a code word, or they need to actually be sure who they’re talking to online is who they’re actually talking to, even though they may sound like someone from their family or look like someone they know. [08:02] Frazer Rice: Working for a financial group here, we get clients occasionally who complain about two-factor authentication and callbacks and making sure that we deal with real people and so on. And anytime I hear anybody complain that it’s not quite as convenient as they’d like it to be, I said, I’ll tell you what’s a lot less convenient. And that is to see minus 25 million in your bank account and somehow it made its way to Montenegro or Nigeria, and tracking that down, that’ll be inconvenient. So point taken on that, where good processes around movements of money, movements of information, et cetera, are a really good idea. [08:46] Tatyana Thurston: Absolutely. [08:47] Natalia Parker: Yes, I agree. [08:49] Frazer Rice: So from a defense strategy perspective for name, image, likeness, or dealing with AI, or this broader implication of an electronic world out there, what are the component parts that you think are important? [09:03] Tatyana Thurston: So I think there’s a part of it that is the educational part for clients, that there is this ability for scamming, and especially high net worth clients. The education piece I think is really important that they understand that when they are on social media, they are training those LLMs and they are in public view. [09:26] Tatyana Thurston: So closing out those accounts and making that conversation happen so that they understand that the risk is minimized as long as they’re not out there in public, having a plan of action is important. And of course categorizing those accounts because it’s very easy to open them, it’s a lot harder to close them. And then you also have to remember what’s on there. [09:48] Tatyana Thurston: If it’s something you use all the time, it’s very easily remembered. But if it’s something you opened once, probably is not that important to you. So it’s a very individualized plan that needs to happen to protect the identity. And some families, just like those in Hollywood, are trying to establish a ground zero. This is who I am, this is what I’ve done, this is what I’ve accomplished, this is my life. They can record these things so that there is a ground level of to who that person was originally. [10:22] Frazer Rice: From my perspective, we have a playbook for clients that really lists out a balance sheet of assets, financial assets, property, maybe if they have collectibles of a certain heft, that’s listed there. So maybe what you’re suggesting too, and maybe Natalia, you can talk to this, is the idea of putting together the same type of inventory or playbook of these different digital assets either at the copyright level or ownership level, but also at the account level so that there’s a bit of a roadmap for the people who have to make decisions about these things well after you’re gone. [10:54] Natalia Parker: Yes, you are correct because right now right of publicity laws exist just in a few states. And what we do in the DEXIT plan, we ask specifically, do you give a permission for your AI resurrection after your death, basically, to use your name and likeness, and to use your voice memos, your audio, your videos, to recreate you as a digital avatar. And if it is written down somewhere in a will, at least the executor will know if it is possible or not. It doesn’t mean that it will go all well because with the Scott Adams case, you know that he gave a permission that he could be used as an AI avatar. Yet his estate objected after some accounts started posting. [11:49] Frazer Rice: What was the resolution of that? Or is it still ongoing? [11:52] Natalia Parker: It’s still ongoing. [11:53] Frazer Rice: So in your opinion, you’ve got the wishes of the person who died, and then you’ve got the executor and then the trustees. You’ve got somebody who had a really monetizable presence. So I guess the issue would be something in the neighborhood of, on one hand you’ve got his wishes, on the other hand you’ve got the economically intelligent way to steward this asset so that you reduce risk of besmirchment or something like that. Any ideas on how that’s going to go? And maybe that’s just such an interesting point of law that we’ll follow that with great interest. [12:30] Natalia Parker: Yes, we don’t know yet because it depends. I know that New York has right of publicity, but again, it protects just economic kind of side, not the emotional or dignitary side of estate and the family life. So for them they felt that avatar didn’t represent him specifically the way he was. And I don’t know if it is true or not. I cannot tell you. I didn’t know the guy. [13:02] Frazer Rice: I’m sure whatever avatar I think is pleasing to me would probably, for everybody who knows me, it’s probably quite a bit different from what they think too. So point taken there. And Tatyana, your point. [13:15] Tatyana Thurston: Circling back with social media, Facebook has, in 2060 they’ll have way more deceased user accounts than live user accounts. And Facebook needs to monetize that. It takes up space in their servers, and they’ve actually recently patented the right to use the content that has been posted by deceased users, and they will be reposting as if they were still around. So there are some ethics questions that come up with that. But the fact that they even patented it should make somebody think twice about what’s going to happen in the future and what do you want to do with these accounts. [14:00] Frazer Rice: So let me think this through here. So they patented essentially probably some predictive model of what the deceased person would have posted based on past posts, and then the data that they have would allow them to engage with news that’s come out recently. And so then they could create additional media based on an algorithm that was built now sometime in the future. Scary stuff. [14:28] Tatyana Thurston: Yep. Precisely. [14:29] Natalia Parker: Yes, but it is changing, and the AI, we do not build AI with ethics in mind. So AI doesn’t care. AI has a goal to fulfill, it will fulfill that purpose and to get to his goal in any case, it doesn’t have consciousness like we do. [14:49] Frazer Rice: I guess I saw something where I remember it was one of Bill Simmons’s, and he’s a sports media person, but he also has a podcast called The Rewatchables around movies. And basically they took Roger Ebert and all of his different movie reviews, and they predict and say what he would have reviewed, he’s been dead for a long time, what he would think about The Avengers or certain movies that came out after he died. And that’s embroiled a lot of different people on things. [15:24] Frazer Rice: So that’s probably an immediate example of something right there where he’s dead, we don’t know what he would have thought of it or if he would have changed his mind or anything like that. But there’s a whole new concept of media and data coming out that has the label or moniker of somebody with credibility, but we’ll have no way of knowing whether they would have been a part of it or not. [15:47] Tatyana Thurston: Yeah, there’s a death marketplace that’s emerging, and people are monetizing what it could be, such as the band ABBA or even Kiss, the metallic heavy metal band. So they’ve got these avatar concerts that you can go to, and they had everything measured and they wore sensors and they went through the whole science spiel to have that done so that they can continue singing forever. So it’s an interesting time. And there’s also some companies, I can let Natalia talk about it, but these companies are also basically helping people create avatars so that they can be used forever by family members down the road. [16:34] Natalia Parker: Not even family members, anybody can create avatar from any amount of data set. So it’s just amazing, we have Replika, we have Hereafter, we have Chinese company Super Brain, which is very popular in China. It’s like 30 million, I think, to 40 million users. We have My Heritage, Israeli company, which actually they tried to do it right, where they will use digital avatar just for movement. They do not have a voice, just to avoid the scamming, but it still can be done. There’s numbers of companies. [17:19] Frazer Rice: And so if you’re advising a family, let’s say, around someone who’s passed away, who lived a normal life but had a hobby that maybe they were a painter or they wrote poetry or something like that. And the idea of commercializing that or creating a marketable persona out of a crazy uncle who passed away or something like that as they remember it. [17:48] Frazer Rice: Are we going to start seeing celebrities that are dead that never were? That type of thing, where someone in an executor role goes in and says, this person was more than they were commercially present during their lifetime, but there is so much more here. How do you advise someone, if they’re going to go the route of trying to create a business around it, how do you protect or build moats around it so it works well? [18:19] Natalia Parker: I don’t really know how you can do it effectively right now, because there is no laws on AI, none. Especially on a federal level. So it’s all patchwork and depending on the state they are in and depending on which platform they’re using, but hey, copyright still exist. There is kind of, I don’t know, it’s like an onion, just… [18:47] Frazer Rice: Right. [18:48] Natalia Parker: Peeling the layers. [18:50] Tatyana Thurston: There is the case of Robin Williams, though. He had a very, from what we understand, a complicated will. He for sure made comments that he did not want any part of his avatar created for the next 25 years. And when he passed away, people were using his images online, and then his daughter came out and said, stop. This is hurting the family. And so I think he was very forward-thinking to have put in part of his wishes that he wanted a 25-year pause. I think that’s really interesting. [19:32] Natalia Parker: Yeah, he put his right of publicity into a trust for 25 years, and then it goes into charity trust. So… [19:41] Frazer Rice: Interesting. And so the charity too, they don’t want Robin Williams turned into a negative image. So they’ll have a way of stewarding that asset in a way that not only comports with his wishes, but also the philanthropic mission of the institution that in essence owns it going forward. [20:05] Natalia Parker: Yes, and we’re not tax attorneys or anything. I guess people do it mostly for tax purposes to put your right of publicity and name and likeness into trust. Perhaps to try to prevent it going crazy everywhere and people using it to gain something. [20:24] Frazer Rice: I mean, I think if I’m putting my mad scientist hat on, I’d say