Hank McLarty With Gratus Capital

Intro: Broadcasting live from the Business RadioX studios in South Florida. It’s time for South Florida Business Radio now. Here’s your host.

Lee Kantor: Lee Kantor here another episode of South Florida Business Radio. And this is going to be a good one. Today on the show, we have Hank McLarty with Gratus Capital. Welcome, Hank.

Hank McLarty: Well, thank you, Lee. It’s good to be here.

Lee Kantor: Well, I’m excited to learn what you’re up to. Tell us a little bit about Gratus Capital, how you serve in folks.

Hank McLarty: Yeah. Lee So I started the firm in 2005. So we are in 17 years and we’re a full service wealth management firm. So we do asset management and tax strategy, trust and estate. We built a. What I believe to be a highly qualified team of wealth management professionals. And so we we really focused in a lot on business owners, individuals that have built a company over time and are preparing for a liquidity event or have already had a liquidity event. We work with clients from across all different spectrums, but our one of our areas of expertise and really specialty and where an awful lot of a high percentage of our clients come from is those entrepreneurs that have built a business and I have built this team over the last 17 years to provide the expertise and and know how to deal with those specific situations from a planning perspective and then also from a from a long term investment perspective.

Lee Kantor: Now, there’s a lot of players in this space, the big players with names that a lot of people are familiar with. Can you talk about what it was like to say, You know what, I think I’m going to start my own thing in this space and I’m going to do something different. I’m going to be kind of a better solution to this, even though there’s a lot of big players in this market.

Hank McLarty: Sure. That’s a great question. I appreciate you asking that. You know, I spent 15 years prior to starting Gravis Capital at Merrill Lynch and Morgan Stanley, so I know exactly what you’re referring to. And I was very successful there. But I just saw a need for a more boutique kind of feel extra attention. That’s not all about that. When I was at those firms, there was a lot of emphasis on kind of pushing the products of those firms and all about who’s doing the most revenues and who’s bringing in the most accounts. But there really wasn’t a measurement tool for how successful are you actually being with your clients. And there’s a lot of resources that are necessary for ultra high net worth individuals and families. And what I mean by that is investing the stocks and the bonds and the private investments and other aspects of a portfolio is very important. But also what’s really important is making sure all of these assets are set up the correct way and making sure that the client is educated on the most tax efficient ways to sell their business, the most tax efficient ways to transition assets from one generation to another. And we just didn’t have those resources at the big firms. And so when I started this firm, the whole idea was to have experts on my team and trust in estate experts and real estate experts and tax all of these other areas that kind of complete the whole cycle of wealth management, in my opinion. And so I spent the last 17 years recruiting and bringing in expertise and all of those areas because my goal was to make sure that our clients, no matter what their need, was under the wealth management umbrella, that we had expertise on our team that can handle that and be kind of one team that our clients could turn to. So we build a team with our clients, CPAs and their attorneys. We work very closely with them and we’re kind of the glue that pulls all these different advisors together in addition to managing the client’s assets, if that makes sense.

Lee Kantor: Now, when you’re working with an entrepreneur that’s heads down, working in their business on paper, sometimes that person doesn’t look like, Oh, that’s a great wealth management client today. But in, you know, when they exit, they’re going to be fantastic. And a lot of firms don’t want to invest in that person at that earlier stage. Is that something that you have to educate your people about on how to really serve those people? Because when that entrepreneur is going through that journey and goes to that next level of exit, it requires different kind of skills and a different kind of mindset.

Hank McLarty: Yeah. That transition, that transition from being an entrepreneur to now relying on a team of people to manage those assets, manage cash flows, especially when someone’s used to being in charge of all of that for, for their career. You know, they grow the company, they make more money, they control all aspects of the cash flows and they’re used to being in a control position. So handing that over to a team like ours and saying, okay, now I trust this team to handle all the aspects of things that I have traditionally had my finger on the pulse of my whole life. That’s a big transition for people. And so leading up to that, I think it definitely helps to build the relationship over time. If we have time to build that relationship before the transaction ever takes place and kind of coach and mentor. On how things with the company should be set up and get them to to build a confidence and a trust in our team so that when that transaction does happen, they’re able to relax and have confidence that they’re with the right people and they can trust the decision making and things of that nature makes it much easier for that already difficult transition to happen.

Lee Kantor: Now when you’re working with your team at Gratis, is that something you have to kind of educate and train them on? Because it doesn’t sound like it’s something that is kind of common knowledge in the industry.

