The business of managing money for the rich has become “insanely competitive” and lost its rationality, a Philadelphia-based wealth manager warned. Some very large companies who have been hiring aggressively will find that they either don’t make money or they make less than they could if they invested in other areas, said Al Piscopo, chairman of Glenmede Trust Co. Speaking at this week’s Reuters Wealth Management Summit in Boston, he said that talk about the industry consolidating “is a myth” and that a takeover is often followed a while later by further fragmentation as wealth managers set up their own new businesses. Piscopo also questioned whether some of the big banks were getting too “gimmicky” and becoming more like “life-stage or lifestyle advisers” than wealth advisers.

We may be more than a year away from the U.S. presidential election but the nation’s rich are already getting prepared for a higher tax era by shifting their money into different assets, according to some wealth managers. There is already a lot of concern about the implications of the election and a change in the political and budgetary climate, says Gail Cohen, head of global wealth management at Fiduciary Trust Co. International.

In are: tax-exempt bonds, high-growth stocks, hedge funds, real estate investment trusts and ways of engineering tax-free gifts for offspring.

Out are: high dividend stocks, while investments already well in the money are more likely to be sold to avoid any additional capital gains hit. 

Bob Greifeld, Chief Executive of Nasdaq Stock Market Inc, does not seem like the sort to party hearty, but in 2004 he did. He organized a week-long trip to Ireland for more than 20 family members, which included custom-written songs, re-creations of a medieval village, and a gourmet menu designed to exclude cream and butter. There were 55 staffers to care for the guests.

Sound elaborate? Just ask the party planner who put it together. 

“That was over-the-top on steroids,” Gregory Patrick told the Reuters Wealth Management Summit.

Just finding a lead chef took 75 hours, Patrick said.

The event cost about $611,000, Patrick said.

More details on the event can be found in this Times of London story. The party is long over, but arguments about how much Greifeld has to pay continue. Patrick argued he was owed cost plus a gross profit margin of 38 percent, which amounts to cost plus 62 percent. Greifeld argued that he thought he owed cost plus 38 percent, and that Patrick refused to give him the DVDs documenting the event until Greifeld paid what Patrick said was owed. A New Jersey state judge ruled that Greifeld did not have to pay more money and Patrick had to turn over the DVDs, but Patrick is appealing that ruling.

Steven Cohen, a lawyer for Greifeld at Wachtel & Masyr in New York, said the written contract did not corroborate Patrick’s claims.

Wealth management firms, facing a shortage of talented advisers, are recruiting from industries like pharmaceuticals and software, where sales staff have mastered technical issues and used to selling to intelligent people, said Bruce Holley, a partner at Boston Consulting Group.

“You need intellectual capability to handle the discussion and understand the products. But you also need selling skills to interact with the clients and provide the client experience,” Holley said.

People in the pharmaceutical industry may not be experienced with wealth management, Holley said. But, “they have proven selling skills,” he added.  

Competition to provide wealth management services is intensifying, and the battle for top talent is leading to increased poaching and a rise in bonuses and other incentives as banks and other wealth managers try to prevent their best performers from defecting. “Somebody who is good in this space is highly sought after,” John Stadtler, a partner at Pricewaterhouse Coopers, told the Reuters Wealth Management Summit in Boston. Indeed, wealth managers are currently much more likely to poach relationship managers from rivals than train them themselves — part of the problem being that it can take a long time to develop the skills needed to deal with the highly demanding moneyed class. And they need to be served now!!!

The rich aren’t just interested in being nice to the environment, they’re investing and spending money to get their green credentials. From investing in sustainable and clean energy enterprises, to carbon offsets, some think this is just typical first-adopter behavior by the rich – much like how they started using mobile phones (or cars, air flight, electricity) before they became cheap enough for the masses.

    The head of the Japanese private banking arm of France’s
Societe Generale said on Wednesday he was considering forming alliances with some regional banks to help it expand outside Tokyo and the Kansai region, which includes Osaka.

“We already see an interest on the part of these banks to get
more involved in private banking. They do of course have
important clients which they need to serve in the best possible
way,” Alain Simon, president and chief executive of SG Private
Banking Japan, said at the Reuters Wealth Management Summit

    It really isn’t easy being rich, according to James Grubman, a psychologist who provides counselling to the rich clients of major banks and brokers.
    “Many people with wealth are unhappy or anxious because they are worried about their families and what the wealth is doing to the family, they have stresses across generations with their kids, depending on the level of wealth they are worried about losing the money,” he said. “Money turns up the volume on everything and for some people it just changes or magnifies anxieties that they had before.”
    He acknowledges that money does relieve some stresses but those stresses get replaced with a bunch of others.
    The problems can be profound, he told the Reuters Wealth Management Summit in Boston. Grubman said they include:
    –A feeling of guilt about their wealth.
    –Concerns that their kids are going to turn into spoiled brats.
    –Worries about how to teach their kids the value of work and money. When the family cars have already been washed by a member of staff it isn’t already easy. “There are so few opportunities for wealthy kids to actually do normal things that middle class kids do,” said Grubman.
    –A different attitude towards money within a marriage. This is especially the case when one poorer partner has migrated into wealth through the marriage. One partner may want to spend like there is no tomorrow and the other may be much more frugal.
    –Arguments over badly crafted prenuptial agreements.
    –A reliance on inherited investments that may be completely inappropriate for the times. He had counselled two women clients who had held onto certain stocks because they were bought by a dead husband or father. They held on while the stocks plunged.
     –Insecurity over inherited wealth, particularly concerns that they didn’t earn it, and that they could be deported from the land of the wealthy. Those who took risks to create their own wealth feel less vulnerable, he said. Those who were born into wealth are often too risk-averse with their investments and don’t get the investment returns they might otherwise.
    –Being too suspicious after being warned that people may be only interested in your money. They are taught the fears but not the skills to handle them.
    But not to despair, Grubman says that the kids of the rich are generally growing up better than it might sometimes look like from the TV images of Paris Hilton and her ilk.
    Grubman himself comes from an affluent family and has managed to cope. “My background, pyschology, really helped,” he said.

Few people enjoy paying taxes, least of all the wealthy, for whom annual tax bills can run into the millions of dollars. U.S. President George W. Bush has worked to cut taxes that tend to hit wealthy people, such as inheritance taxes. But with a persistently high deficit, as well as the rising cost of the Iraq war and entitlement programs, many expect these taxes to rise.

Rich people seem resigned to higher taxes, said Gail Cohen, head of global wealth management at Fiduciary Trust Co. International, at the Reuters Wealth Management Summit. 

“….(T)here’s a feeling that’s it inevitable and I also believe that they see that the government needs the money,” Cohen said.

Growing up wealthy does not necessarily mean growing up money savvy. Psychologist James Grubman told the Reuters Wealth Summit that the children of the wealthy may not have grown up with budgets and financial constraints, and may not know how to spend responsibly.

Sometimes trustees–the people that administer trust funds for children of the wealthy–have to step in and give a dose of tough love. Gail Cohen, head of global wealth management at Fiduciary Trust Co. International, said that if a client has spent too much on their credit card, and risks bankruptcy if they don’t get cash, their trustee will not bail them out. Instead, the trustee will put the client into credit counseling.