THE WEALTH PLANNING TEAM OF TOMORROW JOEL KOENIG, MANAGING MEMBER THE KOENIG GROUP, LLC The Past For the past 20 years, numerous firms have offered wealth management and planning services to the fastest growing segment of today’s market – the high net worth and high income clients. In the past, wealth planning was referred as estate planning with emphasis on planning and transfer of wealth through generations. The estate planning process of then was initiated by Trust and Estate lawyers, trusted advisors, or tax planning CPA’s. Today, new models are introduced in this process with the proliferation of multi-family offices, wealth planning consultants, values-based planning consultants, facilitators, philanthropic planning consultants, etc. The question is why? The attorney, while crucial, is not always the most effective team member to advise clients and spouses on their goals and objectives that may not be tax oriented1. In the 1960’s, Rene Wormser, esq., a guru attorney of the estate planning process predicted his thesis on the need to focus on the client’s priority goals, rather than tax saving techniques. His thesis was offered to attorneys and other advisors in an Estate Planning course through the Practicing Law Institute2. The next 40 years will see extraordinary growth of family assets as we embark on the largest transfer of wealth in our financial history. The Growth of the Single-Member Family Office and the Multi-Family Offices There has been an exponential growth in the number of single-member family offices. Their growth was fuelled in part because of the growth of assets and the need to provide services to family members heretofore unavailable. Historically, a typical single-member family office was made up of families who inherited enormous wealth from the barons of U.S. industry. Today, many new family offices emerged after major liquidity events such as: y y y

A large IPO The sale or merger of a very large family business into a giant public corporation or a large private equity firm. The sale of large real estate holdings to a large REIT or to large family controlled public corporations.

Several large single-member family offices have expanded their services to other high net worth families, desiring access to their valuable services3. The suggested model for the single-member family office is a high net worth extended family with $250 million or more4. As a result of the multi-disciplinary infrastructure created in many single-member family offices, a number of these organizations have expanded their offerings to families with $50-100 million to use the services of the family office5. 1

Today, there has also been a proliferation of wealth management firms called multifamily office services to high net worth families. The vast majority of these firms are investment management firms, offering primarily ministerial services of book keeping, risk management, payroll services of family employees; specialized services dealing with fine arts, boats, jet planes, antique cars, thoroughbred horses and other collectables; as well as tax, accounting, bookkeeping, along with their principal source of revenue: financial management and investment advisory services. These multi-family offices deny selling financial products such as tax oriented arrangements, real estate, oil and natural gas ventures, life insurance, or stocks and bonds. They categorize themselves as ‘fee-only’ wealth planning advisors. Yet, they do not offer their primary function – the management and selection of the ‘best in class’ money managers on a purely consultative, independent basis on an hourly rate fee structure, like the client’s attorney or CPA. Their primary source of revenue is the asset based fees that are added to the fees of the ‘best in class’ money managers, hedge fund managers, and private equity advisors. These fees are often in the hundreds of thousands of dollars per family. We polled a group of multi-family office firms and found only 2 that were not in the investment advisory or investment management business6. There has also been a wave of mergers and acquisitions of these firms into larger wealth management firms, investment banking and private banking organizations. Another major change that took place over the past 10 years has been the abandonment or contraction of trust and estate specialty practices within large law firms. One of the reasons this occurred has been the lower billing fee levels of the Trusts and Estates partners for estate planning, will drafting and estate administration generated versus the higher transaction fees realized in investment banking transactions, mergers & acquisitions, corporate litigation, and public corporation representation in front of the federal regulatory agencies. Similarly, large CPA firms has been rapidly expanding but not in the areas of estate or wealth planning. In light of this, what will the ‘ideal’ wealth planning team of tomorrow look like? The best model that exists today resembles the proactive, preventive healthcare model for the very high income and HNW family: like the Mayo clinic, Cleveland clinic, Greenbriar clinic models. The wealthiest members of our society have access to the ‘best in class’ medical professionals when they become sick. Traditional medicine involves a trusted internist who will refer the HNW patient to other medical specialists on a reactive basis when abnormal tests occur. We believe that this new healthcare model that is performed each year offers the patient with the best approach to longevity and diagnosis and access to the highest quality of preventive medicine. The attached graphic 1 highlights the Mayo/Cleveland/ Greenbriar clinics preventive care VIP models for the affluent patient.

