From the November 2007 issue of Investment Advisor • Subscribe!

A Lean, Custom Team for Today

An advanced planning team is often a better choice than a family office

One of the benefits of multi-disciplinary teams is that they can uncover hidden problems--or details--in a client's financial life. As we saw in last month's column, prospects and even long-term clients may intentionally or unintentionally hold back on giving you the full picture. Having a team of financial detectives with different specialties on the case often leads to better solutions.

While family offices and multiple family offices provide a variety of services for their ultra-high-net-worth clients, the price of admission is substantial--as are the annual fees and long-term commitment. (For single-family offices, a minimum of $100 million net worth is required, and about $20 million for multiple-family offices.) For the high-net-worth client who wants bookkeeping, family business oversight, concierge services, and other support from a central source, the family office may make sense. However, for most families of similar and greater net worth, strategic advanced planning teams are more efficient, effective, and economical.

A variety of independent advisors--from solo practices to firms with multiple-teams in several cities--use this approach to provide the best service for clients. While the management and selection of teams varies, flexibility and matching client needs with the right expert are constant themes.

Internal and External Experts

"You have to have a multi-disciplinary approach, whether you are doing it in-house, or whether you are teaming it up with five specialists," says Mark Brown, of Brown & Tedstrom in Denver. "Based on our experience with technical sub-specialties, we'll match the client situation with an outside expert. We will work with these people since we know their standards and that they are all thorough."

Selecting the right blend on internal and external team members becomes an exercise in subtle analysis of the client situation. "We have multiple professionals within the firm providing different services and at different levels of expertise," says Peter Carnathan of the Fiduciary Trust Company International office in Washington, D.C. "Depending on the individual client, we often have to involve external professionals, external team members. For example, we don't have any attorneys in-house that would draft a will or trust document. We would always need to use an outside attorney." Once an outside attorney creates the documents, however, the staff legal professionals would serve as trust counsel and serve ultimately as trustees.

Other areas of advanced planning, in addition to the drafting of documents, may reach beyond the firm's internal business capabilities, including insurance solutions, providing legal advice, or accessing certain lending vehicles.

A Multiple-Team Service Model

"One of the things we noticed as we got bigger that was really important was to continue to provide the same level of service to each client, says Brent Beene of RegentAtlantic Capital, LLC in Chatham, New Jersey. "If you're working with high-net-worth clients, they're just not going to put up with bad service."

For Beene's firm, which now has 13 wealth managers, the solution was to create in-house service teams assigned to each client. Operating these much as smaller independent financial planning firms, the members of each include a manager, financial advisor, analyst, and client service administrator. Each team looks after AUM of $150-250 million, a figure similar to many independent investment practices. "We have been able to fully create economies of scale by having an investment team that does the trading and the rebalancing for each of the teams," he says.

Beene sees his role as the quarterback overseeing the entire process. The firm pulls in outside experts, and the additional professionals they require in particular technical areas, once it determines the client's needs. "We review documents, not for the legality but just to make sure that all the Is are dotted and the Ts are crossed. For example, we oversee whatever needs to be done to fund an irrevocable life insurance trust. We see implementation all the way through."

Beene prefers to have all team members meet in person when possible so all details are communicated correctly and effectively. If the firm has worked with an outside expert previously, they invite him to the office to meet with clients and lay out the case. On the other hand, if team members aren't familiar with a new expert, they spend time getting to known him before any meetings with clients take place.

Structure--with Flexibility

Beene's firm managed the trusts for the wife of a Denver couple whose net worth was about $30 million with a total of about $15 million in investable assets. The husband, "John," had had a long-term relationship with another firm, but began discussing some additional work with very large trust firms. After some preliminary conversations, he became interested in considering Beene's firm--while a large independent, it was considerably smaller than the other contenders. John liked the idea that he'd be a substantial client for Beene's firm and he'd get a higher level personal service than he'd likely receive at a larger firm where his assets were less significant.

