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Read the article from The Christian Science Monitor
Thursday, 27 December 2007
Wednesday, 19 December 2007
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The fourth edition of Loeb and Loeb’s High Net Worth Family Tax Report is now available. You can read, download and print the report by clicking on the link provided here: High Net Worth Family Tax Report, Vol. 2 No. 1
Articles in this issue include:
· Family Limited Partnership Agreements Need to Be Reviewed
· Deferred Compensation Agreements May Need to Be Amended by December 31, 2007
· What Happened to Estate Tax Reform?
· California Liberalizes Rules for Withholding on Sales of Real Property
· IRS Cannot Automatically Require a Bond When Taxpayer Elects to Pay Estate Tax in Installments
· IRS Permits Donation to a Private Foundation of Stock Traded over the Counter
· IRS Allows Life Insurance Policy to Be Transferred between Two Revocable Trusts
· The Statute of Limitations Protects Taxpayers, but Not against Everything
· Supreme Court Decides to Hear Case on State Taxation of Bonds Issued by Other States
UHNW newsletter at www.citywealthmag.com
Monday, 17 December 2007
Simon Smith, Managing Partner, Schillings tells us about his work with footballers protecting “image and reputation.”
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We’ve acted for seven players for the England first team and in some cases we’ve acted for their girlfriends too. Some of the results you may read about involve libel actions which end up with prominent apologies or statements in open court - many with substantial damages awarded. Others you won’t read about, if we secure an injunction in privacy, confidence, copyright or other area of law which prevents the press reporting the information or publishing images. We were the first firm to establish the ‘privacy right’ in the UK at the House of Lords in a long-running action we brought for supermodel Naomi Campbell against the Mirror. Her case has enabled footballers to protect elements of their private life they’ve not put into the public domain themselves.
We also have strong links with three Premiership Clubs (two of which are regular Champions League qualifiers), and our intervention is sought by a wide network of agents – very often on a Friday night or Saturday, usually to stop a front page in a Sunday tabloid newspaper. Unlike some, I’ve never found agents difficult to deal with, on the contrary, they are happy to take and heed advice. Another part of our business is negotiating image endorsement deals for players and we specialise in the protection of image. (See my book by Sweet and Maxwell “Image, Persona & The Law” (2001).
Traditionally, we developed our skills for celebrities, but as sportsmen, particularly footballers, receive as much paparazzi attention as Hollywood stars in the UK, we have found that there is a need for our skills.
Examples of our work have included:
The Evening Standard’s front page splashed a story in respect of a successful libel case we brought for Teri Hatcher against the Daily Sport (the Sport published a front page apology, paid substantial damages and all her costs). You would have seen a very similar front page report of a libel case we brought for Wayne Rooney against the Sun (he had been accused of assaulting his girlfriend Colleen in a nightclub, which the newspaper accepted was totally false).
Interestingly, corporates have a need for this style of media management too. See, for example, the Lawyer magazine’s editorial last month following a successful injunction we obtained on behalf of Glaxo to protect its shareholders from animal rights extremists. Board members, their families, and the company itself all require protection from the trade or other press from time to time, and all wish to keep their private life away from the glare of publicity.
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The thing to bear in mind is that the media needs footballers more (most of the time) than they need the media.
The media in general doesn’t get access to sports stars outside the sphere of reference of their sport – for instance at post-match interviews, where the frames of reference are also quite fixed. The whale only gets harpooned when the individual comes up for air, so when, Beckham does his academy openings, he knows he's going to be exposed to a frenzy of media attention and not that much of it will be centred on the academies but will be more on his aims for the World Cup or a recent party he threw.
When footballers get paraded in front of the media because of a new sponsorship, it's unrealistic to expect that the journalists will stick to the script and not ask about other 'pressing' news agendas.
There are some key things to remember:
Journalists need stories; it gets them promoted and more money. If they have a story about you that you don’t like, your best bet is to try and replace that story with something of the same 'value' but with better resonance for you. Max Clifford is expert at brokering such deals with the media on behalf of his clients
You can only influence the media, not control it. Central to this is respect and relationships – often hard for people in the full glare of the spotlight, but we're all humans after all and we all respond to being treated with respect and intelligence.
Get a message and stick to it. Before a media appearance, ask yourself what you want to get out of it, and be willing to always draw the interview back towards those key, prepared messages.
A £1,000 investment in media training will repay itself may times over.
Matt Guarente is a media trainer, Editor of Square Mile and supplies content to many leading news institutions
Friday, 14 December 2007
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Footballers and soccer stars pay up to £20k a time to keep stories out of the tabloids. Why? Lucrative sponsorships worth millions sit in the balance.
Whenever a World Cup is upon us, usually sane, non betting, non-football-caring folk start swilling beer by the bucket, slinking off work for ‘essential’ games and start clustering in front of TV screens to watch the deeply, glamorous football stars slinking across turf in outfits that make them millions.
So what of this wonderful game? Being paid a huge salary for kicking a football around some grass; escaping the hum-drum of a 9-5 existence; having a trophy footballers wife balanced on your arm; every item of high designer fashion in your wardrobes; matching Ferrari’s and a wedding worth £1million. Should our parents have insisted we forsake our professional studies and instead run around in formation; set on only one thing, a goal? If predictions for the phenomenal growth in footy revenues are to be believed - led mainly by technology and telecoms expansion - then the answer is yes, they should.
But the tale of footballers and their wealth is not all champagne cocktails and ‘dolly birds.’ In wealth terms it is quite the reverse: cautious, conservative and peppered with a smattering of credit card excess. Setting off on my topical footballer adventure, I first put my tent up at the mega-brand, private bank Coutts. Known for their special sport division and for their many footballer accounts, I settled down with some cocoa for a good bedtime story.
I’m afraid I was a bit disappointed and no matter how much I dug about, I just couldn’t find a trap door to spring any tabloid excess. Do footballers invest in diamond mines, ship-wrecks and beer factories, I speculated? Do they need special handling to control their infamous tempers? One private banker calmed me as though a wayward child and insisted that for footballers and all sporting stars “proper financial planning and discretion is key.” No surprise there. That is one of those industry phrases that often floats about. Things were not looking good – an article on saving money, pensions and meeting rooms? As the story unfolded though, the private banker prove to be right. Advisers working with footballers have to try to make footballer clients understand that this money won’t last. Advisers counsel footy teens or teeny twenties about pensions that need to mature on their fortieth birthday; sound property investment and perhaps just one or two flashy cars.
Although most in the wealth market are a bit sniffy about footballer cash (it’s a small pool of people, when there are many more substantially wealthy elsewhere), footballer wealth is increasing rapidly and likewise for the agents and clubs who deal with them. One adviser commented that of the two hundred official football agents in the UK some may be taking up to 50% of players earnings suggesting that agents have the real money. Whether this is true or not, it was symptomatic of the mixed feelings about agents being ‘in it for themselves.’ In the wealth market, sports personalities and entertainers are sometimes considered hard work mainly because of the involvement of so many agents or ‘minders’.
This isn’t what everyone thought though and many were keen, like John Whiting, tax partner at PwC to add that agents are a positive force: “they often help convince unruly players that the advice being given is to be taken seriously.” This sentiment was echoed by Simon Smith, managing partner at Schillings who confirmed their key role and pointed out that they are the main source of work for him.
The money in football comes from success on the pitch which is then carefully handled by image specialists to attract endorsements that can and do pay more than they earn ‘running round a bit of grass.’ ‘Strikers’ earn the most in endorsements and sponsors favour them as goal scorers. After this making money is about knock-on handling of the tabloid press to ensure big brands continue to view stars as appropriate to represent them. Then wise investment in pensions, property and cash management all add up to the elusive long term financial security they all seek. The average player may only have ten years working on the pitch, so to maintain a super star lifestyle, brand endorsements represent ‘streets that are paved with gold.’ Once on this path footballers and their agents will spend between £15-£20k a time to fight off tabloid attacks and publicists like Max Clifford will bargain with reporters to keep made up or true stories away from the general public and sponsors eyes. It seems if Gazza was around now, his excesses (if they were real) would not have been documented in such a double page spread way and he would have maintained far more of his wealth. Some lawyers though like Julian Pike, a media Partner at Farrer & Co thinks press attention is a personal decision. He adds “for many footballers it comes down to a how they want to live their lives. Shearer and Scholes for instance choose to be out of the limelight but still earn considerable sums of around £5-10 million a year. The Beckhams are building ‘brand Beckham’ with worldwide road shows and using the media to double their money. This is a tricky game because should they mess up, the press will be on them like a rash.’ He finishes “I suspect many agents will be key influencers in the routes that football stars choose to take.”
On investigation the media images of big spenders everywhere and non stop parties are nowhere to be found. If footballers choose the press route, then press are treated almost as wild cards and taken care of with expert handlers. If they can’t be handled then sophisticated media manipulators will dangle better stories in front of them to get them off the scent. If this fails there is always a libel lawyer to step in and save ‘face’ or image and reputation which they do with much documented success. Substantial ongoing wealth is only attracted by careful image control which is important when at 31 you could be ‘passed it’ and forced into retirement.
But there is money in those hills and the media rights explosion, telecoms growth, web streaming and peculiar popularity of the game in places like India mean more wealth advisers and managers will be interested in this pot of candle-burning talent. If you are to tackle this market, crucial elements must be engaged to create a successful relationship and keep your clients ongoing wealth steady and growing.