if you put a, let’s call it a freeze on the right of publicity for 25 years, you reduce the value of it. And so if you’re trying to reduce the value of an estate from an estate tax perspective, that might be one way to do it by creating, and I’m not going to call it artificial, but by creating barriers to commerce that reduce the value of it for a little while, and then it unlocks after a certain period of time. Add on to that the charitable component that it’s a little bit less that the estate has to come up with in terms of an estate value to knock away. [21:02] Frazer Rice: As we wander into finishing up here, the fiduciary duties of an executor and then ultimately a trustee, it sounds like that they are already going to get a little bit complicated, because if you’re trying to do well by the estate and maximize that in many ways for the beneficiaries, and then if it’s in a trust where you’re trying to manage current income needs versus growing things in the future. [21:27] Frazer Rice: And then you have this other overarching idea of maintaining this qualitative image or credibility of the IP against the monetization component of it, that’s just a lot to handle. What other duties out there do you worry about for your clients from a fiduciary standpoint, aside from really marshaling the assets, making sure you have them, and then putting them in place going forward so that they’re productive? [21:55] Natalia Parker: Emotional harm. That’s one of the most, because regular people, they might not get any financial harm, but emotional harm for the families, yes, because some people, they go off a deep end and they post something very hurtful to the family online. And family will have to deal with it for eternity. [22:20] Frazer Rice: Right. Got it. And Tatyana, what are your thoughts on that? [22:23] Tatyana Thurston: I will concur that the emotional aspect is really important. I think that even the most loving thing you can do for your family is to create a will and a trust and plan for your family. There’s a digital component to that planning that is of utmost care to ensure that, A, that the history of the family is properly documented, and then B, to clean up what accounts you have out there that don’t need to be out there. I think it’s important for families to plan ahead for that. [22:58] Frazer Rice: That may not be in the will or the trust specifically. Is that something in a side letter of wishes, or is that something that you build into the document? [23:07] Natalia Parker: Yes. We do it in the DEXIT plan. [23:10] Tatyana Thurston: Yeah, consider it, if you could piece the world in a few pillars. You have a wealth pillar, you have your tax advisory pillar, you have an estate pillar. You need a tech pillar. One of the major things that you need to do is take a look at your technology, your data trail, because the one thing that we forget is that our data is sold to brokers. [23:36] Tatyana Thurston: And those brokers continue to look at this data, and then it impacts your kids. Your insurance rates for your children are going to be documented based on perhaps the medical data that they have on you. So these are the kinds of things that impact generations down the line. [23:53] Frazer Rice: Got it. Ladies, thank you so much for being on. How do we find DEXIT, how do we find you? Natalia, do you start first? [24:01] Natalia Parker: Yes, we are very easy. We’re in North Carolina, and it’s www.dexitplan.com. Come and see us. We are on LinkedIn, we are on Facebook, we are on Instagram as the DEXIT Chicks. And Tatyana, who runs our social media, so she knows more about it. [24:23] Tatyana Thurston: Yes, you can find us, the company is DEXIT, but our website is dexitplan.com. You can find us on LinkedIn, Instagram, Facebook of course, and you can reach out to us on our website. We’re happy to answer any questions you may have. Feel free to reach out anytime. [24:42] Frazer Rice: Terrific. Well, we’ll have you on as things pop up, which they likely will, with all these Hollywood cases and frankly, even regular schmoes like me that have IP kicking around, it’s definitely food for thought, having a tech pillar in the estate plan so that people understand where I think there might be something to use or not use. And I think that’s only going to proliferate. So thank you for being on, and thank you for your advice on this front. [25:09] Natalia Parker: Thank you. [25:10] Tatyana Thurston: Thank you so much. Disclaimer This episode is for educational and entertainment purposes only. It is not investment, legal or tax advice and does not represent the opinions of the employers of the host or guests.

Fire the Whole Investment Team: Meb Faber on 250 Years of American Compounding and Why CalPERS Can’t Beat a 60/40 allocation https://youtu.be/9lBYkG4J2sY A dollar invested in the U.S. stock market in 1800 is worth roughly $200 million today, and Meb Faber says the giant pension funds paid to beat that kind of compounding usually can’t. In this episode of Wealth Actually, Frazer Rice talks with Meb Faber, co-founder and CIO of Cambria Investment Management and host of The Meb Faber Show, about his new coffee-table book Investing in America: The Rise of a 250-Year Bull Market, the shareholder yield thesis behind Cambria’s ETF lineup, and his long-running public campaign arguing that CalPERS and other giant institutional pools routinely fail to beat a simple, low-cost buy-and-hold portfolio. https://open.spotify.com/episode/4WmnPm3GN8jwQtJuCVV9XG?si=nLLcz8y8RSuydORA5_ZHGQ Key Takeaways America is, in Faber’s words, the greatest compounding machine in history. He puts a dollar invested in U.S. stocks in 1800 at roughly $200 million today — a number he uses to reframe how clients should think about staying invested through wars, depressions, and pandemics. The book’s origin story starts with meme stocks. Faber says COVID pulled a new generation of retail investors into the market through gamified trading apps, and he wanted to hand them a historically grounded alternative to day-trading and zero-day options. Diversification is older than the country itself. Faber traces the concept back to 15th- and 16th-century joint-stock voyages — the Mayflower and the Virginia Company among them — where spreading capital across many risky expeditions let “merchant adventurers” survive when any single ship was lost. Shareholder yield, not dividend yield, is Cambria’s core factor. Since the S&P 500’s dividend yield now sits near an all-time low of 1.04%, Faber argues the real signal is cash dividends plus net buybacks — net of the dilution from stock-based compensation that quietly erodes shareholders’ ownership every year. Faber’s CalPERS critique boils down to one line: “the returns are not bad, they’re just not good.” He’s built an entire body of work, including Cambria’s ENDW endowment-style ETF, arguing that giant pools with virtually unlimited access to managers still can’t consistently beat a disciplined global 60/40. Complexity is often the enemy, not the edge. Faber contrasts investing with almost every other field of expertise: hiring the best doctor or coach nearly always helps, but hiring the most sophisticated (and expensive) money manager frequently doesn’t. Illiquidity has a way of showing up at the worst possible time. Faber points to endowments getting caught upside down in 2008–2009 and to more recent leveraged blowups as the same lesson repeating: over-lever a portfolio and you’re out of chips at the poker table. The real accountability gap is career incentives, not investment theory. Faber contrasts Yale, which gets a pass for strong long-term results, with Harvard’s endowment, which he says has underperformed for two decades without anyone losing their job over it — a dynamic he says maps directly onto UHNW family governance. Timestamps [00:00] Cold open — CalPERS CIOs vs. UK prime ministers [00:29] Show open and disclaimer [00:54] Welcome: Meb Faber, Cambria, and the new book [02:07] The $76 price tag and the 1776 joke [03:13] Genesis of Investing in America: COVID, meme stocks, and joint-stock voyages [06:33] The most surprising find: Ben Franklin’s “Mind Your Business” motto [09:09] Argentina vs. the U.S. — what actually drove American exceptionalism [12:47] Cambria today: the shareholder yield thesis [17:46] Why politicians target buybacks instead of stock-based comp [20:54] The CalPERS critique begins [21:34] The Ivy Portfolio, the ENDW endowment ETF, and year-one results [25:45] The Nevada pension comparison and the liquidity-complexity pushback [26:56] Institutional blowups, Harvard’s endowment dysfunction, and misaligned incentives [29:36] The “anti-Switzerland of asset management” bit [31:16] Close: where to find Meb, Cambria, and the book Pull Quotes “No, no, no, no, Frazer — it is $76, in honor of 1776.” — Meb Faber “A dollar would be worth roughly $200 million today… despite wars and depressions and pandemics and everything else terrible that’s happened in the history of the world, this relentless compounding is such a fun story.” — Meb Faber “There are dividend funds in the U.S. today… whose actual dividend yield is lower than their management fee. A negative net dividend yield — an astonishing statistic in 2026.” — Meb Faber “Who’s had more turnover in the past 10 years — CalPERS CIOs or UK prime ministers? Both totally dysfunctional. I think CalPERS has a slight edge, but it’s close.” — Meb Faber “I’m the anti-Switzerland of asset management.” — Meb Faber About the Guest Meb Faber is co-founder, CEO, and Chief Investment Officer of Cambria Investment Management, an independent, privately owned advisory firm built around quantitative asset management and alternative investment strategies (BusinessWire). He hosts The Meb Faber Show, one of the most widely followed investing podcasts, and is the author of eight books, including The Ivy Portfolio, Global Asset Allocation, Global Value, Shareholder Yield, and now Investing in America: The Rise of a 250-Year Bull Market — his first coffee-table book, released to coincide with the U.S. semiquincentennial (Curzio Research). Proceeds from the book go to charities that fund investment accounts for Americans born in the country. A ninth book, The Awesome Portfolio, is slated for release on September 8, 2026 (Meb Faber on X). Contact Meb Faber & Cambria Cambria Investment Management: cambriainvestments.com Cambria Funds: cambriafunds.com Meb’s blog, podcast & research: mebfaber.com The Meb Faber Show: themebfabershow.com Twitter/X: @MebFaber Book — Investing in America: available on Amazon, Barnes & Noble, and signed via Pages bookstore in Manhattan Beach, CA (Acquirer’s Multiple) Cambria Funds Mentioned Shareholder Yield suite (SYLD, FYLD, EYLD, plus small-cap and large-cap variants) — cash dividends plus net buybacks plus net debt reduction, divided by market cap (MarketWatch) GVAL — Global Value