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Wealth manager’s advice for those who want to prosper: ‘Don’t buy the jet’

McClatchy-Tribune Information Services

June 20, 2016


PITTSBURGH — The clients whom wealth manager Gregory Curtis works with typically have a net worth between $200 million and several billion dollars.

Still, like many financial advisers who manage money for people with far less means, he is constantly preaching the virtues of frugality — although frugality is a relative idea for people who can have just about anything they want.

"My clients are usually a family that just sold a company, and now they’ve got all this money and they want to buy a jet. My first comment to families like that is, ‘Don’t buy the jet,’" said Curtis, president and founder of Greycourt & Co., a Pittsburgh-based wealth advisory firm.

"As much as they may want to buy that jet, it sends the wrong message to everybody," he said. "You are going to spend $50 million on that jet, and then you’ve got to hire pilots, you’ve got to have a hangar somewhere and all this stuff. What it says is, ‘I am spending money big time.’

"Spending is one of the great ways to destroy a portfolio."

No matter how wealthy a family is, Curtis recommends spending no more than 3 percent or 4 percent of assets. For someone with $200 million, that comes out to about $6 million a year.

"Think of it this way: Every generation the size of the family roughly doubles in terms of individuals," he said. "But capital doesn’t compound as fast as families compound. Three or four generations in, now you’ve got 100 people sharing what four people used to share in the amount of capital.

"If on top of that, you’re spending like a drunken sailor, buying jets and building a $100 million house in Palm Beach and all that kind of stuff, that money is going to go away."

In nearly four decades of managing assets for ultra-wealthy clients, starting with the Mellon family in 1979, Curtis has seen great fortunes come and go. One Greycourt client lost nearly $1 billion and effectively destroyed her family by refusing to diversify her wealth, which was concentrated in one company stock that she owned as a result of her husband selling the company and receiving the stock as payment.

"She was one of my partner’s clients," Curtis said. "In every meeting, my partner said to her, ‘You’ve got to diversify this portfolio.’

"At that time, the stock of the company just kept going up year after year after year. Every time we would tell her to sell, it would go up again."

But the stock price eventually crashed, reducing her fabulous net worth to a pile of rubble.

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Curtis, a 69-year-old father of six who lives in Pittsburgh with his wife, Simin, draws on his experience to illustrate how a great empire built by one generation can grow or decline over the course of several generations in his latest book, "Family Capital: Working with Wealthy Families to Manage Their Money Across Generations."

The book follows the fictitious Titan family of Pittsburgh, which began in the mid-1800s with the pioneering generation who started with nothing and was able to amass a fortune. Over a period of five generations leading to the present day, he shows how and why some branches of the family did quite well while others did poorly.

Ideally, a wealth management firm would only handle investments. But often clients need more than that. Curtis said he is often asked to render advice on how to handle the kids.

"If you are first generation and you make a couple hundred million or a billion dollars in one generation, you didn’t do it by staying home and reading bedtime stories to your kids," Curtis said. "You did it by working 90 hours a week and traveling all over the place. You don’t even know your kids, and your kids don’t know you.

"So how is that going to affect the second generation? The kids will end up with $1 billion, but they don’t even know their dad or mom if it was their mom who made it. So you have this kind of built in resentfulness that instead of a dad I have money. I’d rather have dad, but I didn’t get that. I got money. So I’m (angry). I’m entitled. I overspend. I over-drink."

It is, he notes, not easy to make a billion dollars in one generation.

"But what happens to your family in the meantime? So now you’ve got the second generation who grew up resentful and what kind of parents are they going to be?"

Curtis recalled one conversation he had with a client who was born poor yet built a net worth of several billion dollars.

"He had young kids. They were just starting school and we were talking about how to bring these kids up and not have them be spoiled and useless," Curtis said. "He said the way he was going to do it is tell them, as soon as they were old enough to understand, that he’s like Warren Buffett. He was leaving most of his money to charity.

"I thought that was kind of interesting. As we were walking back to his office, I asked if he had some figures in mind as to how much he would give away and how much he would leave to his kids? He said, ‘I figure I will give each kid maybe $100 million.’"

Curtis winced. "Here was a guy who was born poor himself. But now he’s so rich his whole scale of things had changed. He thought leaving his kids $100 million was really going to be a hardship on them."

He advised against it. "If a kid is old enough to understand what $100 million means, that’s not going to work."

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Greycourt’s clients are located all around the world, with the majority in the U.S. They do not come to the company’s office unless they are new clients who want to see the office and meet the people who work there while doing due diligence. Otherwise, Greycourt advisers deliver its services to the client’s front door.

Curtis said many of his clients are so unassuming, most people would have no idea they are rich.

"We have clients who have hundreds of millions of dollars who live in a perfectly normal neighborhood. Their neighbors know they are well off, but they have no idea how much money these people have," he said. "And that’s the way they want it for their neighbors, their kids and their friends.

"If people know you are really, really rich, they treat you differently. And you never know whether they are really your friend or if they just want to hang around and see what falls off the table."