Family Business Audiocast | Episode 21 | Karen Costa | RSM US LLP
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About Our Guest:
Karen Costa leads the Family Office Enterprise National Tax Practice and is currently a Partner at RSM. Her team, known as the Family Office Enterprise team, emphasizes cross-functional collaboration to provide comprehensive solutions that align with clients' long-term strategic goals. Her extensive experience has involved guiding single, multi, and virtual family offices through various stages of their life cycles, addressing key needs along the way. She expresses a passion for working with next-generation family members, aiding them in navigating their unique situations. Additionally, she advocates for investing in the development of others and is committed to a culture of growth within her team.
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[Transcript]
R. Adam Smith: [Intro] Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I am fortunate for my many experiences within the family firm industry.
A warm thank you to our live audience on LinkedIn today – and for those listening in the future.
A brief comment on why I created this broadcast: private companies are a passion of mine, having grown up in a family of entrepreneurs, and having engaged for two decades in deals, strategic transformations, investments, and boards, with an array of fascinating family enterprises, family firms, and family offices. I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem. Whether you are a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. And now, it is time to turn our [01:00] attention to our accomplished guests on today’s episode.
I'm very pleased today to host Karen Costa of RSM. Karen, it's great to have you today on our audiocast.
Karen Costa: Adam, thank you so much for the invitation. I'm looking forward to our conversation.
R. Adam Smith: Definitely. Me too. Okay, a few words on you. So, Karen is a highly experienced professional advisor with over 20 years of experience in tax consulting for family offices. She is the national leader of the Family Office Advisory Center for RSM US. In this role, she has been building out a large family office enterprise team globally and has worked very closely with many friends of mine across the family office teams at the firm and brings holistic solutions to the clients.
She works with multi-family offices, single-family offices, and virtual family offices. She has a very deep understanding of her clients' needs, and her ability to bring lasting relationships and wealth value to her clients makes her a very trusted advisor to families across multiple generations.
Also, a bit on the RSM. As you know, it's an accounting firm [02:00] focused on tax audit consulting in the middle market, now on a global basis. This originally was formed in 1926 in Cedar Rapids, Iowa. It is part of its broader international network based in Chicago, and together, it employs over 17,000 professionals in over 80 offices.
RSM in the US has revenues of about $4 billion, making it the fifth-largest professional services accounting firm in the country. And globally, it has about $8 billion of collective revenue with 51,000 employees in 123 countries. So, quite a large firm these days.
OK, let's get started, Karen. So, where are you today, and what are you working on?
Karen Costa: Yeah, so uncommon for me, I'm actually at home in Houston. Just got back last night from New York. Had some great meetings up there with our collaboration with our Cornell Smith Family Business Initiative. [03:00] One thing that we're working on with them is our RSM Tony Wood Family Office Institute. We've got a two-and-a-half-year accredited program that we put our professionals through that takes them through really a deep understanding of the clients that they're working with around the family enterprise, the family office, the family business.
So, coming off the heels of a really great, quick 24-hour trip to New York City, and some strategic planning around that program, I'm happy that I have my heels planted at home in Houston for the next couple of days.
R. Adam Smith: Good, that sounds great. We'll be talking about that as well. Why don't we start there? Reflecting on the profound impact that your former colleague and our friend, Tony Wood, has had on the growth of the practice and, of course, affecting many hundreds of people's lives in terms of their personal and professional wealth lives, it was quite a difficult moment recently that we lost Tony Wood, as just a wonderful person. So, I'd like to dedicate this audiocast to him [04:00] and would like to share some fond memories from your point of view, working with him and being around him. It must have been quite incredible.
I always loved how he finishes his LinkedIn posts saying, “Every day is a great day,” and really brought a lot of positive energy to business, to the firm, and to those clients. So, maybe we just talk a bit about him for a minute.