ETF screening the cheapest quartile of roughly 45 country markets by long-term valuation (Cambria — GVAL) TAIL / FAIL — U.S. and global ex-U.S. tail-risk ETFs pairing short-term Treasuries with a rolling ladder of out-of-the-money S&P 500 puts (Cambria — TAIL) Trinity Portfolio (TRTY) — roughly half buy-and-hold, half trend-following across a basket of other Cambria funds (Cambria — Trinity Portfolio) ENDW — Cambria’s endowment-style ETF, discussed on the show as roughly $150–180 million at launch and referenced later in conversation as having grown toward roughly $5 billion in assets with more than 100,000 investors (MebFaber.com) The CalPERS Critique — Further Reading 9 Institutions Can’t Beat a Basic Buy-and-Hold Allocation — MebFaber.com How California’s $450B Pension Fund Misses the Basics of Investing — YouTube Should a Robot Be Managing CalPERS’ Portfolio? — MebFaber.com, 2015 Index Funds vs. Ivy League — MarketWatch/Barron’s Streetwise CalPERS: America’s Misled and Misleading Pension Leader — Retired Public Employees Association CalPERS Section II Performance Tables (2026) — CalPERS.ca.gov Reducing the Noise of AI Investing – FrazerRice.com Frequently Asked Questions How much would a dollar invested in the U.S. stock market in 1800 be worth today? Meb Faber says roughly $200 million, using the figure to illustrate how relentless compounding has powered through wars, depressions, and pandemics over the country’s history. It’s an illustrative, back-of-envelope estimate rather than a precise index calculation, since standardized stock indexes didn’t exist in 1800. Why is Meb Faber’s new book priced at $76? It’s a nod to 1776 and the country’s founding, timed to the U.S. semiquincentennial. All proceeds go to charities that fund investment accounts for Americans born in the country. What is shareholder yield, and how is it different from dividend yield? Shareholder yield is cash dividends plus net stock buybacks (net of new share issuance, particularly from stock-based compensation), divided by market cap. Faber argues it captures real capital return to shareholders better than dividend yield alone, especially now that the S&P 500’s dividend yield sits near an all-time low of about 1.04% and share buybacks have outpaced dividends every year since the late 1990s. What is Meb Faber’s argument against CalPERS and other large pension funds? Faber’s recurring claim is “the returns are not bad, they’re just not good” — that giant institutional pools with access to virtually any manager on the planet still fail to consistently beat a simple, low-cost, diversified buy-and-hold portfolio, once fees and complexity are accounted for. Cambria launched an endowment-style ETF (ENDW) partly to make this a live, ongoing comparison rather than a hypothetical one. What is Cambria’s endowment-style ETF and how does it compare to institutions like CalPERS? ENDW replicates a Yale/Swensen-style endowment allocation — global stocks, global bonds, and real assets like gold, TIPS, and REITs — in a low-cost ETF with an all-in expense under 25 basis points. Faber uses it as a running, real-time benchmark against actual endowment and pension performance reported each fiscal year. Why does Meb Faber say complexity is often the enemy in investing? Unlike most fields, where more resources and the best available experts reliably produce better outcomes, Faber argues that in investing, more complexity and more access to exotic managers frequently doesn’t translate into better returns net of fees — and often just adds cost and illiquidity risk. What lesson does Meb Faber draw from institutional blowups and the 2008–2009 crisis? Endowments that mark their portfolios only once a year got caught badly offsides in 2008–2009, with illiquid positions falling even further than public markets. Faber sees the same pattern recur whenever a fund over-levers and gets forced out of the game — a basic failure of position sizing and situational awareness that keeps repeating at the highest levels of finance. Full Transcript [00:00] Cold Open (produced VO): I said, who’s had more turnover in the past 10 years — CalPERS CIOs or UK Prime Ministers? Both totally dysfunctional. And I think CalPERS has a slight edge, but it’s close. Meb Faber suggested that CalPERS should fire its entire investment team, and that complexity has become a major headwind to their ability to generate returns. Find out more on this episode of Wealth Actually. We’re also going to talk about Meb’s new book, which argues that America is one of the greatest compounding machines in the history of capitalism. [00:29] Show Open (produced VO): Welcome back to the Wealth Actually podcast — the show that features experts, entrepreneurs, and commentators who give you the right knowledge, planning, and guidance so you can preserve your assets and enjoy your wealth. Learn more and subscribe today at WealthActually.com. This podcast is for educational and entertainment purposes. It is not investment, legal, or tax advice. It does not represent the opinions of the employers of the host or guest. [00:54] Frazer Rice: Welcome back. Meb Faber is on the show. He founded Cambria Investment Management, which is a $4 billion ETF group. He also has The Meb Faber Show and does a lot of different writing. He’s famous for being on Twitter and taking on CalPERS. But most importantly, he has a new book out talking about America as a great compounding machine. It’s a lot of fun to have him on. Welcome aboard, Meb. [01:16] Meb Faber: My man, great to be here. Frazer Rice: Oh, thank you for being on. I thank you beforehand for including a piece of my writing in one of your old compendiums on best investment writing. I’ve never forgotten that, so thank you again. Meb Faber: Well, good job making the cut. Frazer Rice: Yeah, right, exactly. I passed the audition. Seen you a few times on The Idea Farm here and there over the years. Meb Faber: Yep. As I tell people with my girlfriend, I met expectations in my recent review, so we’re onto the next year. Look, key to life, Frazer — investors, we’re in a bull market, everyone expects 15% returns forever. Key to investing in life: just low expectations. That’s it. Set your expectations low, and you’ll be pleasantly surprised every day. Don’t lose principal over time — that’ll get you pretty far in life. [02:07] Frazer Rice: So anyway, you’ve got a new book out too, which I thought was pretty cool. I love the fact that you priced it at $17.76 and really focused on the— Meb Faber: No, no, no, no, Frazer — it is $76, in honor of 1776. Now to be clear, we don’t make any money on this book. We’re donating all the proceeds to the Invest America charities that fund accounts for Americans born in this country — a wonderful charity, big supporters of it. Frazer Rice: But yes, in honor of the country’s founding. This is why we have you all to make sure I get that stuff right. But the concept of America as the best compounding machine ever — I think that’s really interesting. First of all, what prompted you to get involved with putting this book together? You’ve written before — seems like you’ve been busy with other stuff, of course — but then you came back and decided this was a good topic to take on. What was the genesis of the book? [03:13] Meb Faber: Yeah, so this is my eighth book, and the first coffee-table book we’ve ever done. People were saying, “What the hell, $76? Are you guys crazy?” Look — this is a beautiful 200-page book. There’s probably 70 pictures, charts, tables. And the concept is in the subtitle: Investing in America: The Rise of a 250-Year Bull Market. And the origin story goes back to COVID. Nobody had anything to do — sports stopped, you couldn’t go to the beach. So people were sitting around, and Americans — look, they’re gamblers, they’re risk-takers, we know that. And I said, we can’t do anything about that. So this entire generation of young people turned their attention to the stock market, and we got meme stocks. Today that’s evolved into prediction markets and zero-day options and all sorts of other nonsense. We wanted to grab those young people and say, “No, you don’t understand — the real story is better than any of this. You don’t have to day-trade. You don’t have to bet against the casino and lose.” So we said, let’s do this history since the founding of our republic — what it would have looked like if you could invest from 1800. And the compounding math is so fantastical it seems wrong. A dollar invested in 1800 — and yes, I know there were no indexes back then, chill out, people — but just to be instructive, a dollar would be worth roughly $200 million today. The point is you get on this train despite wars and depressions and pandemics and everything else terrible that’s happened in the history of the world — despite all that, this relentless compounding is such a fun story. On top of that — the founding of our country, and a lot of people don’t know this: when you learn the history of America in elementary school, you learn about the immigration, particularly from Europe, people escaping religious persecution, seeking a better life through freedom — the Mayflower, all that. All true. But what they leave out is that most of these explorations and voyages were funded by companies. Back then they called them joint-stock companies; today we call them companies, LPs, C-corporations — corps, right, partnerships. Because the reality, going back to the 15th century, is that if you’re sending a ship to the New World to find gold, that ship could sink, or there were pirates — you’d lose all your money. So this brilliant invention we call diversification today has been around for hundreds and hundreds of years. These companies said, it’s risky to invest in one voyage, but you can own part of a company that invests in 10 or 20 or 30 of these, and maybe one of them will hit. That sounds like venture capital. They used to call these people “adventurers” or merchant adventurers. Hudson’s Bay, the Mayflower voyage, the Virginia Company — many of them failed, many didn’t make money, but some made spectacular profits. It’s a fun origin story that hasn’t really been told about these early entrepreneurs and risk-takers, who honestly still permeate our culture to this day. [06:33] Frazer Rice: In putting the book together, what was the most surprising chart you found that you ended up including? [06:41] Meb Faber: There’s a lot of fun historical statistics in the book. One of my favorite parts of writing it was buying — I don’t know, 50 or 100 financial history books I’d never heard of, books on financial crises globally from various markets. We just had an author on the podcast talking about the global financial crisis of 1873, and on and on — you learn so much. One I love telling people, especially young people — my son or his friends — is: look at a dollar bill or a quarter, and I ask, what’s