Key-Roles-for-Professional-Advisors-in-Families-Governance-WhartonPresentation

							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

       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
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
    Challenges for Clients
 Everyone has
  advisors.
 It takes time to
  manage them.
 They do not always
  work as a team.
 Sometimes you
    “outgrow them”.
    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
    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.
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 Institute
              March 12, 2003
                               Elizabeth L. Mathieu, Esq.
                               Betsy A. Mangone
Seventy-six percent of charitable dollars
come from individuals, as opposed to
foundations and corporations
       Is Philanthropy Big Business?

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.
     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
     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
                                                          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.
    Understanding Your Client’s
    Philanthropic Motives

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.
         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 billion
Source: The Foundation Center, New York, NY.
    Opportunity Number One: Family Foundations

    Investment Management

    Paying Taxes

    The Self-dealing Rules

    Goal Setting
        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