Karen Costa: Yeah, I appreciate that opportunity. For those of you that had the opportunity to know Tony, he was one of a kind. When I think about just the profound impact that he had, not only on the firm but also on his people, I don't think you can say and think about Tony Wood without a big smile on your face. For those of you that had the opportunity, he had the gift of building deep personal relationships with everyone that he came into contact with. And not only did he say, [05:00] “Every day is a great day,” but he lived by that and through that, where regardless of what he may be going through, he woke up every morning grateful for another day to have positive impact.
And so, not only a visionary, strategic thinker but also just the gift of being just a caring and compassionate individual who just had the ability to deeply connect with everyone that he came in contact with, both professionally and personally. I'm super blessed to have had the opportunity to lead side by side with him and be mentored and guided by him over the past 10 years.
So, just a truly wonderful individual.
R. Adam Smith: Absolutely. That's amazing. Everybody I spoke with who worked with him had such a wonderful experience, and he taught a lot of people. He was not just a business leader but also a mentor. I think that it's very relevant to family offices and family businesses as well to look at it from his way to think about building business, but also doing it in a positive way in terms of [06:00] culture, in terms of teamwork, in terms of collaboration.
Maybe talk a bit about those experiences with some of the clients. And what was it like to bring those values to those projects?
Karen Costa: Yeah, I think if I reflect on some of the interactions and working with Tony, one thing that he brought to every opportunity, client, prospect, even just the COIs and the centers of influence that we have in our industry, he had the power of questions that he brought to every engagement. And so, I think through that, he really sought to deeply understand not only about the family or about the family's business or their legacy or their enterprise but really got to know them on a personal level. I think his ability to really build that trust initially in those initial interactions, and really just the gift of questions. Oftentimes, we go through engaging with individuals throughout our daily ‘How are you doing?’ ‘How are you doing?’ Very surface-level questions.
[07:00] Tony really had the ability to get into some of those deeper questions to really help the family really think about, what is that guiding light for them as an enterprise. What does legacy look like? And so, not necessarily a short-term thinker, but really got his families to go along with him on that long-term journey.
From an internal perspective was we worked with Tony on strategy in other areas of the firm. He always was one step ahead of us and always knew where he was sending us. And so in calls, we would get off, I would often get a text from him about, “What did you think of the call?” “How did it go?” And he said, “You see, I'm just asking questions because I'm trying to guide people in the direction” that he's trying to take them because he always was one step ahead.
So, the power of questions would be one thing that I think would be an item I would always have in the back of my mind with Tony and his ability to really dig deeper with those relationships, and getting the families internally and externally to really deeply understand purpose, vision, values, and their why.
R. Adam Smith: [08:00] That's wonderful. The power of questions and asking “Why?” is really important. I have had some opportunity to be coached by the Tony Robbins organization and one of his elite coaches. And I like that experience of going through the thought process of what we do and how we do it, but ultimately, what I like about that point that you made about Tony Wood, also Tony Robbins, talks about to really focus on “Why?” And that's helpful for one's own business operations whether you're a banker, investor, family office, but also for your clients to talk about “Why?” And we talked about “Why?” numerous times on this audiocast about legacy, and why family businesses are built, and for what purpose, and building a larger enterprise.
Maybe talk a bit about your view on legacy. You've been at RSM for over 20 years — congratulations — going back [09:00] to one of the predecessor firms. I actually worked with RSM Equico on my first buyout in 2005, so I have a fond place in my heart for the firm.
Maybe tell us a bit about the building of the organization and some of the experiences you had early in your career as a tax advisor before you came into the firm.
Karen Costa: Yeah, I think, you know, similar to a lot of other professionals out there, I started my career in the Big Four and got that experience, but I was always seeking something a little bit deeper and maybe something a little bit where I felt I could have a little bit more impact with the work that I was doing. That ultimately led me to a small boutique firm in Houston, Texas that started with, I think, 30 people strong as I joined that firm.
