Slide 1

F A L L F O R U M 2 0 1 2 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. REPORT ON THE FIFTH ANNUAL SINGLE-FAMILY OFFICE STUDY

Slide 2

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

Slide 3

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

Slide 4

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

Slide 5

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

Slide 6

6 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Highlights of Research Uncertainty over Dodd-Frank ClearsMostly 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 Were Looking at Rising Costs & Shrinking Assets Use of Security Consultants Gains Traction

Slide 7

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

Slide 8

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

Slide 9

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% 16.1 0.0 6.5 3.2 9.7

Slide 10

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

Slide 11

11 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Top Challenges for SFOs - I Relative Score 2012 2011 2010 Generational Transition100 100 37 Investments 95 76 100 Managing the Family Office 79 61 17 Family Cohesion Governance 50 51 33

Slide 12

12 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Top Challenges for SFOs - II Relative Score 2012 2011 2010 Preserving Wealth 29 39 27 Liquidity, Cash Management 19 37 20 Consolidation Rep., Tech. 19 37 27 Rel. Mgt., Client Expect. 10 35 20 Compliance, Reg. Concerns 5 8 57

Slide 13

13 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Concern about Sustainability 2012201120102009 Somewhat Concerned47.132.640.644.1 Very Concerned26.523.212.514.7 Total73.655.853.158.8 (in %s)

Slide 14

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

Slide 15

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

Slide 16

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

Slide 17

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

Slide 18

18 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Expected Rates of Change 20122011 2010 Substantially55.9%51.2% 54.5% Only Slightly38.234.9 30.3 Remain the Same5.914.0 15.2

Slide 19

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

Slide 20

20 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Confidence as a Fiduciary 20122011 2010 Fully Confident71.9%65.9% 78.8% Somewhat Confident21.919.5 15.2 Somewhat Unconfident3.112.2 6.1 Not Confident At All3.12.4 -0-

Slide 21

21 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Asset Growth Rates For Rolling 3-Year Periods Ending 20112010 2009 Mean Asset Growth6.77%6.24% 0.41% For Rolling 3-Year Periods Ending 20112010 2009 Mean Asset Size$541$593 $561 ( In $ Millions)

Slide 22

22 Copyright 2012 Family Wealth Alliance, LLC. All rights reserved. Investment Expertise Have Sufficient Expertise In-House? 2012 2011 2010 Yes66.7%68.2% 81.8% Employ External (Outsourced) CIO? 20122011 2010 Yes35.3%31.8% 36.4%

Slide 23

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

Slide 24

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)

Slide 25

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

Slide 26

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 397 454 III $100M-$0.5B 275 380 IV