Page 1

E m





Elm Advisory Services PCFC Case Competition 2014

Exploring Elm In March 2014, Jeffrey Chen, CEO and founder of Elm Advisory Services, returned to his office in Manhattan, NY after having attended a luxurious, but game changing conference in Wichita. He had, more so than ever before, finally understood what it meant to effectively integrate people skills, efficient management, and solid investment strategies in his private wealth management business. With this newfound perspective, Jeff reflected on his five year tenure with Elm and considered the potential for Elm to become a bigger and better private wealth management firm on the street.

PCFC Case Competition 2014 Elm Advisory Services

Twelve years after graduating from Princeton in 1996, Jeff founded his own financial firm Elm Advisory Services. With the recovering market conditions of post-2008, Jeff was able to acquire clients and generate favorable returns. However, in the past year, growth in assets under management has slowed from 50% in 2010 to 2% YTD. He manages $350M now. Chen came from a background in finance, having majored in Economics, and had considerable experience in wealth management as a VP in the private wealth management division of a bulge bracket bank. Wishing to develop closer ties with his clients, Chen established Elm Advisory Services with a vision of rapid growth and reliable service that prioritizes client needs and satisfaction above all else. Coming back from the conference, Chen was confident that Elm was in position to elevate its game. Despite slowing growth, Chen is ready to implement new wide-reaching initiatives to acquire more clients and provide market-beating returns. A variety of challenges block the path to profitability, however. Increased government regulation, increasing competition in the wealth management industry, and shifting growth markets compounded with a drying equities

market are presenting stiff obstacles. Chen is looking for the optimal plan to further improve Elm. Chen wants to create and implement a five year growth initiative with regard to his assets under management. He wants to achieve the following four targets: Growth of at least 15% per year using 2014 as a baseline and reaching a sustainable level of $750M by 2019. Elm should have plans to expand to global markets to reach untapped target groups Elm should implement an investing strategy that optimizes safety and returns for its retirement and retail accounts. Elm should increase its international and domestic profile through its online presence while never losing sight of its values The decisions Chen makes and implements in these four target areas are crucial in the following years. As the time comes to implement Chen’s plan, the means by which to accomplish the proposal are vast and are bounded only by imagination.



Elm Advisory Services PCFC Case Competition 2014

WEALTH MANAGEMENT OVERVIEW Wealth management as an investment advisory discipline incorporates financial planning, investment portfolio management and a number of aggregated financial services. High-net-worth individuals (HNWIs), small-business owners, and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals, and investment management. Though there are many similarities between asset management and private wealth management, a clear distinction should be made. Elm Advisory Services is a private wealth management business. It maintains whole client accounts in exchange for a fee and invests across a range of asset manager products, including mutual funds, UITs, ETFs, etc. Elm Advisory Services focuses on managing and charging a 1% fee on the tangible liquid assets of high net worth individuals while advising on other assets including real estate. According to a recent PWC report, there exist several important themes across the wealth management industry. The first and most important is reputation. Popular consensus suggests that trust in financial services is absolutely essential for society. This entails understanding the client’s perspective of value (what really matters to the client?) and putting emphasis on client outcomes: doing the right thing, putting the needs and interests of clients above maximizing profits. Simply put, according to the report, “’we do it because it is the right thing to do (and we still make money)’ is the new call to action for the industry”. The second theme is the need for future technological improvement. To cut costs, an increasing number of firms are sharing and outsourcing solutions to further improve efficiency and improve front to back

operational risk profiles. Technology is also a focus as many organizations plan to build digital trust through improved security to meet rising cyber threats. The final theme is product and service provision. The emphasis now is on solutions and a shift away from commoditized products/advice. The shift to open architecture will persist as products become more specialized. Wealth managers are also becoming more transparent with their pricings. As a result, new and innovative competitors today compete with long-standing, traditional industry players. Below is Elm’s timeline of significant events.

