Ryan Seacreast $300 million man!

Ryan Seacrest is definitely one to watch for after today’s announcement that Clear Channel made a $300 million infusion in his company in exchange for a minority stake. The company is banking on the Seacrest association to break into the much more profitable TV market. It is not clear how much of the money will directly get into Seacrest’s pockets. At 37 years old, Seacrest is on track to emulate power players such as Oprah and Merv Griffin by owning a powerful production entity.

The smart play for Seacrest seems to be his ability to leverage his successful career as an on-air talent into various money making ventures. On top of his popular hosting gig on American idol paying him about $15 million a year and a position with E! News, Seacrest hosts a nationally syndicated radio show on Clear Channel radio ($60 million over 3 years). This presence allowed him to tap into his relationship with celebrities to launch a slew of successful shows in their names (“Keeping up with the Kardashians”, Denise Richards “It’s Complicated”, etc.) Once his company gained traction, Seacrest followed up with additional partnerships to further his brand and expand his company’s reach.

Seacrest moved to the next level by aligning himself with deep-pocketed partners. Not too long ago, Seacrest partnered with CAA (Creative Artists Agency) and AEG (a global touring and entertainment powerhouse) to purchase AXS TV, a cable channel that will take the place of HDNet in the summer of 2012. Today’s announcement marks another step up the ladder as the Clear Chanel partnership will allow him to “will buy and develop companies, content and other properties”. It is important to note that it was a minority participation, which means that Seacrest remains in charge and independent, while at the same time retaining an ownership position in the company now valued at much more than $300 million.

The lesson here for entertainment talent (musicians, producers, performers, etc.) is to leverage a successful career into a content generating entity, retain ownership in your company and not being afraid to bring in deep-pocketed partners to compound that success into something even bigger. Past that point, the sky is the limit.

KOBE BRYANT OR THE CASE FOR A PRENUP

Celebrity marriages don’t usually have stellar track records, so news of a divorce may be surprising but not unexpected. However in the case of Kobe and Vanessa Bryant, such news is sure to make a splash. The main issue here is not the divorce in itself but the fact that Kobe did not have a prenuptial agreement in place. In financial planning, clients are taught to protect themselves against the 3Ds (Disease, Death or Divorce) as they are the surest ways to financial ruin. For celebrities, Divorce is the main culprit and this Bryant case is bound to be costly.

First of all, Kobe is one of the highest basketball players in the league and according to Forbes, he racked in $53 million last year with $28 million in off-court earnings. His net-worth is estimated to be in the $300 million range and he is still owed almost $80 million by the Lakers over the next 3 years. Given Kobe’s age (33 year old) his earning potential could be in the several hundred million over the next few years.

In the absence of a prenup and based on the state of California community property laws, Vanessa could be entitled to upwards of $150 million. The question now is, should she be entitled to that much? A supportive wife is an invaluable asset to any successful man, but Kobe was already established by the time they met. After 10 years of marriage and two children, the numbers amount to $15 million a year or $75 million per child. How much of Kobe’s wealth should be attributed to his wife? We may never know but I doubt that her contributions outweigh or even equal his. His own drive, determination and basic raw talent led him to where he is.

The future will tell how much Vanessa eventually ends up with and if they even go through with the divorce. The sad part is that all this potential drama could have been avoided had Kobe listened to his father and signed a prenup. This is an expensive lesson to be learned and hopefully other wealthy individuals will learn from his mistake. Marriage is a lovely institution but over 50% of unions end in divorce. Wouldn’t it make sense to insure a fair level of protection for the wealthy party just in case? After all, we take the time to insure our vehicles even though we may never have an accident. We insure our homes even though we might never be the victim of a break-in or a fire. So with odds of a divorce at 1 out of 2, this should be a no-brainer.

"You're About to Get Paid, Now What?" Part II

STICK TO THE PLAN
Having a successful plan starts with one’s lifestyle. As the saying goes “It’s not how much you make, but how much you get to keep”. With that said, your lifestyle determines how much you have left to actually fund the plan: savings, investments, insurance, etc…This is why it is primordial that an appropriate budget be set up from the get-go. Unfortunately, the age-old conflict of Indulgence vs. Excess is still current. Clients need to be realistic in their budget expectations. It is okay to indulge here and there, but living a lifestyle of excess is a one-way ticket to perdition. Very few people can afford to burn $250,000 a month in cash consistently, but many try. The majority of it is usually spent on non-critical items. The only solution is to know and understand the plan. A good attitude involves knowing what the goal is, what is expected of you, but mostly knowing your weaknesses so you can recognize the triggers and avoid them. If being depressed makes you want to splurge in boutiques, notify someone before it is too late. Adopting such a strategy will ensure that the plan is implemented and maintained.

