A Podcast | Allison DiSarro

Pete Neubig: [00:00:05] Welcome back, everybody. As promised, I have my good friend, Allison Dasaro with Enterprise Bank. Allison, thank you so much for being with us today.

 

Allison DiSarro: [00:00:13] Thanks for having me. It's nice to join you.

 

Pete Neubig: [00:00:15] Well, had to get our resident banker on the podcast. I think people would have been amiss if I did not get you on, especially with what happened with the SVB banking or the Silicon Valley banking incident. So can you tell us from a bankers perspective at a high level what actually happened with SVB Bank and and then give us an overview and then give us your opinion on what if they didn't get bailed out? What do you think the cascading effect would have been?

 

Allison DiSarro: [00:00:45] Okay. So I'll first say I think this is really important because, you know, the majority of what we and probably every other banker out there too, but what we at Enterprise have been dealing with, with our customers in any industry, personal or corporate, for the last now 2 or 3 weeks is really just the fear, right? And so I think it's important that everybody understands, like you said, what happened because you don't know what happened and you can't really understand whether your bank is doing it right or not, or at least just have faith in your bank to whatever degree you can as a consumer. So in a nutshell, what happened with SVB was, I think, you know, a few triggering factors. One. There. You've all heard this, but the majority of their clientele was VC backed tech startup companies. And then when it came to the personal side, it was mostly high net worth individuals linked back to those companies. So that's important to know, first of all, because generally a bank really shouldn't have that much of a concentration in one, not only one client, but really one industry. A little bit of context here. So I came up, you know, as as a banker. And once we started getting really successful, I remember my CEO at the time always said like no more than 10%, which means that no client can have more than 10% of your deposit portfolio at the bank.

 

Allison DiSarro: [00:02:11] And the reason being is, as I'm sure many of you can understand with your own clients, if one client leaves and they have more than 10%, that's that's a giant loss on the bank. Right? So you have to make up for. So what I also think is that you shouldn't have more than 10% well, probably more than 10% probably. But you still need to have a concentration limit on industry as a whole, not just the client. They had almost everything on this one industry, so they were really reliant on them. That's important to know, to then understand what happened next. So in General Banks, you know, I'll kind of break it down. Let's say banks obviously do loans and deposits. Deposits are essentially the liability on the bank. You place your deposits with the bank. It's a liability because when the bank when you want to take your deposits out, the bank has to give you that money back. But the banking system doesn't just sit on cash like that. So when you get the cash, so to speak, the deposits, you lend them out. And if you can't lend them out, meaning you can't make safe, sound loans or you just don't have the the, you know, the driving loan industry to back it up, to back up those loans.

 

Allison DiSarro: [00:03:17] Then you have to invest that that cash. Many banks diversify and do many of those things. Right. So you lend you invest, you invest in many different types of investments. But a lot of banks do invest. Most banks actually do invest in what's called treasury bonds and mortgage backed securities. That is not uncommon. That is actually very fairly common. The problem is, is that when Silicon Valley Bank invested the majority of that money in the Treasury bonds, they were investing it in long term Treasury bonds. Now, before Fed started increasing rates back in, I'm wrong. I think it was around February or March. At this point, it's been a crazy year. But before they started increasing those rates, while would that have been recommended to put the majority of their their investments in that those long term bonds? No, but it probably wasn't as risky then because no one expected the rates to continue to go up. They were as low as they could get for several years. So and that no one really saw them continue to go up. Then, of course, the Fed started hiking rates. So as those rates start to go up, the value of those bonds. They'll get lower, right? So if you if they had invested in one year or two year Treasury bonds, there would have been a lot, much different vote.

