PROTECTING TODAY’S WEALTH FOR TOMORROW

MARCH 2015 PAMMAGAZINE.COM

REDEFINING PRIORITIESSteve Barimo on

the impact family

investment offices

are making

THE FIDUCIARY DEBATEPresident Obama says

‘confl icted’ advisors

should be held

accountable

STRIKE IT LUCKYA look at how affl uent

investors’ holdings have

been aff ected by the

recent slump in oil prices

1812 4

14

NOT A DEPOSIT NOT FDIC INSURED MAY LOSE VALUE NOT BANK GUARANTEED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

ascent.usbank.com

Ascent Private Capital Management of U.S. Bank provides services for families of

signifi cant wealth who want to preserve and protect their assets while putting their

fi ngerprint on history.

Michael Cole, PresidentDirect: 415.677.3566

Rewards and responsibilities of great wealth

Re-envision Wealth

WELCOMEPAM

Outsourcing family office functions

was the topic of discussion at the

latest PAM breakfast briefing this

month, with our panel of experts

(Jared Feldman, Evan Jehle and Brian

Reich) giving intriguing insights into

their experiences with handing over –

or being given – third party responsi-

bilities from family offices. See our in-depth feature on pages 14-16 for

the highlights of the discussion, circling the pitfalls and potential that

come with handing over the reins of responsibility to a partner firm.

One of the most common reasons family offices turn to outsourc-

ing is to leverage the expertise of a professional in a very specific field;

for example, the chief investment officer function has been more

frequently outsourced from family offices struggling to get optimum

returns from a small staff over the past few years. This month I spoke

to Steve Barimo, co-founder of AM Global Family Investment Office,

who champions the role of investing above all other family office tasks.

In a bid to retain the importance of this function, he says single family

offices are turning to dedicated investment offices such as his – read

about AM Global’s move to revolutionize the space on pages 18-19 of

this magazine.

As we drill down into the vital role an investment portfolio plays in

the preservation and growth of a client’s wealth, our monthly invest-

ment focus turns to the volatile and headline-hogging oil industry

(pages 12-13). Over the past few months, the commodity’s price fell

to below $50 per barrel – a far cry from its previous highs of $115.

But like all trading movements, this slump is not a permanent fixture

– and for those investors drawn to bargain-hunting, it could be the

perfect time to strike a deal.

STEPHANIE BARTUP, EDITORs.bartup@pammagazine.com

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03

Have a topic you’d like to see discussed at an upcoming breakfast briefing? E-mail me at s.bartup@pammagazine.com.

F R O M T H E E D I T O R

04

NEWSPAM

Center. She previously held a variety

of leadership roles at the private

bank, including head of planning

and development for Northern Trust

Hedge Fund Services.

Northern Trust operates three

offices served by more than 150

partners in Arizona, providing trust,

private banking and investment ser-

vices. At the end of 2014, Northern

Trust had $6.2bn in assets under

management in Arizona.

DEALMAKING

Wealth management M&A values boosted in 2014Dealmaking in global wealth man-

agement M&A had a “solid” year,

according to data from Scorpio

Partnership, which said total trans-

actional value hit $12.9bn, up from

$8.1bn in 2013.

Average deal prices rebounded to

2.1% of assets from 2013 lows, the

firm’s 2015 Wealth Management Deal

Tracker report revealed. Although

the deal price average went up,

the amount of private client assets

changing hands hit $461.3trn.

“The deals in 2014 hint that a pur-

suit of quality over quantity returned

to the wealth management market.

Pricing levels rebounded to the 2%

mark after a mood of quick selling in

2013 depressed values.

“The pace of deal making may be

dropping off slightly compared to

last year but it is still moving at a

strong clip,” said Sebastian Dovey,

managing partner at Scorpio Part-

nership.

The research project, in its fifth

edition, has assessed 368 deals since

it started tracking in 2008. The

volume of high-net-worth assets

purchased totalled $2.2trn over

that time period, of which $461bn

changed hands in 2014.

EXPANSION

Northern Trust unveils Arizona expansion plansPrivate banking giant Northern

Trust is set to expand its presence in

Arizona by opening a new office in

the city of Tempe.

The center – expected to open

in mid-2015 and grow to 1,000

full-time employees over the next

three years – will provide financial

business, investment and banking

services.

“Arizona offers an exciting op-

portunity to address the increasing

needs of our clients as our business

continues to grow,” Northern Trust’s

chairman and CEO, Frederick H.

Waddell, said. “This step will provide

us with access to significant talent

pools and a strategic location that

will help us efficiently serve our

clients.”

Northern Trust said the move

would help widen its client-support

coverage to allow for time zone dif-

ferences, and to supplement work

of existing U.S. resources to deliver

quicker response times to clients.

The new office will be located in

the Discovery Business Campus in

Tempe. Northern Trust will occupy

temporary space on the site while a

new building is constructed, which is

expected to be completed by the end

of 2015.

Pamela Higdon will serve as

director of the Arizona Operational

President Obama’s support for raising

the standards of investment advice

handed out by brokers needs to be fol-

lowed up with real actions, industry

education and demands for transparency,

the director of wealth management at

Aspiriant has told PAM.

Sandi Bragar was discussing the Presi-

dent’s speech at AARP in Washington

DC, in which he focused on the advice

given by brokers handling retirement

accounts. The President waded in on

the long-running debate over whether

professionals offering ‘conflicted advice’

should be held accountable and answer-

able to a fiduciary rule.

At present, advisors work to the ‘suit-

ability standard’, meaning that they must

offer advice and products which they

believe are ‘suitable’ for their client at that

time. For the first time, Obama publicly

stated that he was seeking to impose the

fiduciary standard on the broker com-

munity – meaning that they would have

to put their clients’ interests above their

own; and could no longer be incentivized

to sell products.

“There’s an ocean between giving

‘suitable’ advice, as is required currently,

and giving fiduciary advice, as we and

many of our competitors do,” said Bragar.

“There needs to be a lot more education

round the topic; an understanding and

culture needs to grow from these discus-

sions. This is a step in the right direction

and I’m excited to see what comes next;

but we definitely need action.”

Bragar said that when Aspiriant is pit-

ted against the conflicted advisors noted

in the President’s address, it presented a

challenge to both the firm and clients.

“We are very transparent with our fee

structure; but when we are compared to

some of the less transparent firms, it can

appear that our structure is very expen-

sive – there are no hidden costs any-

where,” she said. “Clients need to be able

to compare apples with apples.”

REGULATION

05

MARCH 2015

RESEARCH

FOX: Millennials seek to retain

Contrary to widespread belief, millen-

nial wealth owners “value and aim to

retain” their family’s advisors, results

of the latest whitepaper from Family

Office Exchange (FOX) show.

know their family, and who can help

them address their needs—just so

long as the advisors are ready, willing

and able to adjust to their millennial

clients’ expectations on engagement

and value delivery.

“While millennials’ needs are similar

to those of their parents and grandpar-

ents, their expectations for how wealth

advisors should meet those needs are

notably different than those of earlier

generations,” says Amy Hart Clyne,

New research from the organization

of private family enterprises and their

advisors shows younger generations

of affluent individuals will stay loyal

to their parents’ advisors – as long as

they can adapt to meet millennials’

expectations.

The research, highlighted in FOX’s

new whitepaper Engaging the Client

of the Future, found that millennial

family clients are eager to work with

experienced advisors who already

O N T H E M O V E

EisnerAmper LLP Frank L. Napolitani

Jennifer Kenning

Abacus Aspiriant

Fiduciary Trust Company Stacy K. Mullane

Robert N. Karelitz

Terry Jenkins Key Private

Bank

Deutsche Asset & Wealth Management

Santiago Trigo

Gillian Johnson Hillview Capital Advisors

Wells Fargo Private Bank

Tom EberhardtKevin Driscoll

George G. Ellison Altisource

Asset Management Corporation

First Foundation Inc

Andrew Chan

Jane SwanVeris Wealth Partners

06

NEWSPAM

executive director of the knowledge

center at FOX.

HNW investors

concentrated Asia exposureHigh-net-worth investors could make

long-term gains by seeking out a

greater exposure to Asian markets, and

focusing on concentration rather than

diversification across their portfolios,

the president and CIO of global equity

manager Tsai Capital Corporation has

told PAM.

Christopher Tsai, head of New York

City-based Tsai Capital, said his firm

was taking full advantage of statistics

released by the Organization for Eco-

nomic Co-operation and Development

(OECD) which projects that the Asian

middle class will grow exponentially,

from 525 million in 2009 to about 3.3

billion by 2030 – a figure which will

represent an estimated 66% of the

global middle-class population.

