Advisor Q3 2015

THE ADVISORInsights for Integrated Wealth Planning

Q3 2015

Does Your Trust Need a “Protector”?

The Foundation CEO as Artful

Juggler

Including Digital Assets in Your

Estate Plan

ATLANTIC TRUST

S CIALLY RESPONSIBLE

INVESTINGOPPORTUNITIES AND EXPECTATIONS

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A View From the Top:Q&A with Jeff Rudder of Young Life...... Page 2

Trustee Selection: It’s a Matter of Trust............................. Page 4

Taking a Stand:Socially Responsible Investing .............. Page 8

Q3 2015 CONTENTS

ALSO IN THIS ISSUE:

Quick Smarts...................................... Page 12

Takeaway: Living and Dying in a Digital World ................................. Page 13

ATLANTIC TRUST IN THE NEWS

Atlantic Trust’s Linda Beerman Named

One of the 50 Most Influential Women

in U.S. Private Wealth Management

NOW: New On the WebSee atlantictrust.com to access the latest expert commentaries and news. PRESS RELEASES:

Atlantic Trust announces new senior hires and appointments in Texas and California

Atlantic Trust launches Women’s CIRCLE program

AT In the NewsAtlanta Business Chronicle, Top Money Manager: Bull Market Has Further to Go

Private Asset Management, The 50 Most Influential Women in Private Wealth

CNBC Power Lunch, Concerned with the Lack of Consumer Spending: Pro

Bloomberg, Dollar Gains as Retail Gain Burnishes Outlook for Higher Rates

The Wall Street Journal, Investors Rethink Stocks Given to Family Trusts

Socialize With Us Read Atlantic Trust’s featured blogs at blog.atlantictrust.com:

Mary Beth Storjohann: 13 Money Tips for Parents-to-Be

David Papp: Understanding the Internet of Things

Paulina Mejia: Prenuptial Agreements: What to Know Before Tying the Knot

Art Graper, CFP®: When Should You Start Planning for Medical Expenses in Retirement?

Look for daily updates on LinkedIn, Twitter and Facebook—follow, interact and socialize with us.

Do you subscribe to our monthly e-newsletter? If not, email us at [email protected].

Q3 2015

Culture—it’s no longer just about excellence in arts, letters, manners and scholarly pursuits. Today, when people talk about culture, they’re just as likely to mean a business’s or organization’s culture, widely considered to be one of the most important elements of a successful business. Definitions of business culture include: the accepted norms, values, visions, working style, beliefs, habits and traditional behavior of a group . . . a set of shared assumptions that guide an organization. In Corporate Cultures: The Rites and Rituals of Corporate Life, a classic book from 1982 that was one of the first to examine organizational culture, Terrence Deal and Allan Kennedy defined culture succinctly: “It’s the way we do things around here.”

At Atlantic Trust, we talk a lot about our culture, the DNA that we feel defines us. “It’s the foundation upon which we want to continue to grow and build a firm that’s special, one that’s always focused on our clients,” saysJohn “Jack” S. Markwalter Jr., CEO of Atlantic Trust. “Our culture is at the heart of all that we do—our team members and our clients can feel and experience it.”They do—and they’re happy to share it and offer why it makes a difference to them: “We get to work directly with the people that matter—our

clients,” says Jon E. Henderson, CFA, CIC, managing director and senior relationship manager at Atlantic Trust.

While our client-centric culture may be what attracts professionals to Atlantic Trust, we believe it’s also what keeps them here—in the case of three of our employees, more than 50 years each. In the past 18 months, since Atlantic Trust became part of the CIBC family of companies, 21 new professionals have joined Atlantic Trust, representing a focused commitment to strategic growth for continued excellence in our client relationships and service. The average tenure at Atlantic Trust for our relationship managers is 14 years, with an average of 26 years of total experience in our industry. Talent is always the great multiplier—the more energy and attention invested in it, the greater the yield—and our new talent brings even more power to the multiplier effect. And while these new Atlantic Trust employees bring fresh perspectives to help our firm continue

“The Way We Do Things”: The Importance of Culture

moving forward, they also recognize and honor our history of more than 90 years in wealth management. Indeed, one of the six elements that Deal and Kennedy suggest as the basis of corporate culture is history: a shared narrative of the past.

Of the many leadership and organizational experts around today, Simon Sinek—who gave the second most-viewed TED talk ever—is one who stands out for his clear and succinct statements on business culture. This quote, from his book Leaders Eat Last, captures the essence of what Atlantic Trust believes about how our culture relates to you—our clients: “Customers will never love a company until the employees love it first.”

We invite you to hear thoughts on our culture directly from some of our employees: https://www.youtube.com/watch?v=mYzPVJA-Rx8

All the very best for the second half of 2015, - The Atlantic Trust Team

ATLANTICTRUST.COM | 1

“It’s really rare to be somewhere for 14 years and consider yourself ‘new.’” – Bruce Katz, CFP® Managing Director and Director of Strategic Alliances

Think Tank

Think Tank

Q If you agree with the description of foundation CEOs having to be “artful jugglers,” what is your most important juggling act?