ELM TIMELINE 2014 $350M AUM, plans to considerably expand client base 2013 Investments trail market, but AUM continues to grow 2012 Featured in Barron’s, and largest account ($43M) obtained 2011 AUM reaches $200M and sales and marketing brought on 2010 Returns 25% and core team is hired 2009 Firm founded. Assets under management by years end: $25m

PCFC Case Competition 2014 Elm Advisory Services

WEALTH MANAGEMENT CHARTS AND GRAPHS What are the top 5 barriers that you are most concerned could impede your organization's ability to successfully move from your current state to your desired target state in 2 years? Increased regulatory demands Inefficient budget

In terms of ability to attract private client assets, which do you believe are the top 5 most successful International Financial Centers, and which do you think will be the top 5 most successful in 2 years? In 2 years








Hong Kong

Hong Kong

New York

New York

Talent shortage Low interest rate environment Difficulty changing cultures/behaviors Systems complexity Process Complexity Quality of resources

Rank your organization's current top 5 differentiating factors now and in 2 year’s time Premium brand and reputation Financial and capital strength Quality of Client Relationship Managers Private Banking & Wealth management as core business Ability to provide comprehensive wealth management advice proposition Good investment performance Client segment service model and approach Product/proposition innovation and solutions development Being part of a bigger integrated group Speed of response Global capabilities and delivery network Independence and stringent fiduciary responsibility Access to best of breed external products Compliance in meeting regulatory standards Leading positions in key markets Privacy

Present In two year’s time

All graphs on this page come from a recent PWC survey of 200 wealth managers in 51 countries. The figure on the top left demonstrates that wealth managers’ top concerns lie in three very different areas: government regulation, lack of budget, and talent shortages. The figure on the top right reflects wealth managers’ belief that four international markets rank ahead of New York in ability to attract private client assets. Both figures highlight concerns that must be taken into account in any plan proposed for Elm. The figure on the left illustrates what wealth managers think differentiates their company from every other company. This comprehensive breakdown should be carefully considered when determining how Elm should portray itself to new clients and how Elm should attract further investment. In a world of increasing competition, such differentiating factors matter even more, and could be crucial to Elm’s success.



Elm Advisory Services PCFC Case Competition 2014

ASSET MANAGEMENT OVERVIEW Investment/Asset management is highly connected with private wealth management, and for that reason, it will be introduced in this section. Asset management is the professional management of various securities (shares, bonds and other securities) and other assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations, charities, educational establishments etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds). According to a recent McKinsey analysis, AM companies created record growth in assets, pushing growth rates to 11 percent above the pre-recession level, and this growth rewarded the companies with record revenue. However, profits have plummeted, as costs increased at three times the rate revenue did, driven primarily by increases in sales and marketing costs, making new clients wary of entering the market and dampening organic growth. Successful asset management companies have capitalized on one of several key trends to push up organic growth, according to a lengthy analysis published by McKinsey&Co. Successful AM companies have turned to emerging markets, where demand for AM continues to grow. In developed markets, AM companies have turned to retirement accounts and turned to alternative assets, that is, assets that are not stocks, bond, or cash. These include real estate, hedge funds, and derivatives contracts. Other companies turned to exchange-traded funds, or have started using outcome oriented solution mod-

els, where the investor dictates the magnitude of return and the AM company works to achieve that goal. Collectively, these six growth areas account for all of the growth in AM companies within the past three years. In the wake of the recent recession where clients of AM companies suffered heavily due to risky investments made on their behalf by the companies, the role of risk in decision making is also changing. Clients are demanding more comprehensive and complex risk management according to multiple reports by McKinsey, PricewaterhouseCoopers, and Boston Consulting Group. In practice, this means diversifying investments into a greater number of fields and the development of stronger research and trading teams to inform portfolio managers. Global AUM $ trillions, year-end ‘07-’12

Growth 2007-12 10%

Rest of World

North America



Global assets have jumped significantly since 2007, rebounding well past pre-crisis levels, but as graphs on the next page show, this growth has not translated to higher profits.

PCFC Case Competition 2014 Elm Advisory Services


ASSET MANAGEMENT CHARTS AND GRAPHS Cost pool by function $ billion ‘07-’12 change

All graphs on this page come from a re-


cent McKinsey report highlighting the

100% =

trates the dramatic increase in costs asset management companies face, driven by spikes in sales and marketing costs.