But what was really impactful to me at that time was really being mentored and guided by some consummate professionals who table stakes was the technical ability that they brought to their clients and to opportunities. But where they really stood out was the ability for them [10:00] to provide outstanding client service. The ability for them to build those deep relationships. And so, being young in my career and working really closely with those partners and those individuals, I think, really set a strong foundation for me that clients are critical to us. In client service, you know, we have to really think of them first.
Equally as important, and what was really highlighted early on in my career that was also foundational, was the importance of your people and your firm and ensuring that if you put those people first and you really treat them in the highest regard, then everything else will fall into place. And so, I think, those two foundational items about really extending that white glove — we hear that often, the “white glove client service” — really focusing on the client's needs, and being proactive; really good hygiene around that. But equally as important as taking care of those people that are around you and that are supporting you from a teaming perspective. [11:00] And taking care of your people allows them to take care of your clients.
And so, those two, I think, would be the biggest foundational building blocks, if you will, from that early-on experience.
R. Adam Smith: Right. Let's talk a little bit more about legacy. I had the opportunity to write a recent article with FamilyBusiness.org and Professor Mat [Mathew] Hughes and Kimberly [Eddleston] and the EIX platformer. Really enjoyed that, and since then, looking at doing deals and investments and building platforms with family offices, of course beyond their investments in funds and deals is actually building a family office into a multi-family office or into a larger enterprise. We can see that, you know, quite significantly in many large businesses around the world, can be LVMH, can be IKEA, can be Hermes, can be Pritzker, can be BMW, HQ. There's lots of examples of smaller family businesses that evolved into bigger family businesses.
And in fact, at Cornell SC Johnson, as you said, there's an [12:00] initiative called the Smith Family Business Initiative, which is a great name. Smith is my name as well, but it's not related to me. But I like to see the story of this gentleman, John Smith, and his wife Dyan, created that initiative because their story is quite illustrative of the ability for a small idea and a small family business to scale into something bigger.
So, in their case, they started in 1995 with a little transport company out of refurbished chicken coop for $125. And they convinced firms that they could save money by working with them, moving livestock around Chicago to the Cedar Rapids area with loads of steel instead of really using empty trucks. It's an interesting story.
Tell us a little about that family business initiative at Cornell, and then maybe a couple of examples of some inspiring stories of families that have scaled over time that you've worked with.
Karen Costa: Yeah, I think I'll maybe start with some of the families initially. [13:00] And I think something that's really great about the opportunity and privilege that we have to work with these families is the ability to help them see past themselves, whether it be Gen 1, Gen 2, Gen 5, Gen 8 that they're working through, but helping them really establish what do you want your legacy to be. What do you want to be remembered by? How do you want to continue to drive impact?
And often those conversations go deep into what are their values. As you just described with the Smith Family, thinking about what is the industry that they want to be and how do they want to continue to support that? How do they want to continue to do one plus one equals three and really drive that impact?
So, in working with families, I think it really is a privilege. Not only are you looking at maybe the wealth generator and the legacy they want to create, or success in generations and how that legacy may start to move around a little bit and think about how that molds into something that's important to them, and really getting to see that impact. That's just really, really rewarding in the work that we do. Seeing the wealth be able to [14:00] have that impact has just been super rewarding.
And so whether that be, you know, Texas farmers and ranchers who become land rich and have the ability to give back through transitions, or the ability to work with business owners who may or may not want to keep the business and the family for a number of years and really thinking about what is the pre-liquidity planning or post -liquidity planning that we can do to really maximize your impact. And that impact could be around philanthropy. The impact could be around what they want to do for their legacy and how they want to establish that.
So, that's really been a privilege to work with multi-generational families. And, as I referenced earlier, really finding that rewarding in the types of clients that we're working with. The collaboration that we have with Cornell and the Smith Family Business Initiative has been fantastic. And so, the great work that is happening there, bringing not only business owners [15:00] together and family members but also really great experts in the industry to talk about a lot of issues.
