HUNTING THE RICH TO MAKE RICHER

OPINIONHunting the rich to make richerJonathan Chevreau, Financial Post ¬∑ October 23, 2010If you’re a decamillionaire, which meansyou have a net worth of $10-million, thechance to become one of just 56 charterCanadian members of the Tiger 21networking group may be gone by thespring.Now that Thane Stenner has becomemanaging director for Tiger 21 inCanada, the recruiting drive has begunin earnest. In practice, only successfulbusiness owners are likely to have thatmuch wealth. Or people like Stenner,who advises the wealthy.Stenner is founder of Stenner InvestmentPartners, a division within RichardsonGMP Ltd. He is based in Vancouver,one of just four Canadian cities in thenetworking group initially. The others areCalgary, Toronto and Montreal. Stennerplans to visit all four at least monthly.Fortunately, all that business travelqualifies as a tax-deductible businessexpense. But it’s less clear if the annual$30,000 membership fee is a valid tax-deductible expense. In an interview,Stenner says the “majority” of thefee may be deductible, but adds thedisclaimer that members should consulttheir accountants and tax advisors.True, the collective intelligence ofthe group provides members with anedge over the hoi polloi. Stenner saysAmerican members were well awareof the subprime mortgage problem bylate 2007 and early 2008, so made theirportfolios more defensive before the bear market hit in the autumn of 2008.Most raised cash and bonds or cut backon long-only exposure to stocks, somewent to market-neutral investments andsome even shorted stocks. Conversely,when the gloom was pervasive early in2009, members stepped up to take morerisk and grab bargains, with the result thatmost were soon back to pre-crash levelsor close.So Tiger 21 is one way the rich getricher. But you’d need an aggressiveaccountant to write off the whole fee,since the Income Tax Act is very specificabout what fees qualify as tax-deductibleinvestment counsel. Much of the feefacilitates what amounts to group therapyfor the rich, and perhaps the chance forU.S. hedge fund managers to pitch theirwares.Note the fee is imposed every year,unlike the hefty upfront fees someaffluent people pay to join exclusivecountry clubs.or someone with $10-million, $30,000is like paying 30 basis points (0.3%) ona total portfolio, says Rob Bell, of BellKearns & Associates, who providesinvestment counsel to the wealthy andcharges 20 basis points for the privilege.”I don’t understand the mathematics ofit,” Bell says. There are more affordableways for ultra-high-net-worth Canadiansto access top advisors, he adds.Stenner says the average Canadian Tiger21 member has a net worth of $60-million (it’s US$71-million in the United States),which brings the fee closer to five basispoints of total net worth.Kelly Rodgers of Rodgers InvestmentConsulting in Toronto, says most clientsin this bracket already have an existingnetwork of professional advisors, lawyersand accountants. “I doubt any of myclients would pay $30,000 a year to havelunch and talk with people.” Tiger 21’sfocus is alternative investments, hedgefunds, private equity and real estate and,”you can go to lots of conferences onthose for less than $30,000 a year.”Clearly, strong sales skills are neededduring this recruitment phase and Stennercan deliver. At just 46, he too has a networth of $10-million. Son of a veteranstockbroker, Thane bought his firstinvestment, Templeton Growth Fund,at age 11. His clients also must have$10-million and his fee is as high as1.2% of assets under management ( “allin,” less if portfolios contain more fixedincome). He has 52 clients.Michael Nairne, president of Toronto-based Tacita Capital Inc., says for someformer business owners who enjoy theworld of investments, the cost to joinTiger 21 “can be a good investment. It canbe intellectually and socially fulfilling.”But he says the culture here is differentthan in the United States, where Tiger21 began. “In Canada, most rich peopledon’t think they’re rich and don’t want tobe identified as rich.”