WHAT ABOUT PLAN B, C AND D?
Very few careers last forever, so one should have a backup plan at all times. If you prefer a voluntary exit strategy or retirement, you first need to define what shape it will take and what exactly it will entail. You also need to figure out a road-map to get there and over which time frame. A few people successfully managed to retire at the top of their game on their own terms, but very few that announce it actually follow through. For everyone else, I suggest setting up an ICE Plan (In Case Of Emergency) for when those checks stop coming. The key here is to figure out what else motivates you. Is it teaching or coaching your former profession? Is it something else in the industry or field? Or is it exiting the field altogether? Options in that case range from starting an unrelated business to going back to school. Do your research about those endeavors during your career and talk to people that went that route already. Whatever it may be, you should never be caught unprepared whenever your career ends.

GIVE BACK
To whom much is given, much is required. I believed that whenever a great blessing has been bestowed upon you, your responsibility is to share some of it. On top of the moral aspect of giving, there are tax benefits associated with charitable donations. You can give outright personally, via your business entity or through a non-profit you set up. Please consult with a professional to structure such donations. Again, it truly makes sense to reach back to the least fortunate. Not only do you get a sense of accomplishment, but you also achieve spiritual balance and spread good karma that is sure to come back your way. I always share my personal philosophy on the matter with new clients: Those who give are always provided for. I could give you countless personal examples, but confidentiality prevents me from doing so. Just know that it works!

“You're About to Get Paid, Now What?” Part I

This is from a presentation I made at SESAC in June 2008

Every creative person has success in mind and usually with success comes money. It is a difficult transition to make when the big checks start coming in, and below is a road-map for people in that situation. Keep in mind that this is just my humble perspective.

GET A GOOD FINANCIAL TEAM
Why do you need a team? A good team provides peace of mind, and helps you prosper. You can focus on what you do best, which is creating or performing, without having to worry about paying the bills or the type of investments you need. I usually encourage people to get their money’s worth, as you get what you pay for. Having a cousin or a sibling handling money is a recipe for disaster, unless they are already proficient in that field. To those that claim to be able to do it themselves, I offer the “crazier of the two” analogy and that usually shuts them up. It goes as follows: Seems like of one us is crazy. Either I am crazy for having studied all these years and obtained these credentials when someone with no training can do my job, or you are crazy for thinking you can do as well as I without my training and experience. Which on of the two do you think makes sense? A good team has to be a good fit as you should feel comfortable dealing with and talking to them. Condescendence has no place in this field regardless of a client’s educational level or social background, but many stuffy traditional firms do not seem to get it. A fit also means the competencies of the firm you are considering. A CPA should not be doing your estate planning and an insurance agent should not be doing your taxes. Finally, one needs to assess how good that team is. This involves checking references, verifying credentials and talking to people they do business with. This is called due diligence, and many people tend to skip that step.

BE ACCOUNTABLE
Once one has a team in place, the hard part begins. I push my clients to get educated and become familiar with the various terminologies (such as Assets, Liabilities, Bonds, CDs, Stocks, etc…), how they’re being charged for products (commission or fee?), and other things such as their tax brackets and various rules. The more one knows, the better decisions they can make for themselves. It is also important to know the details. This means actually reading your statements to know where you stand financially and showing up to appointments; when there, please stay awake and be involved. I have seen it all from yawning and texting away during financial meetings, but the only one losing out is the client. All the other parties only need to point to that meeting in case anything goes wrong and say “but he/she was there!”, thus declining responsibility. Which leads me to my next point: Don’t be afraid to ask questions. It is your money so shame has no place in there. Questions such as “why this”? “How does it work”? “How long does it take to reach my goals”? These are pertinent questions which will help you remain accountable.

To be continued...

4 Levels: Where do you stand?

Great words to live by, especially in today's economy. Below are the 4 levels of wealth and what they mean, per an online source.