This includes making agents your new-best-friends – they are the source of client referral having up to thirty or forty footballer clients on their books; working with their publicists; being prepared for crisis tabloid litigation which may attach to you, analysing ways to make wealth last and hiring peers who can explain that saving is cool (the government haven’t manage to convince anyone else it is). On the good side you will undoubtedly get invited to a few sexy parties and may even get married to a footballers wife all of your very own
High profile sports agents with ‘press orientated’ players recommend handling the press through professional media management. Publicists like Max Clifford protect reputations; give advice on press and television offers and do their utmost to deter unwanted tabloid attention.
Is the press control worth it?
“Big money sponsors favour the well behaved” says Michael Stirling, founder of agency Global Sponsors. “They don’t like violence, racism, anything risqué or anything deemed to be bad behavior.” For players hungry for big bucks from endorsement money (to bolster the coffers of a short, explosive career); yes a publicist is worth it. They keep those ‘seen in a nightclub with girl’ stories out of print and keep enquiries coming in. “Sponsorship is tied to branding. We work with footballers to work out their long term objectives and align them with sponsor brands that enhance this development. High profile players could expect to earn £25 million over the period of their contract. Although certain footballers will always attract certain brands because of their image, we reject a lot of brand sponsorship approaches as unsuitable.”
Why should you be interested in footballers as a client?
The Premier League is the most lucrative football league in the world, with total club revenues of over £1.3 billion in 2003–04 according to Deloitte. This will increase substantially by the 2007-08 season, when new media rights deal start. The main UK live television rights for the three seasons from Summer 2007 to Summer 2010 have been sold for £1.7 billion, two thirds more than the previous deal, and it is expected that other rights due to be negotiated (highlights; overseas; mobile phone) will add several hundred million pounds to this sum.
Footballers head to Dubai
One private bank that focuses on sports and entertainment clients has two groups in their the football division: established talent who are high earning players, usually on two year contracts. They tend to be UK residents, normally at the peek of their careers but are sometimes also retired or retiring. The second group are new, young or aspiring talent. The private banks pick up clients from other players (recommending them) or relationships with agents or clubs themselves. They supply clubs with banking and financial services during frenzied hiring patches too. Private bankers say understanding their clients wanting ‘to keep up with the Joneses’ is paramount so they offer credit cards with large limits on them and flexibility to increase spending power (or borrow money) easily.
Property investment was a reoccurring theme with many managers, suggesting that this is a first step to long term security. If rumours are to be believed footballers are taking this seriously with stories of multi million pound properties being snapped up in Dubai. Although other stories suggest the likes of Beckham were ‘given’ substantial properties to help ongoing selling and promotion in the region. Whatever the truth footballers are regularly waving wads around in this new playground of the rich.
Split country contracts
Foreign footballers usually have split (dual) country contracts so that they separate income from other countries and not pay UK tax on it. For this they must be UK non domiciled (not permanently living in the UK) and must not allow any foreign cash to enter British shores. However John Whiting at PwC warns: the revenue do investigate these contracts and whilst they can’t stop them, do be clear to demonstrate the money is being run separately and not from the UK.
Footballers wives filing for divorce
Ray Parlour (ex Arsenal) earned £1.1M per year net. In their divorce Mrs Parlour's maintenance award was £400k per year which significantly exceeded her needs. The Court said that it was discriminatory not to allow her to share in the ability to make savings from significant income. And Mr Parlour had a limited shelf life, so it was important for her to be able to save whilst he still earned such a big salary. The case was widely reported in the Press.
Planning for retirement
“Before anything financial or tax planning can be done with footballers or sporting clients you need to ask: “what do you want, what are your plans’ /pension provisions/ what strategy have you for living a life that is funded by only ten years of high earnings. It takes a totally different mindset. They are no different to anybody else in that ‘its what they want to do with it’ that matters. If for instance they want to be on TV when they retire, then we should look to invest in or set up a production company." John Whiting, Tax Partner, PwC.
“The Beckhams push as hard as possible to build ‘brand Beckham.’ Shearer never had any trouble with the media nor Scholes. Its down to choosing how they want to live their lives and how much money they want to make.”
A day in the life of a publicist
The publicist is often the middleman between the high-profile personality and members of the media. They usually want clients to receive positive acclaim, but many publicists surveyed noted the old adage that “the only bad publicity is no publicity.” Politicians and captains of industry require a little more specific spin on their press-they want to be seen as forward-looking and confident-but other professions are less picky, as in the case of the rock star who reveals the sordid details of his steamy nightlife to cultivate a racy image. Publicists also perform damage control, attempting to counteract any undesirable press coverage the client receives. This position as “last line of defense” is what distinguishes the adequate publicist from the extraordinary one. Good publicists can turn scandal into opportunity and create valuable name-recognition for their clients.
This first appeared in http://www.citywealthmag.com/ newsletter.
Thursday, 13 December 2007
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Citywealth events have become legendary for attracting ‘stellar’ audiences and for providing five star comfort and entertainment for important wealth managers, advisors and rich list guests. A mix of sophistication with cultural themes, Citywealth events encourage attendees to linger, something that no other publishing and events company serving the industry has managed on such a scale. This year numbers are set to exceed the four hundred mark and guests will be the major referrers of billionaire clients throughout the world and some ultra high net individuals themselves. The Citywealth Top 100 lists are now in an advanced stage, with those listed for 2008, shortly to be notified that their slot is assured. Many have left the list this year, new entrants have arrived. The nail biting tension begins, culminating in our flagship event “The Zoo Do.” Tickets are limited, please book now to secure your spot.
Get information from
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Etienne Barel will join its Corporate and Investment Banking core business (CIB), with effect from January 2008, to head the newly created Private Bank Relationship Management function (PBRM) for Equities & Derivatives and Fixed Income. In this new role Etienne will become CIB’s senior representative and coordinator for the Private Bank sector throughout the world.
Etienne Barel will be based in Paris and report jointly to the Sales management of Equities & Derivatives and Fixed Income; Rémi Frank and Eric Le Brusq in Equities & Derivatives, and David Brunner and Paul Hearn in Fixed Income.
Jacques d’Estais, global head of CIB said: “We have a high regard for Etienne Barel, who has a long history within our Group in various positions and who, until end of this year, was Head of French High Net Worth Individuals coverage. We are very confident that he will be successful in building high level relationships with this particularly important segment of clientele for CIB”,
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Mark Ivener, Ivener & Fullmer is the person to know for UHNW immigration issues with substantial experience in this area. His greencardinvestor.com website gives clear information about how to make green card access easier. Mark offers a fast track route to green cards with this investment services in partnership with American Life.
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Family lawyers are now just one stage in attending to pre-nups or divorce say US attorneys. If a business is involved in a split, you may need a specialist employment attorney to ensure no law suits follow if one partner suddenly finds themselves out of a job on separation.
Most family attorneys are highlighting more and more the need for separate counsel when planning pre-nups. They say it makes everything clearer cut and less open to litigation if parties have had separate and fair advice before entering into the partnership. It’s a failsafe even if the law doesn’t demand it.
In large money pre-nups a further waiting period should be created between a pre-nup and signing – to allow for proper reconsideration or any worries to be cleared up before the wedding.
Many rich clients will have a “minder” but attorneys or advisors should make sure they see the client directly because there must be no query that clients haven’t understood a point, particularly when 40% of marriages end in divorce. Attorneys and counsel are further advised to videotape discussions so that clarity remains if litigation ensues in future years. Another back up is that a private judge be present to protect all parties.
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Those who operate trust services in the wealth sector feel it is pertient to make wealthy individuals properly understand that once assets are in trust, they are effectively gone.
For intermediaries or bankers, litigation can also be avoided if proper planning and understanding is built in from the start of the process, for instance when clients say: “so I can get the money back at any time?” the response should be: no - once you have chosen this route, it is given away forever. The reason why this is important and why “let-out” clauses are inappropriate is that they can just make the trust structure unravel if the revenue or IRS start a tax investigation because if the tax office can prove that the money can be recouped at anytime then tax penalties will be levied.
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In the USA you may need several pre-nups to take into account the various complexities across the different states. You may also need a team of lawyers to put a pre-nup together. Most US
lawyers can master three or four jurisdictions but that is their limit.
Key things to watch out for are: where to divorce. Where clients marry rarely matters but take advice about which divorce court you decide on. Each varies wildly and favours one or other party dependent. Although California laws still apply in the USA, wherever you choose to get divorced.
The key thing, advisors say, is to act quickly in divorce. The person who files the papers first gets the divorce heard in the jurisdiction of their choice. One quick thinking wife rang an estranged husband and said she wanted to reconcile. She arranged to meet at their UK house. He heard a knock on the door and was immediately served divorce papers. This means her divorce will be heard in a court favourable to wives and equal sharing and one that doesn’t believe in pre-nups. Pretty unpleasant stuff but it illustrated the point that moving quickly is essential (and perhaps being wary of UK visits without officially filing if you are a husband planning to divorce!)
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Governments can seem like a crying baby – always hungry, demanding more and their food is found through taxation, which is becoming increasingly complex, especially in the USA.
For USA clients worldwide taxation of assets is the norm’ which is similar only in the Philippines. California is considered to have the highest tax rates and with fifty one states with different laws, it is territory that is to be negotiated with care. As Josh Rubenstein, Joint Managing Partner of Katten Muchin Rosenman, New York office confirms “don’t ever make assumptions either here or abroad about tax issues for UHNW clients. You will inevitably be wrong. Check every detail.” Josh also warned that the IRS are hot on temporary visas. He said “it won’t stop the IRS going after clients and claiming domiciliary.”
