INVEST-Guide Layout 1 9/10/15 2:53 PM Page 35 INVESTMENT ... · Senior Wealth Manager Bank of New York Mellon Wealth Management An Informative Q&A with OC’s Top Investment Management

An Advertising Supplement to the Orange County Business Journal • September 14, 2015

INVESTMENTMANAGEMENT

ROUNDTABLE

Shaun M. Skeris, CFASenior Vice President

Senior Private Client AdvisorCity National Bank

Jeffrey M. Verdon, Esq.Managing Partner

Jeffrey M. Verdon Law Group LLP

Syndia AttardoSenior Wealth Manager

Bank of New York Mellon Wealth Management

An Informative Q&A with OC’s Top Investment Management Professionals

s markets continue to regroup in the wake of the financial crisis, there are still significantunanswered questions and concerns. The Orange County Business Journal has asked some of

the community’s leading experts in the field to share their insights and knowledge on the mostimportant issues confronting the investment management industry today.

A

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B-36 ORANGE COUNTY BUSINESS JOURNAL INVESTMENT MANAGEMENT ROUNDTABLE Advertising Supplement SEPTEMBER 14, 2015

Bank of New York Mellon Wealth ManagementBNY Mellon Wealth Management is a leading wealth manager, and was named in

2015 by Family Wealth Report as the top National Private Asset Manager and topPrivate Bank serving Family Offices. Barron’s ranked it the 7th largest U.S. wealthmanager in 2014. The firm has more than two centuries of experience in providingservices to clients who today include financially successful individuals and families,their family offices and business enterprises, planned giving programs, andendowments and foundations. It has nearly $193 billion in private client assets, asof June 30, 2015, and an extensive network of offices in the U.S. andinternationally. BNY Mellon Wealth Management, which provides investmentmanagement, custody, wealth and estate planning and private banking services,conducts business through various operating subsidiaries of The Bank of New YorkMellon Corporation. For more information go to bnymellonwealthmanagement.comor follow us on Twitter @BNYMellonWealth.

City National BankBased in Los Angeles, City National Bank offers a full complement of banking,

trust and investment services through 75 offices in Southern California, the SanFrancisco Bay Area, Nevada, New York City, Nashville and Atlanta. Its 3,600colleagues deliver highly personal service and complete financial solutions toentrepreneurs, professionals, their businesses and their families to help them onthe “way up.” City National is proud to be celebrating their 40th Anniversary inOrange County in 2015.

Jeffrey M. Verdon Law Group LLPAt the Jeffrey M. Verdon Law Group LLP, we believe in helping our clients make

sense out of the complex tax code and wealth transfer opportunities available to thewell informed. Our boutique Trust & Estates law firm located in Newport Beach,Calif., serves affluent families and business owners with estates of $10M to $500M.Through our Comprehensive Estate Planning platform, we optimize income andestate tax deferral opportunities found in the Tax Code and approved by the IRS inits private and public rulings, while placing effective “firewalls” around the assets toprotect against future unforeseen lawsuits.

With over 30 years of experience, we have established relationships with some ofthe “best in breed” strategic advisors, true experts in diverse fields who can furtherassist in designing and implementing the ideal strategy for our clients. Uponrequest, we will match our clients with the right strategic advisor to meet the need,whatever it may be, and save our clients from worrying about any uncertaintieswhen seeking the services of skilled legal, investment and financial professionalsintegral to a well-qualified team. To find out more, call 949.333.8143.

INVESTMENT MANAGEMENTROUNDTABLE

PARTICIPANTS

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When formalizing objectives, current andfuture income and expenses need to befully considered. Only then can aneffective and durable wealth managementstrategy be implemented and maintained.

—Syndia AttardoSenior Wealth Manager

Bank of New YorkMellon Wealth Management

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u How important is developing acomprehensive estate tax and assetprotection plan in achieving your clients’objectives?

