Overview
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
http://www.citywealthmag.com/montecarlopics.asp
See event write up
http://www.citywealthmag.com/Citywealth_Monte_Carlo_Awards_Edition_78.pdf
◊ Lord North Street
◊ SandAire
http://www.citywealthmag.com/Citywealth_SandAire_Edition_67.pdf
http://wwwcitywealthmagcom.blogspot.com/2007/12/sand-aire-family-office-tenth.html
◊ Stanhope Capital
◊ Stenham
Profiles of UK family office experts
Caroline Garnham
Daniel Pinto (co founder)
Stanhope Capital
London http://www.stanhopecapital.com/
Guy Paterson
Unigestion (UK and Switzerland)
+44 (0) 207 529 4150
http://www.unigestion.com/
UK family office consultants Peritus James Day
http://www.peritus.co.uk/
Profiles of Channel Islands family office experts
Jersey, Channel Islands
Brian Clarke, Key Trust
Brian is a Citywealth Top 100 peer nominated adviser
http://www.citywealthmag.com/citywealth_printable.pdf
http://www.key-trust.com/
Volaw http://www.volaw.com/
Mourants http://www.mourant.com/
Barclays Wealth, Jersey
Melvyn Kalman
Profiles of Swiss family office experts
Hakan Hillerstrom
Independent family consultant
http://www.hillerstrom.com/
Daniel Martineau, Close Trustees (Switzerland)
http://www.closetrustees.com/
Daniel is a Citywealth top 100 peer nominated adviser
http://www.citywealthmag.com/citywealth_printable.pdf
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)
http://www.marcuardfamilyoffice.com/
Marcuard won the Family Office of the Year Europe with Citywealth
See the event programme
http://www.citywealthmag.com/images/CityWealth-Prog.pdf
See the event pictures
http://www.citywealthmag.com/montecarlopics.asp
Pictet & Cie Banquiers
http://www.pictet.com/
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
http://www.citywealthmag.com/CitywealthCaliforn-i-aEdition53.pdf
Mahoney Cohen
Managing Director
Mark Minker
http://www.mahoneycohen.com/
165 clients. The average client is worth $40 million to $200 million and up to billions.
Highmont Capital
Steven Hoch
http://www.hmcap.com/
Overbrook Management Corporation
Alan Reef
Jim McCarthy
President, AMA
Was also at Wilmington Trust
http://www.amaglobal.com/
Albert C. Bellas
Co Founder
Solaris Group
http://solarisgroupllc.com/
http://www.gellerco.com/
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
http://charityandphilanthropy.blogspot.com/2007/11/rockefeller-philanthropy-advisors-not.html
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
http://wwwcitywealthmagcom.blogspot.com/2007/11/look-at-successful-monaco-resident-and.html
Tracy Mattes sports star
http://wwwcitywealthmagcom.blogspot.com/2007/11/tracy-mattes-world-class-athlete-nbc.html
Percy Barnevik Swedish multi millionare
http://charityandphilanthropy.blogspot.com/2007/11/percy-barnevik-business-leader-and.html
DK Matia, risk tech tycoon and philanthropist
http://charityandphilanthropy.blogspot.com/2007/11/dk-and-his-wife-surinda-have-spent.html
The next generation of super wealthy. An Australian hotel entrepreneur
http://superichlifestyle.blogspot.com/2007/12/next-generation-of-super-wealthy.html
Stacy and Mouli Cohen - San Francisco billionaires
http://superichlifestyle.blogspot.com/2007/11/talking-to-client-stacy-cohen-us-based.html
Sunday, 2 December 2007
Family offices: peace of mind and independence for the super wealthy
Wealth management American styley
Following on from the Citywealth Top 100 Americas list I spent some time in the USA over the quiet August weeks (2006), just pinging around meeting the professionals who had been recommended. Although many US names will be familiar to you – the likes of Karen Troy at RBC, Susan Harrington at Sidley Austin and Josh Rubenstein at Katten Muchin Rosenman, there may be others out of New York City who aren’t so familiar.
From our list of known wealth and private client friends, I am delighted to say that all received compliments wherever I travelled. Warren Whitaker, Josh Rubenstein, Gideon Rothschild, Ivan Sacks and Joe Field were all highly thought of and praised.
