Here’s to a quiet week. Since I’m in London and have been talking quite a bit with my colleague Pietro Invernizzi, I thought I’d highlight the new product that my firm is launching here: The Family (AAA).
Our goal is to help the most ambitious seed-stage founders in Europe get ready for and raise their Series A round with the best investors from around the globe:
The idea is simple: an intense, 1-day-a-week program to save founders' time by sharing everything we've learned while working on dozens of Series A deals in the past years: knowing who to approach and how, learning the best negotiation tactics, having an in-depth look at your startup's team, data, metrics, financial planning, and more.
Once ready, founders will be introduced to the best Series A investors, ones with whom we’ve spent the last 6 years building bonds: from the likes of Accel and Index Ventures to Sequoia and more focused players like Notion, Felix Capital, Heartcore, Hummingbird, and many more.
And it doesn’t end there. After raising their Series A, AAA founders will become part of The Family’s network and get long-term access to all of our support.
The future of wealth management
We all know the stories about wealthy families losing it all: the prodigal son squandering the family’s fortune; the misguided investment in a can’t-miss gold mine; the sibling squabbles that line the pockets of generations of lawyers.
There’s no lack of real-world contemporary examples. Edgar Bronfman Jr. divesting his family’s historical business (Seagram) to reinvest most of it in failed Vivendi Universal (he then recovered through turning around Warner Music—read this book to learn more about the whole, fascinating journey!). All those who had trusted Bernard Madoff with their family’s money. And the in-the-making story of the Trump family. After the current US president's up-and-down story of fraudulently inheriting millions from his father, going through several bankruptcies, and staging a comeback thanks to a savvy reality TV producer and dirty Russian money is over, I expect that the next phase will be another blockbuster saga of decline.
However beyond these spectacular (and in some cases temporary) falls from grace, we should assume that most wealthy families hang on to their money and safely pass it on to their heirs. Indeed we don’t hear much about the many who quietly keep on piling up money, never seeking out fame or flashy Forbes billionaire lists. (Fun fact: fake wealthy people like Donald Trump use desperate means to land on those lists while others, the true rich, spend a lot trying to hide themselves from public view.)
Another thing that strikes me, however, is the existence of an entire industry, wealth management, whose exclusive focus is to ensure that wealthy families stay wealthy forever. This world is rather new to me. My family didn’t really have money, so the concept of a private banker is something that I didn’t think about until just a few years ago. But the more I learn about the financial services industry, the more I realize that hundreds of thousands of people are working hard all over the world at perpetuating wealth—a trend that’s been accelerating over recent decades as globalization, a more pro-wealth global tax system, and technological changes have made it so much easier to deliver results.
From a political economy perspective, this is a bit disturbing. A high level of social mobility implies that some wealthy people become poorer at some point. If there’s this giant industry working so hard at preventing that from happening, then the wealthy will get wealthier and the others can only hope to slowly catch up over time. This is an argument that’s been made by at least three sources:
There’s this book by historian Walter Scheidel about how inequalities continue to rise unless there’s a major, destructive catastrophe. The playing field is leveled, giving everyone a fair shot at getting rich, only via the high price tag of a war or a plague: The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century.
It’s also Thomas Piketty’s argument, better known as ‘r>g’: when economic growth (g) slows down, then those who own capital keep on racing ahead thanks to the higher rate of return on invested capital (r). Read more here: Ten questions for Thomas Piketty, the economist who exposed capitalism’s fatal flaw.
Finally, I was intrigued last year by a discussion on Twitter about inequalities in Sweden. Basically when you have a high income tax but no tax on wealth, as in Sweden, it becomes more difficult to get rich (since you keep much less of what you earn beyond a certain point). It explains why Sweden, supposedly a social democratic paradise, also has a low level of social mobility and more billionaires per-capita than the US. Read this thread by Samuel Hammond.
All that being said, I see three reasons why wealth management as an industry won’t necessarily contribute to rising wealth inequalities over the long term.
First of all, number one among rich people’s problems is how difficult it is to generate returns on your wealth when you have so much capital to deploy. You need to park your wealth in assets whose values accrue over time. Cash is not an option because you can’t trust the banking system over the long term, and inflation erodes its value anyway. And so, as Marx spotted a long time ago, capital is subject to the law of diminishing returns, and this is basically what wealth managers are fighting against.
