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77 Percent of HNW Come From Low- to Moderate-Income Families

The 2016 US Trust Insights on Wealth and Worth survey recently released found 10 common success traits that create a picture of modern day wealth in America.

“Perceptions of the wealthy in history and popular culture have been painted with a broad brush that doesn’t reflect the majority of financially successful people in society,” said Keith Banks, president of U.S. Trust. “The insights we’ve gained through extensive research over the years give us a more accurate portrait of the modern day wealthy. It’s an increasingly diverse group of men and women of all ages and backgrounds. Their advantage in life is not rare financial privilege but rather basic values, discipline and sense of potential shaped by family from an early age, which equipped them to make the most of every opportunity.”

Based on a nationwide survey of 684 high net worth (HNW) individuals with at least $3 million in investable assets, the 2016 U.S. Trust Insights on Wealth and Worth survey explores who the wealthy are, where they came from, how they built and are sustaining their wealth and what they want to do with it.

When asked what they themselves attribute most to their success, the top three responses were: Hard work, ambition and family upbringing. Through extensive analysis of survey findings, U.S. Trust found these similar characteristics about the wealthy:

They built wealth over time: 77 percent of those surveyed came from middle class or lower backgrounds, including 19 percent who grew up poor. They earned wealth over time, most of it through income from work and investing.  

Basic, long-term approach to investing: 86 percent of HNW investors made their biggest investment gains through long-term buy and hold strategies, traditional stocks and bonds (89 percent) and a series of small wins (83 percent) versus taking big investment risks. Their use of more sophisticated investments grows as their wealth increases.  

Opportunistically optimistic investors: More HNW investors are optimistic than pessimistic about investment returns over the next 12 months. Nearly three in five keep more than 10 percent of their investment portfolios in cash positions, including one in five with more than 25 percent in cash on hand. Their top reason for doing so is for opportunistic purposes, including being in a position to invest on a sudden market downturn or rising trend.

Use credit strategically: Nearly two-thirds consider credit as a means to  strategically build their wealth. Four in five say they know when and how to use  credit as financial advantage.  

Make tax-conscious investment decisions: HNW investors know that real  investment returns are really negative returns if they are gobbled up by taxes. Fifty-five percent agree investment decisions that factor in potential tax implications is better than pursuing higher returns regardless of the tax implications.  

Invest in valuable tangible assets: 48 percent of HNW investors invest in tangible assets, such as farmland, investment real estate and timber properties that can produce income and grow over time with legacy value. One in five collects fine art, including one in three ultra high net worth art collectors who are now using art as an alternative asset class and a core part of their wealth structuring and philanthropic giving strategies.  

Disciplined savers; opportunistic buyers: 81 percent of HNW investors say that investing to reach long-term goals is more important than funding current wants and needs. This disciplined approach to saving and investing was instilled at an early age and becomes easier with the financial freedom that wealth affords.  

Advantage in life is family values and upbringing: Four in five wealthy people came from families where their parents encouraged them to pursue their own talents and interests, but set firm disciplinary boundaries and, for the most part, were tolerant of failures and mistakes along the way. The five family values most strongly stressed during their formative years were: Academic achievement, financial discipline, work participation, family loyalty and civic duty.  

Strong family tradition of philanthropy: 65 percent say there is a strong tradition of philanthropy and giving back to society within their family.  

Marriage is a life-long partnership: 86 percent of the wealthy surveyed are married or are in a long-term relationship. Most stayed married to the same person, avoiding the financial setback that divorce often creates. They tend to divide, rather than share, roles and responsibilities at home, including financial and non-financial contributions to family wealth, such as caretaking for children. Almost all discuss important goals and values about the use of money.

While the survey found common traits across all ages and wealth levels, U.S. Trust also found distinct generational differences suggesting the next generation of young, high net worth millennials is taking its own approach to building and managing wealth. The findings portray millennials are highly optimistic, opportunistic and knowledgeable investors, who are especially entrepreneurial and confident in their ability to improve their own circumstances while making the world a better place for themselves and others.

“It is noteworthy that while the survey uncovered several examples of generational differences, the one common thread that cut across all generations was the importance and impact of family values as key contributors to success,” said Chris Heilmann, chief fiduciary executive of U.S. Trust. “As such, today’s advisors should be mindful of that focus to engage in values based planning conversations with their clients.”

