“This is very much an investment presence. That’s what we’ve always prided ourselves on, as a firm,” says Michael Yelverton, 39, a partner who runs the West Coast operation.

The firm finds most of its clients by word of mouth, getting referrals from other financial services professionals, from trust and estate lawyers, M&A bankers and lawyers and insurance professionals who deal with ultra-high-net-worth individuals.

“If they see us doing a good job for those families, they’re more prone to recommend us if they come across a family looking for a firm like ours,” Yelverton says. “What you will not see from us is a marketing effort. We’re not transactional. We’re building long-term relationships with our families.”

Adds Michael Tiedemann, “We’ve been around long enough and are of a certain scale and reputation that we tend to be introduced to people.” 

What also differentiates the firm is its approach to clients, where each one is advised by a whole team of wealth professionals rather than one advisor. 

“One of the phrases I hear over and over again when clients come to us from other institutions—and it’s something that frustrated clients in my J.P. Morgan days—is that their investment specialist or portfolio manager wasn’t having regular conversations with their trust advisor or estate planner or banker,” Smith says.

The firm’s analysis for clients, conducted by an investment review committee and an account review committee, also involves reviewing their other advisors, such as accountants, commercial bankers and lawyers, to make sure the clients’ investment, tax, accounting and trust objectives are being met.

“We are not in the business of displacing trusted advisors,” Michael Tiedemann says. “We partner with them. But we are another set of eyes overseeing the work that has been done. Families get a huge amount of value from a refreshed look at their estate structures and their flow of assets upon death because they’ve set these things up over time, sometimes with different lawyers, and invariably the underlying assets move, families change; there are a lot of moving pieces.”

“We become the consummate collaborator,” Smith says. “We can do whatever the client’s other advisors don’t do well.” That also means taking stock of different accounts and tax strategies. “There’s a lot of value in making sure the right investments are in the right pools.”

While the firm acts somewhat like a family office, Tiedemann doesn’t offer concierge-type services—booking restaurants or finding private chefs, for instance.

“It’s just a bad business model,” Michael Tiedemann says. “You recommend a dog walker, and the dog walker steals their stuff, you’re liable.”

The firm has whittled down the number of money managers it uses to 40 or 50. Tiedemann won’t invest with a management firm if it doesn’t understand how the firm is making money, or if the manager has its own broker-dealer or an inadequate auditor. Sometimes Tiedemann has a difficult time explaining to clients why it wants to pull out of a manager still doing well. But if Tiedemann’s research and strategy teams say it’s time to get out, the clients abide by that, Smith says. 

“That discipline helped us avoid investments in funds like Madoff,” Smith says. 

The firm and its clients also largely avoided the financial crisis of 2007 and 2008—in part because of Michael Tiedemann’s experience with the volatility of emerging markets. 

Sensing a banking liquidity crisis was on the horizon, the firm starting raising cash (up to 20% to 40% of portfolios) and placing clients into short-term Treasurys and into money market funds with no counterparty risk. In 2007, the firm also created a pooled entity for its clients that invested in protective put options on the equity markets so that clients could have an asset in their portfolios that would profit if markets fell. 

“We made some extremely binary investment decisions,” Michael Tiedemann says. “And what I mean by that is, if there had not been a crisis, we would have been massively underinvested—and likely fired for sitting on piles of cash.”

But their clients followed their advice, and the firm was right about the crisis. In fact, clients became so fearful about a market collapse that the firm had a hard time convincing them to go back into the market in the wake of that crisis. For instance, in the fourth quarter of 2008, the firm saw oil prices falling dramatically, largely because Lehman Brothers was the largest swap counterparty in the energy master limited partnership space, and its bankruptcy wrought havoc on many of the firms with exposure in that market. Tiedemann wanted its clients to take advantage of the market, but many were reluctant to reinvest at that time.

“What can’t be underestimated is how difficult it was to convince our clients to invest in anything at that time,” says Michael Tiedemann. “It was a very uncertain time. You didn’t know where the bodies were going to rise to the surface. There was just carnage everywhere. And we had no visibility as to what was going on in any money organization aside from our own.”

So the firm created its own partnerships to invest directly into MLPs. It hired a consultant, the foremost senior analyst at one of the very large money management firms, who essentially began to acquire positions in master limited partnerships so that the firm could gain exposure to the sector but also pick and choose which credits it wanted to hold.

Michael Tiedemann says, “We created our own partnerships because we had no visibility into closed-end funds and hedge funds operating in that space, because of the massive redemptions occurring across the money management industry.”

Tiedemann has also created an exchange-traded index fund that identifies companies trading at a deep discount but poised to undergo some kind of change that’s likely to improve the share price. Perhaps activist shareholders begin buying up the stock, or the company undergoes a change in its CEO or board, or maybe there’s a share buyback effort or the sale of a non-core business. With the tax advantages implicit in an ETF, Tiedemann’s clients receive the benefit of the rise in the share price without suffering the capital gains tax consequences. 

“These are businesses that are out of favor, but they are generating a lot of cash flow. In 2013, Apple was on the list. HP (Hewlett Packard) has been on the list. They are names that have fallen to the level where the valuation is such that they become part of the portfolio, but there’s an improvement in earnings, or a strategic shift in direction,” says Michael Tiedemann. “But because it’s considered a tax-free exchange due to the fact that it is an index rebalancing, you’re not paying capital gains. That’s huge. It reduces the largest cost of the investing over time.”

Asked how this fits in with the firm’s stated goal of steering clear of proprietary products, he responds, “The ETF was created exclusively because it solved for the biggest issue of managing a portfolio of names, and that is the tax rebalancing and gains that would occur over time. … The active management portion of the strategy [that] would generate tax bills over time was removed, which is of huge value over time.”

Carl Tiedemann’s goal was to create a firm that offered clients the customization of a small firm or family office while still having the depth and breadth in the investment process and the legal expertise associated with a large Wall Street firm. 

“We’ve tried to combine the best of both worlds. And I think we have,” says Michael Tiedemann.

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