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Inset I

THE NEW MAYO/CLEVELAND/GREENBRIAR CLINIC PATIENT CENTERED HEALTHCARE MODEL Cardiology, Exercise Therapy & Physical Therapy ENT & Gastroenterology

Dermatology, Cosmetic/ Plastic Surgery & Dentistry

Urology & Gynecology

Hematology & Oncology The UHNW Patient and His/Her Internist Quarterback Psychiatry & Personality Development Therapy

General Surgery & Ophthalmology

Arthritis & Joint Replacement

Radiology & Radiation Therapy Orthopedic Surgery & Podiatry

Their process is patient centered rather than physician centered. It also uses the best in class diagnostic specialists to evaluate the patient’s health in a 1-2 day period. Further testing is performed if needed. The second part of the model involves the use of a healthcare advisor (a nurse, physician, etc.) to update all HNW patient’s medical files and be available on a 24X7 basis to assist patients in providing access to the finest medical facilities and healthcare professionals worldwide. Their medical records are stored on a USB computer chip as well as are available through e-mails to physicians and hospitals worldwide, should the traveling HNW patient become ill anywhere in the world. For the worldwide traveling family or the family that owns multiple residences all over the US and the world, this service is of utmost help7. Why shouldn’t the very same affluent client be afforded the integrated wealth planning model that is facilitated by a trusted professional advisor? What would it look like versus the old model whereby the attorney is the advisor who prescribes most of the solutions and then seeks other professionals ‘to fill his or her prescriptions’8? Why shouldn’t the new wealth planning process also be client-centered rather than advisor centered? The attached ‘client centered’ wealth planning model looks at the process like the VIP patient healthcare model.

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Inset 2

THE NEW CLIENT CENTERED WEALTH PLANNING MODEL Tax Planning (Income, Estate & Gift) Legal

Accounting & Valuation Consulting

Asset Protection Trusts (On/Offshore)

Finance (Business & Real Estate) Clients & Their Planning Quarterback – Trusted Advisor CPA/ Attorney

Wealth Management & Investments

Life Insurance Planning & Prem. Financing

Risk Management

Estate Planning & Philanthropy

Business Management Mergers & Acquisitions

We believe that an independent, well-trained trusted advisor (CPA, attorney, or financial advisor) should engage the client in clearly defining their goals, dreams, and concerns together with a select group of trained professionals spanning the multi-disciplinary services of the team. Like the multi-family office advisors, this module will hold other team members to higher standards of objectivity and accountability. The process should encourage better dialogue amongst family members, business partners, and spouses. Asset protection specialists will play an important role. The process will also encourage better administration and compliance services, through the use of trained specialists in valuations, qualified plans, charitable planning, FLP/LLC compliance and administration, family values and business operations. How will the wealth planning team be compensated? The trusted advisors will operate on a consultative fee basis. Many of the team members will receive fixed fees for their services. Others will receive a combination of fees, asset based compensation, and placement fees for the placement of financial services and investment products. Competitive fees should be received to assume full value is received by the family. In discussions with senior Trusts and Estates partners of large law firms we asked : “Since you are often responsible for the architecture and design of well thought out wealth planning strategies, what role should you play in the implementation,

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administration, recordkeeping, compliance, tax preparation and review of the process? The attorney often recommends the combining a group of multi-disciplinary tax, legal growth freezing, asset protection and wealth transfer strategies, such as freeze partnerships, LLC’s multi-class corporations, GRAT’s, sales to defective grantor trusts, NIMCRUT’s or other CRT’s, Wealth Replacement and GST Trusts, Charitable Lead Trusts, Private Foundations, Donor Advised Funds, Supporting Organizations, Inherited IRA’s Required Minimum Distributions, complex premium financed Life Insurance transactions and others, Clearly, there is a strong need for the administration and compliance process to be supervised by capable and accountable advisors. The answer heard time and time again is that they do not provide this service. Who Does? For the mega-wealthy client who can afford a single-member family office9 or the fortunate few that have found a multi-family office that is not only interested in receiving very high asset management fees and is monitoring these services on an integrated basis; the clients are well served. However, there are very few firms that can integrate the planning, implementation, administration and compliance process. Some highly specialized CPA firms are trying to do the job. As mentioned earlier in this article, there are very few multi-family office firms that do this even though they earn hundreds of thousands of dollars providing the best in class money managers, access to alternative investments provide very complete individually tailored asset allocation models and integrated reporting of investment assets from all of the client’s sources. We believe that if these firms are not providing this very important service in-house, they should direct some of their profits through “soft dollar” payments to the new wealth planning service, administration and compliance firms. Inset 3