“We work thematically, and look at

long-term trends,” he explained. “The

‘wallet power’ that this demographic

represents is very powerful, and afflu-

ent investors should be cognizant of

this occurrence.”

Tsai said that his firm’s portfolio ex-

posure to Asian markets sits at around

20%, and added that this level was not

significantly outsized given that China

recently surpassed the US in terms

of GDP based on purchasing power

parity (PPP).

“Many managers are behind the

curve and significantly underweight in

this area,” he said. “Others are starting

to look into investing there now, and

certain managers have an optimistic

view on where Asia is heading.”

As well as its unique approach to

investing in Asian markets, Tsai Capi-

tal prefers a concentrated portfolio as

opposed to diversified.

“If you diversify too much, you start

to resemble the market, and that’s not

how you add value to clients,” said

Tsai. “Warren Buffett was correct when

he said that diversification is insur-

ance against ignorance. We want to

understand each business from the

inside out and then make a timely,

well-informed entry. Not a lot of op-

portunities meet the strict criteria we

are looking for.”

LAUNCH

Mosaic Family Wealth launches through Dynasty partnershipA Missouri-based wealth management

team has launched an $800m inde-

pendent advisory firm through the

Dynasty Financial Partners platform.

Mosaic Family Wealth was founded

by Scott Highmark and Larry Shikles,

both former senior vice presidents at

Morgan Stanley Wealth Management.

They are joined by six of their former

Morgan Stanley Wealth Management

colleagues.

The team, which specializes in pro-

viding financial solutions and wealth

counseling for entrepreneurs in the

greater St Louis, Missouri region, has

completed its transfer to New York-

based Dynasty Financial Partners, an

integrated platform service provider for

wealth management advisors.

“At Mosaic Family Wealth, we are

transforming an established wealth

management and investment advisory

practice into an independent firm with

greater transparency and expanded

capabilities for our clients,” said

Highmark. “Our clients are leaders

in the business community and civic

life of St. Louis and have spent their

careers as entrepreneurs, executives

and business owners. We share that

entrepreneurial spirit and are now

well-positioned to help them achieve

their long-term potential.”

“At Dynasty, we have noticed a trend

toward significantly larger advisory

A new investment advisory firm

focused on achieving risk-adjusted

returns for affluent individuals, families

and endowments has launched in Dallas,

Texas.

Lear Investment Management, which

currently manages approximately $100m

of client assets, will be led by Frederick

Lear, a former vice president at industry

giant Neuberger Berman.

The new firm’s investment process will

balance quantitative analysis with funda-

mental research grounded in capitalizing

on global economic trends, said Lear. It

will also serve as a sub-advisor to financial

advisors seeking an investment manager.

“Lear Investment Management reflects

the cumulative investment expertise and

lessons I have internalized over almost two

decades,” said Lear.

“Over that time, I have been deeply for-

tunate to build the kind of investing track

record, skill set and relationships that drive

superior performance. I am grateful for the

support my clients have demonstrated thus

far, and I look forward to building a world-

class firm that delivers excellent perfor-

mance and service for many years to come.”

Previously, Lear served at several bou-

tique investment managers including Sloan

Wealth Management in Dallas, and as vice

president at Neuberger Berman.

He also served as a portfolio manager for

US Trust in New York on a team responsi-

ble for a multi-billion dollar quantitative,

equity investment strategy.

LAUNCH

07

MARCH 2015

teams choosing independence in order

to best serve their clients,” said Shirl

Penney, CEO of Dynasty Financial

Partners. “Scott, Larry and the team

have experienced tremendous success

and are highly regarded in the St.

Louis community. We are pleased to

welcome Mosaic Family Wealth to

Dynasty’s network of advisors.”

EXPANSION

Citi Private Bank ACG touches down in SeattleCiti Private Bank’s North America

Asian Clients Group (ACG) has

expanded into a fourth US market.

The private bank has opened up in

Seattle, Washington, in a bid to capi-

talize on one of the world’s fastest

growing high-net-worth markets.

The group, led by Ida Liu, manag-

ing director, head of the North

America ACG, aims to link ultra-

high-net-worth clients in the U.S. to

Asian markets, and vice versa. The

division already has a presence in

New York, San Francisco and Los

Angeles.

Olive Goh, who joined Citi Private

Bank in May 2014 as director and

private banker, will oversee the

ACG’s efforts in the Seattle market.

Goh joined Citi from HSBC

Private Bank in New York where she

had been a relationship manager

for the US Domestic Private Bank

since 2010, managing a client base of

entrepreneurs, executives, real estate

managers, and family offices.

“With dedicated ultra-high-net-

worth private bankers in New York,

San Francisco, Los Angeles – and

now Seattle – we are well positioned

to serve our Asian clients in these

markets and provide customized of-

ferings including tactical trading and

investment ideas, real estate strate-

gies, cross border trust and estate

planning strategies, foreign exchange

and global reporting,” said Goh.

is the next logical step in the process

that we started several years ago,” said

Gerard McGraw, president of Fidelity

Institutional.

Mirchandani will continue to report

to McGraw, and Durbin will report

to Wilens. The Fidelity Institutional

Wealth Services senior leadership

team, which reported into Durbin, will

now report into Mirchandani.

Legg Mason: US equities are king for

Eighty-five percent of affluent US

investors consider domestic equities to

“offer the best opportunities over the

next 12 months”, according to the 2015

Legg Mason Global Investor Survey.

The overwhelming majority of the

458 high-net-worth investors surveyed

picked U.S. equities over all domestic

and global asset classes. This is an

increase over the 74% who chose the

same asset class going into 2014.

In addition, 63% of investors said

they are maintaining their equity al-

location in 2015, while more investors

(32%) expect to increase their allocation

to equities over any other asset class.

Only 6% said they intend to decrease

their allocation to equities in 2015.

“Investors are looking for the U.S.

equity market’s strong run to con-

tinue,” said Matthew Schiffman, global

head of marketing for Legg Mason.

“Last year, investors told us they had

great confidence in U.S. equities for

2014 and they were right: The S&P

500 was up over 11%. This year, we’re

seeing even more investors expressing

confidence in the U.S. equity markets,

and this is concerning.”

He warned that this overconfidence

could come with a dangerous degree

of complacency, which could in turn

prevent investors from paying close at-

tention to their overall financial plan.

“Investors have not changed their

asset allocation since we started mea-

EXPANSION

Fidelity creates Wealth Technologies arm, reveals restructure plansFidelity Investments has announced

plans to launch a new organization,

Fidelity Wealth Technologies, to serve

the financial advice industry.

Further restructuring will also take

place within the financial services firm

as Fidelity Institutional, the division

of Fidelity Investments which serves

registered investment advisors (RIAs),

broker-dealers, family offices and

banks, is set to align its clearing and

custody units.

Sanjiv Mirchandani, currently the

president of National Financial, has

been named president of Fidelity

Clearing and Custody, and Michael

Durbin, currently president of Fidelity

Institutional Wealth Services, will

become president of Fidelity Wealth

Technologies.

“Our clients’ technology needs

across the enterprise and the broader

technology needs of the financial

services industry are limitless, so hav-

ing a dedicated organization to grow,

develop and rapidly deliver technology

solutions can help drive our collective

success,” said Michael Wilens, presi-

dent of Fidelity Enterprise Services.

In July 2013, the business moved to

align several core client segments: banks

and broker-dealers under national

financial and RIAs, professional asset

managers, strategic acquirers and retire-

ment advisors and recordkeepers under

Fidelity Institutional Wealth Services.

Since this restructure, assets under

administration in the clearing and

custody business have grown by nearly

30% and client loyalty metrics have

improved, said Fidelity.

“Combining our clearing and

custody organizations into one unit

under a single leader helps us deliver

the best solutions for our clients and

08

NEWSPAM

suring investor sentiment three years

ago, which could be another sign of

complacency creep,” he added.

Investors surveyed, all of whom have

a minimum of $200,000 in investable

assets, have an average of 13% of their

assets invested internationally; 41%

of investors said they “will be more

focused on international investments

in the next year compared to last year”.

“Investors may be more willing to

travel abroad than invest there,” Schiff-

man said.

“This goes back to the potential for

complacency creep as investors contin-

ue to show a preference for investing at

home. Opportunities abound globally

and should be a consideration in any

strategic asset allocation.”

Investors see China and Japan as the

countries representing the best non-

U.S. market investment opportunities

over the next 12 months, according to

the survey data.

