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A Hunger for Alternatives

The business of wealth management -- once the province of private banks, trust companies and brokerages -- has evolved into a complex and competitive arena, including a host of small, specialized boutiques and professions like accounting and law.

"You have a lot of players," says Teresa Weintraub, president of Fiduciary Trust International of the South in Miami, part of Franklin Resources. "In the end, it comes down to where do you think your family will be best taken care of. That comes down to trust, and in a way, chemistry, to resources, stability and the depth of the institution you're talking to."

Growth in the wealth business stems in part from a rise in the number of wealthy folks. Last year, 8.3 million people worldwide had at least a million dollars in assets to invest, an increase of 600,000 people, or 7.3%, from 2003, according to the latest World Wealth Report from Merrill Lynch and Capgemini. Florida ranks third in the U.S. in households with at least $1 million in net worth, excluding primary residences, according to TNS Financial Services. (California and New York place first and second, respectively). In 2004, the Sunshine State had 558,000 households with $1 million or more in net worth, up 35% from 2003.

"We see a lot of entrepreneurs selling businesses and coming to Florida because of the favorable tax structure or retiring CEOs coming to Florida," says Mark LaRoe, head of Florida for JPMorgan Private Bank. JPMorgan, which has private banking offices in Miami, Palm Beach and Naples, caters to ultrahigh net worth clients with $25 million or more.

The most common theme wealth managers discern from their clients: They yearn for high-touch, personalized treatment in dealing with their financial lives. And while the superwealthy have a keen appetite for alternative investments, most aren't looking to take big risks, says Louis J. Chiavacci, senior vice president of investments at Merrill Lynch in Coral Gables. "Our clients are loss-averse," says Chiavacci, who heads a nine-member team that deals with a select group of ultrawealthy clients. "They're competitive people, but they're not looking to squeeze out that last percentage point."

At the same time, maneuvering through the financial landscape has never been more complex. Brett Rees, a senior vice president at Northern Trust in Sarasota and director of sales and marketing for the Southeast, says wealthy clients demand an ever broader diversity in investment options, with alternative investments -- hedge funds, private equity funds and the like -- becoming key. At the same time, "we've seen our clients looking for access to more investment information, and they want it quicker," says Rees. "They may see something on the web or on CNBC, and they want to know more. They want the full picture."

It's common today for wealth managers to assemble a team of experts with diverse skills to integrate various facets of their clients' money lives, from financial planning to investments to estate planning and philanthropy along with insurance and taxes. What people really want -- especially people with enormous wealth -- is access to the best of each category of investment: The best manager for each type of stocks, the best one for fixed income, the best available REITs, the best hedge funds. And they want to know their advisers are speaking with their best interests in mind, not some hidden agenda to promote certain products or services.

"More sophisticated investors are really focused on investment opportunities that are more objective," says Hunter Wilson, president of Palm Beach Gardens-based Asset Management Advisors, a well-known multifamily office catering to the ultrarich, "where there is no conflict of interest between the investment adviser and the product sale."


Managing director,
Wealth and Tax Advisory Services
(a unit of HSBC Private Bank)

"There is so much information it's difficult to separate what's important and meaningful from all the rest of the noise," says Randy Macpherson.

The boutique firm offers investment advice at a macro level on matters such as tax strategies and services, asset allocation, manager selection and performance monitoring. "Objectivity and technical competence are important," says Macpherson, "also, the personal rapport with advisers."

Macpherson says clients may turn to the firm for a view from 30,000 feet: "We might combine reporting of how all their managers are doing, without one manager necessarily knowing about the other."

Demand for such services is driven by "the complexity of your financial situation," not solely net worth, he says. "If you have $20 million in municipal bonds, you're not going to value the services as much as those involved in enterprises. Our clients lead robust and active financial lives. They're involved in real estate, in private equity," he says.

"Our clients are mostly serial entrepreneurs. They may sell their business and after a while get antsy and do something else."


Senior vice president / director of sales and marketing,
Southeast region,
Northern Trust

"Wealth management is still a growth business. That's because of the tremendous growth in the number of millionaires," says Brett Rees. Also driving the demand for products and services: The demographics of the U.S. population. "Think of the tremendous number of Baby Boomers and all the people inheriting money."

From an institutional standpoint, the business is attractive because "it provides a consistent stream of fee income," says Rees. Rees finds clients today are receptive to casting a wider net in the sorts of investments they want. "An overarching trend is to build an array of capabilities, to provide diversification in what they can invest in," Rees says. "It has to do with
managing risk."