It’s always to balance the needs of our constituents, as varied as they are, with the requirement to be a fiduciary. My approach generally is to say “yes” to requests as often as I can. I learned this from my mentor, 87-year-old Ted Johnson, a former executive with W. R. Grace & Company, who has been involved with Young Life for 60 years. I heard him answer the phone one day and say, “The answer is yes. Now tell me what you need.” If you have a philosophy of saying yes whenever you can, people know that you want to help and serve them, even when you do have to say no. We want to be the Apple Computer of the foundation world—always thinking forward and being innovative with how we approach our business. That’s the essence of “yes.”

Q&A with Jeff RudderExecutive Director of the Young Life Foundation

Q How do you view innovation within the foundation setting?

I observed early in my tenure here that most foundations’ messages to givers, including ours, were built around the “tools”—trusts and annuities and donor-advised funds, and so on. But most people can’t really connect the dots between their financial objectives and opportunities and how the “tools” can help them realize those opportunities. So we began talking very simply about the opportunities, painting the picture that way. For some people, that’s helping them make the connection between selling a business or piece of property and how to leverage that transaction so that they can convert tax dollars into charitable dollars. For others, it’s helping them make the connection between their giving and the direct impact it’s creating in the lives of teenagers.

Q Describe that approach at your foundation.

I believe that most organizations similar to ours are very good at treating people who give donations as “friends and family,” but when you’re seeking a major gift from somebody, it is wise to remember that they may take off the friends-and-family hat and put on the investor hat. So we need to be smart enough to speak the language of the investor. An example of that is a product we put together called the Campership Legacy Fund. Sending kids to a week of camp where they can get away from the distractions of everyday life and have a chance to stop and consider the message we present is a cornerstone of Young Life. The fund is simply a pipeline of both current and future gifts that will help kids get to a week of camp both today and tomorrow. So we built the fund around several core promises that we believed were important to our investors: Accountability—what

A View from the Top The Art of Being an “Artful Juggler”

Q&A

Q3 2015

Today’s foundation CEO is nothing less than an “artful juggler” of multiple high-pressure goals that must be pursued simultaneously, or so says a 2014 report from The Center for Effective Philanthropy. Of three primary goals, “achieving impact” is obviously critical. Yet there is no one way to measure impact, such as there is in business, using standard metrics. Jeff Rudder, executive director of the Young Life Foundation, offers a quote from John Bunyan that he believes defines impact: A man there was, though some did count him mad. The more he cast away, the more he had. Says Rudder, “Understanding this is the essence of the power of giving and the first step toward having an impact beyond your lifetime.”

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Q3 2015

Q&A

are we going to accomplish with your investment? Compliance—what are we going to require of our staff before these funds are accessible? Communication—how are we going to report to you about our progress, and in what time frame? Connectedness—how are we going to help you experience the effectiveness of this program?

The latter is critical because it helps our investors actually experience what they’re investing in—and not just by observing. We invite investors to “Come and see. Come and serve.” One of our outreach programs is to teenage mothers, so we invite investors to come to camp with us and help look after the mothers’ little ones so that these teenage mothers can experience camp the way it should be experienced. It allows those who are investing to really touch and feel their investment.

Q Tell us more about your communications and how they support the legacy message.

Reaching and talking with our investors in the language they understand is no different than talking with the teenagers in their everyday environments and in the language they understand. It’s not rocket science—at the core of asking donors to write a check or include an organization in their planned giving is a simple message: We think you should take a bet on us and here’s why. But what’s most important in the context of legacy is not just providing help in planning a future gift, but rather, in helping our givers have an opportunity to continue their story. An example of this can be found again in the Campership Legacy Fund. We send a minimum of two reports a year to investors in that fund. At the beginning of the year we report all of the relevant data points and statistics that any investor wants, and at midpoint of the year we create something more “inspirational.” In

AT A GLANCE: Jeff RudderVery little about Jeff Rudder’s background would suggest that he would one day run a foundation. He received a degree in manufacturing systems from North Carolina A&T State University, working first in construction engineering and then in technical sales and marketing. He resisted several requests to become a Young Life volunteer leader, but eventually, and somewhat reluctantly, he went to a Young Life weekend camp in North Carolina. “It was more fun than you should be allowed to have. The volunteer leaders were authentic, genuine and incredibly talented people who could run any Fortune 500 company, but here they were, ‘meeting teenagers where they are,’ both literally and figuratively. I wanted to be part of something that felt so exciting and so much ‘bigger’ than what I was doing.” Four years later, in 1999, Rudder moved to Colorado, where he joined YL as director of gift planning. In 2009, he became executive director of the YL Foundation. “Think of our foundation as very much like a community foundation, except most of our clients are internal. We have more than 4,000 staff around the world who are dreaming big about how much more they want to and can accomplish with kids in their community. It’s our job to help make that happen.”

