Senior ConsultantThe Voice of the Investment Management Consultant

June 2000, Vol. 3, No. 6

In TheNews Page 2

IndustryTrends Page 4

ProfessionalDevelopment Page 6

AssetManagement Page 8

InvestmentManagement Page 10

PracticeManagement Page 12

I N S I D E

Ever wonder what the financial services businesswill look like once it has evolved and been

rebuilt around high level, fee-based advice? Look nofurther than to MyCFO.com. The next generation offinancial services firms has been created and offersextraordinary insight into how the financial servicesindustry will likely evolve. MyCFO.com has been inexistence for 11 monthsand in operations for justsix months; but hasopened four offices(located in San Francisco,Los Angeles, Atlanta andMountain View, CA), has180 clients and $30billion under advisement.Yes, that's $30 billionwith a “b”.

As a point of reference for the order of magni-tude of this already extraordinary achievement,when Wheat First Securities, the premiere brokeragefranchise in the southeast sold to First Union, it had$30 billion in assets. U.S. Trust, when it wasacquired by Charles Schwab, had $30 billion inassets. In just six months, MyCFO.com has garnered$30 billion in assets. When MyCFO.com opens its150th office in the next several years, with a littleover 600 consultants, it will be larger than MerrillLynch and its 14,000 brokers. The marketplace is

The Fourth Annual Merrill Lynch/GemniConsulting World Wealth Report paints an

attractive picture for investment managementconsultants at the high end of the advice business.The wealth of global high net worth investorshaving more than $1 million in liquid investableassets grew 18% last year to $25.5 trillion, up from$21.6 trillion last year. Over one million new peoplejoined the ranks of the high net worth last year, nowcounting 8.2 million globally. Gemni Consultingestimates the global high net worth market willgrow to $44.9 trillion by 2004, or doubling in just aperiod of five years. The study also found the ultra-

high net worth market with investors having morethan $30 million in financial assets, now numbers55,000 globally and accounts for $7.9 trillion or athird of the world's total high net worth wealth.Conditions are very favorable for the ultra high networth market to expand. The report provides greatinsight into the growth of the global high net worthmarket, the geographic concentration of wealth, theneeds of high net worth investors and the strategicimplications of building a truly global financialservices franchise.

Last year the global stock market grew by 37%which accounted for half the 18% rise in the global

continued on page 29

MyCFO.com To Mass Merchandise High Level AdviceTo High Net Worth Market, Seizes Market Leadership

Merrill Lynch Study Says "Global High Net WorthAnd Ultra-High Net Worth Markets Will Double In Five Years"

telling us something very important, and we shouldbe listening. 1. There is a mass market for high level comprehen-

sive advice emerging.2. MyCFO.com has an extraordinary investment

process through which their client service direc-tors add value.

3. MyCFO.com has anequally extraordinarydelivery platform throughwhich it offers its serv-ices.For those who have ques-tioned whether there is amarket for high level,comprehensive, expertadvice, or whether highlevel advice can be

executed en masse or whether large financial serv-ices bureaucracies geared to commission brokeragecan ever be effective at competing on the basis ofthe value they empower their financial consultantsto add, MyCFO.com offers important answers.Significantly, these answers are not coming from thefinancial services mainstream steeped in culture,structure and technology of commission brokerage.The answers come from the next generation offinancial services firms. They have found virtually

For those who havequestioned whether thereis a market for high level,

comprehensive, expertadvice, MyCFO.com offers

important answers

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MyCFO.com To Mass Merchandise High Level Advice To High Net Worth Market, Seizes Market LeadershipContinued from page 1

no competition in providing high level,comprehensive, expert advice to the terriblyunderserviced high net worth and ultra highnet worth investor market segments withmost of the assets. These investors have triedfamily offices, have engaged insuranceagents, CPAs, attorneys and financial plan-ners, only to discover there is no crediblesource for comprehensive, high level, expertadvice. MyCFO.com fills this advicevacuum and is redefining the financial serv-ices industry in the process.

