Archive for category News
Adopt Your Girlfriend as Your Daughter Asset Protection Plan Shocks Planning Community
Posted by Scott Martin in News on February 21, 2012
Estate planners call “Adopt Your Girlfriend as Your Daughter” strategy to shield John Goodman’s assets from creditors bizarre. His lawyers say they have lost confidence in Bessemer Trust’s ability to manage Goodman’s children’s money after the girlfriend-daughter was added as a trust beneficiary. Others say that relationship now legally amounts to incest.
Depending on who you talk to, Palm Beach air conditioner tycoon John Goodman was either brilliantly expanding the frontier of traditional estate planning or hastening the end of western civilization when he adopted his 42-year-old girlfriend as his daughter and heir.
A dig into the details shows that while the move was way outside the box, it represents a remarkable response to a difficult and arguably unique situation.
Goodman is already facing 2010 drunk driving manslaughter charges that could put him away for the next three decades, so in that respect he’s past trying to protect his public image.
But with the court talking about starting the trial in the immediate future, his lawyers shifted to locking down his more tangible interests, including support for his girlfriend and control of a family trust reportedly worth $300 million.
After all, if the trial goes badly, his time as a free man will be extremely limited.
“It should be obvious to everyone that at the present time Mr. Goodman’s continued availability to ensure that the trust’s assets grow and continue to provide benefits for his children is uncertain,” explains Daniel Bachi of West Palm Beach law firm Sellars, Marion & Bachi.
Cutting through the hype
When the media heard that the lawyers had decided to have Goodman adopt romantic companion Heather Hutchins — barely six years younger than he is — it unleashed a frenzy of misconceptions about how trusts actually work.
For one thing, Goodman is not trying to hide his money from the parents of the young man whose car he hit two years ago.
The assets in the trust were transferred in 1991, so the notion that Goodman was trying defraud a civil suit 20 years down the road is vanishingly remote.
In any event, while the trust is currently run under Delaware law, it’s not an “asset protection” trust in any way, shape or form. Goodman is not a beneficiary or the trustee, so he has neither ownership nor control.
He’s signed affidavits to that effect.
The bottom line here is that naming Hutchins as his third “child” doesn’t add a layer of protection from lawsuits — it’s not Goodman’s money any more and hasn’t been for a long time.
And Hutchins isn’t immediately going to get $100 million or even $70 million to play with. She’s now a beneficiary entitled to draw on the income, but not the trustee.
That income stream allows Goodman to provide for her and her two young children from a previous marriage, without antagonizing rich relatives who might balk at carving out a big piece of the family fortune for the girlfriend.
Under a separate agreement, Hutchins agreed that only $10 million of the trust’s principal would ever pass on to her children. Subsequent amendments whittled her interest down even further, to $5 million.
So adopting Hutchins takes care of her if Goodman goes to jail. But there’s an even bigger game afoot here waiting to play out.
Fighting the trustee, not the plaintiffs
Goodman’s lawyers frame the decision to adopt Hutchins as a way to give her official status in the eyes of Bessemer Trust, which has been running the trust since 2009.
As far as they’re concerned, Bessemer failed to live up to its promises to accept Goodman’s direction on how the “special” holdings in the trust — including his house and the $14 million polo club that turned him into a pillar of Florida society — should be managed.
“Bessemer agreed to keep the management team that had grown and protected these holdings in place for many years,” lawyer Bachi explains.
“Instead, Bessemer took steps to change management of these holdings, which have significant financial and intangible value to the children.”
Goodman named himself and two business associates as obvious choices with “experience with the management of such special assets.”
However, ex-wife Carroll objected to the appointment, leaving Bessemer with the headache that many trust companies that accept “alternative” assets like private equity and real estate know so well.
While the trustee tries to maintain an iron curtain between the grantor and the operations of the trust itself, the fact remains that the grantor is often uniquely qualified to manage the assets to their best potential.
As it is, Goodman’s ongoing relationship with the polo club is now being used in arguments that he’s been secretly running the trust to his own enrichment all along, no matter what the trust documents say.
If that were the case, those assets may be exposed to legal action no matter how many children he adopts.
That’s where adopting his girlfriend as a legal child-beneficiary may give him a chance to keep his polo club and run it too — even if he ends up in jail.
