Filthy Rich, But Froogle
High-end wealth managers are being drawn irresistibly into the Google orbit. It's not hard to see why. Since going public in August, 2004, Google's stock has nearly quintupled from its $85 IPO price, levitating 130% in the past six months alone. That kind of space shot has created some very wealthy people -- an estimated 1,000 millionaires and 5 billionaires at the last count -- making Google that rare company where one in five staffers is a millionaire, at least on paper.
That makes Google a gold mine for wealth managers, whose eyes well up at the very idea of all the recurring fees that can come from employee assets. Advisers are all over Mountain View, cold-calling Googlers, buttonholing them at geek expos, booking restaurant banquet rooms, and jumping through just about any hoop for a shot at pitching some of the coveted 5,000 employees. (On occasion, the level of some managers' zeal dents their chances. One programmer remembers getting a phone call at 2 a.m. The broker kept dropping names off the employee's online networking profile as though he knew them personally, until the apoplectic Googler realized what was going on and slammed down the phone.)
Google ultimately green-lighted in-house presentations from six firms: UBS (UBS ), JPMorgan Chase (JPM ), CSFB (MER ), Morgan Stanley, and, notably, independents Presidio Financial Partners and Sanford C. Bernstein & Co. (Google likes to root for underdogs and has a cultural penchant for those without obvious conflicts of interest.) Not that the winners had time to run victory laps once they'd won their privileged access to the Googleplex. Bragging rights aside, they still had their work cut out for them in signing up the rich Googlers.
Some would-be sellers take a creative approach. Carlo Panaccione, a Mountain View area high-net-worth manager at LPL Financial Advisors, is one. Panaccione is planning a mommy-and-me-type seminar wherein parents can learn financial basics alongside their children. "A lot of them have young kids," he explains. "They do lots of multigenerational planning."
Google employees, whose ranks include large numbers of brilliant engineers and quants, are tough nuts to crack. While they may not necessarily be the most financially savvy, they are quick studies and obsessive researchers who talk amongst themselves incessantly. That means brokers have little chance of winning them over with prefabricated sales presentations. "It's an intellectual sparring session," says Brodie L. Cobb, managing director of San Francisco-based Presidio. "They do due diligence in spades. They test every hypothesis and never take anything at face value." Adds LPL's Panaccione: "You're not walking into a room and telling them to jump into this great mutual fund. It's much more complex than that. These are very careful, skeptical people."
Many start by asking bluntly why they shouldn't handle their own wealth-management duties. As Web whizzes, they point out, nothing could be easier for them than running a portfolio with an online brokerage. The brokers' rejoinder: People as rich as they are need someone to give their financial affairs full-time attention owing to taxation, estate planning, and other complexities.
What follows in the interviews is usually a prolonged back-and-forth. It often involves a grilling on financial arcana such as alpha, a measurement of superior investment returns, and asset allocation. To test how advisers think on their feet, Googlers will often throw in red herrings and parenthetical asides about the "random walk" theory of stock pricing. And of course they expect a thorough walk through the mechanics of options collars, which guarantee a future fixed price for their Google stock in return for surrendering the upside. "If you offer a service that has a weakness," says Cobb, "these engineers will find it. They drill down and must understand everything before committing. If you try to gloss over even the smallest thing, they will call you out. These guys get it."
Flash and ostentation cut no ice at Google. Managers hoping to sign up clients need to leave their Aston Martins at home in the garage. The status vehicle of choice at the Googleplex is the Toyota Prius hybrid, which both co-founders Sergey Brin and Larry Page drive. Google even offers employees a $5,000 credit for buying an environmentally friendly hybrid car.
Being up on the ins and outs of big-time philanthropy, on the other hand, does carry weight with Googlers. Social responsibility, both corporate and individual, is a fundamental part of the Silicon Valley culture. Google.org, for example, the company's $1.2 billion philanthropic arm, was conceived to address global poverty and environmental challenges.
For personal giving, Community Foundation Silicon Valley reports that it has helped at least a dozen Google families to set up donor-advised funds since the firm's IPO. "It's a terrific response given how recent the IPO was," says foundation spokeswoman Michelle McGurk.
Consider Frank Jernigan, a former senior software engineer who left Google in June after four years at the company. He was attracted by the philanthropic approach. "This was my way of giving back, to help other people with the resources I've been given," he says. Toting his IPO windfall, Jernigan met with three separate wealth managers on Google's campus. Ultimately he signed up with Bernstein, which he says won him over with its independence and the way it pitched him on setting up a foundation. Bernstein will manage his investments, while a philanthropic service, Foundation Source, helps him find recipients in HIV research and homeless causes. "I just get to do the fun part," he says.
Other personal-service vendors are also working frantically to land Google clients by thinking -- and marketing -- like a Googler. Brande Kramer, the Silicon Valley manager of matchmaker It's Just Lunch, says he's still trying to set up an on-campus presentation at the Googleplex. "You would be crazy not to make contacts over there," he says.
If you type the "GOOG" ticker into Google's search line, you'll find Silicon Valley homebuilder James Witt's ad for new homes in the area on the sponsored links margin. Shrewd real estate players like Witt pay as much as $3 for each click on the two-square-inch pieces of pixilated property. With typical five-bedroom homes selling for a cool $5 million -- and estates usually at least twice as much -- that's a bargain price for such ad space. "Rather than buy an expensive ad aimed at dumb people watching the Superbowl, I would rather target someone smart enough to get hired at Google," says Witt.
Despite their reputed arrogance, rich Googlers show humility in managing their own finances. Whether it's putting money into charity or taking some of their Google dollars off the table and moving them into other investments, they're not about to fall into the same trap that hurt hundreds of former paper millionaires in Silicon Valley.
Panaccione can tick off scores of former clients, employees of such companies as Netscape Communications Corp. (TWX ) and portal-Internet service provider Excite@Home, who saw their once-considerable net worth vanish into thin air in a matter of months. (Once valued at $35 billion, Excite ended up worthless. Its old headquarters, just up the road from Google's, was recently converted into a hospital.)
Converting at least part of their Google stock holdings into other forms of investment seems to make eminent sense for the Googlers. "No matter how incredibly great Google is doing now," says Panaccione, "at some point there will be a Google-killer out there." Adds Geoffrey D. Baldwin, managing director of San Francisco investment bank Perseus Group: "If the world [can] change as rapidly as it has in Google's favor, it could just as rapidly change away from them." This time, the engineers are listening.
|Corrections and Clarifications In "Filthy rich, but froogle" ("Googling for gold," Cover Story, Dec. 5), we suggested that Carlo Panaccione, a high-net-worth manager, enrolled his daughter at a private school popular among Google Inc. (GOOG ) families as a way to meet prospective Google-employee clients. In fact, Panaccione's daughter was enrolled at the school well before the Google initial public offering, and his family's association with the school goes back much further. We regret the misunderstanding.|
By Roben Farzad, with Jessi Hempel in New York