Resources

Client Alerts, News Articles, Blog Posts, & Multimedia

Everything you need to know about BMD and the industry.

Investment Training for the Second and Third Generations

Client Alert

Originally published in Crain’s Cleveland on January 18, 2021

Consider this scenario. Mom and Dad started the business from the ground up. Over the decades it has expanded into a money-making machine. They are able to sell the business and it results in a multimillion-dollar payday for their labors. The excess money has allowed Mom and Dad to invest with various financial advising firms, several fund management groups, and directly with new startups and joint ventures. Their experience has made them savvy investors, with a detailed understanding of how much to invest, when, and where. They cannot justify formation of a full family office with dedicated investors to manage the funds, but Mom and Dad have set up a trust fund for the children to allow these investments to continue to grow over the years. Eventually, Mom and Dad pass. Their children enjoy the fruits of their labors, and, by the time the grandchildren are adults, Mom and Dad's savvy investments are gone. 

How does this happen?
There are many articles, theories, and research on why a family business or investment money rarely makes it to the third generation. However, one pervasive theme tends to stick out: the second generation and, in turn, the third generation, are untrained on how to manage, invest, grow, and use their family money in a positive, lasting way.
It makes sense. Mom and Dad had to learn every nuance of the industry and how to make every dollar count - they lived the on-the-job training that made them savvy investors. The next generations did not have that same "hard knocks" experience - they were taught by Mom and Dad, private schools and higher education. They did not have the urgency of making every dollar count because there were plenty of dollars available.

So, if Mom and Dad have enough money to create wealth for generations to come if it is properly cared for but they do not have enough to justify the cost of a full family office, what can they do to train their children on the importance of long-term investing for their benefit and more importantly for future generations?

A strategic family plan
What if there was an investment training opportunity for the second and third generations? Owners of family-run businesses, startups, or early-stage ventures are looking for investors to finance their expansion, create their new technology, or develop their next real estate project. These raises are the perfect opportunity for young investors to learn how to conduct direct investing at low buy-ins and allows them to discuss the pros and cons of an investment. A team of experts including the business owners (Mom and Dad), their financial advisors and legal counsel can collaboratively work together to set the plan into motion.

For example, if a client conducts a financing raise at $50,000 a share, Mom and Dad might buy one or two shares of the company. However, their children, who are in their 20s and 30s, most likely, cannot manage an investment that size. As part of the training of this second generation, Mom and Dad offer an opportunity to the children: if the children can pool together $25,000 between them, Mom and Dad will match those dollars to assist with purchasing a share. The children form an investment entity to hold the share in its name and any distributions made are divided among the children. The children would learn to read the PPM for the company, comprehend how the investment could grow or flop and understand how their investment entity will work on their behalf. They are interested and invested (both literally and figuratively) in the outcomes of the company because their personal money is invested.

This process results in Mom and Dad guiding their children through a valuable lesson: when, where, and why to take a risk with their own dollars. The second generation is able to learn directly from the most experienced resources they have, their parents, while they are still alive, able to answer questions, give advice, and discuss opportunities.

This is but one example. By providing clients, their children and grandchildren unique investment opportunities, structured in a way that provides profit and a training opportunity, clients' assets are more likely to grow and last over generations.

If you are interested in learning more about family boards, training and preparation of the next generations, and planning for long-lasting family wealth, consult a financial advisor and legal counsel. 

Cassandra L. Manna is an attorney at Brennan Manna Diamond. Contact her at 216-658-2206 or clmanna@bmdllc.com. Richard W. Burke is a member, Exec­utive Committee, at Brennan Manna Diamond. Contact him at 330-374-5255 or rwburke@bmdllc.com.


Valley National Bank/Trulieve Loan: A Big Step Out of the Shadows

In a late December press release, Trulieve announced that it had secured a $71.5 million commercial bank loan. In addition to the amount of the loan, which may be the largest commercial bank loan to date to a cannabis company, the release prominently identified Valley Bank and featured both a quote from Valley’s Senior Vice President, John Myers, and a description of the Bank’s service platform and commitment to the cannabis industry.

The End of Non-Competes? The Impact It Will Have on the Healthcare Industry

On January 5, 2023, the Federal Trade Commission (“FTC”) announced a proposed rule that, if enacted, will ban employers from entering into non-compete clauses with workers (the “Rule”), and the Rule would void existing non-compete agreements. In their Notice, the FTC stated that if the Rule were to go into effect, they estimate the overall earnings of employees in the United States could increase by $250 billion to $296 billion per year. The Rule would also require employers to rescind non-competes that they had already entered into with their workers. For purposes of the Rule, the FTC has defined “worker” to also include any employees, interns, volunteers, and contractors.”

2022 Healthcare Recap and 2023 Healthcare Check-Up

As the country begins to return to a new “normal” following the COVID-19 pandemic, there are many healthcare rules changing on both the federal and state levels as a result. Thus, it is important for healthcare providers and their employers to be aware of these changing rules, and any implications they may have on their practice. Look back on healthcare in 2022 and find a checklist for 2023.

Direct Support Professional Retention Payments

On December 15, the Ohio Senate and House passed House Bill 45, which authorizes the Department of Developmental Disabilities (DODD), in conjunction with the county boards of developmental disabilities, to launch their initiative to issue retention payments to Direct Support Professionals (DSPs). These retention payments will be distributed quarterly to participating home and community-based waiver providers to address the workforce crisis in the direct provider sector. Governor DeWine needs to sign the Bill to begin the payments, but he is expected to do so by the end of 2022.

Real Estate Investors Position for 2023 Opportunities

Real estate investors weathered another year in a post-pandemic world, with the year closing with yet another interest rate increase coupled with both uncertainty and heightened interest carrying into 2023. Just last Wednesday, the Federal Reserve raised its benchmark interest rate 0.50 percentage points, shifting the target range to 4.25% to 4.50%. The new level is the highest the fed funds rate has been since December 2007 and marks the seventh rate hike this year. So what does this mean to investors, brokers, lenders, and others in the real estate world? Read a few perspectives below from stakeholders familiar with our BMD clients and the markets in which they do business.