Jeffrey M. Verdon, Esq., Jeffrey M. VerdonLaw Group LLP: Most clients hire an estateplanner, have a meeting, and then the estateplanner drafts documents. We believe there is amore prudent approach. Comprehensive estatetax planning with asset protection involves manyoptions to achieve one’s goals. Therefore, “bestpractices” involves the professional presentingrecommendations and suggestions in the form ofa planning memorandum or “road map” (and aPowerPoint presentation for those who are morevisual) that lays out the recommendations inplain English and explains the benefits vs. thecosts of each choice. In this manner, the clientmore clearly understands what is being proposedand may request changes before the plannerbegins drafting. More importantly, in the future,the client will have a written reference so he orshe may review what was proposed and why itwas recommended. As my grandmother said,“Measure twice, cut once.”

u How do investors manage the complexitiesof the current investment markets?

Syndia Attardo, Bank of New York MellonWealth Management: Investors have beenfaced with extraordinary challenges this year.And, as with any year, the time to make sure youare best positioned for opportunities andchallenges is well in advance of that marketactivity. The first step for investors is to knowtheir objectives – both short- and long-term.When formalizing objectives, current and futureincome and expenses need to be fullyconsidered. Only then can an effective anddurable wealth management strategy beimplemented and maintained.

If needed, that plan should be able to supportimmediate lifestyle expenses as well as longer-term legacy or philanthropic goals. That mightmean there is one portfolio dedicated to the moreimmediate concerns and a second to the longer-term. Those portfolios will be structureddifferently but should work in unison to meet aninvestor’s complete range of objectives. Also,any plan needs to be nimble and flexible tomanage through short-term market volatilitywhile keeping an eye firmly on the longer-term.

u Many investment structures put in place bytaxpayers today require sophisticatedfiduciary accounting systems that trackbasis, income, accumulated income, andprincipal derived from reinvested income.What quality control measures does your firmhave in place to ensure that it is onlyaccepting portfolios that it has the necessaryaccounting systems to manage?

Shaun Skeris, City National: City Nationalemploys a sophisticated, intelligentpersonalization approach to fiduciary portfoliomanagement. The initial steps of this approachinclude an iterative process of gathering specificinformation from the client to determine theircurrent circumstances, as well as theirconditional needs, expectations and preferencesfor the future. Effective listening allows us theability to learn about the client, and helps clarifyinvestment objectives. An important part of thisapproach also involves a proprietary analyticalprocess conducted by City National to accurately

determine the nature of the client’s currentportfolio, and our ability to adequately managethe assets in the portfolio in accordance withtheir stated goals and objectives. As thisproprietary process occurs whenever a newrelationship is established, City National is wellsuited to ensure proper acceptance,management and quality control of all clientportfolios at the outset of each clientengagement. The management of each portfolio,along with the accompanying Investment PolicyStatement, is reviewed periodically with the clientto ensure consistent adherence to policyguidelines.

u What is your market outlook for theremainder of 2015? What are the biggestpotential headwinds for investors for theremainder of the year and how can they beavoided?

Syndia Attardo, Bank of New York MellonWealth Management: At BNY Mellon WealthManagement, we think that investors willcontinue to face lower interest rates but alsoincreased volatility for the remainder of 2015.That’s based, a lot, on what already has takenplace in 2015. The media, and as a result,investors have been focusing on macro-scaleevents such as the Greek debt crisis and growthconcerns in China when making investmentdecisions. By focusing on macro events alone,investors usually overlook market fundamentalsthat indicate the health of the market.

In this late-stage bull market, pullbacks andeven corrections are to be expected. For theremainder of 2015 and even into 2016, we’llcontinue to focus on the fundamentals –separating noise from reality. We expect U.S.equities will post modest gains when comparedto the last few years and that internationaldeveloped equities will offer higher potentialreturns given the infancy of their recovery cycle.

u Complex charitable tax planning structures,such as Grantor Charitable Lead Unitrusts,impose phantom income-tax burdens on theclient. How do your portfolio managersbalance the need to generate the largestremainder possible while being sensitive tothe cash-flow constraints of the client?