And so, the program that we've developed in collaboration with them really gets into the family dynamics. We started at the center where, as professionals, we need to understand our role as the advisor. How do we guide conversations around that legacy and the impact that that family wants to have? How do we do better in getting to know the families and the different generations and understanding those nuances?
And so really, that Smith Family Business Initiative has allowed us and enabled us to really dig deeper into getting to know the clients that we're working with, whether it be around governance, family dynamics, really understanding their wealth, and has really just created a great access point for us, to professionals and as well as just thought leaders in the industry, to really help us connect the dots to better serve our clients and better understand them.
R. Adam Smith: That's great. I see you have some colleagues on the call as well with Barbara [Lancaster] and Susan [Traub]. And any of you that want to reach out to Karen, you can reach her on LinkedIn [16:00] or reach out to me as well, to Barbara and Susan, to discuss the firm.
Also, we have some former guests on the show live now and we've discussed some of these issues with them. For example, with Ruby Hugueny way back. Months ago, we talked about really this bespoke nature of a family office or family business, and that includes their lifestyle as well, and that relates directly to their legacy of what are they going to do with all this wealth. Do they recycle it back into the company for tax efficiency? That’s something that I'd like you to talk about briefly next. But also, they might want to distribute that cash flow and seed other initiatives. It can be into real estate, it can be into operating companies, into venture capital, and in Ruby's case, it can be into fantastic castles and art that their clients put money into.
And we spoke also about the culture and the legacy with [17:00] Lina Chehab and her colleague Elizabeth [Bagger] previously, several weeks ago. We also talked about women in business and family offices. So, maybe talk a bit about the tax first. What is going on in tax in, let's say, the US with family offices? And talk about the power of compounding and maybe also talk about the family office exclusion element of the US tax law. And then also talk a bit about lifestyle planning and liquidity that goes beyond into, let's say, art and passion projects.
Karen Costa: Really great question. So, taking a step back, I think one of the things I'd like to start with is — and we often see this. There's a saying that goes, “Don't let the tax tail wag the dog.” If you're coming up with a really great tax strategy in a vacuum and not necessarily considering all of the client's goals, or whether they be short-term or long-term, I think you're really missing the mark on that.
And so, I think with every client that we work with, or as we, you know, we're focused on opportunities in ways that we can really [18:00] enhance the value of an organization or a family enterprise, we have to be very cautious not to let tax motivation change the nature or specifics of a deal. You always want to ensure that if we work with a family then we understand what their long-term goal is. Is it to keep a particular property? Is it to pass, you know, a certain amount of wealth or certain amount of assets to the next generation?
You want to ensure that you're having those holistic conversations. What does philanthropy look like? What does it look like when we don’t have a business and we are post-liquidity and what is the family really going to do and how are we going to really find that tie that binds us together?
So, from a maybe 50,000-foot view, I think we always have to be cautious to look at our tax strategies and planning for tax minimization in a holistic view of the [19:00] client's goals, whether that be philanthropic, financial. And really, also you mentioned keeping in mind, what does the lifestyle and legacy look like for that.
So, we've seen very young, very aggressive people out there who would say, I want to transfer everything to my children, but yet they're not really thinking about what does lifestyle look like for them. And so, really being cautious about your goals, you know, the lifestyle you want to live, as well as what you want to pass on to future generations. So, that would be one cautionary tale that I would have, is to ensure that you're not allowing the tax tail to wag the dog and you're looking at it from a holistic perspective.
There's a number of trends that we're seeing from a tax perspective. I think we are in an environment where we're probably seeing pretty low rates, maybe versus what we are faced with coming down with the sunset of some provisions and, you know, potential changes in legislation. And so, one thing that I would say that we're seeing quite significantly is the potential reduction of the lifetime exemption from an estate tax perspective. So, families are really [20:00] starting to hone in on that opportunity to transfer the wealth, knowing that it's very likely, if not pretty positive, that that amount will be sunsetting and being reduced here in a couple of years. And so, really ensuring that our families are focused on taking advantage of that and ensuring that we're thinking about, what does that succession event look like?