First Level of Wealth - Financial Stability

The first level of wealth is known as financial stability. Financial stability is achieved when you have accumulated enough liquid assets to cover your current expenses for a minimum of six months. You should have also bought life and health insurance to protect you and your family's lifestyle should you be permanently disabled or passed away suddenly. Spend at least 5 minutes to compute your current level of wealth to find out how long you can sustain your current lifestyle without working. This is calculated by taking your total liquid assets divided by your monthly expenses less your current passive income. If you have not achieved financial stability, you would need to do the following:

1. You must aim to clear off your outstanding debts to minimize the negative cash assets that are taking a cut off your monthly salary.

2. Save at least 10-20% of your monthly income. This is on top of any mandatory saving plans such as 401K. You should save up at least 3 times your monthly salary before thinking about investing your savings. This is to make sure that you have sufficient cashflow to handle emergencies.

3. Book an appointment with a financial advisor to have a consultation on what kind of life insurance policy is more suitable for you. This is to cover you and your family in the event that you cannot continue working due to disabilities or any other unfortunate events.

Second Level of Wealth - Additional Passive Income

The second level wealth will be achieved when you accumulate passive income to sustain your most basic expenses. This means that you can choose not to work and yet have enough money to pay off your mortgage, daily food and transportation allowance as well as interest for all your loans and your insurance premiums. Any income that you gained from working will be channeled entirely into investment.

Third Level of Wealth - Financial Freedom

The third level of wealth would be achieving financial freedom. This means that you can sustain your CURRENT lifestyle without working again. You have accumulated enough passive income to sustain your current lifestyle indefinitely.

Fourth Level of Wealth - Financial Abundance

The fourth level of wealth would be attained when you have enough passive income to sustain your DESIRED lifestyle without working indefinitely. The amount of time that you take to achieve financial abundance from financial freedom depends how the gap between your current lifestyle from your desired lifestyle.

As you can see, to achieve higher level of financial wealth, it is very important to save a portion of your income and channel it into generating passive income. I am pretty sure most people are working hard to achieve or maintain level 1. Let's just keep the other levels in mind for that glorious day when the Global economy improves.

Enjoy!

Source

Warmed-Over Myths of Black Wealth

Newsflash from CNBC's NEWBOs: If you're black and can't rap or play ball, forget about making it in America.
By Alfred Edmond, Jr. - February 27, 2009

