Advisors like to know that the money managers with whom they entrust their clients’ assets have some significant part of their own money in the funds they manage. Having some skin in the game may be good, but no rational investor would put all their assets into a single strategy. So who looks after the money manager’s money while the money manager is looking after someone else’s money?
Among those taking on that task are Paul Tramontano and Sam Katzman, the chief executive officer and chief investment officer, respectively, of Constellation Wealth Advisors, a wealth management firm with offices in New York and Menlo Park, California.
“We have a lot of professional investors as clients,” says Tramontano. “Out in our Menlo Park office, some of the most famous venture and private equity people are clients of our firm. One woman said to me, ‘You guys are like the doctors’ doctor,’ but in essence that’s what we’ve become.
“What I would tell you about professional investors,” he continues, “whether they’re hedge funds or venture, or private equity–they know what they know. And they don’t know all the other things that are important to an overall financial plan. They tend not to do a lot of estate planning and generational planning for their families. Some get very wealthy and they don’t even have wills. These are all the things that we do well. We’re flattered that sophisticated people have chosen us, but the more important thing is that it’s a great help to our business as well.”
Although the makeup of their clients is not something the firm advertises, Tramontano says that having professional investors as clients gives them access to a tremendous amount of intellectual capital. If the principals at Constellation are considering an investment idea, they have reliable sources they can access to help them vet it. The same is true if they’re looking for references on a new money manager that’s under consideration.
The Firm’s Genesis
Although they founded Constellation in April 2007, Tramontano and Katzman have been working as a team for more than 10 years. Prior to making the move to independence they were senior advisors with Smith Barney and then Citigroup’s Citi Family Office.
Like many others who have left the wirehouse environment to go into business for themselves, the driver for Tramontano and Katzman was that they thought corporate decisions were being made that weren’t necessarily in the best interests of their clients. “We were, and still are, advocates of an open, completely transparent investment firm and that’s why Constellation was created,” explains Tramontano. “The way I’ve explained it to clients is, ‘There are manufacturers of financial products and there are people that consume financial products.’ All the large firms have over the past 15 years turned essentially into manufacturers of financial products.”
The partners say they weren’t against the basic premise of manufacturing financial products, but that if they were going to serve the high end of the investment market, they wanted to have access to every possible idea and manager, not just those available on their employer’s platform.
“Our whole goal when working with wealthy families is to make their lives easier and to take control of the financial side of their lives,” adds Katzman. Working in a wirehouse environment, he says, was difficult to do because the advisor only reports on the assets held by the wirehouse and few very wealthy clients have all their money in one place. That makes it very difficult, Katzman says, for the advisor to come up with a truly comprehensive financial plan.
Asking the Right Questions
Like any advisor operating in the rarefied air of the family office segment, those at Constellation say they are ready to supply whatever the client needs to make their financial lives easier, including helping to negotiate the purchase of a new home or even an employment contract. “We tell people that we’re all things to some people,” quips Tramontano.
“We’ll do almost anything,” adds Katzman. “At the core of what we do is investing and helping people think about their finances and everything else in life. If we don’t have the expertise, we’ll find it, we’ll get it, we’ll vet it, and we’ll get it done, but the core of the firm is as an investment/financial advisor.”
Constellation focuses on clients with $10 million or more to invest, and while most clients at that asset level have worked with other advisors previously, that’s not always the case.
“We wouldn’t generally lead with the investments,” explains Tramontano about how he would handle such a scenario. Instead he would spend time looking at the clients’ current financial situation–their wills and estate documents, home ownership, insurance coverage, and the like–and developing an understanding of their risk tolerance.
“I’ve said for many years that clients know exactly what they want to invest in; they just don’t know how to do that,” he continues. “Our role is to make sure we ask the right questions to get to that; that’s how we can add value.”