MERGERS & ACQUISITIONS

• Wealth management technology provider Envestnet has bought Upside, a technology company providing digital advice

algorithms to advise, manage, and serve clients with per-

• has established

Cov-

--

• Bank Financial and partnered with the private client group

Raymond James, which

-

• has

which provides reporting and administrative services to high-net-worth investors, was previously announced last year, and

• Independent broker-deal giant has picked -

• , the asset management

stake in

-

• is

-

independent representatives nationwide managing over $20bn

services to wealthy individual investors, said the deal would

• , a

- and -

TA -

09

REGULATION MARCH 2015PAM

R E G U L ATO RY U P DAT E

As we gather our 2015 tax information to begin preparing the

previous year’s income tax returns, some solace can be found

in the knowledge that the dust has settled on the income tax

increases under the American Taxpayer Relief Act. Whatever

modifi cations high-net-worth investors have made to tax-

planning strategies should suffi ce for now. Th ere don’t appear

to be transformative proposals on the horizon that require fur-

ther calibrations to mitigate potentially damaging tax eff ects.

Unfortunately, the Tax Increase Prevention Act renewed the

so-called individual extenders for 2014 only, and we are once

again left to wonder what the future holds for these provisions.

But while we may enjoy a year free of major legislative or

regulatory tax waves, we can be certain that one thing will

continue to disrupt our planning strategies: the life events that

both creep up unexpectedly and unfold as part of planned,

welcomed improvements.

Th ese events – everything from losing a spouse to expand-

ing a business – should always trigger a fresh evaluation of tax

strategies with an advisor. In most cases, they require creating

a new playbook, or at least modifying the current one, to en-

sure the taxpayer is avoiding unnecessary pitfalls and capturing

the full benefi t of every dollar.

While investors may not be able to avoid the taxes that these

life changes may bring, they can take advantage of strategies

that, for instance, postpone or stagger income over multiple

years to ensure tax dollars stay in their pockets longer when

these events occur. In other cases, certain tax vehicles, when

invoked, can relieve family members of at least some of the tax

burden.

DELAYED OPPORTUNITIES Affl uent individuals and family members who land a new job

may want to consider seeking changes to their bonus payout

schedule to avoid a tax burden – consider whether December

bonuses or commissions can possibly be deferred to January.

Postponing one-time income occurrences into a future tax year

and also possibly accelerating deductions into the current year

will help reduce the current year tax weight. Th e ‘time value’ of

money means a dollar saved in taxes today is worth more than

a dollar saved in the future.

Th ere are also opportunities to delay paying taxes on ap-

preciated assets. For example, suppose a property sells for $5m,

resulting in a $3m gain. Pushing that transaction into the next

year will delay paying taxes on a substantially higher adjusted

gross income. Or, consider a technique called an installment

sale, whereby the capital gain is spread out over time. An

advisor could structure this to unfold over three years and

minimize the tax hit year by year, while allowing the investor

to continue reaping the interest and seizing the cash fl ow.

PLANNING AHEAD Other transactions should be sped up to take place before

the tax year closes this April. A gift to a favorite charity made

before the end of the current year will maximize current-year

tax benefi ts.

Th e fi nances of affl uent individuals and families are oft en

dictated by the unpredictable whims of life, or death, as it

may be. With any life event, the key is not to be complacent.

Taxpayers should be proactive about planning for and around

these life events, consulting their advisor about options for

minimizing their tax burden.

Planning for those events, as well as routinely reviewing

tax plans in times when there are no major life developments,

is integral to healthy wealth management. And, in the end,

investors will have confi dence they are well positioned to meet

fi nancial goals for themselves and their families.

Fiduciary Trust Company International is a global investment

management fi rm serving individuals, families, endowments

and foundations since 1931.

can take advantage of tax strategies when faced with various life events

10

ASK THE EXPERTSPAM

A S K T H E E X P E RT S

Q How can a high-net-worth (HNW) provider seeking market penetration or expansion use technology to offer value? A Michiko Kurahashi (left), director of product sales and relationship management at CIT Bank’s internet bank, and Bill Donnelly, managing consultant, Val Executive Resources GroupTh e defi nition of good service has evolved dramatically in

recent years as technological developments increased the pace

of leisure and work. In the past, service providers considered

pampering their client to be good service. Marketing material

frequently employed adjectives such as “personalized,” “custom

tailored,” and “luxurious” to describe a positive client experience

for the HNW segment. Today, consumers are looking for value

in uninterrupted and hassle-free service that requires the least

amount of time and eff ort. Th is change in consumer demand is

exacerbated within the HNW segment, as these clients typically

have very little time to spare.

Th e internet has brought an abundance of information to

consumers, including that which was traditionally guarded by

professional advisors, such as fi nancial knowledge and recom-

mendations. Now, more than ever, HNW clients are aware

of what they want and where to fi nd the best provider of the

services they seek. Today’s affl uent client will purchase fi nancial

products and services from a fi rm that off ers a combination of

quality and speed. Th is new dynamic has irreversibly permeated

the way people source solutions.

Technology is an important diff erentiator for today’s leading

provider. It has already become the key to market leadership for

fi rms off ering apparel and retail shopping, food or furnishing

brands. Th e fi nancial services sector is following the pattern,

but slowly. Only 10 years ago, most private client organizations

were still dependent on printed brochures and presentations

for marketing, events and meetings for relationship growth

and retention. Th ey provided paper account statements for

reporting. Today, no competing fi rm can aff ord to be without

a robust website and a sound digital marketing and client com-

munication strategy. It is critical to identify how to best leverage

technology for results.

While technology is ingrained deeply in our lives, many HNW

providers have fallen behind in adopting current systems. More

oft en than not, budgetary and internal resource constraints play

an important role. But developments in everyday devices such

as cellphone and tablet functionality have increased demand in

this area. Clients of all ages use multiple mobile devices in all

facets of their lives. Social media has changed the way people

connect and stay in touch. Because many of the mainstream

fi nancial service providers have not been able to keep pace with

the change, the market has created an opening for a new type of

competitor.

Today, internet banks have established themselves fi rmly

in the marketplace, having fi rst appeared during the dot.com

boom in the late 1990s and early 2000s. At that time, consumers

were not ready to entrust their hard-earned savings with virtual

banks; however, today an increasing number of depositors are

becoming comfortable opening accounts and executing transac-

tions online.

Internet-based banks, mortgage and legal service providers

can have a national presence without having to be encumbered

by the limited footprint and overhead of traditional branches.

While it requires technological investments, internet-based solu-

tions are bringing cost effi ciency and maximum reach. HNW

market entrants are limited in this fi eld for the time being, but

there are early indications of an emerging trend.

To date, there are few fi nancial service providers target-

ing HNW clients with internet-based services. Eventually

fi rms currently serving other market segments with fi nancial

products and direct transactional services will recognize an op-

portunity for expansion. Th e move will be welcomed by many

clients, who are most likely conducting transactions, includ-

ing their securities trades, online. Th is development will be

embraced by senior management of existing HNW platforms

as well, since they continue to seek expense control options for

their division.

Initially, an ideal business strategy will center on providing

online transactional services and account management capabili-

ties, before expanding the platform to interact with relationship

managers and fi nancial advisors remotely; each to make real-

time adjustments to investment and savings portfolios. Acces-

sibility, seamless delivery and eff ortless interaction for clients

at each tier level, including global and mass affl uent clients, will

create a competitive advantage and defi ne value for progressive

HNW providers as this market continues to evolve.

In this feature, subscribers and readers of PAM can write in about questions or problems plaguing their wealth management practices. In return, they will receive practical advice from top experts.To submit a question, email editor Stephanie Bartup at s.bartup@pageantmedia.com.

WHILE TECHNOLOGY IS INGRAINED DEEPLY IN OUR LIVES, MANY HNW PROVIDERS HAVE FALLEN BEHIND IN ADOPTING CURRENT SYSTEMS

11

Q&A MARCH 2015PAM

Q What prompted you to launch Sprin-gReef Partners?A During my time as an executive in the

fi nancial services industry, I began to see

a shift in the priorities of major wealth

management fi rms. Th ere was less focus

on the needs of the client and increasing

focus on matters such as client revenue,

profi t margins, assets under management

and advisor head count. I realized that

clients needed someone on their side;

specifi cally, an unbiased, confl ict-free

partner to look out for their best interests.

I founded SpringReef Partners to meet

that need.

Q Why do families typically retain Sprin-gReef Partners?A Clients usually come to us for one of

three reasons. Th e fi rst is because they’ve

experienced a change in their fi nancial

circumstances – e.g. a signifi cant liquid-

ity event due to the sale of a business, a

large inheritance, or even a divorce – and

fi nd themselves searching for a fi nancial

advisor who can appropriately serve

their needs. We help these clients fi nd

talented professionals with outstanding

investment experience, knowledge and

capabilities.

