Something her team noticed a while back is that families whose wealth transferred smoothly to the next generation had a healthy culture in their families when it came to money. “They’re able to talk about their wealth in a natural, comfortable way and share ideas of what it means,” she says.
That often was not the case in families where the transfer faltered, no matter how technically sound the plan in place was. “Engaging the next generation is hugely important in being successful in the transition of wealth,” Mejia says.
Invigorated with this awareness, Atlantic Trust set out to foster intergenerational involvement in its client families. Their first step, of course, is that they begin communicating about their wealth. If they don’t, heirs might never know their parents’ reasons for leaving assets to them in trust rather than outright, or for bequeathing unequal amounts to siblings, for example. “People get hurt when they’re blindsided. If you’re in this business you must recognize the human element to it,” Mejia says.
To Atlantic Trust, this meant the firm’s relationship professionals, as well as Mejia’s group, who also interface with clients, needed to learn how to identify opportunities for family money conversations. “This wasn’t to train our people to be therapists, but to be able to spot issues and get to things before they become uncomfortable. We want to make sure that not only is our clients’ money protected and growing, but that it’s also transferred in the way they want,” Mejia says.
Atlantic Trust facilitates further money talk with programs such as G2G (Generation to Generation) Impact. Its luncheons and after-hours events help the rising generation prepare to manage their wealth, while family summits, such as the one held at the United Nations in New York in 2014, bring the generations together for discussions about legacy shaping and the family’s long-term plans for community involvement.
“It’s all part of this recognition that we need to engage in activities which promote families openly sharing ideas about what the future of their legacy and wealth means, and hopefully learn and have fun while doing it,” Mejia says.
The Investment Side Of The House
Atlantic Trust’s second requirement of a would-be partner was that it accommodate the firm’s investment platform, a combination of seven proprietary strategies and about 100 outside money managers. As it turned out, CIBC had a long history of using open architecture, so this was not an issue.
For clients, the benefit of using both in-house and outside managers is “we can build a diversified portfolio to include almost any asset class you can imagine,” says David L. Donabedian, the firm’s chief investment officer, at the firm’s Baltimore office.
The expansive palette even includes private equity, something about one in five Atlantic Trust clients pursues. “Typically, somebody investing in a private equity fund is going to have a net worth of $10 million or more—although there are exceptions—have a growth investment objective and be in a position to lock up capital for eight to 12 years. You’re making a long-term investment in exchange for a return premium over what the public markets have to offer,” Donabedian says.
When it comes to asset allocation, forget set-it-and-forget-it. “That’s really not in sync with the times,” he says. “In a world with global linkages, there are both more opportunities and more risks out there, so it’s important to be nimble. Probably two to four times a year we see something where, with a 12- to 18-month view, we think there’s an opportunity to either make some incremental returns or reduce portfolio risk.”
As one example of such a move, in late 2014 the firm’s 11-member asset allocation committee, which Donabedian chairs, decided to shift out of corporate high-yield bonds and into municipal junk. “We saw that the market wasn’t really accounting for, or pricing in, slowly deteriorating credit conditions in corporate America,” he says. So far, the tactical swap has worked out. Last year, corporate high-yield debt fell more than 4.5%, while his high-yield munis returned over 5.0%.
Currently, Donabedian is underweight bonds and overweight equities with a conservative bias favoring U.S. large-cap and the developed international markets. Emerging markets exposure is now minimal and the same is true for its correlate, commodities, after three years of scaling back.
Regarding outside manager selection, size matters to Donabedian in two ways. First, he says, “all the academic research shows that small and mid-sized asset managers perform better than larger firms, whether you’re looking at equities or fixed-income or hedge funds.”