 

Allison DiSarro: [00:04:39] But what happened is there was, you know, back to this industry of venture capital companies and tech companies. Fed started raising rates. They were it was more it was easier for them to instead of secure loan to then go and just access their cash. So they were accessing their cash, which created a slow run off of deposits, not what anyone would consider a run, just a slow decline in deposits. So the bank has to start paying that back. So now they have to start accessing these loans, but they're taking a realized loss on these loans, on these not their loans, their Treasury backed securities. Treasury backed. Treasury bonds and mortgage backed securities. And. So they had to they had to continue to take a loss. They took I wish I could remember the number off the top of my head, but I'm blanking. It was a gigantic loss on these funds in order to pay back their depositors. So they essentially went to go ask for to raise more money. Unfortunately, because you're just one industry that they're banking, essentially, and this is really my layman's term way to explain it. Word got out. People lost their faith. And and because it's one industry, you're essentially listening to a couple people who run that industry as a whole in Silicon Valley say take your money out.

 

Allison DiSarro: [00:05:58] So in I think 1 to 2 days, there were billions of dollars being run out of Silicon Valley Bank. And in order for them to pay them back, they had to access all the capital that they could and they couldn't liquidate fast enough. And they also couldn't even liquidate fully. So they were from that moment on in a deficit. And then that's when the Fed came in and broke them down. Took them out because. You know, there was no money to pay back the depositors. So and that's really like a layman's term nutshell way to explain it. But I think, like I said, it's really these like these triggering factors. One industry who's an industry who is highly influenced by just a few people. I mean, in the grand scheme of things, um, in Silicon Valley and a bank that wasn't making sound loans, if you think about the majority of their loans, they were also lending to these VC backed start up companies. Vc backed is one thing, but startup companies, they're, you know, what I call I hope you don't mind my candor, just airball loans. So now they also didn't have the pleasurable loans to go and and liquidate either. So now they're in. You know again it's kind of like it's the worst of all worlds. It's just the. It was a it was a bad, bad storm.

 

Pete Neubig: [00:07:16] Now, when I deposit money into my bank and my my understanding is the bank can actually invest like, like ten times the amount of that $1 that I put in. Is that is that true? Like they can they can do other things like with that, with that money. Like it's not just a one for one they can they can say, oh, we're going to go ahead and invest nine, 9 or $10 for every $1 that they have in the account. Is that does that sound right?

 

Allison DiSarro: [00:07:44] Yeah. Unfortunately, I can't speak to the number, but yes, they can. They they have an allowance to go out and loan against. Got it.

 

Pete Neubig: [00:07:51] Okay. All right. So if, if they if Silicon Valley Bank wasn't bailed out, what do you think that this would have? Dominoed into other banks and other industries, or do you think it would have. Been kind of firewalled off and just really hurt the tech industry? What are your thoughts?

 

Allison DiSarro: [00:08:12] Well, I think what you mean when you say bailout is backstop, right? The feds came in and backstop the deposits. So everyone got their money, whether they were insured or not. Essentially, Right. Because they weren't really bailed out. They did. They did go under. So if they weren't I mean, honestly, I hate to even think about that. I think it would have been a catastrophe. It would have been an absolute catastrophe across the banking system, across the economy as well. The amount of companies that were these companies had billions of dollars. Some of these companies had billions of dollars in one bank in order to put into their companies. And and this is Silicon Valley as well. Right. This is major tech. Some of these some of these companies that are public companies, meaning like they're publicly saying that they were customers of Silicon Valley Bank. Most of those run our lives. Right. Like we need I mean, really think about it. That's how we live these days. But I think in all assets, in all aspects, it would have been a catastrophe and it would have just not that there isn't still fear in the banking industry, but it would have absolutely created even more fear, causing additional runs on more banks and at a lot at a much faster pace. And, you know, people just being terrified, not knowing where to put their money.

 

Pete Neubig: [00:09:28] Yeah. So many of us in the industry have over the $250,000, right? Because you have like that's what FDIC insurance up to 250. And so I've been hearing stories like people are like going up all these different banks, you know, and putting all these different money in different banks. For us, the 250 is typically in trust accounting, right? It's the security deposits. I know at Empire had close to $1 million in in a trust account. So I know when I went to Chase and I was asking to do a trust account, they just literally said, okay, this is in trust of like they just like relabeled the the account. So what did that what is the difference between like my Chase account? That was really not a trust account, evidently, versus like a real true trust account. What is a true trust account?