Shaun Skeris, City National: For manyclients, charitable planning is an integral part oftheir overall planning objectives, involving abalance between the assets denoted for charity,and the benefits derived from remainder assetsby interested parties. Portfolio managers at CityNational are focused on managing charitableassets in accordance with the needs andobjectives of each client, as memorialized withinan Investment Policy Statement. Working inclose partnership with each client’s team oftrusted advisors, our knowledgeable investmentprofessionals develop an insightful “personalbenchmark” that is unique to each client. Thisbenchmark is the client’s blueprint forperformance and portfolio strategy, supported bycomprehensive asset allocation and economicanalysis. When managing assets within acharitable structure, each portfolio managerbalances the need for capital preservation andgrowth of the principal, along with cash flowrequirements imposed by the structure and theclient. In each instance, the portfolio manager isfocused on maximizing the benefits, throughintelligently personalized investment

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SEPTEMBER 14, 2015 INVESTMENT MANAGEMENT ROUNDTABLE Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-39



Family Limited Partnerships (FLPs) andFamily Limited Liability Companies(FLLCs) are two of the more effectivestructures in which such portfolios areheld. FLPs and FLLCs have special assetprotection features under the lawpreventing a future creditor from reachinginside the entity and taking the portfolio tosatisfy a judgment.

—Jeffrey M. Verdon, Esq.Managing Partner

Jeffrey M. Verdon Law Group LLP

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management, for the client and beneficiaries ofthe designated assets.

u To take advantage of the increased gift taxexclusion enacted into law in 2011, many highnet-worth taxpayers have made gifts ofappreciating assets to dynasty trusts for theirchildren and grandchildren. Looking back onthese transfers, what mistakes might havebeen made in making these larger gifts?

Jeffrey M. Verdon, Esq., Jeffrey M. VerdonLaw Group LLP: In 2010, many high net-worthfamilies made gifts of low basis, highlyappreciating assets to trusts set up for theirdescendants in order to beat the deadline for thesunset of the large gift tax exclusion, whichCongress eventually extended permanently. Thisresulted in the loss of the very valuable “basisstep-up” at death. The basis step-up can not onlyeliminate the capital gains tax on the subsequentsale of the asset, but for depreciable assets, thenew basis creates a new depreciation tax basis tooffset taxable income. Thus, many taxpayerssacrificed the income tax benefits (possibly ashigh as 56.7%) to save the estate tax (40%federally). If the dynasty trust to which the giftswere made were properly drafted, the anomalycan be corrected and both the estate tax deferraland the income tax benefits associated with thebasis step-up can be attained.

u Life insurance is a common financial andestate planning tool used to solve for incomeshort-falls, supplemental retirement needs,estate-tax liquidity, business succession, andother purposes. An increasingly popularversion, Private Placement Variable LifeInsurance, permits the client to appoint theirown manager to manage the cash-value of thepolicy. Does your firm have a group dedicatedto managing such assets?

Shaun Skeris, City National: City Nationalspecializes in managing intelligently personalizedportfolios for individuals, families and foundations.In addition, City National has dedicatedprofessionals positioned to manage client assetsheld within a Private Placement Variable LifeInsurance Policy. With regard to this type ofstructure, and the assets placed in this type ofpolicy, it is very important to understand the rulesand regulations that govern the management ofthese specific assets. City National portfoliomanagement professionals have extensiveknowledge of these structures and thecompliance aspects that must be followed. Forclients who have chosen to implement thesestructures, City National currently managesassets inside Private Placement VariableInsurance Policies, whereby we have beendesignated as the investment manager.

u Most affluent families don’t mind owninglife insurance – they just hate to use theircapital to pay for it. What disruptivetechnologies have been created to allowaffluent families to own all of the lifeinsurance they need or want using intelligentleverage?

Jeffrey M. Verdon, Esq., Jeffrey M. VerdonLaw Group LLP: Historically, there was only oneway to pay for life insurance – cash. A personcould pay annually, quarterly or monthly, but theyhad to use their own assets. Then financed lifeinsurance was created and completelytransformed the way large life insurance policies

were sold. There are specialty lenders who willmake loans to insurance buyers taking thepolicies as collateral. The insurance buyer paysthe lender “interest only,” or even accrues theinterest payments. When the insured dies, thelender is repaid directly by the insurancecompany. Lending rates range from 1.3% foradjustable rate loans to 3.35% for 10-year fixedrate loans. Leaving premiums in one’s portfolioor business where a much higher investmentreturn is earned allows the buyer to gain thearbitrage, and the outlay for the life insurance isdiscounted by as much as 66% or more.

u What should clients be asking theiradvisors?