The other part of that problem, as someone pointed out to me, is that wealth management doesn’t exactly attract the best people in the financial services industry (my own advisor excepted, of course 👋). This means that most of those advisors are not that competent and don’t perform well. Like many people in finance, they live off their high fees and count on their clients not asking too many questions!
Second, while rich people are not always served by competent advisors, non-rich people are getting smarter because information is more easily accessible (for instance: you shouldn’t simply own a house). Also, a new generation of entrepreneurs is working hard at educating all of us on how to turn any level of wealth into more wealth. The best example I know is Emilie Bellet, the founder & CEO of Vestpod, one of the jewels in the London-based segment of The Family’s portfolio. Vestpod’s focus is on educating women to better manage their wealth, but the real long-term goal is to develop products that will prove useful to anyone who wants to get serious about getting wealthier.
Here’s where you can learn more about Emilie’s work:
A recent article that she wrote in the Financial Times: What women can teach us about investing
And the Vestpod website: Women & Money
Third, wealth management is yet another industry ripe for disruption...because it’s still too expensive for those who don’t have much wealth. Thus following Jeff Bezos’s rule “Your margin is my opportunity”, tech entrepreneurs all over the world are busy providing large segments of the market with wealth management products that are better, cheaper, and more scalable thanks to powerful network effects. And so what happened with stock investing thanks to the likes of Vanguard and Fidelity (that is, commoditized access to steadier, higher long-term returns in exchange for almost no fees), will soon be applied in the vaster realm of wealth management. Never forget the famous “Varian Rule”: “A simple way to forecast the future is to look at what rich people have today; middle-income people will have something equivalent in 10 years, and poor people will have it in an additional decade.”
So what happens when the networked middle class gets smarter with managing their wealth than the few wealthy families with too much money on their hands and incompetent advisors? You get it: wealth will compound faster in the middle than at the top—and at some point, the rich will demand to know why they’re not being served as well as the rest of us
I’ll share more about all that in the coming weeks (I’m writing a piece on BlackRock that’s providing me with inspiration, and am currently focused on understanding where returns are in our low-interest-rate economy). In the meantime, I wanted to convey that simple message: Entrepreneurs are here to help anyone get richer through an exceptional experience and at a low cost!
📚 My colleague Zineb Mekouar and I have been in touch with Martin Gurri, author of the acclaimed The Revolt of the Public (published by Stripe Press last December), and we’ve invited him to Europe to discuss Brexit and the Gilets Jaunes crisis. That will be early in June, and I’ll share more as we get closer to the date. In the meantime you can read Martin’s recent interview in Atlantico (in 🇫🇷), the translation on his blog (in 🇬🇧), my own review of the book, and the book itself!
🇺🇸 I’ll be on my way to the Bay Area on Friday, after a brief stint in Warsaw 🇵🇱. It will part meetings and talks, part vacation with my daughter Béatrice. I’ll be doing a Talk at Google about my book Hedge on April 16 in SF, which I very much look forward to. Another highlight of my trip is a discussion that I’ll have with Rey Faustino, of One Degree, in partnership with the New America Foundation. You can attend the event on April 11 at 12pm at the James Irvine Foundation in San Francisco: REGISTER HERE.
📜 Finally, Ian Leslie, author of Curious and Born Liars, is spending a few weeks in Paris. I reached out to him because I loved his article The Death of Don Draper, and he’ll be giving a talk at our Paris office 🇫🇷 on April 17. You can register here: Is Don Draper Dead? Advertising & Branding in the 21st Century.
Further readings on wealth management:
Why your house is a terrible investment (JL Collins, The Simple Path to Wealth, May 2013)
Your house is not an asset: The property conundrum and trap of the aspiring middle class (Patrick Cairns, Moneyweb, July 2014)
Family Offices, Dentists and Quants (Matt Levine, Bloomberg, March 2017)
Nontraditional approach to wealth management (Fabrice Grinda, June 2017)
Wealth Managers Beware: Emerging Fintechs Are Coming For Retirement Planning Next (CBInsights, February 2018)
Amazon is perfectly positioned to disrupt the world of investing — and its blueprint for success may already exist (Joe Ciolli, Business Insider, July 2018)
The most influential financial revolutionary is an 89-year-old with no interest in crypto (John Detrixhe, Quartz, August 2018)
Where millennials turn for financial advice (Iona Bain, The Financial Times, March 2019)
Warm regards (from London, UK),