Hutchins apparently knows how Goodman wants the club to operate. As beneficiary, Bessemer has to take her interests and informed opinions seriously.
And in return for her input, she gets at least $500,000 a year from the trust.
“The contract provides funds to take care of Ms. Hutchins and her family and to compensate her for the large undertaking of overseeing such a complex and closely held family business,” Bachi explains.
As for the incest argument, it only legally applies to blood relatives.
Besides, if Goodman goes to jail, it will only matter on occasional conjugal visits anyway.
Scott Martin, senior editor, The Trust Advisor. Jerry Cooper and Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/adoptedgirlfriend
Whitney Houston Leaves Behind a Legacy of Music and Estate Riddled With Confusion
Posted by Scott Martin in News on February 12, 2012
Mere weeks after winning nine-year probate case against her own stepmother, glamour queen’s shock death and controversial financial shape raise the odds of much bigger courtroom battles ahead.
Whitney Houston’s management had barely squelched rumors that the 48-year-old diva and recovering cocaine addict had run out of cash before they had to confirm reports that she was dead.
The latest news is that she fell asleep in the bathtub and drowned after mixing prescription painkillers with alcohol.
Now, it’s the disposition of Houston’s remaining wealth that is becoming the object of public scrutiny — and giving advisors plenty to mull where their own clients are concerned.
If Houston’s lawyers were smart, they ironed out her estate plan a decade ago, the gurus tell me.
Back in 2001, she had just signed the biggest record deal in history — six albums, $100 million in guaranteed royalties — and the signs of her drug use were getting harder to hide.
That combination of massive incoming wealth and rising litigation and mortality risks should have been all the incentive her advisors needed to set up long-term trusts and iron out her will.
Unfortunately, that was also the moment at which her career and personal life started to unravel, so they might have missed their opportunity — and as details come out, we might see the grim results.
A very complicated decade
Part of the problem is that Houston’s last decade was extremely complicated, so the lawyers had less time than we might think to keep her affairs orderly.
When she signed that $100 million contract, she was already carrying her long-time husband, Bobby Brown, and a young daughter.
Her father, who had managed her career up to that point, was slowly dying of heart disease and seems to have been perpetually hurting for cash.
In 2002, he sued her for a round $100 million, claiming he was owed that much for helping her beat marijuana possession charges and negotiate her big record deal.
That suit dragged on well after his death before being dismissed in 2004, robbing Houston’s lawyers of vital time to move that money into an asset protection trust.
As long as the lawsuit was pending, those record company millions were simply too hot to hide — any judge would have considered such a move a blatant attempt to defraud an existing creditor.
Two years of relative quiet followed, but Houston spent a lot of that time in and out of rehab, so any claims she was in “sound mind and body” to sign any estate documents may not hold up without challenge.
Her divorce from Bobby Brown dragged on through most of 2007. Her lawyers were on the ball here: she had a prenuptial agreement cutting him out of her money and any legitimate claim to spousal support.
After that, she drifted out of the limelight. And now she’s gone.
Fighting her father’s example
Given the haphazard way the Houston musical dynasty used sophisticated planning techniques to manage its millions, we might expect to see Whitney’s estate reflect a mix of good and bad advice.
On the positive side, Bobby has no claim on her money, and now that daughter Bobbi Christina is legally an adult — and out of the hospital herself — he can’t try to get custody and the money that goes with that.
And Houston’s father earmarked a $1 million life insurance policy to cover the mortgage on his house, so someone over the years was on the ball there.
Unfortunately, if Whitney and her father used the same lawyers, we can expect fireworks ahead.
John Houston appears to have died without clearly stating whether the life insurance money was meant to go to Whitney — who loaned him the money for the house in the first place — or to pay off his debt to his daughter.
He left behind letters talking about how Whitney made an oral agreement to apply the $1 million toward the loan, but her lawyers successfully noted that nothing like that was spelled out in his actual will.
In November — a full eight years after John Houston died — the case finally wrapped up in Whitney’s favor.
Had the lawyers set up a trust to accept the life insurance proceeds and use them to pay off the loan, his wishes would have been clear and none of the ensuing legal in-fighting would have been necessary.
As the judge noted, it’s impossible to legally determine what the deceased would have wanted, beyond what’s spelled out in the documents.
