Living Wisely And Well

December 6, 2007

Founded in 1989 by Hap and Ellen Perry as an antidote for the issues accompanying their family's wealth, Asset Management Advisors was built on the premise that a community of wealthy families with similar goals and concerns can learn from one another. Today, the organization approaches its 20th year in business with a new name and 12 local offices that service more than 445 families with collective wealth of $12 billion.

Hannah Shaw Grove, executive editor of Private Wealth, speaks with GenSpring's chief executive officer, Maria Elena Lagomasino, and members of her senior team about what it takes to meet the sweeping needs of significant wealth.

Hannah Grove: Some family offices have been around for generations, but GenSpring is relatively young. What are its origins?

Maria Elena (Mel) Lagomasino, Chief Executive Officer: A few important things occurred in the mid-1980s that shaped the opportunity for an organization like GenSpring. First off, the number of investment options had expanded dramatically and smart investors wanted access to a broader choice than what they could get through typical financial firms. Next, we began to see real momentum around the work of Jay Hughes [an attorney and counselor to dynastic families and the author of Family Wealth: Keeping It In the Family]. Suddenly academics were focused on the issues of multi-generational wealth, and advocacy groups like the Institute for Private Investors and the Family Office Exchange (FOX) were established.

Around that time, Hap Perry had just had a series of liquidity events and was trying to find the right solution for his family. In the course of his meetings with financial providers, he realized that most firms wanted to sell him individual products, not a single solution made up of the best capabilities. Hap said everybody wanted to talk to him about the next quarter and he was interested in talking about the next generation. Ultimately, Hap decided that the company he
was looking for didn't exist-one that wasn't just about managing finances, but one that would take the risk, gather the best practices from across the industry, and work closely with a family to reach its overarching goals. Being a natural entrepreneur, he founded Asset Management Advisors (AMA).

HSG: The firm was originally called AMA, but you've recently adopted a new name. What's the rationale behind this decision?

Mel: It was clear to us that the strategy was right and the business model was hugely successful, but the name was confusing. People tend to think of asset management in a more limited way than Hap intended. We wanted to position ourselves for the future with a name that really reflects who we are and what we do.

HSG: Was GenSpring initially established as a multifamily office?

Mel: Yes, Hap and Ellen always felt a lot of learning came from other families and that structure would be key to long-term success. But, more specifically, it was established as a comprehensive multifamily office. Hap noticed that family offices started by professionals were usually over weighted toward the founder's area of expertise, whether it was investments or accounting or law. He wanted a firm that could address the total needs of a family with investment management, planning and reporting, wealth governance, philanthropy, estate planning, teaching the next generation of leaders, and so forth. When a wealthy family starts a firm there's a greater likelihood that it will be structured to address the family's total needs.

HSG: What makes a family office different from other private wealth services firms?

Mel: The single differentiator of a family office is that the only agenda and the only bias that matters is the family's.

HSG: A lot of firms and advisors are trying to emulate family offices by broadening their platform of services and allowing for more customization. Is this possible?

Mel: There's still a lot of confusion. A lot of firms and advisors have hijacked the term, but the business model isn't really there. When professionals are compensated based on the products their clients buy, when money manager selection is biased toward proprietary products or revenue sharing arrangements, when soft dollars and preferential trading relationships are involved, then you don't have a family office. A family office is comprised of professionals only working on behalf of the family and only compensated by the family.

HSG: So, in effect, a wealthy client might be at odds with other types of providers?

Michael Zeuner, Chief Strategy and Client Experience Officer: At its core, the business model of a family office is to buy for families. The business model of traditional financial services companies is to sell to families. We're on the same side of the table with families, it's a completely different perspective. And this family aligned perspective leads you to provide a much broader set of activities and make more balanced decisions.

HSG: How do you preserve that alignment of goals?

Mel: Our 12 local offices are intentionally small, with a limited number of clients and professionals at each. When a client walks in everybody knows who they are, and they can walk into the kitchen and pour themselves a cup of coffee. We want the environment and the interactions to be intimate, like a family. It's a daily reminder that we all have the same purpose.

Andrew Mehalko, Chief Investment Officer: Just as importantly, we have a single wealth advisory fee that covers all the deliverables for a family. We don't have proprietary products or relationships with external providers that generate any additional revenues. We are completely free and unconstrained to invest the capital of a family to the best of our ability without any influence from marketing or sales.

HSG: How do you coordinate service and execution for each family?

Mel: A team of two talented professionals support each family from one of our local offices-one is the family's investment officer and one is the family's wealth advisor. They work closely with the family to create a plan that integrates the investments and all of the planning pieces.

