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Key Roles for Professional Advisors in Families’ Governance - Part I

Key Roles for Professional Advisors in Families’ Governance - Part I. Presentation to Securities Industry Institute March 12, 2003 Betsy A. Mangone Elizabeth L. Mathieu, Esq. Preface. World-wide, 7 trillion individuals control $26 trillion The US: 3.3 million households ≥ $1MM

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Key Roles for Professional Advisors in Families’ Governance - Part I

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  1. Key Roles for Professional Advisors in Families’ Governance - Part I Presentation to Securities Industry Institute March 12, 2003 Betsy A. Mangone Elizabeth L. Mathieu, Esq.

  2. 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

  3. 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

  4. Challenges to Objective Advice in Short-term • Open architecture • Staffing • Internal conflicts • Accountant referral fees • Lawyer services • Multifamily offices • Regulatory protection of the “wealthy”

  5. Protecting You and Your Client by Providing Objective Advice • Systematic approach to adding advisors • Grasp of the fundamentals of disciplines outside immediate expertise

  6. 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

  7. 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

  8. Challenges for Advisors • Increasingly complicated • State/Federal laws/regulations • Investment environment • Interconnected advisor environment • Individuals’ complicated objectives vs. cookie-cutter plan expectations • Under-valued/priced advice

  9. Challenges for Clients • Everyone has advisors. • It takes time to manage them. • They do not always work as a team. • Sometimes you “outgrow them”.

  10. 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

  11. Options • DIY (friends, books, internet, seminars) • One advisor • Team of equals (you’re the leader) • Key advisor leading team

  12. Why a Key Advisor? • Issues are interrelated. • People need different help at different times. • We are not always expert in the implications of decisions we make.

  13. 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

  14. 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

  15. 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

  16. Key Advisor: Responsibilities • Build a process to deal with life’s issues • Have a broad range of solution options to different problems

  17. Key Advisor: Attributes • Never says a word about clients to others • Is impartial • Is straightforward • Does not use clients for marketing

  18. 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

  19. 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

  20. 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?

  21. 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?

  22. 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?

  23. Advisors: Generic Q & A • Expertise – Now and Future • Credentials/years experience? • Professional designations? • Attendance at professional meetings? • Membership in a select professional body?

  24. Advisors: Generic Q & A • Expertise – Now and Future • Examples of how advisor addressed more complicated issues than client has? • Client and other advisor references?

  25. 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?

  26. 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?

  27. Advisors: Generic Q & A • Compensation Structure • Fees? • Minimums? • Changes in the last two years?

  28. 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?

  29. 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?

  30. 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?

  31. Also, Questions Cliend should Ask Self at Least Annually Do I still trust her/him to work for my best interests?

  32. Even if you are on the right track, you will get run over if you just sit there. Will Rogers

  33. 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….

  34. Key Roles for Professional Advisors in Families’ Governance - Part II Presentation to Securities Industry Institute March 12, 2003 Elizabeth L. Mathieu, Esq. Betsy A. Mangone

  35. Seventy-six percent of charitable dollars come from individuals, as opposed to foundations and corporations

  36. Is Philanthropy Big Business? 1 American Association of Fund Raising Counsel, Giving USA, 2001.

  37. Will Individual Giving Continue to Rise? • 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

  38. The Important Role of Professional Advisors in Philanthropy The Impact of the Professional Advisor on Charitable Planning Percentage of donors who identifies professional advisors as the source of the charitable planning idea 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.

  39. Why Have Americans Been Giving? Understanding Your Client’s Philanthropic Motives 3 National Commission on Philanthropy and civic Renewal. September 1996.

  40. Women as Philanthropists 4 Reinventing Fundraising, Sondra C. Shaw, Martha A. Taylor, Jersey-Bass, 1995.

  41. 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

  42. 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%. Source: The Foundation Center, New York, NY.

  43. Opportunity Number One: Family Foundations • Investment Management • Paying Taxes • The Self-dealing Rules • Goal Setting

  44. Opportunity Number Two: Donor Advised Funds Source: Chronicle of Philanthropy, May 2001.

  45. 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

  46. Conclusion • The future ain't what it used to be. • Yogi Berra

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