What was most interesting in contrast to London was a freedom – much less tradition - and clients from very different backgrounds. And although many accountants, CPA's or lawyers (or attorneys) were operating within one or several states - rather than internationally - they were all sitting on big honey pots of client money. Even Kansas was a hot spot for one entrepreneurial accountant (Don Harris – he manages £225/$450 million client monies – which is a small part of his business – counselling and planning is a greater part) who was regularly flying there from Dallas after a one off referral. He said it seemed to open local flood gates and his seminars were booked months ahead. We decided that they didn’t get as many visitors as they should in Kansas.
Susan Harrington at Sidley Austin (who travels to London frequently) is dealing for the most part with the wealth in South America and tipped me off about the Dominican Republic, which is apparently bursting at the seams with super wealthy clients – many of whom she advises.
RBC in New York reported that their client base was half US citizen and the rest non US as opposed to their Los Angeles branch which was considered more domestic wealth. RBC, NY are targeting the super wealthy and keen to seek out wealth advisers with international clients of net worth c$500m. They say South America is indeed a hot spot and substantial growth is being seen but this tends to get dealt with by their Miami operation. Problems of kidnapping are still rife in the region. Karen Troy’s top tips for excellent advisers were Jack Brister an accountant in New York City but we aren’t sure of his abode at the moment and Marco Blanco (attorney) Curtis Mallet-Prevost, NYC also received high praise.
Bill Knox (William) of Regent Atlantic Capital in Chatham, New Jersey had just got back from a trip to Italy (where he’s building a holiday home) and had been to see his new grand daughter in Switzerland. I’d liken New Jersey to the stockbroker belt in the burbs of Britain – lush greenery and manicured gardens – rather Sevenoaks or Kew in feel – very beautiful. Bill was very specific in saying that he only deals with clients of between $2-25million. Although he added that he manages $1.3billion of client monies and has a 99% client retention record of several years. He says his clients are New Jersey folk but many may have moved to other states or countries but have left their wealth with him to guard and grow.
Despite much information saying that the Americans invest domestically he insists a substantial proportion of all his clients wealth is invested internationally. He runs a model that mixes Global Large Cap, Hedge Funds, International Bonds, Real Estate (cutting back on Real Estate this year) and International Small Cap – amongst other investments in a tried and tested model that has outperformed indices consistently. He particularly likes Paine Webber, Smith Barney and MLIM funds and for international real estate uses a Morgan Stanley offering. Regent Atlantic Capital is furiously independent, buying in all expertise they need. They aggregate monies to help clients reach entry levels for funds of funds. The one exception is their own hedge fund “Regent Atlantic Absolute” mainly because they were offered expertise that was too good to turn away. You can contact Bill (who is really sensible, very bright and has good international knowledge of world politics on www.regentatlantic.com). It’s a two hour train ride to Chatham but is worth the trip.
Don Harris, of Beaird Harris & Co in Dallas said he is seeing a real upwards swing in philanthropy for clients with monies between £5-10million. He was very interested in the psychology of wealth and felt that advisers were keen to diagnose but often not prepared to delve into areas that might involve hopes and dreams or a soft side of planning. His one striking argument is that many people don’t know how much money they need or want or how much will be enough, if they did they would plan better and consider larger philanthropy or charitable projects. He was also investigating the negative ramifications of being rich – the children left with no purpose in life after inheriting huge sums. He impresses on those making plans that it is very important to involve children in processes because they are often not interested in parents goals nor in having huge amounts of money left to them.
Rounding off my trip I spent some time over a glass of wine with Michael Graham who was a delightful chap and also with Pamela Woodburn who has now left RBC for Jersey in the Channel Islands to get married but was in San Francisco. She kindly treated me to a swanky meal whilst there. □
Profiles
Donald B Harris
Beaird Harris & CoIs a wealth innovator, with a keen mind. Dallas based he recently co-wrote a book on wealth counselling “Getting to the heart of the matter.” His clients are enrolled in an intensive period of counselling in which a plan for life-goals and philanthropy are tied together. He says that they never rush the initial stage of comprehensive questioning which may take three months for the client to complete. Interviewing at home, he says its important that high net worth clients consider carefully all they’ve talked about. He says: Its imperative that families get a chance to really talk about their issues, then agree a forward strategy together, in order for plans to remain solidly intact.