HSG: How pivotal are these service teams?

Mel: They are essential, and by assigning each of them a family responsibility and a technical or functional responsibility we make sure that they are plugged in to the broader organization and involved in all the innovations and best practices of other families. Our families demand high-touch service so teams handle no more than 15 families.

David Bokman, Chief Wealth Advisory Officer: The family wealth advisor and the family investment officer are on the ground every day working with each other and the family. It makes it easier to achieve the integration that is critical to success. Having a great investment plan and a great estate plan aren't enough if the two plans and the two professionals responsible for those plans don't work well together.

Michael: The combination of centralized expertise and seasoned resources in the field allow us to leverage intellectual capital across families and capture economies of scale. We have the advantage of having been founded by a family for multiple families. This has been our business model from day one.

HSG: Can you discuss the centralized resources available to your regional service teams?

David: My group, the family wealth advisory practice, is comprised of the planning specialists who deal with things like philanthropy, tax and estate planning issues, and insurance. Their job is to stay up to date on regulations and trends, and be available on an as-needed basis to inform and consult with the family wealth advisors and their families on specific situations.

Steve Barimo, Chief Innovation Officer: All the non-financial aspects of wealth are handled through my group, the Innovation & Learning Center (ILC). We focus on helping families with governance issues, things like building and determining a formal governance system, drafting governance policies, conflict resolution policies, meeting policies. We also work with family members to identify and talk about individual and shared values, craft and execute family mission statements, and implement best practices such as documenting a family's background and history and developing other kinds of supporting practices for the family.

HSG: What role does the Innovation & Learning Center play in helping GenSpring's families learn from one another?

Steve: Well, the ILC was created specifically to leverage the best practices and to promote learning between families taking the same journey. The work my team does with families gets shared with other families and also gets reapplied through research, individual mentoring with family members, participation in family meetings, and our learning programs. The range of topics span the basics-financial education and investing, budgeting, giving, premarital agreements-to less concrete subjects, the emotional issues of wealth, preparing the next generation for a life with wealth. The questions, the feedback, the solutions from these efforts with one family can all be valuable to other families.

We also have three structured events each year. Our annual family symposium, a highly interactive three-day speaker- and workshop-based program where our families are able to come together to discuss the variety of challenges and issues they are facing with their wealth. We also have separate retreats for women and men to address the gender-specific issues and roles related to wealth. Essentially, GenSpring is an incredibly powerful learning community that's threaded together by common circumstances.

HSG: How have the gender-specific issues facing affluent men and women changed in recent years?

Mel: Women are becoming more interested in finances. There's been an acceleration of women thinking about the impact that finances have on them, their families, their giving, their communities. Women are realizing that money is something they need to be smart about.

Steve: In the past, female family members would learn about their wealth when they became the inheritor, or the successor and decision maker. Increasingly, women are the wealth creators and that introduces a new dynamic. We also find that most men wish their spouse and children would get involved and take some ownership of their joint wealth. Men tend to have the ownership perspective, but many women still need to transition from being a beneficiary to being an owner.

HSG: How much involvement does a family have in crafting their investment policy and portfolio?

Andrew: A significant amount because everything is fully customized. We don't have model portfolios. Each family member is interviewed extensively about their risk and return objectives, their expectations, and their experiences, both good and bad. All of that is taken into account as we allocate their capital to best meet their objectives.

The genesis of GenSpring was to have the professionals and families on the same side of the table, and from an investment perspective that makes a world of difference. About 80% of our total assets are fully discretionary, and it works because the families are involved and we invest as their proxies.

HSG: What kind of structure do you need to support absolute customization?

Andrew: The local offices are responsible for managing each client's portfolio on a custom basis and they are supported by a centralized team of investment professionals. There's a group dedicated to sector research, asset allocation, manager sourcing, due diligence and monitoring. The other professionals are focused on investment strategies ranging from cash to private equity, with everything from hedging to long-only equity and fixed income in between. We conduct around 400 site visits with managers each year, not including the managers that visit us in our New York or Florida offices. We also visit Asia and Europe each three to four times a year. In total between the centralized resources and the professionals in each office we have a total of 40 professionals devoted to finding investment solutions for GenSpring families.

HSG: What makes your investment approach different from what most private banks and trust companies offer?

Andrew: Well, first of all, we have a really unbelievable set of competencies and skills lined up against our families. We use that talent to determine what each manager's edge is and then find a way to leverage that skill differently than what he or she is selling to the marketplace. Our process of building portfolios considers macro risk, the performance drivers in the capital markets, and opportunity cost. We coordinate everything with other groups, like tax and estate planning or family governance, to deliver an integrated solution. We find this lets us manage a family's risk better and deliver a premium to them over a full investment cycle.

