“WHEN YOU’VE SEEN ONE FAMILY OFFICE...” David Krauss, Managing Director Commerce Family Office WSU ACCOUNTING & AUDITING CONFERENCE MAY 19-20, 2014

“YOU’VE SEEN ONE FAMILY OFFICE.” 2

3 WEALTH MAP Who are the “High Net Worth Individuals?” > $30MM “Ultra High Net Worth” $5MM-$30MM “High Net Worth” $1MM-$5MM “Millionaire Net Door”

4 WHERE ARE THE ULTRA HIGH NET WORTH INDIVIDUALS? 167,000 UHNWIs per The Wealth Report (2014) 199,000 UHNWIs per Wealth-X/World Ultra Wealth Report (2013)

5 THE UNITED STATES WEALTH MAP UNITED STATES UHNW2013 NET WORTHUHNW POPULATIONTOTAL WEALTH (USD in billions) $1 billion5152,064 $750 million to $999 million $500 million to $749 million $250 million to $499 million1, $200 million to $249 million3, $100 million to $199 million5, $50 million to $99 million20,6051,890 $30 million to $49 million32,3201,375 TOTAL65,5059,085 Source: Wealth-X Report (2013) Total US UHNW Population65,500

6 THE UNITED STATES WEALTH MAP California#1(12,500) New York#2(8,900) Texas#3(6,300) Florida#4(4,200) Oklahoma#23(890) Missouri#24(800) Kansas#25(550) Arkansas#26(550) Source: Wealth-X Report (2013) Distribution of UHNWIs by State

7 THE UNITED STATES WEALTH MAP States such as Arkansas, Kansas and Texas are also well placed to benefit. “Arkansas is a massive beneficiary of the booming agribusiness and the return of manufacturing,” says Sr. Mamgren. “Nationwide, transport networks and the cheap energy/fracking story are going well. When people get priced out of major cities like New York and San Francisco, they move to cities like Kansas City and Houston. The middle of America is where the economic action is now.” The number of UHNWIs in Houston, for example, is expected to rise by 57% by 2023, far outstripping the overall US growth rate of 21%. Source: Wealth-X Report (2013)

WHAT IS THE ONE THING THAT WE KNOW ABOUT ALL OF THESE AFFLUENT INDIVIDUALS? 8

9 CHALLENGES OF SIGNIFICANT FAMILY WEALTH ACCOUNTING, REPORTING & COMPLIANCE Investment Planning & Analysis MANAGEMENT OF ADMINISTRATIVE / DAY-TO-DAY RESPONSIBILITIES PHILANTHROPIC ACTIVITIES FAMILY GOVERNANCE LIFESTYLE MANAGEMENT BUSINESS SUCCESSION CONTINUITY OF FAMILY LEGACY Family Trusts Family Education SPECIAL PROJECTS Family Communication FAMILY

Accounting, Reporting & Compliance Lifestyle Management Investment Planning & Analysis Family Governance Business Succession Family Trusts Special Projects Family Education Continuity of Family Legacy Philanthropic Activities Family Communication Management of Administration 10 WHAT HAS EVOLVED FROM THE “CHAOS OF FINANCIAL SUCCESS?” The Family Wants…

11 CONCEPT OF A FAMILY OFFICE An integrated and coordinated service delivery model: — Objective and personalized advice — Centralization of risk & other services — Support system for meeting the challenges faced in managing wealth and trust administration — Governance/Management infrastructure — Assistance in the accomplishment of long-term goals — Bifurcation of family vs. family business — Highly-sophisticated investment consulting — High investment returns — Collaboration among financial disciplines — A reliable resource to handle day-to-day demands

12 CONCEPT OF A FAMILY OFFICE The advisor sees: — Relationship building with family — Revenue growth — Next generation relationships — Expanding the closely held business CFO role — Job opportunities OVERALL OBJECTIVE: To maximize opportunities for managing and growing wealth while preserving the family’s legacy, values and continuity OVERALL OBJECTIVE: To maximize opportunities for managing and growing wealth while preserving the family’s legacy, values and continuity

13 FAMILY OFFICE MODELS Single Family Office Totally controlled by 1 family Governance varies Generally “outsiders” serve as COO & lesser position Increased privacy Increased confidentiality Enhanced business models Diseconomies of scale? Multi-Family Office Shared operating costs Sometimes shared philosophies investment principles Ability to alternate talent Ability to alternate outside resources Tendency to spread too thin

