How would you describe the best financial advisors, and how should they manage your wealth? Should they have a keen grasp of tax and estate planning issues affecting people of your wealth level? Perhaps you seek concierge and family office type services such as educating your children and grandchildren about the many responsibilities wealth brings, or perhaps educating them on philanthropic issues tops your personal list of qualities you require.
While the aforementioned are all essential qualities you may require in a top financial advisor, you should consider that independent financial advisors have access to these essential services and can provide them to you on a Chinese menu basis, meaning you will pay only for those services you require, when you require them.
What I am talking about is the belief many wealthy families hold, that generational wealth should be managed by the largest banks and trust companies and their teams of so called specialists. Banks and trust companies are clinging to outdated, bloated, brick and mortar mirage of safety and financial savvy business models. They bring a high cost albeit high touch approach which has failed to leverage the cost minimizing benefits of technology and work sharing for the benefit of the client.
Many wealthy families do not realize that often for a fraction of what they are paying banks and trust companies for critical services they can align themselves with a quality independent advisory firm who custodies client assets with custodians such as Schwab, Fidelity, or TD Ameritrade. All of the bank and trust company services these families require are available on each of these custodial platforms in a completely conflict free and more cost efficient manner. What’s more the independent advisor may use more than one of these custodial platforms for a single client, providing the client with the best mix of professional services and cost savings.
The single most important quality a family steward should seek when aligning with financial advisory and management is the inclusion of a management style not fixated on the traditional long only buy and hold use of stocks, bonds, and cash as their primary investment options. The limitation imposed by such narrow asset class focus has and will again yield untenable volatility on an aging population. Most trust documents permit investment managers to carry out virtually any investment strategy trustees deem desirable.
Specifically some of the shortcomings of bank and trust company offerings include the following:
It’s a fact, borne out by an AIMR Survey that most banks with their restrictive salary structures cannot hire and maintain the best and brightest asset managers – although banks valiantly protest these accusations with various statistical reports and moving benchmarks.
There is little, if any, evidence of the advantages of trust accounts owning proprietary mutual funds as espoused by the banks. Diversification and better capital gains management are all available under common mutual funds and at lower fees to the customer.
Banks have been steadfast in their shunning of outside investment advisors, save for the smaller institutions who by necessity use outside providers. The customer’s only choice is the bank’s asset management style, performance, and personnel. Again, most trust beneficiaries are stuck with the named institution unless they or another individual was granted the power to remove a trustee.
As an aside, it is important to note that in most states a trustee can use trust assets to fund its defense of its handling (mishandling) of the trust, unless a court says otherwise. No matter which way the beneficiary turns, he is at a real disadvantage to the bank.
What we now see is the banking industry moving into the direct sales of insurance products produced by insurance companies. Everything from casualty insurance to life insurance is available from the local bank. The bankers receive handsome commissions from the insurance companies for selling the products. The banks create equally handsome incentive programs for the young bank employees to sell these products to the bank’s fiduciary customers, always with adequate and full disclosure, of course. Everybody wins – almost.
Recently, I saw a memorandum from a bank trust counsel recommending to a trust administrator, that the bank as sole trustee of an irrevocable life insurance trust, consider buying a policy on the life of the insured grantor from its own agency! Self-dealing? Conflict of Interest? Duty of Loyalty to the trust? Does anyone believe this is an isolated case? Does anyone think things will get better before they get worse?
Here we have it; the lawyer, guardian of trust law and principles, succumbing to the Siren’s call for greater profitability. Many experienced staff of an acquired bank are either terminated or quit out of disgust over the changes being forced upon their fiduciary customers. Staff “duplication” is eliminated wherever the opportunity exists as the plunge to increase shareholder value becomes the mantra of the conquering managers. Investment management of fiduciary assets is moved, often more than once, to the so-called centers of expertise. Customers have no one to talk to locally when problems develop. If the 1-800 number doesn’t solve the problem, customers have little recourse but to seek legal remedies. Unfortunately, even the regional banks have bought into this “consolidation” trap.
What trust customers had come to expect as an at least acceptable level of service is thrown aside while departments are reorganized into selling machines, euphemistically called the “Private Bank/Wealth Management Group” to cross-sell to trust customers, bank products. Gone is the safety net of the Chinese wall. Gone is the spirit of service and devotion to fiduciary principles. Trust administrators who had been the protectors of the fiduciary relationship are forced to sell their customers often unneeded and unsuitable services and products to meet quotas. Each quota unmet is one step closer to unemployment for these truly conscientious defenders of their customers. What choices do these workers have?
The time for change has arrived and not unexpectedly the banks have missed the landing. Statistics show that the market share of corporate trustees has been declining for many years. Customers have been fleeing sometimes from one bank to another, only to be caught in the next round of mergers, or to new big brokerage operated trust companies who bring another set of problems and conflicts of interest with them.
The most affluent have tried to side step the fray by naming trusted individuals to handle their accounts. While this has proven to be a good short to near term solution, these same families are finding that the problem of continuity of management is not being satisfied.
While some have been reading and understanding the intent of the Third Restatement of Trusts, Prudent Investor Rules, the proposed Uniform Trust Act, and studying the Trust Protector concept, the banking community continues to ignore the movement of the law and many former clients toward beneficiary rights and new means to avoid the problems discussed here. Those who are paying attention to customer needs versus making shareholder value prevail will, I believe, win the day and restore trust to trust services.
Do not make the mistake to think that you will simply do what you have done for the past twenty years in the future relative to how your wealth is managed. The U.S. is engulfed in economic malaise which may last ten or more years and provide many pain points to stock and bond investors. The U.S. economy is not producing the quantity or quality of jobs with which to sustain an economic rebound. The U.S. Dollar is declining in value and the government continues to confound business with policies which prohibit rational business decisions aimed at creating jobs.
As a steward or beneficiary of your family wealth you must act swiftly to align your family’s financial future with a conflict free tactical, directional, and multi asset class wealth management solution. At Alpha Fiduciary we provide just that, a wealth management solution completely free of conflicts, an experienced, disciplined management team with a proven process of delivering solid investment results, and all the trustee services a wealthy family may need offered at a fraction of the cost of most bank and trust company rates.
Be Well,
Art
As President of Alpha Fiduciary generational wealth management, Art has assembled a team of top tier people at Alpha Fiduciary to execute on its mission of helping clients achieve their optimum financial life through prudent planning and the deployment of its Global Tactical Multi Asset Class Strategies (GTMAC).
Arthur is an industry veteran with more than 20 years experience working with high net worth clients. He has an extensive background in wealth management with particular expertise in portfolio management. Prior to establishing Alpha Fiduciary, Art was a Senior Vice President with Merrill Lynch where prior to leaving in November, 2006 had built his practice to be the largest of Merrill Lynch’s Arizona territory.
Arthur founded Alpha Fiduciary which serves its clients as a fee only Registered Investment Advisor (RIA). Alpha Fiduciary has responsibility to the client, i.e. We only serve one master!
In cooperation with some of the most successful institutional investors in the world, Arthur pioneered the development of Alpha Fiduciaries’ Global Tactical Multi Asset Class Strategies of investing. The GTMAC strategies serve as the platform basis for which Alpha Fiduciary has been successful in helping its clients achieve superior returns with lower total volatility.
Arthur serves as board member of the Coachella Valley Desert Visionaries organization.