HSG: What are the top concerns of wealthy families today?

Mel: Sustainability. It's very similar to the dilemma facing natural resources. How do you make sure something continues to grow even as it is used? Ensuring that it doesn't get damaged or depleted, but protected and nurtured while having a beneficial impact. Our families want to make sure that their capital can be used by family members, and at the same time have it grow so it will be there for future generations. It's not one or the other, both have equal importance.

HSG: How does this impact your operating philosophy?

Mel: John Maynard Keynes said that a challenge for wealthy families is not wealth accumulation but how they use their wealth to live wisely, agreeably and well. That was the spirit behind GenSpring and is still the nucleus of our mission. Helping the financial capital grow is the basis, but if the capital can't be used to help the family then the process is incomplete.

HSG: Do international families have different concerns?

Mel: There are definitely some differences with non-U.S. families. There is much greater concern about security risks to their families and privacy issues. Frequently, an international family will have their capital deployed in a more global way. The operating company, still their primary wealth engine, might be in one country while more passive assets will be invested in public or private markets all around the world. Add tax issues to the equation and these are usually more complex scenarios than what we see with strictly American families.

HSG: What's happening in your business from an international perspective?

Michael: In August of this year we joined forces with a multifamily office based in Miami that currently serves our global families. Moving forward, we'll focus on the exchange of practices, experiences and knowledge between international and domestic families with an eye toward enriching everyone's perspective.

HSG: Hollywood would have us believe that wealthy families are continually at odds with one another. How does GenSpring help its families come to terms with the issues that impact the management of their wealth?

Steve: We get right in the middle. Some families are just looking for information on what other families do and we leverage our community of families to put them in touch with one another. But others have critical issues with communication and multigenerational planning. We have a number of trained facilitators to lead family meetings and facilitate discussions across a wide range of topics.

HSG: What family dynamics are the most difficult to resolve?

Mel: Dynamics vary from one family to the next, but one constant we've found is the need to help families develop or adopt the appropriate leadership and decision-making skills. Leadership needs to come from within the family. It's a core part of success, and it's our goal to help our clients become more effective leaders.

HSG: At any given time how many different generations of a family are you working with?

Mel: Usually three generations, that's the line of sight-grandparents, parents and children. Sometimes the oldest generation is the one responsible for the wealth generation, in other cases the living family members are the fourth or fifth generation of a family.

HSG: What benefit do you extract from multigenerational relationships?

Steve: The distinct perspectives and lessons from each generation provide crucial insights that can be represented in a family's philosophy or mission. The opportunity to help multiple generations connect around their shared history and values and proactively communicate about the thorny issues of family wealth can be very constructive.

HSG: How do you identify and facilitate the different priorities between generations?

Steve: We've compiled the 25 best practices of multigenerational families, touching everything from roles and responsibilities, to financial objectives and common values, to their philanthropic agenda. We used them to create a Web-based exercise called "wealth priorities." Every family member is asked the same three questions about each practice- one, is it important? Two, are they practicing it today? And three, what has the impact of that practice (or its absence) been on the family? Their answers help illuminate the differences in thought processes and priorities between generations and provide a starting point for discussions.

We also find that tailoring activities to specific age groups can be effective. Children 12 years old and younger engage and learn differently than young adults in their twenties and thirties, for instance. For example, we've recently designed a new activity to facilitate intergenerational communication by having young family members interview a panel of their grandparents and great aunts and uncles. This type of communication creates wonderful possibilities.

HSG: GenSpring clearly has myriad capabilities for the wealthy family. How do you summarize your role for a prospective client?

Mel: A family is an organization that needs a leader and needs a team. Part of our agenda is to help them feel comfortable becoming leaders, regardless of gender or age, and help them with team building activities. We can provide the infrastructure to support all the financial and planning related issues, and arm a family with the skills, the practices, the planning, whatever is needed to help build cohesion and make leadership easier.

Michael: We help families frame the decisions in front of them, inform the decisions with best practices, and fully understand the implications of each decision. Ultimately the family has the final call, but we bring all our resources to bear so they can make decisions as confidently as possible.

HSG: How do families find GenSpring?

Mel: Many different ways, but always through a trusted source. We get referrals from financial services companies when a family has outgrown them, and from the private client and trusts and estates attorneys that our families rely on for legal services. We also get new families from our current clients. Sometimes a family might be going through a transition or a particular crisis and will be referred to us by a facilitator or counselor.