the motto on there? Well, that used to not be the motto. Ben Franklin, back in the day, the motto on the Fugio cent used to say “Mind Your Business” — which I thought was amazing. And it’s not “mind your business, kid” in the nosy sense — it’s more like, mind your (own) business. It had a sundial on it, too: time is short, mind your business. I thought, let’s go back to that — such a great motto. A bunch of little fun stories, but to me one of the big takeaways of the book is: as a public stock investor, the news is always negative. You turn on CNBC, Bloomberg, pull up your phone, social media — negative, negative, negative, negative. It’s hard to sustain conviction. Look, we haven’t been through a big bear market in 17 years, but when you’re down 30%, 40%, 50%, and you’re reading “Lehman’s going under” and all these crazy headlines — the book lets you zoom out. Each chapter zooms into a decade and then zooms back out and says, okay, 1930s, Great Depression, you lost 80% in stocks — but guess what, here’s your return over the next 50 years. Even over a 20-year period, large-cap stocks become less volatile than bonds, which is an amazing takeaway. Being able to zoom out and say, “I’m a long-term investor, why am I even concerning myself with day-to-day negativity” — that shift in mindset is really important, because when you zoom out, you can barely even see 1987 on a long-term chart of the stock market. I think it’s a useful thing to send to clients, particularly at year-end if you’re a financial advisor. We’ve got big discounts if you buy 50 books online — send it to clients and say, hey, stop going crazy, this too shall pass. [09:09] Frazer Rice: One thing I always have in my mind — I don’t remember if this is exactly true, but Argentina and the US were on roughly equal economic footing back around 1900. When you were putting this together, did you see anything in the US’s political climate or structure — the things that gave it tailwinds to go from 1900 through to now with this rocket-ship growth — versus a country like Argentina, similarly situated, that just muddled along economically? Was there anything in particular that you saw that codified American exceptionalism? [09:51] Meb Faber: Yeah, you’ve got to remember, the US was an emerging market too, for a long period. We didn’t always hold the crown as the largest economy or the largest stock market in the world. The US is two-thirds of world market cap today — astonishing. But if you and I were sipping tea back in 1800 or 1900 and betting on what country would dominate the next century, you’d have gotten a whole host of different answers. That’s part of the fun of this book — you realize, when things got started in Amsterdam in the 1600s, they held the crown, but not forever. It shifted to London, then eventually to New York. And in our own lifetimes, the US wasn’t always the largest stock market — Japan was, in the 1980s. It’s a useful construct: look how much things change. Not even just on a country level — sectors too. Go back 100 years and you’re like, wait, where are the tech stocks? It was railroads. Go back another 100 years and it’s, wait, where are the railroads? There weren’t any — it was banks and insurance. The constant is always change and creative destruction. The big takeaway is you have to be an owner. This ownership mentality is particularly pervasive in the US. Talk to people in Sweden, Europe, Asia, Latin America — they own far fewer stocks than Americans do. Ask what they invest in, and it’s cash in the bank, real estate, maybe. There’s something in the water here. Same thing with entrepreneurship — talk to Americans about failure, and there’s no shame in it here. It’s almost celebrated; we cheer for it. The only thing we like seeing more than someone fail is their eventual rise after failure — the phoenix. There’s a lot of big takeaways in that. It feels like the last 17 years, the US is just going to dominate forever. We wrote a paper called The Bear Market and Diversification a few years back about how special this period has been for US stocks, crushing everything else — but it’s not totally without precedent. In the last hundred years it’s happened three other times where 10-year rolling stock returns hit 15%: the 1920s (the Roaring Twenties), the Nifty Fifty period in the mid-20th century, and my favorite bull market, the late 1990s. And now again today — COVID, meme stocks, the AI boom, whatever you want to call it. Eventually the good times don’t last forever; you probably shouldn’t expect 15% returns to the moon. But pat yourself on the back and celebrate it — it’s been a very special run. [12:47] Frazer Rice: Day-job-wise, at Cambria you’ve got a whole host of different investment theses that you build vehicles around. One that’s gotten my attention, and that I really like the idea of, is the shareholder yield concept — especially the global shareholder yield concept, for the reasons you just described, coming off a very long cycle of US exceptionalism in the stock market. I like the idea of cash flow as an indicator of good investment performance, and diversifying both within and outside the US. With an asterisk here that this is not investment advice, everyone — take us through what you’re thinking on that front, and what else you’re up to at Cambria that’s interesting in the investment ecosystem right now. [13:35] Meb Faber: Sure. It’s kind of crazy, Frazer, but we hit our 20-year anniversary this year, which feels like just yesterday when I started the company. Some of the shareholder yield funds — we now have three with over a 10-year track record, and our oldest, SYLD, is a pesky teenager now. What do you expect out of teenagers? More volatility — hopefully up volatility, not down. We wrote a book on this topic 10, 15 years ago, and a new second edition is out — it’s free online as an ebook, listeners, you can get it from the blog. The subtitle of the book is Shareholder Yield: A Better Approach to Dividend Investing — a pretty bold claim, given there are hundreds of dividend-type funds out there: dividend income, dividend growth, equity income, on and on. Our thesis was that there’s something the entire marketplace hadn’t noticed or appreciated: the rise of share buybacks. Starting in the late ’90s, share buybacks have outpaced dividend distributions in the United States every year. In fact, the US dividend yield on the S&P 500 is at an all-time low of 1.04% — it may cross below 1% for the first time ever, which is astonishing. Our thesis was that a shareholder yield approach — simply cash dividends plus net stock buybacks — outperforms, historically, any dividend strategy you can construct. The “net” matters because it accounts for share issuance, particularly stock-based compensation to the C-suite, which is everywhere in the US — my home state of California’s tech companies love to “make it rain” with stock-based comp. The problem is the average US stock is a diluter: your ownership share goes down every year because they keep issuing more shares. We’ve since demonstrated this in real time across SYLD, FYLD, EYLD (the emerging-market version), and now small-cap and large-cap variants — they’ve done exceptionally well. These funds effectively target a Buffett-like, value-and-quality approach: the average stock coming into the portfolios has roughly a double-digit shareholder yield. Let that sink in — there are dividend funds in the US today, ETFs and mutual funds, that claim to be high-yield or dividend-income funds whose actual dividend yield is lower than their management fee. A negative net dividend yield — an astonishing statistic in 2026. In the US, that shareholder yield is mostly driven by buybacks. In foreign developed and emerging markets, it’s closer to 50-50 — those markets still have more of a culture of cash dividends, so you’ll see yields there closer to 5-6%. But that’s changing, and changing fast. We did a blog post recently calling the UK the “buyback capital of the world” — the UK, China, Japan, and a bunch of other countries have hockey-sticked higher on this. It’s spreading globally, this idea of corporate responsibility: “my stock’s at half of book value, maybe we should consider buybacks.” There’s so much mythology around stock buybacks — we could do a whole podcast on it — and we try to tackle it in the book. Hopefully it’s like a red pill: once you take it, it’s hard to look at investing the same way again, because it feels like you were missing a major piece of the puzzle. [17:46] Frazer Rice: How infuriating is it when the Warrens of the world take aim at buybacks? It feels like an economically illiterate, and certainly politically driven, approach to legislating. To put the clamps on a genuinely useful capital allocation tool — I just don’t understand it. You must look at that and want to shake people and say, you’re missing the point, and you’re not even really targeting the abuses that exist. [18:20] Meb Faber: Well, I try not to be too dismissive of our lovely politicians — the joke I always make is, don’t look down on them, they weren’t taught finance and investing in school either. We don’t teach money and investing in school, and that’s sort of my white whale — I think we should be teaching it as early as elementary school, just basic classes on money. The good news is, roughly a quarter to a third of high schools are now requiring at least one class on the topic. What they’re actually targeting, I think somewhat thoughtfully underneath it, is executive compensation and stock issuance — which is the crazy part, because buybacks are the flip side of that. If a company is consistently loading up its CEO with options and diluting shareholders, and using buybacks to mop that dilution up — that’s what they’re really targeting, but it’s not the buyback itself. It’s the stock-based comp. Buybacks are the exhaust; that happens down the road. The cool part about our methodology is we’re only targeting companies trading at something like 80 cents on the dollar. Buffett is my favorite example here — Berkshire has never paid a dividend, and you might think that’s crazy, but he understands this better than anyone. He’s been writing about buybacks since the 1980s. There’s a great quote from an old Berkshire annual report where he says there’s no better use of cash than buying back your own shares when they’re trading below intrinsic value. Berkshire has bought back a ton of stock over the past several years — smart — they say they’ll buy back at 1.2 times book or below and run a valuation screen. There’s a great, somewhat surprising, takeaway in the book: there’s a myth that CEOs are megalomaniacs who just buy back stock whenever they think it’s expensive or cheap, but if you model it out historically, companies doing big buybacks (say, to retire 5% of market cap) tend to trade at a valuation discount to the market, and companies