Smart Beta: 3 Things You Should Know About Factor Investing

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Factors are broad, persistent drivers of returns that have been proven to add value to portfolios over decades, in accordance to research data from Dartmouth College. Factor strategies like smart beta capitalize on today’s advancements in data and technology to give all investors access to time-tested investment ideas, once only accessible to large institutions. As factor strategies continue to gather attention, some misconceptions have arisen. We highlight—and clearup—a few here today.

1. Factor strategies are stocks-only.
False. Equity smart beta strategies like momentum, value, quality and minimum volatility are by far the most adopted factor strategies and often serve as the gateway to this type of investing. But it’s important to note that the concept extends beyond equities to other asset classes, such as bonds, commodities and currencies. As an example, fixed income factors are less well known but similarly aim to capitalize on market inefficiencies. Bond markets are largely driven by exposures to two macroeconomic risk factors: interest rate risk and credit risk. One way that bond factor strategies try to improve returns is by balancing those risks.

As investors look for more precise and sophisticated ways to meet their investment goals, we believe we will see more factor strategies in other asset classes, as well as in long/short and multi-asset formats.

2. Factor investing is unnecessary because my portfolio of stocks, bonds, commodities, hedge funds and real estate is well diversified.
Maybe, maybe not. Oftentimes a portfolio is not as diversified as you might think. You may hold many different types of securities, sure, but those securities can be affected by the same risks. For example, growth risk figures prominently in public and private equities, high yield debt, some hedge funds and real estate. So as economic growth slows, a portfolio overly exposed to that particular factor will see its overall portfolio return lowering as a result, regardless of how diverse its holdings are across assets or regions.

Factor analysis can help investors look through asset class labels and understand underlying risk drivers. That way, you can truly diversify in seeking to improve the consistency of returns over time.

3. Factor investing is a passive investment strategy.
Not really. At least we don’t look at it that way. Factor investing combines characteristics of both passive and active investing, and allows investors to retain many benefits of passive strategies while seeking improved returns or reduced risk. So to us, factor investing is both passive and active. While we think traditional passive, traditional active and factor strategies all have a place in a portfolio, it is not news that some of what active managers have delivered in the past can be found through lower-cost smart beta strategies.

For more on factors, follow this link.

Eaton Vance, Lead Investor at the WM Tech Company SigFig´s 40 Million Financing

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Eaton Vance announced recently its participation in a $40 million financing in SigFig, an independent San Francisco-based wealth management technology company. Eaton Vance is lead investor in the $33 million SigFig equity raise, whose other participants include major financial institutions New York Life, Santander InnoVentures and UBS, as well as venture capital firms Bain Capital Ventures, DCM Ventures, Nyca Partners and Union Square Ventures. Comerica Bank is providing $7 million of credit to SigFig through a lending facility.

This financing solidifies SigFig’s position as an industry-leading provider of digital technology to financial institutions across the wealth management, banking and insurance industries. SigFig will use the funding to accelerate the expansion of its team and technology platform as it scales its enterprise strategy of building investment technology for a wide range of financial institutions based on their distinctive corporate strategies and individual client needs.

SigFig has recently announced a series of partnerships with banks and wealth management platforms, including UBS Wealth Management Americas and Pershing Advisor Solutions, to build wealth management technology solutions for those firms’ financial advisors and clients.

“Eaton Vance’s investment in SigFig reflects our support for their vision to apply leading-edge digital technology to enhance the investing experience and improve outcomes for investors,” said Thomas E. Faust, Jr., Chairman and Chief Executive Officer of Eaton Vance Corp. “Their best-in-class technology platform and partnerships with leading financial institutions position SigFig as an emerging leader in the rapidly developing enterprise wealth management technology market. By affiliating with SigFig, Eaton Vance gains a seat at the table in the development of the tools that will guide the future of investment advice.”

Financial terms of Eaton Vance’s investment are not being disclosed.

Maitland Opens New Miami Office

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Maitland, a global advisory and fund administration firm, has opened a new office in Miami, it´s15th across 12 countries. The office will provide the firm´s LatAm team with a regional base, giving their growing private and institutional client base access to on-the-ground support.