With tax treaties on the increase, Paul Roberts of Price Waterhouse Coopers also cautions that information sharing between governments is also on the increase. He said “Fifty countries now
have treaties and identify trends.” He continued “There is now a new tax group called JITIG that is set to increase information sharing between the countries involved. So far they are Australia, Canada, US and UK but Japan is also joining. This group puts agents in each country to help report across the group.
The upshot of this is that particularly for the USA, foreign accounts will/could get discovered so exact reporting on foreign accounts or trusts is paramount. Al Peguero of PriceWaterhouseCoopers, San Francisco agreed with this theme. “The government can
and will find assets even in far flung offshore islands.” He says there are various “traps” the government are laying which makes his job totally about tax protection these days not avoidance or evasion, as people often believe.
Josh confirms this viewpoint saying "the US government recently changed the date on one filing time (very late in the day) and penalised anyone who didn’t notice and no excuses were accepted." The fine was more onerous than usual with a percentage of the assets in question being taken rather than a few hundred dollars penalty. This means you can’t even assume rules are the same month on month and may need warning systems in place.
Tuesday, 11 December 2007
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The noughties has become the decade of spin. Does spin always win? Or does it wear a bit thin? Here are five things you will hear at every meeting in the wealth management and advisory industry. So if you have more than £5million/$10million up to tens of billions, here are some things to look out for.
1. Its all about the risk appetite of the client.
Whilst this is a good thing to say, but after you've heard it about forty five times, you realise it's just another bit of industry gloss. Other comments in this category will include: "We sit down with the client and put scenarios to them like 'how would you feel if you lost £1million?' which helps us to work out what sort of portfolios they need." What would you say if someone said 'how would you feel if you lost a million?' You'd cry right? So surely this leads to naturally conservative investments and whilst peace of mind and being able to sleep at night are said to be prime qualities in any investment scenario, I think analysing your risk just illustrates a straightforward bit of industry marketing spin which you can ignore at leisure. Instead get down to the real talk like: who will actually look after my account and will it be someone experienced or someone in this room?
2. It's all about open architecture.
Some clever dicky bird worked out that a lot of private banks owned trust companies and had all sorts of other conflicts within their organisations. The conflict is caused because if you put money a trust (say £20million) for children, this represents a tasty bit of investment management work for someone - and that someone might be your 'parent' private bank, rather than the open market. Why does this matter? Well in reality it probably doesn't really - in that I believe most wealth management offerings on the return side are pretty simliar - but in the real world, which is all about returns on investment, these days trustees (who legally look after the money) get sued if the investment returns aren't what they should be. So they have to interview private banks and investment managers to pick the best ones for the trust in question. This is essentially what open archecture is - "we go to the open market and pick the best investment manager." In practice, does this happen? Only tight management in the banks and trust companies can ensure it.
3. We don't 'push' or promote financial products.
Well historically banks always have made money out of selling their own products but one of their main routes is through intermediaries, (lawyers/attorneys and accountants who refer the wealthy). Intermediaries have got so super bored with private bankers turning up at their door step with the next big thing in financial products, which may or may not work out, that the tide has turned against this money making activity. Now private banks are saying very loudly "we don't incentivise our staff to sell products." Look out for it on every private banking jar you see.
4. "We are independent."
Trust companies, many of you may not understand are quite different if in civil or common law jurisdictions and only just coming under regulatory umbrellas or starting to self regulate (like Switzerland). There have been a few blow up's in the past and litigation in this sector is on the increase, particularly offshore. Because private banks by their very nature have sales targets and want the investment management from the trusts, whether they are good at managing the money or not, trust companies now shout with glee "we are independent" if they are or "we have open architecture" if connected to a bank (see above point). It is in the interest for trusts to use the independent stance because it says "we are using the best wealth /investment managers and have no banking targets or goals to sell things." This may be true, but the industry says it way too much and so it becomes like the first point 'risk': we heard it already. You should say. Thanks, now how many staff have you got? How many years have you been operating? Have you had any litigations? What is your staff turnover? How has your selection of wealth/investment managers performed against this (choose one) benchmark?
5. We can never talk about the client.
This is all fine, but I think, like many industries, people just repeat phrases without actually speaking to their clients and seeing if they might be happy to talk to the press or others who may want to help or receive advice. There is also no real motivation to do so, we are all busy right? The industry is generally petrified of the clients that they serve and rarely suggests anything that might in fact be in a clients interest. Having worked in the media world my whole life, it is a phenomenon I have seen before - media agencies rarely put ad' deals to direct clients from newspapers because they simply can't be bothered. Of course, on the reverse side of the coin, many clients do wish extreme secrecy, because they don't want people to know about their private wealth or any awful experience to happen like having their children kidnapped. This secrecy is understood and respected by organisations like my own - Citywealth. However many wealthy individuals, in my experience, are delighted to speak to individuals in the press and regularly contact me about their businesses, philanthropy and investment or project needs. It's time the industry woke up to the fact that clients do need to connect to the world at large and they can be an instrument in offering extra value and connections that might increase "share of wallet." (Share of wallet means the amount of wealth that a wealth manager holds - traditionally the wealthy 'spread the love' and have multiple accounts and investments with different organsations. Private banks in the increasingly competitive world of wealth are hungry to get more of their share and that brings us to a topic called trust if you are trusted by a wealthy client, they will reveal their whole wealth, creating an opportunity to advice on the whole not just a part).
Monday, 10 December 2007
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Earning $27 million last year Ms. Cruz is a heads up to those who work for Wall Street firms says Regent Atlantic, a New Jersey fee only, wealth manager. Already this year they quote a record-breaking 141,442 financial jobs cut, exceeding the previous record of 116,647 jobs cut in 2001. In the past three months alone, financial job cuts totaled 73,000, or 46% more than in all of 2006. And most analysts think that the full impact of layoffs due to subprime is yet to hit.
If the news came as a shock to Zoe, say Regent, what would you do to prepare yourself in the light of a cleared desk and new nameplate on your office door? Here are nine questions Regent Atlantic ask you to consider:
· If you were to lose your job, what would happen to the stock options, restricted stock, and other incentive compensation schemes you’re fortunate to have? When was the last time you evaluated your options to decide whether to exercise? What is the financial incentive for holding your company stock?
· How long could you continue to pay your bills without regular pay?
· What amount of your financial benefits is vested, and thus belongs to you when you leave the company, and what might be lost?
· Do you have a loan outstanding or profit sharing account? If so and you leave the company, you will need to repay the loan or else be subject to a significant tax and possibly a penalty.
· If you had to decide between a lump sum payout or a series of 10- or 15-year distributions of your deferred compensation, which would be better for you?
· How long might you be able to continue to receive medical insurance? Do you know what the rules are? And what about others who depend on your insurance being in place?
· What happens to any disability policy? Is it portable?
· Do you have a signed copy of your non-compete contract? Know what constraints, if any, your employer has placed on your ability to seek your next job.
· Is your resume up to date?
Read more about Zoe Cruz on these links
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Entertaining clients in the business world usually follows a simple path: champers + venue + people + repeat same every year. Clients are suitably grateful for an invite and hosts are delighted with a few red faces and slaps on the back. Business entertaining keeps the world spinning round. In the wealth management market though, you have a more challenging ultra high net worth individual to contend with. A super rich client, who has not only seen it all before but probably been there done it and got the limited edition, hand made Donatella t-shirt.
As a famous model once said “I don’t get out of bed for less than £10,000” Wealth managers are dealing with high net worth clients who don’t get out of bed for less than £10 million. Global private banking institutions have had to pull out all the stops to retain and attract clients. Events have included Credit Suisse, Singapore hiring private islands and Bollywood troupes for rich Indian high net worths. Then Credit Suisse, Switzerland holding a wide ranging programme of events that include opera, polo, Formula 1 and White Turf.
White Turf, for the uninformed is horseracing on snow. But an event like White Turf is considered to be ‘off the peg’ and more suitable for the ‘band one’ client with around 30 million + euros. When you rise to more than 100 million + euros, banks start to really concentrate. A bead of sweat might momentarily be seen on an otherwise smooth Etonian brow. One private banker commented “at this level ultra high net worths don’t really need us to provide entertainment. We have to look at ideas like a one to one meeting with an actor, sportsman or luminary of their choice. Or we might try to give them something they cannot buy, like an experience they will appreciate.”
One example of such an experience can be had with Mirabaud & Cie, a traditional family office in Geneva who regularly hold musical recital for clients. A recent evening in Gstaad included guests being chair lifted to a mountain top restaurant for dinner. Other unique events aimed at high net worths in London include one being held at London Zoo by citywealthmag.com on the 10th May. Nicknamed billionaires and bongos, the evening has a £500 ticket price which includes a Las Vegas, Bollywood show and Maybach cars chaffeuring rich-list guests to the venue. The benefit of events such as these is the chance to spend several hours with intermediaries to the super rich who are often as elusive as the high net worths themselves.