Th e second reason clients come to us

is due to dissatisfaction with their current

wealth management provider. Oft entimes,

a family is already working with an advisor

but is unhappy with aspects of their rela-

tionship – investment performance, pric-

ing and transparency top this list. Th ese

clients retain us to conduct a full evalua-

tion of their advisor, or to take a deep-dive

into a specifi c element of their advisory

relationship, such as quality of investment

solutions or investment performance.

Finally, some clients – typically the

more complex families or organizations

with multiple fi nancial advisors – retain us

to manage or monitor their advisory rela-

tionships on their behalf. In these ongoing

engagements, we monitor investment

performance, review investment recom-

mendations, ensure clarity and transpar-

ency, and act as an advocate for the client

during meetings with their advisors.

Q What are the most important factors an UHNW family or individual should consider when choosing a wealth man-ager?A Th ere are a host of qualitative and

quantitative measures that are important

to consider when selecting a new advi-

sor. SpringReef’s qualitative assessment

includes a review of an advisor’s regula-

tory records, the strength and stability

of their business, and their experience

with UHNW clients. Also evaluated is

the quality and depth of their invest-

ment process, capabilities and solutions,

as well as their levels of transparency,

confl ict mitigation and commitment to

client service.

Th e quantitative evaluation includes

a review of their performance results

versus appropriate benchmarks and an

assessment of their fees relative to indus-

try norms. Of course, overall match and

alignment with a specifi c client’s needs,

goals and values also plays an important

role.

Q Are you seeing clients keen to hedge their risks across different advisors rather than having only one wealth manager?A Most families we work with choose a

primary wealth management provider to

develop their core investment strategy,

and then, if necessary, bring in additional

expertise around the edges.

Q advisory model?A We believe there are exceptional advi-

sors across all advisory models, including

the broker-dealer space, registered invest-

ment advisors (RIAs) and private banks.

And because our business is all about cli-

ent fi t, we have placed families within all

three models. Th ere does, however, tend

to be a strong preference for the fi duciary

standard – our clients want to know that

the person to whom they are entrusting

their assets is truly focused on the client’s

best interests.

Q

client?A When evaluating the qualifi cations of

an advisor, we look at the advisor’s over-

all focus on and experience with clients of

similar wealth and complexity – we want

to know how long they’ve been in the

UHNW business, how many wealthy cli-

ents they serve, and the makeup of those

client relationships. We don’t want an

advisor learning on our clients’ assets, so

we will only recommend those who have

at least seven years of UHNW experience,

more than $1bn in assets under manage-

ment, and a median client asset level

aligned with that of our client.

Working as an investor advocate, SpringReef Part-ners LLC reviews clients’ existing fi nancial advisors, searches for new, best-in-class advisors to meet specifi c needs, and provides ongoing monitoring of advisor relationships.

Evaluating the advisory beauty contest

In 2010, he launched SpringReef Partners LLC, a consultancy that evaluates wealth management providers on

Q & A

12

INVESTMENT FOCUSPAM

It’s no secret that the price of oil has taken a battering in the

with holdings in the commodity, and for those considering a

BY STEPHANIE BARTUP

The decline of crude oil prices

has been an almost perma-

nent headline fi xture since

last summer. According to

data from the US Energy

Information Administra-

tion (US EIA), January 2015

was the seventh consecutive

month in which average North Sea Brent crude oil

prices decreased, reaching $48 per barrel – the lowest

level since March 2009.

Having dropped from a relatively consistent fi ve

years of pricing, during which time crude oil stood

at $83-$115 per barrel, the unpredictable commod-

ity has been falling out of favor with investors. Earlier

this month, regulatory fi lings from Warren Buff et’s

Berkshire Hathaway revealed that the fi rm had shed its

41 million shares in energy giant Exxon, with further

reports claiming that its stake in energy organization

ConocoPhillips had also been sold in its entirety.

“Investors have defi nitely been aff ected by the falling

prices,” says Ron Ormand, managing director and

head of Energy Investment Banking at MLV & Co.

“It’s been a very diffi cult time for anybody with large

stakes in the market. Some oil and gas exploration and

production companies are down 50-70% or more off

their highs. Although we’ve seen some improvement

in equity values since the start of the year, there’s still a

long way to go.”

GASOLINE BLUESTh e depreciation of oil prices is a result of the huge

growth and consequent supply from exploration

across US shale and Canadian oil sands, in addition to

an already booming market from overseas producers

in emerging countries (see box out).

At the beginning of the year, estimated total com-

mercial oil inventories from the Organization for

Economic Cooperation and Development (OECD)

reached their highest level since August 2010 – and as

supply continued to outstrip demand, prices began to

tumble. Although the volatility seen in the fi nal half

of 2014 has slowed somewhat in the past couple of

months, prices are still a long way from their previous

highs.

Investors with large stakes in oil companies and

energy funds will likely remain nervous as the market’s

return to consistent pricing appears to be a slow

journey; however, those with interests in oil-producing

countries – whether it be domestic airlines, currency,

or other commodities – may also fi nd themselves

thrown against the tide.

“Countries dependent on oil – for example Russia,

Brazil or Mexico – may fi nd themselves in economic

trouble,” said Morgan Downey, former global head

of commodities at Bloomberg and author of Oil 101.

“Investing [in those asset classes] could be a risky bet.”

Although investments tied closely with the oil

market may have come out unfavorably, there are win-

ners, suggests Dan Neiman, partner of Neiman Funds

Management, LLC. He says that as the price of oil at

the pumps continues to drop, consumer goods have

surged.

“When cars become cheaper to run, consumers

will spend more, they’ll buy extra cases of beer, they’ll

make an extra shopping trip,” he says.

On a recent company earnings call, Richard Galanti,

Strike it lucky

13

MARCH 2015

chief financial officer at retail giant Costco, suggested

this was the case, saying that when gas prices are low,

“we save the customer more, and we make more”.

Recent price volatility isn’t the only obstacle the oil

industry has had to clamber over of late. At a time

when many affluent investors are keen to find deals in

socially responsible funds, companies and products,

the oil industry may not be the environmentally-

friendly option they seek.

However, Downey says that the industry has made

leaps in terms of increasing its sustainability. “There’s

been a clear drift towards creating ‘cleaner’ fuels –

diesel and gasoline – which are far more widely used

today than they were three or four years ago, and the

government removed acid rain, sulphur and lead from

catalytic converters; it’s an ongoing process,” he says.

Neiman adds that large energy companies are more

commonly using alternative energy sources.

“They have the money for research and develop-

ment; they all want to find solutions and have a com-

mon goal, which is to make the industry sustainable

for the next 100 years,” he says.

PURSUING A BARGAIN

Times of strife and near rock-bottom prices for one

industry can mean the perfect bargain-hunting op-

portunity for investors. And despite Buffet’s move to

distance himself from the volatile commodity, there

are some investors keen to take advantage of low

prices. Ormand describes today’s environment as “the

best time to invest” in the energy sector with values

down and distress in a number of companies.

“Oil company stocks have come under significant

selling pressure since the price of black gold dropped

more than 50% from its peak,” observes Eric Ervin,

co-founder, president and CEO of Reality Shares.

“Meanwhile, dividends have been headed in the other

direction. Energy sector dividend payments have been

more resilient than one might expect during periods

of significant oil price volatility, as last shown during

2009 when overall energy sector dividends rose in

spite of oil prices declining by 54%.”

Affluent investors are also seeking out opportunities

through private deals among other means.

This month, private equity giant Blackstone Group

launched a $4.5bn energy fund in a bid to take advan-

tage of the distressed industry – delayed or abandoned

oil drilling projects, for example. This followed a move

by Warburg Pincus, which announced its launch of a

multi-billion dollar energy fund last October.

“Several big-name private equity firms are raising

significant amounts of capital from wealthy investors

to participate in the distressed equity opportunities

that the oil industry is offering,” confirmed Ormand.

He says he has also seen interest in private deals in

the energy sector. “There’s not necessarily been a lot of

activity yet, but we do see a lot of interest. It is difficult

to connect expectations currently, but we believe there

will be some excellent deal opportunities out there.”

Away from the private markets, he adds, there are

still opportunities to make gains in the public sector –

including through energy equities, which continue to

perform well.

While experts agree that trading by the barrel and

purchasing physical oil supplies isn’t something afflu-

ent investors commonly partake in, there are a number

of crude oil exchange traded funds (ETFs) which have

offered decent returns; the top performer of 2014,

according to ETF Database, was VelocityShares 3x

Inverse Crude Oil ETN, which bet against oil prices

and tripled over the year.