71 65

Sales and marketing

evolution of the asset management industry today. The graph on the right illus-

Sales and marketing costs as a percent of revenue Retail

Investment Management

Institutional Ops & Tech Mgmt/ admin/other

North America; results indexed to 2007 Average AUM




The graph on the left demonstrates how the increase in revenue has been increasingly offset by these spiraling costs, cutting into profit margins, especially as compared to the pre-crisis levels. Growth has been slowing since 2009.

How Environment is Changing

The figure on the right illustrates three defining

Structure and Roles Organizations are more global and less US-centric From a vertical to a

CIO role expanding to “investment CEO”

horizontal organization

Investment themes increasingly global

Research industrialized, deeply specialized and monetized


Client Demand for deeper asset allocation and outcome-oriented strategies

Interactions between investments, products, and solutions become critical

Need to better integrate insights across roles and geographies

Technology a differentiator for integration across asset classes.

Clients ask for more sophisticated risk management and analytics

Role of risk dramatically increased.

trends that face asset management companies and how the companies themselves are currently responding to these changes. These trends collectively define where the industry is headed and introduce the various challenges these companies face.

How Asset Managers Adjusting

Deeper integration within and outside the investment engine

Investment Process Towards more industrialization

Larger, multifaceted investment teams with greater specialization

The portfolio manager as portfolio conductor: less sole idea generator, more systematic leveraging input from researching and trading


Elm Advisory Services PCFC Case Competition 2014

INDUSTRY CHALLENGES WM companies face unique challenges as they look to the future due to the 2008 recession. WM companies must continue to maintain costs in line with increases in revenue while simultaneously reducing risk to manageable levels to ensure future growth. As the global economy responds to new regulations and changing client needs, WM companies must also find ways to effectively respond and integrate new considerations in growth, operational efficiency, and client advisory. In particular, the 2008 recession created a host of new challenges for the WM industry. Trust in the financial industry dropped during the crisis, and WM firms with their intimate client advisory focus must be especially cognizant of their efforts to maintain strong, trustworthy service in their clients’ best interest. Additionally, new regulations in developed markets like the U.S. and the E.U. and slowing growth within the WM industry are also presenting new challenges. Many WM firms are looking towards emerging markets for growth and untapped markets, which present their own challenges for such firms. Additionally, traditional pressures like maximizing profits through operational efficiency are spurring WM firms to adopt organizational, technological, and product shifts to both better serve their clients and to continue to tap avenues of growth and keep costs in check. Most significantly, client relationship managers must contend with changing landscapes of regulatory change and

evolving client needs. The ability to balance the firm’s profitability and the client’s best interest is now an increasing challenge. Product specialists' roles are changing, too, as the WM industry's client offerings are shifting from wealth management products to a greater focus on advisory. Compliance sees a greater role as the post-crisis regulatory regimes also demand increased scrutiny and care in managing client interests and firm conduct. Compounded with the challenge to continue growing, tap new markets, and maintain strong client service and trust, the additional challenges of adapting the organization and relationship of WM front and back-offices means that there is much to address for wealth managers looking forward.

PCFC Case Competition 2014 Elm Advisory Services



Elm’s primary clients are those of high net worth (between $1M-$25M) and of Chinese descent in the pharmaceutical fields. Many of these clients were with Jeff when he was a Private Wealth Management VP at a bulge bracket bank. Wishing to grow, Jeff only looks at prospective clients worth >$10M and is looking to stop serving current clients with a networth <$1M for cost-efficiency purposes.