doing share issuance tend to trade at a valuation premium. There’s a real valuation arbitrage going on — CEOs aren’t dummies. That’s part of what you’re capturing with a shareholder yield approach, as long as it’s consistently recycled. And remember, a buyback is optional — there has to be someone willing to sell into it, so there are always two sides. [20:54] Frazer Rice: Let’s talk about one of my favorite parts of your persona, honestly — your fun critique of CalPERS and what large institutions do (and don’t do well) in managing money, and the inefficiencies that creep in with these big pools of capital as implementation and asset allocation get very complicated and very expensive. Walk me through your thinking when you first noticed the CalPERS phenomenon, and a bit of the history there. [21:34] Meb Faber: My very first book was called The Ivy Portfolio, and we looked at how top endowments manage their assets — Yale, the late David Swensen. One of the strange things about our world in asset management — almost unique among industries — is the assumption that more resources, more money, more access automatically equals better results. That’s true in almost every other endeavor: get the best doctor, you’re probably better off than with your local doctor; best trainer, best nutritionist, best coach, on and on. Not necessarily true in investing. The longer I’ve been in this business, the more I see complexity as often an enemy. So we love to pick on CalPERS — we’ve written a dozen articles: should CalPERS be run by a robot, should they just fire everyone and buy ETFs? We’ve run the simulations, and in many cases these giant institutions — with $500 billion, hundreds of employees, access to literally any fund on the planet — should be able to beat everyone, but they can’t. A very basic buy-and-hold portfolio can mimic what a lot of these top institutions actually deliver. Eventually I got tired of just talking about it. I’ve applied for the CalPERS CIO job at least half a dozen times — they have an opening every other year, listeners, it’s the most dysfunctional organization. I joked on Twitter the other day: who’s had more turnover in the past 10 years, CalPERS CIOs or UK prime ministers? Both totally dysfunctional — I think CalPERS has a slight edge, but it’s close. I said I’d do the job for free — I’d fire almost everyone and get rid of all the illiquid, high-fee investments. But there’s this entire ecosystem of people incentivized to keep the engine running: private equity consultants and the rest of the “two-and-20” crowd. So eventually we said, let’s make this a real, live contest. We launched an endowment-style ETF, ENDW — roughly $150-180 million in it now — and said every June 30th, once we’re through a fiscal year, we’re going to compare results head-to-head. This ETF has no management fee to speak of, all-in under 25 basis points. Can you beat a low-cost ETF like that? Let’s find out. Sure enough, year one — CalPERS has already reported, and they didn’t do badly, but it was basically like a 60/40 portfolio; you’d have been just as well off doing 60/40 and moving on. Our endowment-style allocation actually replicates the average endowment quite well — a nice global mix of global stocks, global bonds, and global real assets (gold, TIPS, REITs, and so on — that real-assets sleeve is one a lot of people leave out). To get closer to a Swensen-level result, you need a couple more ingredients, in my view: you can approximate something like private equity with small-cap value, and approximate the broader endowment risk profile with a bit of leverage, plus tilts to value, global exposure, and trend-following. We’ll see how year one shakes out once all the endowments report — UNC might actually beat us because they had a huge stake in SpaceX, so congrats to Chapel Hill. But I think year one goes to me, sorry to say, CalPERS. I’m going to be a giant irritant on this for years to come. The cool thing is you now have a genuinely investable benchmark. Every endowment investment committee suddenly has to ask, with real fiduciary teeth: can we beat this low-cost ETF? And if we can’t, what are we even doing — why are we studying all these crazy illiquid partnerships instead of just buying a basket of ETFs and calling it a day? That’s going to be an awkward conversation in a lot of boardrooms. [25:45] Frazer Rice: Two comments on that. First — isn’t there someone in the state of Nevada doing something similar, basically running one of the state pension pools with a team of about three people? [25:51] Meb Faber: Yes — we had him on the podcast. I told him, look, you’re putting your money where your mouth is on this. I won’t do his story justice here, I’ll tell you about it off-air — but it’s a great example that this doesn’t have to be as hard as people make it out to be. Frazer Rice: The second thing is — anytime I’ve talked to people in the industry about this, they come back and say, “yes, we technically have an infinite investing horizon, but we have very rigid liquidity needs, so we need to be complex, because our liquidity needs can shift at any moment.” Meanwhile, on one hand I’m thinking, that complexity doesn’t actually help you with liquidity, as far as I can tell — and on the other, it feels like a bit of a convenient excuse. Do you have a response to that? [26:56] Meb Faber: Oh boy, I’ve got a bunch. The endowments famously got caught upside-down in 2008-2009. They only mark their portfolios once a year, June 30th — I wish we could all do that; maybe we should just tell clients, you’re only allowed to look once a year. They were probably down roughly half in ’08-’09, and the illiquid positions were probably down even more. A lot of them got badly offsides, and I don’t think many of them have fully learned the lesson — if you look at the amount of private allocations still sitting in a lot of these portfolios today, it’s a massive amount. I hope they’ve learned the lesson. We’ll see. But it’s a story as old as time — we just saw a version of it recently with a fund blowup, a basic, one-oh-one level failure of situational awareness and position sizing: you over-lever a portfolio, you get taken out of the game, you lose all your money, and then you’re out of chips at the poker table. You watch these mistakes happen at the upper echelons of finance and wonder how it’s still happening — and the core problem is that the career incentives of the people running the money don’t necessarily match the actual investment problem. Yale gets a pass. When Swensen’s successors hit a rough patch, how long do they get a pass? Because Harvard has been a total mess for the last 20 years — there are entire books written about the Harvard endowment, which used to be the Yale before Yale. The Harvard Crimson ran article after article saying, you’re overpaying people, what’s going on here — and the fund would underperform and nobody would actually lose their job over it. That’s the real problem, and I have some sympathy for how hard it is to fix. You deal with a version of this on the personal client side too, with multigenerational wealth — it’s almost an unsolvable structural problem for a Harvard, an endowment, or a CalPERS, because — take Harvard — you’ve got current students, alumni, future students, professors, the people who work at the endowment itself, all with completely different incentives and interests. It creates a genuinely absurd situation where, in no realistic scenario, should the resulting portfolio look like what they actually end up with. It’s an outright disaster, structurally. [29:36] Frazer Rice: It reminds me of a car designed by committee — you end up with this stitched-together Frankenstein’s monster of a product that was never going to work or sell, and it ends up sinking the company. Meb Faber: Yeah, yeah — a Rube Goldberg machine is not what you need. But there’s a reason our endowment ETF, out of the roughly 20 funds we’ve launched, has gotten the least attention — even though it’s now about $5 billion in assets with over a hundred thousand investors. It’s received the least publicity of any ETF we’ve ever done, because it doesn’t benefit anyone in that whole existing ecosystem — it’s actually a genuine threat to it. I was at an institutional conference up in Santa Barbara, at a wine happy hour, talking to three women who run three of the most famous pension and endowment pools of real money in the country. We’d just launched an endowment-style ETF, and they just stared back at me with these icy daggers. I said, oh, sorry — I’m not really a competitor to you, you should easily be able to beat me, I’m just the table stakes. But I think they realized that’s probably not true — they’re going to have a very hard time beating me, which doesn’t exactly make me anyone’s friend. I’m the anti-Switzerland of asset management. [31:16] Frazer Rice: Meb, how do people find the firm, find the book, find you? [31:24] Meb Faber: With a name like Meb, it’s easy. Cambria Funds is the day job, with the ETFs. Meb Faber is the old blog, podcast, and Twitter presence — you can find that just about anywhere. And if you find yourself in Los Angeles, Manhattan Beach, come say hi. We’d love to hear from you if you pick up a copy of the book, Investing in America — let us know what you think. Frazer Rice: Really cool stuff. Thanks, Meb, for being on. This was a blast — let’s do it again. Meb Faber: Let’s do it. [31:50] Close (produced VO): This podcast is for educational and entertainment purposes. It is neither investment, legal, nor tax advice. It does not represent the opinions of the employers of the host or guests. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