It’s 2009 and a black man is President of the United States of America. So why is CNBC still programming like it’s 1989 and the only way black Americans can hope to achieve wealth is via a sports contract or a record deal? CNBC’s NEWBOs: The Rise of America’s New Black Overclass, a special which aired last night, is wrong on so many levels. But its biggest disservice is that it is based on two stereotypical myths about black wealth that are just not supported by the facts:
The best–and even the only–avenue to real wealth for black Americans are through sports and entertainment. The majority of the “NEWBOs” featured on the program hit, run and jump for a living (the NFL’s Terrell Owens, Major League Baseball’s Torii Hunter and the NBA’s LeBron James) or perform on stage and recordings (Cash Money Records co-partner and rapper Bryan “Baby” Williams, contemporary gospel artist Kirk Franklin). An exception is RLJ Development CEO and billionaire Robert L. Johnson—the only subject featured who can make a credible claim to being “uber-wealthy.” Of course, he made his fortune by creating and marketing a cable channel featuring black people singing, dancing and rapping. (Oh, and unless you’re Oprah Winfrey, black women need not apply—apparently there are no female NEWBOs.)
Black athletes and entertainers are among the richest black Americans and among the nation’s wealthiest Americans. The problem with this is that NEWBOs primarily focuses on the gross income of the subjects. However, the real measure of wealth is not gross income, but net worth—a person’s assets minus their liabilities. (Black Enterprise readers are familiar with the net worth tables accompanying our monthly Wealth for Life profiles.) Lee Hawkins, the host/interviewer of NEWBOs and a Wall Street Journal reporter who’s authored a forthcoming book about this group, goes to great pains to hype the fact that “black athletes in the NFL, NBA and Major League Baseball and the 20 highest paid hip-hop entrepreneurs” earn a combined total of $4.5 billion dollars. He quickly moves past the fact that this is the combined income of more than 1,000 people, and never mentions that the combined net worth—the real wealth—of this group would be a small fraction of that total. Athletes and entertainers earn good money—but they don’t even come close to being uber-wealthy, the term Hawkins repeatedly uses without ever defining what he actually means when he says it.
Aren’t these the stereotypes and false messages we’ve spent much of the past 40 years trying to deprogram from American thinking, and black American thinking in particular? In the age of Obama, why are we still telling each other—and worse, our children—that our best chance to become wealthy in America is through sports and entertainment? Especially when anyone who understands wealth and the American economy, as CNBC and Hawkins surely do, knows that is not true? Ken Fisher’s book The Ten Roads to Riches: The Way The Wealthy Got There (And How You Can Too!), correctly identifies sports and entertainment as the most difficult way to achieve serious wealth, with the longest odds. The primary reasons to pursue a career in sports or entertainment is because you are good at it, and you like to do it—not because you have more than a prayer of ending up with Bob Johnson money. There are no athletes or entertainers on the most recent Forbes 400 list of the wealthiest Americans. (You needed a net worth of at least $1.3 billion to make the most recent list. Their combined net worth? $1.57 trillion.) I’ve personally come to suspect that black people are intentionally steered toward sports and entertainment to keep us away from the real sources of wealth in America.
Forget the fact that, as a television interviewer, Hawkins is a great newspaper journalist. Forget that there is nothing remotely new about a tiny percentage of black people from poor backgrounds suddenly achieving fame and fortune in sports and entertainment, often fulfilling the role of financial saviors for entire extended families. Forget the fact that there is nothing unusual about most of these NEWBOs being under the age of 40: sports and entertainment are youth-oriented industries—it’s extremely rare for a recording artist or athlete to maintain his or her earning power past the age of 35. (By the way, Bob Johnson is 62.) And don’t even get me started on the poor taste, if not outright insensitivity, of Hawkins focusing—as millions of Americans struggle through a devastating economic crisis—on how his subjects spend their money. (How many black kids could be put through college on the half-million dollars Cash Money’s Williams told Hawkins that his grill is worth? Williams has the right to spend his money as he pleases. But what’s the point of Hawkins celebrating it? Why is it that when wealthy whites are interviewed, the focus is on how they made their money, but wealthy blacks are usually stereotypically profiled as profligate spenders? When did CNBC start airing MTV Cribs?)
To be fair, to really identify the wealthiest black Americans would take a lot of digging—after all, truly wealthy black people, (including many of the corporate CEOs, Wall Street executives and owners of Black Enterprise 100s companies featured in Black Enterprise) are not eager to draw attention to their wealth. They’re quite happy to let Baby Williams and Terrell Owens get all the attention—and aggravation—that comes when people realize you’re earning big money. But isn’t that the kind of thorough, hard-hitting, uncompromising financial reporting CNBC is supposed to be known for?
NEWBOs is of the kind of check-the-box, toss-the-reporting-standards programming that black Americans have come to expect—and too often, regret—starting around the King Holiday in January through the month of February. To me, it feels like the show was created to serve two purposes: as a barely disguised infomercial for Hawkins’ book and a quick and easy way to for CNBC to offer programming for Black History Month (whew—made it with two days to spare!).
Sorry CNBC—that’s not good enough. And no using the flack you’re going to get, and deservedly so, for lowering the CNBC bar with NEWBOs as an excuse to do no programming about black people at all.

Millionaire ranks shrink

According to a survey by the Spectrem Group, the number of US millionaire households dropped 27% in 2008 to level not seen since 2003. There are now 6.7 million people with a net worth exceeding $1 million, down from 9.2 million a year ago. The number of penta-millionaires ($5 million and up) fell 28% to 840,000 nationwide. This is mostly due to the widespread losses among the various asset classes available to millionaires, with stocks, real estate and hedge funds recording lower or even negative returns. Similar losses are apparent among the mass affluent, where a 28% drop in the number of household worth $500,000 or more (excluding their primary residence) now stands at 11.3 million as opposed to 15.7 million in 2007.

From my experience, I can safely infer that the drop in the number of African American millionaires is even more pronounced. This is due to our propensity to invest in limited asset classes and our lack of access to sophisticated alternative forms of investments (i.e hedge funds, private equity, venture capital, commodities, art, antiques, etc...). Many recent black millionaires I have encountered reached that level through real estate investments, and we know how that sector turned out.