Economic and political instability in Brazil and LatAm – alongside regulatory changes such as Brazil’s recently announced tax amnesty program – are driving increased demand for the firm’s services, especially for clients who have based themselves outside their country of origin. The move ultimately allows the company to forge closer relations with its clients, prospects as well as the growing community of service providers in the vicinity.

Benjamin Reid, Senior Business Development and Client Manager, LatAm, said: “Since Maitland entered the LatAm market three years ago, we have been fortunate enough to work with some of the leading family offices in the region. As we continue to grow, it is paramount that we locate ourselves closer to our clients – almost all of whom have a foothold of some sort here in Miami. Being here allows us to provide a more seamless, local offering, and we have the expertise and linguistic skills to service this region to the highest standard.”

The office is located in downtown Miami. Benjamin Reid has relocated to Miami to continue to lead the group’s business development efforts in the region. Benjamin will be joined by Pedro Olmo and Camila Saraiva, as client relationship managers responsible for the day-to-day management of the growing book of LatAm clients. Pedro joined Maitland from Turim family office in Brazil where he was the group’s in-house counsel. Camila joins the team from Barbosa legal, a Miami based Brazilian law firm focused on servicing UHNW clients.

David Kubilus, Head of Business Development at Maitland added: “Our LatAm business has been growing quickly, so opening a Miami office fits perfectly with our strategy of expanding where clients are located. It’s a great new chapter in our global growth story, which happens to coincide with our 40^th anniversary as a business.”

MAS Directs BSI Bank to Shut Down in Singapore for Breaches of Anti-Money Laundering Requirements

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The Monetary Authority of Singapore (MAS) announced on Tuesday that it plans to remove the status as a merchant bank in Singapore of BSI Bank Limited (BSI Bank) “for serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff.” This is the first time that MAS is withdrawing its approval for a merchant bank since 1984.

In addition, MAS has referred to the Public Prosecutor the names of six members of BSI Bank’s senior management and staff to evaluate whether they have committed criminal offences. These are:

Hans Peter Brunner, former CEO
Raj Sriram, former Deputy CEO
Kevin Michael Swampillai, Head of Wealth Management Services
Yak Yew Chee, former Senior Private Banker
Yeo Jiawei, former Wealth Planner
Seah Yew Foong Yvonne, former Senior Private Banker

The Monetary Authority of Singapore (MAS) will allow the transfer of the assets and liabilities of BSI Bank Limited (BSI’s Singapore subsidiary) to the Singapore branch of EFG Bank AG. MAS and the Swiss Financial Market Supervisory Authority (FINMA) are working closely to oversee an orderly transfer.

“Clients of BSI Bank Limited are assured that both BSI and EFG are working for a fast and smooth transition. The Singapore subsidiary also has the full support of its parent bank, BSI,” said a statement by BSI, which also mentions that the bank has taken “note of the announcements by FINMA and MAS in relation to past compliance gaps related to the 1MDB case.”

MAS has also served BSI Bank notice to impose financial penalties amounting to $13.3 million for 41 breaches of MAS Notice 1014 – Prevention of Money Laundering and Countering the Financing of Terrorism. The breaches include failure to perform enhanced customer due diligence on high risk accounts, and to monitor for suspicious customer transactions on an ongoing basis.

Ravi Menon, Managing Director, MAS, said, “BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector. It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously. Controls need to be robust, surveillance vigilant, and the management culture must emphasise professional integrity and risk consciousness.” Adding that “MAS is absolutely committed to safeguarding the integrity and reputation of Singapore’s financial centre. On this, there can be no compromise.”

Wealth Managers Compete for up to US$200b in Revenue as 40% of Clients are up for Changes

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Globally, up to US$200b in revenue may be at stake, as 40% of all clients surveyed are open to switching wealth managers under the right circumstances, according to EY’s 2016 global wealth management report The experience factor: the new growth engine in wealth management. Firms that fail to make strategic investments to deliver a superior client experience may risk losing a substantial portion of their current business, the report finds.

The vast majority (73%) of clients surveyed have relationships with multiple wealth managers. Fifty-seven percent of those would be willing to consolidate their assets with fewer wealth managers for various reasons, including “better pricing,” “better portfolio returns,” and “breadth of products and services.” While some of the motivations may sound familiar, what clients actually mean when stating these reasons has changed significantly, the research finds.