How much was Whitney worth?
The big question is how much of Whitney’s money the lawyers managed to save.
She died owing Arista three records, so a big chunk of that $100 million from the 2001 contract could be forfeited right away.
Her 10-acre New Jersey property was once appraised as worth $6 million but more recently listed for well under $2 million — barely what she owes in taxes and mortgage payments.
While rumor has it she was calling friends to borrow $100 a few weeks ago, her people insist that she wasn’t hurting for cash.
She’d just wrapped her first movie in 15 years, and as her staff says, she didn’t work for free.
“People get paid to make movies,” they point out.
And estate planners get paid to make sure the movie money lasts. Let’s hope Whitney’s lawyers earned their fees.
Scott Martin, senior editor, The Trust Advisor.
Permalink: http://thetrustadvisor.com/news/whitney
11 Top Trust Firms Make the Winners’ List for Advisor Friendliness in Our New Special Report
Posted by Scott Martin in News on February 6, 2012
Teamwork is key for a whole generation of trust officers who have little motive and less opportunity to cut the advisor out of the game. Unlike football, everybody wins.
After decades of financial advisors and trust companies fighting over client loyalty, a few members of each of faction are realizing that it’s more profitable to work together.
That’s what we found out when we surveyed the industry and learned that the trust companies that actively court long-term relationships with financial advisors are winning big accounts — without stealing them from the advisors themselves.
The most advisor-friendly of all made it into our latest special report. (Download it here.)
They’re an eclectic bunch of organizations, ranging from white-glove institutions to high-tech entrepreneurial upstarts. Pretty much all they have in common is their independence and their eagerness to prove that they’re not a threat to your business.
They don’t have in-house wealth managers hungry for commissions or management fees, so the motive to ingratiate themselves into the lives of your best clients and squeeze you out just isn’t there.
They don’t have proprietary investment products to push into trust portfolios. And they don’t even mind if your preferred custodian hangs onto the money.
Get inside the list
Operationally, the most advisor-friendly trust companies out there emphasize flexibility and service.
Whether they’ve been around for a few years or close to a century, every single one is willing to work with any custodian you care to name: TD Ameritrade, Pershing, Schwab, Fidelity.
Between them, just about all the major accounting platforms are on the table, so if you want plug-and-play integration with Schwab, SunGard or anything else, you’re probably going to find it somewhere on the list.
And big surprise: all of the top trust jurisdictions are well represented.
Advisors have been flocking to trust companies that operate in Alaska, Nevada, South Dakota and Delaware — not to mention New Mexico — in order to get their clients access to the most flexible trust statutes and best tax treatment in the country.
Dynastic trusts, which run for centuries or even forever, are a popular offering. So are asset protection trusts, unitrusts and other specialized vehicles.
On the service side, most have the in-house expertise in place to promise extremely fast turnaround. A trust that could take weeks to set up elsewhere can be up and running in under a day here.
Not willing to hog the ball
The very idea of an “advisor-friendly” trust company might come as a shock to the 85% of advisors worried about losing the assets their clients move move into trust.
For too long, that account “migration” was a painful fact of life for advisors who wanted the best for their clients.
Wealthy clients quite rightly demanded the ability to incorporate trusts into their financial plan to protect their property from taxes, nuisance lawsuits and ultimately mortality itself.
But when advisors located a conventional trust company to serve as corporate trustee, it generally meant handing over about $1 million in assets — roughly half the typical high-net-worth investor’s net worth — as well as the associated management fees.
The clients were happy. The trust company was overjoyed to get the business and active management rights over the portfolio. And the advisor suffered.
Needless to say, a lot of advisors were less than eager to recommend that their best clients take their assets elsewhere, and so the adoption of trusts lagged.
As a result, according to Fidelity, a full 40% of high-net-worth households have yet to set up trust arrangements, even if it’s in their financial interest to do so.
A shot at a shared win
The trust companies on our list saw that natural resistance as an opportunity to offer advisors a better deal and capture that elusive 40% of the market.
Every single one of them supports an arrangement known as directed trust, in which the client assigns the right to manage the assets to an advisor — usually the one he or she is already working with.
The trust company does what it does best: run the trust.
All the bookkeeping, reporting and fiduciary responsibilities remain with the trust company, which earns a nominal fee for the service. If there’s a problem, it’s up to the trust company to deal with.
