Breaking News
Published: April 19, 2013
By Eliane Chavagnon - Reporter
Wealthy investors are much more upbeat about their financial situation and seem to have redefined their perception of “risk,” according to UBS Wealth Management Americas’ third Investor Watch report.
According to the survey of high net worth and affluent investors, 64 per cent of investors say their financial situation is “excellent” or “very good,” up considerably from six months ago (44 per cent).
Meanwhile, when it comes to defining what risk is, investors seem to have strayed away from terms like “volatility,” “standard deviation,” and other “jargon,” UBS said. Instead, 41 per cent now define risk as “permanent portfolio loss,” with 70 per cent of investors saying they are more concerned about avoiding losses than missing out on market gains (30 per cent).
“After the 2008 financial crisis, there was much discussion about the ‘new normal’ - a more reasoned and grounded approach among American investors,” said Emily Pachuta, head of investor insights.
“Many wondered how long this would last, particularly as investors historically displayed tendencies towards amnesia, forgetting about past losses when markets rebounded,” she said. But apparently the latest “new normal” is here to stay.
Pachuta added: “Even as they see the economy and their own financial situation improving, today’s investor remains focused on avoiding risk as a way to help achieve their financial goals – and this holds true even for younger investors.”
However, it’s worth bearing in mind that economic growth is not even forecast to hit 2 per cent this year - and that conditions in the real economy are not “normal” again yet based on long-term averages, and thus it may be a while before investors return to a “business as usual” mindset.
Cautiousness, priorities
UBS said that, despite greater optimism and key indices closing at “record levels,” investors “are not rushing back to the markets.” They are content with current and significant cash positions (22 per cent on average), while just 26 per cent plan to reduce the cash they have, it said.
Meanwhile, being able to afford the healthcare and support for old age remains a top personal concern at 31 per cent (up from 26 per cent in January) for investors of all ages. This echoes findings from a recent Spectrem survey, which found that personal worries have started to outweigh financial concerns among the wealthiest investors in the US (view here).
But while long-term care is a seemingly greater concern than retirement (16 per cent), a majority of investors are not prepared for managing their long-term care needs, the survey found. In fact, only 37 per cent feel “highly prepared,” compared with 64 per cent who feel this way about their retirement planning, UBS said.

Daily News Analysis
Published: April 13, 2013
By Eliane Chavagnon - Reporter
Assets managed by global wealth managers, private banks and family offices amounted to $19.3 trillion at the end of 2012, while total high net worth individual wealth stood at $66 trillion, according to new figures from WealthInsight.
Meanwhile, there were over 5,000 family offices operating globally, the majority of which were based in the US (where there were 2,900) and Europe. The global 5,000 figure includes 2,700 single family offices managing some $1.7 trillion in assets and 2,300 multi-family offices managing $800 billion in assets.
Of the $19.3 trillion in assets managed by global wealth managers, private banks and family offices, $8.3 trillion was held in offshore centers, the report said.
At the end of 2012, the global family office industry managed $2.5 trillion, accounting for 13 per cent of assets under management in the global wealth management industry ($19.3 trillion) and 3.7 per cent of total global HNW individual wealth ($66 trillion).
Worldwide, private wealth held by individuals (not just wealthy individuals) totaled $195 trillion.

Top News
Published: April 3, 2013
By Eliane Chavagnon in London
A new report by Bank of America has described wealthy investors between the ages of 18 and 35 as savvy, independent and sceptical.
But the firm also identified a “classic perception versus reality scenario” as, contrary to some stereotypes, the differences between these so-called millennial investors and their parents’ generation are actually very subtle, it said.
According to the Young High Net Worth Insights survey - conducted in February by Merrill Lynch’s private banking and investment group - 83 per cent of millennial investors feel that they “somewhat or fully understand” their parents’ approach to investing.
And while many of these believe their investment approach aligns closely with that of the previous generation, less than half (46 per cent) actually discuss financial matters with their parents, the survey found.
However, rather than a perceived “disconnect,” there is a “real opportunity” here, Michael Liersch, director of behavioral finance at Merrill Lynch Wealth Management told this publication.
“I think the biggest opportunity based on what we’re seeing from the data is that younger investors want to be seen as individuals and they want advisors and wealth managers to come to them with a structured way of helping them articulate what they want out of the investment process and what they need to do to achieve that,” he said.
Highlighting this, although 59 per cent of the survey participants currently work with a wealth advisor, most (72 per cent) also describe themselves as “self-directed” investors.
“So that translates into this notion that they want to understand what’s going on and why the investment strategy is designed the way it is - all the way from generating resources that will last for a lifetime to things like social impact investing,” Liersch said.
The survey involved 153 investors with at least $1 million in investible assets and participants included both those who had inherited much of their wealth and those who had acquired it via entrepreneurial ventures or lucrative professions. This is significant because there are “unique concerns” to those younger individuals who have inherited wealth, according to Liersch.
For example, those who have inherited much of their wealth may be very focused on wealth preservation and not succumbing to the “shirtsleeves to shirtsleeves” phenomenon, whereas entrepreneurs who have built their own fortunes might want to understand how to control their own behaviour as they recognise that investing isn’t always in their control, he said.
But perhaps most crucially, Liersch added that younger investors want their investment process to reflect what matters to them.
“I think a lot of the time they feel that the investment process reflects investments, which they don’t necessarily feel connected to or regard as personally meaningful,” he said.
“Meaningful” connections
When it comes to sources of financial and investment information, 27 per cent of wealthy millennials turn to social media or blogs, BofA found. This is significantly lower than “traditional media” such as general and business television newscasts (67 and 58 per cent respectively); national newspapers (55 per cent); and magazines (52 per cent).
But while 56 per cent described themselves as “moderately knowledgeable” regarding such matters, just 19 per cent believe they are highly knowledgeable and 25 per cent admitted to having “very little” knowledge.
Challenges of inherited wealth
“Lacking financial acumen, or at least a healthy relationship with money or investing, can be especially challenging for young adults who inherited wealth or grew up in families where wealth was not discussed,” the firm warned.
It added: “Merrill Lynch private wealth advisors find that adult children in wealthy families will often avoid talking about money in family settings because they are worried that they will somehow disappoint their parents or, conversely, that if they ask too many questions about family money they might be seen as overstepping or entitled.”
Meanwhile, according to Liersch there tends to be two types of family, broadly characterised as those that “really do” communicate with one another about their values (and thus how to translate that into an investment strategy), and those who “do not talk about it at all.”
But, he said: “The interesting part is oftentimes these two behaviours within families come from the same place […] - this notion of being good wealth stewards and not being centrally focused on money as a vehicle for everything.”
Outlook
BofA highlighted that every generation has distinguishing characteristics born of its historical moments, so there are bound to be important disparities between this generation and its predecessors.
“These wealthy millennials are savvy, independent and skeptical; they value expertise, question everything and intend to maintain control of their financial destiny, but admittedly lack a high level of knowledge about investing,” Liersch said.
Meanwhile, this segment seems to be “uniquely focused” on not spending down money too quickly or irresponsibly, while also having a positive impact on the community and making money, he told this publication. “I think this is something very unique to this generation based on things like social media, as well as traditional media and other mounds of information that is now available to younger investors,” he said.
There is a “huge opportunity” to connect with the next generation in a way that allows them to work both with an advisor and autonomously, he added, saying: “those two things aren’t incompatible with one another.”
So traditional values resonate with these younger investors - illustrated in part by the finding that 65 per cent believe their parents’ approach to investing still works in today’s environment (versus 35 per cent who do not hold this view). But, importantly, they also want to be seen as an individual who is engaged.
In fact, contrary to popular belief, BofA said the survey revealed that among young investors not already working with their parents’ advisor, half (49 per cent) said they would be open to doing so.
“Today’s young adults want to work with wealth managers who can help them devise strategies that are open, transparent, adaptive and ongoing, and that align to their life goals and values,” said Phil Sieg, head of the ultra high net worth client segment and solutions at Merrill Lynch Wealth Management.
Interestingly, a recent survey by Accenture found that millennial investors are more conservative and less trusting of financial advisors than their older counterparts, baby-boomers (age 46-70) and generation X (age 31-45). The younger generation are also more inclined to consult other sources before accepting financial advice, but are nonetheless are a highly viable target for advisors, it found.

Daily News Analysis
Published: March 22, 2013
By Chavagnon - Reporter
An overwhelming 81 per cent of high net worth respondents to a new survey regard life goals such as good health and traveling as “highly important considerations” when developing a financial plan.
However, this segment feel less confident today than they did in 2007 that they will achieve their financial goals, Northern Trust found.
The survey also showed that 59 per cent of HNW investors - defined in this survey as those with at least $5 million in investable assets - said they are willing to pay for advice from a financial advisor.
Among other findings, it emerged that 56 per cent of couples discuss how to manage personal wealth at least once a quarter, while one in five holds jewelry, art and antiques, and other collectibles as part of their portfolio.
Meanwhile, 30 per cent of respondents said they are more inclined to consider alternative investments now than they were five years ago. Among those investors, private equity (35 per cent), managed futures (32 per cent) and REITs (28 per cent) emerged as the top investment alternatives choices. Hedge funds and venture capital followed, at 23 and 17 per cent respectively. Over a quarter (28 per cent) cited limited partnerships as their preferred legal structure for holding these investments.
“While hedge funds can offer accredited investors diversification and other risk management benefits, private equity can enhance return through manager skill in addition to an illiquidity premium,” said Katie Nixon, Northern Trust’s chief investment officer for wealth management.
Nixon added: “Whether clients believe they are better off or feel less confident, it is important for them to consider both risk and return when planning for the future.”
Northern Trust’s Wealth in America survey of 1,700 wealthy individuals was conducted online by Phoenix Marketing International and NIA Enterprises between November 16 and December 17 2012

Breaking News
Published: March 18, 2013
By Eliane Chavagnon - Reporter
High net worth investors and families are discerning consumers of financial services and as such remain alluring in the eyes of asset managers and providers. However, the market is competitive and providers need to “hit on all cylinders to keep clients satisfied,” according to recent research by Cerulli Associates.
In its report, High Net Worth and Ultra High Net Worth Markets 2012, Cerulli highlights that, on average, HNW investors have more provider relationships and are therefore more likely to switch providers than other investors. While legacy providers still control the largest share of assets, the report finds that investors are increasingly shifting to smaller providers that offer greater autonomy.
The firm found that the average number of relationships maintained by HNW investors rose from 3.3 in 2008 to 3.7 last year - a trend highlighting how investors are diversifying their sources in order to compare the advice and investment performance they receive from various providers.
“Cerulli believes that these investors will consolidate their providers with time as the memories of 2008 and 2009 fade,” the firm said. As a result, HNW providers must think about how they position themselves to be the provider of choice when this occurs, it added.
Meanwhile, there are also a number of open-architecture opportunities for asset managers, as a growing number of banks gravitate towards external managers and away from proprietary products.
For asset managers, the sophistication of both the intermediaries and the end investor in this market is a draw, Cerulli said.
However, this shift towards open architecture “is not universal and remains in various stages of adoption at different banks,” Cerulli said. “Likewise, registered investment advisors and multi-family offices have been the post-crisis marketshare winners, as these boutique business models have increasingly won the assets of HNW investors.”
As these firms typically operate as independent businesses - and thus have no manufacturing capabilities - they are the most dependent on external managers to construct client portfolios.
The report finds that investment consultants are also approaching the HNW market via two main routes: the outsourced chief investment officer model - where an investor or intermediary turns over portfolio discretion to a third party - and by selling research databases to external parties, which can include advisor platforms or large multi-family offices, it said.
Challenges
While there are numerous open-architecture opportunities for HNW asset managers, the report highlights that the largest provider firms in this space are still “massive financial services conglomerates,” where the influence of proprietary products “remains high.”
Secondly, a growing number of HNW investors are opting for structures where they can exercise more control. The first is retail direct providers and the second is the formation of private trust companies - particularly by ultra high net worth creators, the firm says.
“While traditional advice providers have downplayed these firms as a threat, ownership of direct accounts is almost universal among HNW investors, where they hold an average balance of nearly $1 million,” it said.
Meanwhile, although legacy providers have lost share of HNW assets as a result of investors opting for other providers, Cerulli believes this loss is also attributable to the “natural erosion of wealth that occurs as it is passed to and split among multiple heirs.”
Cerulli concludes that asset managers must regard HNW providers as a “unique market.” While their complex needs and high balances are appealing “at a first glance,” this segment is the most likely to express dissatisfaction and change their provider. “Providers serving HNW clients need to hit on all cylinders to keep clients satisfied,” it said.