As to whether all this entertaining works, most are resolute: it does. Andrew Young a private client lawyer at Lawrence Graham in London said “after a £10,000 per person day out shooting with a super rich client he piped up ‘I like you fellows’ and promptly gave us work worth £250,000 in annual fee’s.” Claudia Rossler, head of marketing for UBS Wealth Management in the UK said: " These days it’s important to offer more than 'just entertainment.’ One of the trends we’ve seen is an interest in 'knowledge events'. Our clients want information on topics such as private equity or hedge funds. That said, UBS has a long history of partnerships and sponsorships with the London Symphony Orchestra, Tate Modern and the Sage Gateshead art centre.” Claudia says these events reflect client choices and compliment the UBS brand. As to measurements Claudia agrees “Event marketing, like all investments, needs to have clear objectives with defined success criteria” UBS assess success from client feedback and ‘commercial measures’.
But whatever banks do sometimes they cannot please a high net worth for all the tea in emerging high net worth China. One fund manager paid substantial sums for a Formula 1 racing in Monaco with five clients dropping out at short notice. A lawyer regularly has Asian clients enthusiastically agree to events but they never turn up and a Swiss banker who shops at Hermes for a presents for an elderly high net worth client on her birthday gets them sent back. He comments “One year, rather pleased with myself, I decided to buy a couture hat instead of the usual Hermes scarf. She sent it back with an uncompromising scribbled note “no thanks, wrong choice, you should have asked me.” http://www.whiteturf.ch/
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Cobblestone is a specialist, family business, private equity consultancy based in Boston, USA. They work with wealthy families in business to help with preservation of the structure and expansion. Ninety percent of their work is international which has been the case for the last eight years. Eugene O’Malley is managing partner and says he also works with a few USA families on domestic transactions. A recent deal involved two private families merging their businesses together and reviewing the financial and strategic issues involved.
Eugene previously ran the international consulting practice at Arthur D Little based in Cambridge, Massachusettes but in 1989 he set up on his own and was fortunate to be able to take clients with him. He has historically handled all incoming instructions for families wanting to buy businesses and says this has been mainly for Dutch and UK families.
Cobblestone Advisers have wealthy clients all over the globe spanning such far flung places as Brazil and Egypt. I express surprise at this wide spread, but Eugene is pragmatic saying “I understand how to get a transaction done and have a large network of collaborators who’ve worked with me for a long time. This business needs particular skills: families demand honesty and directness and don’t like political people. You can’t play a political game. They value independence and input without any agenda.”
Eugene says his most recent transaction was for a family in Germany where he brought in an Irish private equity investor to create a subsidiary and separate off part of the family business. For family businesses looking at private equity he guesses there is a universe of around a thousand businesses who may each want $50million.
Of the typical type of work he does, Eugene say there is no one circumstance, commenting “I could be working with families wanting to expand from Holland into India, or Holland into Germany. I tend to be called in because families in business want to move outside of their existing client base, particularly in the UK where there are lots of families in business looking to grow.”
The usual investment profile is cross border with Cobblestone working in Brazil, Thailand and he has also helped one Singaporean family invest in Brazil. He says half of his work has some capital requirement, then explains “a family may have great know how but no capital so we’ll put them together with another family with money but without connections.”
Of the trends he sees Eugene says Germany has for many years and will continue to be an important market mainly because there is a strong, capable family owned business sector without liquidity. He comments “I think Germany has the most families in business of any country. It’s the most important market out there now. They don’t have cash because they’re always reinvesting in their business so there is an easy opportunity to help them expand using private equity.” Eugene adds “Germans have excellent skills in technology and have a strong exporting market which other economies are interested in. They also understand global trends. I have a collaborative of families who want to work with other families so I look for opportunities to bring different families together.”
As to why Eugene ended up in the niche world of families in business he says it started as an offshoot of his corporate career. His life before Cobblestone was with Fortune 500 companies in a 3000 strong entity and occasionally families would cross his path. Of this past time he says “seventeen years ago an average engagement was valued at $150,000 which seems paltry now.”
The families that Eugene deals with come to him because they are looking for a one on one project manager. I ask what sort of deals he is doing for them. He comments “as an example, one of the families I’ve worked with, I advised should incorporate a private equity strategy. We built a suitable profile with a view to introducing private equity firms and people into the family so that they could proactively look at it.” Eugene adds “in deals with families there has to be more than just money brought to the table. The majority of the families want someone who understands their business and can add value beyond money. They also want to deal with the decision maker.”
Eugene says he has a long term pool of investors who are successful individuals looking for opportunities and he also introduces these into the families he works with. He comments “one currency trader I work with put $25million into a private equity family office deal. These people are not generally visible but have a lot of money. I also work with funds who see this as an opportunity to diversify their own investments. The families I deal with are more interested in results than a name brand and they want those working with them to be objective and not conflicted out.”
I ask for an estimate of how many family businesses Eugene thinks there are as a universe. He puts a finger in the wind and says “a rough estimate would be around ten thousand families in each country.” He adds “some are going through transitions and many don’t have succession plans. I think private equity can really help them plan for the future. It can take minority or majority positions perhaps with another family member.”
Eugene says all his work comes from referrals and they generally tend to be from families he’s worked with in the past. He says “it may take five years to get another instruction. It’s that type of the business; families don’t need ongoing help of this nature.”
Cobblestone Advisers started working with families in business exclusively around twelve years ago, dropping their corporate client base. Eugene comments “family businesses always have a need for capital because there are always opportunities out there for them to capitalise on. Opportunities arise because they have substantial wealth and assets and so others approach them. Also in many cases it’s not part of the main family business that needs finance, it maybe that they want to expand or fund someone from the next generation into a new hybrid business. Eugene says families may want to expand into new business areas and says there is increasing interest in bio farms and fuel. He comments “there is a big trend to invest in bio pharma and bio fuel worldwide. You have countries like Brazil who are into sugar cane ethanol, lots of interest in the UK and Asians are also in that market place.” He adds “Bio fuel is normally corn based but corn is becoming expensive so investors are looking at other options.”
Of his role in the private equity deals Eugene says he acts as a facilitator but also sits down with the family and maps out a plan so that they are clear about what they want to achieve before they start. He says “there is usually a lack of trust from the family who worry they may end up with a raw deal. They are honest, hardworking and very wary. As there is a certain amount of lockup and disclosure I have to educate the incoming person about the family business. Chemistry is crucial and a positive approach from the private equity house to promote benefits whilst they work out if the partnership can work. It’s a long process with deals usually ranging from $20-50 million.”
Eugene continues saying “in this business, it’s reliant on the families participating. They have to fully disclose their finances and there is nothing you can do to help them if they won’t. Usually there is a defining moment when we are at the table that gets the talk going.” He gives us an example of a recent project, saying “I got a call from a family in Mexico who wanted to grow their business harnessing the internet. They wanted an adviser in a particular area relating to the internet and needed connections. This is the type of thing I will help with to see how they can partner or find finance to expand with appropriate private equity houses.”
Eugene says there have been many changes in the industry and one downside is that private equity firms have become less flexible as they’ve got bigger. He says now they all work on a formula and if the family business doesn’t fit they won’t consider it. He says this creates problems and means the work has become quite specialist navigating private equity houses into this market.
I ask what size of market he thinks he is working in. He comments “there are thousands of families looking to access private equity. There is a tradition in most cultures to pass the business on which is why it can be useful to review private equity and partnership loans. Although in the Americas it’s the reverse and they generally sell off the business and take the capital.”
One of the more complicated deals he has worked on involved a family business that was quite substantial. It was a European family who were offered the acquisition of another family business. Unfortunately there was a situation where one part of the family business had done a major lay off of staff so they felt it was un-politically correct to have an announcement of new deal and that their board may refuse to co-operate. Eugene helped set up a special purpose vehicle that acquired the family business being sold via a private equity deal. The SPV held on to the business for thirteen months, then later the family purchased it from the private equity house with board approval, paying a premium to do so. Eugene says “it meant they went from a number six position to a number one in their industry. An opportunity they would have missed out on.”
Eugene says the pitfalls of a family business/private equity partnership if not properly run, are that the family might end up with a poorly structured deal. He comments “you have to deal with operational and financial issues. It’s like going through a business plan of sales and having a dialogue about expectations on both sides. It’s very important that there is mutual agreement in how to execute the business or things will unravel.” He says often the family may spend more time focusing on the money rather than on the results they will have to deliver after the fact. Eugene says if everything works well these deals have a real impact on profitability. If not and things go wrong then there will be exit provisions for the family, or as Eugene puts it: a planned divorce. He comments “These deals are always about more than just money and families do have expectations with regard to nurturing their business. On the side of the private equity houses, they need good deal flow which is available in this sector.” He says one family business has done business with five different private equity groups in five different regions of the world.
As private equity houses have a habit of loading businesses and staff with debt, I ask how Eugene handles the macho corporate mix into honest, hardworking families. He says “you can’t allow private equity houses to come in without some guidelines. Families can’t be loaded up with debt nor have money taken out of the business so provisions will be made to prevent this. A plan is mutually developed, agreed and executed. Also families don’t take the money and walk away. The private equity house will be in a strong, supportive role to help the family.” Although Eugene adds “clients have become more aggressive with their money making ideas. With one family he was working with he said they were set to make about $4million but the owner said “I want to make $40m not $4m.” Eugene says in this case, they then advised him differently.”
As to what type of deals work in this scenario, Eugene says one of the best uses he has seen is with a first generation family transferring into the second generation with several siblings entering the business. Eugene explains “usually you may get rivalry but here we raised finance to allow each to hive off into a different business to use their skills without conflict. With one family we did this with a five year plan and the father stayed at the head running the main business whilst children worked in separate extensions. It works well in some cultures like the Middle East. It allows each one of the siblings the potential to grow their own business with their own skill sets.” Eugene says in Europe the founder always wants to bring the children in, but because they recognise how difficult it is to succeed in business, this is a good way to provide for their families and motivate their children. He says it can play a role with one child but it works best with multiple family members with net worth of more that a $100million.