Young Life, established in 1941, operates in all 50 states and in more than 100 countries worldwide. It is the largest youth outreach ministry in the world. Atlantic Trust has been managing assets for the Young Life Foundation since 2006.

addition to sending these reports to the investors, we offer to mail them to their kids, grandkids, employees or anyone that they want to know that this type of investment is important to them. It’s a way of helping families pass down their values to future generations. We think this is a unique benefit to our investors. We are also beginning to explore offering to investors the opportunity of having one of our staff writers do an article on the family so that when we make distributions from their gifts in the future, we can share that article with gift recipients so that people will know why these distributions were important to the giver and his or her family. We’ve found that these types of communications are very important to both our older investors and to millennials, who are coming into “giving mode” at much younger ages than previous generations—and they’re looking very differently, and critically, at the impact giving is having. They are the ultimate pragmatists.


Q How do you view your role as steward of the assets your donors give?

We never forget that we are here first to serve. And, we always remember the people who give us these assets give them with purpose and intent. They didn’t give them for us to sit on them forever; they want the assets used, and with leverage, to help kids. Obviously, we take our stewardship role very seriously from a fiduciary perspective. But we’re not an endowment—we and our investors want the assets out there at work. It certainly helps to have Atlantic Trust as a strategic partner, one that really understands who we are, what we do and why, because we aren’t like a college that wants a large endowment fund. In the foundation world, we can talk about advocacy, balanced portfolios, funder collaborations, research and a dozen other important concepts, but it all rests on long-term relationships. They’re the essence of being able to have impact.

Q3 2015Q3 2015

Wealth Strategies

The primary role of a trustee—holding title to property for

the benefit of another—sounds simple enough on its surface,

but selecting a trustee is really a complex decision with many

nuances. So is considering who succeeds the initial trustee and

whether you need a trust “protector.”

USTTRUSTEE SELECTION: A MATTER OF

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Q3 2015

Tmay indeed), serving as a trustee requires technical skills, sound judgment, use of discretion, integrity, objectivity and, perhaps most importantly, the ability to deal with all the family members involved. And those family members may include both current beneficiaries, who are entitled to assets immediately, and remainder beneficiaries, who will not receive distributions until sometime in the future—such as when they reach a certain age or the current beneficiary dies. And since trusts’ purposes can vary—to provide asset management, save taxes, protect assets from creditors, provide for minor children or prevent funds from being eroded too quickly by family members—it’s important to consider how your trustee will interact with all of the beneficiaries. “Certain kinds of trusts may call for trustees with particular qualities,” notes Judith A. Saxe, managing director and senior wealth strategist for Atlantic Trust. “For example, with a marital trust, designed not only to minimize estate taxes in a couple’s estate, but also to provide for a surviving spouse’s financial needs, it’s crucial that you feel your trustee can relate well to your spouse. If you are establishing a special needs trust to maximize outside resources while providing supplemental benefits to a disabled individual, you may want trustees with particular understanding of the disability and needs, as well as the complicated legal requirements of a special needs trust. When looking for a trustee for your revocable, or living, trust, a key

Wealth Strategies

rusts are extremely flexible tools that can serve a variety of estate and tax planning goals. How well they succeed depends largely on the trustee responsible for carrying out your intentions. Clients who create trusts usually focus on the trust provisions regarding disposition of the assets put into the trust and their intent on timing and amounts of assets to go to beneficiaries. But, says Linda S. Beerman, head of Wealth Strategies and chief fiduciary officer for Atlantic Trust, “Your trustee implements those intentions expressed in the document through administration of the trust. Since your trustee is legally a fiduciary, requiring objectivity and impartiality, it’s critically important to focus on who you will select as trustee in addition to the purpose of the trust.”

First, keep in mind the typical primary responsibilities of a trustee: n Investing and monitoring the assets

(either solo or by hiring investment managers)

n Making distributions of income or principal while balancing the needs of income and remainder beneficiaries

n Maintaining records of trust activities and reporting to beneficiaries

n Filing the trust tax return and any other required filings

While you may think that the person you have in mind—your sister-in-law who works for a bank?—will consider it an honor to be named as trustee (and she


consideration is the fact that this trustee may be in charge of your finances if you become mentally incapacitated.” Other considerations include whether the trustee has familiarity or experience with specific types of trust assets, such as real estate or a closely held business, assets that are often more difficult to control or monitor than a portfolio of stocks and bonds.

Choosing Well—For Now and For Later

Without question, says Beerman, the decision on a trustee is one of the most important, and often challenging, discussions advisors have with clients. “The right trustee plays a very important role in preserving a family’s wealth for many years and, often, in preserving family harmony; the wrong one can disrupt both wealth preservation and family relationships,” she says. “Both the trust grantor and named trustee must carefully consider their respective roles and responsibilities and respect the boundaries of the trust. Naming a trustee or accepting the position of being a trustee is not just a formality.”

Lawyer or accountant, family, friend or institution—each of these choices for possible trustee has pros and cons. A lawyer or accountant, who may be an expert in planning and crafting trust arrangements or in financial matters, may or may not have the capacity for all of the tasks involved in trust administration.