It is now a time for us to rethink our relationship with money and our approach to safeguarding it. I tend to come back to alternative investments (alternative being the key word here) as they provide a way for one to diversify a portfolio. When the stock market is up 10-12%, hedge funds typically return twice as much, even after fees. And when the stock market lost 40% over the past year, hedge funds were down only half as much on average. Using a financial formula called the rule of 72, a $1 million dollar investment in an alternative product doubles in value over 3 and 1/2 years at 20%, while it takes 7 years to reach the same result at 10% in the stock market. You do the math!

Most people shy away from that which they do not understand, but that is not an excuse. As a group, we need to get more educated about our options and take advantage of the greater returns that are out there, besides those provided by stocks, bonds or cash.

Family, Friends & Money: Part II

When it comes to friends, things can become tricky depending on the relationship. True friends should not expect a bailout, but we all know better than that. Depending on the level of friendship, you may just let them indirectly benefit from your possessions: inviting them to your vacation on a chartered boat or jet, occasionally taking them along when shopping, etc. I coined the term “Contingent enjoyment” to define this situation. True friends would not expect you to take care of them.

In terms of practical implementation of the tactics above, there are a variety of strategies. On top of helping relatives (and even friends) achieve financial independence, some type of assistance can be given to lighten their loads. It ranges from buying them a car, covering their car note, paying their mortgage, or giving them an allowance. From my experience, it consists in setting up corporations and initiating those payments from there in order to take advantage of the additional deductions. For allowances, said relative or friend can be put on payroll, thus deducting the taxes immediately. When it comes to loans, I believe one should never loan out more than what they are willing to forgive. That way, in case on non-repayment, there is a lower chance of resentment as one did not financially extends themselves overboard. A promissory note should be signed, so as to clearly define the repayment terms of the loan. It will protect both parties and also show that you mean business. It is up to you to enforce it, but I can assure you that psychologically, they work wonders on the discipline of the person that owes the money. The right strategies will benefit both parties and ensure that money does not become an issue between an affluent individual and the people around them.

As we can see, issues of money are definitely going to arise as individuals tend to feel entitled to your riches or can act downright ungrateful. The key is to set the right parameters from the get-go and to avoid becoming an ATM. Once the right systems are in place, there exists little room for misunderstanding and your financial well-being is protected. You have worked hard for your success and you understandably want to share the fruits of that labor with your loved ones. However, that sharing should not necessarily include cash.

Family, Friends & Money: Part I

Being financially successful in a visible manner comes with consequences. A direct consequence is having people automatically looking to you for money: relatives, friends, acquaintances. It is a great privilege to be able to help your loved ones, but there’s a fine line between doing so and outright supporting them. Issues such as entitlement, lack of gratitude and downright betrayal are a byproduct of people around you making their own assumptions about your hard earned money. Handling such problems can be tricky. How one addresses the expectations from the get-go and the type of strategies used can definitely make a difference.

We all have heard stories of the affluent being blackmailed or taken advantage of by people around them for the sole purpose of extorting money from them. That is nothing new. I can, for example, point to the football player who paid cash for his father’s house and added his brother to the deed just in case. The brother refinanced the house without telling the client or the dad (to the tune of $200,000), spent all the money and started to default on the loan. The athlete had to come to the rescue and bail him out. I can also mention the entertainer whose mother called at the beginning of the year asking for $10,000 although he had just given her $100,000 for Christmas. Upon further review, I realized she had actually received a total $400,000 in cash during that previous year. Mind you, her mortgage and car notes were being paid by the client. Examples such as above suggest a certain entitlement and lack of gratitude from these family members. The athlete’s brother was not happy enough to live mortgage-free, he had to tap into some equity since, as he put it “it’s my house and I can do whatever I want with it”. The entertainer’s mother started living like “she” was a celebrity. Of course the clients feel betrayed and used, but that is only the tip of the iceberg as I did not even get into the constant requests for loans and outright gifts of various nature (need for a car, down-payments on houses, etc…) from friends and acquaintances.In our communities, one person making it is a sign of hope for the entire family. Although it is true, it does not absolve the other family members from their financial responsibilities altogether. The key is to nip things in the bud and establish expectations early on. As the saying goes, “Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime”. The idea is to let family know that you will use your new-found wealth to assist them in getting on the path to self-sufficiency, and even let them enjoy your material possessions. However, you will expect them to sustain that effort and only come to you for legitimate emergencies. I know it is easier said than done, but it is a must. Not doing so will jeopardize your wealth building effort and indirectly affect your relatives in the long-run as well. What good is it to the family if you end up broke? As with the airline oxygen mask, take care of yourself first before helping the person next to you. Giving out cash randomly, ATM-style, is not the way to go. Instead, paying for one’s college tuition, helping them start or buy a business, even giving them a job is the solution.