Published: February 25, 2013
By Tom Burroughes - Group Editor
There are few areas of private client management where the conversation is as personal and revealing as an individual’s artwork choices. And the business of advising high net worth individuals on collections and acquisitions continues to be an important service offering for some banks.
Over at Citi Private Bank, which has been in the art advisory business since the late 1970s, the firm argues that guiding clients through the maze of the art world is a task that gives a firm an unrivalled opportunity to see what makes a client tick. This is also very useful for when a bank wants to find out about a client’s broader investment tolerances and appetites.
Despite concerns about whether the pace of art price growth is sustainable - this market saw a big correction in the early 1990s - the burgeoning wealth of regions such as Asia, and the appeal of art for its “hard asset” qualities amid economic jitters, keeps the market in robust shape, Suzanne Gyorgy, global head, art advisory service, Citi Private Bank, told this publication in a recent interview.
“The amount of press and attention on art as an asset class has exploded,” she said.
That rise in attention does not automatically denote a one-way price trend, however. According to the Mei Moses World All Art Index, a barometer of art auction prices produced by the wonderfully-named Beautiful Asset Advisors in the US, the index showed a year-to-date dip in December 2012 of 3.28 per cent, and lagged broad equity market indices last year. (The MSCI World Index of developed countries’ shares logged total returns of more than 15.8 per cent in 2012.) However, in 2011, the Mei Moses All Art Index rose by 10.2 per cent.
Citi is not the only private bank and private client business that advises on art, although this US bank is one of the most long-established in a specialist field. Other firms that provide art advisory (not all firms are strictly comparable) include Emirates NBD (it announced a move into the area two years ago); Societe Generale; Withers, the law firm; Deutsche Bank (which boasts a substantial art collection of its own); Butterfield Private Bank and BSI Bank. Meanwhile, there are a cluster of art advisory boutiques and specialist firms working in this area. Randall Willette, an experienced figure in this field, heads Fine Art Wealth Management, for example, and is a member of sister publication WealthBriefing’s editorial advisory board. The advisory field covers a wide range of issues; as Willette recently wrote here, it includes topics such as family governance.
Rising interest
As recounted regularly by this publication, interest in art as an asset class has developed for different reasons in recent years; even during the depths of the 2008 credit crunch crisis, the market did not suffer unduly, Gyorgy said. However, she also noted that after some initial hectic price activity, there are signs of growing maturity in markets such as Asia, which she sees as a welcome development.
“In the Asian market, auction activity has slowed, which, I think that is a positive thing as they [Asians] are moving from a trading mentality to a more discerning, connoisseur mentality,” she said. “Even though some art [turnover] volumes have dropped, there is a base for building a stronger market and one not as frothy as in the past,” she said.
The impact of buyers from Asia, among other regions, on established art markets in the West continues to generate attention. At Sotheby’s evening sale of Impressionist and modern art in early February, an Asian reportedly won the house’s most-expensive artwork, Picasso’s $45 million Woman Sitting Near a Window. (Source: Wall Street Journal.)
All the fun of the fair
Gyorgy spoke ahead of the Art13 London art fair event, running from 1 to 3 March, of which Citi Private Bank is the sponsor. As part of the event – and announced this week – there is an invitation-only “private museum summit,” bringing together collectors and other “tastemakers” from the West and East. Citi says the art fair will be the biggest to launch in London for a decade.
At the Art13 London event, Asian, North American, South American and European private museum owners will gather, with the idea of building a network among such institutions. The “summit” happens a few days before the main art fair, on February 28, chaired by Philip Dodd, the broadcaster and chair of the Art13 London international advisory board. The closed-door event features more than 30 participants.
This sort of international event excites Gyorgy, who says Citi Private Bank’s clients will revel in the opportunity to meet experts in this field.
Art fairs, as well as being enjoyable feasts of great art, taking place in many cities, are tremendous networking opportunities – a point not lost on the likes of Citi Private Bank
Family
One feature that Gyorgy notes is that the bank sometimes will find itself handling the affairs of more than one generation in a family where art collection is an issue.
“In the case of some clients that we are working with, now it is that we are working with their children,” she said.
So what do people like?
In the US and Europe, there has been a strong demand for post-1945 art works, she said. “A lot of people are collecting that,” she said, referring to the Baby Boomer generation. “With the wealth that has been created, this will continue,” she said.
“There is [also] more contemporary art out there being made and that is always going to interest people,” she said, referring to entrepreneurs looking for “dynamic” artforms that reflect their values.
At Citi, its art unit comprises two main elements: art finance (the use of art as collateral to finance other art purchases or for other purposes), and art advisory, (collecting, storage, logistics, due diligence checks and provenance).
One thing is certain. Even though art may not always perform as strongly as an asset class as, say, the S&P 500 or a high-octane hedge fund, the products are a lot more interesting to look at.

Daily News Analysis
Published: October 10, 2012
By Tom Burorughes - Group Editor
Global household wealth will rise by almost a half over the next five years to 2017, reaching $330 trillion, while the number of millionaires will reach 46 million by that date, a gain of 18 million, Credit Suisse said in a report today that also showed wealth has shrunk in recent months.
In its annual Global Wealth Report for 2012, the Swiss bank said China will overtake Japan as the second wealthiest country in the world over the next five years, adding $18 trillion to the stock of global wealth.
Meanwhile, the US will remain king of the wealth heap with $89 trillion by 2017. The eurozone, meanwhile, will underperform against the US, having the same amount of wealth as the US despite having 16 million more adults.
Brazil’s number of millionaires will rise the fastest over the five years to 2017 at a rate of 119 per cent, beating Russia (109 per cent) and Malaysia (108 per cent) and Poland (105 per cent).
In the US, the rate of growth is 53 per cent, albeit from that country’s vastly higher starting point of 1,102,300 millionaires in 2012. For the world as a whole, the number of millionaires will rise 62 per cent, Credit Suisse predicts.
The study defines wealth as the value of financial and non-financial assets (mainly property) minus household debt. All current data relates to the middle of this year and current exchange rates, not purchasing power parity.
“There is no question that the economic uncertainties of the past year – particularly those affecting the eurozone – have cast a huge shadow over household wealth,” Michael O’Sullivan and Richard Kersley, of the Credit Suisse Research Institute, said in the report. “Our research confirms that economic recession in many countries combined with widespread equity price reductions and subdued housing markets have produced the worst environment for wealth creation since the financial crisis,” they said.
The relative stability of the US economy led to a rise in the dollar’s exchange rate against most currencies, with a particularly noted impact against Europe, raising the aggregate wealth loss to $10.9 trillion; the Asia-Pacific and Latin America regions also suffered, the report said.
The region to suffer the largest wealth drop between mid-2011 and mid-2012 was Europe, down 13.6 per cent, followed by Latin America (-8 per cent); Africa (-5.0 per cent), and Asia-Pacific, including India and China (-1.9 per cent).
Ultras
Moving to the top echelon of wealth holdings, Credit Suisse estimates there are 84,500 ultra high net worth individuals today (measured as those with net assets of $50 million or more). Of these, 29,300 are worth at least $100 million and 2,700 have net assets over $500 million. North America accounts for 47 per cent of UHNW individuals; Europe at 26 per cent, and 15 per cent residing in Asia-Pacific countries, including India and China. In terms of single nations, the US has the largest share, at 45 per cent.
When ranked by average wealth per adult, Switzerland is in the lead, at $468,186, but a drop of 13 per cent from 2011; Australia is second (-11 per cent); Norway is in third, at $325,989; Luxembourg is fourth, at $377,119 (-14 per cent); and Japan is fifth, at $269,708 (up 1 per cent). France is sixth, at $265,463 (-15 per cent); the US is seventh, at $262,351 (up 1 per cent); Singapore is eighth, at $258,117 (-4 per cent); the UK is ninth, at $250,005 (-6 per cent) and Sweden is tenth, at $237,297 (-17 per cent). (Some of the shifts, as in Switzerland, are driven by forex fluctuations.)
The Credit Suisse research also starkly revealed trends in debt: controlling for exchange rate shifts, total household debt grew 8 per cent from 2000-2007 then it flattened out. For the 12 years from 2000, aggregate debt rose by 81 per cent, accounting typically for 20 to 30 per cent of wealth in advanced economies.
Among the surprises in the report, Credit Suisse said, was that Canada – often seen as avoiding the worst of the financial turmoil – has the highest debt to income ratio among the Group of Seven leading industrialised countries, while Italy – seen as a eurozone weakling – has the lowest.
The report also shows variations in the role played by inherited fortunes. Inherited money makes up 30 to 50 per cent of total household wealth in member countries of the Organisation for Economic Co-Operation and Development. In low-growth countries, the share is likely to be higher, and very low in “transition” economies, the report said.
A term sometimes used in discussions of wealth distribution- “the wealth pyramid” - gets an airing in the report.
“More than two-thirds of the global adult population have wealth below $10,000, and a further one billion (23 per cent of the adult population) are placed in the $10,000–100,000 range. While the average wealth holding is modest in the base and middle segments of the pyramid, total wealth amounts to $39 trillion, underlining the potential for new consumer trends products and for the development of financial services targeted at this often neglected segment,” the report said.
“The remaining 373 million adults (8 per cent of the world) have assets exceeding $100,000. This includes 29 million US dollar millionaires, a group which contains less than 1 per cent of the world’s adult population, yet collectively owns nearly 40 per cent of global household wealth. Amongst this group, we estimate that 84,500 individuals are worth more than $50 million, and 29,000 are worth over $100 million,” it continued.
“The composition of the wealth pyramid in 2012 is broadly similar to that of the previous year, except for the fact that the overall reduction in total wealth increases the percentage of adults in the base level from 67.6 per cent to 69.3 per cent and reduces the relevant population share higher up the pyramid by a corresponding amount. The respective wealth shares are virtually unchanged,” it said.

Daily News Analysis
Published: October 03, 2012
By Tara Loader Wilkinson - Asia Editor
Average wealth management mergers and acquisitions valuations have halved in two years, and are set for further falls, presenting lucrative opportunities for firms looking for rapid growth.
According to the 2012 Wealth Management Deal Tracker released today by consultant Scorpio Partnership, the valuations benchmark is now resting at 2 per cent of assets under management compared to nearly double that in 2010. There are strong indicators this will continue downward to 1.5 per cent in the next one or two years, said the report.
This has spurred a fuller pipeline, and M&A in wealth management has maintained pace in the past 21 months, with over $9.42 billion being spent on deals involving high net worth client funds.
The report analyzed 65 deals from the first quarter of 2011 to 30 September 2012.
The volume of HNW assets purchased through deals during 2011-2012 totaled $635 billion – essentially 4 per cent of all assets currently managed by the global wealth management industry.
The major markets of deal making were continental Europe, including Switzerland, where $337.9 billion changed ownership. The UK asset transfers through M&A hit $80.2 billion, while Asia M&A resulted in $102.5 billion changing ownership. Asia is the key “sellers’ market”, said the report, as many firms there are looking to grow quickly and will pay a premium for an attractive business.
Emerging market dominance
Emerging market businesses are commanding a premium valuation in the range of 2.7 per cent to 3.4 per cent of AuM, but there is little evidence to show that the values are justified by the longer-term benefits of the additional business to the bottom line.
The “buyers’ market” is the UK, where the valuations of wealth managers are trending lower, with an average at 1.1 per cent of AuM. Pressures such as the transition to the new Retail Distribution Review are forcing firms to reconsider their ownership structure.
“There is a strong interest among the top 50 market players in quickly boosting their emerging market books of business as they strive to increase their international business footprint,” said Sebastian Dovey, managing partner.
“This is now a race where M&A may make the difference. The mid-sized players recognise that to compete they need to bulk up their AuM and our expectation is the tidemark for an international wealth management business to ride comfortably through the next decade is $50-70 billion in AuM,” added Dovey. The premium deals are for businesses with $5-20 billion in AuM.
He said the first quarter is increasingly becoming the preferred M&A deal announcement period. It is forecast that Q1 2013 will again post a high number of deals.

