Family Office: Philanthropic Travel

Exquisite Safaris thanks Citi Family Office for the opportunity to present Philanthropic Travel.

A recent global survey conducted by The Citi Private Bank captures some unique insights into the investing attitudes of ultra affluent individuals we interviewed around the world. They are growing increasingly sophisticated about their finances, and many are shedding their national- or regional-based investing views and adopting increasingly global viewpoints on wealth management. Still, they retain some regional attitudes, largely based on different cultural attitudes about wealth and wealth management. These are some of the findings we captured in personal interviews with 120 ultra affluent individuals from around the world regarding their perspectives on investing and wealth management. The interviews and development of the findings were supported by McKinsey & Company, an international management consulting firm.

This is considered to be the most affluent group ever polled:
All of the participants possess a net worth of more than $25 million, and more than 60 percent enjoy a net worth in excess of $100 million. Citigroup Private Bank executives and McKinsey partners interviewed these individuals during in-depth, face-to-face conversations. Included were individuals from five major regions -the US, Latin America, Europe, the Middle East and Asia Pacific.

What emerges is a more nuanced portrait of wealth management perspectives than has been seen from previous studies.

The Interview Process
The Citigroup Private Bank survey is the one of the most exclusive in the history of wealth surveys. The questions were aimed at deepening our understanding of a number of topics, including:

* The nature of ultra affluent individuals' wealth management needs, including their aspirations and goals, and the types of advisors they use: large global banks, local banks or boutique investment firms.
* The extent to which they need broader wealth management advice -on tax planning, business succession planning, intergenerational wealth transfer or other issues -and who provides them with that advice.
* Whether they have set up a family office, or are contemplating doing so, and for what reasons: independence, aggregated reporting, control and/or a need for special expertise. We also inquired about the decision-making roles within the family office.

The interviews consisted of extensive discussions -typically lasting one hour or more -and were conducted in person and in confidence at each participant's business, home or vacation home around the world over the summer and fall of 2004. Clearly, the opportunity to be heard on this important topic struck a responsive chord in many of the participants, making this one of the most comprehensive primary research studies on ultra affluent wealth attitudes, motivations and aspirations.

Several Important Trends
This survey of wealth management attitudes identified several current trends:

They are adopting an increasingly sophisticated approach to wealth management.

Dramatic increases in financial sophistication are fostering new wealth management attitudes and perspectives among ultra affluent individuals. The interviews made it clear that ultra affluent individuals from all regions around the world are rapidly expanding their command of advanced investment concepts. This is partly driven by the proliferation of financial news, data and analysis, and also by the dramatic growth of alternative investments, which have developed largely outside of traditional banks and brokerages. Many hedge fund, private equity and real estate fund firms actively seek out ultra affluent investors, in the process educating them about their often sophisticated strategies. The result is that ultra affluent individuals have greatly expanded their knowledge of the important aspects of modern investment management, including alternative asset classes.

They enjoy better than ever access to sophisticated financial products through multiple channels.
It is clear that their position at the top of the wealth pyramid makes ultra affluent individuals highly sought after by all types of wealth advisors. These investors enjoy access to sophisticated financial products from the entire range of advisors, from private banks and investment banks to investment managers and alternative asset firms.

As a result, ultra affluent investors no longer see access to products as a sufficient value proposition from their wealth advisor, particularly given the proliferation of direct offerings of hedge funds of funds and private equity investments. Ultra affluent investors are responding to this trend by expanding the number of relationships they maintain with both traditional and non-traditional wealth advisors.

These developments are challenging traditional wealth advisors to add value in new and distinct ways, including providing strategic asset allocation advice, coordinating disparate investment offerings or offering special opportunities such as co-investments.

They are increasingly interested in hedge funds and other alternatives while demanding greater transparency regarding risk and return.
While many investors experienced disappointing stock market returns from 2000 through 2002, and again for most of 2004, some aggressive hedge funds were reporting double-digit returns. This combination of factors greatly enhanced the attractiveness of hedge funds and ultra affluent investors are increasing their allocations accordingly. Despite this, these investors expressed a clear desire to better understand how hedge funds are managed, and how they achieve their returns. So while the ultra affluent appear willing to increase their allocations to hedge funds, they also want greater disclosure from alternative asset managers as to performance, risks, fees and fund pricing.

They are responding to this increasing complexity of investment markets, products and providers by setting up family offices or seeking out family office-type services from their private bank or independent advisors.