More than 2,000 wealth management clients representing a broad spectrum of segments including wealth level, age, region and gender were surveyed by Oxford Economics for this report. EY also conducted interviews with more than 60 wealth management executives globally to better understand how wealth managers are thinking about and investing in key growth initiatives.

Alex Birkin, EY’s Global Wealth & Asset Management Advisory Leader, says:

“This research should make the industry sit up and take notice. The rules of the game have changed. In order to attain growth, managers must now learn to compete with man, machine and hybrid-based firms to retain and attract new assets.”

Revenue growth is a top priority

With client assets in play, 50% of wealth managers interviewed globally indicated that revenue growth will be the top focus of their strategic business priorities in the next two to three years, especially in Europe and the Americas. Specific revenue growth initiatives will focus on enhancing the client experience.

Bridging the client experience gap

Client experience in wealth management is unique and complex, as it spans an individual’s life journey of managing and preparing for the unknown, the report notes. As a result, wealth managers have lacked a common definition of client experience or a standard against which firms can measure themselves. Yet, the report identifies a common view of client experience, as respondents say they value performance, engagement and trust the most in their wealth managers.

Clients and firms are aligned on most of these values, but there are three areas where firms appear to be out of step with client expectations, the report finds:

Transparency— Clients are eager for a new level of transparency that includes rating their advisors and connecting with similar clients in public forums.
Advice channels— Clients are significantly more open than firms to adopting digital channels for wealth advice, not just service.
Role of the advisor—The financial advisor may become more like a financial therapist in the future, helping clients with spending habits or reaching life goals instead of strictly providing standard asset allocation advice or other activities that could be automated.

Nalika Nanayakkara,EY’s US Wealth Management Leader, says: “In an industry where advances in technology, new types of competition and client expectations are changing rapidly, firms that challenge traditional norms while remaining true to their core value proposition will be better positioned to succeed. Delivering a comprehensive client experience is the linchpin that will make or break a firm in this wealth management landscape.”

Standard Life Investments Announces Real Estate Fund Manager Changes

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Standard Life Investments announced some changes to the real estate team including the appointment of Svitlana Gubriy to head of Global REIT funds and James Britton to fund manager of the Global Real Estate Fund.

Svitlana Gubriy joined Standard Life Investments in 2005 and is currently fund manager for the Global REIT Focus Fund (SICAV), and deputy fund manager on the Global REIT Fund (unit trust) – she will become fund manager of the unit trust. Svitlana worked with Andrew last year in respect of the distribution of our funds with John Hancock.

James Britton is fund manager of both the Standard Life Unit Linked Life Fund and the advisory South Yorkshire Pensions Authority mandate. He worked as portfolio manager on the Global Real Estate Fund from 2009 to 2013 managing a specific strategy in Brazil. James joined Standard Life Investments in 2006.

Andrew Jackson, Head of Wholesale & Listed Real Estate Funds, has resigned from Standard Life Investments after 25 years of service. Andrew will remain with the business until October 2016 to ensure there is a smooth period of transition. A further member of the listed real estate team will be recruited.

Andrew started in the property research team in 1991, and became head of the team in 1999. He moved into fund management in 2003 and launched Standard Life Investments’ first direct property UK mutual fund in 2005. He managed and launched various direct and listed property funds and investments trusts over the years, before being appointed to manage the wholesale and listed team in 2008.

CAIA Miami Chapter has a Successful Launch

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The CAIA Miami Chapter had its launch event on Thursday, May 12th at the Rusty Pelican restaurant on Key Biscayne, FL. The launch event was attended by approximately 105 guests generally representing Latin America and South Florida firms. The evening included a 5 PM cocktail reception and registration followed by a 6 PM program which included a keynote topic on the Current State of Liquid Alts: Products and Regulations, presented by Karim Simplis, VP/Senior Product Managers, Alternatives with Franklin Templeton Investments.

The keynote topic was followed by an Alternative Asset Classes panel discussion led by moderator, Chris Battifarano, Director of Research with GenSpring Family Offices and panelists David Coggins, Principal with Coral Gables Asset Management, Helen Doody, Managing Director with Abbey Capital, and Shawn Lese, Managing Director – Global Assets with TIAA Global Asset Management. A 7:30 PM social networking hour followed the program and many of the guests stayed and enjoyed meeting new faces well into the evening.