14 FAMILY OFFICE MODELS Either model requires decisions: — In-house v. outsourcing – Allocation/Diversification – Record retention – Philanthropy – Risk management – Financial controls vs. budgeting – Financial literacy – Business succession – Legacy planning – Everyday activities — Family involvement — Specialized activities — Experts

15 FAMILY OFFICE SERVICES Family Wealth Stewardship/ Governance Risk Management/ Advisory Services InvestmentsFamily “CFO” Family offices generally provide the following broad category of services:

16 FAMILY WEALTH STEWARDSHIP — Long-term objectives – Family mission statement — Family governance — Family wealth education — Philanthropic planning — Family business consulting – Succession planning — Family communication – Information dissemination – Family meetings

17 RISK MANAGEMENT Assessment and mitigation of risks aligned to key family objectives: — Life cycle events — Tax compliance — Estate and legacy planning — Life insurance review — Property and casualty insurance review — Executive benefits — Retirement planning

18 FAMILY CFO — Family balance sheet and income statement — Cash flow planning — Income tax projections and preparation — Real and personal property management/oversight — Collaboration with all family advisors — Foundation management — Bill pay — Other daily services

— Develop investment policy statement — Asset allocation advice — Investment consulting and manager selection — Investment management — Monitor advisor performance — Consolidated performance reporting Meet with Client to Discuss Needs & Objectives Perform an Asset Allocation Study Work with Client to Determine Investment Policy Finalize Asset Allocation Select Managers Implement & Monitor SETTING YOUR INVESTMENT POLICY IMPLEMENTING YOUR PORTFOLIO 19 INVESTMENTS

WHAT DIFFERENTIATES THE FAMILY OFFICE FROM “REGULAR” PRIVATE CLIENT SERVICES? 20

21 BENCHMARKS OF FAMILY OFFICE SERVICES Broader role in strategic planning for the family & oversight of progress toward goals—with multi-generational focus Assistance with family communications & coordination of activities based on the needs & desires of individual family members More responsibility for coordination among other key advisors & outside services providers Highly-tailored solutions to meet the unique needs of each familyA “deeply engaged”/”highly intensive” service model

22 FAMILY OFFICE STAFFING Team Lineup Managing Director/ Relationship Manager Stewardship Education Strategic planning Liaison with outside advisors Business development Wealth Advisor Financial planner Technology skills Day-to-day resource Coordination the team Portfolio Manager Investment policy statement Portfolio construction Investment reviews Private Banker Credit Lending Trust Administrator Administration Trust interpretation Tax Planner Tax returns Estimated tax projections

23 FAMILY OFFICE STAFFING Team Lineup Insurance Advisor Property/casualty insurance Life insurance Coordination with estate planners Estate Planner Documents Estate tax strategies Business Consultant Oversight of closely held business ties within family Valuation Succession Real Property & Personal Property Manager Property management Property services Additional Staff Technology Consultant Support staff Household staff Legal

24 FAMILY OFFICE STAFFING — Ideal combination of technical skills & soft side personality — Career path — Succession planning — Transition — Personality — Technical — Language — Detail Challenges Skills

COSTS OF OPERATING A FAMILY OFFICE 25

26 COMPONENTS OF COSTS — Internal family office costs – Staff – Training – Technology – Operations — Outside advisors – Professional fees – Accounting – Compliance — Investment costs – Consulting – Research – Custody – Manager fees — Allocations of costs – Investment management – Internal office costs – External advisory costs — Staff compensation – Costs for highly-qualified professionals — Complexity drives costs — Communications – Client service agreement – Survey

PRICING OF A FAMILY OFFICE 27

28 PRICING MODELS Fixed fee% of AUM FLEXIBLE MODELS

BEST PRACTICES 29

30 HOW CAN A FAMILY OFFICE DISTINGUISH ITSELF? — Clearly-defined value proposition — Commitment to the long-term needs of the family — Confidentiality — Risk management oversight — Prudent growth rate — Ongoing assessment — Consistent/flexible pricing — Reliable referral partners — Knowledge of target market — Regular and timely communications — Good clients — Goals-based investing — Talent development — Technology upgrades