As a fairly small and relatively young wealth management firm, Elm has a limited but dedicated and experienced staff. Currently the firm employs 9 employees who are organized into the divisions of investment management, operations, and client relationship management and sales. Aside from an analyst internship position offered every summer to two juniors, Elm has so far taken a very conservative approach to expansion, and has made very few hires since inception. The current full-time positions are:

Chief Investment Officer

Portfolio Manager

Research Analysts (2)

Chief Operations Officer

Chief Compliance Officer

Director of Relationship Management

Client Service Manager

Director of Sales and Marketing



Elm Advisory Services PCFC Case Competition 2014

Acquiring Clients Initial and Follow Up Meeting by Elm Elms’ main marketing and communication efforts focus on the current “niche” client: wealthy Chinese-American physicians in the greater NY area with adult children who are planning their retirement. 90% of prospective clients are made through referrals while the other 10% are gathered from service presentation events. Elm does not utilize the method of cold calling as much. As of now, Elm talks to approximately ten prospective clients per month. Elm is at the point where it can be more selective with regard to its clients. With a desire to grow comes a desire to attract higher net worth clients. Jeff and his staff prefer and pursue clients who have a net worth of $10M or higher and are looking to discontinue service to clients with a net-worth less than $1M.

Jeff currently pursues prospective clients using the methods below, beginning with an initial consultation and a follow-up meeting. The initial consultation begins with addressing the prospective client’s financial and personal situations to build credibility and trust. The follow-up consultation aims to reiterate this. Initial meetings stem from either referrals or company presentations.

PCFC Case Competition 2014 Elm Advisory Services

ELM’S SERVICES Brokerage Services

Asset Management

Equity Investments

Fee-based management

Fixed Income Investments

Separate managed accounts

Mutual Funds

Consulting services

Unit Investment Trusts


Exchange Traded Funds

Retirement Plans, 401k

Alternative Investments

Profit-sharing Plans

In addition to these standard investment services, Elm provides numerous value services. The firm will perform a diagnostic review of a client’s existing assets and resource allocations. Its expertise allows it to review clients’ financial positioning and help them understand how it correlates with their future goals. Furthermore, Elm aims to understand present and future objectives. Its unbiased thought process starts with present and future objectives. A comprehensive understanding of client needs and issues is important to Elm for designing a detailed

investment policy to help clients attain their financial goals and dreams. Elm’s experienced team will formulate an investment plan that addresses clients’ best interests at all stages of their life. They maintain moving investment targets, constantly updated with changing conditions in the capital markets and client personal life. Clients have direct access via phone to Elm’s CEO and portfolio analysis team, allowing for a greater understanding about the investment process and evolving conditions in financial markets.



Elm Advisory Services PCFC Case Competition 2014

CLIENT NEEDS Elm’s Client Service Philosophy “Having worked for several years at large banks with sizeable wealth management arms, I wanted to provide a more personalized and customer-focused experience for my clients. Thus at Elm, the philosophy behind serving clients is very simple: every individual and family is unique in their background, needs, and goals. Thus the responsibility of the wealth manager is to build a close and trusting relationship with the client which will enable him to understand these key aspects and build the financial plan that best suits his client’s interests.” -Jeffrey Chen

A Financial Friend

A Perfect Fit

At Elm, the client relationship goes beyond that of a customer and a service provider. While providing financial advice and wealth management is the top priority, the employees of the firm are there for their clients in all aspects of their lives. The goal is to have clients think of their wealth manager as a friend and confidante who they can rely on and trust to always have their best interests in mind.

For Jeffrey Chen and Elm, having strong, positive relationships with clients is more important than a few more million in assets under management. The firm regularly turns down prospective and current clients who do not seem like they would be best served by Elm. While the company may lose some revenue because of this policy, it has developed a very positive reputation due to recommendations from its loyal and satisfied client base who often

PCFC Case Competition 2014 Elm Advisory Services


â&#x20AC;&#x153;We believe a great business clearly defines its values and constantly reinforces them. Our values are integrity, transparency, and compassion. This means: No conflicts of interest - we make sure to serve your best interests; Clear and understandable investment advice - our job is to simplify the complex; Contact us at any time of day - we are happy to answer any of your questionsâ&#x20AC;? -Jeffrey Chen



p Com


on assi

e llenc


ency spar Tran


ssib Acce

lici Simp




Elm Advisory Services PCFC Case Competition 2014

Investment Policies Elmâ&#x20AC;&#x2122;s Method of Allocating Assets Elm provides two main portfolios for clients: a retail portfolio which contains more risk but generates more returns, and a retirement portfolio which contains less risk and provides steadier returns. Elm invests in domestic equity, fixed income, emerging markets, developing markets, real assets, cash, inflation assets, and alternative investments. Elmâ&#x20AC;&#x2122;s portfolio analysis team does careful due diligence (DD) on every asset class based on market conditions and client risk appetite to determine the appropriate amount to allocate to each class. At the end of the day, however, many of these allocations tend to be approximations and are done based on a holistic process. Rebalancing is done once a year.