As hedge fund people are springing up everywhere, I ask Eugene if he has a view. He says “Most family offices have been involved with hedge funds for ten years or more although it seems as though it’s only been about five years. I think they are generally moving away from them and dropping asset allocation from 20% to 10%. They feel there is so much money in the liquid markets that the returns are better elsewhere.” He also adds a side comment saying “hedge funds are converging with private equity because of the pressures they are under. Their challenge is the deal flow.”
Eugene thinks there are around five thousand family offices around the globe and mentions the well known Sand Aire with Alex Scot in London. He says “I think the average family office has around $25million and there are probably around fifteen hundred in the USA of this size. I would say there are five hundred that are meaningful around the globe which would mean a couple of hundred million dollars.
Advice that Eugene would give to families in business now is to keep a sharp eye on the global economy. He says “there are many opportunities to work with partners in China or India that businesses need not be fearful of.” He also says that private equity transactions can be executed very quickly so there is little downtime before inflows of money.
As much of Cobblestones business is with leading families in their respective countries he is contractually restricted in making any mention of names by telephone or on his website. □
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Although money can’t buy love the reality of modern stresses and strains are that even those planning a lifetime with a beloved partner may not get past the first year before divorcing. In a world where your children are likely to be very well educated, how does the modern parent counsel children about marriage, pre-nups, divorce and losing part of the family business perhaps to a gold digger or gigolo? Although pre-nups and trusts are entirely sensible, the very mention could stir up resentment or divide a family.
According to the press, pre-nups are the ‘new black’, although they seem a relatively new phenomenon in Europe. There are three types: a pre-nup which is a contract between two individuals to create understanding about what will happen to their assets in the case of divorce. Then there is a mid-nup which is a regular review of the pre-nup and is required every five years or so or if children come along. A mid-nup will test validity and keep the pre-nup from being thrown out of court. The third form is pre-cip which is essentially a pre-nup used for same sex marriages. In the UK pre-nups are not legally binding but they are being increasingly viewed as an essential part of marriage commitment as judges favour parties using them and matrimonial settlements tend to be smaller.
North America is usually ahead of the curve on wealth and social issues, so I asked legal adviser, Warren Whitaker who is a Partner at four hundred lawyer firm, Day Pitney in New York for his advice. Whitaker who works with multi billionaire families on the issue of children and pre-nups comments “I think the biggest mistake parents make when their child is approaching marriage is to push them into a pre-nuptial agreement against his or her wishes. Parents should keep in mind that initial concerns about a partner usually soften when grandchildren arrive a few years later.” Whitaker advises his clients to be very careful particularly in a first marriage. He explains why: “I would encourage parents to look at their own estate plan rather than insisting on a pre-nup for children. Usually the parents have the money, not the child. The use of trusts is a viable way to pass benefits to the child whilst protecting certain assets from a spouse.”
Although trusts are an acknowledged global ‘vehicle’ for the transfer of wealth to children, they’ve come under scrutiny in the UK by the government in the last year, which has reduced the tax benefits for inheritance purposes. In addition one famous case, Charman v Charman has brought trusts sharply into the limelight and shown that they are not immune to the courts gaze when settlements are being decided. Judges will rule any day now on whether the £68million trust in question should be divided up.
The details of the court case are that Mrs Charman, who is Chairman of her local bench says the trust (Dragon) should be included in their final divorce settlement. Mr Charman disagrees and wants the trust ‘ring-fenced’ away from the main divorce because he says it was set up as a ‘dynastic’ trust, simply to give money to future, unborn children. However none of the documents in the case show that the trust was set up for this reason despite being handled by professional offshore trustees and legal advisers. It has gone to the Court of Appeal for final ruling. If the Court of Appeal agrees with the High Court that the Dragon trust was not set up as a dynastic trust it is likely to increase Mrs Charman’s settlement.
Following this and other recent UK legal precidents advice to parents and their children considering marriage is ‘get a pre-nup’ says Richard Moyse who is a long established Partner at private client law firm Boodle Hatfield. Boodle Hatfield work for a number of wealthy individuals in the UK. Moyse says “in general there is trepidation about court orders coming out in Britain including the Charman v Charman case. If Mrs Charman’s settlement rises to forty five or even fifty percent, the topic of pre-nups will become more important. They will be needed to protect families from losing substantial portions of wealth in contested divorce settlements.”
Moyse confirms the current British legal view on pre-nups, saying “pre-nups are not legally binding but they are influential particularly in a short marriage and if there are no children, they can be highly persuasive.” He adds a warning, explaining “there has to be full financial disclosure; prior independent legal advice for both parties and courts say a pre-nup must be fair even when the parties divorce. As well as this it should include proper financial provision for children.”
Moyse continues explaining that the content of a pre-nup, depends on each individual, saying “there is no standard document as such. Although quite often you can exclude specific property (for example inherited property), this does not apply generally to the matrimonial home. It must include full disclosure from all parties and make a record of what will happen when the marriage breaks down. It must also provide for the less well off partner and children. Finally there should be a review or mid-nup within five years and an automatic review if a child is born or adopted by the couple.”
Moyse says there are also views about whether you should include a specific law clause on where the couple will divorce. He cites the interesting case of Ella v Ella, an Israeli couple who had a pre-nup in Israel governed by Israeli law but decided to live in the UK. The English Court felt that the pre-nup swung the vote in deciding that the divorce should be heard in Israel where the terms of the pre-nup would be likely to stick. In the UK Mrs Ella would have probably received a more favourable settlement.
Moyse says “it’s an interesting idea that couples decide at pre-nup stage where they will divorce. Where there are potentially competing jurisdictions, the first to serve divorce papers, may get the country of their choice. We assume in the Abramovich £11bn divorce that he served divorce papers first because it was heard in Russia. The UK would have been more favourable for Irina.” Moyse adds “If couples are frequently moving abroad then pre-nups need to be regularly reviewed to take their changed circumstances into account.”
Moyse does understand that talking to children may be difficult and says “it is all a bit of a turn off for children but parents have to try and get across to them that fifty percent of their money or assets like a property or trust will just be taken away if things go wrong. Although it is very difficult to raise the topic, we have to advise families that they should tackle it. We have one wealthy client with a child who is shortly to get married who has asked me to write him a letter explaining the financial implications if the marriage breaks down that he can share with his child. He wants to have a sensible discussion.”
Sofie Hoffman who is also a solicitor at Boodle Hatfield offered an example of how a private family business could manage the process. She comments “suppose a son in his thirties is heir to the family business, you can see his family or the other shareholders wanting an undertaking by agreement that the business will not form part of his assets in divorce. In this case they could set up a ‘family charter’ which means the family and those involved with the business would fully understand all the issues involved with inheritance or divorce.”
So although America takes a cautious view, it is probably best in the UK to tackle the issue of pre-nups long before children turn up with a husband or wife on their arm. Hoffman adds a final comment “we strongly advise wealthy families to have pre-nups for children. Provided the pre-nup is properly drafted and the correct formalities have been followed.
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Asia has been under the wealth magnifying glass for a number of years with India and China attracting the majority of press attention. Singapore and Hong Kong have also been in the spotlight, now maturing as ‘hubs’ for outer lying areas of Asia. But according to a recent survey highlighted by John Elder, Director London and International Mellon Family office Services in London, Korea has become the ‘one to watch’. Their stock market has jumped into the limelight with their best performing month in February 2007, delivering just over 5%. In contrast India’s stock market saw a decline of more than 7% over the same month.
Although most economists think Asia is cooling, reports from the Asia Pacific Merrill Lynch wealth report published last year in partnership with Cap Gemini, identified a wealth universe of US$7.6 trillion to tap. This is growing at roughly 7% a year against 6% for the rest of the world. China and Japan accounted for more than sixty five percent of this market share with their individual wealth pegged at between US$1 million-US$5 million per individual. Other Asian based operations like Equity Trust, disagree with the Merrill Lynch Cap Gemini size of client and reveal ‘big ticket’ ultra high net worth Asian clients worth tens of millions walking through their door.
Whatever the figures, Asia continues to deliver numbers on the bottom line. Dirk Chanmueller, Vice President of Consulting Group, Capgemini based in Shanghai said the Chinese economy is soaring suggesting the market rose by as much as 130% at some points recently. However high profile government attention to stop the economy overheating has had a negative affect on growth and caused market volatility. Many global commentators are also warning about knock on effects from the USA following sub prime and high risk loan defaults impacting on emerging economies and stunting growth.
These concerns come into sharp focus with a report Mellon Private Bank share with us. It shows the Shanghai stock market losing 11% of it’s value in early February ‘07 in domestically traded stocks over a period of only five days, after recovery it crashed again by around 9% on February 27th. This sharp movement has sent investors running for the airport with every major global market subsequently declining. The Hong Kong market suffered a similar dip. Chanmueller adds a steadying comment “I don’t think the US sub prime market dipping will have much long term effect nor the recent erratic markets. Stocks have shown they can recover quickly from unexpected falls.”
As to why China should see such magnificent rises in stock markets Chanmueller says there has always been a lot of money to invest in the region. He thinks that confidence levels were previously low so high net worth investors stuck to real estate. This has now changed and alternative investments like stock markets are seeing an increase in local speculative money. Chanmueller comments “in my experience the local Chinese investor wants quick returns; they aren’t like US high net worths putting money into long term pension funds.”