 

Allison DiSarro: [00:10:19] So this is all called fiduciary accounting, right? So and I'll say that first, the the term fiduciary trustee as agent for and custodian are essentially just all used interchangeably. But the term, if you're reading about it with the FDIC, is fiduciary. Now, it's not that banks can't do it. Any bank can do it, meaning that it's not like a product that you sign up for with the FDIC. I mean, of course you have to be subscribed to the FDIC. But you know, for instance, you mentioned Chase. Chase, of course, is subscribed to the FDIC. So as long as you're subscribed to FDIC, which most banks out there are, you can get if you set it up correctly, your customer can't get the same insurance. So I think that that's like the miscommunication or misunderstanding here in this industry. A lot of people think that it's just a product that we as enterprise offer. That's not it at all. It really comes down to our understanding and our knowledge of the requirements from the FDIC in order in order to get these accounts the protection that they need. So like, you know, I hate to just call out banks, but you mentioned Chase. So let's talk about Chase. So a bank like Chase, for instance, might just set up an account. As you know, Empire Property Management, which is the legal vesting of the name, and that is your legal vesting of the name. If you look at your articles of incorporation, that is a legal vesting. And then on the secondary line, the secondary line, which is just a nice word for nickname in my opinion, but the secondary line could could maybe again, depending on which I believe may see statements from all different banks all the time.

 

Allison DiSarro: [00:11:56] Sometimes it doesn't even say this, but then it would just say trust on the secondary line. So that secondary line is essentially a nickname. There's nothing legal about that name added to the account. So really comes down to the legal vesting of the entity itself at the bank on all depository records, not just bank statements. So that, you know, for instance, if a receiver were to come in to the bank because your bank was under scrutiny or about to go under, they could come in and they could easily identify this account or this entity as a custodial held account, again, which is fiduciary trust account, for instance. But but it has to be on all depository records in legal form. So for instance, like if you look at your legal name of business, it would read. All of that information on there on the legal name of business, even though it's not your legal name of business. But it would read that within that those depository records. That's like a very, very basic. That, I guess part of it. But it really comes down to how the account is vested. So I'll go back to like think about your family. I mean, most people out here, you know, at some point they get they work with an estate attorney and get a trust created. Right. I know my husband and I, we did a long time ago, even though we're using and most people do use yours or your spouse's Social Security number as the tax ID number for that entity.

 

Allison DiSarro: [00:13:25] If that entity is created by an estate attorney, for instance, then that is essentially its own entity, even though it's under mine or my husband's Social Security number, because they have all the documentation to essentially say, okay, this basically your articles of incorporation for your trust, which they're not called articles of incorporation, but that's what you would compare it to show that that's the name of the legal name of this entity. So that's really what comes down to like the most basic red flag. I would say there are there's a lot that has to go into it, but that's probably the most basic red flag at the bank. So Chase and most banks out there, because that's not your legal name of business and that's not the legal entity name, they have to add it to the secondary line. So I think it really comes down to your bank, you know, I guess specialty, you know, enterprise as a whole is not is not a property management bank. We're very, very well diversified bank. And we have specialty divisions in many markets. But we do have a specialty division in property management banking, right? So we know we work with legal compliance, regulatory attorneys, our operations team. Everyone is on the same page about what these accounts are, how they have to be legally vested so that it's consistently. You know, vetted correctly as a as a chart of accounts at the bank. Right.

 

Pete Neubig: [00:14:43] So in my case, if I had $1 million in a security deposit account that was not set up correctly and something did happen, I would only be insured up to $250,000 of that million dollars. But if I set it up correctly, then it would show that that million dollars is actually made up of so many different accounts. And none none of them are over the 250,000. Can you kind of explain that a little bit to the listeners?