Feature
Published: August 17, 2012
By Harriet Davies - Editor - Family Wealth Report
The world’s most successful, multi-generational families routinely adopt best practices on maintaining personal relationships, family governance and next-generation development, a new study by the Family Business Network and Family Office Exchange finds.
The study, authored by Dr Dennis Jaffe of Saybrook University, along with Jane Flanagan of FOX, defines and compares the best practices used by 192 of the world’s most successful families, drawn from the two organizations’ pool of members. The study characterized the families as successful due to the high proportion of third- and fourth-generation families present in the sample.
One of its key findings is that successful families make use of best practices “significantly,” and expect to increase their use of them over time. The findings are also consistent across families around the world, with participants drawn from North America (57 per cent), South America, Europe, Asia and Australia/Oceania. They are also consistent across families who still own a legacy business and those who don’t.
In terms of assets, 87 per cent of the participant-families have over $50 million and 23 per cent have over $1 billion. Some 68 per cent still own a legacy business.
“The major insight is that a family has to plan and be conscious not just about their financial safety but also about their family’s communication, connection, trust and teamwork,” said Dr Jaffe. “We found in this survey that the most successful families were doing these things; the question now for a family is not whether to do them, but when and how.”
As is often said, the generational transition is a pitfall for many families: the FBN/FOX report cites the Family Firm Institute in saying that only a third of family businesses survive as they cross generations; of those, under 10 per cent manage a successful second transition.
Once a family has sold its legacy business it can still operate as a “family enterprise,” the report lays out, with shared investments and a shared wealth-creation function. Many families, however, “do not survive the generational transition,” because they do not adopt internal governance practices and manage emerging realities.
Three pathways
One of the biggest challenges is the way families sprawl over time to include several related households, so governance practices must counter a tendency toward dissipation and fragmentation. To do so, the paper found that families adopted practices that spanned the inter-connected worlds of family, business and finance.
The critical practices for success are distributed along three overlapping pathways, it says.
• Path one: “Nurture the family”
In this pathway, the business is sold within the first generation but substantial wealth is passed on, with second-generation siblings starting their own families. As such, cousins grow up separately, and to maintain a family enterprise the family must actively build communication and shared values.
Best practices on this path include sharing philanthropic activities, ensuring regular and extended family gatherings, as well as fostering a climate of openness and trust, and respect for the family’s history and legacy.
• Path two: “Steward the family enterprises”
In the second scenario, the family still owns a business together. In this case, as the family base grows, expectations for ownership of the business need to be addressed.
Best practices include having a strategic plan for family wealth and/or enterprise growth; an active, diverse and empowered board; ensuring transparency about financial information and business decisions, and being explicit about shared shareholder agreements governing family assets.
• Path three: “Cultivate human capital for the next generation”
The third pathway is focused on developing the human capital of the younger generation and preparing them for their roles within the business and family, ensuring they feel connected with the family’s legacy.
Best practices include employment policies for younger members within the family enterprises; agreement on values about family money and wealth; financial education for the younger gen, matched to their age as they grow; and, crucially, support to develop the next generation of leadership.
“Highly engaged” in best practices
The families involved in the report are highly involved with best practices and the trend is for greater use of them over time, say Jaffe and Flanagan, who developed a composite index to measure how important families believe these practices are now, and how important they will be in the future.
These indexes allowed the researchers to identify areas where the most work was needed to bring the use of practices in line with families’ vision for their future use. By this measure, families will be looking to increase their use most of the following practices:
1) Support for development of next-generation leaders;
2) Exit and distribution policies for individual shareholder liquidity;
3) Strategic plan for family wealth and/or enterprise development;
4) Climate of openness, trust and communication;
5) Clear, compelling family purpose and direction.
What kind of model for wealth management?
The report also delved into how families managed their wealth, and found that even in cases where the legacy business was still owned by the family, it had often branched out to make use of other forms of wealth management.
Over half (57 per cent) reported having a single family office; 11 per cent relied on staff advisors within the family business; 10 per cent used a private bank or wealth advisor; 5 per cent were part of a multi-family office, and 4 per cent used a private trust company.

Breaking News
Published: July 24, 2012
By Charles Paikert - Contributing Editor in New York City
Independent advisors of the country unite; you have nothing to lose but your anonymity!
No, Steve Lockshin, uber capitalist and entrepreneur, hasn’t actually used that variation of the Communist Manifesto’s famous opening line. But he might as well, because it pretty much sums up Lockshin’s pitch for Advizent, his new business venture with Charles Goldman, the former head of the RIA custody units at Schwab and Fidelity.
Lockshin, chairman of Convergent Wealth Advisors, who also founded the firm that is now outsourcing powerhouse Fortigent, is convinced that independent advisors and wealth managers need to band together to have a fighting chance against the Wall Street and multi-national financial service firms against whom they compete for consumers’ attention and wallets.
In the spring, Lockshin and Goldman sent shockwaves through the industry when they announced the formation of Boulder-based Advizent, a for-profit consortium of advisory firms designed to pool resources to create brand awareness for independents.
The for-profit venture, according to Lockshin, already has nearly 90 firms with combined assets of $120 billion who want to join. The firms must have at least $250 million in assets under management and can expect to pay a membership fee between $25,000 and $100,000.
Next week Lockshin, who is currently Barron’s top-ranked independent financial advisor, will be making headlines again when he announces the high-profile founding members of Advizent’s independent board, which will be chaired by a venerable industry figure whose name is practically synonymous with consumer advocacy and choice.
But first, Lockshin sat down for an exclusive interview with Family Wealth Report to discuss his vision for the potentially revolutionary new business.
FWR: How is Advizent being funded?
SL: The venture has been capitalized to date by Charles Goldman and myself with over $1 million in personal cash and we will continue to fund it as appropriate. We are in discussions with outside investors and hope to close an initial round in the coming weeks of an additional couple of million dollars.
FWR: What kind of investors?
SL: We’re talking to everybody. Private equity divisions of public companies and private individuals. Folks who cannot invest are members or asset managers because we want no play-to-pay or conflicts of interest.
FWR: What do you see as the primary mission of Advizent?
SL: Advizent’s primary mission is educating the consumer and matching them with appropriate and suitable fiduciaries to meet their financial needs.
Match game
FWR: So Advizent will have a matching, directory-type service?
SL: Yes, consumers will be able to sort by location, by services such as estate planning or tax returns, by average asset size and other criteria. They will be able to access, at no cost to them, firms that have already met criteria established by our independent board.
FWR: What is your assessment of the matching and referral services that already exist, such as BrightScope and Paladin Registry? How will Advizent be different?
SL: Those firms are very different because they are firms that collect public information and then try to re-organize that public information in a way that a consumer might use them. And then advisors, I believe, can pay to have their profiles enhanced. Advizent has a much different organization because we are going to create a standard and then audit annually to that standard.
Relating to Relais
FWR: You’ve mentioned to me that you thought the Relais & Chateaux hotel consortium was a good analogy to what Advizent is trying to do. Could you elaborate?
SL: Relais & Chateaux is a luxury hotel consortium of independently owned and operated hotels that are held to a very, very high standard. As a consumer looking for a high-end hotel that is independently owned and operated I know that if I go from one Relais hotel to another around the world I will be guaranteed an exceptional experience. They have certain criteria that I would suspect include thread count on their sheets, staff-to-guest ratios, quality of the restaurant, et cetera.
We’re very much the same in that we’ll be creating an exceptionally high standard and holding member firms to that standard. Like Relais-Chateaux, hopefully the consumer will become familiar with our standard and our mark and value it and rely on it. That’s what we’re trying to create.
FWR: What do you see as the biggest challenges facing independent advisors today?
SL: On a micro level most advisors will tell you their business is growing and the segment is growing. However I believe many firms are challenged with respect to profitability and margins.
But I believe the real challenge is that no one knows who independent advisors are. You could take the list of top 100 firms, walk down any street in America from Main St. to Rodeo Drive and show consumers the list and they won’t recognize one name on the list.
But if you ask them who the top financial services firms are in the country, they’ll reel off names like Goldman Sachs and Bank of America and JP Morgan. The primary difference is branding and marketing and no individual RIA can combat that machine.
Marketing mandate
FWR: Which is where Advizent comes in. How important is the marketing aspect of the enterprise?
SL: Branding is everything. You can be the smartest person in the world but if you have no one to tell it to it’s not very valuable. Same thing here. If ultimately we cannot get consumers to value the mark then this will likely fall flat.
Therefore we plan to embark on a very substantial branding and marketing campaign. We have engaged very notable folks to help our efforts by both serving on the board and supporting our organization and then ultimately unifying the stakeholders in the fiduciary argument. But at the end of the day the consumer needs to understand what it is that they’re getting and be familiar with the name and the mark.
FWR: How do plan to implement the marketing strategy and what do you see as an annual budget?
SL: We’d like to see the initial budget start at $30 million to $50 million dollars a year and ultimately approach and exceed $100 million a year. We expect it to be funded by the natural beneficiaries of our growing segment which includes the custodians and the asset managers already engaged by the top firms.
Given that amount of spend, we anticipate working with major agencies to help us deliver a successful branding and marketing campaign but it’s premature to have selected a firm or even have our plan fully formulated.
FWR: How far along are you?
SL: We’re just shy of 90 firms with $120 billion in self-reported assets under management/assets under advisement. These are firms that have said I’m interested in what you’re doing and I want to be a member. They’ve signed the agreement but have not gone through the audit process. Anybody can sign up to be a member today, but ultimately firms will have to qualify to remain a member.
Strict standards
FWR: So how will member firms be audited? What will some of the most important criteria be?
SL: There will be a very defined process, and if I want to underscore anything, it is that there will be complete independence and no “pay–to-play.” There is an advisory council made up of the major stakeholders in the current fiduciary space in the investment world. It will include folks like the Institute for the Fiduciary Standard; fi360/CFEX (Center for Fiduciary Excellence) and the CFP Board (Certified Financial Planner Board of Standards).
Those folks will work together to prepare a set of information to an independent board that will ultimately determine roughly 6 to 12 core, very digestible standards that will be publicly available for the consumer. The standards will all be very measurable.
The audits will be completed by outside parties, and we’re currently working with a number of folks, including CFEX, as well as major accounting firms and significant audit contributors in the industry to serve as audit partners who will also be independent.
FWR: Who will be on the independent board?
SL: An announcement will be coming out shortly. It will be chaired by a major lifelong figure in the industry. It will also include notable, financially successful individuals who all have no interest other than insuring that consumers be treated fairly and equitably.
FWR: Some people may say that this sort of judging should be done by an SRO (self-regulating organization), not a private company. How would you respond to that?
SL: I think that the current debate that’s going on between SIFMA and those who are arguing for a higher fiduciary standard underscores the challenges of an SRO.
The FINRA regulated firms are arguing for a fiduciary standard. They want one that is unimpressively low, while those of use who are regulated by the SEC are held to a much higher standard.
Advizent member firms want the highest possible functional standard – not pie in the sky that we can’t adhere to but something that every consumer should expect, and deserves. So I don’t think an SRO will work and as a libertarian, I haven’t been impressed by the government’s ability to protect consumers.
Give and take
FWR: What are some of the ground rules for firms who want to be part of Advizent, and what can those firms expect to receive?
SL: In order to be a member, you must meet, via audit, the standards of excellence put out by the independent board, which will in a constant state of reform. And you must pay the membership fee, which is expected to be between $25,000 and $100,000 per qualifying firm.
We have assured all firms who have expressed interest that we will not begin charging fees until we can deliver demonstrable value. For example, we are working on certain programs such as insurance where we are the unique underwriting group. We believe we can secure significantly better coverage than any one firm can get on their own at a significantly lower price so we can offset some of the membership fees with benefits like that.
And many of the major vendors in the industry have reached out and expressed interest in creating savings programs for our members. So there should be a number of ways to deliver very tangible economic value.
There will also be non-economic value in the form of real-time online constant benchmarking, which is currently available only annually from the custodians. And there will be peer relationships, very much like the Young Presidents’ Organization model which has been so successful for the past 55 years.
Target market
FWR: Who do you see as Advizent’s target market? Will it run the gamut from mass affluent to ultra high net worth? Or will it be more segmented?
SL: I see it as serving somebody who’s got $5,000 all the way up to someone who’s got $500 million and beyond. If we only serve the top 1 per cent, then we will continue to do what has been done to date, which is penalize the less affluent because they don’t have the access to top advisors nor do they have the breakpoints on costs that the wealthier consumer has.
There are firms like betterment.com that can serve consumers with very small amounts of money and there are more launching every day. And we want to encourage firms that have the technological capabilities as well as the interest to serve all consumers.
In terms of what’s best for our firms, the only way to build a brand is serve everybody. If we only serve 1 per cent of the folks then it’s unlikely that our brand will become recognized.