I ask Chanmueller about newer areas like private equity but he says foreign companies have no access to Chinese stock markets which would limit private equity progress locally. A Hong Kong view from Philip Millward of law firm, Walkers differs. Millward tells us why “I’m seeing a sharp increase in private equity work and the size of the funds are getting bigger. A recent comment in HedgeWeek from the Brazilian Association of VC and PE, said that Fund raising for emerging market private equity has more than tripled in 2005 to US$22.1 billion from US$5.8 billion the previous year, and the bulk, about US$15.5 billion, went to Asia.” Millward continues “there are burgeoning opportunities in Asia but I think the US sub prime and ‘Yen Carry trade’ problems have the potential to affect assets flowing into the region.”
Philip Millward, a partner, at Walkers Hong Kong arrived in the island in 1993 and has spent the last decade working with fund managers in the region. Although the hedge fund industry in Asia is in its infancy, Millward says when he started out he worked on single country funds like The Bombay Fund. The focus was on single country, long only strategies but now products layer multiple strategies over multiple countries and sectors. Millward also sees a continuing trend for hedge fund players to move operations to Asia and expects more start up funds. Millward says “managers want to be on the ground in important Gateways to China (Hong Kong) and India (Singapore).”
Millward hopes the competition between Hong Kong and Singapore as financial centres will attract new service providers to open. He says like many jurisdictions there is an undersupply of administrators. This means some funds are experiencing difficulties in setting up in a timely fashion or are rejected as being ‘too small’ in favour of the bigger deals. A report last week in Citywealthmag.com newsletter underlined this problem. It revealed forty administrators now operating in Guernsey, who are all at maximum capacity, having to work around the clock to cope with the influx of private equity fund admin’ demand from the USA.
Another partner at Walkers in Hong Kong, Carol Hall reveals there is another trend toward hybrid funds which mix both private equity and hedge. Hall comments “as well as this development we also expect an increase in hedge funds picking up distressed funds in liquidation.” Hall continues “Other trends will include more opportunities in the Asian private debt and structured finance markets as well as in special equity situations, which should trigger innovation by hedge fund managers. They will need to find ways for investors to access these opportunities.”
One problem Hall sees with the explosion of hedge funds is increased disclosure, especially if there are some high profile collapses. Hall explains why “it will be an attempt to avoid claims from high net worth or institutional investors in times of distress.” Hall also offers some pertinent advice “Potential investors, particularly with private fortunes, need to improve their awareness of a manager's experience and techniques prior to making an investment. In my view a savvy investor should perform greater due diligence before committing capital to a hedge fund, particularly in Asia. They would do well to establish how such hedge funds performed during the Asian market downturn in June 2006 and March 2007. Successful hedge fund managers should have managed their positions in such a way as to minimise any loses.”
Recruitment has always been difficult for wealth managers in the region and with hedge fund managers also wanting expert wealth business developers, the pressure will intensify. The London market is already seeing experienced ‘heads’ poached from wealth management operations into hedge funds, keen on reaching the intermediary market and high net worth investor. Asia has wealth heavyweights like Barclays, Merrill Lynch and Credit Suisse in perma-hire mode but Barclays stole a lead with the star hire of renowned, Didier von Daeniken. The former co-head of Asia Pacific private banking at Credit Suisse joined Barclays as Managing Director and Head of Barclays Wealth, Asia Pacific, in June 1st 2007. Barclays Wealth has a hundred staff in Hong Kong and Singapore.
The Cap Gemini Merrill Lynch Asia Pacific wealth report estimates there are 320,000 dollar millionaires in the region which means if you want a wealth manager to client ratio of one to 60, you would need 5,000 wealth managers on the ground, from the word go. This highlights the pressing need for staff to maintain quality private banking operations. Chanmueller offers an insight “lots of people are coming over from Hong Kong which is important. If we get the skills into the market, it will help confidence in wealth management as a concept.
Chanmueller of Cap Gemini who has lived in Shanghai for three years, agrees with the sentiment of Carol Hall at Walkers and says the outlook is optimistic: Asia is one of the fastest growing markets for fund managers and banks. Mentioning China particularly, he does warn private banks, that competition from domestic operations is growing locally as they get interested in the wealth management space and they are doing well in gathering market share. Chanmueller adds an aside “any operation investing in China would need to include hnw education in their strategy; there is limited knowledge about wealth management offerings in China.”
Chanmueller says of the different countries in the Asia group that, Japan is the acknowledged major market. It has US$3.5 trillion of Asia-Pacific’s US$7.6 trillion pool of wealth, approximately 45.8%, contained within its shores. Shanghai has successfully challenged Hong Kong to become the gateway to China and Korea, Taiwan and Indonesia are countries that hold easy expansion opportunities for wealth managers with well informed markets. Although Korea is the star for 2007 it has a relatively low take up of alternative investments like hedge funds which is put down to limited availability in a relatively new wealth market.
Of use of alternative investments in the region Chanmueller comments “Taiwan is increasingly been seen as a mature market with one third of assets in alternative investments. They are seen as the most well diversified investors in the region. China is the least mature market although they do have a high allocation into alternative investments because of poor domestic returns. A trend in Japan has seen REITs take a hold since their debut in 2005. The first hotel REIT was launched in February 2006. A popular investment choice, they have generated double the returns of government bonds.”
The Asia Pacific Cap Gemini report says that to reach out to clients in this region, banks or funds must work with busy entrepreneurs in ways that are useful, then sell services later. They suggest helping prospective clients with cash management or encouraging them set aside capital for emergencies. The report warns “The need for wealth management is often not obvious to Asian entrepreneurs, steady marketing will allow them to gradually increase their investment competence.”
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In my role as Editor of Citywealth magazine, I get to interview people with tens of millions about their lives, interests and book reads. Here are two that were recently put forward by individuals who have, by their own endeavours, banked multi millions.
The Little Book of Common Sense Investing
"The only way to guarantee your fair share of stock market returns."
Six Thinking Hats by Edward de Bono
Creative thinking for solving problems in minutes rather than hours.
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Attending a recent wealth party in London, a lawyer asked the question "can hedge funds survive this turmoil?"
The answer is resolutely yes from an industry expert. Not because they will do well in turbulent stockmarkets because they won't and not because life will continue as normal with a lack of liquidity to enable leverage, because it can't. The view was illustrated as an example. "Look at mutual funds. They have shown over considerable average periods that they underperform against index funds, but despite this, mutual funds continue to grow and get stronger. Why? Because despite knowledge to the contrary investors continue to plough money into them for a long time after they should." And that is why, he says, hedge funds will continue.
He says another reason they won't disappear is that the last two years have seen some very good returns posted by hedge funds.
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There is a lot of interest in Asian wealth, whether Indian, China or if spreading a net wide areas like the Middle East.
Conducting some research with Hong Kong, Japanese and Singapore based intermediaries, a strange anomoly has appeared. Not only is wealth in Hong Kong rising to sums as grand as $20 billion US but trust companies ,that once flourished, have all but been purchased by banks in the region. This is something that is in stark contact to Europe where trust companies are de coupling from banks to avoid conflict with regard to investment management of trust monies (banks insisting the funds stay with them, rather than going onto the open market for best returns).
In Europe, as we have seen with Close Trustees and Close WM, it is seen essential to survival and ongoing growth to de couple and present wealthy clients and intermediaries with the sound knowledge that open architecture in investing is the only route for the money being entrusted to them.
As with Europe though one trend is similar. Asia hasn't got a large pool of intermediaries (lawyers/attorneys and accountants) to seek for work. On past trips to Singapore, banks in the region were 'raping' any professional firm of all their staff to equip themselves with a compliment of client relationship managers, who are identified as the most successful route to securing new private client monies into the banks. How that model works when there are no intermediaries left in the market to pitch too, must surely be a puzzle indeed.
Tuesday, 4 December 2007
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Geneva, Switzerland, the home of wealth, is split by a fast flowing river (Lake Geneva) which gives the town a blustery, seaside air. The financial district is a walk away from most centrally located hotels and offers a chance for a pleasant, City walk to meet some of the most important private bankers in the world.
As with all of the financial destinations, there are many myths and views the industry has that often need a fresh set of eyes to change them. On my visit to Geneva, I heard many off-the-cuff comments like: “the Swiss are obsessed with time precision” or “the Swiss are dull and boring.” Whilst there may be a prestigious jewellery and watch industry, (which I plan to go back and investigate thoroughly); dull the Swiss are not.
Before my visit, the recommendations spilled in: “you will like Geneva best, don’t go to Zurich.” On my arrival in Geneva, every Zurich person I met couldn’t believe that I wasn’t visiting both cities; it became obvious that Geneva is the fork to Zurich’s knife. Visit both if you are targeting Switzerland.
Many liken the feel of Geneva to Jersey in the Channel Islands and this was something I heard a couple of times. Although this is not everyone’s preferred view (Geneva is more Euro-cosmopolitan), I can see what was meant. Essentially Geneva is a bijou, well connected community that has a long established financial strength and confidence. It is a contented, well nourished jurisdiction enjoying the finer things in life and does have an island feel.
Good manners are everything here and the French Swiss (Geneva is French Swiss and Zurich German Swiss), regularly comment on the good manners of those they meet or know. The philosophy is traditional, grand and operating at a sophisticated, intellectual and artistic level. Perhaps the Swiss created the wealth personality that is prevalent elsewhere?