I think we hear a lot about the Great Wealth Transfer happening, and so, that transfer of trillions of dollars from one generation to the next is upon us. And so, from a tax perspective, ensuring that that transfer is done in the most effective way possible, while still considering what are all of the goals that the family has and ensuring that they have a roadmap, if you will, about what does this look like.
And so, always also ensuring that as we develop tax strategies for clients, [21:00] what is the appetite for complexity? You may have one family office out there that loves complexity and the lender structure is right for them. You may have one where it makes sense from a lender perspective because of the assets and the businesses that they hold, but maybe they just don't have that appetite for complexity and creating a family office where they're employing 50 individuals. You have to really make sure you understand what is the client’s appetite for complexity. Do they want to keep things simple?
That's where we often see we have virtual family offices that we're supporting. And then from a tax perspective, there's a lot of outsourcing that can happen, as we would outsource that tax compliance function. We're also outsourcing the HR component, IT technology, because I think we as professionals know that we are struggling to find talent. The families that we're working with, whether they have operating businesses or they just are passive family offices running investments, [22:00] they're also faced with that challenge of talent and really trying to find talent and keeping up with technology. And so, some of the trends that we're seeing that also lead into tax is, how do I really outsource and really keep in function and in-house the functions that are important for me that I want to scale? And then, how do I really think about what are those functions that I should be outsourcing because of the challenge with talent or technology and the evolution of technology?
So, those would be a few things that we're seeing pretty frequently, but there's no doubt that from a tax perspective, compliance becomes, and the regulatory demands become, more and more complex. Many of our families have a global footprint. And so, the trying to navigate and understand those global issues is very difficult. And so, ensuring that not only are we keeping that holistic view from a domestic perspective but also from a global perspective in mind. So, what may make sense for the US may not make sense if you're in a different country. So, ensuring that you understand and you have an [23:00] advisor with you that really does understand those nuances and complexities.
R. Adam Smith: That's great. I know we have some experts on the audiocast live now that are across legal and tax structuring, including Karen [Fox] and Jim [Carroll] and Richard [J. Wolkowitz]. I appreciate you joining to listen in. Also Nicholas [Tyszka] as well.
Maybe a little bit more on some opportunities for family offices, let's say single-family offices, to expand their wealth through diversification. I'm seeing a significant amount of family offices that are seeding funds as general partnerships. We can be in real estate or venture capital or credit, let's say, declaration partners. We see it with the Pritzker family.
Talk about this diversification into not just alternate investments but into creating products that are seeded by the family office into a GP. What are your thoughts on that? I see some significant scale opportunities there.
Karen Costa: Yeah, and I think that would be a trend that we're seeing quite frequently. And I think if you look at the lifecycle of a lot of the families that we're working with or the evolution of the family, it's likely that there [24:00] was some type of wealth generator at some point in time. And so, really seeing that diversification either through liquidity events or the family grows up and scale. And so we are seeing, and I think there's an opportunity with our families and you hear the term in the industry, the “patient capital.” And so, they really do have the opportunity to invest the patient capital and do maybe a longer-term hold.
And so, really I think there's a competitory [sic] environment where private equity, we're seeing a huge representation of family offices in private equity. And so, the ability for our families to reduce risk through diversification and ensuring that they, if you think of the family that you started talking about, and really it’s the one industry that really holds the risk for that family, and you really start to decrease their risk through diversification. And so, really thinking about how they can be a player whether it be from an active perspective as they look at other active businesses to continue to try, but sometimes that takes a little bit more capital and [25:00] investment than the family would be interested in, versus moving towards some type of more passive type investment strategy that may not require as much intensive capital on behalf of the family.
And so, really it is. It's about risk minimization and how can we continue to balance the returns that we're experiencing, but still really look to the focus of minimization of risk and maybe the impact of some market variations.
