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

Key Roles for Professional Advisors

in Families’ Governance - Part I

Presentation to Securities Industry InstituteMarch 12, 2003

Betsy A. MangoneElizabeth 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

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 Advisors

Everyone has advisors.

It takes time to manage them.

They do not always work as a team.

Sometimes you “outgrow them”.

Challenges for Clients

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

Issues are interrelated.

People need different help at different times.

We are not always expert in the implications of decisions we make.

Why a Key Advisor?

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 InstituteMarch 12, 2003

Elizabeth L. Mathieu, Esq.

Betsy A. Mangone

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

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.

Is Philanthropy Big Business?

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

Will Individual Giving Continue to Rise?

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.

The Important Role of Professional Advisors in Philanthropy

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.

Understanding Your Client’s Philanthropic Motives

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 billionSource: The Foundation Center, New York, NY.

Investment Management

Paying Taxes

The Self-dealing Rules

Goal Setting

Opportunity Number One: Family Foundations

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