In my view, the Swiss could never be classified as boring. For a start most are not Swiss. There are many other European citizens here making an interesting mix and conversations are conducted in at least two, three or four languages. Something that us ‘Anglo Saxons,' as the Swiss call us, struggle with.
I had a few stares of disbelief that my French wasn’t at a conversational level but most carried on chattering away, convinced that I didn’t really mean it. One thing you will not see much of in Switzerland is reception waiting areas. The Swiss believe they should immediately show guests into a meeting room as soon as you arrive. It is not entirely for secrecy reasons; it is also considered good manners to do this.
Contacts in the region
Whilst in Geneva, Maitland Group had a very grand party at the Parc des Eaux-Vives which ranks as one of the nicest venues I have ever visited. Although I’m sure it will have a fight on its hands this week the recent Ozannes Gherkin party, which I have been assured is the hot ticket of the year (let alone month). Maitland have an ex Macfarlanes person in their midst, a chap called Michael Hayes who was at Macfarlanes from 1974 to 2004 and Head of the Private Client Department from 1991 to 2000. He’s London based. Check out the side bar on the next page and their website - all the people profiles are upon it. http://www.maitlandgroup.com/.
I also met Paul Imison of EFG Bank who took me through the rapid rise of their success. Making major acquisitions throughout the world, they’ve grown from small to a world class organisation in just a few years which must make them the envy of their peers. Check out their website on http://www.efgbank.com/
Whilst there I was reminded about a solid, independent consultant (family office consultant and technology venture capitalist who is Geneva based), Hakan Hillerstrom. Find him on http://www.hillerstrom.com/.
For those of you interested in art in the region you can contact Guy Jennings at Theobald Jennings. http://www.theobaldjennings.com/
Swiss wealth industry
One third of the world's private banking wealth is managed in Switzerland.
Swiss-based companies may administer trusts governed by the laws of other jurisdictions, including the Cayman Islands, Jersey, Guernsey, the Isle of Man, Bermuda and England and Wales.
Switzerland is not a zero tax jurisdiction but the Swiss authorities allow trusts created by and for non-residents of Switzerland to operate without negative tax consequences.
There are approximately 400 banks in Switzerland.
This first appeared in http://www.citywealthmag.com/
Sunday, 2 December 2007
Sphere: Related Content
The family and multi family office domain is a relatively small area of the private client world but it hides fortunes of breathtaking scale. With recommendations from family office experts that fortunes exceed £250m /$500m before setting up an office, providers have a pool of 946 billion and multi billionaires (according to Forbes 2007 list) to work with. Of course many will have inherited money and traditional family offices that have already worked through generations. But the biggest inter-generational hand over of wealth is now happening (a prime concern for uhnw is to offer a guiding hand when transferring a vast fortune to their families) and the need for continuity of personnel, (often not available in private banks) means the family office or multi family office environment looks set to continue its stronghold over the super rich purse strings.
The Family Office
The Times Rich list entry level is increasing year on year but when considering family office fortunes you are better referring to research material such as Forbes, who list more than 946 billionaires and multi billionaires, which is more likely the pool that the family office network is working with. Although some advisers says rich clients will consider the single family office (SFO) or multi family office (MFO) route at the £50/$100 million level.
The SFO/MFO (Alex Scott, SandAire explains the SFO/MFO meaning later) area would seem to be the golden egg of wealth, it has its detractors and there also seems a marked difference in how the USA and UK view the topic. It’s an area with entry level uncertainty: it seems if someone with a small fortune (in relative terms) of say £25/$50 million insists on taking this route, then advisers will help, but many would be reluctant and at worse would consider it a ‘vanity project’ i.e. keeping up with a peer social circle or ‘the Joneses’ as we say in the UK. All agree it is an expensive route to take and one that is best not considered unless at least a quarter of a million pounds or half a million dollars is being worked with.
Critics argue that finding best of breed (quality of expertise for ongoing advice) for wealthy clients can be an issue in an SFO arrangement. To set up a structure a lawyer or an accountant will headhunt to find a suitable ‘wealth head’ to build a team and be responsible for reporting to the family. But the role is not considered an aggressive career route nor is it suitable for those with lofty ambitions, who may be keen to use it as a stepping stone. It seems many would look for someone retiring from the wealth industry or someone with a keen sense of duty or staying power.
A multi family office arrangement doesn’t suffer from the same problems but it has other issues: for instance ongoing independency of advice. A stalwart reason super rich families work in family office arrangements (and this is the ‘sell’ from family offices) is that they offer impartiality without ‘product-pushing’ which is how large investment managers or private banks make money on wealthy clients. However more and more MFOs do have their own products (as they seek to add value to justify costs) which they develop over time and so the black and white independence issue may be moving into the grey. The other problem related to MFOs (this does not apply to the top tier family offices) is that although they save super rich families cost by sharing their office, they may also get diluted services that make the point of the family office less worthwhile (than perhaps an off the shelf banking service or trust structure).
A recent study that Daniel Martineau (Close Trustees Switzerland) and Hakan Hillerström (independent family office consultant) put together reviewed the offering and warned that super rich families should be wary of setting up a family office structure without serious thought: “Abandoning start-up MFOs happens regularly in Switzerland” said Daniel “they are usually set up by failed bankers, forced from employment by redundancy. SFO ‘failures’ are less likely as they are ‘sponsored’ by one family. We have a client who abandoned his three man office earlier this year when he realized that he could accomplish the same thing at less cost by giving most of the work to us, and then hiring a PA in London.”
But it isn’t all costs and trouble with staff, one family office adviser in New York says he effectively works as a private family office with his multi million and billionaire clients and is generally involved with all of their dealings globally (that require some sort of negotiation). He says many enjoy greater confidentiality choosing the family office route and a peace of mind not available elsewhere. He cites an example. “If you have a patriarch with sixteen businesses worldwide and he passes away, the complexity of the inheritance for children to take on would be difficult to comprehend, if not disastrous for the business. The family office enables simplicity in hand over.” He comments further, it also allows for group purchasing in investments – a family can reach minimum entry levels by pooling money together whereas separately they may struggle.” He adds “clients can also run all of their philanthropy or charitable projects through the family office.” He adds “clients choose to use me rather than set up a fully working family office because it saves them a long term commitment to people and premises.” He further comments “clients rarely want an office in an unpopular neighbourhood, which means property purchase is going to be in the millions from the start and you then have a lease to consider.”
Strangely in the USA, the family office set up had more detractors – mainly because hiring was perceived as problematic so most weren’t keen to recommend this route although all considered the traditional (and well known family offices) had performed well. In the USA also many accountants take the lead in running family offices but some thought this didn’t allow for a full compliment of skills to negotiate the terrain “you need to know about more than just money” one adviser said.”□
Industry comments about family offices
“Undoubtedly the single family office is a vanity project for some of the super rich, but the main motivation is frustration with banks who have been ‘product pushing.’ They think that having their own "trusted team" can help them navigate them through a sea of investment sharks.”
"I find it interesting that so much is made of the family office business. The truth is that it is a very small business, even the most visible, well known participants are quite small and very few multi-family offices are profitable, those that are will be marginally profitable. It is not the wave of popularity that is noted in the press or promoted on the conference circuit. Staffing an SFO is difficult. It often involves a family member and an accountant, banker or investment professional, it is very hard to pay (and therefore attract) top talent.”
Daniel Martineau, Close Trustees (Switzerland) works closely with many family offices to provide their structures. “Many trust structures have an element of "Family Office" in that we do the investment management monitoring, manager selection, bill paying or management of properties: the two work hand in hand. We manage a number of Private Trust Companies which all have an element of Family Office, usually in coordination with the dedicated single family office. “The single family offices tend to have more success and staying power as the services, by definition are exactly what the client family needs and wants. Its when they get the idea that they can take on other families to share the infrastructure costs that it starts to get more complicated. In the study that we conducted on Swiss Family Offices, it was clear that one of the key elements of a successful family office operation is to limit what they do, as they won’t be able to do it all themselves. Choosing expert outsourcing partners was seen as critical.”
Family office facts and contacts
The top five UK multi family offices (alphabetic).
◊ FF&P (Family Fleming & Partners, part of James Bond money)
Won the Trust company of the year Europe with Citywealth Monte Carlo
See event pictures
See event write up
◊ Lord North Street
◊ Stanhope Capital
Profiles of UK family office experts
Daniel Pinto (co founder)
Unigestion (UK and Switzerland)
+44 (0) 207 529 4150
UK family office consultants Peritus James Day
Profiles of Channel Islands family office experts
Jersey, Channel Islands
Brian Clarke, Key Trust
Brian is a Citywealth Top 100 peer nominated adviser
Barclays Wealth, Jersey
Profiles of Swiss family office experts
Independent family consultant
Daniel Martineau, Close Trustees (Switzerland)
Daniel is a Citywealth top 100 peer nominated adviser
Swiss family offices
HSBC Private Bank (Suisse) SA
Julius Baer Family Office http://www.juliusbaer.com/
Marcuard Family Office (The biggest family office in Switzerland)
Marcuard won the Family Office of the Year Europe with Citywealth
See the event programme
See the event pictures
Pictet & Cie Banquiers
Profiles of US family office experts
Patricia Angus is Managing Director and head of Wealth Advisory Services at Shelterwood Financial Services LLC, a multi-family office serving ultra high net worth families. She is a leader in the developing field of family governance, and assists families with estate and philanthropic planning and processes with a particular emphasis on human relations to foster long-term family stability and successful stewardship of family wealth. http://www.shelterwoodfinancial.com/
Patricia attended the Citywealth California awards event
165 clients. The average client is worth $40 million to $200 million and up to billions.