R. Adam Smith: Okay, now you run the national tax practice for family offices for the entire firm. That’s quite a large footprint. How do you manage that internally with your team, given the differences of family office structures, the splintering of the industry into single-families and multi-families and virtual families, and then the collaboration of families?
One of our former guests here, Richard Wolkowitz, is on the call. He points out that “If you see one family office, you have not seen them all.” So, talk about that bespoke nature and then lead us into [26:00] the differences between US and Europe in terms of the family office industry.
Karen Costa: Yeah, so I would agree with his statement. We use the term that family offices are like snowflakes. There's not one that is alike. So, they are all very different. And so, to that end, when I look at our team and the way we approach our clients or the market, there's a lot of thoughtful orientation, if you will, that goes into that. So, I mentioned earlier as I talked about my foundation, that the tax knowledge is table stakes. We have to show up and provide insights and bring ideas to our clients. Table stakes, communicate with them, and be collaborative. But what's really critical when you think of the different nature of the families is 1) do you understand the personality of the family that you're working with? Multiple generations?
You don't want to build a single-generation engagement team as we work with our families because we know the nature of the business is succession. And we want to ensure that we're not seen as being your father's accountant or your father's [27:00] advisor. We want to ensure that we are connecting with each generation. And so, we're very thoughtful to ensure that we bring team members that are able to do that, but also considering the personalities of the client, and we want to align that correctly.
We talked a little bit about wealth generation and there's oftentimes a family business involved. We have a wealth of industry expertise at the firm. And so whether they be, you know, in consumer products or industrials, real estate, we ensure that we align our industry eminence and our industry team to ensure that we're bringing those industry insights and we're not overlooking something that may be important to them from a trend perspective. We also want to ensure that we're looking holistically at their needs.
And so, if you think of a typical family's enterprise, it's not a silo. It is very diverse. You're working with businesses, you're working with individuals, [28:00] you've got the philanthropy piece through their foundations, or just even from the planning perspective. You're working with various types of trusts. And so, the ability for us to have one professional that can do all of that is very difficult. And so, while we always want to ensure that we have one point of contact and multiple points of contact for the client, we always do want to ensure that we're bringing the right people to our clients based on the skillset and the nature and profile of their client. And so, the ability for us to have the bench strength that we do at RSM really does allow us to do that, so we can have people really focused in those particular areas. But the piece that we don't ever want to forget is, all of those pieces work collaboratively together for the family. And so, we also need the team focused from a holistic perspective and how all those pieces fit together.
We did talk a little bit about global, and so we have a dedicated global family enterprise team that's led by one of my [29:00] wonderful partners, and he really does work on that collaboration in connection with cross-border issues. We have a multi-lingual team. We're in various countries, and so, ensuring that we provide the one RSM experience to those clients whether they be in Latin America, whether they be in Canada, whether they be in the UK, and ensuring that we really do know and have built trust with the professionals and the RSM team, regardless of what office that they're located in whether it be the UK, Singapore, Australia. As we build trust internally, then we're able to work really well as a cohesive team.
R. Adam Smith: That's great. We have under 10 minutes left, but maybe in another conversation or even episode, we could talk about some of this diversification and reinvesting into passion and lifestyle assets in the world, in particular, into compounding value in real estate and compounding value in art. We also see it even in cars and other collections. I know we have some real estate experts on the call today, from Susan [Lindeque] to Tom [Cinquin] and Andrew [Gomar].
[30:00] So, maybe we have some time for some questions when we're finishing. But let's shift over to the importance of women leadership in the family office ecosystem, whether it be a family office or a family enterprise. Some of our former guests and friends also on the call, I think that's also relevant to them, to Michelle [Bross] and Wendy [Sowinski] and Susan [Lindeque] and Shelley [Forsythe] and also Monika [Nadová Kroslakova]. Hello, Monika in Bratislava. Thank you for joining.
So, maybe just talk about your viewpoint on women leadership into family businesses. You also have some of that experience in leading women leadership in Houston. This is really a major both opportunity and issue in the ecosystem, I think, and there's lots of opportunity to support and grow this element of women leadership in the system.