Mass Market forHigh Level Advice

The new wealth that has beencreated in the last 10 years, particu-larly in internet/technology-relatedcompanies has been staggering.New wealth is much more entre-preneurial than old money and willnot accept inadequate, poorlyconceived, incremental solutions.They want high level, comprehen-sive, expert advice, which willsimplify their lives, not make itmore complex. Anything less than completesatisfaction is inadequate. The significanceof MyCFO.com is its focus. It is providinghigh level, comprehensive, expert adviceonly to the high net worth and ultra high networth markets. It has no interest in the insti-tutional markets. As a firm, MyCFO.com istotally committed to creating the processes,technology and professional disciplinesnecessary to provide extremely high level,comprehensive, expert advice to high networth individuals. Notwithstanding theextraordinary process, technology anddelivery platform of MyCFO.com, its mostsignificant contribution is that it has proventhere is, in fact, a mass market for high level,comprehensive advice. MyCFO.com willcultivate high net worth investors in everymajor city and every enclave of wealth in theU.S. as it opens offices throughout the

country. It will have a profound impact onthe larger financial services industry whichremains focused on commission brokerage,while acknowledging a strategy of high leveladvice is essential in order for the industry tothrive. MyCFO.com has proven that highlevel advice strategy works and is the first tocreate the tactics of high level advice that isconsistent with that strategy. They are thefirst to build their culture, structure and tech-nology entirely around high level, compre-hensive, expert advice.

The market insight we gain from theextraordinary success of MyCFO.comsuggests that we are beginning to see thebifraction of individual investor market intothe high net worth and retail markets.MyCFO.com has proven the high net worthmarket is terribly underserviced. The impli-cations of practices and entire firms likeMyCFO.com focusing only on the high networth and ultra high net worth market isquite significant. It means an importantsource of revenue is being removed from theretail commission broker who is used to alsoserving high net worth clients. The brokerwho derives 30%-40% of their revenuesfrom the 10% of their clients who have highnet worth will likely find themselves havingto make do with a retail practice and half thegross revenues they are used to. More impor-tantly, all clients are attracted to high level

comprehensive advice, whether they will useit or not. Thus, high level, comprehensiveadvice becomes imperative if a firm or anadvisor is to have a credible market pres-ence. Commission brokerage, as we know it,becomes an expensive, bad second choice.At a time when commission brokerage ratesare expected to drop 60% over the next threeyears and brokers are prepared to work 2½ties as hard just to maintain their presentearnings, it is a sobering thought that theirbest high net worth clients will be attracted

to high level, comprehensive,expert advice and that their existingcommission brokerage platformwill not allow them to respond inkind. The combination of decliningcommission brokerage rates andthe loss of their best clients makesa compelling case that the future ofthe commission broker and thefinancial services industry is inhigh level, comprehensive, expertadvice. But the only problem withthis high level, comprehensiveadvice thesis of MyCFO.com is

that there are not enough high net worthclients to go around for everyone. This tellsus much about how our industry will evolve.

Assuming the average high net worthinvestment management consultant can onlyprovide high level, comprehensive, expertadvice for 200 high net worth clients andassuming there are 2.5 million high networth clients (see "Merrill/Gemni Survey"on front page) with more than $1 million inliquid investable assets, there are onlyenough high net worth clients for 12,500high net worth consulting practices. (With650,000 financial services professionals, thequestion is: What does everybody else do?)The brutal reality is that there is a bifractionof the individual investor market occurring,where investment management consultantsare providing high level, comprehensive,expert advice to 10% of the investors who

The market insight we gainfrom the extraordinarysuccess of MyCFO.comsuggests that we are

beginning to see a bifractionof the individual investormarket into the high net

worth and retail markets

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MyCFO.com brings a totally self-suffi-cient in-house team of leading accounting,legal and investment professionals who haveworked at the partnership level of majornational accounting firms or leading locallaw firms in the client's community. Muchtime is invested in creating an estate plan, anintergenerational wealth transfer strategy, afamily foundation, philanthropic trusts andother forms of ownership which can facili-tate the appropriate degree of income andestate tax efficiency. The most time is spent,not on determining estate tax liability or howto best manage it, but on questions relating tohow much wealth to leave children andgrandchildren, determining the most mean-ingful legacy the client may achieve withtheir wealth, in which state they shoulddeclare their residency, etc. Only after allthese very personal and private questions areresolved does MyCFO.com begin to engagein investment management consulting.Banks can offer similar wealth managementservices, but rarely can they bring the same

local in-house partnership level of legal andaccounting talent to the table. Many bankshave limited themselves to their in-houseproprietary asset management who typicallydo not compare well relative to their appro-priate investment management style peergroups. MyCFO.com brings the best andmost visible professional talent available ineach market in which they operate, alongwith the best investment options and is suffi-ciently flexible to use any established legal,accounting or investment relationships theclient wishes.