As for clients' desires: "It's a given they want high touch. All of us try to provide that. One important part of that is how often you get back to clients. There has to be a proactive dialogue."


Senior vice president / investment,
Merrill Lynch

"There is tremendous value in having asset management coordinated with financial planning. It should all start with the objective," says Louis J. Chiavacci, who heads a nine-member team. "What is a client trying to accomplish?"

His group operates, he says, much like a multifamily office. It deals with about 50 clients with an average net worth of $60 million. Clients have
a minimum liquid net worth of $10 million. Chiavacci, who recently was rated among the nation's top financial advisers by R.J. Shook, author of The Winner's Circle books, counts independence as one of the best things he can offer clients.

His team taps the expertise of various Merrill Lynch specialists, including a group that does nothing but evaluate outside investment managers and settles on the "best in class."

Chiavacci says early in 2005 he sold off high-yield bonds for clients as the spread to treasuries got smaller. "And we've dramatically reversed our exposure to REITs," he says. In fixed income, "municipal bonds are very attractive versus taxable bonds for taxpaying investors," and in stocks, Chiavacci likes "the bluest of the blue chips." He says: "What's attractive today are the very high quality."


Head of Florida,
JPMorgan Private Bank

"Asset allocation is at the heart of our conversations with clients," says Mark LaRoe, whose private bank caters to the ultrahigh net worth individual and family -- those having assets of $25 million or more.

LaRoe often encounters a lack of diversification among many wealthy people. "They may have concentrated positions if they sold a company for stock. Concentrated position is a great way to create wealth but a hard way to sustain wealth," LaRoe says.

JPMorgan Private Bank has pursued the trend of offering clients the broadest variety of investment options -- whether inside the bank or outside. "Years ago, there was not as much third-party investment. As we've evolved, we recognize that clients want best of class," says LaRoe. "We might not have the full share of a client's assets, but we want to be the first call."

LaRoe says his investors are becoming more interested in growth stocks, particularly pharmaceuticals.


Fiduciary Trust International of the South
(a unit of Franklin Resources)

"We'll tell individuals whether a strategy will work or not. We'll do investment management, pay bills. We'll review estate plans and make recommendations and work in tandem with advisers," says Teresa Weintraub. "We try to be a part of the team."

The full-service trust company targets clients with at least $2 million to invest and offers individually managed accounts. "We develop asset allocation strategies and actually pick stocks and bonds," says Weintraub. "When a client invests over $2 million, they want you to invest for them. You're focusing more on the individual's needs and goals."

A client's primary point person at Fiduciary is the portfolio manager, she says, "and we encourage clients to talk to the portfolio managers as often as they want. It creates synergy and a relationship that will endure hopefully for generations," she says.

Today, clients come equipped with a lot more information, and they're more knowledgeable about sophisticated financial products and services, she says.


Asset Management Advisors
(an affiliate of SunTrust)

"More sophisticated investors are really focused on investment opportunities that are more objective -- where there is no conflict of interest between the investment adviser and the product sale," says Hunter Wilson, whose company is a well-known multifamily office catering to the ultrarich. "We take the lead role like the conductor of
an orchestra."

AMA, which was acquired by SunTrust in 2001, provides an umbrella of financial services and wealth management to about 300 superrich families with
$7.5 billion in assets under management. The firm uses outside money managers, shopping for the best minds in stocks, bonds, real estate and alternative investments, and directs clients to what it believes are the best estate and tax planners. Beyond overseeing traditional areas of a client's finances, such as financial planning, investments, insurance and estate planning, AMA offers clients help in educating their children in money management, budgeting and stewardship. It also helps clients in sorting out philanthropic goals.

Wilson says the firm has recently increased its emphasis on international and emerging-market stocks in lieu of U.S. stocks. Private equity and venture capital are again attracting more attention, too, he says. "We continue to believe strongly in alternative investments. In response to volatile markets, we have tried to reduce our direct market exposure by introducing more strategy/idea specific opportunities, like long/short equity, distressed debt, event-driven equity, etc."


Chairman / private wealth services department,
Gunster Yoakley law firm

"We work with boutique firms, family offices, banks and trust companies," says Daniel A. Hanley, a shareholder at Gunster Yoakley, which has deep roots dealing with the legal side of wealth -- from tax and estate planning to charitable foundations and philanthropy.

Hanley says there is no shortage of experts lining up to offer help and advice, and "a lot of people are focused on the upper end." The key is finding the right help.

"You want excellent advisers to navigate the landscape," Hanley says. "That's where reputation counts a lot. A lot of people ask their friends: 'Who do you use?' "