key roles for professional advisors in families governance - part i presentation to securities...
TRANSCRIPT
Key Roles for Professional Advisors
in Families’ Governance - Part I
Presentation to Securities Industry InstituteMarch 12, 2003
Betsy A. MangoneElizabeth L. Mathieu, Esq.
Preface World-wide, 7 trillion individuals control $26 trillion
The US:
3.3 million households ≥ $1MM
10,000 households ≥ $50MM
The state of objective advice in the US:
ERISA, MIFA, discount brokers and fee-only financial planners
The state of objective advice for the wealthiest
Objective Advice Today Fundamental conflicts of interest in the fabric of the industry Financial analysts Lawyers/accountants – off balance sheet financing
Private Banking Stock option holding senior execs of public companies
Challenges to Objective Advice in Short-term Open architecture
Staffing Internal conflicts
Accountant referral fees Lawyer services Multifamily offices Regulatory protection of the “wealthy”
Protecting You and Your Client by Providing Objective Advice
Systematic approach to adding advisors
Grasp of the fundamentals of disciplines outside immediate expertise
Systematic Approach to Choosing Advisors Avoids taint of referring to referral sources
Deepens your understanding of client’s needs
Expands knowledge of other disciplines
Expands knowledge how to work with other professionals for client
An Approach to Selecting Any Advisor How to… books, seminars, articles
Not addressed: Fit with client’s goals
Nature and extent of impartiality
On-going investment in expertise
On-going investment in client service
Increasingly complicated State/Federal laws/regulations Investment environment Interconnected advisor environment
Individuals’ complicated objectives vs. cookie-cutter plan expectations
Under-valued/priced advice
Challenges for Advisors
Everyone has advisors.
It takes time to manage them.
They do not always work as a team.
Sometimes you “outgrow them”.
Challenges for Clients
How Clients Generally Choose Advisors
For What: A transaction
When: Life transitions Something goes wrong…. I really should have done this years ago…..
How: Friends or other advisors refer Ask professionals using currently to do
Options DIY (friends, books, internet, seminars)
One advisor
Team of equals (you’re the leader)
Key advisor leading team
Issues are interrelated.
People need different help at different times.
We are not always expert in the implications of decisions we make.
Why a Key Advisor?
Definition of Key Advisor
Unbiased interest in client’s welfare
Willing to handle multiple, complex, hard and soft issues
Knows limits of expertise and business model
Definition of Key Advisor Understands client in context of family
Responds to client’s level of interest in technical details
Communicates as client’s wishes● Oral ● words● Written ● numbers
Definition of Key Advisor Supports the client’s decision making process
Has no product/clear about objectivity limits
Process in place for choosing and managing other professionals
Key Advisor: Responsibilities
Build a process to deal with life’s issues
Have a broad range of solution options to different problems
Key Advisor: Attributes Never says a word about clients to others
Is impartial
Is straightforward
Does not use clients for marketing
Key Advisor: Attributes
Willing to:
Handle all the issues
Work with your other advisors
Say “You did not create the problem so you do not have to solve it.”
Not a financial or legal advisor –
a Life Advisor
Search Process - Summary Options
RFP Formal interviews
Before engagement Due diligence visit to advisor’s office
Discussions with their: Service providers Professionals worked with Clients
Advisors: Generic Q & A
Fit with Goals
How will advisor’s services/advice help client achieve goals?
What % of clients is like your client?
Does the advisor deal best with individuals or family?
Advisors: Generic Q & A
Fit with Goals Avg. # of years a client stays with the advisor?
Examples of how the advisor has helped clients?
Most/least successful team experience?
Type of client is the advisor most/least comfortable with?
Advisors: Generic Q & A
Nature and Extent of Impartiality How does the advisor get paid and by whom?
Is cross-selling part of goals?
Does the advisor receive referrals from recommended third parties?
Advisors: Generic Q & A
Expertise – Now and Future Credentials/years experience?
Professional designations?
Attendance at professional meetings?
Membership in a select professional body?
Advisors: Generic Q & A
Expertise – Now and Future Examples of how advisor addressed more complicated issues than client has?
Client and other advisor references?
Advisors: Generic Q & A
Process and Investment in the Future Frequency of client communications and means?
How does the advisor work with other professionals?
How does the advisor motivate staff to serve clients’ needs?
Advisors: Generic Q & A
Process and Investment in the Future Succession planning?
Investments in technology?
Reputation and what advisor is doing to keep it?
What controls are in place to protect client confidentiality?
Advisors: Generic Q & A
Compensation Structure Fees? Minimums? Changes in the last two years?
Questions for Clients After the First Meeting
Did the advisor seem to listen/understand?