Based on several prior conference calls to get a better understanding of the couple's goals, Beene and other advisors flew out to Denver to meet with them. They brought a Monte Carlo analysis to gain a better understanding of their current assets and how the firm might re-allocate the portfolio. As they proceeded through the rest of the investigative process to understand their financial picture, certain concerns came to light:

  • They probably didn't have the right estate documents;
  • They needed to reduce potential gift or estate taxes on highly appreciated stock;
  • Their charitable contributions consisted of cash as opposed to appreciated positions.

John, a securities attorney, also mentioned his interest in a second-to-die life insurance policy for estate planning purposes. Since he was well connected in the Denver legal community, he knew an estate attorney whom he liked very much, but he still wanted Beene to quarterback the comprehensive plan including implementation of the life insurance contract. Since the estate attorney was very familiar with strategy, the firm successfully worked with her over the phone---a break from its preferred method of collaborating. Beene sees consultation and agreement among all members as essential before proceeding to the next step, regardless of the team structure and ground rules employed.

While examining all aspects of the couple's financial life, the team uncovered the fact that John didn't have the best kind of retirement plan for his business, although this topic was beyond the initial scope of the engagement. The team brought in a retirement-plan specialist who was able to save many thousands each year in taxes. While John had been told previously that he should change his retirement plan, no one had showed him how to implement it.

Tapping Specialists

"I do comprehensive planning up front," says Patrick Dougherty who operates a solo practice in Dallas, Texas. "I handle basic investment planning and management and financial planning in house. I bring outside experts for specific cases as I need them. I can bring in two different tax people. First, I use a CPA that's primarily tax-focused for personal income tax-type situations. Then, I have a different person, a stock-options strategist, who's really experienced in figuring out the impact of AMT. And then I have three different estate-planning attorneys that I use depending on the complexity and what kind of planning the client needs. For risk management, I use a few different people--for life insurance, long-term care coverage, and credit."

Dougherty meets with his outside experts in person to discuss different strategies for his clients, but brings them to his office for client meetings so he's always present. He used to send clients to specialists, but there had been some miscommunication in some cases. He feels that since he's focused on the comprehensive view, he can quickly make corrections to any misstated solutions or goals.

Mutual Respect Behind the Collaboration

"The main thing is to be able to work in a collaborative fashion," says Carnathan. "I think it is probably best described as having a mutual understanding of one another's business and skill set, as well as respecting one another's professional ability. I think that is really fundamental to having a strong relationship. Where the collaborative part comes in is identifying what role each individual serves and knowing where one ends and where another begins. And, we all need faith in one another's ability to follow up with a client."

He also sees understanding one's limits as central to the collaboration process. "I wouldn't delve into the world of tax advice for a client. I know is that it is not my area of expertise. At the same time, the accountant on the team would be very deferential when it comes to investment advice. Both of us having a mutual understanding of one another's skills is extremely important."

Not Always a Quarterback

A trust and estate attorney who shared several clients in common with Carnathan's firm referred a client with about $10 million in investable assets and a net worth of about $20 million. The attorney, who would draft the documents, suggested to the client that Carnathan's firm should act as trustee and act as the portfolio manager, as well. In this case, the attorney had the relationship with the client and the firm just played the role of team member--not quarterback and manager.

Carnathan and other advisors at the firm remain flexible in how client teams are formed. The firm has the ability to prepare tax returns, for example, but Carnathan and others only raise that possibility with certain clients. If the client comes to the firm via a referral from an outside CPA, they support the client's relationship with that professional and don't push for a change.

Similary, not making a referral can help the client relationship and lead to new business.

Carnathan has a client with about $5 million in investable assets who had originally come to the firm for portfolio management. As part of a routine review of his and his wife's wills, the in-house counsel identified several issues--the documents required updating in light of new tax laws that had been passed since the original drafting. In this case, rather than provide a referral to one of their established external estate attorneys, Carnathan contacted the client's attorney, since the advisor knew him from the Washington legal community and proposed that they work together. This strategy could lead to other cases that could be originated by either party, providing the added benefit of creating new business for the firm.

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