Each MyCFO.com office is structured asa professional services office where attor-neys and CPAs bill for their time. Investmentmanagement consulting is engaged for anon-going advisory fee. Because the forms ofownership work around estate planning andthe investment management consultingelements of MyCFO.com, work can be sepa-rated as stand-alone services. MyCFO.com

could become an invaluable collaborativepartner for consultants who want tooutsource the estate planning piece of theirwork to a third party. Once the estate plan isdone, 90% of the on-going work is assetmanagement-related, best suited to theinvestment management consultant. In itsearly formative stages, MyCFO.com wasconceived as an accounting neutral, attorneyneutral and consultant neutral platformwhere literally the best talent available,either in-house or out-of-house, could beengaged. The dynamics of the business,however, have evolved which placesMyCFO.com at odds with local legal,accounting and investment professionals.Thus, MyCFO.com has become predatory,rather than collaborative, but MyCFO.comprovides important clues for the financialservices mainstream on how they might costeffectively package and deliver trust serv-ices, philanthropic services, fiduciary serv-ices and estate planning through their thirdparty financial advisors to the ultimate

client. MyCFO.com has defined theessence of high level, comprehen-sive, expert advice. Once theindustry knows what high leveladvice looks like, there are manyways in which to achieve the same orbetter result. This leaves the doorwide open for Schwab/U.S. Trust tobecome the perfect collaborativepartner for successful third partyconsultants who want to outsourcethe form of ownership issues. There is a another level of client

service provided by MyCFO.com that theyrefer to as administrative services. Thisincludes lending, bill payment, tax prepara-tion, maintenance of out-of-state vacationhomes, walking a dog or any other servicethat would simplify the client's life.MyCFO.com has mass customized thefamily office idea but has done so that thehighest level of advice and service can bemade as broad and as deep as the client maywish.

Delivery Platform

MyCFO.com has a most unusual organi-zational structure that pushes all its supportinfrastructure to the office level so eachoffice is self-sufficient in the delivery of highlevel, comprehensive, expert advice. This isnot an expense reallocation; it is the actualsupport infrastructure being built within eachbranch. This is highly reassuring to the clientwho can see and interact with the best local

have 90% of the assets; and commissionbrokers, financial planners, bankers andinsurance agents are focusing on sellingfinancial products to 90% of the investorswith 10% of the assets. High level, compre-hensive, expert advice will not and cannot bedelivered by every financial services profes-sional because they have to be attuned to theprocesses, technology and methodology ofhigh level advice, and they have to be adeptin its execution. Thus, the conundrum ofhigh level, comprehensive, expert advice: Itdetermines the stature of firms in the market-place, but everyone can't deliver it. Thiseither means a much higher level of advicewill be offered to those with less than $1.2million, who do not have a need for morecomplex estate, trust, philanthropic and fidu-ciary services or that a much smaller finan-cial services industry will evolve, or both.The window of opportunity is beginning toclose for both financial services profes-sionals and their firms, if they plan tocompete on the basis of the financial valuesthey address and manage.MyCFO.com is a wake-up call forthe financial services mainstreamwhich is about to be blindsided by acompletely different business modelgeared to high level, comprehensive,expert advice that is preemptive tocommission brokerage.

Process

The core process used byMyCFO.com to provide high level,comprehensive advice is very similarto the process used by investment manage-ment consultants. Both use a six-serviceprocess used by consultants that includes the(1) asset study, (2) investment policy, (3)strategic asset allocation, (4) manager searchand selection/form of ownership choice andselection, (5) performance monitor and (6)tactical asset allocation. But what makesMyCFO.com so powerful are the services itprovides beyond the investment process theconsultant uses. On the front end of theirinvestment process, MyCFO.com manages ateam of CPAs, attorneys and investmentprofessionals who primarily address form ofownership questions that are integral toestate planning before any work in tradi-tional investment management consultingoccurs. Only when the appropriate forms ofownership are created does it make sense toever focus on the investment strategy andpolicy of each entity which will own theassets.

The core process used byMyCFO.com to provide

high level, comprehensive,expert advice is very

similar to the process usedby investment management

consultants

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legal, accounting, investment counsel intheir community. It is also very conducive toattracting and bringing in-house highlyvisible, highly accomplished, local expertisein law, accounting and investment, who canleverage their rich 10-30 years of experienceand contacts that would almost indefinitelykeep the MyCFO.com office busy.Economically, the revenue and value gener-ated within each office would dwarf thecompensation that any partnership levellegal and accounting professional wouldever hope to make practicing their profes-sional specialty.