Feature
Published: July 19, 2012
By Harriet Davies - Editor - Family Wealth Report
Florida is proving an attractive place for wealth managers to launch offices and hire staff so far this year.
So far in 2012…
Starting with developments in Miami, Lowenhaupt Global Advisors opened an office in Miami to expand its coverage of South Florida and Latin America. Erik Halvorssen was appointed to lead the operation. Previously, Halvorssen, a native Venezuelan, founded PAX Advisors, an independent wealth manager based in Miami.
Meanwhile, International Planning Group hired Diego Polenghi in May to lead expansion in Latin America, based in the heart of Miami’s financial district. Polenghi joined from Private Bank of Standard Chartered Bank in Miami, where he was head of sales for the Americas.
In April, RBC Wealth Management appointed Rodrigo Buller Souto as director of its international solutions team. Based in Miami, Buller Souto will head the team’s extension into Florida and select Latin American markets.
Just this week, Morgan Stanley Private Wealth Management nabbed a duo from Citi for its private banking operation in Miami.
Mora Wealth Management launched an office in Miami in June, in light of “a growing Latin American affluent investor market,” which the firm noted has grown by 18.1 per cent in millionaire wealth since 2007. The Miami office is led by chief executive Eli Butnaru, who said the new location “positions it geographically” to manage capital flows and clients across Europe, Latin America and North America.
In developments outside of Miami, one of the giants of financial services, BNY Mellon, expanded its Tampa team in Florida this year, hiring Susan Kubar and Scott Givens. Kubar was latterly a family wealth advisor at GenSpring Family Offices; Givens joined BNY Mellon from Raymond James Trust.
“Since we opened our Tampa office in 2008, our business has experienced double-digit growth every year,” regional director Ray Ifert said at the time.
Meanwhile, Wilmington Trust said earlier this year that it is making a push into “dynamic markets” such as Florida and Washington, DC. It took on Robert Bauchman as president of its Florida market in May, to oversee wealth advisory operations in the region. The firm opened its first Florida office in Stuart in 1983 and now has offices in Palm Beach, North Palm Beach, Stuart, and Vero Beach.
Neuberger Berman appointed Patrick Kenefick as a wealth advisor in its Tampa, FL, office, in May. Kenefick rejoined Neuberger Berman from Merrill Lynch Trust Company in the Tampa Bay area.
Baird launched an office in Sarasota, FL, with an 11-strong team, including six financial advisors with over $825 million in client assets, in April. In total, Baird now has 29 associates operating in the Sarasota market.
Why Florida?
The list of moves, launches and acquisitions in the state is much longer – these are just a few examples - but, more importantly, why has the market been so active for wealth managers this year?
For a start, the tax regime in the state is friendly. “From a tax point of view, the number one state is probably Florida, because there is no state income tax,” David Nave, tax director at the multi-family office Pitcairn, told Family Wealth Report last year. “Many of my clients establish second homes in Florida. Then you have to stay there for 181 days a year, you need to vote there, and have your driver’s license there.”
There are also clear links to Latin America. The state has a population of just over 19 million; around 23 per cent are of Hispanic or Latino origin, according to US Census data for 2011. This community also represents around 22 per cent of businesses in Florida, according to the latest data (2007).
The latest annual wealth report from the Boston Consulting Group highlighted the divergence in growth between “new” and “old world” economies last year. Latin America is also home to an unusually high number of UHNW individuals relative to its wealthy population. It has a HNW population of around 0.5 million, according to the Merrill Lynch/Capgemini World Wealth Report 2011, but around 2.4 per cent of these count as ultra wealthy, compared to a global average of 0.9 per cent.
However, many view Florida as a place from which to serve truly “global” clients, despite the strong Latin links.
“Latin families in Miami are global in perspective and comfortable with the US and US-style thinking,” said Charles Lowenhaupt, chief executive of Lowenhaupt Global Advisors. “Unlike many purely domestic US wealth holders, these Latin families see themselves as global, with children living on either side of the border and businesses around the world.”
Butnaru, of Mora Wealth Management, agrees, saying the firm has “hybrid clients” in Florida, such as the children of wealthy Latin American families who are educated in the US and spend a lot of time in Europe and Latin America, for example. They are “extremely complex, multiple jurisdiction” individuals who tend to be “very well educated,” he says.
“For whatever reason, in Miami, the system has grown with them [hybrid clients],” says Butnaru. “I don’t know if there’s any city in the world that is as diverse as Miami these days.”
It is perhaps this vibrancy, in a world where the “old economies” are stagnating somewhat, that has boosted the private wealth industry in the state.
A recent report from the National Association of Realtors showed that property deals involving international buyers are heavily concentrated in four states: Florida, California, Texas and Arizona, accounting for 51 per cent of international purchases. Florida has been the fastest growing destination of choice, accounting for over a quarter of international sales.
“If you ask why Miami real estate has recuperated so fast, faster than anywhere else – unfortunately, or fortunately, because there are no bargains anymore – one of the reasons is because people have flooded the market, mostly foreigners,” says Butnaru.
And, anecdotally, he says these tend to be international buyers who are “familiar” with Miami – from Europe and Latin America. “We have very few clients that don’t have a situation where someone [a relative] is already living here, either going to school here or college,” for example.
Highly specialist skills
While there may be rich pickings client-wise, it’s not an easy market to serve, wealth executives stress. Particularly, the combination of language skills, broad global experience with clients, and highly technical skills on the wealth planning side are hard to find in one person.
“We realized that the only way we should try to work with these families is by having an experienced director from the region and living in Miami who speaks Spanish. Although there are many such people in Miami, few have the background we needed,” said Lowenhaupt, whose firm went onto select Halvorssen for his experience.
Conor Hourigan, partner and head of wealth management at David Barret Partners in the Americas, an executive search firm, explained that the wealth management market in Florida “is really two very different markets with two defined hubs. Palm Beach is the hub for domestic US UHNW clients and Miami for UHNW International (largely Latin American) clients. They tend not to overlap.”
Demand for wealth management services is high in both areas, he said, but many firms now view Palm Beach as overcrowded. “As such they are looking at new centers where snowbirds are moving to” like Naples and Tampa, as well as the traditional centers of Boca Raton and domestic-focused Miami, according to Hourigan.
Another aspect to this market – where clients tend to arrive rather than be born there – is that firms can struggle with conflict between the local advisor and the advisor who worked with the client in the city/region where the wealth originated, such as the Northeast or Midwest, he explained.
Meanwhile, regarding the international market, “Miami continues to grow with Brazil leading from an offshore perspective,” says Hourigan. However, he said the best firms are also forging onshore presences in Sao Paulo and Rio de Janeiro. For Spanish speaking advisors - who tend to see Miami as the hub - he advised that there’s also a big opportunity in Houston and San Diego, where the Mexican market is “gaining ground.” “Demand for advisors in those cities can be even higher,” he said.

Published: July 11, 2012
By Harriet Davies - Editor - Family Wealth Report
The professional market in the US represents some 3 million households, many of which have significant wealth, a new report from Spectrem Group says.
The report, which refers to doctors, dentists, lawyers and accountants, estimates that around 10 per cent of professionals fall in the $1 million - $5 million segment, while around 13 per cent fall in the $5 million - $25 million segment.
“According to the website Cha Cha there are about 700,000 physicians in the US and about 180,000 dentists. Add on top of that about 800,000 lawyers and over 1.3 million accountants and it becomes clear that these professionals represent a sizeable market,” says Spectrem.
Behavior, attitudes
One of the ways in which professionals differ from other wealthy individuals is that they tend to cite frugality and education as factors in their wealth creation, and are less likely to cite taking risk and smart investing as factors. Because of this background, the report says, professionals value high standards of training in their advisor, and will also have as a key goal the financing of education for their family members.
In terms of their broad concerns, professionals tend to worry about similar things to other millionaires and ultra-wealthy individuals: the national debt, the economic downturn and the political environment. However, between the two wealth segments, the ultra wealthy are much more concerned about taxes than millionaires (77 per cent versus 42 per cent), according to Spectrem.
“Many UHNW professionals are in or nearing retirement, therefore tax increases pose a greater impact on their overall lifestyle than for professionals who are still employed,” says the report.
Also – perhaps because they created their own wealth – they are often more worried about other family members’ finances than their own. Specifically, millionaires tend to be younger than UHNW professionals, and so just over half are worried about aging parents, while the majority of both wealthy and ultra-wealthy professionals fret about the finances of their children and grandchildren. Around half of both groups are also concerned about having someone to care for them in old age.
In terms of finances though, the majority of wealthy professionals – both millionaire and UHNW – expect to live comfortably during retirement. As they tend to be in different life stages, with millionaires on average younger than ultra-wealthy professionals, millionaires expect their lifestyle to improve – around half expect their financial position to be better in a year’s time. The ultra wealthy, however, are more concerned with protecting what they have.
Generally, professionals are more involved with world affairs and financial topics than other wealthy individuals, according to the report.
Advisor contact
According to Spectrem’s research, most ultra-wealthy professionals said they preferred monthly calls from their advisor while millionaires prefer less contact, with semi-annual calls being the most popular option. However, when it comes to returning inquiries, millionaires are much more demanding, with 33 per cent saying they expect an email response the next day, compared to 15 per cent of UHNW professionals.

Daily News Analysis
Published: June 26, 2012
By Max Skjönsberg - Reporter
Growth in the asset management industry has been confined to a limited number of scattered segments, according to a new report.
The latest annual global asset management report by McKinsey & Company, the management consulting firm, shows that asset managers have lost share in global financial assets in the past four years and that profit levels are well below their levels before the crash in 2008.
The retail segment has taken the biggest hit, with an average yearly decline of 1.6 per cent since 2007. The institutional side has had annual growth of 0.4 per cent over the same period.
The Hunt for Elusive Growth: Global Asset Management in 2012, based on McKinsey’s annual benchmarking survey of around 300 asset managers, found that recovery in the industry ground to a halt last year.
Assets under management as a share of total financial assets globally fell from 25 per cent to 22 per cent between 2007 and 2011. At the end of last year, global AuM stood at $38 trillion.
Profits have declined by almost a third over the same period.
Net inflows have averaged 0.6 per cent a year since 2008, compared to between 3 and 5 per cent in 2002 to 2004.
“Even though the industry is still very attractive, the economics have seriously deteriorated on average,” said Markus Schachner, a partner at McKinsey and leader of the survey in Europe. “Profit margins in Europe have almost reached their all-time low.”
Competition from wealth managers and advisors
McKinsey said that flows have been concentrated to a small number of players, especially in the retail sector. The firm also said that asset managers face fierce competition from a range of wealth management firms, both from those of a private client and investment management character, as well as from independent financial advisors.
The fact that these businesses offer similar services but have direct access to their clients means that asset managers may have to rethink their business models, the firm said.
“Success in the future is of course still possible, but will be concentrated on a much smaller number of winning firms,” said McKinsey director Martin Huber.
Among the themes the firm believes will dominate the industry over the next few years are a continuing concentration of growth in emerging markets; a “mainstreaming” of alternative investing, which will account for a significant portion of growth across the globe; and growth of objective-oriented solutions, which is shifting the focus from generating alpha relative to specific benchmarks to delivering outcomes that clients need.
McKinsey said that the participants in the survey reflected roughly 60 per cent of total global AuM with representatives from the US, Europe, Asia-Pacific and Latin America.

Published: June 06, 2012
By Harriet Davies - Editor - Family Wealth Report
A record 62 per cent of ultra-wealthy respondents to the Institute for Private Investors’ annual performance survey reported using an advisor for over half their wealth.
The IPI Family Performance Tracking survey, which covered 57 families with at least $30 million in assets, is conducted in two parts. Data released earlier this year revealed families’ anticipated investment strategies while the latest survey, completed in April, examines actual allocations and performance.
It found that 45 per cent of respondents increased their allocation to commodities, while 31 per cent increased their exposure to real estate, and 22 per cent to private equity. “Investors also increased their municipal holdings and decreased investment in hedge funds/funds of funds,” said IPI.
Wealthy families are worried about geopolitical risk and domestic policy shifts, according to the survey, with 70 per cent of respondents expressing concern about this. Nearly half of respondents were concerned about the scarcity of yield opportunities.
Returns for 2011 “varied widely,” said IPI, from -10 per cent to 25.1 per cent net of fees. The majority of families, though, reported returns in the range of -2.16 per cent and 2.28 per cent net of fees. Families seeking principal protection last year fared better than those pursuing growth, with nearly two-thirds of the first group achieving positive returns compared to less than half of the second group.
“This year’s data reinforced the investment trends we have been seeing among the ultra-affluent as far as the rise in allocation to commodities and real estate, and the continuing popularity of direct investment in private companies,” said Mindy Rosenthal, IPI executive director. “Families are also concerned universally about risk, both abroad and at home.”