From the advisor’s point of view, nothing changes. The assets remain on the book of business and keep generating the same fees. With few exceptions, the trust company has no legal right or duty to interfere in the investment choices.
The client is happy to have an advisor looking out for his or her ultimate best interests. The advisor-friendly trust company gets new trust accounts to run. And the advisor doesn’t lose.
Scott Martin, senior editor, The Trust Advisor. Steven Maimes assisted with the research.
More Advisory Firms Seen Switching to Trust Charters to Ease Regulation
Posted by Scott Martin in News on January 29, 2012
As a hedge against possible FINRA oversight of advisors and re-enactment of the Glass-Steagall Act in a second Obama term, more RIAs are trading their SEC registration for trust licenses in top trust states.
States like New Hampshire and South Dakota report robust interest from wealth managers, family offices and other advisors looking to offer their clients the benefits of an in-house trust company as a hedge against possible FINRA oversight of advisors and more restrictions on how advisory firms can make money.
State chartered trust companies can do everything an SEC-registered advisor can do, plus serve as trustee and custodian. These privileges were given to both banks and trust companies with the enactment of the National Bank Act.
After a rocky year in the markets, high-net-worth clients are on the move — and advisors looking for a competitive edge are hunting whatever it takes to give those investors everything they want.
And what those investors want, according to the experts, is an easy way to pass their wealth on to future generations as securely and efficiently as possible. In other words, they want an advisor who can help them set up and fund trust funds.
“Clients are constantly seeking greater certainty over the safety, disposition and management of their assets,” says Bob Ellis, a consultant at Fast Track Advisors.
By creating their own captive trust companies, wealth advisors more strongly retain clients.”
That’s the logic that’s driven dozens of advisors to start trust companies across the country in the last few years, with the lion’s share going to the states that combine investor-friendly statutes with advisor-friendly regulatory environments.
South Dakota alone gained about a half dozen public trust companies last year, with more applications in the pipeline. Nevada, Delaware and other top-tier jurisdictions have also been big winners in what research firm Cerulli Associates calculates is a decade-long boom in trust company creation.
“Interest seems to be on the uptick,” says Mark Purpura, chair of Delaware’s state bar association’s banking committee.
“I currently have several trust company formations in the pipeline.”
Becoming the trust advisor
Advisors have gotten so hungry for information on this topic that the Trust Advisor is running an in-depth webinar in two weeks. (Register here.)
But all this interest is really business as usual, says former Nevada banking commissioner Scott Walshaw, who — like Purpura and Ellis — will be a panelist.
“The motives haven’t changed much,” he explains. “What’s changed is that there is more opportunity for people to open trust companies now than ever before.”
Wealth managers still see a trust charter as a way to differentiate themselves in the marketplace, tempt new clients and keep old ones from straying. Read the rest of this entry »
Steve Jobs Doll Dead On Arrival after Showdown with Family and Estate Managers
Posted by Scott Martin in News on January 22, 2012
When a Chinese company came out with a Steve Jobs doll a few weeks ago, we weren’t surprised to see Apple’s lawyers shut it down very quickly.
After all, the top estate planners we talked to had already warned us that Jobs had probably been very careful to assign control of his distinctive likeness when he knew that his cancer would end up killing him.
That control included archival footage and even the right to re-edit previous public appearances into “new” Apple product announcements or endorsements.
“Given his private nature and the tremendous value of his image, he almost certainly assigned his rights of publicity to his trust or some other corporate entity,” notes Bernie Vogel, CEO of Silicon Valley Law Group’s estate planning practice.
The Jobs family seems to have used that legal framework to apply “immense” pressure on Hong Kong toy maker In Icons, which was going to sell the dolls for $99 apiece.
And since Apple reportedly owns the right to sell commercial products that bear the names of employees, simply naming the doll after Jobs was asking for trouble.
Publicity, privacy get hazy after death
But estate planners may have a bit more trouble ensuring that their clients are similarly protected from posthumous “tributes” may not have it so easy.
In a majority of states, control over publicity ends at death, but there are exceptions.
Jobs’ home state of California voted in 1999 to extend the right to profit from a celebrity’s public image to 70 years after death — a provision designed to protect the estates of stars like Fred Astaire.