The Los Angeles office of MyCFO.comoffers insight into how a practice providinghigh level, comprehensive, expert advicemight be staffed and structured for high networth clients. In Los Angeles, MyCFO.comhas five client service directors who runteams of professionals who create compre-hensive client solutions. The office ismanaged by Bob Wagman, a formal partnerat Price Waterhouse Coopers where hewas national director of the firm'sinvestment management consultingpractice and brings 15 years of experi-ence in the practice of personal finan-cial services. Joining Wagman is KenAnderson, a former partner in ArthurAndersen's Private Client ServicesGroup, who brings 21 years of experi-ence in the practice of family wealth,tax and financial planning. RichardNorton, formerly a partner in PriceWaterhouse Coopers' technology, Infocommand entertainment practice, brings extensiveexperience, providing added value servicesto entrepreneurs and executives in thoseindustries. Bret Magpiong, previously achief financial officer for a private familymotion picture production, real estate andinvestment management enterprise, bringsextensive family office experience. TimSweeney, a former partner in Deloitte &Touches' tax practice and a former partnerwith Pillsbury, Madison & Sutro, will serveas managing director of MyCFO.com'ssports-related practice.

These five client service directors will beworking with a staff of 20 top legal,accounting, investment and administrativeprofessionals who make high tech, hightouch, comprehensive, independent, expertadvice possible. This team providesMyCFO.com and its local clients tremen-dous experience in tax, estate, investmentand personal planning and administrationareas as well as experience to serve individ-

uals involved in the fastest growingsegments of the Los Angeles economy.

MyCFO.com provides each client with apersonal client service director who is apreeminent CPA or attorney with more than adecade of experience, typically from a "BigFive" accounting firm. Using the internet,clients can get a clear view, on demand, oftheir complete portfolio, including all theirassets and liabilities, integrating informationfrom multiple services, resources andaccounts. That level of comprehensive infor-mation access, coupled with a personal CFOwho provides an independent, unbiasedview, enables clients to achieve a clearunderstanding of their financial status,necessary in order to make informed invest-ment decisions. The range of servicesprovided are:

1. Implementing of wealth accumulationand/or protection structures.

2. Transferring intergenerational wealth tofamily members with lower tax liability.

3. Adopting investment strategies to managechanging market conditions (tactical assetallocation).

4. Evaluating and resolving complex taxissues, devising appropriate tax strategiesand executing them.

5. Handling of day-to-day personalaccounting, bill payment and taxreporting.

6. Consolidating the overall financial pictureinto a virtual, real-time balance sheet andincome statement.

7. Developing and executing a philanthropicplan to include the administration offamily foundations and philanthropictrusts.

8. Offering unbiased investment advisoryservices.

9. Providing asset protection and insuranceservices.

Technology

MyCFO.com uses the Northern TrustTechnology platform and has acquiredDigital Partner, a Denver-based technology

firm that builds systems to serve the familyoffice market. Digital Partner's experience ininvestment management and electronicexpense management and the indepth knowl-edge they gained in developing a suite offinancial management software for familyoffices is a perfect fit for MyCFO.com.Digital Partner's plans for software develop-ment were precisely consistent with those ofMyCFO.com, and their business modelswere very similar. Senior members of DigitalPartner's development team are relocatingfrom Denver to Mountain View, Californiawhere they will drive the development of thenext generation of more sophisticated assetmanagement and accounting programs.

Conclusion

MyCFO.com has just changed the rules.Mainstream financial services firms whichhave long had an almost exclusive franchiseto serve and be responsive to the financialneeds of investors have found it difficult to

break out of their product distributiondelivery methodology in which it issimply not possible to add value.MyCFO.com is the next generation offinancial services firm with a muchlower cost structure that is geared tousing technology to its fullest toempower its consultants to add anunprecedented level of value andprofessional investment counsel,

locally delivered by a world-class team ofhighly accomplished professionals. Themarketplace in six months has respondedwith a stunning $30 billion in assets. There isno longer a question of whether there is amarket for high level advice or whether itcan be delivered en masse. The question iswhether the financial services mainstreamcan respond. MyCFO.com is just beginning.Schwab/U.S. Trust and Ernst & Young/e*Trade will soon follow. Will the financialservices mainstream be able to make thetransition from commission brokerage tohigh level comprehensive advice? Only timewill tell, but we know for sure that the finan-cial services mainstream that has lost itsleadership position is now finding itself inthe very difficult position of having to playcatch-up in a technologically intensive busi-ness environment that is not very forgivingor patient. High net worth clients are discov-ering values can be professionally addressedand managed, and they like it. Pandora's Boxhas been opened, and the commissionbrokerage business will never be the same.

High net worth clientsare discovering valuescan be professionally

addressed and managed,and they like it.