Overbrook Management Corporation
Was also at Wilmington Trust
Albert C. Bellas
Citywealths next event for FAMILY OFFICES, WEALTH MANAGERS, INTERMEDIARIES, PHILANTHROPISTS and the SUPER STAR SUPER RICH is in London on May 8th 2008.
http://www.citywealthmag.com/ FOLLOWED BY CITYWEALTH MIAMI, JULY 2008, THEN CITYWEALTH MONTE CARLO OCTOBER 2008. Invitation only. Sponsors get choice of attendees.
Article from Sand Aire
For the wealthiest: a Family Office
Alex Scott, Chairman and a member of the family who founded SandAire, a multi-family office in London, seeks to add clarity to professional advisers’ understanding of this important specialist sector in the range of options available to the wealthiest of families.
“Whilst family offices have been in existence for centuries, usually established to manage private estates for wealthy families, the contemporary interpretation tends to focus on investment and providing broader support for the family. There are two prime forms of family office, the Single Family Office and the Multi Family Office, the former serving one family and the latter several. The decision to employ one or other is complex and multi-layered, but it usually doesn’t make sense to create a family office for a liquid fortune of less than £250m. Multi family offices are either independent (formed by a founding family or investment professionals), or affiliated to financial institutions.
The changing investment landscape is the reason for the rise of the family office. As investment has become increasingly complex, families and entrepreneurs with sophisticated investment requirements recognise the need for an expert organisation to act on their behalf as a filter for the myriad choices that lie before them in the long term management of wealth.
Whereas in the past, families were content to rely on single financial institutions to respond to all their investment needs, the fragmentation of the financial services industry means that optimal solutions might now be available from a combination of investment houses, both large and small. Family offices help wealthy families capitalise on the multiple opportunities resulting from this fragmentation.
Wealthy families are concerned that the advice they receive is really tailored for their needs and not just a pitch for the latest product for sale. They recall the adage: “Never ask a barber if you need a haircut.” Independent family offices work for the families they serve, not for a public corporation with quarterly profit statements to achieve. Conflicts within financial corporations are hugely difficult to manage; by aligning the family’s interests with a Family Office, these conflicts can be largely removed.
Contemporary families look to their family office to deliver results derived from an asset allocation created to provide absolute returns on a risk-adjusted basis. At this end of the market, risk analysis has become a key driver in establishing and monitoring such portfolios.
Having created an asset allocation built upon client-specific risk and return parameters, the role of the family office is to seek out investment solutions that can deliver the required returns and the talented professionals who deliver the solutions. Good family offices spend much of their time seeking the best and brightest in the global financial market.
At best, the family office delivers the purest form of ‘open architecture’. Their people, often with institutional backgrounds, build custom-made, flexible solutions for families using skills not normally available to private clients. Services are delivered according to the precise needs of the family.
There are other compelling reasons for using the services of a family office. Families with significant wealth have the opportunity to plan strategically, looking forward through multiple generations. A team of advisers from multiple specialist firms can be assembled for this purpose to assess their needs (ranging from choice of residency through tax and ownership structures to investment strategies) and plan accordingly. Such strategies require skilled implementation and the family office’s remit can range from delivery of the investment aspects of such a plan to acting as overall coordinator.
Some family offices go further than investment. They also deliver a comprehensive, personal service that is designed to support every aspect of living with wealth as a family – a practical and human dimension to the service that large financial institutions struggle to match. This approach is based upon an understanding that independent thought and action is culturally ingrained in many wealthy families.
These complementary tasks help families achieve their non-financial objectives. They range from consolidated reporting (fundamental for integrating the results of multiple suppliers) through project management, family governance, philanthropic coordination and planning to concierge services. Well planned and well executed, these supporting services release families from the detailed management of their fortune, allowing them time to think strategically and pursue their own commercial or personal interests.
As wealthy families become more sophisticated and the financial and investment choices open to them become more complex, a significant number are employing the service of a Family Office.”□
Article about their family office services from Key Trust
The concept of the Family Office has evolved since John D Rockefeller invented it in 1882 to manage his family’s assets and sustain their wealth – an example soon followed by other ultra wealthy families.
Brian Clarke, Managing Director of Key Trust outlines how the Family Office has become the means not only of handling a family’s commercial and investment expertise, but also of providing structures for wealth preservation for future generations.
Few families today would find it cost-effective to maintain their own Family Office. Over time it has become increasingly difficult to recruit professional managers who combine outstanding financial expertise with ‘people management’ skills (of which more later). And so the Family Office has evolved into its 21st-century successor, the Multi Office Family Office, which is what we offer at Key Trust. For us this means delivering bespoke family office services to each family client – not only managing and administering the investment and preservation of significant wealth, but also looking after generational issues and family dynamics.
The family will want to gain maximum enjoyment from the wealth that has been created – with minimum difficulties. We help them to achieve this through careful contingency planning, financial education for the younger family members and creating structures that enable each individual to make their own lifestyle choices while enjoying the benefits of a well organised family wealth system.
The basic principle from which we start is: take care of the business and it will take care of the family. If you take care of the family only, the business may not ultimately benefit anybody. Giancarlo Di Risio, the non-family CEO of the Versace family business empire, expresses this idea in another way: ”Every company today should run itself as though it were a public company…with clarity and transparency.”
I describe Key Trust’s service as bespoke, and it is. Too many wealth management businesses offer products – whereas the family requires service. This is especially true of a wealthy→ →family, whose individual members will have a diverse range of expectations and objectives.
We deliver our service by appointing a director and a manager to look after each family. They will get to understand their requirements in detail and so provide a response that meets the best interests of everyone concerned.
Our independence and focus on service helps us to achieve this. Having no products to sell, we concentrate on selecting the best of the best investment managers, monitoring their performance on the family’s behalf.
We are also able to actively participate in family wealth matters, setting up formal family meetings each year at which we work through the logic of all the issues in a way that is plainly seen to be impartial.
Initially this approach may produce tensions. But as a plan for the future emerges and everyone feels more secure about his or her own position, the family meetings become more enjoyable and constructive, even relaxed and sociable.
To prepare a structured transparent and fair approach to a well planned succession, we ask each family member a number of questions (see below). Their answers give us real insights into their personal and emotional aims. They also enable us to put wider questions to the family as a whole – for example:
· What is the role of the family business?
· Is it purely economic?
· Is it to provide the family with a means of transferring wealth to future generations?
· How is the family to go about achieving their business goals?
· Are there social or charitable purposes that should also be kept in mind?
The controlling parties in the family business spend a tremendous amount of their time creating value and driving the business forward. Even if they have the right skills to develop a business that might have been started 3 or 4 decades earlier, at some point in time they have to leave it and receive their reward. At that point they need to transfer some of the value and the organisation they have created either to a family member or deserving employee.
It is most important that this exit strategy should not be left until the moment when it needs to be implemented. An exit strategy needs to be thought out well in advance, even during the building stages of the business itself. In the end, an exit strategy should produce a transaction that is an almost insignificant event, because it has been planned and prepared for long before it comes to execution. It is in the planning and preparation that true value can be created.
This is where the Multi Office Family Office can play a particularly valuable role. Historic issues within the family often require an outsider to help resolve the interpersonal tensions that can exist between family members and the in-laws.
This works best when the outsider is someone who, with little to prove to him or herself, is able to work to the family’s agenda rather than their own. It obviously takes somebody with facilitation skills, an open and impartial communicator whose emotional maturity enables them to cope with dissent without expending undue amounts of time on individual family obstacles. This sometimes can require a person who can live with ambiguity and who also has a thick skin!
Ultimately the outsider the family uses should enjoy building things and working with people, a person with compassion and empathy who can think strategically and not just tactically.
In the case of my own firm, Key Trust, we certainly adhere to these principles in working with wealthy families. When we first get to know a family, the issues that we try to address from the outset include establishing our engagement with a clear legal contract and a defined financial position.
We then seek to meet and understand all the key stakeholders and characters inside and outside the business. Typically we will draw a ‘genogram’ – a family tree that shows who is male, who is female, who is a controlling party and so on. We like to try and understand the role of the various parties involved and the extent of their power. This enables us to distinguish from the beginning the difference between ownership and management.
Would John D Rockefeller recognise the modern Multi Office Family Office? I think he would: even while he was giving away more than half of his $900 million fortune, succession planning and the interests of each future generation were as much part of his thinking as they are of ours.□
Note from Karen Jones author: Read my recent blog posting on Rockefeller philanthropy consultants
Citywealths next event for FAMILY OFFICES, WEALTH MANAGERS, INTERMEDIARIES, PHILANTHROPISTS and the SUPER STAR SUPER RICH is in London on May 8th 2008.
http://www.citywealthmag.com/ FOLLOWED BY CITYWEALTH MIAMI, JULY 2008, THEN CITYWEALTH MONTE CARLO OCTOBER 2008. Invitation only. Sponsors get choice of attendees.
Read some articles from the super rich themselves
Monaco resident and chemicals multi millionaire
Tracy Mattes sports star
Percy Barnevik Swedish multi millionare
DK Matia, risk tech tycoon and philanthropist
The next generation of super wealthy. An Australian hotel entrepreneur
Stacy and Mouli Cohen - San Francisco billionaires