Syndia Attardo, Bank of New York MellonWealth Management: Simply put, as much asthey need to feel knowledgeable about theirwealth management plan. A key lesson from the2008 recession and stock market disruption isthat investors need to be engaged partners whenworking with advisors. A good litmus test ismaking sure you understand exactly why acertain investment is held in your portfolio. Forexample, hedge funds and private equity can begreat diversifiers for larger portfolios with longertime horizon, but most are highly illiquid so theyare not right for every investor.

Another valid question is fiduciary oversight –is the advisor a qualified, objective fiduciary whocan address tax, estate and business planningissues? A broker focuses on trading securities –which his fine as long as that role is understood.An experienced fiduciary, such as BNY MellonWealth Management, performs a much broaderrole and is continually focused on meeting theshort- and longer-range objectives.

Also, while it might sound obvious an investorneeds to understand how much he or she ispaying for money management services. Acapable advisor should be able to articulate veryspecifically why and what you are paying.

u Most investors hold title to their investmentportfolios in either their individual names orin their revocable living trust. Is there apreferred manner of holding title?

Jeffrey M. Verdon, Esq., Jeffrey M. VerdonLaw Group LLP: Lawsuits and other third-partyclaims are a significant risk to investors. Thereare many popular and effective ways to hold titleto one’s portfolio to achieve greater protectionagainst unforeseen lawsuits. Family LimitedPartnerships (FLPs) and Family Limited LiabilityCompanies (FLLCs) are two of the more effectivestructures in which such portfolios are held. FLPsand FLLCs have special asset protectionfeatures under the law preventing a futurecreditor from reaching inside the entity andtaking the portfolio to satisfy a judgment. Otheroptions include establishing a domestic orforeign asset protection trust in a venue whichhas laws that do not allow creditors of the trustsettlors or trust beneficiaries to take the assetsinside the trust. Consult an experienced assetprotection lawyer for advice on these and otherstrategies that will insulate your investmentaccounts.

u No one marries intending to get a divorce.However, given the current divorce rate, arethere wealth planning steps that couples cantake to ensure they are well positioned shoulda divorce take place? When should those beput into place?


SEPTEMBER 14, 2015 INVESTMENT MANAGEMENT ROUNDTABLE Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-41

Syndia Attardo, Bank of New York MellonWealth Management: The most basic element ofdivorce is dividing up of assets so, at any time,having a comprehensive understanding of all of theassets involved is essential – for both spouses.Also important is how assets are held, whether insole name, joint tenancy, tenants in common orcommunity property (to name a few), or whetherthose assets are inherited or gifted. All of theseconsiderations have an impact on distribution aspart of the divorce proceedings.

The more transparent and documented allholdings are should help to ensure more orderly,less contested, proceedings once the divorce takesplace. Pre-nuptials can be valuable, but they arenot the only tools in making sure that there is anequitable distribution of assets.

Once proceedings have begun, and particularlyshould they become acrimonious, trusts can beestablished as a way to quickly segregate assetsand ensure they are monitored by a trustee.

An experienced wealth advisor with an emphasison family law will know the right tools to employ inadvance or during divorce proceedings.

u Forming a Captive Insurance company is anincreasingly common tool of risk managementfor many high cash-flow entities. Properlymanaging the premiums paid to such entitiesoffers challenges, especially relating toliquidity needs for current potential claims.What expertise does your firm have to managethe assets of such entities?

Shaun Skeris, City National: When consideringthe proper management of risk, it is important toremember that risk is unique to each client. As partof the analytical process each client conducts toaddress and implement adequate riskmanagement measures, they may also decide toform or use a captive insurance company for risksharing purposes. Once a client has decided toutilize a captive insurance company, the necessarysteps to manage premiums, claims and properliquidity must be put in place. City National worksin concert with clients to manage assets insidecaptive insurance companies, and helps to balancethe need for maintaining liquid reserves forpotential claims along with the investment andgrowth potential of the assets. Our ability tobalance investment objectives in coordination withproper liquidity and risk management providestremendous value to City National clients utilizingthese structures.

uWhen we think divorce, we typically thinkfirst and foremost of the divorce attorney asthe key advisor. However, a wealthmanagement expert can have a significant rolein the outcome for divorcing spouses. Whatadvice do you have on how to work with awealth management expert during thischallenging time?