There are 9,000 certified planners in the US.
Ed Copley, Akin Gump, Dallas. He works with many Indian high net worth clients, travels to London frequently and is a real Dallas gentleman. Ed Copley at Akin Gump, Dallas manages the estate of Wendy and Emery Reeves. The couple gave a furniture collection to the Dallas Museum of Art – as long the museum replicated the original setting of their home. It is jaw dropping with 15th century furniture and Picasso and Matisse paintings littered everywhere.
Michael Graham, of The Graham Law Firm, Dallas
Michael Graham is charming and his office resides in a small area of Dallas which is compared to Rodeo Drive in California. His office is nestled in a complex of boutique international designer and swanky eateries. He is keenly interested in technology and works more with high net worths that are running businesses these days. Michael has been featured as a “best lawyer in America” and is a fellow of ACTEC. His wife undertakes considerable charity work in China. This is his software: Interactive Legal System Estate planning software which is and Interactive Legal System – for experienced estate planners USA - offers a full complement of forms -- wills, revocable trusts, irrevocable trusts, strategic planning memos, powers of attorney, and more. While Federal in scope, state specific content is provided for all states (except Louisiana). The integrated "content help" is in a class by itself. From solo practitioners to large firms, WTP meets the demands of the most experienced estate planners
www.thegrahamlawfirm.com
http://www.ilsdocs.com/
Jonathan G. Blattmachr, Milbank
I didn’t get to meet Jonathan but Michael Graham says of him: “he is one of the greatest speakers I know, he can fill a room all by himself.” He is a member of the Alaska, California and New York Bars.
Observations and general information picked up on the trip
The Americans love Italy and talk about it constantly – doesn’t matter where you are or who you are talking to. Most have visited regularly – skipping the UK altogether. I asked one adviser what the affinity was. He said “at the very least the Italians seem to like us.”
Everyone in America is pointing at Texas for voting George W Bush in but the Texans deny this vigorously.
Atlanta has a 60% black population which is extremely affluent. Atlanta to the North is considered more internationally sophisticated than Georgia at its South.
Dallas is oil and technology wealth. Locals say that the wealthy wear jeans whilst their advisers wear suits. Don't forget the famous historic Alamo battle.
Vegas – super luxury, non gaming hotels are now taking a grip like the Christian LaCroix. The real estate market is extending away from the strip.
New Jersey is called the Garden State. North New Jersey is blue blood, traditional wealth and is extremely affluent. Conversely South New Jersey is considered below the poverty line.
Although there is a general phrase that ‘lots of Americans don’t have passports’ this does not apply to the business community who travel far and wide regularly – no matter where based.
Atlanta is nicknamed Hotlanta – it averages about 100 degrees a day and is
rarely cool. Bobby Brown and Whitney Houston are the Atlanta area's most notorious famous couple. The couple are often seen living it up at Atlanta's posh ‘The Palm’ restaurant. Jane Fonda, Elton John and Julia Roberts all have homes in Atlanta. The home of Coke - as my friend Joanna Forshee said "you wont find Pepsi here!"
My next trip to the USA is for LegalTech, New York in Feb 2008
See my tech blog here
http://wwwcitytechmagcom.blogspot.com/
And my tech publishing and events company here
www.citytechmag.com
Read about my Citywealth Los Angeles wealth management event at the Hotel Bel Air.
Citywealth has a weekly wealth newsletter that goes out around the world for £500 + vat/$1000. It advises about people in the industry and their clients each week.
Saturday, 1 December 2007
Sand Aire family office - tenth anniversary book for clients
Alexander Scott and Marcus Gregson who are both in Chair positions at Sand Aire, a top five UK family office, are a formidable pair. Alex has an esteemed family background which combines with Marcus, who was formerly Chief Executive at HSBC’s private bank. Celebrating its ten year anniversary this year, Sand Aire decided to buck the party trend and opted for a published book. It offers advice for ultra high net worths on the future unfolding over the next decade or two.
Friday, 30 November 2007
Karen Jones asks: “Which private client accountants do you work with most often?”