When the Title Changes but the Authority Doesn’t: Family Business Succession with Paul Edelman Most family business succession plans fail not because the legal structure is wrong, but because authority never actually moves. In this episode of Wealth Actually, Frazer Rice talks with Paul Edelman, PhD of Edelman & Associates about how to tell the difference between a real handoff and a cosmetic one. Edelman unbundles succession into six separate questions, explains the three behavioral tells that reveal who is really in charge, draws a hard line between a legitimate safeguard and an open-ended veto, and makes the case that agreement from a family is not the same thing as ownership of a decision. https://youtu.be/p2KCsftvM74 Key Takeaways Succession is not one decision — it is at least six. Who gets the economic benefit of ownership, who votes the shares, who appoints and removes directors, who runs operations, who receives what information, and who retains informal influence after formal authority ends. Watch behavior, not titles. Compensation changes and org charts are easy to read and easy to fake. How decisions actually get made — and whether they get reversed — is the real signal. Three tells that authority hasn’t moved: the next management layer still routes real decisions to the founder; the successor has never had a disputed call stand; and in a genuine crisis, the founder is the one who walks into the room. Speed is not the test. A five-year transition can be disciplined development; a six-month transition can be denial with a deadline. The test is whether milestones and readiness criteria are observable and stable, or whether the goalposts keep moving. “Not ready” is not a concern — it is a placeholder. If a founder cannot restate it in specific, testable terms, the obstacle is emotional rather than substantive, and it needs a different path. Advisor impatience often masquerades as clarity. When you catch yourself thinking “why can’t they just do this,” ask whose timeline is actually being served — the family’s, or your need to close the file. A safeguard is bounded; a veto is not. Reserve specific extraordinary decisions with defined scope, thresholds, triggers, evidence, and duration. “The successor is in charge unless the founder feels uncomfortable” is an undefined operational veto. Agreement is not ownership. A family can be outvoted and formally agree while owning nothing. Ownership comes from having weighed the trade-offs and the implications of each option in the room. Timestamps [00:00] Cold open — why “he’s just not ready” is untestable [01:05] Welcome: founders at the sell-or-transfer crossroads [01:48] Unbundling succession into six separate questions [02:23] Running a diagnostic on where the founder actually is [03:00] Watch behavior, not titles — and what the CFO tells you [04:00] Decision reversals and the second-guessing test [05:00] The crisis test: who owns the emergency [05:36] Fast handoff vs. staged succession and prolonged ambiguity [06:10] Milestones that show it’s working — and goalposts that keep moving [08:00] Inside vs. outside successors and family dynamics [08:54] Competing heirs and the outside CEO as bridge or avoidance [09:47] Reading resistance: making “not ready” addressable [11:10] The advisory ecosystem’s frustration with stalled progress [12:16] Whose timeline is being served? [13:31] Push, pause, or reframe — the art and science of advising [15:00] When to change the forum, the decision rights, or bring in a facilitator [15:36] Safeguards vs. vetoes and the trap doors founders build [17:37] Board composition: independence vs. familiarity [20:00] Restructuring boards to create seats for new expertise [20:54] Income-dependent family members vs. growth-minded owners [21:34] Agreement is not ownership: dividends vs. reinvestment [23:31] Matching complexity to the outcomes you need [25:00] Communicating decisions to people who weren’t in the room [25:26] How to reach Paul Edelman [25:46] The Edelman–Shenkman trilogy for estate planning attorneys [29:19] Close Pull Quotes “If the CFO briefs the new successor CEO and then confirms things with Dad, then the org chart is not telling the real story.” — Paul Edelman “To have authority when things are going well is fine. But the person who owns the crisis is the one who’s really owning the leadership.” — Paul Edelman “A safeguard should be limited, explicit, and connected to some extraordinary risk. A veto is an ongoing ability to stop or reverse any old ordinary decision.” — Paul Edelman “Just because there’s an agreement in name doesn’t mean there’s ownership of the decision.” — Paul Edelman About the Guest Paul Edelman, PhD is a coach, facilitator, and mentor at Edelman & Associates, where he works with family enterprise and family office leaders on decisions that cannot be delegated. He holds a PhD in developmental psychology from Harvard University and a BS in physics from MIT, and serves as faculty at The UHNW Institute and the Bertarelli Institute for Family Entrepreneurship at Babson College. Contact Paul Edelman Email: [email protected] Website: edelmancoaching.com (contact form on site) LinkedIn: linkedin.com/in/pauledelman The Edelman & Shenkman Trilogy Paul and Martin M. “Marty” Shenkman, CPA, MBA, JD, PFS, AEP (Distinguished), of Shenkman Tietz, have written a three-part series aimed at estate planning attorneys: Simplicity and its trade-offs — When Clients Ask for a Simple Estate Plan, WealthManagement.com / Trusts & Estates, July 8, 2026. The language of estate planning conversations — published in Steve Leimberg’s LISI Estate Planning Newsletter (subscriber archive). Beneficiary education — forthcoming October 2026, expected in Estate Planning. Paul’s running author archive: wealthmanagement.com/author/paul-edelman More from Paul Edelman Approval Is Not Ownership: Helping Family Office Investment Decisions Hold Under Pressure — Family Wealth Report, July 1, 2026 How Families Can Override Emotions to Make Better Judgments — Family Business Magazine, April 9, 2026 Lessons For Families And Their Advisors From A Hit TV Series — Family Wealth Report, February 24, 2026 Stronger Family Bonds and Better Strategic Decisions — FFI Practitioner, January 20, 2026 Frequently Asked Questions What are the six questions a family business succession decision should be broken into? Who receives the economic benefit of ownership; who votes the shares; who appoints and removes directors; who runs the company operationally; who receives what information; and who continues to hold influence after formal authority ends. Bundling these into a single “handoff” decision is what creates ambiguity. How can you tell whether authority has really transferred to a successor? Watch three behaviors. First, where the next management layer goes for real decisions — employees are excellent at reading where power actually lives. Second, whether the successor has ever made a call the founder disagreed with and had it stand. Third, the crisis test: when a covenant breaks or a key employee leaves, who walks into the room and who gets briefed afterward. Is a fast succession better than a gradual one? Speed itself is not the test. A five-year transition can represent disciplined development, and a six-month transition can be avoidance followed by an arbitrary deadline. What matters is whether responsibility moves against observable milestones, whether the successor learns from outcomes instead of being rescued, and whether readiness criteria stay fixed rather than shifting each time the successor advances. What is the difference between a safeguard and a veto? A safeguard is limited, explicit, and tied to extraordinary risk — selling the company, debt above a threshold, issuing new equity, changing core strategy, or related-party transactions — with defined scope, thresholds, process, duration, trigger, evidence, and who decides. A veto is an ongoing ability to stop or reverse ordinary decisions. If the founder can intervene whenever they feel uncomfortable, that is an undefined operational veto. How should advisors handle their own frustration with a stalled family? Notice that impatience often feels like clarity. When you think “I see exactly what they need to do, why can’t they just do it,” that is often the moment to slow down and ask whose timeline is being served — whether the ambiguity is genuinely damaging the company, or whether the recommendation mainly closes the case and relieves the advisor’s discomfort with uncertainty. What makes an independent director genuinely independent in a family company? The ability to exercise business judgment and fiduciary duty free from undue family influence or loyalty to a particular branch. A director who is the founder’s golfing buddy or tied to one family faction will struggle to deliver the value independence is supposed to provide. Why isn’t agreement good enough? Because agreement in name is not ownership. A family branch can be outvoted, formally accept the outcome, and still feel no responsibility for it. Ownership comes from working through the trade-offs — what each option makes better and worse — so participants can say they helped weigh the considerations even if the result was not their first choice. Full Transcript [00:00] Paul Edelman: The resistance often takes the form of some sort of concern that is stated like, for example, the most general concern that people will say is, well, he or she, the likely successor, is just not ready. But that phrase “not ready” is at a very high level of generality. It’s not specific enough to be testable or to be capable of being satisfied. So the challenge is to work with the founder to help them express their concern in terms that are actually addressable. [00:36] Announcer: Welcome back to the Wealth Actually podcast, the show that features experts, entrepreneurs, and commentators that will give you the right knowledge, planning, and guidance so you can preserve your assets and enjoy your wealth. Learn more and subscribe today at wealthactually.com. This podcast is for educational and entertainment purposes. It is neither investment, legal, nor tax advice and does not represent the opinions of the employers of the host or guests. [01:05] Frazer Rice: Welcome aboard, Paul. [01:07] Paul Edelman: Thanks, Frazer. Looking forward to our conversation. [01:09] Frazer Rice: Well, it’s important because I deal with a bunch of founders and a bunch of other business owners, families, et cetera, that are trying to make sense out of the concept of passing along the business either to the next generation or deciding to sell it, and all sorts of parts of that tough crossroads that everybody has to go through at some point. And that’s really the crux of your practice — to help people with those conversations. [01:34] Paul Edelman: Yes. [01:35] Frazer Rice: So when we’re thinking about that and kind of unbundling the decision to pass the business along, when a family wants to talk about that, what are the separate parts of that decision that need to be contemplated? [01:48] Paul Edelman: Well, I see at least six different questions that need to be separated. One is who receives the economic benefit of ownership in the company. Another is who gets to vote the shares. And a third is who appoints and removes the directors. Then there’s who runs the company from an operational standpoint, and who receives what information. And then, who continues to have influence even though they may no longer have formal authority. [02:23] Frazer Rice: So once you get into the… it always seems to me to be tough to sort of say, okay, here are six things that have to happen, and that’s a lot for somebody to digest in the course of one or two meetings and get the buy-in from all the different constituencies that are interested in what the business is up to. How do you run a diagnostic to understand where a founder is — or generation one — in their own head space, and understanding what control being passed on looks like in summary form on those six different aspects that you brought up? [03:00] Paul Edelman: I