Hank McLarty: Yeah, I would agree with that. But but I also think when you’re when your primary focus is on a subset of people like entrepreneurs that have built a company or have ownership in a company, they don’t necessarily have to be the founder of the CEO, but if they have ownership in the company, I think when you have a history of working with that type of people, it’s a general understanding. But I also think the values and the culture of our firm kind of lend towards that. And it’s something that just kind of happens through osmosis. I mean, we don’t really train people, Hey, you need to go work with people before they start approaching this transaction. It’s just kind of part of the process and we get an awful lot. Almost all of our new clients come from referrals from others who know who we are and know what we specialize in and where our expertise lies. So when they get referred to us, sometimes it’s several years before they’re even approaching a transaction. Sometimes the transaction is next week or next month and they’re scrambling. And sometimes it’s it’s already happened and they’ve been frustrated with whoever they’re working with. But regardless of where they are in the cycle, almost all of our clients get sent to us by somebody else who has heard of us or an existing client who’s had a good experience and told a friend or someone else they know that they should be working with us now.

Lee Kantor: Is there any advice you would give that entrepreneur to maybe become more prepared to have the conversations they need to be having with you at the time of Exit? Is there some homework you wish that they had done or is there some information or misconception you wish that they had hadn’t learned? Or maybe you have to educate them on that? I would. Yeah.

Hank McLarty: I would say the number one thing there is that traditionally business owners are if they’re successful and they’ve built a great company, they’re obviously amazing at what they do and they obviously know their business better than anybody else and they know exactly how to make that company grow. They know exactly about the products that they’re generating and so forth. And so that is their whole focus. And many of them going into a transaction are so focused on keeping their business growing and looking at who they should be working with to sell their business and things of that nature, that they kind of have a tendency to put off some of the key planning aspects that can really make a huge difference in tax and the structure of the transaction. They put those things off and say, I’ll deal with all of that. Once we get the transaction done, I’ll figure out who’s going to manage my money later. Let me just get the transaction done and get the business sold for the maximum price and then I’ll deal with that later. But there are many, many things that they can do to avoid significant amount of taxes that if you wait until right before the transaction or after, it’s too late to do it. And so the biggest thing I would say is, is whether it’s us or another firm or a really good CPA attorney team that they’re already working with, they need to engage that process and start thinking about structure, tax strategy, all of the different aspects of tools that can be used to minimize the tax. Because if you get a huge number on the sale, but you end up paying ten, 15, 20% more on tax than you could have paid, then that extra money you earn on the sale is all for naught. So making sure that you’re prepared for that is really important.

Lee Kantor: Now, when you’re working with the entrepreneur, are you helping them with some of the strategies to maximize that selling price, or does your work begin at that time when they have the check in their hand?

Hank McLarty: Well, we’re not working with them to maximize the selling price because they’re typically working with an investment banker or some kind of banker that’s helping them find the right solution for their situation. So what we’re doing oftentimes is helping them to determine what’s the best structure, because there’s an all out sale, there’s a merger, there’s an ESOP, there’s all kinds of different ways for them to dispose of their company, either to their employees or to another company in some kind of merger, or just an all out cash or cash and stock sale. So we can help them talk through that and think through what the best approach for them to do is. But then there’s also all kinds of ways that we can use trust and estate strategies to reduce the tax burden, get some of these assets potentially out of the estate prior to the transaction. So both in advising on how the transaction might go and kind of going through the pros and cons of the different avenues, that’s one thing we can do. The other thing we can do, as I said, is kind of come up with trust and estate type aspects of using LLCs and other trusts to minimize the tax burden that may arise from just an all out cash sale without any prior planning.

Lee Kantor: Now, how does that trusted advisor team work with the entrepreneur like we have you as the financial advisor person, you have accountants, you mentioned there’s probably consultants in there, lawyers. There’s a lot of people that have opinions about how it should go. How does that kind of are you all in a room together? What does that look like? You know, when when it’s time to do the deal?

Hank McLarty: Well, I’m the CEO of the firm, so I don’t actually work with clients. When I first started the firm, I was the only advisor, financial advisor here. But we have 13 advisor teams here now. So a lot of what you’re referring to is if we look at a client situation, we say, okay, this client is about to have X amount of assets that are going to come post transaction. They’ve got complexities. If they were going to do an ESOP, then I have a team at my company that is really, really good at working with ESOPs. If they were going to do a cash and stock transaction, I have another team that is really, really good at digging in to all the tax strategy for that. So and on that team and that particular team, we have an attorney and a tax expert. And so each one of these teams that I have at my firm are different. And so I kind of look at the client situation, get an understanding of what their needs are, and I help determine which one of the teams in our firm would be best suited for that client’s circumstances, if that makes sense.

Lee Kantor: Right. So you’re ready pretty much for anything, because you’ve been doing this for a hot minute and you’ve seen where kind of some of the landmines are. So, you know, to deploy the right team at the right time.

Hank McLarty: That’s correct. That’s right.

Lee Kantor: Now, as you’ve been growing and as you’ve been expanding over time, you’ve been winning a lot of awards. Can you talk about that and how that’s come about in terms of your growth? Because, you know, you’ve achieved a lot in in the time you’ve been working in this space, and it must be very rewarding.

