To cater to the ultra-affluent, Robert Keys co-founded Private Consulting Group. A central element is its Wealth Strategy Design Team - nine lawyers and two accountants who advise its planner network.
So you want to target the wealthy?
"The good news is they have a lot of net worth," says Robert Keys, co-founder of Private Consulting Group (PCG), headquartered in Portland, Ore., which caters to the super affluent. "And the bad news is they have a lot of net worth."
Keys and Paul Brooks started the firm to better confront the problems - as well as the privileges - that wealth brings.
After leaving Financial Network Investment Corp., which he co-founded, Keys looked for a broker/dealer to join but found none that effectively addressed the needs of the very rich. "Most try to be all things to all people," he says. "They want you to sell what they're selling. We decided to carve out a unique niche."
Keys' clients are people who own their own jets. They closely guard their privacy and have unique concerns - like the risk of kidnapping. (Special insurance riders cover not only jewels and art but ransom as well.) Their financial goals also typically include philanthropy.
Clients of this caliber usually have a family office with attorneys and accountants already in place. PCG doesn't take the place of these professionals, nor does it duplicate their efforts. "We don't do taxes and we don't do wills," Keys says. "We want to be a family's advisory team that works with the family's attorney and accountant."
PCG, a broker/dealer and registered investment advisory, has 17 offices, four operated by partners (Keys and Brooks are the major owners) and the others are run by what the firm calls managing directors. Most of these are independent contractor branch managers with a background in planning for high-net-worth clients. All of them are investment adviser reps affiliated with PCG's RIA firm.
In total, the firm has about 30 reps and IARs. Client accounts range from $10 million to $100 million.
Keys won't talk about assets under management, but says, "The amount we `advise to' is in the billions."
Designing Wealth A critical element of PCG's high-net-worth service is its Wealth Strategy Design Team - nine lawyers and two accountants - all independent professionals who do work for PCG's planner network. Keys describes the team as a "joint case strategic alliance firm." The goal is assembling the top experts in specific areas like charitable giving, ESOPs and accounting.
The team convenes four times a year to develop and review strategies, keep PCG's planners up to speed and help with implementation.
Among other areas, the team designs "monetization" strategies for clients who have considerable assets locked up in one security or property. Monetization can free up cash for diversification without liquidating the position.
An example is the cashless collar, sometimes called a costless collar. Say the client owns a stock trading at 100. Dealing in European or five-year options, the client would buy a 90 put and simultaneously write a call for 150. The call premium pays for the put. During the five years, the client can borrow up to 85% of the value of the portfolio and use it to diversify.
PCG's tax-efficient strategies include working with insurance companies to customize variable life contracts. The death benefit is kept low (but within legal limits) to minimize insurance costs.
Cash values can go into a venture capital fund, hedge fund or a private placement. Another strategy is investing venture capital inside a tax-exempt trust.
Wealthy clients also need protection from legal liabilities. PCG works with clients in managing family limited partnerships or holding assets offshore.
Keys is quick to note that offshore investments are transparent as far as income taxes are concerned, but might make sense for asset-protection reasons.
"When you're dealing with qualified investors and accredited investors, it's a whole different world," Keys says.
Wealth rarely lasts beyond the third generation, says Lee Brower, a Private Consulting Group (PCG) partner in Salt Lake City. Inherited money is often squandered and may do more harm than good.
"We studied what makes family wealth persist," Brower says. "Instead of just dumping money onto heirs who are ill-prepared for it, it's better to create opportunities where they can access funds for purposes such as education, perhaps through matching grants."
Brower developed a concept he calls "empowered wealth," which involves creating a family legacy and distributing wealth according to values. "We help the family discover their values and develop a statement of financial philosophy," he says.
PCG facilitates this at retreats, during which families explore their beliefs and youngsters learn about charitable giving through games. Some client families have established family foundations, and some have a junior advisory board with children as young as 7 as members.
Causes vary. One client funded an art college, while another helped a small town raise $4 million for local charities.
PCG even has its own foundation dedicated to promoting the philanthropic activities of its clients.