Daily News Analysis
Published: May 18, 2012
By Eliane Chavagnon - Reporter
While less than one quarter of traditional financial advisors provide “some level” of multifamily office service, 80 per cent have expressed an interest in doing so, according to new research from Rothstein Kass.
The study, entitled The Family Office Model: A Smart Move for the Financial Advisor?, explored the ways in which financial advisors are confronting the growing demand for family office services among their wealthy clients.
About 60 per cent of advisors indicated that they would consider introducing family office services for “select clients,” while an additional 17 per cent expressed interest in launching a comprehensive platform, the study found.
“Demand continues to surge, driven by increased awareness among wealthy families of the advantages that an integrated wealth management approach provides,” said Rick Flynn, principal and head of the Rothstein Kass Family Office Group.
The advantages of providing family office services include greater client retention, enhanced revenues and improved client acquisition, he added. “However, the decision to introduce family office services is not one that should be taken lightly.”
Flynn therefore recommends that advisors undertake a “thorough assessment of current competitive positioning,” as this can indicate which services will be of most value to existing and prospective clients.
Survey participants included independent advisors (44 per cent), registered representatives (35 per cent) and registered investment advisors (21 per cent).
Rothstein Kass serves privately-held and publicly-traded companies, as well as high net worth individuals and families.

News Analysis
Published: April 23, 2012
By Vanessa Doctor - Asia Correspondent
Europe’s ultra-rich are moving their family office operations to Asia in a bid to find a safer, less volatile environment for their wealth, according to a report by The Telegraph.
Family offices are independent entities set up by wealthy clans to manage their money and investments for them, usually in partnership with an established private bank or fund management firm. The necessity of a family office emerges in the transition from one family generation to the next with the goal of preserving and growing the wealth. In the recent years, however, rich clients have begun turning to smaller family offices to reduce the risk of being involved with major banks in case the latter fall.
For many European families, Asia and its relatively stable economic environment is the place to be. Singapore, in particular, dubbed as the Switzerland of Asia, holds the distinction as one of the most family-office-friendly countries in the world. Hong Kong is usually the second choice.
There are around 2,500 family offices worldwide and about 200 of these are in Asia, according to recent research. UBS, the Swiss banking giant, has already set up a family office branch in Asia, so have other foreign majors like Credit Suisse, Royal Bank of Canada and HSBC.
The Monetary Authority of Singapore recently scrapped its old permanent residency programme for foreign investors and high net worth individuals in favour of the Global Residency Programme, which allows HNW individuals to invest in the city-state for a minimum of S$2.5 million in a GIP-approved fund. The old scheme, which allowed foreigners to earn PR status in exchange for S$10 million in investment for five years is to be terminated by 30 April 2012.

Published: April 09, 2012
By Charles Paikert - Contributing Editor in New York
For wealth management firms targeting ultra high net worth clients, not providing non-financial fiduciary “soft-side” services is no longer an option.
“These offerings are increasingly becoming a market differentiator for appealing to new clients and retaining and deepening relationships with existing clients,” said Dennis Dolego, director of research for Optima Group.
Indeed, an “enhanced” family office model will be de rigueur for firms competing in the extremely competitive UHNW market, according to a recently released Optima Group white paper on the family office market.
In the wake of the financial crisis, very wealthy families have made capital preservation, risk management and “the responsibilities of family stewardship” their top priorities, the white paper said. “They were going in this direction before the crisis,” Dolego said, “but this change in sentiment has really accelerated since 2008.”
Leading players in the UHNW market have taken notice
Abbot Downing, Wells Fargo’s newly re-branded UHNW division; Ascent Private Capital Management, US Bank’s new entry in the market; GenSpring Family Offices and Wilmington Trust all have high-profile staff dedicated to non-financial mainstays such as family governance, legacy and communication, education and philanthropy.
Other major players in the market such as Northern Trust, BNY Mellon Wealth Management, Citi Private Bank, Morgan Stanley and Bessemer Trust also offer plenty of non-financial services, including conferences and workshops on educating the “next generation” of family members and other issues impacting wealthy families.
Abbot Downing: new kid on the block
The spotlight this month is very much on the market’s new kid on the block, Minneapolis-based Abbot Downing, which launched last week with an impressive $33 billion in assets under management as a result of being an amalgamation of Wells’ Lowry Hill and Wells Fargo Family Wealth units.
Abbot Downing, which is targeting clients with $50 million or more in investable assets or $100 million or more in net worth, has its own soft-side division, Family Dynamics, a legacy that began life as part of Wachovia Bank’s UHNW Calibre family office, the progenitor of Wells Fargo Family Wealth.
Family Dynamics is an “integral part” of what Abbot Downing offers, said Pat Armstrong, managing director of the division. “We believe that the focus on the impact of wealth is as important as focusing on the technical management of wealth,” Armstrong declared.
Wealthy families are increasingly worried about how their children will be affected by growing up with and expecting to inherit so much money Armstrong said, an observation widely shared by other professionals in the field.
“These families are concerned that the family fortune can become the misfortune of their children,” said Armstrong, who holds a doctorate in counseling psychology. “They want to prepare their children for their inheritance and have very practical questions about what age they should being talking to their children about wealth and how much should they give to them. Tax efficient strategies for transitioning the family’s wealth are important, but they’re not the most important thing.”
In addition to the various governance and educational services Family Dynamics provides, it also hosts an annual multi-family forum for around 15 to 20 invited families. The theme of last year’s forum on Kiawah Island was risk management, while the theme of this year’s event in Chicago in mid-September will be the impact of wealth, inspired, Armstrong said, by the Occupy Wall Street movement’s focus on the richest 1 per cent of Americans.
“Impact investing” to promote social good will be on the agenda, she said, as will the impact of wealth on the next generation.
Abbot Downing will also co-sponsor a series on “NextGeneration Education” with the Institute for Private Investors this year, Armstrong said.
Ascent attacks UHNW market
The other high-profile newcomer to the UHNW market has been Minneapolis-based US Bank’s Ascent division, launched last October and headed by Michael Cole, a leading advocate of soft side services who ran Wells Fargo’s Family Wealth group and Wealth Planning Center for ten years.
Ascent is targeting clients with a net worth of $25 million or more, which does not have to be liquid. Those clients will be offered what Cole calls “wealth impact” services such as strategic planning for a liquidity event, succession planning, customized financial education courses, family governance and courses on family leadership and communication. In addition, Ascent’s new offices will have specially designed rooms for family meetings as well learning and communication resources.
Family meetings this year cover topics including human behavior, family values and mission and vision statements. Special events sponsored by Ascent will include luncheons for women and workshops on “exploring the taboo money conversation from a generational perspective.”
Ascent is “structurally different” than Abbot Downing, according to Cole, because it doesn’t present Ascent’s non-financial offerings as “soft side” issues but rather as “the difference between strategy and tactics.”
“Strategy includes the vision of the family, the role family members play and the leadership structure,” Cole said. “Tactics include investment management and tax and estate planning. They are equally critical parts of the equation.”
Non-financial services selling point for GenSpring
Among the more established firms in the UHNW space, GenSpring has long championed non-financial services as key components of the seven different types of family offices it offers potential clients.
Indeed, services like education plans for next generation family members, meeting facilitation and governance and strategic philanthropic planning are among the firm’s biggest selling points, said Daisy Medici, director of family governance at GenSpring.
“The biggest fear we see in wealthy families is that their wealth will have a negative impact,” said Medici. “They could live off of their wealth, but they have to have purpose and vision, and that’s why they appreciate these services.”
One of the biggest challenges for wealthy families, especially those that own an operating company, according to Medici, is how to go about making decisions. “The most important question we start with is what does your family own together, and what do they want to own together. It’s hard to justify family governance when the family doesn’t share ownership.”
Shared ownership’s non-investment implications are in fact the subject of an educational workshop GenSpring is offering this year on how family members may be putting each other at risk by not having prenuptial agreements, essential estate planning documents, adequate insurance coverage, and social media guidelines.
GenSpring will also sponsor a series of small seminars around the country this year centered on the theme of women and wealth and including topics such as “the emotional impact of money on relationships,” Medici said.
Rogerson’s big switch
Another indication of the growing importance of soft side services in the UHNW market was Wilmington Trust’s hire last summer of Tom Rogerson, who had spent the previous nine years as managing director of Family Wealth Services for BNY Mellon Wealth Management.
Rogerson said non-financial and governance services for wealthy families is on a similar growth path to that of estate tax planning, which is now robust and widely accepted but was only a “fragmented cottage industry” thirty years ago.
Among the biggest needs Rogerson sees now among wealthy families is the need for children to have a bigger role in family decisions and for families to work more effectively as a team.
“Family leaders are used to working with management teams at work, but seeing the family as a group of individuals,” he said. “One of the most valuable things we can offer is teaching families to work better as a team.”
Pricing and profitability
Some critics contend that the increase in non-investment deliverables by firms in the UHNW market all too often leads to “service creep” - the erosion of profit margins as clients demand more services, while firms lose time and money to satisfy them without commensurate compensation.
But wealth management executives say flexible pricing policies have mitigated those concerns.
Abbot Downing will be “testing and learning” how to best price its non-financial services, according to Armstrong, who said she sees a mix of offerings that include some services wrapped in a comprehensive assets under management fee and others priced separately. Medici also pointed to GenSpring’s mix of family office models that include different levels of non-financial deliverables.
Ascent clients have “multiple doors of entry” to its services, Cole said. “We will start with the client’s highest priority and go from there,” he said.
Illiquid clients who can’t pay Ascent the traditional percentage of assets under management fee will be charged based on the requirements of each “customized engagement,” Cole said when the division launched.
Six-months in, the business model is working, he asserted. “Our only criterion is revenue per client,” Cole said.
He conceded that competitively-fueled “institutional-based pricing” on the asset management side of the business has reduced margins as “clients recognize [asset management] is becoming more commoditized and expect to pay less and less.”
But Ascent teams can also provide non-financial services to “a reasonable amount of clients – no more than twenty,” Cole said. “If we can provide the right service to the right client, we can maintain a certain amount of revenue per client.”
For Rogerson, the potential profitability of non-financial fiduciary services lies in their appeal to potential clients.
“It’s a better way to open a door with a prospect than tax planning or investment management, [which] will ultimately be delivered and isn’t hard to find.” he said. “ If I bring tax planning or asset management up at a social gathering, it’s a nonstarter. But when I talk about the fiduciary side, people perk up. It’s not how you prepare the money for the family, but how you prepare the family for the money.”

News Analysis
Published: March 29, 2012
By Max Skjönsberg - in London
Seven out of ten of the world’s billionaires have made their own fortunes, but more than 40 per cent directly involve their family in the management of their wealth, new research from Forbes shows.
In a new study launched in London yesterday, the publisher also said that the UK has the highest percentage of self-made billionaires in the world. More than eight out of ten of the UK’s billionaires in 2011 had created their fortunes from scratch, compared with seven out of ten in the US, which is traditionally more associated with success stories and has more billionaires than anyone else in Forbes’ database.
“In the UK, you have incredibly old money which goes back hundreds of years and money tied up in real estate and holdings throughout the world, but you also have many self-made billionaires like Richard Branson,” said Bruce Rogers, chief insights officer of Forbes Media, when presenting the new report made together with Societe Generale Private Banking.
The study, entitled Global Wealth & Family Ties, analysed 1,200 of the world’s largest fortunes in 12 countries. The minimum net worth of the people in the study was $1 billion, with the exceptions of India ($370 million), China ($500 million) and Singapore ($210 million). The fortunes were sourced form Forbes’ database of billionaires.
The wealth management industry is interested in whether money is inherited or self-made because the origins of a fortune will often determine the risk profile of a client, investment objectives and other needs.
Self-made but family-run wealth
The report also found that self-made fortunes have also seen the highest growth in the last couple of years, with an increase of 24 per cent compared with 21 per cent for inherited wealth. Forbes distinguishes between passive heirs and those with personal involvement in their inherited fortunes. Fortunes in the latter category have grown by 12 per cent in 2010 and 2011.
While 70 per cent of the billionaires in Forbes’ database have self-made fortunes, the survey found that fewer than that (58 per cent) manage their wealth on an individual basis. Family-managed fortunes are concentrated in some regions and hardly exist in others, especially in countries such as Russia with new wealth. In general, the break-up between family involvement and no family involvement is more equally distributed in developed countries than in the emerging markets. Forbes classifies no family involvement as when family members are not directly involved in the business that created the wealth, which means that they can still be involved in decision-making but still fall into the same category.
In terms of sectors, finance is the sector with most family involvement. Other prominent sectors with family involvement are construction, real estate, services and food and beverages. Sectors dominated by an individual approach are non-financial investments and technology.
Old and new wealth
Forbes also found that nearly 80 per cent of the billionaires in emerging markets have created their own fortunes from scratch. The emerging economies Forbes looked at were Brazil, Russia, India, China, Mexico, the United Arab Emirates, Saudi Arabia, Kuwait and Lebanon. The corresponding figure for the mature markets in the study (France, Germany, Hong Kong, Singapore, the UK and the US) was 65 per cent.
Bruce described France as a country with a very family-oriented business culture, which is corroborated by the fact that two-thirds of its fortunes are family-run.
Germany has the highest number of billionaires in Western Europe, but “it is probably the toughest place to get information; it is not a place where you flaunt your wealth, it is behind closed doors,” Bruce said.
In terms of investment, Bruce pointed out that Asian investors are very conservative and that the market lacks family offices. China has, however, a very competitive private banking sector, which is struggling to keep up with the pace of wealth creation. Bruce also said that wealthy individuals in Hong Kong and Singapore often hire several wealth managers and private banks to split up their wealth.
Billionaires in Russia, with virtually no family involvement, and India, with the highest percentage of family-run fortunes with nearly three-quarters, are beginning to diversify and spread their assets around the world. For example, many Russian billionaires buy property in New York and London.
Technology: a game-changer
Technology is in many ways changing the landscape of billionaires and ultra high net worth individuals around the world: “Technology is a key driver of wealth throughout the world, and the entrepreneurs there tend to be very young and single so they have not got the family connection yet,” Bruce said. “As technologists they are often engineers and their skills are very specific, so their brother-in-law or cousin does not necessarily have the same skills.”
The emergence of technology wealth is also having a strong impact on philanthropy, as technology executives give billions to charity and run their foundations in the same way as their firms: “Bill Gates seems to have an obligation personally for philanthropy, which is unique in the industry,” Bruce said.