T

Q3 2015

the control rests with a trustee. “It’s a nice way to educate the next generation about money, but it’s important to carefully consider the parameters surrounding when beneficiaries may make distributions to themselves, particularly as there could be tax implications associated with having these broad powers.” If you decide on co-trustees, make sure the trust document outlines whether the trustees must agree on all decisions.

Sometimes trusts include a trust “advisor” or “advisor committee” made up of family members. One or more family members can be appointed to this role—they typically don’t have fiduciary responsibility and can offer only non-binding guidance and recommendations to an individual or institutional trustee. A trust advisor can also play a role in replacing trustees. “We remind clients that it’s not enough to simply name a trustee and consider that you’re done,” says Saxe. “There are many reasons why a trustee may have to resign or be removed. Planning for trustee succession and who has the power to remove and replace trustees is extremely important, particularly as it is usually the trustee who has the responsibility to interpret the trust terms and decide on investment and distribution decisions.”

Wealth Strategies

Similarly, a family member or a friend may be familiar with your beneficiaries, but may not have the time or depth of knowledge to handle the demands of administering a trust. Sometimes those “demands” are uncomfortable situations that revolve around the choice between no and yes, as described below.

How will [a family member] react when faced with a choice that favors him at the expense of other beneficiaries—or favors others at his expense? What are the intra-family implications of those choices? For instance, will he alienate one family member by (even properly) denying a distribution, or ingratiate himself to another by being liberal in his policy of making distributions? Can he say no to one child and yes to another without causing a never-ending family feud? A trustee who is also a family member may be forced by conscience or by duty to make choices injurious to the harmony of family relationships. Will the trustee (such as the grantor’s spouse) be subject to the influence of one or more children (or a second spouse or lover) to make distributions that may not be in the best interest of other beneficiaries? Is the family member trustee easily persuaded or likely to show favoritism? The remarriage of a spouse or child who is named as trustee may result in less than impartial decisions—especially where the trustee has been given discretionary powers over trust income or principal—even if the new spouse is not included in the class of possible recipients. A child/trustee may take on the role of a parent to his or her remaining parent or siblings. This may be positive, but it also may result in an attempt to control the lives of family members through the family finances as if that person were a parent rather than a child. (Stephen R. Leimberg, The Tools and Techniques of Estate Planning, 11th edition, 1998.)

An institution with substantial fiduciary experience and a deep bench of professionals offers the expertise, stability and permanence that individual trustees cannot provide, which can be especially helpful for multigenerational, long-term family planning. In addition, an institutional trustee can manage the accounting and tax-reporting requirements subject to internal and regulatory oversight. Such a trustee also has formal processes and procedures for handling distributions and deciding on beneficiary requests.

One trustee—or co-trustees? You can name multiple trustees, and often grantors will name both a family member or very trusted friend and an independent professional trustee. “In this scenario, the family member or friend could serve as the ‘touch point’ for the trust’s beneficiaries, providing the perspective of knowing them well,” says Saxe. “The other trustee, such as an institution, could be relied on for the expertise of investment management and administrative experience, and should have an in-depth understanding of tax planning and compliance matters.” Many times, parents or grandparents want to include one of the beneficiaries as a co-trustee, an approach that fosters a real involvement with family wealth that beneficiaries might not feel when all of


SELECTING A TRUSTEE

Friend/Colleague

Family Attorney

Institution

Q3 2015

Wealth Strategies

Who Should Succeed?

Some grantors allow individual trustees to choose their successors; others direct that if an individual trustee leaves, that role goes to an institutional trustee. It’s common in a marital trust that the surviving spouse be given the right to remove a corporate trustee and that beneficiary children be given the power to remove and replace a trustee after the second parent’s death. The trust should specify, as much as possible, the criteria or “triggers” for trustee removal. If you are the trustee for your own living trust, with your children as successors, the trust should spell out the specific requirements for when successors should commence serving if it becomes necessary due to your deteriorating physical or mental condition. Your trust can even include a HIPAA privacy release authorizing your doctor to provide information about your ability to manage your own affairs.

Another trend in trusts that is surging in popularity is naming a trust “protector.” The concept has long been popular in offshore trusts; the first offshore statutory definition of protector was seen in the Cook Islands in 1989 but not in the U.S. until 1997, in South Dakota. A simple definition of this role is a person who has powers over the trust, but who is not a trustee. Nor is the trust protector the same as a trust advisor.

“A protector is typically named to provide watch over a trust that will be in effect for a long time, providing a lot of flexibility to accommodate changes in beneficiary circumstances and to oversee the actions of the trustee,” says Alexander Bove, Jr., J.D., LLM in taxation and a partner with Bove & Langa, P.C., of Boston. “The protector can be given the power to remove or replace trustees, add or delete beneficiaries, veto investment decisions, change the trust’s provisions and alter the

trust’s situs. He or she can also override a trustee decision or direct a trustee to take a specific action. It’s a very powerful position in many respects. In the past, when a client drafted an irrevocable trust, it was just that—irrevocable. A protector gives a new twist to what’s irrevocable and what’s not.”

