AN INSIDE GLIMPSE INTO WEALTH
Post From TNT By DAZ:
My buddy, estate manager/lawyer and future proposed a-team leader was my recent house guest friday and saturday.
We had some great discussions over that 20 hour period on banking, wealth management, trust companies, insuring deposits, diversified investing , securing and insuring deposits, private jet ownership vs charter, how wealthy families live,
How they want to live and how they want to invest and protect their wealth from a firsthand experienced perspective.
We also covered indexed funds, nasdaq500, russell2000, small cap investing vs mid cap and large cap, annuities and real estate investing,
What they own and why and why they sell and, rent vs own for ultra high net worth (uhnw) individuals and families.
Background on my buddy:
A 30 year trusted friend at the top of his game and a 20 year partner at maybe one of the oldest, most notable wealth law firms in his state dealing with some the wealthiest clients in that state with repeated success.
There were some gems that came out of those discussions and i found some peace and enlightenment in them.
It was impossible to take written notes so i will do my best to recant from memory and be as accurate as possible. That is not a guarantee however and im open to critic and correction.
The first point i want to share is insuring deposits. Finally..some clarity and insight
There is no sufficient deposit insurance, third party deposit insurance and fdic protection is available and we can use it but, it is a false prospect.
fdic and third party insurers are only as strong as the system of faith and perpetual motion they propose to exist in.
But there is a method to manage the risk of loss. Risk management is achieved by the widest, deepest and most diversified proliferation of investments into multiple asset classes that can be achieved.
So, thats it in a nutshell.....any way you look at it, diversification is our only insurance.
to serve uhnw clients, there is a statistical method that is churned through computers several times a second around the clock and these funds have teams of qualified over-achievers that are impassioned to monitor these gyrations and predict model performance as their livelihood
To protect the reputation, performance and future viability of the firms where they are employed and the satisfactory profitability of their respective clients.
Win or lose their goals are principal preservation, profit generation and client retention/acquisition.
Without satisfactory and successful achievement of these goals the companies cease to exist and so do the future employment opportunities of those that facilitate them.
Investment diversification is not volume dependent. 2mill or 200mill+...its all basically the same mechanism and vehicle...you use the same system...
You just go deeper and wider. There is a tried and true system that has proven reliable by all accounts, its embedded, historically accurate, trusted and used universally in virtually all uhnw relationships with trust companies and harvard-class wealth managers.
One thing that he repeatedly said..dont fear the fees, embrace them. "you get what you pay for", those best at what they do deserve and get the fees they charge for a reason.
This is not the time to be penny proud and pound foolish. Expect a 1% annual fee based on total of funds managed...we might be able to negotiate down to .75% over 10mil under management.
Multiple funds and other asset holds require management, of course. One manager in a top firm may represent a down-line of staff and advisors that we never see but are vetted and trusted to be relied on to secure the performance described above.
When we reach 2-5-10+mil in deposits....things change for the better. That single manager now becomes a committee of three or more tenured pros with the same motivations and incentives.
Uhnw clients are protected by the committee of decision makers and no decisions of significance at that level are left to one individual...it is directed by a brain trust, the best of the best, they also respectively have a down-line and support team that evaluates proposed actions and preps the headknockers to successfully direct the clients affairs.
note: as a point of reference...im told we might expect a blended return over time, annual average rate of return, in a conservative position derived from the wide diversification, taking into account temporary but mostly predictable market trends and cycles...to be about +/- 6% net annual pre-tax return, after fees.
Also...at that level where we have multiple asset holds, another new actor comes on board...an "overlay manager".
The "om" is tasked to oversee, evaluate and report from the many separate fund and asset managers and be a single point of contact. A manager manager, if you will
We can expect a trust company structure as i described to be a fiduciary relationship.
Trust companies are state regulated. Each operate within strict regulation and client expectation under state law and are liable for actions and trades that are detrimental to the clients account and financial well being.
my friend cited a term for which managers and firms are culpable under the law that i cant remember exactly but in essence it was "prudent performance"...
And, failure under that abstract is an actionable offense.
Meaning, they can be sued for mis-dealings that are unique, risky or unusual deviating from a standard that results in financial harm to a client account.
There are banks, there are trust companies and there are bank & trust companies.
Within the context of the conversation with my friend...we coined our discussion as if an unexpected windfall occurred like an inheritance or lottery win.