 

Allison DiSarro: [00:15:08] Yeah. Yeah. And bear with me, this might be long here. So so again, so it goes back to what I said about the bank setting the accounts up correctly, Right? But so these fiduciary accounts, this is all called pass through insurance as part of the fiduciary account. So you can have you know, we'll keep it more specific to property management, of course. But this is not related to only property management industry. But you can have you can be acting as a fiduciary or as trustee for multiple beneficiaries. That is really the term. The term is beneficiaries here. Right? So whether that's your owners or your tenants, that's whose money you're holding on to beneficiary equals money. Whose people, whose money you are acting as trustee for. So they are insured just like any other person or company of the bank. 250,000 across the board at the bank. So let's say just as a disclosure, let's say, for instance, John Smith is in your one of your owners and he has $200,000 in your trust account. But let's say John Smith also has $100,000, just coincidentally at that bank because he opened a personal account with that bank. Right. Which you might actually see in things like the more consumer friendly banks like Chase, Wells Fargo, Bank of America. That means John Smith is only insured $250,000 across the bank. Oh, wow. So. Yeah. So but again, I mean, you want to also make sure that he's even going to get his money out of the trust account.

 

Allison DiSarro: [00:16:33] Right. So to that point, certain disclosures have to be met. So you have to be as the agent. So just so you know, so in FDIC legal terms, the idea is the bank, the agent is the trustee fiduciary. And then there's also a third party as well, which is typically like an escrow company, for instance, or an attorney. So. The bank, of course, has to meet its requirements. Of course, we spoke about which I mentioned one of them. And then the company or the the fiduciary has to be holding name tax ID number as well as spot balances essentially, is what I'm calling it. So the ownership interest in that account. Right, or at that bank is probably a better way to think about it because like I said, it's really across the bay. So you guys do you guys the agents do hold that information, right? So one one of those three, the I.D., the agent or the third party needs to be holding that information. You guys do hold that information. A lot of our clients know that we hold certain information as well. But you guys hold that information at all times within your software. So let's talk about, if you don't mind, like if Silicon Valley Bank had gone under. Well, they did go under, but if they were not backstopped and if they they banked the property management company. Right. You call it let's assume.

 

Pete Neubig: [00:17:56] Call it bailed out tomato. Tomato.

 

Allison DiSarro: [00:17:59] Yeah. It is that stuff. So let's just assume that. Trust accounts or property management companies. And let's assume, although I'm pretty accurate, it wasn't, but let's just assume that they did it correctly, right? So in a perfect world, they did it correctly, but the bank didn't backstop those deposits. So what would have happened? This is my verbiage, but I essentially call it like two different buckets, right? So there's the consumer company buckets, non-custodial held accounts, and then there's the custodial held accounts. And these are the two buckets for the purpose of this conversation. So we found out that Friday, when we found out that SBB was going under, we found out that or they said that any insured depositor will receive their insured funds on Monday. Right. So what that essentially means is that you pull all by tax ID number or Social Security number. So you pull that information, you as a receiver pull that information and it shows, okay, this company, basically all these companies are tax ID numbers or however you want to picture it. If they have more than 250,000, they were going to get 250,000. On Monday when they came in to get access to their funds, if they had less, of course, they just get whatever they had. Now there's the separate bucket, which I call the custodial held account. They need to first be able to identify that these are actually true custodial held accounts. Again, that goes back to the bank's liability, right. What the bank is doing to underwrite those accounts correctly at the bank.

 

Allison DiSarro: [00:19:31] And if they cannot easily identify that, let's say that custodian comes in on Monday and that custodian, let's call them the property manager, comes in and shows that based off of their property management software report, which is normally what it is, that as of the day that the bank went under. So Friday, the day that the bank was seized, I should probably use seize instead of went under. But the day that the bank was seized, no one owner, a no. One owner within that account had or relationship, I should say, had more than $250,000. Now, you also have to show that not only do they not have more than 150,000 under your fiduciary held relationship, they also didn't have any more money at the bank. Now, that goes to the receiver, right? So the receiver essentially sees your spot balance. Let's say your spot balance, like I said, was $200,000 for John Smith based on that tax ID number. They also have to run that tax. I mean, I'm saying this in very layman's terms, but they also have to run that tax ID number to see that John Smith doesn't have any more than that at the bank under that Social Security number. So now would you get because of all that work that they have to do, would you get your money back that day? No, it would take a few days, but it would be insured if it was all done correctly and it would take a few days instead of either never getting the funds back or several months, maybe even years through the court system to get those funds back.

