The Future of Wealth Management with David Snider

He serves as Founder & CEO of Harness Wealth. Harness is on a mission to make bespoke financial advice accessible, intuitive and valuable using our holistic wealth platform. It seeks to provide the next generation of builders confidence in the path to their best financial future.

Previously David served as an Executive in Residence at Bain Capital. He was the COO & CFO of Compass and was responsible for leading the development of its operations and finances. He helped the business grow from pre-launch to over $350 million of revenue and raised more than $300 million, valuing the Company at $1.8 billion.

Prior to Compass, David was an investor at Bain Capital where he completed transactions valued at over $3B, including the IPO of Sensata on the NYSE.

Episode Highlights Here:

David:

What we more frequently are working with are entrepreneurs who start businesses, they may have a very significant tranche of stock or restricted stock that they inherit the cost basis is de minimis because they’re getting shares that, you know, a fraction of a cent,

Brett:

What’s the number one secret, David, to the future of wealth management, helping people create and preserve more wealth?

David:

I think there are some macro components to it, I think, for the sake of this podcast, since you generally are very tactical, is for people that hold stock in technology companies, biotechnology, and small businesses, is really understanding the nuances of section 1202, qualified Small Business stock, it, I think is becoming more well known, certainly than it was when it first got written into law. But the ability to avoid up to 10 million in capital gains or 50 times your cost basis is probably one of the most valuable tools when it comes to planning from a tax optimization stand for point for people with long-term holdings in a business.

Brett:

Let’s walk right through that it sounds pretty cool, right. And so we have explored this a little bit. But this is good to have you on the show. So we can kind of deep dive. So up to 10 million of gain. So let’s say about a business or starting a business. And it’s gone up to 10 million of gain, and it’s I have a zero basis, and I’m selling for 10 million. And or you said 50x the cost basis. So break that down and give us the scenario which this fits and give us an example.

David:

So just to extend your concept, you buy a small software business, you know, at a couple of million dollars, that sort of your entry cost basis, you sell it for or have the opportunity to sell it five years later camping before five years to capture the full gain up to 50 times the cost basis of the investment, or 10 million, the greater of those two things is federally tax-exempt. And some states like New York, where I’m based also recognize it. So you have that same deferral. So for stock sales after five years for people that are in those states, it’s exempt California is different. But it’s a super powerful tool. And if for some reason, you had that qualifying business, and there are some tests for doing for being qualified that we can touch base on, you don’t have to five years say you sell after three years, if you were to find a nether qualifying opportunity to reinvest and very similar to the 1031 exchange that you talked about recently. You can reinvest it, and defer capital gains. And if that next investment ultimately qualifies both as a business and for that five-year period, you would pay no taxes on the outcome.

Brett:

Okay, that makes sure I got that. So I buy a business for 2 million, and I sell it for $12 million. That’s a $10 million gain, right? Let’s just imagine my pieces stayed the same. I’m good. But what if I sold it for 20 million? Would that mean that the excess 8 million is still taxable?

David:

It shouldn’t be based on that cost basis. So what we more frequently are working with our entrepreneurs who start businesses, they may have a very significant tranche of stock or restricted stock that they inherit the cost basis is de minimis, because they’re getting shares that you know, a fraction of a cent, etc. And for those individuals where the cost basis is pretty low, they’re maximizing through that 10 million value. But if you’re putting up you know, a million $2 million, that can be a very large capital gain tax exemption, not just deferral.

Brett:

Okay, so again, you buy at 2 million bucks, and you sell it for 50 million, right? So that’s more than 10 million I’m still okay above that because it’s still within that 50 times my basis. You shouldn’t be you should be okay, got it. Alright, got clear on that. Can you say what’s your for one was higher, which okay, I guess that makes sense? So the 5050 times that cosmos is a two is higher, right? So that’s cool. And that scenario, it could be 100 million, right? And it should be good, but if it was 101 million, then only 100 million would qualify Is that am I getting the math right there now? Yep. Okay, cool. That’s awesome.