Downey suggests that futures are becoming a more

popular option for those interested in crude oil invest-

ments; they are traded in units of barrels (regularly lot

sizes of 1000) and dollars.

“Futures investments are at record levels at the

moment, a lot of investors are becoming interested in

them and oil will be a huge part of that in the future,”

he says. “It’s a very efficient way of locking investors in

at a specific price.”

DRILLING DOWNThe cyclical nature of the commodities market dictates

that crude oil cannot sit at its current, sub-$50 price

forever. Data from the US EIA estimates that Brent

Crude oil prices will average $58 per barrel in 2015

and $75 barrel in 2016, marking the beginning of a

slow recovery to the $100 per barrel point.

In terms of share prices, Ervin suggests that inves-

tors refrain from seeking out short-term deals. “In

today’s turbulent oil price environment, energy com-

panies may be forced to reduce dividend payments as

a last resort to preserve capital,” he acknowledges.

“But as the past has shown, the importance of

maintaining dividends in the face of volatility is one

big reason investors should take a long-term view and

focus on underlying value, not just the price per share

at any given moment.”

Dividend paying stocks continually beat the market,

agrees Neiman, and whether it takes “three, five, or

ten years” to return to a more stabilized, high-return

market, the price will rise again.

WHAT CAUSED THE OIL PRICE SLUMP?

Between 2009-14, the relatively stable price of oil sat in a narrow margin between approximately $83-$115 per barrel. During that time, production of the commodity in the US and Canada grew strongly; by 2014 the two nations produced a combined 19 million barrels per year, an enormous jump from 2008 levels, which sat at around 12 million. As demand was not growing as rapidly as production, the industry was

production, which had previously been halted due to ongoing warfare affecting three separate oil producing sites, began again, bringing another 1.5 million barrels into the market each month. The saturated market was brought to a head at an Organization of the Petroleum Exporting Countries (OPEC) meeting in December, during which time Saudi Arabian delegates argued that US and Canadian producers should cut their fracking activities. Ultimately, an agreement was made in which US and Canadian frackers would limit their activity, leading to a more stable oil price.

14

FEATUREPAM

The once traditional notion of ‘keeping it in the family’ is fast disappearing. PAMare outsourcing various functions while retaining control of their operationsBY STEPHANIE BARTUP

T he concept of outsourcing

has steadily grown among

family offices in the US

over the past few years. As

families seek out experts in

specific fields and simul-

taneously attempt to con-

serve capital by limiting

the number of full-time employees on their roster,

farming out various functions of the family office

has become a trend on the upward trajectory.

Statistics from The Family Wealth Alliance

released in 2012 show that 35.3% of single family

offices surveyed outsourced the chief investment

officer function to handle their investments, up from

31.8% in the previous year.

“Affluent families are discovering the complexi-

ties that come with managing a single family office,

and they are looking for additional support and

alternatives,” says Jared Feldman, partner in the

Private Client Group at Anchin, Block & Anchin

LLP – Accountants and Advisors, in New York. “In

the last few years we have witnessed a growing trend

in outsourcing various family office functions”.

EXPERT ADVICE A family office might have a multitude of reasons

for outsourcing various functions to a third party

– some of the more frequently farmed-out posi-

tions include an investment officer role, audit, tax,

security and administration.

Evan Jehle, partner at Flynn Family Office, sug-

gests that while any function can theoretically be

outsourced, the move should be alleviating a par-

ticular stress for the family, not adding to it.

“One phrase I’ve heard many times is, ‘If you’ve

seen one family office, you’ve seen one family of-

fice’,” he says. “You really have to go in and assess

the specific needs of that family. Ask, ‘what are their

pain points?’ If the family has concerns about loss of

control and wants the person down the hall dealing

with their administration, then they shouldn’t out-

source bill pay, for example. If it’s not curing a pain

point, then it probably doesn’t make sense.”

Feldman adds that a family is often motivated to

outsource specific functions once they have accumu-

lated a certain amount of wealth, experienced a life

event (for example, the sale of a business), or some

other change in circumstance. Although a family

may typically start out handling their own finances,

the combination of a growing investment portfolio,

active careers, a variety of personal and charitable

commitments and a lack of expertise in specific

areas often become a burden.

Straight to the source

15

MARCH 2015

“Our experience is that there is a point in time

where an affluent family has accumulated a num-

ber of assets including multiple residences, cars,

artwork, and other investments. They start to feel

a greater need for support to make sure they can

keep their financial affairs in order,” he observes.

“Outsourcing has become a very specialized busi-

ness – there’s a greater need for depth and expertise,

whether it be for estate planning, philanthropy,

strategic tax planning or the management of their

day to day personal financial affairs.”

Spreading the net of family office functions to out-

sourced firms can help mitigate the loss of knowl-

edge. “If an employee departs after 25 years and is

the only person who knows how the family business

and personal affairs operate, there is a risk that the

family can be left with a large knowledge gap,” says

Feldman. “With the outsourced model, a family can

have multiple professionals who are familiar with

their affairs – they can rely on this team for succes-

sion planning. It can be cost prohibitive to build a

family office with both redundancy and expertise

across all areas.” Other benefits, adds Feldman,

include document retention, disaster recovery and

greater internal controls.

Delegating functions to a third party will usually

save a small family office money, compared with the

costs of hiring a full-time employee. A study from

The Wharton School at the University of Pennsyl-

vania suggests that single family offices in the US

employs an average of 8.7 employees – far fewer

than might suffice for all of its operational demands.

Brian Reich is CEO of Atrato Advisors, which

offers outsourced alternative advisory services to

affluent families and individuals.

“We’re often hired because our services provide a

much more efficient bandwidth; alternative invest-

ment research can be a labor-intensive process with

investment managers who are typically opaque,” he

explains. “People are hiring us to be a lot more ef-

fective than they could be in-house. A family which

is not from a financial background might hire us be-

cause they are devoid of the expertise, for example,

while someone with a lot of knowledge in this area

might look to us to help with bandwidth.

“Relationships are very different with all clients –

some are extraordinarily sophisticated and push us

very hard, while with others there’s a lot more of an

educational component. Finding that comfort zone

is key.”

Gaining access not only to shared knowledge and

expertise which an experienced service provider can

offer, but also to cutting edge technology, is a further

benefit to families which choose to outsource a func-

tion outside of their comfort zone.

“Many single family offices we have seen and spo-

ken with don’t have the greatest technology – paper-

less software to approve bills online, for example,”

says Jehle. “It’s an expense, and the family office

might not be a revenue-driving office, but more of a

cost center. In that case the family may not choose

to invest in the biggest technology. But that’s how

the outsourced service provider differentiates them-

selves. They want that cutting edge technology so

that people get access to the information effectively

and efficiently. I once worked with a family which

had been doing the same, lengthy administrative

process for 30 years; we managed to cut more than

1,300 hours a month, saving over a million dollars

per year.”

As well as being a cost-effective method, the

service provider will also have gained knowledge

by working with other families in similar financial

circumstances – enabling them to advise clients with

first-hand knowledge.

OUT OF SIGHT, OUT OF MIND?There are of course potential pitfalls that wealthy

families can unintentionally fall into when consider-

ing the outsourced model. Once a family has de-

cided to subcontract a specific function, or several, it

is imperative that they complete their due diligence

on the firms they are keen to use. In a time where

transparency is king, a family needs to know exactly

who they are dealing with, and ensure that their

details are not being shared further, or that their

work is not being outsourced further, onto a fourth

or fifth party, for example.

“You really have to do a deep dive onto your

providers before you select them,” advises Jehle.

“One effective way is to get referrals – speak to their

existing clients; it’s the family’s responsibility to

know who they are hiring.

“I was aware of one family which had outsourced

their internal and IT audit functions, and found

their initial IT provider had themselves outsourced

the data hosting onto two or three other firms – it

turned out their data was actually traced back and

stored in Russia, which compromised the security in

who could actually access that sensitive data.

“It was certainly not the plan of the family to

allow such a breech. You need to ask the questions

and fully understand where your end data is housed

to be sure it has the true security you expect.”

As it relates to outsourcing, Feldman agrees that

families should perform due diligence in meetings

with service providers. While administrative, tax

THERE’S A GREATER NEED FOR DEPTH AND EXPERTISE, WHETHER IT BE FOR ESTATE PLANNING, PHILANTHROPY, STRATEGIC TAX PLANNING OR THE MANAGEMENT OF THEIR DAY TO DAY PERSONAL FINANCIAL AFFAIRSJARED FELDMAN, ANCHIN, BLOCK & ANCHIN LLP

16

FEATUREPAM

or auditing functions may not be outsourced, the

software a provider uses to host their data may be.