 

Allison DiSarro: [00:20:54] Right? Of course. And then there's a trickle down effect that your business would basically be out. Right? So that's what I meant earlier. Like it would just be catastrophic if people couldn't get their it trickles down to everyone. So it really comes down to how you're how you are holding the information as well as how the bank is setting these accounts up correctly. That's obviously what we do, but it is very difficult. Maybe not for me anymore, but it was to get into it, right? It it's a very difficult chart of account to fully understand and not only understand invest correctly, but also more importantly, manage moving forward for banks. And I could go down a rabbit hole about this, but it's not and I won't. But it's not just about you and your compliance. It's about us and our compliance as well. We go through audits as well. We are held to certain standards as well. And so there is a lot more that needs to go into it, which is why, in my opinion, a true division is really what matters because you don't just have one banker there saying, yes, absolutely, this is correct, but then that banker leaves tomorrow. What does that mean? Right. You have an actual team with policies and procedures and understanding of how this all works.

 

Pete Neubig: [00:22:10] That is incredible amount of knowledge, Alison.

 

Allison DiSarro: [00:22:13] That's a lot. That's a lot.

 

Pete Neubig: [00:22:15] It is a lot. And I think the main takeaway is make sure that especially for us in the firm, the industry that has a lot of a big accounts that security deposit account, make sure it's set up correctly and so that you're just you're just making sure that your your client's money is insured basically. Would that would that be a good kind of like high level? Like first thing I should do is make sure my security deposit stuff is set up correctly because that's our biggest exposure with something like this. Yeah.

 

Allison DiSarro: [00:22:44] Yeah. And I just need full disclosure. It's not just your security deposit either, right? It's your client trust funds. It's what a lot of people in this industry call their operating account. That's not what a bank would consider an operating account. That's what we'd consider a client trust. But basically the rule of thumb to think about, which I've been telling everybody for years, is really just think anytime, even if it's for five minutes, anytime that you're holding funds that don't belong to you, that needs to be held in trust because you're acting as fiduciary for those funds.

 

Pete Neubig: [00:23:14] Interesting. Okay. So let me ask you this. Um, what's your take on security deposit and the kind of the owner deposits? Like do you do you combine them typically or do you do you see most people combine it two or do you see most people separate the two? I've seen them both. I've seen it done both ways. But just wanted to know where you came out on that.

 

Allison DiSarro: [00:23:35] Well, this is more of a state question, too, right? Some states you actually do have to separate them. States like California, for instance, you don't need to separate them. They don't tell you one way or the other which one to do, But I know that it is preferred to combine them. So I actually think and I can't I can't change the states rulings in some other states. They actually most states require you to separate them. I can't change their rulings on that, but I actually completely disagree with it. So, you know, it's obviously accounting issues. Like if you think about let's say that you are collecting, you have two separate accounts, you're collecting rent, you collect a tenant pays a little late on the fourth. You pay out your owners by the sixth. You find out from your bank that you know, you that tenant bounced their check. Now you've essentially brought from Peter to pay Paul. And in a state like California who's a very strict on their audits. They're going to catch that. And that's obviously not only found down upon, but you could get fined for or fail an audit for. So if you have that security deposit that's covering the deficit in the interim. So, yes, could you transfer the security deposit in. Sure. You to cover that deficit. But I just feel like why not? Yeah, it's just more work. Just combine everything. And if you have the accounting software, which I'd say 99% of the companies out here do, then it's going to account for that anyway. You don't really need to separate them. It's not easier accounting by any means.