Once allocations to classes are made, recommendations on specific equities/UITs from bulge bracket research reports are followed to create the client portfolio. Risk analysis is done to ensure maximum return is made for a given level of risk in the retail portfolios, and a minimum level of risk is made for a given level of return in the retirement portfolios.


The above image shows Elm’s website. It has been in place since Elm’s inception in 2008 and includes many basic facts about the company including the CEO’s bio, services provided, market tools, and contact info. It also provides, perhaps most importantly, a login screen for clients to view their holdings and portfolio performance at their convenience.

Company Monthly Website Views


4000 3000 2000

1000 Jan-14











Company Website



An important element to any firm is its online presence. Oftentimes the first thing many prospective clients and industry professionals do is check a company’s online profile. The advantages the Internet offers are exponential and can help a small business not only get off the ground, but thrive in a competitive marketplace. Elm has the following online venues:

LinkedIn Elm also has a professional profile on LinkedIn which includes company information, logo, and list of employees and their information. Elm uses LinkedIn’s Talent Solution services to hire employees. Elm is open to suggestions on expanding its online presence.

PCFC Case Competition 2014 Elm Advisory Services



Elm Advisory Services PCFC Case Competition 2014

INTERNATIONAL ELM EXPERIENCE Currently Elm only has one office based in Manhattan, but Jeff feels that if he were to expand operations to areas where more of his target clients live, he would be able to grow his assets. He is thinking of expanding to San Francisco, London, Shanghai, and Hong Kong, where established financial system exists and plenty of wealth AsianAmerican physicians reside so start up-costs may be lower and opportunities greater. By targeting a more diverse and larger pool of investors, Elm would be able to provide cheaper fund services,

which in turn may attract more clients and generate more revenue. Elm has not conducted a cost benefit analysis in expanding and has not measured the economies of scale present for the firm or the asset management industry. In general, however, funds with $1B or more have more than one office. Advise Jeff on the best locations for expanding his business, when would be an appropriate time/ benchmark to begin establishing global branches, and future steps to creating profits.

PCFC Case Competition 2014 Elm Advisory Services


MARKETS AND BUSINESS A significant portion of Elm’s assets under management comes from market returns. Elm’s portfolio analysis and equity analysis teams conduct careful research on the markets to best position their portfolios for market-beating returns. Below are Elm’s current views on the market and its outlook. On the next two pages you will find declassified, sample analyst reports. Elm would like recommendations on how to better position itself and what, if anything, they should consider changing or adding to their views/holdings moving forward.

Market Conditions

Market Outlook

Coming off the heels of a strong year for equities in 2013, the first quarter of 2014 has not been an easy start for markets with volatility and uncertainty dominating investor sentiment. With trouble in emerging markets, slowdown and credit crunch in China, and geopolitical crisis in Ukraine, there has been little respite for investors. Nevertheless, stronger and stronger indicators of economic recovery and growth in the United States and Europe continue to spur their equity markets to record heights as optimism remains high if slightly dampened by current uncertainty. As the U.S. and Europe continue to shine, though, emerging markets look less attractive by comparison, especially as developed market central bank policy, e.g. that of the U.S. Federal Reserve, tends toward tapering asset purchases. Soaring equity markets combined with the prospect of rising bond yields are drawing investors away from the riskier emerging markets. Reliance on foreign investment and leverage represented easy ways to finance economic development in the past, but those sources of investment are quickly drying up as investors seek returns without the exposure of emerging markets. China bears special mention as a continued engine and growing economic power whose influence among emerging markets is significant. In both its growth and now, its apparent slowdown, China must resolve its own reliance on borrowing and foreign investment while seeking more organic growth avenues. There are concerns with other developing economies, especially in Southeast Asia. Japan, too, as a developed economy also continues to struggle with its own issues as Abenomics has seemed to stall after the initial success of its QE program.