Before the people at In Icons gave in and canceled their doll, they argued that Jobs wasn’t a movie star, so they could do what they like.
That’s not quite true, the publicity gurus say. All you need to be covered is to be famous enough for your likeness to have commercial value when you were alive.
Jobs definitely qualified as this kind of “personality,” as the very existence of this doll demonstrates.
His appearances on Apple’s behalf, for example, made billions of dollars for the company’s shareholders, and an unauthorized product dilutes that personal brand.
Assigning that brand to his heirs is possible because he was a celebrity and there’s actually a material interest to pass on.
For most people — even high-net-worth clients — there may not be a brand to pass on. In that scenario, the estate wouldn’t even be able to fall back on rights of privacy, since the dead are currently not entitled to that.
That’s probably the most disturbing aspect of this.
If you’re not famous, the Hong Kong doll maker can do whatever it wants with your image.
The only thing holding them back is the lack of a profit motive.
Protect what can be protected
The Jobs case highlights the importance of spelling out the intangibles in a trust or other testamentary document.
Sure, a lot of estate planners are content to assign the real property and the liquid assets, especially if there aren’t any patents or literary assets.
But intellectual property adds up to a lot more than copyrights and patents that can be held in trust for future generations or sold to a corporate buyer.
Every one of your clients has correspondence to protect, photographic archives, diaries and notebooks.
Ordinarily, access to those more personal documents passes to the family, but why trust your clients’ wishes to posterity?
With Jobs, for example, the personal papers were almost certainly locked up, Silicon Valley lawyer Bernie Vogel tells me.
Otherwise, the action figures could only be the first wave of trouble for the notoriously media-shy technology guru.
“There are tell-all books, unauthorized movies to worry about,” Vogel explains. “Addressing the ultimate disposition of the raw materials and who gets access can make those projects more difficult and less likely to interfere with your client’s wishes.”
Vogel says he’s doing a lot more work with his clientele to get their intangible wishes on record.
Naturally, he’s in California, so they can benefit from that state’s posthumous publicity laws.
But even in states that don’t recognize these rights after death, the law can change, so it’s good to have a clear statement of your clients’ wishes on file.
New York, for example, has been pushing to protect its celebrities’ images for a few years now, while places like Indiana have enacted rules that prohibit anyone from making money off any dead citizen’s image for a full century.
Taking the struggle to the fans
If nothing else, an estate can use the statement to influence public opinion and show the world that a product is out of line with the wishes of the deceased.
The company that was making the Steve Jobs doll maintains that they “have not overstepped any legal boundaries” and could theoretically sell the toys tomorrow if they wanted to do so.
However, given the strong protest from the Jobs family — who know better than anyone what Steve would have wanted — it’s likely that diehard Apple fans would have stayed away anyway.
Scott Martin, senior editor, The Trust Advisor. Jerry Cooper and Steven Maimes contributed to the research.
Permalink: http://thetrustadvisor.com/news/jobsdoll
Mistresses and Broken Marriages Cost Arnold, Tiger and Kobe Millions: Wealth-Wise Tips for Spouses Thinking About Straying from the Nest
Posted by Scott Martin in News on January 15, 2012
Infidelity is an age-old way for your clients to lose their wives and, in the wrong circumstances, their assets. The key, experts say, is to know their weaknesses — and have an asset protection plan in place before they give in to temptation.
Tiger Woods settled $100 million of his $600 million fortune on his ex-wife Elin and agreed to pay her a reported $20,000 a month in support, provided she refuses to talk about his private life.
The sports books are giving 3/2 odds that Kobe Bryant ends up giving Vanessa at least $100 million of his $300 million. And the Schwarzenegger-Shriver family are still at the negotiating table six months after Maria filed for divorce.
What all these men have in common is wealth and adultery. Before one of your clients becomes the next Schwarzenegger, Woods or Bryant, make sure they’ve done everything they can to keep from destroying their marriages and their net worth.
1. Asset protection comes first. A properly drafted trust well while your client is still single removes the money from any consideration of what becomes marital property and what doesn’t when the marriage breaks down.
Even in a community property state like California — home of the Schwarzeneggers and the Bryants — assets assigned to a trust well in advance of the wedding are generally shielded from the divorce court split because they’re never commingled in the first place.