...To be continued

Moral Capital Preservation

Given the recent news about a certain celebrity and their domestic violence issues, we think it is time we address the ramifications of such actions. Yes, celebrities and high profile individuals mostly shy away from the “role model” title, but they cannot escape it. Indeed, to whom much is given, much is required. Unfortunately, the financial repercussions are damaging to the celebrity and their entourage.

Direct costs associated with a PR blunder are usually related to the celebrity’s earnings. NFL player Michael Vick had to forego the last few years of a 7-year contract worth over $100 million, and was asked to repay a $20 million sign-in bonus. New York Giants Plaxico Buress suffered similar sanctions on a $25 million 4-year contract. Lost endorsements, appearance fees and future revenue add to the tally. Besides the obvious direct costs associated with a major PR blunder (loss of endorsement, firing from the team, cancellation of shows, etc.) there are hidden indirect costs that can be even more damaging.

Typically, in such cases, the publicity machine goes into over-drive and such work does not come cheap. If there are legal implications, the hourly bill is usually stiff as well. With top lawyers commanding hourly rates in the hundreds of dollars, the legal bill can be in the high six or even seven figures. A little know fact is that even existing loans can be called, as was the case with Michael Vick when two banks asked for immediate repayment in full of two loans. The loans (totaling $1.1 million and $2.2 million respectively) were called due to “an adverse change in his employment which could affect the borrower's ability to repay the note." Such costs have a trickle-down effect affecting others such as a mother whose mortgage was covered, the friends that were employed by the celebrity or even the ex-wife due to the inability to keep up with child support payments.

When it comes to African Americans, celebrities are usually the first ones in their families to come into such wealth. There is no readily available hand-book telling them how to handle it and showing them the cost of their bad choices. In addition to Tax and Estate planning, Investments, Insurance and Retirement, it is time to add one more category to the typical financial planning spectrum: Moral Capital preservation. It affect a person’s current and future earnings, as well as their freedom in some cases. Our brothers and sisters disregard this component of their wealth, but we can only try to help with this blog.

Fractional Equations

Fractional ownership has always been a way for the affluent to enjoy certain luxuries without the financial burden of outright ownership. Many of the current fractional ownership programs target products that people use from time to time, which doesn't justify the year-round costs associated with maintaining such items. Therefore, fractional ownership was mostly limited to vacation homes and private jets.

However, as luxury became democratized fractional ownership became a way for the mass affluent to afford luxury products in quantities that they could barely afford individually. Case in point, "Bag Borrow or Steal", an online membership community where members can rent luxury items (handbags, jewelry, sunglasses and watches) at affordable rates. It allows members to enjoy all those products without overstuffing their closets.

Individuals with more money have another fractional option: Art. Initially the playground of the Very High Net Worth and above, ownership of works of arts from old masters and modern artists is now within their reach thanks to companies such as Untitled Partners. They offer fractional ownership of Art on a rotational basis to small groups of affluent investors. The groups collectively own the pieces and keep them on a rotating 3 month basis from a calendar they agree upon. Premier Art here in Atlanta is the leading African American company offering such services and even more, when it comes to African American Art.

At an even higher level of wealth, individuals also became prudent in their spending, but new fractional ownership categories surfaced. Synchrony, based in Fort Lauderdale, FL, offers yacht fractional ownership to the tune of $4.8 million for 5 years ownership in a $20 million yacht (starting rate). "For six weeks a year, Synchrony yacht owners can access any yacht in the company's luxury fleet while maintaining a vested interest in one specific boat" without having to worry about maintenance costs.

These fractional options allow people to keep living the lifestyle they are used to in a less frivolous manner and with more financial acumen.

The Affluent Hierarchy Series

Announcing the Affluent Hierarchy Series...