think the key thing is to watch behavior more than titles. People often pay a lot of attention to when the titles have shifted or compensation shifts, things like that. But they pay less attention to how decisions are being made and whether those decisions get reversed. So when the title has moved but the authority hasn’t moved, you tend to see three different things. First of all, you can see something going on at the next level down in management — not with the founder and successor per se, but with the other executives. You can ask yourself, who do they go to for the real decisions? If the CFO briefs the new successor CEO and then confirms things with Dad, then the org chart is not telling the real story. [04:00] Paul Edelman: Employees are excellent at reading where the actual power lives, because they can’t afford to be wrong about that sort of thing. So that’s one clue. Another is to look at decision reversals, or what is more commonly called second-guessing. You want to look for whether the successor has made a call that the founder disagreed with. And if so, did it stand, or did it get reversed? If the company is two years into succession and that’s never happened, it’s possible that the successor is pre-clearing everything with the former CEO and only making decisions that they know will be approved. So in that case, it’s not real authority. And a third situation is what you could call a crisis test. [05:00] Paul Edelman: So when something genuinely bad happens — there’s a breach of a covenant, or a key employee departs, or a lawsuit — the question is, who do people go to? Who walks into the boardroom and into the decision-making situation, and who ends up getting briefed afterwards? To have authority when things are going well is fine, but the person who owns the crisis is the one who’s really owning the leadership, in a sense. [05:36] Frazer Rice: So one of the avenues that I think is interesting, that I read in your materials ahead of time, was the idea that a quick succession oftentimes — and maybe not often, but can be — a better avenue in terms of moving the succession forward, as opposed to having a staged succession where a long period of ruminating and decision-making often perpetuates ambiguity, or even confusion, amongst different constituencies both managerially and ownership-wise. [06:10] Paul Edelman: Speed itself is not the test. You could have a five-year transition that represents disciplined development of the successor, and you could also have a six-month transition that essentially is a denial of what needs to happen, followed by some kind of a deadline. But you certainly don’t want to allow things to drift. If the transition is proceeding gradually, you can tell it’s working if responsibility and authority are moving according to observable milestones. So the successor is making increasingly consequential decisions. They’re learning from the outcomes rather than being rescued by the founder or the prior leader from their mistakes. [07:01] Paul Edelman: They’re developing important relationships and they’re becoming someone that others rely on. The criteria for readiness also should become clearer over time, and the founder’s involvement should change in ways that are recognizable. So that’s the ideal. But sometimes a gradual transition represents avoidance, and in those cases you see criteria — sometimes people refer to them as the goalposts — that keep moving. And decisions are repeatedly returned to the founder. Also, each step that the successor takes toward greater authority may be followed by a new reason why the founder feels that they’re not ready. So the question that can be asked is: what are the capabilities that the successor is developing, and what specific evidence would demonstrate that? [08:00] Frazer Rice: When you’re diagnosing what those capabilities are, as part of that diagnosis, if the successor is inside the family versus outside the family, how do you diagnose whether that is a positive or a negative, in addition to maybe the harder skill sets that are being dealt with? [08:29] Paul Edelman: If the successor is from inside or outside the family, I would say that many of the capabilities needed for leadership are the same. [08:40] Frazer Rice: Yeah, I was going to say — if you run into situations where a family member is capable skill-wise, but there are dynamics issues that have prevented their succession to the throne, essentially. [08:54] Paul Edelman: Sometimes there may be a situation in which you have more than one potential successor and they’re in competition with one another, and the family is reluctant to declare a winner. And so one move that can be made in that situation is to essentially bypass the decision by going to the outside to bring in someone. It could be a kind of conflict avoidance mechanism. On the other hand, if no successor is really ready, then sometimes going to the outside can be an interim move. So some companies will hire an external candidate for CEO with the expectation that part of the responsibility will be to develop one of the family members who ultimately may take over. [09:47] Frazer Rice: And so part of your methodology is to read resistance in the room and understand where those pain points are. How does a founder, or generation one, or the successive generations understand what the resistance is? And how do you help them overcome that? [10:02] Paul Edelman: The resistance often takes the form of some sort of concern that is stated like — for example, the most general concern that people say is, well, he or she, the likely successor, is just not ready. But that phrase “not ready” is at a very high level of generality. It’s not specific enough to be testable or to be capable of being satisfied. So the challenge is to work with the founder to help them express their concern in terms that are actually addressable. If you try to do that and you’re unable to, that’s an indication that the concern is less about something specific and addressable, and more about some unpleasant feelings that the founder is experiencing — and that implies a different path for how to address those, or what needs to be done. [11:10] Frazer Rice: For those of us in, let’s call it the advisory ecosystem — that can be the wealth manager, or the lawyer, or the accountant, the people who help guide the technical succession issues, whether it’s tax planning or trusts and estates or even just the corporate handoff — oftentimes we’re presented with situations that just get muddled, and we look at lack of progress with frustration. How does an advisor deal with that, when the instinct and in a sense the business model is to try to push, to get resolution and to get progress on these types of issues? [12:16] Paul Edelman: The signal that I watch for is what that impatience feels like to the advisor. Sometimes it feels like clarity. The advisor says to himself, oh, I see exactly what they need to do — why can’t they just do this? And in my experience, that’s often the moment when it’s helpful for the advisor to slow down. Not because the family should be allowed to delay indefinitely, but because the advisor’s own need for resolution may begin to shape what they say and do, and the advice that they give. [13:00] Paul Edelman: One useful check that advisors can use for themselves is to ask whose timeline is being served. There may be a genuine business reason to act — it may be, for example, that the continued ambiguity is hurting the company, or weakening the successor, or leaving employees unsure about who’s in charge. But I would also ask myself, and other advisors can ask themselves, whether their recommendation is mainly to help them close the case, or to demonstrate progress, or to relieve their own discomfort with uncertainty. [13:31] Frazer Rice: The concept of — this is really, I guess, the mix of art and science of advising — between push versus pause versus a total restructure or a reframing of the conversation. There’s an intersection of, you have to have the technicals down, but then experience in dealing with personalities, experience with dealing with the specific family and situation, and guiding that. [14:15] Frazer Rice: I imagine occasionally you run into situations where, at the intersection between the advisors and the family, they feel stuck. And so then the concept of getting them unstuck — yet there is resistance to maybe bringing in a facilitator to help grease the skids and get the conversation moving again. How do you help that reframing discussion? [14:40] Paul Edelman: I guess the question I would ask is, where do things stand? Has a decision actually been made, or is the obstacle substantive, or is it the process? So when a decision has been reached through a legitimate process and what you see is some sort of executional drag or discomfort, those are the situations where I think it’s helpful to hold the boundary. You can acknowledge whatever feelings may be slowing things down, but there’s not a need to reopen the decision. [14:55] Paul Edelman: On the other hand, if the discomfort that people are feeling suggests that there’s some sort of important concern that hasn’t yet been understood, then that’s where I would pause. And that pause can involve useful work. You can ask people, what is it you’re trying to protect? What are the consequences that you fear? What would need to be true for proceeding to feel responsible rather than reckless? And then there are times when it makes sense to restructure or to add structure. So for example, the choices are pretty clear, but the same conversation keeps recurring and producing the same result. In that case, you want to think in terms of either changing the forum, or clarifying the decision rights, or maybe dividing the issue into smaller decisions, or even bringing someone in to help structure the conversation, like a third-party facilitator. [15:36] Frazer Rice: The handoff ultimately — when the founder, or generation one, has gotten to the point where they’re ready to move things along to the next set of operators, the next set of owners — and at the same time, in order to feel safe, they’ve created some safeguards, or let’s call it some trap doors or back doors, to be able to help influence decisions if they feel like things are going in a different direction. How do you think about it so that they don’t turn into pain points — maybe regret that turns into a veto power that stymies the succession, even if it’s already been decided and put in motion? [16:21] Paul Edelman: Well, I think you put your finger on it. There’s a key distinction to be made here between a safeguard and a veto. A safeguard should be limited, explicit, and connected to some extraordinary risk, whereas a veto is kind of an ongoing ability to stop or reverse any old ordinary decision. So when it comes to safeguards, a family might reserve certain