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| Who Can You Trust?: Sentinels or Swindlers? |
The Independent Approach
Jan Alexander
11/01/2005
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Roy Smith, a retired Goldman Sachs general partner in his 60s who teaches
finance at New York University, eyes much of his former industry—the financial
services sector—with skepticism. Smith believes the best method for preserving
his immediate family’s wealth is to oversee his own investments—and train his
family members to do the same so they can eventually take over for
him.
However, independence without competence is no answer. Smith watched his
in-laws neglect their substantial assets as they aged because they were
unwilling to turn over control of their affairs to others.
“It made me think
about my wife’s and my situation,” Smith says. “I was reluctant to turn
everything over to an advisor or a bank or a lawyer. They take a long time to
trust, they come and go or get acquired, or simply get old just as we do. In any
event, they are not going to care as much as I do that things work out right.
The best of the alternatives, we think, is to educate our children in managing
complex financial matters so they can take over when we are starting to lose
some of our abilities.”
Smith is not alone in his anxieties about trusting
financial advisors, according to a recent survey of ultra-affluent individuals
by the Chicago-based consulting firm Spectrem Group. According to its study,
conducted this spring, approximately 21 percent of the 500 respondents choose
not to use a professional advisor to manage their wealth. Roughly 17 percent
said they had changed advisors in the past three years; among those, 42 percent
cited a lack of confidence or trust in the advisors as the primary reason for
switching.
Smith plans to turn over the management of his family office to
one of his three grown children when he turns 70. Neither his wife, Marianne,
nor any of the children are financial professionals, however, so he is pushing
all of them to acquire the investing skills they will need. His son, Andrew, is
a lieutenant commander in the Navy, while his daughter Kelly is busy with four
children. Smith thinks that Allison, a real estate broker and avid equestrian
who has been taking financial management courses, might be the one most
interested in the job.
All five Smiths file into meetings with their
portfolio managers and ask questions. Roy Smith currently retains five
professionals who oversee equity portfolios and another five for alternative
assets. This is his strategy for overseeing his own diversification plan,
although he generally gives each manager a chance to demonstrate long-term
capabilities with a two-year trial run. He has also become an investor in an
independent investment information service, Private Client Resources, which he
uses every day and asks family members to check frequently. The company’s
website www.privateclientresources.com
offers members personalized performance measurements weighted by benchmarks for
each asset class. “The system is a big improvement over what I was doing before,
making the calculations manually,” he explains.
The Smith family judges
their portfolio managers using industry-standard analytics, rather than focusing
on up- and down-drafts. “I don’t scream when the whole market is down,” Smith
says. “But I don’t want to go down more than the market.” He recalls, however,
questioning one portfolio manager whose investments were gaining a paltry 4
percent at the height of the high-tech boom. “He was a guy about my age, and he
seemed like a curmudgeon,” Smith remembers. “We had a long talk with him to see
if he might be covering up a lack of understanding of technology or an
inappropriate resistance to change. We decided we liked him. He was a guy who
didn’t get carried away with his own ambitions or performing for his
masters.” Back to Main Article: Sentinels or Swindlers?
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