“Consider third-party software applications and

where those applications may be hosted,” he says.

“They are potentially maintained offsite, and a fami-

lies’ personal information is then hosted by another

organization. Families should ask what due diligence

their providers are doing on their own business

partners.”

Another potential issue associated with putting an

office role into the hands of an external provider is

a perceived lack of control within the family. Hiring

a third-party subcontractor means resources will be

shared with other clients, and so there may not be a

dedicated employee on hand from 9am-5pm.

“You have a risk of a lack of coordination between

advisors,” says Feldman. “A family should insist that

the relationship between all advisory teams is well

communicated and there is a knowledge share.”

He adds that a lot of service providers would agree

the family should never really give up control of the

key functions of the office.

“In our experience, the personal assistant or office

manager roles are more difficult to outsource. Since

they are dealing with family dynamics and handling

day-to-day activities of the family, a dedicated per-

son often works best.”

It may be that the outsourced service provider

goes through its own evolution during the course of

several years, and will eventually outgrow the fam-

ily’s needs. A lot of family offices engage with bou-

tique firms given the smaller, personalized approach

which is offered compared to larger corporate

organizations, but they could potentially become too

big to deal with a private family.

Reich suggests this could be an issue for both par-

ties and consequently cause months of disruption.

“Sometimes an organization will evolve to the

point where the family needs to make a change,” he

says. “Our clients like us being small and nimble.

If we grew beyond the point where the family

office felt like they were one of only a few of our

focuses, and we were unable to service them in a

very responsive way, then they would likely seek an

alternative service.”

“It’s a year-long process to replace what we do –

it’s very disruptive. The longer the time with that

provider, the greater the comfort level, but the worse

the disruption.”

GENERATION OUTSOURCING Jehle suggests that, through research his firm and

others have done, as the millennial generation takes

over the reins from their baby boomer parents, they

will continue to seek out third-party companies to

perform specialized roles for the family office.

“Over the last 18 months or so, we’ve seen a lot

of succession planning taking place with families

and family offices,” he says. “The next generation is

taking over and they want their own team of experts

to help manage and conserve their wealth. As the

matriarch or patriarch of a single family office is get-

ting older, the incoming generation will likely look

to outsourcing as a way to retain the coverage that

the existing office has. They’re certainly showing the

appetite for the outsourcing model, and don’t want

to have the overhead costs on their payroll.”

Reich observes that going forward, geographic

complexities could present an opportunity for

service providers to expand their reach to more

clients across the globe, giving weight to the idea of

the ‘virtual’ family office which can be managed by

various providers.

“We will increasingly have clients and invest-

ments elsewhere in the world, and one of the chal-

lenges we are having is how to effectively manage

that overseas,” he explains. “We are currently look-

ing at similar models in Asia and across Europe to

partner with, share expertise and develop networks

of operational synergy.”

The service provider market is undoubtedly

crowded, and set to grow further in the coming years;

as Reich says, there is “a provider for everything and

everyone out there”. In an industry in which privacy,

trust, efficiency and transparency are valued over

almost all other traits, the relationship between family

office and service provider must be valued.

“You want to keep that relationship once you

have it,” says Reich. “The level of communication,

the incredibly detailed understanding that you have

of what is important to that family; if you fail at that,

there is always a replacement firm waiting to take

your place.”

THE SERVICE ORGANIZATION OF SINGE FAMILY OFFICE FUNCTIONS

0%

10%

20%

30%

40%

50%

60%

BothIn-houseOutsource

Americas

Europe

Asset allocation

Manager selection & monitoring

Estate planning

Information aggregating & reporting

Legal services

Education of family members

0%

10%

20%

30%

40%

50%

60%

70%

BothIn-houseOutsourceSource: SFO Study by the Wharton School of the University of Pennsylvania

(N/A was selected if the SFO did not have this function)

The strategies for preserving wealth are not necessarily the same ones that grow it. Your approach to identifying wealth advisory services needs to balance both strategiesat once.

At EisnerAmper, we have the financial and tax planning expertise, advisory skills, and resources to help both preserve your wealth and tend to its long-term growth. We’ll help you identify and deal with the hazards like financial risk and global uncertainty. But we’ll also be there to spot opportunities and seize the ones that hold the most promise. Working with you, we can show you how protecting your wealth and growing it can go hand in hand.

Read more about this topic at EisnerAmper.com/WEALTH

How do you preserveyour wealth and grow itat the same time?

Let’s get down to business.® eisneramper.com 212.891.4087Timothy Speiss timothy.speiss@eisneramper.com

18

PROFILEPAM

Former GenSpring veterans Andrew Mehalko and Steve

T he advancement of the

family office has come

under the spotlight of

late; and discussions over

the varying forms they

take – whether manag-

ing one prolific family,

50 households or, thanks

to the loopholes left by the Dodd-Frank Act,

through the guise of hedge fund vehicles, have

exploded in the last few years.

These developments have certainly given ‘tradi-

tional’ family offices some food for thought – and

Steve Barimo, co-founder and chief operations

officer at AM Global Family Investment Office,

believes his firm is leading the next evolution

of family offices; offering a family office firm

focused only on investing rather than a one-stop

shop offering every function.

Established in 2012, the firm has received a

warm reception by staying true to this initial aim.

“While we understand the importance of inte-

grating a family’s other wealth planning and make

sure those activities are not neglected, we fixate

on the family’s investment needs. By not diluting

our investment focus and culture with estate plan-

ning, tax work or other services, we ensure that

the investment portfolio retains its position as the

key driver for the family,” says Barimo. “We think

it’s just a more realistic and effective approach to

investing being adopted by families and family

offices that is gaining popularity.”

Although AM Global does have competition

in the space, primarily from larger investment

offices, Barimo says that offering clients direct

communication with the firm’s chief investment

officer and having transparent access to the due

diligence performed on investment managers sets

them apart from the pack.

“Importantly, AM Global’s principals invest

substantially all of their wealth in the same

investments they advise their clients to invest

in,” he adds. “We share our client’s investment

experience.”

Barimo, along with AM Global’s chief invest-

ment officer Andrew Mehalko, has seen how fam-

ily offices are managed from both perspectives.

Both industry veterans served at GenSpring Fam-

ily Offices and each boasts more than two decades

of experience. It was at GenSpring – which grew

to amass over $20bn in assets under advisement,

serving more than 700 families during the pair’s

tenure – that they began to consider whether

there was a more effective way to serve affluent

households.

“In most family offices, the overarching goal is

to tie every part of wealth management together

– that’s the holy grail of advising these types of

clients,” says Barimo.

“At GenSpring, we

started out focused on

investing, then added

professionals in tax and

estate planning, gover-

nance, accountancy, back

office professionals and

more, as client demands

grew; everybody was an

expert in a different field,

and so even with the best

of intentions ultimately

the investment culture

and experience became

diluted.”

After 12 years at

GenSpring, Mehalko and

Barimo left the firm to

form investment-focused

Redefi ning priorities

19

MARCH 2015

AM Global, and coined the term ‘family invest-

ment office’.

Three years on, the pair have built a team of

eight, serving 18 families and family offices with

more than $300m of assets under management.

The firm controls the pace of its growth by ac-

cepting an average of two new clients per quarter.

“Launching AM Global allowed us to concen-

trate purely on being an investment firm while

still working within a family office business

model. In many family offices, it’s difficult to

measure the ‘value add’ from investing because

there’s a conglomeration of activities going on–

but when you have a family office focused just on

investing, you know exactly where value is being

created,” says Barimo.

He compares the evolution of the family office

industry to the automotive industry: “There are

lots of people separately working on different

parts each with their own expertise with the same

end result in mind – the car. But, like in the auto

industry, it doesn’t make sense anymore for one

firm to manufacture all the parts.”

Barimo says AM Global’s approach has been

particularly successful among self-made indi-

viduals and single family offices (SFOs) keen to

preserve their financial drivers.

“Often, a family will come to us after having

a mediocre or poor investment experience with

another provider,” he says.

“We have experienced professionals who coor-

dinate with a client’s in-house experts and other

advisors on the overall plan to connect the dots,

but focus our time and energy on investing. We

act as a partner to the family or family office, as

their investment team.”

“We’re entering a much more virtual world with

family offices now – everything doesn’t need to be

under one roof anymore; many affluent house-

holds have one or two direct employees, then seek

out the very best expert advice for the remaining

tasks. We often function as their chief investment

officer. Wealthy individuals and family offices are

starting to solve for their needs in more innova-

tive and effective ways.”