Old money has known for generations that this is how you keep family property in the family, no matter who the kids marry. After all, Maria Shriver’s share of the Kennedy fortune came down to her alone through trusts, and she’ll probably keep it after she and Arnold finalize their divorce.
As Nashville estate planner Bryan Howard tells me, asset protection trusts are running neck-and-neck with prenuptial agreements in his practice as parents move to lock up the kids’ money before there’s even a love interest in the picture.
Besides, wealthy celebrities are magnets for lawsuits and should have asset protection trusts anyway to protect their wealth from creditors. Depending on the state, these vehicles can offer added armor against an aggrieved ex-spouse as well.
2. Take care with the prenuptial agreement. Every state now allows “no fault” divorces, so the question of which spouse was unfaithful no longer plays the huge role in court that it once did.
Back then, a wife or wronged husband who could prove adultery had a huge advantage in forcing a split of the marital assets. Now, it only matters if the cheating spouse wants support or, according to divorce guru Matt O’Connell, there’s a prenup in play.
“Often times, prenuptial agreements have a clause stating if infidelity is involved, the settlement is affected” he explains.
“But if you have no prenuptial agreement or there is no specific clause, adultery will not be an issue.”
Eliminate the clause, and your clients can get their future spouses to sign away all rights to the money up front — or, in a more generous scenario, limit their claim on the marital property to a fixed dollar amount.
Thanks to Tiger Woods’ lawyers, his original prenup would have given Elin maybe $20 million, a measly 3% of his vast fortune.
Unfortunately, his lawyers failed to secure two things that matters even more to the low-profile golf god than his $60 million Florida estate: his privacy and his kids.
Getting Elin to sign a post-nuptial non-confidentiality agreement and agree to joint custody raised the final bill to $100 million. That’s still a pittance compared to the $300 million she could have gotten in a 50-50 split.
And it’s better than Arnold and Kobe, neither of whom seems to have any agreement at all in place and are back on the hook for half their assets.
3. Don’t do it at all. Remind your clients with roving eyes of the cost of straying. It’s a simple trick of behavioral economics, but if Arnold or Kobe or Tiger had thought ten seconds about the 9-digit price tag on their infidelities, they probably wouldn’t be in the position they’re in now.
Adultery sets up patterns of behavior that get people in deeper trouble. With Arnold, for example, Maria hired a private detective to dig into his double life.
Were there more illegitimate children lurking in his past? Was he diverting marital assets to pay for gifts to his mistresses? Either would count against him in the settlement, not to mention do even more damage to his carefully nourished “family values” image.
Tiger Woods reportedly paid his girlfriends over $10 million to keep quiet. That gave Ellin a lot more negotiating power.
Ultimately, if your client gets caught, the experts say, he needs to confess everything then and there. Time for big presents to buy time — Ellin Woods and Vanessa Bryant both got major jewelry when they first caught their husbands cheating — and big planning for a final split down the road.
Sure, any couple might get back together. But with the sports book giving relatively long odds of 2 to 1 against Kobe paying Vanessa less than $50 million, there’s enough money at stake for a good advisor to earn his or her fees here and, naturally, keep the assets from moving from one side of the aisle to the other.
Scott Martin, senior editor, The Trust Advisor. Steve Maimes and Jerry Cooper contributed to the research.
Permalink: http://thetrustadvisor.com/news/infidelity
Why Did LPL Financial Acquire Fortigent?
Posted by Scott Martin in News on January 8, 2012
When the biggest independent broker-dealer bought Fortigent, industry gurus heralded the deal as a game changer for advisors everywhere. Here’s why.
Many commentators have described LPL’s purchase of investment management outsourcing firm Fortigent as a straightforward bid to muscle into the high-net-worth market.
After all, some of America’s biggest advisory firms rely on Fortigent to help them run about $50 billion in client accounts.
But while Reuters was quick to characterize this deal as a naked grab for “higher-end clients,” it’s lot more strategic than bolting on high-quality assets.
Remember, LPL is best known as a commission shop, but it’s already an unheralded but unarguably massive player in the RIA space as well.
Their nearly 13,000 advisors have accumulated $96 billion in fee-based AUM. That’s more than the top 20 fee-only advisory firms in the RIA Database, put together.