Steve Johnston, Miami Chapter Head, welcomed all the guests and briefly discussed the chapter’s mission statement before introducing the other CAIA Miami Chapter executives, Karim Aryeh, Eddy Augsten, Gabe Freund, Tisha Turner, and Daisy Weiss.

Bill Kelly, CEO of CAIA, congratulated the launch of the CAIA Miami chapter for CAIA members in Florida, as well as discussing the importance of the chapter’s inclusion of interested Latin America CAIA participants, which is a targeted growth region for the CAIA Association. The CAIA Miami launch event was sponsored by GenSpring Family Offices.

Enjoy the photos using this link

Mac Kirschner, New Global Head of Client Relationship Management at MUFG

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MUFG Investor Services, the global asset servicing arm of Mitsubishi UFJ Financial Group, has appointed McAllister (Mac) Kirschner as Global Head of Client Relationship Management.

Mac will be responsible for deepening relationships with existing clients across MUFG Investor Services’ alternative asset servicing platform. He will work in close partnership with client managers to develop client strategy and ensure continued client satisfaction throughout the investment lifecycle.

With more than 15 years of experience in platform development, client management and product administration, Mac will also drive market intelligence across the asset servicing business and assist sales and client development teams with both new and incremental business pipelines. He will report to John Sergides, Managing Director, Global Head of Business Development & Marketing, in New York.

Mac joins from BlackRock, where he was managing director in its Global Fund Services business, overseeing operational teams responsible for shareholder servicing, fund administration and trade operations. He joined BlackRock in 2007 following the acquisition of the fund of funds business of Quellos Group, where he served as an associate director focusing on client relations.

The announcement follows the recent appointments of Mark Catalano who joined from Atlas Fund Services, Michael McCabe from BNY Mellon’s Alternative Investment Services business and Daniel Trentacosta from Och-Ziff Capital Management Group.

John Sergides commented: “Mac’s extensive experience in managing operations and client relationships in the alternative investment industry is a huge asset to our business. His appointment is another important step in our strategy to grow organically and continue to provide high-quality asset servicing solutions to our clients. We are excited to have him on board and look forward to strengthening our client-centric offering across our asset servicing platform.”

Mac Kirschner, Global Head of Client Relationship Management, MUFG Investor Services, added: “As a former evaluator of asset servicing platforms, I’ve experienced MUFG Investor Services’ commitment to exceptional client service first hand. It truly is industry leading, and I look forward to strengthening this quality in my new role. Our aim is not just to be a provider but a valued partner, helping our clients achieve their growth ambitions.”

Chinese Business Leaders are Looking Outside of China

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According to Henry H. McVey, Head of Global Macro and Asset Allocation at KKR, “A recent visit to China gives us more assurance that there is a base rate of economic growth that the government will – using a variety of monetary and fiscal tools – work hard to achieve in 2016, however, our bigger picture conclusion remains that the Chinese economy is structurally slowing, driven by disinflation, declining incremental returns, demographic headwinds, and the law of large numbers. How these transitions unfold have major implications not only for China, but also for a global economy that now relies on one country, China, for more than one-third of total GDP growth.”

In his newest macro Insights, titled China: Mounting Macro Paradox, McVey discusses the following short-term and long-term investment conclusions:

As it relates to the short term, we are lifting our 2016 GDP forecast for China to 6.5% from 6.3%. This change represents the team’s first uptick in forecasted Chinese GDP growth since arriving at KKR in 2011.
Longer-term, however, we do not think that the recent stimulus can help the Chinese economy to re-establish a higher sustained growth rate.
Corporate credit growth remains outsized relative to GDP, which has implications for – among others – the country’s banks, insurers, and brokers.
There is no “One China” anymore, as the country’s economy is undergoing a massive transition.
To offset the slowdown in global trade and flows, China is also repositioning its export economy to take market share in higher value-added services.
China Inc.: Coming to a theater near you. Without question, this trip’s consensus view centered on the desire by many Chinese business leaders to acquire companies, properties, and experiences outside of China.

To read the full report follow this link.