Syndia Attardo, Bank of New York MellonWealth Management: When significant assets areconcerned, it’s critical for each spouse to have theinput from multiple areas. A wealth managementadvisor can play an essential role in ensuring thatassets are divided most effectively and to thegreatest benefit of the divorcing spouses. Thedesire to move beyond the unpleasant aspects of adivorce can encourage wrong decisions. Forexample, the oft-accepted “lump sum” approach tosettlements is seldom equitable or efficient. Assetsneed to be looked at both from a current and futurevalue perspective. Annual living expenses,standard of living maintenance and supporting

financial analytics can serve as the core of highlydefensible divorce settlement requests. Similarly,cost basis, retirement assets, securities restrictionsand other tax considerations all need to be lookedat closely.

The division of real estate holdings, particularlythe family home, is often a highly contested aspectof divorce and, as such, can benefit from a detailedfinancial analysis. In these ways and more, anexperience wealth management expert can helpensure the desired outcomes.

u Sophisticated gifting programs are beingimplemented by many high net-worthtaxpayers. Structures such as Short-TermLoans to Intentionally Defective Trusts arebecoming commonplace. What process doyour portfolio managers engage in to ensuretheir investment policy statements balance theloan repayment schedule with the short-termgrowth-goal of the portfolio?

Shaun Skeris, City National: Each City Nationalclient has a unique set of circumstances, needsand objectives. Initial client engagement involvesan extensive understanding of thosecircumstances in order to most effectively providethe appropriate services and solutions. As needsand objectives are determined, the ability andwillingness to take investment risk are alsodefined. Once these parameters are known, assetclass determination and portfolio strategy arediscussed and agreed upon. At this stage, thepreservation and growth goals for the investmentportfolio, along with cash flow and repaymentrestrictions (e.g. short-term loans) arememorialized in an Investment Policy Statement(IPS) signed by the client. For clients employinggifting programs involving short-term loans, CityNational portfolios managers ensure therepayment constraints and investment goals arecaptured in the IPS, and implemented in theportfolio through intelligently personalized securityselection and portfolio management. Throughoutthis process, City National professionals work inclose collaboration with the client’s advisors andconstituents to ensure the proper coordination ofgifting, tax and loan repayments schedules are inbalance with respect to the client’s intelligentlypersonalized portfolio.

u There are certain estate tax planningstrategies that the IRS has announced they areworking to eliminate this year. What are someof these strategies and is there still time to takeadvantage of them?

Jeffrey M. Verdon, Esq., Jeffrey M. VerdonLaw Group LLP: FLPs and LLCs are popularvehicles for taxpayers to hold their portfolio andother appreciating assets because they offer assetprotection and the potential for discounts in the25% to 50% range. Ownership of an LP or LLCinterest generally are subject to certain restrictionson transferability and represent less than 100%ownership, thereby resulting in a willing buyeroffering a willing seller a price that is discounted toreflect these restrictions. Moreover, an LLC formedin Nevada allows the members to restrict theliquidation of the LLC by a term of years, therebycreating an even larger discount. The IRS hasannounced it is likely to change these rules andpreclude non-active trade or businesses, i.e.,passive or investment LLCs or LPs, from qualifyingto take these valuable discounts. Contact your taxplanner now before the law becomes effective, orrisk losing these valuable planning opportunitiesforever.

Once a client has decided to utilize acaptive insurance company, the necessarysteps to manage premiums, claims andproper liquidity must be put in place. CityNational works in concert with clients tomanage assets inside captive insurancecompanies, and helps to balance the needfor maintaining liquid reserves forpotential claims along with the investmentand growth potential of the assets.

—Shaun M. Skeris, CFASenior Vice President

Senior Private Client AdvisorCity National Bank

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INVEST-Guide Layout 1 9/10/15 2:53 PM Page 35 INVESTMENT ... · Senior Wealth Manager Bank of New York Mellon Wealth Management An Informative Q&A with OC’s Top Investment Management