Daily News Analysis
Published: March 28, 2012
By Harriet Davies - Editor - Family Wealth Report
The “enhanced” family office model will come to dominate the ultra-high-net-worth wealth management landscape, as the very wealthy remain shaken by the effects of the financial crisis, according to a new white paper from Optima Group.
“In the aftermath [of the crisis], a ‘new normal’ has taken hold. For the ultra affluent, it is characterized by heightened concerns over capital preservation, risk management and the responsibilities of wealth stewardship,” says the white paper. “And trust, transparency, clarity and fiduciary responsibility have become, now more than ever, the paramount drivers in choosing financial advisory relationships.”
In this environment, providers who fail to shift their business practices to accommodate market sentiment will lose market share, and “quality multi-family offices” stand to benefit in the near-to-intermediate term, says Optima.
“It is worth noting that formidable global entities such as HSBC, UBS, Citi and others, are also rapidly creating or expanding ‘family office service groups’ which market investment banking and other services to existing family offices,” the white paper says.
“This increased willingness by industry giants to participate in the growth of MFOs, even where these providers do not control the ‘end relationship,’ is further recognition of the growing popularity and potential of the family office market,” it continues.
The size of the market
Optima characterizes households with at least $30 million in investable assets as UHNW, and notes the small size of this market, accounting for fewer than 60,000 households in the US. At the $50 million threshold, it says there are some 10,000 households in the market.
“This makes for an intensely competitive marketplace where market differentiation and client satisfaction are critically important to continued viability,” says Optima.
Among some of the things the UHNW are demanding are:
1) True open architecture: encompassing an “end to any conflicts of interest in product selection or sales” and proprietary products competing only on a level playing field.
2) Real transparency: relating to both products and pricing, as well as full disclosure over investments.
3) Simple and practical solutions: clients want solutions they understand, rather than “black box” products; higher cost products in particular must be justified.
4) Effective risk management: ultra-wealthy clients want to understand their investment strategies and the risk management processes in place, which must account even for “black swan” events.

The following White Paper is authored by Allan R. Starkie, Ph.D., Partner at Knightsbridge Advisors, Inc.
Published: March 06, 2012
Posted by Marianne Nardone on 3/06/12 • Categorized as Research / White Papers
1. Background
Since the crash of 2008 and the market’s somewhat tentative return to health, the Wealth Management industry has been obsessed with recruiting client-facing professionals with portable assets, and sales professionals with proven track-records of consistently high production numbers. This should come as no surprise. In a fee-based model any major contraction of AUM leads to a direct reduction of top line revenues. Cost cutting, which has been a prevalent trend, primarily by reducing middle management and sales management, can only do so much to ameliorate a crushing blow to the top line. This is particularly true in our world of open architecture in which such a large portion of fees are used to remunerate outside managers. And so the illusive panacea that we are often tasked to find is a quick transfusion of assets, to stabilize our asset-anemic clients.
2. Current Trends
a. Individual Producers
Over the last four years 64% of our searches have targeted two types of revenue generating professionals: the rarest of creatures, the million dollar revenue producers who remain the unicorns of wealth management, and relationship managers with a strong sales component to their responsibilities. Perhaps one of the repercussions of our present SMA world is that fewer institutions are utilizing a pure hunter sales force. This is quite understandable. In the ancient world of a decade ago, a sales professional could focus on selling the purported superior performance of his firms’ proprietary products. Now as sales professionals “sit on the same side of the table as their clients,” as the current euphemism extols, the sale is considerably more subtle. It generally is a sale of superior service, a more holistic approach, and a bond of trust in the culture and values of the institution. Snake oil is clearly not on the menu, and many institutions are scornful of traditional hunter approaches and scoff at the use of such pedestrian words as “sales” and “production”. And so the unicorn is slowly becoming extinct.
Twelve years ago five percent of the national sales force managed to produce one million in new annual asset management revenues. Today the number is under one percent, based on a survey we conducted last quarter. There are only a handful of firms that even employ a pure sales force that hands-off the relationship upon closing. Although there still is great value in utilizing hunters, even within a primarily private banking model in which a relationship manager will become the client service professional after closing, we find a number of regional banks eliminating their external sales forces entirely. Pure hunters are found primarily among the trust companies and asset management companies, but almost never among international money centers, wirehouses, or most RIA’s. So the unicorn is no longer regarded uniformly as the asset generating solution of choice that the industry is longing to acquire. Several firms use a hunter model very effectively and I do not wish to imply that it is obsolete or ineffectual, simply that the number of top producers has dwindled, the patience of the industry to allow an adequate ramp-up time for production has dissipated, and there are essentially almost no viable training programs which are needed to develop a future generation of top producers.
So in a world in which so few hunters provide exemplary production; particularly in their first two years with a new firm, there has been a growing trend to recruit relationship managers with sound production records and the hope of some degree of portability. This can be very dangerous for two reasons. The first reason is that many relationship managers with impressive production numbers rely extensively on intra-bank referrals from other lines of business, the most obvious being commercial lending. One can dissect their production numbers and try to isolate what has been hunted externally, but it is a difficult thing to validate, and even externally sourced business is often a result of a strong bond between the referring center of influence and the wealth management firm itself. The second danger involves moving relationship managers from a banking environment to one in which credit is not a major component of the firms offering (particularly balance sheet lending). Even if one isolates the asset management portion of the book from the credit and deposit business, and then tries to make a calculation on the asset portability, the analysis will probably be faulty. Clients are still very hesitant to move assets from a bank with which they have an existing credit relationship, even if the assets are not securing a line of credit. One needs to identify clients in the book of business that essentially have a pure asset management relationship with the relationship manager and are not tied to the bank by other products. Once this small group has been identified a reasonable portability expectation would be no more than 20% in the first year. Even wirehouses have experienced enormous drops in portability (some estimates place the figure at 55% down from 85% in 2007).
b. Team Lift-Outs
The next turn the industry has taken, a bit like a mouse running frantically through a maze and turning at each blank wall, has been an increased move toward team lift-outs. This can be a viable option if caution is exercised, because the term “Team Lift-Out” is rather vague, and can mean anything from a newly hired producer bringing a sales assistant, to lifting-out the entire team of specialists that surrounds a group of clients. Although one occasionally encounters teams that are actively seeking to move together, more often a team lift-out needs to be created, almost in the manner of recruiting an intelligence operative within a foreign government entity. In the cases in which an intact team is marketing itself one can assume that the hiring firm will be actively competing with a number of other institutions that the team has approached. As a result the cost will typically be considerably higher than constructing a team lift-out in a clandestine manner. The other advantage in the clandestine approach is it generally allows the acquiring firm the element of surprise which always increases portability, as opposed to the team that is selling itself; for regardless of the precautions they may undertake to insure secrecy, it is virtually impossible for their employer not to get suspicious and begin developing a contingency plan to retain their clients.
The first step in executing the clandestine approach is to identify institutions in which a “hard-wired” client team is the prevalent model. That is to say that a relationship manager has an actual team (typically in the hub and spoke configuration), in which the same specialists surround each client relationship. The key players need to be the portfolio manager, trust administrator, and lead relationship manager. We always encourage the hiring institution to also bring any support personnel that actually engage in frequent interaction with the client. Typically the best way to construct a lift-out is to approach one of the senior members of the team as if you were recruiting him individually, and the hiring institution should sincerely be willing to hire this professional even without his team following immediately. During the initial interview process, after a sense of trust has been established, the question of a team lift-out should be broached. It is essential that the recruiting firm examine any non-solicitation agreements undertaken by the employee you wish to use as the clandestine operative. If he is prohibited from soliciting employees, it is then essential that the recruiting firm contact each team member individually and create the lift-out in a manner in which the members are not perceived as soliciting each other. If no non-solicitation agreement exists it naturally is an easier process, in which the lead employee can act as the negotiator and spokesperson for the team.
The other ingredient in a successful lift-out is orchestrating the method and timing of the mass resignations, and having complete clarity on any restrictions regarding soliciting clients. Since restrictions usually apply (outside of firms that have joined the Protocol) it is important that bonuses used to enrich the team for portable assets be created on a success basis, and never as upfront sign-on bonuses.
c. Acquisitions of RIA’s
The more surprising trend that we are currently experiencing is not only a heightened interest in team lift-outs, but a virtual stampede to acquire RIA’s in an effort to immediately increase assets. Within the last twelve months we have experienced slightly more requests on the M&A side than on the lift-out front, from a host of firms from regional banks, to other RIA’s. It is an interesting phenomenon when you consider that a recent report from Schwab Advisory Services chronicled that in 2011 only 57 RIA’s were sold in the entire country, representing a sale of only $44 billion in AUM (yielding an average deal size of only $798 million). Of those only 10% were purchased by regional banks, while 44% were purchased by other RIA’s.
There are a number of reasons why the demand far outstretches the supply. The first reason is that RIA owners often have unrealistic expectations of the value of their company. In my local veterinary office there is a print of a cat looking in a mirror and the face of a lion is reflected back. Unfortunately, many RIA owners have a magnified sense of their own uniqueness and value that makes agreeing on a normal valuation difficult, and sometimes contentious in an overly personal way. In addition to this, since the RIA segment has also suffered from top line and bottom line compression, the basis for any valuation will almost always be lower than it was prior to 2008. One RIA owner whom we were trying to sell to a private equity firm last year reluctantly agreed to an 8 times EBITDA valuation- but insisted that the 2007 EBITDA be used against this multiple. The perplexed private equity principal responded that it would be quite similar to posting a photo of himself on Match.com from twenty years ago. But these anecdotes illustrate the simple fact that despite a huge demand for RIA’s, the valuation discussions will negate many potential deals.
Another problem, is although RIA’s are typically hungry for cash to either fund growth or provide some liquidity for the owners, and succession issues, they often are not willing to rejoin the same corporate banking environment against which they rebelled in the first place, and ultimately escaped to form a more nimble and versatile culture, albeit often in their own image.
So the question arises, is RIA acquisition a viable solution to quick asset growth? I think under the right conditions the answer can be yes. Let me define what I believe to be some of the right conditions as well as some common pitfalls.
Before I provide specific guidelines I would like to make the blanket warning to avoid trying to roll-up a series of disparate RIA’s under the illusion that through economy of scale one will cut overhead costs drastically and create a more efficient organization. As Tolstoy said “Happy families are all alike; every unhappy family is unhappy in its own way.” One should then focus on acquiring only those firms that will fit well within the culture of your family, and do so in a manner that will benefit the key staff of the acquired RIA as well as your firm’s strategic goals. Here are some guidelines:
• A wanton roll-up strategy with a poorly defined, pathetically hopeful IPO exit strategy for the most part is doomed. One unhappy family is unfortunate; a harem of unhappy families is a tragedy. As for economy of scale, I have seen very little cost savings devolve from roll-up strategies, with the exception of the new Dodd-Frank compliance costs that might severely affect smaller RIA’s bottom lines. Therefore, a strategic, well thought-out set of reasons should be clearly defined, in which collating assets, and consolidating overhead costs are not the primary goals, but the favorable outcome of a comprehensive set of selection criteria.
• Never pay the entire purchase price at closing. Tie the principals into a minimum of a three-year earn-out with very specific parameters around asset growth, retention, and earnings.
• Sign strict, long-term management contracts with the key staff to ensure that an exodus of talent and then clients does not follow after the last earn-out check clears.
• Develop a structure in which the acquiring company can act as a long-term financing vehicle to provide current owners with liquidity and future partners with cash to buy equity and a means of borrowing against the equity if needed.
• Provide a clearly defined succession plan.
• Offer minimal integration of operations with the exception of: finance/accounting; human resources/payroll; and compliance.
• Depending on the sophistication of the RIA’s back office as it relates to manager selection and consolidated reporting, these functions might also be centralized by the acquiring firm, but that decision needs to clearly be integrated into the strategic plan prior to closing.
• Freeze earn-out metrics at closing.
3. Conclusions:
We believe that in this environment all three solutions referenced above should be investigated in parallel. Individual hires with real production records, and client-facing professionals with verifiable portability should be sought, as well as back-end structured team lift-outs, and strategic acquisitions.
In the current environment we project that 2012 will reflect higher deal flow of RIA acquisitions by other RIA’s; particularly with MFO’s as the acquirer. We would expect that the large appetite for team lift-outs will continue with an increase in wirehouse to wirehouse movement, as the retention bonuses used during the meltdown of 2008 begin to amortize. Finally, we project an increase in portability of assets as the credit environment becomes slightly less conservative.