A trust protector is expected to address issues or solve problems that couldn’t have been anticipated when the trust was drafted. Bove says that an example could be a child whose parent is the trust’s grantor but was born “outside the family” and all parties now agree that this child should be added as a beneficiary. “In the past, no corporate trustee would do that without a court’s consent, which could be a lengthy and expensive exercise. The protector can do that with the stroke of a pen.” A protector can also be valuable for a trust that holds an insurance policy or assets that are expected to appreciate in value. Years down the road, a sizable amount of money could pass to children or grandchildren—even to one who is estranged from the family. The protector can alter the trust’s beneficiaries to reflect that situation. “These are not always pleasant possible circumstances to consider, but they do reflect real life,” says Bove, whose book Trust Protectors: A Practice Manual with Forms covers the pros and cons of trust protectors in almost every conceivable situation.

Rather than a permanent protector, a “springing” protector can be provided for in the trust. Much like with a “springing” power of attorney, the protector can come in if a certain event is triggered and serve for only a specified period. For example, if the entire family moves far away and it makes no sense to keep an individual or corporate trustee in the original city, the springing protector can make the decision to change the trustee or the trust’s situs. “A springing protector with specific and limited powers is, in many instances, far


better than giving the protector as many powers as possible to provide for any and all future changes in circumstances, law or beneficiaries,” says Bove.

The biggest question surrounding the role of the trust protector, at least in discussions among lawyers, is whether the protector is a fiduciary or whether the trust document can effectively declare that the protector is not a fiduciary. Bove says while some lawyers don’t want to assume fiduciary duty, but are often named as trust protectors, he believes that the role speaks for itself: “If a trust protector is given the power to remove and replace trustees, add or change beneficiaries and amend the trust in minor or significant ways, I believe it’s clear that the protector is serving in a fiduciary role. In considering whether the protector is a fiduciary, the question can be answered through another question: What was the grantor’s intent and purpose in naming the protector and granting the specific powers? If it was to give the protector the enforceable power to carry out certain objectives consistent with and in furtherance of the grantor’s intent and the purposes of the trust, then we can conclude that the grantor expected the protector to use his or her best judgment and exercise the powers in good faith. That’s the essence of being a fiduciary.”

In creating an arrangement that describes how wealth should be managed and used for the benefit of those you love, it is, of course, crucial to state the terms and provisions of the agreement with thoughtful care. However, it is of equal importance to carefully consider the choice of those whom you are entrusting to carry out your wishes.

Please ask your Atlantic Trust advisor for our white paper on trusts and trustees, which includes more detail on these topics.

S CIALLY RESPONSIBLE

INVESTINGOPPORTUNITIES AND EXPECTATIONS

Socially responsible investing has been around for decades, and many investors have embraced its way to “just say no.” Recently, however, more investors are looking to say “yes” to new opportunities that fit the DNA of a socially responsible investment.

Investments

Q3 2015


The origins of socially responsible investing, or SRI, can be traced back many centuries, to when religious teachings embraced investment actions that coincided directly with individuals’ beliefs. Ethical or values-based investing was likely brought to the New World by Methodist and Quaker immigrants, who stood for social justice and used “social screens” to avoid investing in “wrongful” companies. Much later, during the volatile social and political climate of the 1960s, concerns regarding the Vietnam War, civil rights and equality for women led to greater awareness of issues of social responsibility and accountability. SRI has always been the umbrella term for any type of investment screening based on values judgment and is based on exclusionary, or “negative,” screening. It has very little to do with fundamental or financial analysis of a stock and, because of its more personal bias, it requires an investor only to arrive at an easy “yes” or “no.” “Investors who choose this way are setting the standard that their values matter as much as their financial return,” says John C. Tennaro, CIMA®, vice president and senior investment analyst at Atlantic Trust. Because “socially responsible” is subjective and can vary from person to person, there is currently no standard definition other than an individual’s beliefs. (SRI

does, however, have an index—the MSCI KLD 40 was started in May 1990 as the Domini 400.) While SRI traditionally avoids the “sin stocks”—alcohol, tobacco, gambling, weapons—it now has expanded to include (or, more accurately, exclude) companies perceived as damaging the environment, failing to practice good corporate governance and violating good human resources practices. It’s also just one component of a broader approach called RSI—for “responsible, sustainable and impact” investing.