Barimo adds that this investment model may

be the next evolution in the family office indus-

try, the overall investment objective remains the

same as it always has been: to compound money

across full market cycles after inflation, fees

and taxes while managing the risk of substantial

losses. However, to do this, he argues, does not

mean heading down the crowded route of over

diversifying clients’ portfolios as industry practice

demands today. Instead, he says that this method

may cause many clients more financial harm than

good.

“It’s the fashion for portfolios to be as diversi-

fied as possible these days, but our belief is that

while diversification can be helpful, industry

practice has become far too overblown and is pri-

marily used to manage an institution’s risk – and

not that of their clients,” he says.

“For example, many portfolios we see have been

carved up into lots of small pieces. In their equity

allocation alone they may have exposure to four

or five different asset classes with at least one or

two managers in each, collectively holding hun-

dreds if not thousands of individual positions. In

situations like this the client is likely to experience

index like returns at best and underperform after

fees and taxes.”

Barimo describes the process and its potentially

harmful consequences in a relatively tongue-in-

cheek word, taken from the investment buzzword

– “diworsification”.

“There is so much work that goes into the pro-

cess for poor results.”

In contrast, Barimo says that the firm makes

concentrated investments. “While we diversify

client portfolios by holding seven to eight differ-

ent types of investment strategies, each offering

exposure to different risks, we prefer to use only

one or two investment managers in each strategy.

The firm then overlays three key principles in

managing client portfolios.”

The first principle of investing, says Barimo, is

to be disciplined. “We invest across market cycles;

what happens in the next year, or two years often

matters very little.”

The second principle is that price matters most.

“There is an element of contrarianism to our

investment philosophy,” says Barimo. “Investing

in assets at attractive prices provides an additional

margin of safety for our clients.”

AM Global’s final principle is the simplest, yet

often toughest, of all: don’t get emotional. “It’s

difficult for most investors to distance themselves

from the rhetoric, from the market volatility,” he

muses.

“You have to take a step back. It can feel un-

natural to buy when others are selling, but if you

can take the emotion out of investing you’re more

likely to earn a reasonable return over time. And

that, ultimately, is what this is all about.”

WE’RE ENTERING A MUCH MORE VIRTUAL WORLD WITH FAMILY OFFICES NOW – EVERYTHING DOESN’T NEED TO BE UNDER ONE ROOF ANYMORESTEVE BARIMO, AM GLOBAL

20

COMMENTPAM

MARCH 2015

to fi nd a new bank using a request for proposal

(RFP) process.

Th e Johnsons’ criteria included access to the

lowest possible rates on loans, and the lowest ac-

count fees. In addition, the bank had to be a stable

fi nancial institution.

Th e family made their decision based purely on

the responses to the tactical RFP questions and

chose a reputable fi rm with great technology. Th ey

completely retooled their banking relationship. On

the surface this sounds like a success story, but as

time passed, things began to change. Once again,

new accounts needed to be opened, signers became

obsolete and some new accounts were added to the

online system while others fell through the cracks.

Th e bank began to experience employee turnover

and now seemed slow to react to – and even an-

noyed by – some of the family’s requests. By the

end of the relationship, the family was paying more

than it had at its previous institution. Aft er the eff ort

and time associated with switching institutions, the

Johnsons found themselves back where they started.

STRATEGIC BANKINGWhile a bank’s reputation, stability, technology,

fees, rates and products are extremely important,

understanding a family’s goals, operations, legal

structures and communication methods is what truly

ensures an effi cient and secure banking structure.

Working with a bank that merely executes on

orders and charges the lowest fees did not result in

a satisfactory relationship for the Johnson family. A

strategic banker would learn about each of the fam-

ily members and seek answers to questions such as:

How do the family members interact with the family

offi ce? Are multiple accounts for each entity neces-

sary? And, what checks and balances are needed to

provide protection against fraud?

Tactical questions do little more than produce

a laundry list of options and prices; a strategic ap-

proach seeks to fi rst identify family objectives, and

then create a relationship designed to meet a set of

clearly defi ned goals.

Families of signifi cant wealth rightfully expect

their attorneys, investment professionals and CPAs

to be among the best, brightest and most eff ective.

It’s time they expect the same from banking – and

begin to consider it the fi ft h noble profession.

U.S. Bank and its representatives do not provide tax or legal

advice. Each client’s tax and fi nancial situation is unique.

Clients should consult their tax and/or legal advisor for ad-

vice and information concerning their particular situation.

ay Hughes, author of Family Wealth,

Keeping it in the Family and Th e Cycle

of the Gift , oft en speaks of the four

noble professions: law, medicine, high

academia and clergy. Recently, he

posed a thought-provoking question:

“Is banking the fi ft h noble profession?”

While banking is currently seen as a

commodity, it doesn’t have to be.

Today more than ever, banking for wealthy fami-

lies is an overwhelming experience. Families oft en

have dozens of LLCs, partnerships, corporations,

trusts, foundations and individuals with multiple

accounts and multiple signers. Wires, capital calls,

purchases, bill payments, deposits and cash manage-

ment, as well as numerous family offi ce profession-

als and family members are involved.

Despite the increasingly complex needs of families

with signifi cant wealth, why are so many fami-

lies continuously focused on mundane issues like

interest rate yields and free checking? Th ere’s an

opportunity for so much more.

Too oft en a banker and a family don’t stop to

consider what tactical solutions are meant to accom-

plish. It’s important to take a step back and see the

bigger picture. What are the family’s goals, missions

and plans for the wealth? Banking is oft en an aft er-

thought even though it’s the one aspect of wealth

management that aff ects the family every single day.

A tactical approach to banking creates breakdowns

in effi ciency, security and more.

INEFFICIENCYOne example is the Johnson family, who had been

with the same bank for nearly a decade. Over the

years, they opened dozens of accounts when they

purchased a new rental property; when a grandchild

was born; or when they needed to fund investment

contributions, for example.

As the family offi ce professionals turned over,

signers on the accounts were rarely replaced, and

accounts that once served a purpose would lie

dormant and forgotten. Simply fi nding accounts,

looking up balances and moving money became

a clunky and painful process. Th is ineffi ciency

continued for months until the frustration level

fi nally reached a point where the Johnsons decided

Paul Ferguson, regional managing director, and Christopher Peary, associate director of banking at Ascent Private Capital Management of US Bank, discuss the relationship that wealthy families should have with their bank

Th e fi fth noble profession?

JPaul Ferguson

Christopher Peary

21

COMMENTPAM

MARCH 2015

ing deadline for six months by fi ling IRS Form 4768

on or before the nine-month deadline.

DURABLE POWERS OF ATTORNEY It is particularly important for unmarried people to

have a power of attorney. Th e ‘durable powers of at-

torney’ document allows them to designate someone,

oft en called an attorney-in-fact or agent, to manage

their day-to-day fi nancial or personal aff airs. If the

power of attorney contains language describing it

as ‘durable’ it becomes a durable power of attorney,

meaning that the document will remain in eff ect

despite their subsequent incapacity or disability. Th is

becomes a permanent directive authorizing someone

else to manage their aff airs if they are unable to do so.

If your client’s attorney-in-fact acts within the

authority given to him or her in the power of attor-

ney, then the acts of the attorney-in-fact are binding

upon your client. For example, if they are incapaci-

tated and their attorney-in-fact liquidates assets to

pay for their care, he or she is fully authorized to do

so. Th erefore, it’s critical they choose a competent,

trustworthy individual for this role.

HEALTHCARE DIRECTIVES AND LIVING WILLSA healthcare directive, or living will, provides gen-

eral instructions to your client’s doctor or treating

physician if they become incapacitated and are un-

able to make decisions relating to their healthcare.

If they have specifi c wishes with respect to certain

medical procedures, such as their preferences about

certain life-sustaining procedures or life support

systems if terminally ill or severely injured, consider

executing a living will.

A medical power of attorney names an attorney-

in-fact, sometimes called a healthcare proxy, who is

authorized to discuss a client’s treatment with medi-

cal care providers and to make healthcare decisions

for them that are consistent with their wishes. Th ose

a client designates to act for them in making medical

decisions do not have to be the same people that they

designate in a durable power of attorney who are

acting for them in making fi nancial or business deci-

sions. In some states, it is common that a healthcare

directive or living and a client’s medical power of

attorney are combined into the same document.

TIAA-CREF is a full-service fi nancial services company

serving approximately fi ve million individuals with $851bn

in assets under management.