THE NEW WEALTH PLANNING CONSULTING AND ANNUAL ADMINISTRATION SERVICES

Administration & Reporting & Compliance for FLP/LLC

Review Qualified Plans & Non-Qualified Plans

Review IRA & RMD Administration

Coordinate CVA Valuation Firm Annual Review

Review Buy/Sell Agreements and Valuations

Wealth Planning Firm’s Admin Services as “Watchdog” for The HNW Client

Monitor CRTs NIMCRUTs & Charitable Lead Trusts

Review Asset Protection, GST & ILIT Trusts

Review Family Charities & Self Dealing

Monitor L.I. Performance, ownership & Prem.Financing

Review Investment Managers & Benchmarking

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Avoiding “Affluenza” and Perpetuating Family Values, the “Soft Side” of Wealth Planning Because of the family’s need to avoid “Affluenza” – the, so called, disease of the rich many of these families employ additional advisors trained in communicating and capturing family values perpetuation strategies. The demise of the successful family was highlighted in Jay Hughes first book, “Family Wealth; Keeping It in the Family”10, and in Lee Brower’s Quadrant Living thesis discussed at numerous symposia11. The early work of Scott Fithian before his recent death, dealt successfully with a valuesbased wealth planning approach12. Philanthropy, through better education and exposure to the causes of people worldwide, has and will continue to be an important element in the wealth planning process. In summary, the estate planning team model of yesterday will be replaced by a dynamic, multi-disciplinary wealth planning model that follows the healthcare patient centered model. It will also integrate a strong administrative and compliance component to keep the multi-disciplinary complex strategies in harmony and compliant with the changing regulatory environment. Organizations will join forces with their leaders to incorporate their professionalism, expertise, integrity and intellectual honesty to further advance these suggested new models. Clients will be better served by the team approach in a client and patient centered model. The ‘controlling’ advisor who has been writing prescriptions in the past, will now have to step aside or become a ‘true’ team player if he or she is to remain on the top ring of advisors in their field. Endnotes: 1.”Split Decision” by Russ Prince and Hannah Shaw Grove, Worth Magazine October 2007 pp82-83 2. In 1962, the author attended a 7 week seminar led by Rene’ Wormser, Esq. through the NYC Practicing Law Institute (PLI) 3. In 1991, the author met with the president of one of the nation’s oldest and largest single-member family offices. They decided to offer investment advisory services to HNW families with $250 million as the minimum investment they would entertain. In 1997, the author met with another single-member family office that began to offer multi-family office services including participation in their three proprietary hedge funds. 4. In 1985, the author met with the CEO of a large Midwestern single-member family office to explore setting up a family office for a wealthy business owner client. The CEO of the family office advised against setting up a single-member family office with under $250 million of combined family assets. Today, that number approaches $400 to $500 million. 5. There has been a consolidation of single-member family offices into private and boutique trust companies. Two of the most notable are Pitcairn Trust and Bessemer Trust.

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6. One of the firms located in Boca Raton, FL was set up by a large NYC based CPA firm, and the second began as a single-member family office, and today offers multi-family office services to wealthy families. Neither is an RIA nor offers investment advisory services. 7. Pinnacle Care is a Baltimore, MD based healthcare advisory firm offering comprehensive health care access and services to wealthy families and senior executives of public corporations throughout the United States and worldwide. WWW.PinnacleCare.com 8. In 1999, the author wrote an article entitled The Estate Planning Team, Yesterday, Today and Tomorrow. It was published in the July 2000 issue of Keeping Current magazine. It highlights experiences of the past dealing with the “prescription writing” controlling advisors. 9. Family Office Metrics is a consulting firm in NYC and Arizona which provides business advice to family offices, access to high end technology, sophisticated data base, accounting, bookkeeping systems and management consulting to single and multi family offices. WWW.Fametrics.com Another firm, Aston Pearl, has been a leader in offering comprehensive non-financial services to the ultra high net worth community on a totally independent consultative basis. WWW.Astonpearl.com 10. James E.”JAY” Hughes book is an open discussion of family wealth, succession and governance through the eyes of a “White Glove” NY estate planning partner of a large law firm who became a facilitator and family wealth consultant to some of the nation’s wealthiest families. 11. Lee Brower and Jay Hughes share some of the same findings. Lee Brower’s family wealth optimization thesis today is called Quadrant Living. His forthcoming book to be released this fall is called “The Brower Quadrant. It will no doubt deal with the amalgamation of the family’s primary assets now called: Core, Experience, Contribution and Financial Assets. WWW.Leebrower.com 12. Scott Fithian, a disciple of Dan Sullivan, the “entrepreneurship guru” built a successful marketing and consulting firm in Boston called Legacy Companies. The firm’s success was based upon promoting Scott’s “Values Based Estate Planning”. His thesis was highly successful in helping clients “pull the trigger”; a problem that Scott identified in the 1990’s which was cited in the Russ Prince and Hannah Shaw Grove article in endnote # 1.

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About the Author

JOEL KOENIG has been regarded as a visionary in the financial services field over the past 40 years. He has written and lectured extensively using his multi-disciplinary and financial background to highlight the needs of the affluent client. THE KOENIG GROUP, LLC, the firm that he leads, operates as independent consultants to the high-income and high-net worth business owners, entrepreneurs, real estate developers, Senior Corporate Executives and other builders of wealth and fortunes. He has been a contributing author to numerous publications and a member of the editorial board of TRUST AND ESTATES magazine. JOEL has also been a main platform speaker before the leading services organizations, such as the NYU Tax Institute, the International Forum, AALU and countless Estate Planning Counsels.

JOEL is now organizing an Advanced Wealth Planning Symposium, sponsored by the Society for Financial Services Professionals, to take place in mid-2008, that will highlight Creative Philanthropy and Wealth Planning Strategies for the High-Income and High-Net worth Client. His firm’s website and his background are found at WWW.Koeniggroup.com.

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