When dealing with an ailment, it is said that knowing is half the battle. When it comes to money matters, many people usually misunderstand their true level of wealth, which typically leads to overspending in various areas and ultimately to financial distress. This series will address the various levels of wealth that are widely accepted within the luxury market as well as which prudent purchases are clearly within their reach. Please understand that this is not a cut and dry process, and we will tread carefully and to the best of our abilities. This series is intended as a roadmap for the affluent, to be used as a tool to truly assess one's financial stability.

The first thing to know about being affluent is of course HOW affluent. The typical benchmark is investable assets, meaning the amount of money you have invested or available. In other words, should you stop making money tomorrow, your investable assets are whatever you can depend on from that point forward. Categories are as follow:

*Mass affluents: Investable assets between $200k and $1 million US (Upscale individuals with substantial earnings but little assets)

*High Net Worth Individuals (HNWI): Investable assets between $1 million and $10 million US.

*Very High Net Worth Individuals (VHNWI): Investable assets between $10 million and $30 million US

*Ultra Hign Net Worth Individuals (UHNWI): Investable assets over $30 million (with the rich getting richer, that segment also includes the super rich with assets over $100 million, Billionaires and Multi-Billionaires)

We will use those levels as the basis of the discussion for our series.

A new management approach for the Affluent

Family offices are teams of professionals, including tax specialists, administrative staff and lawyers, who service the wealth management and lifestyle needs of a specific wealthy family. The typical wealth requirement to launch one is $100 million and up.
For that reasons, Multi-Family offices were created to service the needs of several affluent individuals under the same roof. At that level, the minimum requirement stands at $20 million and up, per family.

Just recently, yet another model was developed. They are structured as Financial Intermediary Offices (FIOs) providing similar services to Affluent family below the $20 million range, and starting as low as $2 to $3million in assets. They coordinate everything from estate planning to helping transport yachts and horses around the country. Typical services consist in having someone acting as a trusted adviser that pays bills, hires domestic help, works on pre-nuptials or divorces, manages assets, moves assets, works out mortgages, shops for insurance to make sure you're getting the best deal. They operate using an open-architecture model, allowing them to work with your existing advisers or to readily refer professionals from their network. These Intermediary Offices have managed to provide High Net-Worth families with comprehensive financial management and lifestyle services while offering the confidentiality available from larger multi-family offices. While all the benefits of FIOs are not yet evident, families who participate find they have most of the advantages of dedicated offices.

These FIOs are using partnerships with concierge services companies and the use of technology to streamline operations and thus offer competitive pricing without sacrificing quality. For example, our firm here in Atlanta uses a technology platform with a dedicated client page where their financial information is updated overnight, and featuring an online safety vault (i.e. an online safe-deposit box), as well as various add-ons such as calendar alerts for important meetings, up-to-date net-worth statements, and collaborative tools allowing other accountants, attorneys and investment advisors to upload relevant information available to the clients. The page is also conveniently PDA accessible from Palm, Blackberrys and the likes, keeping the information at the clients’ fingertips wherever they may be.


So far, here is what we have observed:

· Participating families have access to a wide network of professionals under the coordination of a centralized intermediary.
· They benefit from a menu of services that are not collectively offered anywhere else.
· Families participate in the cost savings and the benefits of group purchasing power.
· These families find they maintain more direct family control over financial matters thanks to the overall centralization.
· They have the assurance of confidentiality in the management of financial and personal affairs.
· They have the satisfaction of affiliating with an organization whose size is better aligned with the attention required by their family.


Value Added by Financial Intermediary Office Concept

· Financial quarterback supported by specialists in each field
· Teams of qualified professionals who can collaborate
· Continuity of service if quarterback leaves
· Elimination of the need for a personal assistant in certain cases
· Better risk management policies and procedures
· More comprehensive information systems
· Relationship pricing for inter-disciplinary services
· Reduction of overlaps and redundancy in advisory practices

FIOs are mostly fee-based in order to maintain their impartiality and refrain from selling you products. The reality is that a person with $5 million in assets may very well have a busier lifestyle than one with $20 million. FIOs thus operate with client activity volume in mind, which is ultimately a fairer assessment. Under a percentage model, the $20 million client is charged a higher fee just for being wealthier. I strongly encourage you to take a look at this model, especially in an era where the Bernie Maddoffs of the world abound. Having an added layer of oversight will definitely help you sleep better at night.