kinds of decisions — like selling the company, or taking on debt above a certain level, or issuing new equity, or changing the basic business strategy, or entering into a transaction with a family member. [16:59] Paul Edelman: Those kinds of things can be specified, and the scope, the threshold, the decision process and the duration of the safeguard should be clear — as well as who can invoke that protection, what evidence is required, and who decides whether the trigger has occurred, and so on. So the problems arise when the arrangement is essentially one in which the successor is in charge unless the founder feels uncomfortable. If the founder is allowed to intervene anytime they feel uncomfortable, as opposed to for these specific kinds of reasons, then you’re dealing with more of an undefined operational veto. [17:37] Frazer Rice: To that end — boards of directors related to these companies, whether they’re private or public, but we’re really talking about private in most cases. The constitution of those boards: how involved do you get in that? And what is the importance of independence versus familiarity versus family member input, to act as a go-between in many ways between founder, the operational executives, and then ultimately the owners? [18:07] Paul Edelman: Well, in order to really add value — the kind of value that independent directors can potentially offer to a company — they need to be adequately independent. That is to say, they need to be able to exercise their sound business judgment and carry out their fiduciary responsibilities in a way that is free from undue influence by other kinds of family considerations, and potentially loyalty to particular family members. So I think in those cases where a so-called independent board member is actually a golfing buddy of the CEO or the founder, or has a tie to one particular family member or branch of the family, it may be harder for them to bring the full value that an independent director can bring. [18:55] Paul Edelman: Then of course, another reason why companies bring in independent directors is because they have some additional expertise that the current board members or family members lack. So for example, a colleague and I are working with a company right now where the core business has been subject to commoditization, and they’ve made a strategic decision to diversify. But in order to diversify, they need to bring in people with new expertise, particularly in the line of business that they want to move into. In order to do that, they need to create some space in their board or boards of directors — they have several different kinds of boards. And as part of this, we were brought in to take a look at those existing boards and help them think about how to restructure in a way that could create some open seats while minimizing the displacement of people who are currently board members, including family members who are board members, who may not feel too positively about losing their board seat. [20:54] Frazer Rice: Related to board seats, but more specifically to family ownership — the concept of family members who rely on the family business for income, versus maybe other parts of the family that are looking at the business and thinking of growing the valuation or innovating with the business, that type of thing. With the tension between those two different components, how do you solve for that and have that conversation stay productive, when I imagine it can get emotional very quickly? [21:34] Paul Edelman: This is where a third-party facilitator can be helpful to slow things down. When things begin to get heated, it’s often helpful to have a neutral or impartial person present who can help to reduce the heat in the conversations. There are a number of things in particular that can be done under those circumstances. First of all, anytime there are these kinds of tough decisions, there’s never a single right answer. There’s always trade-offs involved. And some boards work their way through these things by voting. I’m dealing with a situation right now where some members of the family were outvoted. At the end of that vote, they say, okay, we now have an agreement, we’re going to move forward with this. But just because there’s an agreement in name doesn’t mean there’s ownership of the decision. [22:34] Paul Edelman: So in order to create ownership, I think it is helpful to have the difficult conversations and to consider the implications of going one way versus another. If we were to distribute all this money in the form of dividends, what would be the benefits of that, and what would be the costs associated with that? And on the other hand, if we were to plow it all back into growth of the business, what’s the upside and downside of that? Only by considering different options and the implications of each can the family ultimately arrive at a decision where people feel like, well, I may not have agreed to this, but I was part of the discussion, I was part of the process of weighing the different considerations, and I’m willing to buy into this. In other words, I feel some ownership for this decision. [23:31] Frazer Rice: As we start to wind down here, an interesting concept is what should all the constituencies come away with from the decision-making process. And as a follow-up to that is simplicity versus complexity of the solution. How do you manage that so that you take care of the needs of the business and the needs for structuring, with the need for simplicity, so that everyone who comes away from the discussion and the decision-making understands what’s been put in place? [24:06] Paul Edelman: As far as the solution itself goes, the level of complexity should match what’s required to accomplish the desired outcomes. So complexity for its own sake is not useful. But when you’re trying to accomplish more than one thing at a time, it may require a more complex approach to the solution. So that’s on the solution side. Now the other side of it has to do with communication. How do you share what’s been decided with other people, especially people who haven’t been in the room? And I think that the best way to do that is to try to explain clearly what was the context of the situation in which the need to make this decision arose; what were the desired outcomes that the decision makers were trying to produce, what were they trying to accomplish; and the flip side of that is what were they trying to avoid, or what were they trying to protect. [25:00] Paul Edelman: When you share all of that, the rationale for the decision becomes more understandable, and also you have a better case for justifying any complexity that’s part of the decision. As far as complexity goes, of course, you want to use the simplest, most straightforward language to describe what you’ve come up with. But I think the key thing to getting buy-in is to make sure that the rationale is clear, and people understand that there was a thoughtful and systematic process behind it. [25:26] Frazer Rice: Really good stuff. Paul, how do people find you to hear more about what you’re up to? [25:32] Paul Edelman: My website is edelmancoaching.com. So people can go to edelmancoaching.com, read more about the work that I do, and there’s a contact form there. Or people can simply email [email protected]. [25:46] Frazer Rice: Just to — because you’re being very humble — you have a couple of articles coming out with Marty Shenkman, where the intersection of probably the trust and estate planning and the actual, let’s say, getting the business ready for the next generation, whatever form that takes, is probably front and center there. How would people find that? [26:06] Paul Edelman: So we’ve written three articles recently, kind of a trilogy, and they’re each going to be carried in different places. Two have already come out, and one is due to come out. These are aimed primarily at estate planning attorneys. But the first one is on when the client asks for a simple estate plan. And this relates a little bit to what you were describing, in a different domain — the domain of trusts and estate plans and so on. But the point that we make is that the client’s request for simplicity is understandable, and ideally the attorney will validate that. But at the same time, along with the request for simplicity goes potentially some compromises, because when you have multiple desired outcomes, it may take more of a complex structure to achieve those outcomes. So the role of the planner is not to introduce complexity for its own sake, but to make clear to the client [27:06] Paul Edelman: what trade-offs they’d be making if they went with a simpler plan, and what additional protections they can get by considering a more complicated one. Then the second piece is on the use of language in these estate planning conversations. And again, it relates to this concept we were talking about a minute ago, of the difference between agreement and ownership. Some clients are willing to agree to whatever the attorney says. If you say to them, “Well, I think this is the best plan for you,” they say, “Fine, where do I sign?” But the goal, ideally, is more than just agreement. It’s ownership. Because in the absence of ownership — and by ownership, I mean that the client understands the trade-offs that are being made, they feel that they had agency in the process of making those trade-offs — [28:06] Paul Edelman: and ultimately, if something doesn’t work out as well as hoped, people will not go back and point a finger at the planner and say, “You did this, how could you do this?” or something like that, but rather, “This was a collaborative effort. You made clear what the choices were, and we made them together.” So that piece talks about language, and how, for example, there’s a difference between saying to a client “you should do this,” and speaking to them in terms of what they can do. [28:42] Frazer Rice: And then the third piece — when’s that coming out? [28:46] Paul Edelman: The third piece is on beneficiary education, and that one will come out in October. And so the first piece came out in a publication called Wealth Management. The second piece came out in a newsletter that’s published by, I think it’s LISI. And the piece that’s coming out in October is, I think, being published in a magazine or a journal, something like Estate Planning. [29:19] Frazer Rice: They’re everywhere. So, terrific. Well, Paul, thanks for being on. I’ll put all that in the show notes, and look forward to staying in touch. [29:26] Paul Edelman: Thanks very much, Frazer. [29:28] Announcer: This podcast is for educational and entertainment purposes. It is neither investment, legal, nor tax advice, and does not represent the opinions of the employers of the host or guests. Additional Links Mark Tepsich of Family Governance https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/