F A L L F O R U M Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. REPORT ON THE FIFTH ANNUAL SINGLE-FAMILY OFFICE STUDY

2 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. DODD-FRANK UNCERTAINTY CLEARS AS REGULATION GOES INTO EFFECT COMPLIANCE COSTS HIT MANY SINGLE-FAMILY OFFICES IN THE POCKETBOOK SFO Study Headliners - I

3 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. SUSTAINABILITY GROWS AS A MAJOR CONCERN GENERATIONAL TRANSITIONS, POOR INVESTMENT RETURNS, FAMILY COHESION AMONG CONTRIBUTING FACTORS SFO Study Headliners - II

4 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. SFO Study at a Glance - I 34 SFOs Participating vs. 44 Last Year Median Assets Under Supervision = $320 Million Mean Assets Under Supervision = $450 Million Change in Assets from 2010 = 0.5% Range in Assets = $20 Million to $1.8 Billion

5 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. SFO Study at a Glance - II Median Households Served = 16 Total Households of All Participants = 544 Range in Generations Served = 1-5 Mean Years in Existence = 28 CEO at 47% Is Family Member

6 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Highlights of Research Uncertainty over Dodd-Frank Clears—Mostly Concern Over Sustainability Continues to Grow No. 1 Challenge: Generational, SFO Transitions Yet Only 38.2% Have Succession Plans in Place No. 2 Challenge: Investment Returns “We’re Looking at Rising Costs & Shrinking Assets” Use of Security Consultants Gains Traction

7 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Aftermath of Dodd-Frank

8 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Dodd-Frank Background Law Abolished Private Advisor Exemption SEC Defined New Family Office Exemption First Legal Definition of a Family Office Only Family Clients, Only Family Owners New Rules Took Effect March 30, 2012 Implied Recordkeeping Duties Not Clear

9 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Qualified for Exemption Which Most Closely Describes? Qualified for Exemption Without Changes Made Changes and Was Able to Qualify Decided to Outsource Investment Function Registered with SEC or State as RIA Has Legal Advice but Has Taken No Action Remains Uncertain about Legal Status 64.5%

10 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Legal Costs Involved? Did You Incur Expenses (e.g. Legal Fees, Consulting Fees) Related to Complying with Dodd-Frank Rules? Yes38.2% If Yes, Please Estimate Total Expenses Ranges of Costs Cited:$300 to $450,000 Mean Cost Cited:$64,000

11 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Top Challenges for SFOs - I Relative Score Generational Transition Investments Managing the Family Office Family Cohesion Governance

12 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Top Challenges for SFOs - II Relative Score Preserving Wealth Liquidity, Cash Management Consolidation Rep., Tech Rel. Mgt., Client Expect Compliance, Reg. Concerns

13 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Concern about Sustainability Somewhat Concerned Very Concerned Total (in %’s)

Rising Concerns: Sustainability Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. 14

15 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Strengthening the Family Office Establishing Family Communications and Meetings Establishing Family Web Site and Communications Network Added G4 Members and Outsiders to Board Partnering with Other Families Considering a Minimum Annual Fee per Household New Services Include Tax Planning and Cash Management

16 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Strengthening the Family Office Improved Reporting to Give Family the Big Picture Established a Succession Plan for CEO, Board Developed a 5-Year Business & Strategic Plan Nothing, Really; G-1 Reluctant to Share Control Hired Consultant to Facilitate Family Meetings Enhanced Family Communications & Meetings

17 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Succession Issues 47.1% Of Chief Executives Are Family Members Average Tenure of Participating CEOs – 14 Years Years Remaining Until CEO Retires Only 38.2% Have Succession Plan for CEO

18 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Expected Rates of Change Substantially55.9%51.2% 54.5% Only Slightly Remain the Same

19 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Changes in Recent Years Successful Leadership Transition to G-2 Outsourced All Investment and Legal Matters Transitioned to Private Trust Co. Structure Fewer, More Customized Services Fewer Households Being Served Separated from Operating Business

20 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Confidence as a Fiduciary Fully Confident71.9%65.9% 78.8% Somewhat Confident Somewhat Unconfident Not Confident At All

21 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Asset Growth Rates For Rolling 3-Year Periods Ending Mean Asset Growth6.77%6.24% 0.41% For Rolling 3-Year Periods Ending Mean Asset Size$541$593 $561 ( In $ Millions)

22 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Investment Expertise Have Sufficient Expertise In-House? Yes66.7%68.2% 81.8% Employ External (Outsourced) CIO? Yes35.3%31.8% 36.4%

Use of External CIOs: Middle Tiers Most Eager “Yes, we’d like some help!” 23 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Lack Expertise Employ Ext. CIO

24 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Investment Discretion What Is Your Arrangement with External CIO in Regard to Investment Discretion? No Investment Discretion77.8% Limited Discretion11.1 Full Investment Discretion11.1 How Long Employed? 12 Years (Mean)

25 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Investment Policy Changes Emphasis on Capital Preservation, Diversification Giving More Priority to Short-Term Liquidity Lowering Overall Risk Profiles of Portfolios Focusing on Individual Risk Profiles and Tolerances Exiting when Possible from Most Hedge Funds Eliminated Funds of Funds from All Portfolios More Active Management, Emerging Markets

26 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. CEO Compensation Base Salary Total Tier Assets (Mean) (Mean) I $1B+ $674K $1,650K II $0.5B-$1B III $100M-$0.5B IV <$100M

27 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Assets Per Employee 3-Year Average ($MM) Mean Assets Per Employee

28 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Asset and Expense Growth Mean %Δ Mean %Δ In Assets In Expenses Tier Assets I $1B+ 0.7% 3.3% II $0.5B-$1B III $100M-$0.5B IV <$100M

Operating Expense Ratios 3-Year Average (bps)

30 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Requests for New Services In Last Two Years: Tax Preparation Bookkeeping Bill Paying Household and Business Payroll Property Management Education, Outreach to Next Generation Charitable Planning and Administration Medical Insurance Administration

31 Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. Summary of Research Uncertainty over Dodd-Frank Clears—Mostly Concern Over Sustainability Continues to Grow No. 1 Challenge: Generational, SFO Transitions Yet Only 38.2% Have Succession Plans in Place No. 2 Challenge: Investment Returns “We’re Looking at Rising Costs & Shrinking Assets”

F A L L F O R U M Copyright © 2012 Family Wealth Alliance, LLC. All rights reserved. REPORT ON THE FIFTH ANNUAL SINGLE-FAMILY OFFICE STUDY