Dig down, and it’s less about the assets than the architecture. And the writing’s been on the wall for months.
All the keys to the open architecture platform
When we first heard about the Fortigent deal, we thought back to April, when LPL paid $20 million for relatively obscure software provider Concord Wealth Management.
Concord’s technology helps financial firms that use the “overlay” approach manage their relationships with third-party investment managers.
The outside managers pick the securities, the client-facing advisors pick the managers and software like Concord’s keeps everything straight.
And as it happens, Fortigent picks the managers — or at least does the research and makes recommendations on who’s good and who’s not worth bothering with.
Now that LPL owns both companies, it has all the pieces it needs to offer affiliated advisors a true “outsourced” asset protection platform even though all the important functions can be handled in house.
Concord provides the back office support from proposal to billing. Fortigent can populate the platform with its universe of pre-approved managers.
And in theory, LPL reps can spend a lot less time building client portfolios themselves — and a lot more time keeping existing clients happy while prospecting for new business.
“LPL is now unique as an outsource organization,” Aite Group analyst Sophie Schmitt told me back when the Concord deal closed.
Now, LPL is obviously capitalizing on what she calls “intense interest in open architecture solutions.”
“This creates plenty of new expansion opportunities,” she explains.
This might be why Ron Carson, LPL’s top producer, recently brought his $3 billion in client assets back to the firm after leaving back in May.
Carson left because he wanted to run his own fund. A fully integrated overlay system can give him the next best thing by letting him distribute his “model” portfolios to every other advisor out there.
When he came back to LPL a few weeks ago, he said the firm was working on “one of the most exciting technologies I’ve anticipated in a long time.”
A completely in-house open architecture platform definitely seems to fit that bill.
Custody is part of the equation
LPL can also package Fortigent’s manager research to sell back to Concord’s bank-and-trust-heavy clientele.
At the time, LPL raised eyebrows by touting Concord as its toehold in the personal trust custody space, but the synergies weren’t obvious.
LPL is already a major player in bank-resident brokerage services through its UVEST subsidiary, which runs the investment programs for 300 banks and credit unions and supports about 2,300 advisors.
With Fortigent’s managers on the table, these institutions can now outsource their entire investment operation — including the trust portfolios — to LPL and its affiliates.
That’s a sales pitch that cost-conscious bankers are going to be a lot more eager to listen to, especially if it means more time for their in-house personnel to court new accounts.
“It’s obviously very beneficial from a cost savings perspective,” Schmitt says.
Since Fortigent supports unified managed account (UMA) structures and various alternative asset classes, it seems a natural fit as an outsourced solution for trust portfolios in particular.
With a UMA structure, the introducing institution never gives up custody of the underlying assets, but instead simply imports and “overlays” the third-party models to determine how to invest its clients’ wealth.
This overcomes some of the traditional stumbling blocks of separately managed account (SMA) approaches in the trust space.
Meanwhile, the asset-class-neutral UMA structure ensures that real estate, private equity and any other “legacy” alternative assets held in trust can coexist with stocks, bonds, mutual funds and anything else the investment managers and grantors desire.
Which overlay provider is next?
With all these opportunities opening up, LPL executives may not even feel the need to expand much into the high-net-worth advisory market in the near term.
After all, that’s what its independent reps are for. And the banking opportunities look even more seductive — if you connect all the dots.
The question is really how much LPL paid for Fortigent. We’ll find that out in a few months when the company reports its next quarterly numbers.
But if the $10 billion on Concord’s platform brought a price of $20 million, Fortigent — which runs five times that much money — may have cost at least as much.
Will other overlay vendors become takeover targets? We’ve been covering this space for awhile, so you can get a sense of some of the players here.
Scott Martin, senior editor, The Trust Advisor. Steve Maimes and Jerry Cooper contributed to the research.
Permalink: http://thetrustadvisor.com/news/fortigent
Like, Link, Share or Tweet: Most Advisors Think Social Media is a Big Distraction
Posted by Scott Martin in News on January 2, 2012
After a year of hype, very few financial professionals have seen any concrete benefit at all from their marketing efforts on Facebook, Twitter and elsewhere. Experts maintain that those who crack the code can reap big rewards. Is the industry doing it wrong?