Feature
Published: February 23, 2012
By Harriet Davies
This year is set to be another active one in the US private wealth management market, especially as liquidity events in the Bay Area and Houston continue at the current pace or grow in number, according to a new white paper.
In other trends, financing demands from entrepreneurs will give access to clients to those private banks which are ready to deploy credit, and onerous regulation of proprietary trading will see large firms turning to wealth management for growth and fee income, according to Wealth in Motion, from the New York-based executive recruitment firm David Barrett Partners.
Last year, turnover of top executives was high at wealth management firms, especially for the chief investment officer function. Meanwhile, “cutting the fat” among top-level staff was a key driver among firms, which sought to remove unnecessary functions and layers, according to the white paper.
Strategies were mixed as some firms focused on getting top leadership in place while others stuck to cost-cutting, seeing some top talent depart with compensation packages.
Advisors: outside hiring strategy flawed
At the advisor level, firms have been looking outside of the industry for talent that can be trained – presumably to reduce costs – but many that pursued this strategy were consequently disappointed due to the time it took to gather assets. “Many mid-level advisors new to the sector that were hired in 2009 have been let go,” the report says.
Due to the fact experienced advisors can bring client assets, competition has appeared to remain robust for high-producing teams, with news emerging of many top teams switching firms - as well as going independent and joining networks such as Dynasty - already this year.
The compensation question
Last year delivered a “mixed picture” on top-level compensation. Some firms cut costs in other areas to reward their most-valued staff; others “sent a message to mediocre performers in their 2011 bonus numbers,” says David Barrett Partners.
On the plus side, relative to other areas of the wider banking industry, wealth management has weathered the downturn well, escaping some of the savage cuts to hit investment banking arms, for example. Many of the large international banks, such as UBS, are slashing their risk-weighted assets in investment banking, focusing on wealth management instead.
In the RIA/MFO space, firms had their sights set on growth: many created business development teams and positions with a view to expanding assets under management, and successful business developers were “compensated very well,” says the white paper.
In private banking, firms awarded those advisors that were focused on investment management mandates and net new clients.
Where’s the money at?
According to David Barrett Partners, the five most coveted regions for large wealth managers to have a strong presence in are: the New York Metro area, California, Florida, Texas and Illinois.
“Not covering these markets effectively erodes the ability to be a true national player as these regions account for half of the country’s wealth (within the UHNW segment in particular),” says the white paper.
At the same time, new “regional pockets” of wealth are springing up, providing opportunities for local and boutique players to establish ties with these markets. Areas to watch for these are states such as Washington, Colorado, Ohio as well as the DC Metro area, says Conor Hourigan, partner and head of US wealth management and author of the report, as these become increasingly interesting to firms.
Larger firms are also in tune to this, and Northern Trust and BNY Mellon are examples of two firms that opened new offices in the Washington DC in the second half of last year.
Some of the traditional centers of wealth, such as Boston, Philadelphia and Atlanta, are not seen as offering the same growth opportunities, according to the white paper. However, while these may not be the new epicenters of growth, they remain a focus.
MFO/RIA industry: expected to gain market share
The multi-family office and registered investment advisory industry is capitalizing on the lack of trust in Wall Street, and a firm providing open architecture, proprietary product that has been performing well, and high-touch client service is proving a “compelling” offering, the white paper says.
David Barrett Partners expects MFO/RIA firms to gain market share this year and to hire talented leaders, product specialists and asset raisers.
“The ‘pull’ for senior talent is the opportunity to work in a boutique investment focused environment with less politics, a partnership structure and a seat at the table,” says the recruitment specialist.
However, on the downside, people making this move take on more risk, and compensation weighted exclusively on medium-term upside has been a barrier for some considering the switch. To overcome this, firms can offer guaranteed compensation in the first year plus medium-term upside to attract the most talented staff, advises Hourigan.
SFO industry: “buoyant”
Meanwhile, the single-family office industry remains buoyant. “Despite global economic uncertainty…single-family offices are sprouting up across the country, particularly in the $1 billion and above segment,” according to the paper.
Turnover in the SFO industry rose last year as families sought to grow their offices into larger enterprises such as “mini foundations and endowments,” while Forbes 400 individuals looked to in-house capabilities to provide privacy.
Particularly, the recruiter said many families were looking for a chief investment officer, with a CFA qualification and strong investment track record, as opposed to the “standard leadership position,” such as a CFP/CPA-qualified individual.
As these families represent top-tier wealth they are the least likely to be affected by prevailing economic uncertainties, and so likely to sustain demand for talent in 2012, says Hourigan. This provides an opportunity for private equity and hedge fund professionals looking to make a move into this space.

Daily News Analysis
Published: February 10, 2012
By Harriet Davies
The current “hybrid model” of a family office in Asia, and especially in the wealth hub Singapore, is likely to transition to a North American/European model of the integrated family office over time, according to a new white paper, Singapore Family Offices, by Richard Wilson Capital Partners.
Singapore is a hotbed of private wealth: 15.5 per cent of households are millionaire households, placing it number one globally by this measure, followed by Switzerland (9.9 per cent) and, in seventh place, the US (4.5 per cent), according to data from Boston Consulting Group.
While this does not attest to overall numbers of wealthy people – as the population of the city state, at around 5.2 million compared to the US’s 313 million, is comparatively tiny – it does indicate a concentration of wealth that is indicative of the country’s business and wealth tax regime.
A snapshot of its economy shows it registered growth last year of 14.5 per cent and in the crisis only experienced one year of negative growth, of -0.8 per cent in 2009 (source: US government).
Singapore is also a regional hub for Asia, a region with 17,500 ultra high net worth individuals – equivalent to 17.5 per cent of the world’s ultra-wealthy population – the white paper claims.
The “hybrid model” in Asia
However, so far Singapore’s wealth management industry is not home to an abundance of traditional family offices, either single- or multi-family.
“One study by VP Bank found that wealthy Asian families turn to ‘a plurality of players that are independently (e.g. global banks) or collaboratively (e.g. asset managers, lawyers and independent advisors) providing family office services for wealthy Asian clients … these structures work as a dynamic network of different players’ discussed as a ‘hybrid network family office model,’” reads the white paper
“Yet, as single- and multi-family offices gain traction among the Asian investment community, we expect Singapore to fully embrace the more traditional family office model,” it continues.
This idea is corroborated by an earlier academic paper from the SP Jain School of Global Management, which reads: “In Asia… instead of one office looking after the wealth of the family, there are many experts from various fields providing the services to these families. The experts include private banks, lawyers, external asset managers, trusted employees, independent advisors and trust & fiduciary companies. These experts have usually had a long term relationship with the family or are established players in the wealth management industry. They collaborate and work together through a gatekeeper for the family who looks after its best interest.”
“Exploding” family office numbers
One key difference between the wealth in Asia and the West is that the former is more likely to be first generation, entrepreneurial wealth. Some believe the transfer of this to the next generation will catalyze fast growth of family office numbers.
One executive, Vicky Wong, head of key clients at LGT Group in Hong Kong, told sister publication WealthBriefingAsia in an interview last year that the space is set for explosive growth within the next decade, with FO numbers set to grow by at least 100 per cent in Asia. Meanwhile, Citi predicted last year that the number of family offices will triple in the Asia-Pacific region over the next decade.
As growth remains slack in developed markets, this could create opportunities for providers of family office services in North America to export knowledge and talent, as well as to form partnerships to provide outsourced services to Asian family offices. For example, Rothstein Kass, a New Jersey-headquartered professional services firm, is targeting growth for its Family Office Group by forming partnerships with single-family offices worldwide that are looking for a partner in the US to manage their families’ affairs there.
The earlier paper from SP Jain School of Global Management, which is based in Dubai, Singapore and India, had the following advice for service providers: “[They] need to understand the cultural and individual needs of the people in Asia which will give them the foothold they need to become permanent and structured family offices in Asia giving them access to a mammoth amount of wealth and a new and different clientele.”

Published: February 09, 2012
By Harriet Davies - 9 February 2012
Regional banks may be seen as less glamorous than their Wall Street counterparts, and may not therefore be typically associated with high-end wealth management, but they have been increasingly active in this space over the past year.
As an example of this, kicking off 2012, Bryn Mawr Bank announced the acquisition of Davidson Trust Company, bolstering assets under management at the acquiring firm’s wealth management division by around $1 billion. The firm also previously acquired Lau Associates, a family office based in Delaware, and the private wealth management group of Hershey Trust Company, as well as launching its own trust division.
Picking up RIAs
Adding to this picture, the latest data from Schwab Advisor Services showed that purchases of registered investment advisor firms by regional banks had picked up: they were the acquiring firm in 10 per cent of cases last year, compared to just 4 per cent in 2010. While this figure remains below previous years – such as in 2005, when regional banks were the purchasers in 20 per cent of cases (source: Registered Rep) – it is nevertheless a marked increase.
Buying an RIA allows the bank to showcase its expertise, at a group level, of dealing with high-end clients, even if the RIA operates as an independent business unit. An obvious example is GenSpring Family Offices, which is an affiliate of SunTrust Banks.
“While each bank will have an individual concept in mind for acquisitions, they have a common perception that referring their clients to a bank-owned business, rather than to an outside advisor, can create synergies that are accretive. They can leverage the wealth management expertise of an RIA and increase their offering for high net worth clients,” said Nick Georgis, vice president, Schwab Advisor Services.
A recovering sector
“Banks appear to be coming back to life regarding acquisitions. They tend to have a cyclical interest in buying RIAs. They are coming out of a very difficult economic cycle and they are considering their next strategic move,” said Georgis.
However, he added that it was “really too soon to tell how active banks will become” in this space, and that, “because they tend to only buy locally, they are not likely to ever be as dominant as national acquirers or RIAs.”
Commercial property woes
Broadly speaking, the regional banking sector was badly hit during the financial crisis, with around 100 resulting failures as of October 2009, according to the Economist. Many regional banks were exposed to problems originating in the commercial property market, and did not have business models that were as well diversified as their larger rivals. In 2008 the S&P Regional Banks Index (Total Return) lost around 45 per cent. It made further losses in 2009 before bouncing back 29 per cent in 2010. Last year, it lost around 14 per cent.
However, as a group, regional banks are making progress: they have moved closer to overcoming the commercial real estate and loans problems of the crisis, and posted results above analyst estimates for the fourth quarter, according to a report in Reuters. This means they could now be looking ahead.
Larger, smaller players
There is, though, a distinction between the small regional players and the larger ones, such as US Bancorp and PNC. Larger regional players – in which some include giant Wells Fargo – have all been growing their brands steadily in the wealth management space. Last year Wells Fargo streamlined its offering for wealthy clients, creating Abbot Downing, and US Bancorp created a new brand for its ultra high net worth business unit, Ascent Private Capital Management, focusing on issues such as wealth transfer and legacy planning.
PNC Financial is another notable firm in this space, and according to a comment from its chairman and chief executive, James Rohr, in the bank’s fourth quarter earnings conference call in January 2012, regarding wealth management: “We will continue to invest in this business in 2012, as we see opportunities to capture a greater share of our current customers’ investable assets which we estimate to be more than $1 trillion.”
First Republic, a larger firm which concentrates on the core markets of San Francisco, Los Angeles, New York, Boston, Portland and San Diego, was rarely out of these pages last year, as it consistently expanded its operations.
Meanwhile, banks such as Fifth Third, Key Private Bank, and Regions Financial have made hires within their wealth management divisions lately.
It could be argued that regional banks stand to benefit from having their brands more aligned with their local communities than Wall Street in the current climate, as this ties well with the service nature of wealth management. Secondly, there are opportunities for crossovers with their small-business banking divisions.
Some analysts, such as Barclays Capital banking analyst Jason Goldberg, who spoke to CNBC this week, are predicting a better year for regional banks. It remains to be seen whether they will use this as a chance to grow their market share among high net worth clients in 2012.