Managing Director, Private Bank, UK responds. "The ones we do most business with and the best relationships we have are the big firms in this order."
1. KPMG
2. PWC
3. Ernst & Young
4. Deloittes
"However there are many smaller firms that are excellent in terms of quality. I would say HW Fisher are very good. With the smaller firms we get to deal with the partner directly more often so the quality of work is very high. "
http://www.citywealthmag.com/
Steering family offices to success
Caroline Garnham, a partner at Lawrence Graham, has clients in such far flung places as Switzerland, South America and Singapore. She studied psychology at University before deciding to be an opera singer. She later decided to expand her horizons taking a conversion course in the law, uncertain whether a career on the stage would provide a satisfying future. This led her to Allen & Overy where she started life as a tax lawyer “spending five years in corporate tax.”
During her time in the hard nosed corporate world she found herself gravitating more to people than the deals and so eventually decided to switch into private client.
Once firmly established in the private client space she later took the title of head of department at Simmons & Simmons. The promotion though, wasn’t without its problems. The mid nineties saw London law firms reviewing their core work, which left many like Caroline, who ran a relatively small department, pensive about the future. She determined to use every ounce of energy to build her team and put them in a strong financial position to prevent any ‘strategic reviews.’ Fired-up, she set about inventing a whole new marketplace and revenue stream for herself and her team.
Family offices were a growing area of interest for the ultra high net worth client, which became Caroline's chosen target market. Caroline quickly pin pointed problems that still exist today. She discovered that many family offices as well as being tucked away inside a family business, making them difficult to identify, were often riddled with disputes and grievances or dominated by stronger personalities within the family.
The sorts of problems families were having were wide spread. Trustees were being challenged by children on the death of a parent; second or third wives were fighting for prominent places within a business for their children; distanced or estranged children were being written out of wills and parents spent much time worrying that their vast fortunes would be too stressful to pass down to financially unsophisticated children. “Wealth is like fire” interjects Caroline “if properly contained, it provides warmth but uncontained it can burn and destroy absolutely.” She says her research revealed that many family members had no voice within, with the result that conflict was spreading easily.
Armed with this information, she harnessed her corporate background and hit on the idea of applying board room processes to families or offering them “family governance” as a saleable template. The structure she set up emulated a board room approach, with segmented control and accountability for the offices. It ultimately meant fair procedures and a level playing field for all. Caroline comments. “Despite enormous wealth within a family office, personal issues or favouritism could catapult the office out of control, which in worst case scenarios meant millions in litigation fees.” Caroline began lecturing on the benefits of using corporate business processes like AGM’s in family offices to assist transparency and communication and still does so to this day. “Containing wealth is ultimately going to harness wealth and keep it for proper purposes for instance to maintain the business or help in a philanthropic cause. Otherwise it can be used for unpopular business decisions or to support lavish lifestyles for whoever is in charge.”
Established in this field now with a high profile move to flourishing private client firm Lawrence Graham in the past year, her entrepreneurial drive continues and is expanding into new areas. An imminent project will see a private client online offering launch with Caroline and industry heavyweights behind the helm. It's aim is to promote the private client Industry and highlight good practices. The plan is to have a subscription based interactive website for all within the industry to access. Caroline comments. “It’s for those who are frustrated at not being able to get their marketing message across to the right people.”
Caroline believes there are a vast number of families and multi millionaires who have problems with their wealth but have no idea who to approach, which is one of the reasons for starting the new ‘Family Bhive online forum.’ “I don’t think many private clients are using the industry effectively, they need to know who does what in a more relevant and meaningful way.”
Of the big changes she has seen throughout her illustrious career at the very top end of the private client industry, Caroline says old fashioned tax planning has become exasperating with the likes of Gordon Brown and his tax officers issuing anti avoidance legislation almost by the day. She makes a fair point that it makes life difficult if clients with good tax planning find themselves being investigated. “They understandably find it irritating when they’ve paid good money on legal fees. The UK tax service is too aggressive” says Caroline “I noticed this trend some years ago so made sure I diversified so as not to be too involved in private client tax work.”
Of her actual day to day working life she says she spends a lot of time with families and entrepreneurs who are “very bright.” Ongoing administration is usually not needed for families, her work is more focused on one off structures which she then updates periodically.