Did she/he seem to have an answer too quickly?
Did she/he seem committed to a particular solution?
Were options discussed?
Questions for Clients after First Meeting
Were you comfortable with the advisor?
Did the advisor seem comfortable?
How will client’s family members feel about the person?
Did the advisor’s recommendations make sense?
Did her/his recommendation about how to proceed after the initial meeting make sense?
Also, Questions to Ask an Advisor at Least Annually
Change in focus or mission? New expertise? Change in process? Change in continuing education of staff?
Staff/client turnover? Change in fee structure? Institutional change?
Also, Questions Cliend should Ask Self at Least Annually
Do I still trust her/him to work for my best
interests?
Even if you are on the right track, you will get run over if you just sit there.
Will Rogers
Conclusion
Everyone in the family should be involved.
It’s a process and an on-going one. It does not have to be hard. A team functions best with a “leader”.
There is no one “right” approach for all time….
Key Roles for Professional Advisors in Families’ Governance - Part II
Presentation to Securities Industry InstituteMarch 12, 2003
Elizabeth L. Mathieu, Esq.
Betsy A. Mangone
Seventy-six percent of charitable dollars come from individuals, as opposed to foundations and corporations
Year
Philanthropic Giving
1929
In spite of the economic climate, charitable giving totaled $1.28 billion
1980
Private giving rose to $48 billion
1990
Charitable giving more than doubled - to $111.9 billion
2001
$212 billion – 75.8% from individuals1
1 American Association of Fund Raising Counsel, Giving USA, 2001.
Is Philanthropy Big Business?
The public is more aware of the personal as well as the philanthropic benefits of charitable gifts
There is increased attention to charitable giving in the media
Charities are ever more aggressive in their solicitations
Twenty-nine percent of the U.S. population born between 1946 and 1964 now stand to inherit more than $10 trillion dollars
Will Individual Giving Continue to Rise?
The Impact of the Professional Advisor on Charitable Planning
Percentage of donors who identifies professional advisors as the source of the charitable planning idea
1992 1999
Bequests 4% 29%
Charitable Remainder Trusts
14% 68%2
2 National Committed on Planned Giving, “Planned Giving in the United States, 2002” as quoted by Bruce Bigelow, “Planned Giving in the United States 2002”, The Journal of gift Planning, First Quarter 2001.
The Important Role of Professional Advisors in Philanthropy
Why Have Americans Been Giving?
Motive Percent
To help those that have less than they do 60.6%
To gain a sense of personal satisfaction from giving
47.3%
To return to society some of the benefits it gave them.
44.1%3
3 National Commission on Philanthropy and civic Renewal. September 1996.
Understanding Your Client’s Philanthropic Motives
Women as Philanthropists
Create Women like to create something with their philanthropic gifts
Change Women like to bring about change with their philanthropic gifts
Connect Women like to have a direct, face-to-face connection with the project that they fund
Commit Women are quite committed to the causes that they support and want to give time as well as money
Collaborate
Women like to work together as a group with other women to pool their gifts in order to fund a project
Celebrate Women like to celebrate their fundraising accomplishments and to have fun.4
4 Reinventing Fundraising, Sondra C. Shaw, Martha A. Taylor, Jersey-Bass, 1995.
Why Will Americans Give in the Future?
Motives:
Desire for increased participation in use of their charitable dollars
Control of their financial and philanthropic assets
To create and manage changes in society To create partnerships with charities To teach family members the importance of
philanthropy To integrate philanthropy into their personal
financial and estate planning needs
Opportunity Number One: Family Foundations
Over the three-year period from 1998-2000, the number of family foundations increased 43% and their total assets rose 57%. Total giving increased 88%.
Number of Foundations
Total Giving Total Assets
1998 17,133 $ 6.0 billion $126.0 billion
1999 20,498 $9.0 billion $177.8 billion
2000 24,434 $11.3 billion $197.7 billionSource: The Foundation Center, New York, NY.
Investment Management
Paying Taxes
The Self-dealing Rules
Goal Setting
Opportunity Number One: Family Foundations
Opportunity Number Two: Donor Advised Funds
The Chronicle of Philanthropy’s Survey of Donor Advised Funds - May 2001 2000 vs.
1999
Value of Assets Up 29%
Grants Awarded Up 39%
Number of Donors Setting up Funds Up 33%
Source: Chronicle of Philanthropy, May 2001.
Opportunity Number Three: Charitable Uses of Individual Retirement Accounts
IRA to a Community Foundation or a Donor Advised Fund
IRA to a Private Foundation
IRA to a Charitable Gift Annuity
Conclusion
The future ain't what it used to be.
Yogi Berra