“We live in a world that faces big challenges,” says Tennaro. “Social media has certainly played a part in our awareness of global issues. Ten years ago, few investors were talking about investing with an environmental or corporate governance focus. But while many people are familiar with ‘traditional’ SRI investing, the alphabet soup of new acronyms, and new global challenges, is often confusing. In addition, there are nuances with SRI today.” Tennaro offers this as a thoughtful and detailed description of how SRI can work:

Think of these excluded businesses as pebbles and the other companies as grains of sand. The sand passes through a wire screen easily, but pebbles don’t. The strategies, and those invested in them, will not own or do business

Investments

Q3 2015

Responsible, sustainable and impact investing (RSI) is a broad strategy that encompasses three distinct types of investing, with each having a discrete focus and approach: Socially responsible investing (SRI) uses exclusionary (or negative) screening, which focuses on avoiding investments in specific publicly traded companies or industries based on one’s principles or values. Environmental, social and governance (ESG) is considered a more proactive approach than SRI; this form uses affirmative (or positive) screening that favors publicly traded securities or industries that demonstrate a positive impact based on environmental, social and governance metrics. Impact investing (II) is an approach that acts as an offshoot of philanthropy and specializes in matching investor capital directly with specific issues or projects. Impact investing also can offer an opportunity to those who reject the notion that there can only be investing for profit or giving money to a cause, rather than both.

Ask your Atlantic Trust advisor for our white paper on RSI.


Q3 2015

Investments

be return-enhancing and risk-mitigating because these factors focus on aspects that can have a measurable influence on a company’s profitability, value and share price. ESG is the next evolution of SRI.”

Despite the lack of a universally accepted black-and-white definition of “socially responsible investing,” and its bleed into an ESG approach, many investors are highly interested in what SRI can do for them. The difference recently, however, is viewing it less as a way to “exclude.” Instead, according to Edward C. “Ted” Bunn, managing director and senior relationship manager at Atlantic Trust, “Clients are asking about additional opportunities to bring investments in to a portfolio in ways that fit the SRI mold. A foundation or endowment, for example, may come to us with an SRI-oriented mandate, but now instead of ‘We don’t want these companies or industries,’ they’re asking ‘What else is out there? What else should we be doing?’ And in some instances, their mandate is evolving as this space evolves. In both cases, our role is to offer them our best thinking on how to refine their mandate and look at new opportunities, while still honoring their philosophy on socially responsible investments.”

Investing in fixed income has always been a bit of a stumbling block for those following an SRI mandate, says Nakia Maddox-Eubanks, vice president and associate

relationship manager with Atlantic Trust. “Some investors want to stay away from government bonds because the investment can ultimately support war,” says Maddox-Eubanks. “And with corporate bonds, you have to do a full ‘look through’ to know fully what’s going on with a corporation. Now, there are green bonds available [see sidebar]. They’re fairly new, so their track record is short, and many investors are taking a wait-and-see attitude.”

Fossil fuel divestment is a hot topic these days—simply put, it’s gone mainstream—and while the concept may be relatively easy, the implementation is not. “Into what do you reinvest? If your investment objective is long-term, you have to think very carefully about what divestment and reinvestment mean for years out,” says Maddox-Eubanks. “In addition, as far as divesting from energy stocks, with the poor performance of many energy stocks during the last year after oil prices dropped significantly, that now looks like a smart decision, but it may not when we have an energy recovery.”

Generational Views on SRIMultigenerational family conversations are often posing new challenges and driving different ways of thinking about “returns,” says Bunn. “The older generation may be more focused on optimizing financial returns, while the younger generation is more open to a ‘social good’ return. Not


with those “pebbles,” if possible. An absolute screen would eliminate a company with any connection to the excluded products. A less strict screen, often called a threshold screen, allows up to a small percentage of a company’s sales to come from an excluded product. In practice, this might mean that many hotels might be allowed to be included in an SRI fund, even if they feature a lounge in the lobbies of their properties, as long as the alcohol sales didn’t amount to more than 5% of the total revenue. (Source: Little, Ken, The Complete Idiot’s Guide to Socially Responsible Investing, 2008.)

The Difference between SRI and ESGESG—which stands for environmental, social and governance—is a close cousin to SRI and the second component of a broader RSI strategy; the third component is impact investing. [Please see our white paper “Doing Well By Doing Good” for more on these topics.] According to Tennaro, whereas SRI is focused on the input of an investor, ESG is more focused on the business practices and output of companies. “In other words, ESG-focused investing gives notable consideration to sustainability factors as a complement to their financial analysis,” he says. “Integrating ESG factors into the investment process can potentially

SRI has always been the umbrella term for any type of investment screening based on values judgment and is based on exclusionary, or “negative,” screening.

Investments

Q3 2015

only do the younger family members often have a different philosophy about investing, they’re so connected to what’s going on in the world that they have a very broad awareness of the range of issues on which they’d like to have some impact. They know where they want to ‘do good.’” Younger generations, in particular millennials—who will be inheriting and investing $36 trillion over the next four decades—are not only making active choices to support institutions that are investing their capital in a socially responsible manner, they are demanding it from those that are not. For millennials, SRI is a crossover between investing and philanthropy.1

What’s exciting and challenging about SRI today is that clients are increasingly looking for opportunities in which their values or beliefs can be aligned with their investments. Although this approach has typically only focused on avoiding a small group of companies or industries, we are seeing a broader range of issues being addressed through responsible investing. “The various ‘movements’ are growing and, in some cases, merging together,” says Tennaro. “It means we have to stay very close to our clients’ thinking and also to managers who are very tuned in to the opportunities out there that can satisfy ‘doing good’ and potentially reducing risk. It’s also very important that we help clients understand that some fluidity in their mandate may be good. In other words, what is their tolerance for a company with only a 10% exposure to activities they consider objectionable? Do they understand that using a responsible approach to investing is a process that needs to be implemented in steps, not necessarily leaps? With so much changing today, one of the biggest values we can add is helping clients think about both opportunities and their own expectations.”