Published: January 30, 2012
By Max Mallet, Brett Nelson and Chris Steiner | Forbes – Mon, Jan 30, 2012 2:18 PM EST
The next time you feel the need to reach out, touch base, shift a paradigm, leverage a best practice or join a tiger team, by all means do it. Just don’t say you’re doing it.
If you have to ask why, chances are you’ve fallen under the poisonous spell of business jargon. No longer solely the province of consultants, investors and business-school types, this annoying gobbledygook has mesmerized the rank and file around the globe.
“Jargon masks real meaning,” says Jennifer Chatman, management professor at the University of California-Berkeley’s Haas School of Business. “People use it as a substitute for thinking hard and clearly about their goals and the direction that they want to give others.”
To save you from yourself (and to keep your colleagues and customers from strangling you), we have assembled a cache of expressions to assiduously avoid.
We also crafted a “Jargon Madness” bracket — similar to the NCAA college basketball tournament, featuring 32 abominable expressions. Each day, for 32 days, readers will get to vote, via Twitter, on one matchup. The goal: to identify the single most annoying example of business jargon and thoroughly embarrass all who employ it and all of those other ridiculous terms, too.
Here are some of the worst offenders Forbes has identified over the years.
Core Competency
This awful expression refers to a firm’s or a person’s fundamental strength—even though that’s not what the word “competent” means. “This bothers me because it is just a silly phrase when you think about it,” says Bruce Barry, professor of management at Vanderbilt’s Owen Graduate School of Business. “Do people talk about peripheral competency? Being competent is not the standard we’re seeking. It’s like core mediocrity.”
Buy-In
This means agreement on a course of action, if the most disingenuous kind. Notes David Logan, professor of management and organization at the University of Southern California’s Marshall School of Business: “Asking for someone’s ‘buy-in’ says, ‘I have an idea. I didn’t involve you because I didn’t value you enough to discuss it with you. I want you to embrace it as if you were in on it from the beginning, because that would make me feel really good.’”
[Also see: Popular College Majors]
S.W.A.T. Team
In law enforcement, this term refers to teams of fit men and women who put themselves in danger to keep people safe. In business, it means a group of “experts” (often fat guys in suits) assembled to solve a problem or tackle an opportunity. An apt comparison, if you’re a fat guy in a suit.
Empower
This is what someone above your pay grade does when, apparently, they would like you to do a job of some importance. It’s also called “the most condescending transitive verb ever.” Says Chatman: “It suggests that ‘You can do a little bit of this, but I’m still in charge here. I am empowering you.’”
Open the Kimono
“Some people use this instead of ‘revealing information,’” says Barry. “It’s kind of creepy.” Just keep your kimono snugly fastened.
Bleeding Edge
Someone decided that his product or service was so cutting-edge that a new term needed to be created. It did not. Unless you are inventing a revolutionary bladed weapon, leave this one alone.
Lots of Moving Parts
Pinball machines have lots of moving parts. Many of them buzz and clank and induce migraine headaches. Do you want your business to run, or even appear to run, like a pinball machine? Then do not say it involves lots of moving parts.
Corporate Values
This expression is so phony it churns the stomach. Corporations don’t have values, the people who run them do.
Make Hay
This is jargon for being productive or successful in a short period of time. The phrase ‘to make hay’ is short for ‘make hay while the sun shines’, which can be traced to John Heyward’s The Proverbs, Epigrams and Miscellanies of John Heywood (circa 1562). A handy nugget for cocktail conversation, but that’s it.
Scalable
A scalable business or activity refers to one that requires little additional effort or cost for each additional unit of output. Example: Making software is a scalable business (building it requires lots of effort up front, while distributing a million copies over the Web is relatively painless). Venture capitalists crave scalable businesses. They crave them so much that the term now has become more annoying than the media’s obsession with celebrity diets.
Best Practice
This refers to a method or technique that delivers superior results compared with other methods and techniques. It is also perhaps the single most pompous confection the consulting industry has ever dreamed up.
Think Outside the Box
This tired turn of phrase means to approach a business problem in an unconventional fashion. Kudos to a Forbes.com reader who suggested: “Forget the box, just think.”
Solution
This word has come to mean everything from the traditional way to solve a mathematical proof to a suite of efficiency-enhancing software – and it is the epitome of lingual laziness. Says Glen Turpin, a communications consultant: “It usually refers to a collection of technologies too abstract or complex to describe in a way that anyone would care about if they were explained in plain English.”
Leverage
Meet the granddaddy of nouns converted to verbs. ‘Leverage’ is mercilessly used to describe how a situation or environment can be manipulated or controlled. Leverage should remain a noun, as in “to apply leverage,” not as a pseudo-verb, as in “we are leveraging our assets.”
Vertical
This painful expression refers to a specific area of expertise. For example, if you make project-management software for the manufacturing industry (as opposed to the retail industry), you might say, “We serve the manufacturing vertical.” In so saying, you would make everyone around you flee the conversation.
Over the Wall
If you’re not wielding a grappling hook, avoid this meaningless expression. Katie Clark, an account executive at Allison & Partners, a San Francisco public relations firm, got a request from her boss to send a document “over the wall.” Did he want her to print out the document, make it into a paper airplane and send it whooshing across the office? Finally she asked for clarification. “It apparently means to send something to the client,” she says. “Absurd!”
Robust
This otherwise harmless adjective has come to suggest a product or service with a virtually endless capacity to please. A cup of good coffee is robust. A software program is not.
Learnings
Like most educated people, Michael Travis, an executive search consultant, knows how to conjugate a verb. That’s why he cringes when his colleagues use the word “learning” as a noun. As in: “I had a critical learning from that project,” or “We documented the team’s learnings.” Whatever happened to simply saying: “I learned a lesson from that project?” Says Travis: “Aspiring managers would do well to remember that if you can’t express your idea without buzzwords, there may not be an idea there at all.”
[Also see: Cool and Unusual Company Perks]
Boil the Ocean
This means to waste time. The thinking here, we suppose, is that boiling the ocean would take a long time. It would also take a long time to fly to Jupiter, but we don’t say that. Nor should we boil oceans, even the Arctic, which is the smallest. It would be a waste of time.
Reach Out
Jargon for “let’s set up a meeting” or “let’s contact this person.” Just say that—and unless you want the Human Relations department breathing down your neck, please don’t reach out unless clearly invited.
Punt
In football, to punt means to willingly (if regretfully) kick the ball to the other team to control your team’s position on the field. In business it means to give up on an idea, or to make it less of a priority at the moment. In language as in life, punt too often and you’ll never score.
Impact
This wannabe verb came to prominence, says Bryan Garner, editor in chief of Black’s Law Dictionary, because most people don’t understand the difference between the words “affect” and “effect.” Rather than risk mixing them up, they say, “We will impact our competitor’s sales with this new product.” A tip: “Affect” is most commonly a verb, “effect” a noun. For instance: When you affect my thinking, you may have an effect on my actions.
Giving 110%
The nice thing about effort, in terms of measuring it, is that the most you can give is everything—and everything equals 100%. You can’t give more than that, unless you can make two or more of yourself on the spot, in which case you have a very interesting talent indeed. To tell someone to give more than 100% is to also tell them that you failed second-grade math.
Take It to the Next Level
In theory this means to make something better. In practice, it means nothing, mainly because nobody knows what the next level actually looks like and thus whether or not they’ve reached it.
It Is What It Is
Thanks.

Daily News Analysis
Published: January 17, 2012
By Max Skjönsberg
The number of single-family offices using concierge healthcare providers has risen from just over a third in 2009 to more than half today, according to a new survey by New York-headquartered Rothstein Kass Family Office Group.
However, while nine out of ten of the single-family offices in the report referred to immediate access to emergency care physicians as a very important service, only 17 per cent provide it.
Meanwhile, nearly 80 per cent said they thought it was very important to remotely monitor chronic conditions but only about one quarter of them provide this service.
Other popular reasons for engaging a concierge healthcare provider were the importance of a second opinion (84 per cent), and access to top quality healthcare when traveling (75 per cent).
“Due to the uncertainty surrounding healthcare systems in the US and around the world, families are increasingly turning to single-family office executives for assistance with long-term healthcare concerns,” said Rick Flynn, principal and head of the family office group at Rothstein Kass.
The report, titled The Single-Family Office Healthcare Advantage, surveyed 151 single-family office executives.
It adds to another recent report from Rothstein Kass, which found that a growing number of single-family offices are offering personal security services to their clients, and the findings together suggest that more family offices are including lifestyle management services as part of their offering.
Over 80 per cent of 151 executive directors surveyed in the first half of 2011 said they provide services related to security, compared to around 60 per cent in 2009. Furthermore, 90 per cent of executive directors believe threats to security will intensify.

Published: January 10, 2012
Single-family offices are delving into the world of safety and security as a way to protect their family and its wealth with many turning in-house to provide such services, according to a recent Rothstein Kass study coined Safe & Sound: How Single-Family Offices Are Addressing Family Security. “SFO executives operate with the understanding that their clients’ vast wealth makes them an appealing target for criminals,” Ricky Flynn, principal and head of Rothstein Kass’ Family Office Group, told PAM.
Due to increased security issues with ultra-wealthy families, SFOs have been called to action as three quarters of SFOs surveyed have encountered issues that have required the expertise of family security specialists, according to the report. Many cited trusting the wrong people, including household staff, consultants, business associates and friends, as the cause for security concern.
SFOs also believe security threats are likely to increase with roughly nine out of ten executive directors of expect security threats to intensify. “In a global economy, many wealthy families have business and philanthropic interests that take them across the globe, adding to logistical security challenges. At the same time, criminals have grown increasingly sophisticated in their attempts to gain access to the family fortune,” Flynn added.
To deal with such threats, Flynn explained that SFOs are also working with clients to develop strategies that provide needed security without preventing the family from enjoying the benefits of wealth. “The threats are constantly evolving and vary greatly from family to family. Any effective plan must be customized to meet the specific needs of the individual client,” he remarked.
The study surveyed 151 executive directors of SFOs in early 2011.

Daily News Analysis
Published: January 06, 2012
By Max Skjönsberg
Only around a quarter of wealthy individuals say their financial advisor has a complete picture of their business, financial and personal goals, despite a majority believing advisors should have this kind of information, according to a new SEI poll.
Two out of three of wealthy individuals in the survey said that their advisors need to know all their goals to be successful, while only a quarter said that their advisors have that knowledge.
Perhaps more surprisingly, one out of five said that even their financial goals are known only to themselves.
The investment and technology firm believes that the findings point to a hole in the industry despite growing awareness about the psychology of wealth and finance since the credit crunch.
Behavioral finance, which uses insights from psychology and other disciplines to show how people often do not act as purely rational creatures but are in fact prone to emotional decision-making, has gained attention in recent years. Some firms, including Barclays Wealth and GenSpring Family Offices, try to allow for this in their investment process, and there is widespread discussion at least about a movement towards “goals-based” investing.
On the basis of the poll, however, SEI believes that the process still has a long way to go: “It’s time to end the financial ‘don’t ask, don’t tell’ and begin meaningful conversations between advisors and clients about what’s truly important,” said Michael Farrell, managing director for the company’s private wealth management operation.
The Pennsylvania-based company says it recognizes the connection between goals in life and wealth and has brought in psychologists in a bid to boost its competence in the field.
On behalf of SEI, research house Phoenix Capital Research surveyed about 100 individuals and families with more than $5 million in investable assets.