 

Pete Neubig: [00:25:09] That's great. Well, thanks, Alison. All right. We are up against it. We're going to take a quick commercial break and then I'm going to hit you with the The Lightning Round.

 

Allison DiSarro: [00:25:17] Okay.

 

Pete Neubig: [00:25:19] We'll be right back, everybody. All right. Welcome back, everybody. Allison Dasaro, you are now officially in the lightning round. Are you ready?

 

Allison DiSarro: [00:25:28] All right. I don't know. All right.

 

Pete Neubig: [00:25:30] So I know. I know. As one who downloads the podcast all the time, you know who The lightning Round. So I'm sure you got this. What is one? What is one piece of advice you would give someone just starting out in business?

 

Allison DiSarro: [00:25:48] Happier resources.

 

Pete Neubig: [00:25:50] Say that again. Tap your resources.

 

Allison DiSarro: [00:25:53] Tap your resources.

 

Pete Neubig: [00:25:54] Okay. Does pineapple belong on pizza?

 

Allison DiSarro: [00:26:00] I mean, it depends on who you're asking. I'm asking you. Oh, I'm not sure. Yeah. No, actually, no. I will answer that for myself. Pineapple does not belong on pizza. Okay.

 

Pete Neubig: [00:26:12] Well, we are in agreement there. What book are you currently reading? Or one that is impacted your business or life?

 

Allison DiSarro: [00:26:20] I'm currently reading slowly and I'm going to blank on the name of it, but it's by Naval Ravikant. Is that how you say it? Of all Ravikant. Oh, my gosh. It's like right outside my office. I'll go grab it. The almanac.

 

Pete Neubig: [00:26:35] No worries. Um, what was your first job?

 

Allison DiSarro: [00:26:41] My first job was at a what do you call them, not a gift shop. It was in Cape Cod and it was like a novelty store.

 

Pete Neubig: [00:26:50] Novelty shop. Okay.

 

Allison DiSarro: [00:26:52] Like had like, had like. Cds and all that. It's kind of like a Newbury Comics.

 

Pete Neubig: [00:26:59] Okay, what is which Marvel character do you most associate with, or what superhero do you most associate with? You all want to go the other way? Oh, my God. Don't go the other way. You want me to go? Disney character do you most associate with? You can enter either one of them.

 

Allison DiSarro: [00:27:14] Okay, shoot. Oh, this is too fast. That cheesy. I don't even know. Let's just go with that.

 

Pete Neubig: [00:27:26] What did you say That again? You blanked out for a second?

 

Allison DiSarro: [00:27:28] Wonder. Wonder Woman. Wonder Woman. With that.

 

Pete Neubig: [00:27:31] I like it. I like it.

 

Allison DiSarro: [00:27:33] I'm sure that's what my husband would call me. You know, Let's go with that. We'll ask him.

 

Pete Neubig: [00:27:39] Other than a podcast, do you have another podcast that you listen to or recommend?

 

Allison DiSarro: [00:27:45] I Love Love. Jordan Morales podcast. The Profitable Property Manager Podcast.

 

Pete Neubig: [00:27:51] It's a good one. It's going. Do you prefer dogs or cats? Dogs. All right, Allison, if somebody listened to this podcast and they want to reach out to you and start asking questions about Enterprise Bank and how they can start working with you all, what's the best way to contact you?

 

Allison DiSarro: [00:28:10] My email, which is adisarro@enterprisebank.com. You can also just go to our website. If you go to Enterprisebank.com and you search for our property management division, there is a contact us form in there and that actually goes straight to me.

 

Pete Neubig: [00:28:24] And if you would like to join them, if you've been listening and you're on the fence, you can give them a call at (800) 782-3452 or go to NRP. Org And if you are looking for remote team members or want to talk more about how they can significantly impact your business and your life, give me a call at 832656 3740 or email me at Pete at VPM Solutions.com. Allison, thanks so much for being here today. Really appreciate you.

 

Allison DiSarro: [00:28:55] Thanks for having me. Thanks so much.