As to where her clients tend to reside, she says. “They are peppered around the world on every continent.”
Caroline has more billionaire clients than most and although it’s difficult to put a number on how many, she considers thirty to be a good guess.
Of her clients, Caroline says she prefers dealing with entrepreneurs rather than those who’ve inherited because “entrepreneurs grasp difficult concepts easily and make decisions quickly.” She continues on this theme. “The second generation are often in a difficult spot. Normally whatever they do will evoke criticism from someone and it’s harder to follow in the footsteps of their parents with the public and media glare. A challenging life can result in the second generation client becoming a professional complainer.”
Finishing off the interview I see if we can dig up any stories of super rich excesses. Are her clients all whizzing around in helicopters and private jets? She reveals they are but not just because its fun. “If you have a client with a busy life they probably have enough problems without day to day travel irritations. One of my clients was on the road for three months and was tired and fed up with hotel rooms, delays and dry cleaning not coming back. They spend to ease lifestyle problems rather than to show off.” She confirms.©
This appeared in http://www.citywealthmag.com/
Res’ non doms’ and UK revenue investigations
John Carrell, who is head of the Farrer & Co tax practice in London, has been working for wealthy European families who have moved to Britain, for more than thirty years “quite discreetly” he says. John was with Stephenson Harwood for eight years before Farrer & Co and tells me there are several partners at Farrers who specialise in advising the international wealthy including Mark Bridges (Middle Eastern) and Jim Edmondson (international entrepreneurs).
John dedicates his working life to setting up arrangements for clients moving into Britain (the celebrated non-doms) and confirms that most of his work comes from Swiss lawyers, private bankers and trust companies. “Once instructed, I take clients from cradle to grave.” He comments in his assured and measured drawl. “I do their tax planning before they arrive, setting up their remittance arrangements and trusts and structures for home ownership. Then I announce their arrival to the tax office and get the right rulings .” Although John acts somewhat like a family office, he doesn’t undertake basic functions like tax returns but says he will choose and supervise accountants who do this. “I keep a general watch over client affairs to keep things running smoothly.” He adds this with a surety that must engender some confidence and allay any panic clients might have about revenue investigation. John adds a sentiment that many lawyers share. “In recent years the changes to investment products and funds have been immense. So I have to keep on updating the advice I give my clients on what investments they can safely hold from the tax point of view and what monies they can bring in to the UK. ”
I wonder how John approaches a seriously rich client with what some might consider dentist drilling type material when ultra high net worth entrepreneurs are known for sometimes being a law unto themselves. John has streamlined his procedures. “I give them a UK spending guide, a sort of one pager with practical advice detailing which accounts they should pay bills from and which credit cards to use.”
John also deals with foreign domiciliary tax investigations and his change in manner suggests that they can be pretty unpleasant places for clients to wind up. “The Revenue has a special unit that targets the offshore arrangements of the wealthy” he says. “For foreign domiciled clients the rules are generous but you have to play by them: if you get it wrong a large bill is the penalty.” He hastens to add that the investigations he handles are not generally into his own clients but those referred to him by other advisers. John has been involved with the high profile Gaines-Cooper case acting for one of the parties targeted by the Revenue. “The enquiry has been going on for five years and still continues.” Before adding with some feeling: “investigations can last for years and be very stressful.”
Of the rise of the non-dom’, John says the increase has been particularly sharp in the last five years and the march continues with the arrival of the Russians buying London properties purchasing at the top end of the market. “The UK really is a tax and fiscal friendly environment for foreigners, compared to France, Germany or the USA. So with criticism mounting daily in the national press against resident non domiciles who don’t pay tax on foreign assets, I look for the counter argument from John. Should we change the law to potentially put off this type of incoming individual or leave it as it is and benefit from knock on wealth distribution because the individuals spend time and money in the UK? He obliges with his view. “I don’t see any problems with this law and the government is constantly saying they are going to revoke it but haven’t done so, thus far. It is a satisfactory state of affairs. The incoming wealthy bring in a lot of revenue and they do pay VAT and in most cases stamp duty land tax. A large number come to work for banks and their salaries and huge bonuses are taxed at 41% with employers national insurance at 12.8% on top of that. If we brought in tougher tax rules, the exchequer would potentially lose all this income. They would move elsewhere: to Dubai, now a major financial centre with no taxes – or Singapore or Switzerland where taxes are low. This market is very mobile and the London regime suits them. If it didn’t they can move anywhere else with communications improving and lifestyle changes in other countries.” John highlights the statistics. “There are supposed to be 30-40,000 French men living here and I guess half a million resident non domiciles (res non dom). One of the reasons they come, is that they are prepared to pay tax, but they don’t want the hassle of disclosing overseas income. It involves complicated computations to offset tax in other countries. At the end of the day it’s a bit of a nightmare and they may well just turn around and go somewhere else. The result is that Britain loses out on taxable income and wealthy people supporting our general economy.”