Karen Costa: Yeah, there's a lot of thought leadership out there about women and whether it be the imposter syndrome, whether it be self-confidence, there's a lot of [31:00] literature and a lot of really great speakers that talk about those topics and some of the challenges that women face. And I would just give one more plug to Tony Wood because, from our perspective, I've not met a greater advocate for women. To ensure that he was supporting them, he really sought to understand the balance and the challenges that we were facing as we were going through.
You know, public accounting isn't the easiest job in the world, but ensuring that he was really an advocate and supportive of our women. And so, that has really, from our perspective at RSM, given us really great strides. And I would say from our family office team specifically, I have some really great female leaders who really are confident. They are just some of the best professionals that are out there.
And so, in my opinion, as I look out into the market and the family office space, I do have the opportunity to work with a number of female leaders. And [32:00] not to take anything away from the male gender, but there is a compassion, a piece of compassion, I think, in women leaders as they maybe wear on their sleeves a little bit more, and I see that coming out in some of the families that we're working with and the ability for them to collaborate a little bit differently with respect to the families.
And there's no doubt within family offices and family businesses, there's a lot of stakeholders. And so, are those stakeholders family members? Are they non-family members? But ensuring that everybody has a seat at the table and they have a voice at the table. And so, in some of my interactions, I've seen women leaders really do have a really effective role in doing that. And maybe it's just their style of leadership, but I have seen that come out with a few of the women leaders that I've been working with.
I would say that, from my perspective, I've really felt it to be very important to always have really great female mentors and leaders. And for me, I was able to see somebody always be in the role that I wanted to be in. [33:00] And so, whether you're in a professional services organization or you're within a family business or a family office, there's a lot of people that are looking to you and they want to see, you know, can they be you? Can they be in a role that you're in?
R. Adam Smith: So, I see some better-than-average balance on the RSM Board of Directors actually on this regard. So, thank you for that. I think there's more to discuss there. Personally, I think that there is a lack of focus on the development of scale of the family office, multi-family office industry, for women leaders, because there is wealth created by women or minorities. And this issue is more of a focus on the public realm in terms of DEI and the related ESG. I think it can be something that can be more emphasized and more opportunity in the multi-family office ecosystem.
So, one more thing. We are going to be talking about the family business dynamics including these issues of wealth transfer, wealth succession, and women leadership in a live conference on May 7th. I'll be speaking on a panel with [34:00] Octovian Pilati and Thomas Deans, leaders around the world, together with Monika Nadová Kroslakova from the Family Business Center, where I'm also an advisor on the board. And we'll be speaking with her and other members of the IBERA hippocampus on May 7th. So, you can find that event under the Family Business Center. Also, reach out to Monika Nadová on LinkedIn.
So, one more thing, and then we'll open up for questions and comments. Maybe talk a bit about your own personal values and approach to leadership. And taking the coattails of the amazing legacy that Tony has built, what are you thinking in terms of your own legacy at the firm?
Karen Costa: As I think about succession and that legacy that I want to leave behind, I think I have very similar views that have been able to walk alongside of Tony, and I want to be remembered as someone who really felt that they enabled and helped someone to see that they could be bigger and better [35:00] than how they saw themselves. And so, I would say, ensuring that I continue to empower people, I continue to take time and invest in people. To me, that is really critical. I said that earlier on, that if you take care of your people, they'll take care of your clients. And so, really ensuring that I continue to enable the next generation of leaders within RSM, continue to support and guide them, continue to really establish some of those foundational things around client service and just how we treat others, how we show up.
And our leadership team often talks about that. When you go out and speak, you're not speaking just for yourself, but you're representing an entire practice, you're representing an entire firm. And so, it's really a privilege and an honor to do so, but ensuring that everybody is aligned from a cultural perspective in the way that we treat others is really critical.