While much is uncertain in the markets, Elm is confident in the continued recovery and growth of the United States and Europe. There seems to be a preponderance of evidence in consumer, housing, employment, and corporate data that points to the continued resurgence of these economies. Japan has not enjoyed the same level of economic success, and slowdown and further trouble seems imminent, unless Prime Minister Shinzo Abe’s programs of structural reforms start to yield material improvement. Similarly, emerging markets, including China, are struggling to win the confidence of investors as developed market central bank policy, structural problems, high debt burdens, and diminished economic performance present strong indictments of their investment potential in the near term. With China as a model, recent economic successes will be hard-pressed to translate into consistent long-term growth trajectories unless measures are taken with regard to financial reform, something China grapples with now. It remains to be seen how such economies will manage these fixes, especially given current situations of political and financial turmoil many are facing. In the short-term, Elm is overweight U.S. and European equities and underweight the equities of other markets, though growth potential in the longer term stands to be large if they can address such issues.


Elm Advisory Services PCFC Case Competition 2014

MARKET CONDITIONS RESEARCH REPORT Having been founded in the midst of the financial crisis and economic recession, Elm Advisory Services ensured its growth and survival through its tight grasp of market conditions. By using information on economic conditions and financial markets to inform intelligent investment decisions and asset allocations, Elm has been able to maintain and grow its client base and assets. Vigilant market intelligence in informing its investment tactics and strategy is vital for Elm. Year 2013 ended on an extraordinary high note for global equity markets. The first quarter of 2014, however, has thus far seen rocky markets in a variety of assets. From emerging market sell-offs to the U.S. Federal Reserve’s taper of quantitative easing to geopolitical crisis in Ukraine, the investments world has been upended as investment professionals continue to try to develop responsive investment strategies for shifting realities. As the world continues to climb out of the financial recession, the U.S. and E.U. have posted modestly positive economic data the past few months, and equity markets have reached record heights. While the U.S. Federal Reserve under its new head, Janet Yellen, feels comfortable enough to taper, the rest of the world has not exhibited quite the same confidence or robust economic recovery. Emerging markets, for example, saw capital flights as a combination of taper and slowdowns in their respective economies made them relatively less attractive as formerly cheap investments. In fact, even as economic indicators continue to convey recovery in developed markets, formerly touted high-growth markets like BRIC have lost their shine as investor confidence and capital inflows have dried up. More recently, assessment of such economies has begun to use terminology like

“Fragile Five” to denote a new order of emerging markets addicted to cheap borrowing and foreign investment brought in by speculation linked to an ascendant China and low fixed income yields induced by the developed world’s central banks. The threat of slowdown and an accompanying credit crunch in China, then, is a major strand in recent economic and financial affairs. China’s state-owned enterprises’ and municipalities’ reliance on cheap borrowing to fund aggressive expansion projects in recent years has been a boon to emerging markets and China. However, it has more recently posed a threat to the stability of these markets as rising rates and China’s own central bank’s efforts to strike a balance between responsible borrowing and liquidity constitute a thread that could unravel both Chinese ascendancy and the growth of other emerging markets that have tied themselves to China. China’s more developed economic rival Japan faces problems, too. Under its regimen of Abenomics, it has seen modest economic returns through its “three arrows” approach, though these, too, have yet to bring more substantial improvements. Finally, recent developments in Ukraine and the geopolitical crisis have thrown the U.S., European, Russian, and Ukrainian markets into some turmoil, negatively impacting Ukrainian and Russian markets, though the impact on other global markets has not been too drastic. Elm Advisory Services must weigh all of this and more as it determines investment strategy to and advise its clients and provide sound, reputable financial services. -Benjamin Chuang, Elm Research Analyst 03/18/2014