The growing sophistication of some investment strategies and the poor returns of the major indexes over the past several years are increasing these individuals' desire for objective investment advice. This has led a growing number of ultra affluent individuals to either set up their own family office with investment management capabilities or to turn to independent financial advisors to help them make their investment decisions. They are also seeking family office-type services, such as strategic asset allocation planning or hedge fund manager due diligence from their private bank or other wealth advisor. Ultra affluent individuals find that having a family office, or access to these services, helps them access multiple product providers without requiring them to spend time personally managing these relationships.

Our survey also uncovered some surprising tendencies.

Ultra Affluent individuals make some of the same mistakes as investors with more modest portfolios.
The participants' responses also made clear that gaining access to a wider range of investment products does not ensure success. Indeed, a common admission was that increasing sophistication and better access did not prevent the respondents from chasing performance or failing to properly diversify their portfolios -the same challenges faced by the broader population of investors.

They are keenly interested in advice regarding family dynamics and inter-generational wealth transfer planning.
A number of individuals expressed a need for help with the challenges of raising their children amid affluence, and successfully passing their assets on to future generations. Their concerns range from ensuring that their children have sufficient drive and motivation to succeed in spite of the family’s wealth, to apportioning responsibilities for the family business among multiple siblings, to creating trust structures that pass their wealth along while ensuring that it remains in the family.

Despite this need, however, many ultra affluent individuals expressed reservations about seeking out advice on family wealth dynamics on their own. Clearly the intimate nature of these discussions inhibited many of these individuals from initiating this type of dialogue with their wealth advisor. This underscores the need for wealth advisors to be proactive about family advisory services, and to explore ways to deliver this advice and information to their clients in ways that they can embrace comfortably.

A Few Regional Tendencies Remain
While our survey clearly portrays the emergence of pan-regional attitudes among the ultra affluent, we saw enough evidence of some significant regional attitudes to merit their inclusion in our findings. This includes the following regional tendencies.

North American Ultra Affluents:
* Express a strong desire for alternative investments, particularly hedge funds
* Tend to have numerous relationships and ways of accessing sophisticated products; they seek greater direct access to high-end financial products
* Are more likely to have family offices than investors in other regions
* Appear uninterested in integrating personal assets and closely held corporate assets.

European Ultra Affluents:
* Demonstrate significant demand for tax-efficient investment products, vehicles and tax advisory services
* Express a keen interest in real assets (e.g., real estate, ships, privately held businesses)
* Tend to have relatively few financial institution relationships
* Are open to middle-market investment banking services.

Latin American Ultra Affluents:
* Place a very high degree of importance on confidentiality and privacy
* Focus on the perceived strength and stability of offshore banks
* Place significant emphasis on their personal relationships with bankers/wealth advisors
* Maintain relatively few financial institution relationships
* Hold significant assets in privately owned businesses.

Middle Eastern Ultra Affluents:
* Demonstrate, on a strategic basis, a strong preference for real estate and principal-protected products
* Prefer, on a tactical basis, an aggressive investment style, switching among a broad variety of asset classes
* Are often less familiar with, and less interested in, hedge funds
* Value personal relationships above other criteria
* Focus on the perceived strength and stability of offshore banks.

Asia Pacific Ultra Affluents:
* Hold higher allocations in cash, real assets and privately held businesses
* Seek ways to invest in the region's own dynamic growth opportunities (e.g., China, co-investment deals)
* Tend to seek integrated private and corporate banking offerings for their closely held business assets
* Demand confidentiality, especially in emerging countries.
* Summary and Conclusion

The Citigroup Private Bank study paints a comprehensive portrait of ultra affluent individuals at a time when they are adopting progressively more sophisticated approaches to wealth management. They are increasingly interested in hedge funds and other alternative investments, and are more able than ever to access these products outside of their relationships with traditional wealth advisors.

This increased availability of sophisticated investment products may represent a mixed blessing, however, as many ultra affluent investors continue to suffer some of the same pitfalls encountered by the broader population of investors. Moreover, they admit to remaining wary of hedge funds because of a lack of transparency regarding their risks and returns. One consequence has been a marked shift toward setting up their own family offices, or seeking family office-type services from their existing wealth advisors or independent advisors, as a means of managing these increasingly complicated products. Finally, they express a keen interest in high-level strategic advice regarding family dynamics and intergenerational wealth transfer planning, but are not always ready to embrace that dialogue with an advisor outside of the family.

Understanding these dynamics can help wealth advisors devise better ways of serving this important client segment, and accommodate an increasingly complex range of client expectations and needs.

- Citi Private Bank

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posted by: David, Exquisite Safaris