1 “Millennials want to feel good about accumulating wealth,” Bostonglobe.com, 4.21.2015.


Source: Barclays, MSCI ESG Research, data as of 11.28.2014.

When is a bond not just a bond? When it’s a “green” one. A green bond acts like other bonds, but is a new way for investors to invest in fixed income investments with a sustainability focus. In addition, according to the World Bank, green bonds can help fill gaps in much-needed development finance for climate-friendly projects. The World Bank, in fact, launched the first green bond in partnership with Swedish bank SEB in 2007; it has now issued $7 billion in green bonds in 18 currencies. Green bonds are now issued by city and state agencies to support environment-friendly projects, such as improvements in public transportation, and by corporations and utilities. Globally, the total amount of green bonds issued in 2014 was more than $35 billion, more than triple the year before.

To help investors evaluate green bonds, MSCI/Barclays launched a green bond index that scores issuers and evaluates their project selection criteria and management of proceeds to ensure the promised use. The new Green Bond Index complements MSCI/Barclays’ existing ESG (Environmental, Social, and Governance) Fixed Income Index. Many institutional investors such as pension funds now have mandates for sustainable and responsible investments and are developing strategies that explicitly address climate risks and opportunities in different asset classes. Green bonds can provide the verification and impact measurement that investors need.

Green bonds also give smaller investors a way to vote with their money. The State of Massachusetts, for example, received more than 1,000 orders from investors for a green bond it issued last year—most of them individual investors interested in supporting their local government’s investment in the environment.

Source: World Bank; MSCI/Barclays.

FIXED INCOME:GETTING ITS GREEN ON

Green Bond Index by Use of Proceeds

100

75

50

25

0Alternative

Energy

MV%

90.5

65.4

7.9 15.8 16.4

26.0

EnergyEfficiency

PollutionPrevention& Control

SustainableWater

GreenBuilding

Other Useof Proceeds

Q3 2015

QUICK SMARTSFrom Our Atlantic Trust Team

Quick Smarts

Are clients looking at “socially responsible investing” in new ways today? What are their

expectations? What is the best guidance you give them on how to consider SRI?

Giovanni Boccia, CFP®

Vice President and Associate Relationship Manager Atlanta

“While personal motivations behind SRI may not have changed, there has been a bit of a shift in how investors are looking to accomplish their moral or ethical objectives. This is partly due to many corporations becoming more socially and environmentally conscious. As a result, we’re hearing more about the pursuit of SRI, as opposed to the aversion to certain types of companies and sectors. It gives investors a feeling they are doing their part to ‘help out.’ As advisors, our job is to listen to our clients’ desires and present them with an unbiased analysis of how this mandate could potentially impact their portfolios. As diversification is still at the forefront of our strategic investment philosophy, completely eliminating entire market sectors could significantly impact the long-term growth of a portfolio. While we always want to meet each client’s needs, we have to do so in a manner that focuses on the core principles of investment and risk management.”

Elizabeth L. DeLaitsch, CFP®

Vice President and Relationship ManagerBoston

“Each client’s perspective of SRI is very personal to him or her and can continue to evolve as our political, social and economic environments continue to change. There are some clients who have very general directives regarding adherence to SRI terms and others who are very specific in what they will and will not choose to invest. As our younger generations become more involved in their families’ wealth planning, I believe they will have a bigger hand in guiding the direction of this investment space. Their expectations will be that Atlantic Trust is keeping pace with this continuously evolving approach to investing. We always want to encourage clients to work with their Atlantic Trust advisors to set forth the investing parameters and performance measurements that fit with their family’s goals.”

F. Allen Lyons Vice President and Business Development OfficerHouston

“Clients who seek SRI are investing to get more than just a monetary return on their investment. Many are investing to make a positive impact in our country and around the world, as well as to feel that societal concerns should be made an important part of their investment focus. SRI has really resonated with the younger generation over the past couple of years. They often seek to invest in companies that have principles that mirror their own, including companies that are environmentally aware, socially conscious and concerned about corporate governance. We work hand in hand with clients to develop portfolios that reflect their beliefs and values as well as their investment objectives.”


Q3 2015

Q3 2015

QUICK SMARTSFrom Our Atlantic Trust Team


Takeaway

Why is there a need to plan for digital assets? First, to prevent theft of the deceased’s identity or theft of the deceased’s assets. Second, to allow a fiduciary to identify and gather assets to ensure the proper disposition of estate assets. Third, for emotional reasons. Family pictures stored in the cloud, for example, may have no significant financial value but do have sentimental value among family members.