I t is more important than ever to

engage wealthy single individuals

in proper estate planning. While a

married person will typically pass

along all of his or her assets to a spouse

and/or children aft er death, an affl uent

single client may fi nd that their assets

could be disbursed in ways they never

wanted, if he or she does not have a will.

If a high-net-worth (HNW) client has never mar-

ried, is divorced or separated, or has outlived a non-

spouse partner, they will also need to address who will

handle their aff airs if they become incapacitated and

need someone to make fi nancial or health-related de-

cisions. A client’s estate planning documents should

also clearly spell out who will receive their assets, or if

they have specifi c wishes about supporting charities

or causes with their assets once they die.

HNWIs should work with their attorneys to

ensure their will, trust documents and benefi ciary

designations are all coordinated for these purposes.

Understanding the many tools available to them

and choosing the right family members, friends or

other representatives to carry out their wishes are

critical components of the estate planning process

for single clients.

UNDERSTANDING THE BASICSIf you have clients who are not married, taxes on

their estate will depend on whether they never

married (or are divorced) versus whether they are

a recent widow or widower. If they are single, their

estate will not incur federal taxes until it exceeds the

value of the individual estate tax threshold appli-

cable to them.

However, if a client has been widowed, the federal

exclusion amount not only includes the individual

estate tax threshold, but may also include the unused

portion of his or her deceased spouse’s estate tax ex-

emption. Th is is referred to as ‘portability.’ In order

for it to apply, your client’s executor must elect to

add their deceased spouse’s exemption to theirs on

the spouse’s estate tax return by fi ling IRS Form 706

within nine months of the deceased spouse’s date of

death. It is possible to automatically extend this fi l-

Douglas Rothermich, vice president of wealth planning strategies at TIAA-CREF, reveals the key components to an ample succession plan for unmarried high-net-worth individuals

Succession planning: Going it alone

Douglas Rothermich

22

SERVICES DIRECTORY MARCH 2015PAM

www.FidelityCharitable.org

CONTACT Jacqueline Valouch, VP, Charitable Planning Consultant / New York / +1 (212) 335 6432 / jacqueline.valouch@fmr.com / Stephen Brooks VP, Charitable Planning Consultant / San Francisco / +1 (925) 407 6737 / stephen.brooks@fmr.com Fidelity Charitable, an independent public charity with a national donor-advised fund program, has helped advisors and their clients achieve their philanthropic goals for the past 20 years. With the expertise of our Charitable Planning Consultants, you can simplify and strengthen your clients’ giving, differentiate yourself and your practice, and continue to provide trusted advice. Fidelity Charitable provides you with the guidance and resources to effectively address your clients’ charitable needs.

www.lowenstein.com

CONTACT mdefalco@lowenstein.com / +1 (646) 414 6945 / 1251 Avenue of the Americas New York, New York 10020 / mgooen@lowenstein.com /+1 (973) 597 2366/65 / Livingston Avenue, Roseland, New Jersey 07068Lowenstein Sandler provides a full range of hands-on, innovative legal services to a global clientele of high net worth

our clients’ needs and helping them to achieve successful outcomes are at the core of what we do. Our Investment Management attorneys work closely with our Tax, Trusts & Estates and Employment attorneys to provide a comprehensive service platform that addresses all the needs of the private wealth community.

ww.marshpcs.com

CONTACT Diane Giles, 1166 Avenue of the Americas, New York, NY 10036 +1 (212) 345 3618 / diane.m.giles@marsh.com

individuals. We offer world-class service, expert capabilities, and a comprehensive set of solutions to provide clients with choice and superior recommendations. We are pleased to provide risk management solutions for 27,000 high net worth clients, approximately 20 percent of the Forbes 400, and some of the world’s largest collectors. We have national capabilities and expertise with 27 locations and 350 professionals.

21

16

FOR MORE INSIGHT SEE: PAMMAGAZINE.COM

TOP NEWS STORIES

13IN THIS ISSUE

News On the move

5 // Global vi

ew9 // R

egulatory u

pdate10 //

Ask the experts

11 // Q&A

12 Features The wealth star stat

e13

// Securing the threat

16 // Adviso

r spotligh

t19 Comment An

emerging fro

ntier20 // Hedge fund stra

tegies21

PAM investigates Texas’ p

rivate wealth marke

t, and the

growing needs of the state’s af

fluent inhabitants

Hedge fund

strategies:

to exit or

embrace?

What affluent investors

can learn from CalPERS’

portfolio liquidatio

n Securing the

threat

PAM’s latest b

reakfast p

anel

focuses on

mitigating th

e

risks posed by

cyber crime

COMMENT

FEATURE

NOVEMBER 2014

PAMMAGAZINE.COM

Protecting today’s

wealth for tomorrow

THE WEALTH

STAR STATE

SRI ‘ATTRACTING

WIDER INVESTOR

DEMOGRAPHIC’

The type of HNWI interested in

SRI has altered in recent ye

ars,

PAM has learnt

TURN TO P4

SURVEY: MILLENNIALS

DEMAND MORE

ADVISOR TIME

Morgan Stanley an

d Campden

Wealth research reveals n

ext gen

wealthy seek m

ore contact

TURN TO P4

SINGLE FOs ‘SEEKING

MORE EXPOSURE’

more open, says Billionaire

Family

TURN TO P6

LOW INTEREST

RATES RESULT IN

COLLECTIONS

BOOST

Rates shortfal

l gives way t

o

HNWIs increasin

g valuables

TURN TO P6

4 cover.indd 1

29/10/2014 15

21

16

FOR MORE INSIGHT SEE: PAMMAGAZINE.COM

TOP NEWS STORIES

13

IN THIS ISSUE

News On the move5 // Global view9 // Regulatory update10 //

Ask the experts11 // Q&A12 Features The wealth star st

ate13

// Securing the threat16 // Advisor spotlight19 Comment An

emerging frontier20 // Hedge fund strategies21

PAM investigates Texas’ private wealth market, and the

growing needs of the state’s affluent inhabitants

Hedge fund

strategies:

to exit or

embrace?

What affluent investors

can learn from CalPERS’

portfolio liquidation

Securing the

threat

PAM’s latest breakfast panel

focuses on

mitigating the

risks posed by

cyber crime

COMMENT

FEATURE

NOVEMBER 2014

PAMMAGAZINE.COM

Protecting today’s wealth for tomorrow

THE WEALTH

STAR STATE

SRI ‘ATTRACTING

WIDER INVESTOR

DEMOGRAPHIC’

The type of HNWI interested in

SRI has altered in recent years,

PAM has learnt

TURN TO P4

SURVEY: MILLENNIALS

DEMAND MORE

ADVISOR TIME

Morgan Stanley and Campden

Wealth research reveals next gen

wealthy seek more contact

TURN TO P4

SINGLE FOs ‘SEEKING

MORE EXPOSURE’

more open, says Billionaire Family

TURN TO P6

LOW INTEREST

RATES RESULT IN

COLLECTIONS

BOOST

Rates shortfall gives way to

HNWIs increasing valuables

TURN TO P629/10/2014 15:34

1816

FOR MORE INSIGHT SEE: PAMMAGAZINE.COM

TOP NEWS STORIES 12

IN THIS ISSUENews On the move5 // Global view8 // Regulatory update9 // Ask

the experts10 // Q&A11 Features Benchmarking survey12 // Profile: CircleBlack16 // Raising the stakes18 Comment Three dimensional giving20 // Managing intermediation21

The results from this year’s benchmarking report, which questioned a range of industry professionals, are revealed

Raising the stakesExamining the pitfalls and potential of investing in private companies

The wealth innovatorCircleBlack’s John Michel is remodeling wealth management

FEATUREPROFILE

DECEMBER 2014 PAMMAGAZINE.COMProtecting today’s wealth for tomorrow

PAM 2014 PRIVATE WEALTH INDUSTRY SURVEY

UHNW POPULATION INFLATES

wealth concentration dangersTURN TO P4

HEDGE FUND STRATEGIES ‘GAINING INTEREST’ OF HNWIsCiti Private Bank’s global head says clients have demonstrated a renewed curiosity TURN TO P5

TRAUST SOLLUS LAUNCHES CPA DIVISIONNew venture unveiled in New York City, PAM exclusively revealsTURN TO P6

PWC: MLP DONATIONS MAY NOT BE TAX EFFICIENTGiving master limited partnerships as part of a philanthropic strategy can be hazardousTURN TO P7

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© 2014 Pershing Advisor Solutions LLC. Pershing Advisor Solutions LLC, member FINRA, SIPC, is a wholly owned subsidiary

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services. Bank custody and private banking solutions are provided by BNY Mellon, N.A., member FDIC, a wholly owned subsidiary

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