Michael: Recently we've had discussions with single-family offices that are reevaluating their structure. Maybe the family office was built for the patriarch and is no longer appropriate for the second or third generation, so much has changed that the office's activities aren't aligned with the family's goals anymore. Other times the family may be going through a transition event that needs to be accommodated, and sometimes it's simply a desire to minimize the complications, difficulties, or expense associated with running a single-family office. In one case, we assumed the operations of a family's dedicated office. By incorporating it into our existing structure there's an almost immediate and reciprocal benefit.

HSG: What are the broader implications for single-family offices?

Michael: FOX has done some interesting research with single- family offices that revealed a sizeable gap between a family's priorities and the efforts of the family office executives. The families were really worried about their human capital, multigenerational sustainability, family dynamics, family governance, and their offices were focused more on the control and accounting issues and day-to-day oversight. Addressing this disconnect and understanding the alternatives to the single-family structure holds increasing appeal for a lot of families.

HSG: Are you tracking any major market trends that have the ability to impact family offices and their clients?

Mel: 2008 is an election year, so there's a fairly good chance that the tax and estate planning rules will change. That can have a pervasive effect on our client base, so we'll stay on top of the situation and help our families understand the consequences, if any, for their plans and their investments.

Andrew: All the market volatility is driving a psychological shift among investors to think more about downside protection. Suddenly risk management is a lot more attractive and clients want to get inside their portfolios and really understand the risks they are taking. If the uncertainty continues through the end of the year, it will just magnify the issue.

HSG: What is the most unique thing about GenSpring?

Mel: The truly comprehensive and unconflicted nature of what we do, underpinned by the philosophy that the people in the family are just as important as the assets. It's an environment that gives families the transparency and clarity they need to make the right choices, whatever those might be.

Come On In, The Water's Fine!
As Michael Zeuner indicated, it's not uncommon for the needs and priorities of a family to change over time (see page 62), and, as a result, seek other options for the management of their wealth. One such family, the Wymans, faced a similar dilemma.

"My father created this as a single family office," says Ralph Wyman, 82, patriarch of a sixth generation family office that he assumed responsibility for in 1960. "In 1985, we became a registered investment advisor and took on three or
four other families. We never planned to be big, they were just relationships that made sense at the time and we ran that way for another decade or so."

At a family council meeting in the mid-1990s the subject of Ralph's successor
was raised and it was clear there would be no easy solution. For many of the younger Wymans, transitioning Ralph's responsibility to another relative was an overwhelming concept. "It was the first time I realized that we might not do this anymore," admits Wyman. "I've been running this for so long, most of them only knew me. No one was willing to step up and take charge."

The Wymans turned to the Family Office Exchange for some guidance. "The process took a year and a half to two years. Sarah [Hamilton, founder and CEO of Family Office Exchange] helped us understand what was important to each family member and what wasn't. We needed a plan that reflected what my family wanted."

As the family began to evaluate firms that could take over their operations, GenSpring surfaced quickly as a possibility-and there was the added bonus
of some past history together. "We brought them in on a private equity investment in 1994, so we knew them."

In 2002, Wyman's family office became the first to integrate its entire operations and staff of 18 into the existing GenSpring organization. "It probably took about six months to complete everything on the administrative side, but from my perspective the transition was seamless," declares Wyman. Not everything was status quo, however. The merger created some opportunities that simply don't exist for a single-family office structure. "GenSpring does a good job training the younger generation, helping them learn what they need to know. At our family meeting last year there was a special emphasis on philanthropy, this year it was hedge funds. It's about getting everyone involved in the planning."

And what of the chance to learn from other families? "There are certainly opportunities to mix and mingle," says Wyman, citing the recent family symposium in Philadelphia. "My wife and daughter went to one of the women's retreats, I think my niece has been to all of them. They came back energized about the interchange and the possibilities."

"The merger also created new opportunities for some of our employees. Our CFO chose to become a family wealth advisor and one of our bookkeepers is now a family service coordinator. They still use their knowledge and experience with us, but work with other families too." Wyman's former family office is now GenSpring's local family office in Greenwich, Conn., and the home to several more family relationships.

Moving from a dedicated environment to a bigger pond with bigger fish might be a disheartening experience for some. Not so, says Wyman. "Am I comfortable?
I wouldn't be here if I weren't. They look after our affairs in such a way that we can do our thing and not have to worry about it. Part of the deal was that GenSpring would take over everything and they have done it, and done it very well."

Wyman's words of advice to other families with similar circumstances? "Come on in, the water's fine," Wyman says with a laugh. "I'm very enthusiastic about the merger and the way the company has evolved. They are great people and good leaders. They recognize that culture is all important to a family and its employees-that's a stroke of genius."