Star Struck

A Hollywood advisory gives up its independence to

Another one bites the dust--though of course, that's a matter of perspective. We're talking about the acquisition of once-independent Bel Air Investment Advisors LLC by State Street Corp.'s investment management arm, State Street Global Advisors, which claims to be the planet's sixth largest money manager with over $709.4 billion in managed assets.

State Street, headquartered in Boston, will acquire a 75% ownership in Los Angeles-based Bel Air and 100% of its securities affiliate for a reported $217 million in cash and stock. As we went to press, the deal was close to being finalized.

The target of State Street's recent effort is high-net-worth individuals, whom State Street CEO David Spina calls "one of the growth areas these days," and who are represented by just the sort of clientele Bel Air has so successfully catered to since its founding in 1997. Bel Air even takes it one step further: Many of their clients are top business and entertainment figures, such as Lee Iacocca and Barbra Streisand. As of Sept. 30, 2000, the firm managed $3.7 billion in assets for approximately 200 individuals and families, mostly in Southern California. Bel Air accepts clients with a minimum of $10 million in liquid assets to invest.

So why does a hot medium-sized firm like Bel Air opt to lose some of its hard-earned independence by selling off? Partly because Bel Air isn't big enough or small enough to guarantee its own long-term viability. Tom Morgan, managing director of Bel Air, recalls an analyst who posited that sooner or later all the money management firms in the middle would be forced to merge into bigger ones, or fail. "Rather than getting gobbled up by a large investment bank, losing our identity, and just packing it in, we had a dream, a vision that we could take this to another level," explains Morgan. SSgA, he believes, will help get them there.

What made the SSgA offer so attractive, Morgan explains, was the realization that when the company was servicing larger accounts, it was necessary to have access to a broader product line than Bel Air already had. "It's in everyone's interest to offer a variety of products," says Morgan. State Street is able to provide this added dimension of services.

"If you stick to one niche . . . you might be fine as a medium-sized firm," says Morgan. "But what we tried to do is be a home to the ultra-high-net-worth individual, and it's pretty hard to do that with just chocolate and vanilla [investment options]."

Bel Air will remain autonomous, operating as an independent subsidiary of State Street while retaining its current management. The firm also will enjoy the flexibility of going outside of Bel Air and State Street for products when deemed appropriate for the client.

Another advantage of the State Street relationship, Morgan says, is that while Bel Air was not equipped to provide in-house trust services, State Street can--something quite attractive to many of Bel Air's larger clients. Then there's technology. Over the past few years State Street has invested a lot of money back into technology, and Bel Air will benefit. "We want to provide our clients with a more robust Web site," Morgan says, noting that presently their clients can log on and see their portfolio as it stood at the close of business the day before. "State Street would give us the ability to have live portfolios, and streaming video by one of our portfolio managers or one of theirs. We think sophisticated and wealthy investors would take advantage of those tools."

As for State Street, according to Spina, SSgA will continue expanding by "replicating" Bel Air's business model in other cities--a natural move since the high-net-worth business produces higher profit margins than the company's institutional clients.--Cort Smith

"No schwab bashing"
TD Waterhouse Institutional Services conference rule: "No Schwab bashing."

Those were the half-jesting opening remarks of Frank Petrilli, president and COO of TD Waterhouse Group, as he addressed the 850-odd independent planners attending Waterhouse's national conference for financial advisors in San Diego last month.

On the heels of Petrilli's remarks came Tom Bradley, president of TD Waterhouse Institutional, who offered that a mere tongue-lashing wouldn't be necessary as Waterhouse could "annihilate the competition with our strategy" for advisors.

So began the Waterhouse executives' crusade to tout Waterhouse's three-pronged strategy for 2001: service, technology, and specialized products.

TD Waterhouse now has 3,000 advisor clients, and is targeting advisors with $50 million or more in client assets. Bradley pumped up Waterhouse's Web-based solution for advisors--called VEO--that was introduced last year to help advisors monitor client portfolios. He also touted AdvisorDirect, a free client referral system that he said should generate 4,000-5,000 referrals this year for the 120 advisors in the program.

Waterhouse also plans to provide administrative and trust services through an alliance with The Capital Trust Company of Delaware. Bradley announced that by year-end, straight-through processing will be available.

In a separate interview, Bradley said Waterhouse is now looking to partner with a technology firm to offer an account aggregation-type service to its separate accounts platform, Managed Assets Network.

Even with Waterhouse's new and enhanced services, it remains to be seen just how many advisors will partner with Waterhouse instead of Schwab. Advisors have been bashing Schwab for some time for training reps to act as brokers and basically competing with them for clients. One attendee's comment, "I think you'll see a lot of advisors go from Schwab to Waterhouse" because of this competition, could be a sign of things to come. That's if Waterhouse refrains from doing the same thing.--Melanie Waddell

Ready for Super CPA?

AICPA and some international partners ponder a designation meant to reflect the new realities of global businessThe American Institute of Certified Public Accountants (AICPA), along with an international group of professional organizations, is mulling a new global designation for CPAs and other professions--including financial planners--called Cognitor, or XYZ (the final name has yet to be decided). The credential will be relevant to a variety of disciplines, and will set up global standards of ethics and competency.

"In the past, a law firm practiced law, a CPA firm offered accounting services, and a management consulting firm provided management consulting solutions," according to the AICPA. The new credential is designed to address the blurring of the lines between professions.

"Studies have shown that CPAs are not perceived as having the breadth of knowledge of a general business consultant," says Dean Mioli, CPA and manager of AICPA's Personal Financial Planning Team. "There are other types of professionals out there we would like to consider our peers." Mioli says the XYZ credential will allow CPAs to do business all over the world.

The AICPA says XYZs will offer multidisciplinary expertise in such areas as information technology, management consulting, business law, quantitative analysis, and change management techniques.

Judy Trepeck, a member of the management team for the AICPA's global institute, says the credential has re- ceived mixed reviews by CPAs, with some fearing it will diminish the value of their main credential.

If ultimately approved by its membership, the AICPA would have to create an independent organization to oversee the credential, says AICPA spokesperson John Hunnicut.--Melanie Waddell

Read my lips
The only thing Al Gore said more frequently last year than "lockbox" was "the wealthiest 1% of all Americans"--a phrase he used to describe who he believed would benefit most from his opponent's tax cut proposal.

President George W. Bush sent that proposal to Congress on February 8. The 10-year, $1.6 trillion cut would replace the current five tax brackets with four lower brackets (10%, 15%, 25%, and 33%), eliminate the estate tax, increase the child tax credit, reduce the marriage penalty, and allow non-itemizers to deduct charitable contributions.

Advisors like Bernard Kiely of Morristown, New Jersey, plan to wait until any tax changes hit the books before mentioning them to clients, but they're watching the president's plan carefully. "I looked at what it would do to my own personal taxes, and thought, 'Oh my God, this is a gift from heaven,'" says Kiely.

While Kiely is happy to see the estate tax on the chopping block, he isn't holding his breath for the axe to fall. "I think eliminating it entirely will be politically impossible. The small business owner, the family farmer--letting these guys not pay estate taxes is a good idea. But forgiving the estate tax to really filthy rich people? I don't think that's politically attainable."--Karen Hansen Weese

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