Many of our clients have what I call the “typical Balkanized attorney portfolio” that makes it difficult to manage. Frequently, they use multiple brokers and investment managers, in addition to having direct investments in hedge, venture, and private equity funds.
This results in a monthly deluge of statements and confirms that can easily aggregate to hundreds of pages.
Balkanized Investment Management
Most people are aware of the term “Balkanization”, which means to break up into smaller parts.
In the political context, where a country disintegrates into smaller factions, Balkanization is malignant because the groups are hostile to one another, which leads to continual tension, if not war.
This is the natural state of most UHNW investment management structures: multiple brokers, investment advisors, and direct investment promoters, all hostile to each other and fighting a land war for the client’s assets.
You would be hard pressed to find a more sub-optimal structure for investment success.
Chart 1: The Typical Balkanized Attorney Portfolio
For a PDF of all charts used in this blog post: Bantam Balkanized Ultra High Net Worth Investment Management Structure – Manhattan – PDF.
The Balkanized structure results in the individual or family having to fend for itself when evaluating a continual flow of incohesive investment recommendations from their investment vendors. These include: recommendations to rebalance assets, adding or removing managers, and typically involve a wide variety of investment vehicles such as: separate accounts, direct investments in hedge, venture, and private equity funds, structured products, ETPs, mutual funds, and individual securities.
Many of these recommendations will come with impenetrable prospectuses and other offering documents. Few clients have the time or finance, economic, legal, and accounting backgrounds to properly vet these recommendations.
Whatever investments get implemented, the client is left to decipher hundreds of pages of monthly statements, each with their own format and reporting conventions.
There is no top-down, unified governance and oversight.
It is, in a word, chaotic.
The Bantam Outsourced Chief Investment Officer
A superior management structure is to have an outsourced chief investment officer (“OCIO”) who works for the client, helping them implement and monitor their investments.
This is precisely what Bantam provides.
Our OCIOs are savvy industry insiders who know the questions to ask and how to prevent Wall Street abuses.
We professionalize our client’s investments by setting up formal processes to implement a coherent investment policy with formal governance and reporting across all their investments. This includes full balance sheet and cash flow management; consolidated and streamlined investment reporting on all assets (no matter where held); negotiation for lower fees; integration of investments with tax, trust, and estate planning objectives, and multi-generation investment education.
Chart 2: Bantam UHNW Client Investment Management Structure
Because having an in-house CIO working solely for one client would, in most cases, be prohibitively expensive, using an OCIO enables the client to have the same benefits at a fraction of the costs.
This model has become prevalent at many pensions and endowments over the past decade, including some with $1 billion plus in investments.
Benefits of an Outsourced Chief Investment Officer
One of the immediate benefits of working with an OCIO is a vast simplification of the client’s financial life. Bantam takes over the day to day oversight of the investments and reports up on a monthly, quarterly, and annual basis or when there are other events that warrant attention.
Additionally, financial statements are consolidated into simple but meaningful reports that are comprehensible at a glance, the full balance sheet is managed to optimize for all the client’s objectives, cash flows are de-risked through planning and asset/liability matching, and duplicative/conflicting investment strategies are eliminated, reducing complexity, consolidating assets, and reducing fees.
Bantam Financial Planning Services
We offer completely personalized, professionally designed and bound Family Strategy Books, which go miles beyond what is commonly referred to as “financial planning”.