MI’s: Mobile individuals.
We all have a plethora of mobile devices and regularly read about mobile working and virtual offices but mobile-individuals are another trend John can see on the rise. “A lot of people are working in the consultancy field, are highly paid and aren’t finding it necessary to have proper offices or secretaries. They can work from a phone, handheld device or Blackberry and do so just as easily on a plane as on the ground which gives them an opportunity to do away with a presence in any particular country. If they don’t have a tax presence here it’s difficult for the tax authorities to latch on to them and make a tax claim stick. They can organise themselves so that they are not resident anywhere, spending broadly less than three or four months in any particular country.
Tax office gets slicker
Surprisingly John says dealing with tax investigations is always fun and seems to suggest it is fun with a capital F. As this seems contrary to normal logic, I probe further. “It’s because there is quite a lot of technical argument. The revenue are very good on the law of tax and on statutes and important cases. So you deploy plenty of legal argument as a first stage. The second and final stage is about bargaining and ‘horse trading.’ , John is rather respectful and supportive of their approach. “They are commercial and will come to some pragmatic deal. They are very professional the says although there was certainly a time when some of the tax people who dealt with wealthy foreigners, used to literally kick their doors down and demand tax. They operated like a cowboy outfit and a law unto themselves. Those people have gone but this makes them tougher to deal with.”
John’s skills aren’t limited to private taxation because he believes like many counterparts that it’s important to have a breadth of skills. “I do quite a lot of business and corporate tax because client affairs frequently involve companies and sometimes VAT issues.” He continues with a view on the industry segmentation. “I think people are too specialised and those who advise wealthy non doms, will increasingly need to bring in corporate tax knowledge.”
Of Switzerland, John rates the law firm of Lenz & Staehelin very highly but says Homburger in Zurich is one of the “best and strongest commercial firms.” Although he concedes Homburger is more a corporate orientated law firm. “They have a lot of wealthy business clients and important individual clients. He confirms his point about needing corporate skills. “The European lawyers don’t make distinctions between private and corporate work. They get surprised when one week they send a personal client to us and the next week it’s corporate and people say they can’t deal with it. I had a client who was buying a flat here for £28million which was owned by a company and so normally it would be a straightforward transaction. He would buy the company and that would be it. Unfortunately for the client there was something wrong with the company he was buying. It meant the deal had to be reengineered which threw up complex tax, stamp duty and land issues. Accountants couldn’t advise on that sort of problem and many private client lawyers would have thrown up their hands in despair. Our general knowledge of business tax meant we could deal with it. We undoubtedly saved the client about a million pounds in tax on that deal which had gone seriously wrong.”
Philanthropy is the word of the year so I ask John about a comment I heard from another charity expert who mentioned that worthy causes have become a quick route into local acceptance at a high level for incoming super rich. John agrees but says that one of the things which has caused him most professional satisfaction in his career was when a client, ploughed back tax savings into charitable projects in India and used his management skills to ensure that it was spent with much better effect than had the money gone to HM government.
John offers a set of pointers that ultra wealthy clients should think about before entering Britain. “Firstly I think it’s very important that they get everything set up before they come here. They have to plan from the outset. Secondly, they should never have any meetings with the tax authorities themselves without their advisers. The tax office will try and have meetings but it is fine to say no.” He tells a rather alarming story. “There is an expensive street in Holland Park that was targeted by tax officials who knocked on every house. They would talk to unsuspecting gardeners and house keepers and ask about the owners and how many times they visited and if they were running businesses. They were systematic and went to every house. A client called me and said ‘they are banging on my door and want to interview me’. I said the tax people have no right to have a meeting with a tax payer unless the tax payer allows it, so send them away.”