In that scenario...he relayed that the first contact would be to seek the best trust company we can find.
As in, length of time in business, accolades, performance reviews, recommendations, public recognition, high profile accounts, accreditation etc....
Dont be intimidated by them...embrace them.
Dont be offended or deterred by imagined expense or fees...1% is pretty standard as a rule. Again, "you get what you pay for".
Trust companies are not technically wealth managers, they are not private bankers (although there are aspects of each that are executed)
But, they do have relationships with dozens if not hundreds of them and they use them.
Trust companies are private, they are keen on protecting the privacy of their clients and the client roster as a whole.
It is counterproductive to divulge this information because as stated the primary goals are in part client retention and acquisition. A public or private release of client information puts those goals at risk.
those that have discussed the "a-team" will see that a similar structure and hierarchy is in play in this trust company exhibit.
Also recognize that this one example, for our purposes, can be replicated by enlisting several trust companies, banks or b&t's as we have mapped out previously.
The points on that map may likely include several institutions described...all working independently, all with their own structure, internal checks and balances, performance attributes, motivations, incentives and successes driven by a competitive market place.
We get the benefit of maybe a hundred peeps working for us and the added benefit of further diversification among many separate institutions, skill sets, mindsets and market approaches.
As time moves forward we annually compare and contrast their respective performance and then consider how we may consolidate or adapt these multiple institutional teams specifically to meet our goals and expectations using our own assembled master team of advisors and planners.
private air travel.... We discussed buying a light jet...granting it under contract to a local charter service for operations, maintenance and use; in exchange for my personal use and providing my service needs.
He said that people do that...and its workable...but you need deep pockets and, until you get a feel for your future needs, desires and demands...you could get frozen in a deal that you may live to hate.
his recommendation....this is based on new wealth and the actions of those already wealthy, generally. ...get a netjet membership.
depending on events, personal growth, evolution and funds...there may be a point in time for some where, ownership is practical or desired but...
For the majority, a netjet pass offers flexibility, manageable costs, tax benefits, ease of travel, convenience and an opportunity to get a "feel" for what private air travel is all about and how it may or may not be desirable to own, manage or maintain a craft.
We talked a lot about high end real estate. He shared that wealthy peeps,.whether new money or old money, often buy too much too quick and in the wrong place.
he related client experiences saying that multiple properties seem appealing at first but here again they can become obsolete and cash alligators very quickly.
maintenance is ongoing even if vacant and unused...housekeeping, maintenance, ground keeping, rising taxes, increased security, insurance etc etc etc.
When you do plan to go there to retreat or send guests there...you have to send a team in to open and prep the house in addition to regular inspections and maintenance while vacant and unused .
He also said that most wealthy peeps ultimately only buy or retain homes in specific locales that are situated near people they already know or want to know or associate with...more of a social tool in some cases...south hamptons, manhattan, snow shoe and malibu beach as examples.
he said that many peeps tend to "collect" properties in the beginning...buying the best of the best at a premium only later to realize they dont need, use or really want it...
Then have to go through the painfully expensive process of liquidation in hopes the market supports their exit with minimal losses....which seldom happens.
He further suggests that weekly/monthly rentals are available in any scale or class anywhere you think you want to be...
And for 25k/month or, per week on the high end, you can rent a fully appointed uber beach house on malibu beach, chalet on the slopes or retreat on an island, just about anywhere.
further suggesting that renting and traveling provides a more enjoyable experience with almost no liability and unlimited flexibility in location, size and style and if you set your stuff up right its a deductible expense too.
While in a locale for a month it offers time to acclimate to the surroundings and preview other markets and properties in that area before making a buying decision if at all. He didnt say "dont buy"...he suggested wading in, instead of jumping in.
no matter the amount of wealth received or from what source...to conceptualize wealth and apply "common sense" even though it makes no sense to us in our experience, is still fundamentally appropriate.
daz: DEFINITION OF 'TRUST COMPANY'
A legal entity that acts as fiduciary, agent or trustee on behalf of a person or business entity for the purpose of administration, management and the eventual transfer of assets to a beneficial party.
daz: The entity acts as a custodian for trusts, estates, custodial arrangements, asset management, stock transfer, beneficial ownership registration and other related arrangements.
A trust company does not own the assets its customers assign to its management, but it may assume some legal obligation to take care of assets on behalf of other parties.