Hank McLarty: Yeah, that is. It has been really rewarding, probably I mean, definitely the most rewarding award or recognition that we’ve gotten was, I guess about six weeks ago, Forbes named us the number four investment management firm in the US. And having started this company 17 years ago and gone through the journey that we’ve gone through and to the most prestigious award in our business is the Forbes recognition. So there’s all kinds of lists and kind of recognitions out there, but the one that still stands head and shoulders above everything else is if you get named by Forbes, that’s a big deal. And so they named the top 100 investment managers nationwide. And we were fortunate enough to get the ranking of number four, which I as the CEO and I was very proud of. And because we go through a lot, they actually do due diligence on the firm and they look at client turnover and they look at all the compliance records of everybody at our firm. And so they spend a lot of time doing the due diligence on the firms that they rank, whereas most of the other lists just look at what are your assets that you manage and how many people just basic kind of spreadsheet type stuff. It’s not qualitative, it’s just looking at data and ranking on data. Whereas Forbes actually interviews the firms spends time, you have to submit extremely long applications and then go through an interview process and provide all the compliance and client information on client satisfaction and so forth. So when you get ranked by for just the real deal. And so that’s that’s the most we’ve gotten all kinds of accolades and recognition, but that’s definitely the one that we’re the most proud of.

Lee Kantor: Now, when you started the journey 17 years ago, is this how you imagined it would go?

Hank McLarty: You know, 17 years ago when I started the journey, it was just let’s just build an amazing firm. I really didn’t have, like a vision for where the firm was going to go. I set the vision in 2018, and I think I set an unusual vision, and that was that we were from 2018 forward, we were going to ten x the firm and in addition to ten exiting the firm. The key qualitative measures I wanted was I wanted our client experience, which was always it’s always been one of the highest rated client experience the way we do our net promoter scores. That’s how we kind of rank ourselves in terms of how our clients are experiencing working with us. It’s always been very high in the eighties, which is the highest ranked firm in the world, is Tesla at 94. So we’re in the eighties. Most companies in our business are in the high twenties to low thirties in terms of their net promoter score ranking from their clients. So we’ve always had a high one, but I wanted to ten. The firm was the vision and I wanted to make sure that our client experience actually improved while we were growing, which is very difficult to do. And then I wanted to make sure that everybody on our team bragged about being a part of this company and was raving fans of our culture and so forth. So ten Exiting the firm is one thing doing that while your team loves where they work and your clients are very, very happy with the experience they’re having. That’s a that’s a tough journey to be on and one that I think is going to take every bit of leadership skills that I have and then some. So that’s why I set that challenging vision in 2018 and we’re on track to do all of those things. But I didn’t have a concrete vision for I just wanted to build an amazing firm and and grow and have fun growing it. But now I have a much more kind of aggressive vision that involves the quality of the time with the clients and the team members here.

Lee Kantor: Now, what is that ideal gratis capital client look like? You know, if you were if you want if you wanted to clone your best clients today, what would you want more of them to look like?

Hank McLarty: Well, I mean, the easy way to describe that is just in terms of the size of them. Right. But as I mentioned to you before, we have 13 advisor teams here. So, you know, our largest client. Has over $500 Million with us, and then our smallest client may have as little as $1,000,000 with us. And every one of them are very important and every one of them work with the appropriate team that they work with. But I think the ideal client is. You know, someone that’s brilliant at their business has worked really hard and appreciates hard work. And I find that first generation wealth, what I mean by that is people that have earned their wealth, they built it themselves, not been handed to them, first generation wealth or the favorite people for me and our firm to work with because they’ve worked really hard to build what they have. And when they see how hard we work for them, they really appreciate it. Somebody that hasn’t worked. Hard to earn their money. There’s a sense of entitlement, and then at times there is a lack of appreciation for how hard we work for them. And so our team responds best to those people that have had other experience with other wealth managers or have built their own business. And they recognize hard work and they really appreciate what we’re doing. So regardless of the amount of money, it’s that that first generation wealth that have that have worked hard for it, that appreciate what we do for them.

Lee Kantor: And then so if they’re out there listening right now, what’s the best way to connect with you? Is it a matter of just going to your website and, you know, a contact form or is it best to.

Hank McLarty: I think that’s the best overall way. We have a really a really great way for someone to express interest in our firm by going to our site and just expressing interest on the on the potential client information or request information. So that’s just w w w dot gratis capital and that’s g r a t u s. And just a quick little blurb, the way I came up with that name was when I left Morgan Stanley and I started this firm. I wanted the firm to be kind of founded on the principles of humility, appreciation and just a sense of gratitude. And that’s kind of the culture that we’ve built here. And so rather than naming the firm something involving my name or some typical Wall Street name or whatever gratis means is a Latin word for grateful. And so I thought that was the perfect word to name our company.

Lee Kantor: Well, it speaks of your values and culture and it obviously working. So congratulations on all the success and thank you so much for sharing your story today. You’re doing important work and we appreciate you.

Hank McLarty: I appreciate you, too. And I really do appreciate the opportunity to talk with you today and answer a few questions and hope it does some good.

Lee Kantor: All right. Is Lee Kantor. We’ll see you all next time on South Florida Business Radio.