John concedes that Farrer's weren’t seen as an international firm a decade ago. “They were very much UK families and landed estates. He started up the international private client side and it has really mushroomed.
And a final word? “In some parts of the private wealth market there is a move towards a broad brush approach in running the affairs of wealthy international people, but many overlook precise technical detail of our tax rules. It is vital to give proper tax advice to the resident non dom. Some think “if we can get it more or less right, the revenue won’t attack the arrangements.” It is the wrong way to go about it. You must get it correct down to the finest detail. The clients can then sleep well at night.” ©
http://www.farrer.co.uk/
http://www.citywealthmag.com/
The Merrill Lynch Cap Gemini World Wealth report summary
The ranks of wealthy private investors are growing. Not only that, they better understand world markets and are more active in managing their portfolios, according to the latest World Wealth Report from Merrill Lynch and Capgemini.
The sector is growing faster than in recent years. The number of European individuals joining the ranks of wealthy investors rose substantially in 2006, but not as fast as those investors from emerging market countries, who are becoming more prominent.
At the same time, the report details ever clearer patterns of how the wealthy are becoming more ambitious with their investment choices and more sophisticated in their understanding of the markets.
This means that for firms serving private clients, like Merrill Lynch, simply keeping up with the changes in tastes is no longer good enough. We also have to anticipate the individual needs of this ever more important group.
World wealth accelerates 2006 marked a return to growth in private wealth. Worldwide, the number of people with more than US$1 million in net investable assets grew by 8.3% to 9.5 million. Assets held by these high net worth individuals (HNWIs) grew by 11.4% year-on-year to US$37.4 trillion. These strong gains followed a slowdown in growth in 2005.
Wealth continues to consolidate with the assets of the ultra high net worth individuals (those with net investable assets of more than US$30 million) outpacing the wider HNWI population.
Fuelling this strong performance was the powerful combination of robust GDP growth and gains in world stock markets, as market capitalisations accelerated in most regions of the world.
Mature European economies including Germany, France and the United Kingdom saw significant uplifts in real GDP growth. Key emerging market economies, notably China and India, managed to improve on already fast-paced economic growth.
The Dow Jones World Stock Index grew by 16.4% in 2006 compared with 9.5% in 2005. HNWIs took advantage of booming stock markets in Europe, Asia Pacific and Latin America. For example in Asia, the Shanghai/Shenzhen market capitalisation grew by 220.6% - largely due to new companies floating.
European wealth hits US$10 trillion Europe enjoyed its strongest year of wealth growth since 2000 with total high net wealth reaching the benchmark level of US$10 trillion, thanks in part to greater business confidence.
Numbers of HNWIs in the region grew by 7.8%, easily surpassing growth in the previous 12 months of 4.9%. Among the EU 27 nations the high net wealth population grew by 6.4% - comfortably ahead of gains in 2004-2005 of 4.6%.
GDP growth levels in the EU, while not spectacular, were a significant improvement on 2005. Italy, for example, moved from stagnation (0.1% growth in 2005) to growth of 1.7% in 2006. More tellingly, economic sentiment in November 2006 reached its highest level since January 2001. For example, Germany’s IFO Business Climate Index in December 2006 hit its highest level since it was rebased in 2000.
Business confidence was a key factor in France and the UK where the high net worth population grew at faster rates in spite of slower stock market growth than 2005. France had 6% more HNWIs by the end of 2006 and the UK 2.7%.
Emerging markets gather pace HNWIs in emerging markets are growing at a pace that reflects the speed of wider development in these dynamic economies. Asia’s star performers were Singapore and India – whose high net worth populations each grew by in excess of 20%. India registered its 100,000th US dollar millionaire.
Russia’s wealthy population grew by 15.5% to reach 119,000. The United Arab Emirates saw its high net wealth population grow by 15.4%. Both countries benefited from the high price of fossil fuels. Russia was also boosted by the rapid development of its stock market. Many large state-owned companies had their initial public offerings and shares of several Russian banks more than doubled in value.