A lot of the same advisors who leapt onboard the social media bandwagon in 2011 are getting anxious that they’re not seeing instant results — and new statistics reveal that even the “early adopters” are disappointed.
According to a recent Aite Group survey, barely 6% of advisors reported getting any boost to their revenue from all the Tweeting and other updates they pumped out in 2011.
That would be reasonable if we were starting from an even lower base like zero. But when Aite did the survey in 2009, a much healthier 16% sample said their social networking helped their bottom line.
What happened? Even the analysts are writing off the failure of Twitter, Facebook and LinkedIn to generate new business as a case of unrealistic expectations and hype.
“Social media has been over-hyped and the benefits just aren’t there for a lot of advisors,” sums up Ron Shevlin, who wrote up the data for Aite.
Sure, Twitter isn’t going to drive hundreds of high-net-worth prospects straight to anyone’s office. But like anything else, the secret is matching your tactics to your goals.
There are success stories
While most advisors are striking out in the social arena, some are indeed boosting their AUM.
But they’re not doing it by blasting how great they are and waiting for prospects from halfway across the world to pick up the phone.
Everybody in the industry is doing that, and the smart ones have already jumped ahead to creating webinars and other interactive presentations instead.
Instead, advisors are using social media to get a better read on what local rich people are doing, says Sarah Carter, who runs marketing for advisor social networking company Actiance.
“One financial advisor noticed on LinkedIn that a client was changing jobs and captured the 401(k) rollover,” she explains.
“Another noticed a client was retiring and got a $2 million account acquisition out of that one.”
Being able to beat the competition to the punch when a client or long-term local prospect needs advice justifies the time invested in scanning the updates in itself.
And these opportunities emerge without the advisor having to send a single message. All you have to do is add the right people to your network and keep your eyes open.
Retention bonus
Even the Aite numbers show that 19% of all advisors who use social media managed to Tweet up at least one new prospect in 2011.
That number used to be a lot bigger — 36% back in 2009 — but two years ago, any advisor who had a Twitter account stood out a lot more, too.
Now that the giants like Morgan Stanley are setting up social presences for all of their thousands of front-line relationship managers, it’s not enough to be “the Twitter advisor.”
But this goes both ways. As Sarah Carter from Actiance says, the industry has seen “a waterfall effect” as independent wealth management firms look around and see their competitors popping up on their clients’ friends lists.
“Big names are looking to expand their usage and smaller firms are looking for guidance on what to do,” she explains.
That means at least having a presence on Facebook and anywhere else your clients are online, even if you don’t use it actively or see much immediate return on your investment.
Obviously, anyone under 40 has the Internet in their DNA at this point, but even older investors may appreciate communicating with you through these 21st-century channels.
Here too, the key is not so much tooting your own horn as watching your clients.
If they’re reposting a lot of links to economic blogs you don’t agree with, this is your chance to get them back in your court — or at least acknowledge that maybe their risk tolerance has changed and their portfolio needs an adjustment.
And if they’re gushing about an addition to the family or some other big life change, be sure you’re the first to offer congratulations and a consultation about what this means for their financial plans.
In terms of where to go, LinkedIn seems to be the front runner, because it establishes your professional identity. Think of it as a “social” business card.
Beyond that, with advisor participation on Facebook and Twitter dropping 8% to 10% last year, there may be fresh opportunities in those channels to sweep in and court “orphaned” investors.
Regulatory issues are still up for grabs
While FINRA got the social gold rush going this year by finally releasing social guidelines for brokers, the SEC is still playing it close to the vest.
Part of the issue, of course, is that they have bigger things on their plate than your Facebook account.
But sooner or later, the SEC will probably sue some advisor for crossing a line he or she never even knew was there.
Right now, treating Twitter like any other electronic communication seems good enough. Keep careful records of all your messages and avoid doing anything you wouldn’t do in email or on your website.
One gray area that might become important in 2012: veiled endorsements. The compliance gurus tell me that any time you “like” a message with financial or market impact, it’s potentially a regulatory issue.
And any time your clients “like” you, the SEC may read it as a testimonial. So if you get those warm fuzzy messages, it may be best to delete them — much as it may pain your pride to do so.
Permalink: http://thetrustadvisor.com/news/distraction
Scott Martin, senior editor, The Trust Advisor. Steve Maimes and Jerry Cooper contributed to the research.
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