Alts Can Unlock UHNW Success

Gideon Strategic Advisors Uses Alts Expertise to Grow HNW and UHNW Business

The ultra-high net worth (UHNW) and high net worth (HNW) wealth management space is overwhelmingly dominated by the private banking groups of large Wall Street firms and “straight from the Mayflower” white-shoe trust companies and family offices that have existed for multiple generations.

In this landscape, Santa Monica-based, Gideon Strategic Advisors has managed to stand out and grow its business effectively among HNW and UHNW clients.  An independent wealth advisory firm with approximately $500 million in assets under advisement, Gideon was founded by Robert Amoruso, CEO & Managing Partner.

Amoruso and his team of growing professionals deliver comprehensive wealth management and financial planning solutions to high earning, high net worth and ultra-high net worth individuals, families and business owners.  But what’s their secret when it comes to successful growth in the HNW and UHNW space?

According to Amoruso, much of Gideon’s success in this hotly competitive segment of wealth management boils down to his firm’s unique expertise in working with alternative assets that most of the big Wall Street firms and traditional white-shoe family offices haven’t cultivated expertise in supporting.

It’s a strategy that is consistent with how the firm selected its name, which draws from the legend of Gideon, a leader of the Israelites who won a decisive victory with a troop of 300, defeating an exponentially larger army of 135,000 soldiers.  

The biblical tale has been told and retold many times over many generations, but one point each account typically includes:  Gideon’s forces were deliberate in choosing the time, place and tactics to fight and win.

As with the story of Gideon, Amoruso and his team are succeeding in the HNW and UHNW space by carefully and thoughtfully selecting the areas where they can create an out-sized level of success.  

Given the focus of this week’s WSR issue on the future of retail alts, we thought this would be a perfect time to connect with Amoruso to discuss the success of his alts-driven HNW and UHNW strategy.

WSR:  What are the typical quantitative and qualitative attributes of the HNW and UHNW clients your firm serves?

We started advising emerging affluent families but have recently moved up market.  We’re now working with ultra-affluent families, family offices and their other professional advisors, including lawyers, CPAs and investment managers.  

We pride ourselves on looking for specific niche areas where we can add value for all parties involved, and on working and playing very well within the same sandbox as other professional advisors to HNW and UHNW clients.

High income, high taxed clients who are looking for tax efficiency have been especially interested in the support that we offer in recent months.

These clients like the fact that we are very much about advising the entire family, including the young adult children of clients.

As a firm with a dynamic culture where all of the senior professionals are aged 40 or younger, we tend to connect very well with the next gen members of wealthy families.

WSR:  Tell us about the “venture partner” and “community-building” approach that you take with your client base?

Our clients in the HNW and UHNW segment encompass business owners, executives at investment banks, hedge funds, private equity, management consultants, lawyers.  

These are people who thrive on strategic networking with others in their tier of professional success.

We create multiple opportunities for active networking and relationship building among our clients who are interested in doing so.  Think of it as almost a “venture partner” model, with a ton of cross pollination of opportunities and ideas.  

We don’t have so much of a “client base” as we do a “client community” for the clients we serve who are interested in engaging with us on that level – And many of them are.

WSR:  How specifically does Gideon’s focus on unique illiquid or alternative assets served your team well as a point of entry into the HNW and UHNW segment?  What’s the kind of work that you do that best moves the needle with clients in this segment?

It’s a crowded space for firms seeking to be all things to all people in this segment, and that’s not the game we play.  For the HNW and UHNW segment, we have focused our energies exclusively on sophisticated investors.  

We lean into the fact that clients in this segment don’t need help with systemic exposures to the market.  Instead, we focus on partnering with HNW and UHNW clients who want to rely on our team for access, sourcing, and due diligence of unique private investments, which is one of our key points of differentiation.  

This focus also has allowed Gideon to build out very mutually beneficial relationships across our client base.  

Given our clients’ prominent roles across industries, their access to idea generation, deal flow, and perspective, has uniquely positioned the firm to provide differentiated opportunities and advise.

WSR:  What are the biggest opportunities and challenges that HNW and UHNW clients seem to be facing these days when it comes to alternative assets as part of their bigger financial picture?

Some of the most successful strategies in alternatives have been reserved for institutional, often tax-exempt investors.  Aside from providing access to these strategies at more digestible bite sizes, Gideon has made it a focus to structure these investments with tax-efficiency at the forefront.  

This can be as simple as placing tax inefficient strategies in qualified accounts where possible to more complex structures designed often in collaboration with the fund managers.  Asset location is a very powerful tool when targeting after tax internal rates of return (IRRs).

This is something that is often overlooked by wealth managers and clients alike.  Taxable account statements look great before taxes – But they don’t look so great when clients look to achieve liquidity from these accounts.

WSR:  Why do large Wall Street firms and long-established multifamily offices lack the interest or capabilities in being able to support the alternative asset needs of HNW and UHNW clients in the ways that Gideon can?

A lot of this is all about the unique access to opportunities and insights that our own client community can deliver, our constant focus on tax efficiency, and our ability to bring efficiency to the alternative assets due diligence process.  

At the same time, large organizations often lack the agility necessary to act on private investments that often have a limited and finite window of opportunity.  

And in many cases, these investments may not be very profitable for banks and wirehouses, as they typically may not offer high enough margins by their standards.

But both our expertise and our economics are fundamentally different enough so that we can lead in this unique area of support for HNW and UHNW clients.

WSR:  If you could give any advice to alternative asset managers on how their investment solutions can better add value to HNW and UHNW clients, what would it be?

Alternative investment managers must find ways to become more tax efficient as the prospect for higher taxes becomes more likely.

Asset managers that heavily employ the use of derivatives, systematic trading with high turnover, or credit can create for tax inefficient outcomes.

Another thing that alternative investment managers should do is to create Insurance Dedicated Funds so that LPs can invest inside of PPLI and PPVA to reduce current period income taxes as well as capital gains taxes.  

The analysis we typically see is the cost of insurance should be less than the cost of taxes over a long period of time.

Finally, alt managers can partner with technology companies that act as aggregators.  The two most visible examples of this are firms such as iCapital and CAIS.

But there are also many other similar firms that function the same way.  These platforms offer reasonable fees for access to top tier private equity, private debt, real estate and venture capital funds.

Michael Madden, Contributing Editor & Research Analyst, Wealth Solutions Report, contributed to the development of this article.  He can be reached at ContributingEd@wealthsolutionsreport.com