“Given the growing digital footprint that most people have, it’s really important to think about what happens to these assets when you or a loved one dies,” says Miller. “But planning for the administration of digital assets is still in its infancy.”

Last year, the National Commission on Uniform State Laws approved the Uniform Fiduciary Access to Digital Assets Act (UFADAA), which vests fiduciaries, being personal representatives of estates and trustees, with “at least the authority to manage and distribute digital assets, copy or delete digital assets, and access digital assets.” Prior to approval of the UFADAA, rules governing access to information were outlined under the Electronic Communications Privacy Act, a set of laws enacted in 1986, long before our digital lives exploded. Under that act, a provider of electricity or phone services, for example, cannot disclose whether or not your family member is a customer of theirs, let alone grant you access to their online account.*

Despite the new UFADAA, states have only just begun to address these issues. According to the Uniform Law Commission, Delaware is the only state that has enacted the UFADAA, although a number of states have introduced legislation to enact some or all of the UFADAA. Some states, including Connecticut and Rhode Island, have enacted laws to help fiduciaries deal with access to online accounts. “To add to the complexity, accessing a computer without authorization may potentially be a crime under the Computer Fraud and Abuse Act,” says Miller.

In addition to state law, many websites are governed by an electronic agreement covering the terms of service (Terms of Service Agreement, or TOSA). “How many times have you simply clicked ‘accept’ when creating a new account and not actually read through the TOSA?” asks Miller. “In connection with a fiduciary gaining access to a decedent’s account, TOSAs may state that the account is nontransferable.” Some sites, however, are making inroads on this issue. Facebook, for example, has created a “living will” program that will allow users to appoint a “legacy contact” or otherwise decide what will happen to their accounts upon their death.

Digital planning presents numerous challenges for our clients as they confront the need to manage a constant flow of new information—passwords change,

Takeaway

Living and Dying in a Digital WorldDoes your estate plan consider whether your Facebook account can live on after your death? It should, says

Joshua Miller, CFP®, managing director and senior wealth strategist for Atlantic Trust. In fact, you should have

provisions for all of your digital assets and accounts.

Q3 2015

websites change and accounts are opened and closed. “Estate planning for digital assets is still an evolving process,” says Miller. “Considering how to dispose of digital assets and accounts, including the potential efficacy of trust ownership and powers of attorney, should be a part of your estate planning discussion. Keep in mind that your medical records are also a digital asset. Plans you make now can be a tremendous help to your family and to you because you can take some comfort in knowing that the digital assets that outlive you will be taken care of in a thoughtful and responsible way.”

Listen to Miller’s podcast on protecting your digital assets on Atlantic Trust’s iTunes channel by searching “Atlantic Trust.”

To enable the “living will” contact on Facebook:

n Go to Settings > Security.

n Scroll down under Security Settings to Legacy Contact, click Edit and fill in the information. If you check Data Archive Permission, your designated legacy contact can download a copy of what you’ve shared on Facebook, including posts, photos, videos and information from your profile.

*Source: “Helping Clients Manage Their Digital Assets,” The Wall Street Journal, 4.3.2015.

Q3 2015

Atlanta404 881 3400

Austin512 651 7800

Baltimore410 539 4660

Boston617 357 9600

Chicago312 368 7700

Denver720 221 5000

Houston832 941 5760

Newport Beach949 660 0080

New York212 259 3800

San Francisco415 433 5844

Washington, D.C.202 783 4144

West Palm Beach561 515 6043

Wilmington302 884 6775

Atlantic Trust Private Wealth Management, a CIBC company, includes Atlantic Trust Company, N.A. (a limited-purpose national trust company), Atlantic Trust Company of Delaware (a Delaware limited-purpose trust company), and AT Investment Advisers, Inc. (a registered investment adviser), all of which are wholly-owned subsidiaries of Atlantic Trust Group, LLC.

This document is intended for informational purposes only, and the material presented should not be construed as an offer or recommendation to buy or sell any security. Concepts expressed are current as of the date of this document only and may change without notice. Such concepts are the opinions of our investment professionals, many of whom are Chartered Financial Analyst® (CFA®) charterholders or CFP® professionals. Chartered Financial Analyst® and CFA® are trademarks owned by CFA Institute. The Chartered Financial Analyst® (CFA®) designation is a globally recognized standard for measuring the competence and integrity of investment professionals. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

There is no guarantee that these views will come to pass. Past performance does not guarantee future comparable results. The tax information contained herein is general and for informational purposes only. Atlantic Trust does not provide legal or tax advice, and the information contained herein should only be used in consultation with your legal, accounting and tax advisers. To the extent that information contained herein is derived from third-party sources, although we believe the sources to be reliable, we cannot guarantee their accuracy. Approved 841-15. For Public Use.

Investment Products Offered are Not FDIC-Insured, May Lose Value and are Not Bank Guaranteed.

ATLANTICTRUST.COM

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