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

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

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 clients 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 clients goals Nature and extent of impartiality On-going investment in expertise On-going investment in client service

8 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

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

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 (youre the leader) Key advisor leading team

12 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?

13 Definition of Key Advisor Unbiased interest in clients 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 clients level of interest in technical details Communicates as clients wishes Oral words Written numbers

15 Definition of Key Advisor Supports the clients 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 lifes 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 advisors office Discussions with their: Service providers Professionals worked with Clients

20 Advisors: Generic Q & A Fit with Goals How will advisors 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 clients family members feel about the person? Did the advisors 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. Its 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 YearPhilanthropic Giving 1929In spite of the economic climate, charitable giving totaled $1.28 billion 1980Private giving rose to $48 billion 1990Charitable giving more than doubled - to $111.9 billion 2001$212 billion – 75.8% from individuals 1 1 American Association of Fund Raising Counsel, Giving USA, 2001. Is Philanthropy Big Business?

37 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?

38 The Impact of the Professional Advisor on Charitable Planning Percentage of donors who identifies professional advisors as the source of the charitable planning idea 19921999 Bequests4%29% Charitable Remainder Trusts14%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

39 Why Have Americans Been Giving? MotivePercent To help those that have less than they do60.6% To gain a sense of personal satisfaction from giving47.3% 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 Clients Philanthropic Motives

40 Women as Philanthropists CreateWomen like to create something with their philanthropic gifts ChangeWomen like to bring about change with their philanthropic gifts ConnectWomen like to have a direct, face-to-face connection with the project that they fund CommitWomen are quite committed to the causes that they support and want to give time as well as money CollaborateWomen like to work together as a group with other women to pool their gifts in order to fund a project CelebrateWomen like to celebrate their fundraising accomplishments and to have fun. 4 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%. Number of FoundationsTotal GivingTotal Assets 199817,133$ 6.0 billion$126.0 billion 199920,498$9.0 billion$177.8 billion 200024,434$11.3 billion$197.7 billion Source: The Foundation Center, New York, NY.

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

44 Opportunity Number Two: Donor Advised Funds The Chronicle of Philanthropys Survey of Donor Advised Funds - May 2001 2000 vs. 1999 Value of AssetsUp 29% Grants AwardedUp 39% Number of Donors Setting up FundsUp 33% 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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