Africa, meanwhile, befitted from high commodity prices which boosted foreign direct investment in mining and exploration. The continent’s high net worth population increased 12.5% and wealth grew by 14%.
Alive to market trends HNWIs demonstrated in 2006 just how nimble they have become, shifting portfolios to adapt to prevailing market. After the rush towards alternative assets, such as hedge funds, in the earlier years of this decade, wealthy investors took a sizable step back in 2006 responding to relatively poor performances by such assets as hedge funds. They liquidated large quantities of these investments and increased allocations to the real estate market, taking advantage of a surge towards record prices in the sector.
Allocations to alternative assets halved – from 20% of HNWIs’ financial assets in 2005 to just 10% last year.
Though superficially significant, Merrill Lynch believes that this was a tactical move by HNWIs, rather than a long term movement from assets such as hedge funds, commodities, foreign exchange and structured products. Merrill Lynch projects allocations to alternative investments to climb back to 13% in 2008.
Just as they spotted the dip in alternative assets HNWIs around the world identified the opportunities for higher returns in real estate, shifting allocations to 24% of portfolios, up from 16% in 2005.
They did so as commercial real estate prices shattered records in 2006, largely due to a wave of consolidation among US real estate companies. Furthermore pension funds, foreign investors, real estate investment trusts (REITs) and private equity funds drove prices skywards as they competed for the same real estate properties.
Returns on REITs, funds that buy and manage income-earning property, outperformed equities for the seventh year in a row. The US Real Estate Index made gains of 34.4%, up from 8.3% in 2005. HNWIs are more resilient than others to dips in residential property prices. They typically hold half of their real estate assets in second homes without mortgages – leaving them far less exposed to higher borrowing rates.
As well as showing adaptability, HNWIs are acquiring a greater taste for less familiar markets. North American investors in particular are becoming more global, driven by greater awareness of international developments, better portfolio performance and risk management. Wealthy North Americans increased allocations to Europe, Asia-Pacific and Latin America. They now invest 27% of assets outside domestic markets compared with 22% in 2005.
Taste for SRI
A third important trend among wealthy investors is their increasing consciousness of social and environmental concerns. More HNWIs want to invest in companies and financial products that share and reflect their concerns.
Globally, socially responsible investments form 8% of the HNWI asset pool. Investors in Asia-Pacific lead the way with a 14% allocation to SRI. North American and Middle Eastern investors allocate 8% while Europeans allocate a below average 6%.
More than 160 investors, investment managers and corporations representing US$5 trillion in assets, had by the end of 2006, signed up to the “Principles for Responsible Investment” – a project co-ordinated by the United Nations that seeks to raise environmental, social and governmental issues among investors.
Increasingly, it is becoming easier to find opportunities to invest in and support green technologies. Large institutions, such as corporations and venture capital firms are backing development of new fuels such as ethanol and fuel cells. Globally, more than US$70 billion was invested in green technologies in 2006, up 43% on the previous year.
Lessons for the industry
What is crystal clear from the report is just how important it is to listen to investors. Financial firms serving this dynamic community have to pay acute attention to the ever more specialised needs of their clients.
From the lower wealth bands to the richest, clients across the board agree that good service quality more than any other factor keep them loyal to a wealth management firm. Furthermore clients rely heavily on advice and recommendations from friends and family in choosing a wealth manager.
Listening to and taking the effort to learn more about their clients is putting wealth managers in a better position to the identify new and more adventurous investment opportunities that investors appear increasingly to want.
Successful, dynamic approaches to wealth management include segmenting clients in a more sophisticated way than simply by assets under management. Interests, cultural background and financial behavioral attributes are important factors in aligning clients with the right products.
Secondly, firms must constantly assess whether their product range and approach is good enough to keep their clients happy over the long term. Their strategy must keep up with the market.
Thirdly, as technology evolves rapidly firms must take care to ensure they are delivering services through the channels that clients want. Some might want a single advisor, others prefer teams. Some like online private banking while others prefer to speak to someone on the phone. These preferences do not tend to correlate with specific levels of wealth.
By following these ideas, financial services firms can aspire to strengthen client relationships, increase investment activity and, ultimately, build a richer bond with their wealthy clients. ©