R. Adam Smith: That's wonderful. I really do admire the ethos of the firm, and it's exciting to see the scale of RSM from its roots, going way back [36:00] to 1926.
Okay, let's open up for a couple of comments. I think there's some people that might want to ask some questions. We usually have time for one or two. If you could go down to the bottom of your phone and click on the little button to raise your hand, I'll pull you up on stage and we can ask a couple of questions to Karen.
I have one question on LinkedIn. So, the question is related to the structure of the multi-family office from a tax perspective. What are the pros and cons of creating a multi-family office that is dedicated to wealth management as opposed to a multi-family office that’s more of a collective of family offices?
Karen Costa: Yeah, so if we’re looking at tax advantages specifically, I think that the question might be centered around what we see around the Lender’s Bagel structure. And so, the ability to take what we typically see as some non-deductible expenses and being able to treat those as deductible. From a wealth management firm perspective, [37:00] I would say that that threshold might be a little bit more difficult. And so, if we're thinking specifically around the multi-family offices and having the multi-families, I think there's a lot of things to look at. And so, when we're often talking about just those structures and the focus, I think you need to do a really deep assessment around what are all of the different assets. What are the different families that we're pulling in? And really trying to navigate that structure to determine where you can get the most tax efficiencies.
One thing that we've been mostly talking about would be, you know, federal and the federal advantages. And so, also a thing that we see popping up and creating significant savings would also be ensuring that we're looking at it from a state and local perspective. And so, what are those implications from a US perspective for state and local?
And so, really trying to get into the nuances of whether you're providing investment advice or you're really more structured as an MFO for multiple families. [38:00] And are you leaving the wealth management function out of the multi-family office aside? And are you providing different functions? That could depend.
We often see MFOs running alongside single-family offices as well as where they also have agreements between the two entities. So, lots of moving parts to be able to answer it in a really short answer, but I think there's a lot of factors to consider both from the federal as well as a local perspective and ensuring that you're really understanding the functions that that MFO was providing really around wealth management and what are some of the other functions.
So, that may not have answered it quite, you know, specifically, but I think that's a hard answer to be able to answer quite specifically.
R. Adam Smith: Yes, that's quite expansive. I just think that the benefits of a multi-family office platform is still underappreciated because there's such scalability and benefit across the services that can be shared between them, whether or not that’s actually a commingled organization or just collaborating on different investments.
And I see significant opportunity on the [39:00] M&A side and sharing deal flow and co-investing. And then also there's benefit on the human capital side and governance, and then there's the different philanthropic and tax and operational technology knowledge-sharing that can be shared across those types of organizations. So, it's very exciting.
Karen Costa: Yeah, I would add too, from an MFO perspective, I think what we've seen is an MFO gets created and they try to be everything to everyone. And so, I think there has to be an opportunity to take a step back with those creators and think about, what are the functions that you really want to focus on and really build the scale internally? What are those that you really do have the scalability and the opportunity, both from a people and a technology perspective?
And so, I've seen a number of MFOs undergo a simplification process where they really do that exercise and think about, what should I outsource and what should I insource. And so, from that scalability that you mentioned, I think that's a critical first step to understand what is it that we're trying to provide. What can we grow to scale? But also from the MFOs perspective, what is it that we don't want to build and what is it that we may want to go and buy?
R. Adam Smith: [40:00] That's true, the buy versus build. I think we're seeing some success at Cresset, for example, and there's some new information that came out on the JP Morgan Family Office Report this month as well, which is useful.
Okay. Well, it's been wonderful today to have you and, of course, to share a warm shout-out to Tony's legacy, and to him and his family and friends, and to all of your team that has worked with him to build your incredible franchise. We look forward to hearing more from you in the future and really appreciate you joining today.
Karen Costa: I appreciate the opportunity, and have a wonderful day and thank you to all that are listening.
R. Adam Smith: Yes, thank everybody today. This is R. Adam Smith signing off. Stay tuned for the next episode of the Family Business Audiocast on LinkedIn.
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