PCFC Case Competition 2014 Elm Advisory Services

MARKET OUTLOOK RESEARCH REPORT As important as knowledge of economic and financial affairs around the world is, Elm Advisory Services also prides itself on its ability to react accordingly and formulate a coherent market outlook. Elm can then make intelligent judgments on the future so that it can provide expert advice to its clients today. Given current market conditions, a clear market outlook is seemingly difficult to conceive. Despite recent rises in uncertainty and volatility in equity and fixed income markets, there is certainly optimism to be had. In the U.S. and Europe, for example, the upward trend continues. While skepticism about their recovery has not abated, it seems that the U.S. and E.U. are starting to see solid economic growth. Consumer confidence, homebuilder confidence, employment growth, and corporate profits are at healthy, rising, or near-record levels in the U.S. In spite of recent volatility, the U.S. is fairly safely in the good graces of investors, and the S&P500â&#x20AC;&#x2122;s achievement of new record highs this quarter attests to that. Yet despite, record highs, market P/E only stands at 16.1, which is higher than 14 of last year, but lower than the long-run market average of 18â&#x20AC;&#x201D;indicating that there is still room to run. The E.U. is also experiencing good gains in equity markets, as evidenced by the FTSE100 and bolstered by given improvements in economic growth and the continued recovery of many of its formerly troubled nations, like Ireland and Spain. Additionally, policy from the U.S. Federal Reserve, the E.C.B., and the Bank of England, upticks in financing and M&A deal activity across the U.S. and Europe, most notably in telecom, cable, healthcare, and perhaps dubiously, the tech industry, and the bounty that a U.S. energy boom

heralds all point to a confidently bullish assessment of these markets. The flip side is, though, that emerging markets, while no longer in free-fall, continue to suffer from rising yields and stronger equities in developed markets , shaky finances, and the decreased investor confidence they beget. The January selloffs have subsided, but continued pessimism stemming from the above factors, compounded by Chinaâ&#x20AC;&#x2122;s weaker economic numbers and credit problems of late and the Ukrainian crisis continue to draw investors away from emerging markets and towards safer bets with the U.S. and the E.U., though the latter does exhibit some exposure to the Ukrainian crisis. While there continues to be a lot of potential for growth, the risks of investing in emerging markets in the short term do not seem commensurate with the returns. Though a longterm outlook contingent on structural reforms and the resolution of political crises in Ukraine and Thailand, for example, could certainly be positive. Overall, many of the current market conditions contributing to volatility in equity and fixed income markets are reasonably considered in the short term. As the uncertainty surrounding effects of central bank policy, emerging market turmoil, and other sources of volatility subside, stronger global equity markets are likely. For the short term, though, Elm advises its clients and maintains portfolios with an outlook that is overweight U.S. and E.U. equities and underweight emerging market assets. -Benjamin Chuang, Elm Research Analyst 03/18/2014



Elm Advisory Services PCFC Case Competition 2014

ELM’S REVENUE AND COST SOURCES Revenue Elm’s revenue is primarily generated through its asset management fees. For portfolios worth $5 million or less, the firm charges a 1% annual fee of the assets under management and a slight premium of .1% to .5% for larger accounts. The company also procures some income from commissions for recommending and selling funds, insurance policies, and other investment vehicles. Elm’s third revenue stream comes through spe-

cialized financial planning services such as real estate advising, estate planning, and business consulting.

Costs Wages, employee benefits, and payroll taxes account for the greatest portion of Elm’s costs. Operating costs include rent, legal and professional fees, licenses and other fees, office expenses, subscriptions and fees for financial data and research, and travel costs.

Revenue Split

Cost Breakdown

1.29% Investment Vehicle Sale Commissions







Dues and Subscriptions Employee Benefits


58% 91% 33%

Specialized Financial Planning Sales

Legal/Professional Fees


Fees from accounts <5m

Licenses and Fees Office Expenses Payroll Tax



Fees from accounts >5m


Rent Travel Wages

PCFC Case Competition 2014 Elm Advisory Services


ELMâ&#x20AC;&#x2122;S INCOME STATEMENT [Elm Advisory Services LLC] [2013]


Financial Statements in U.S. Dollars

Accounts receivable

Current Assets Cash

Revenue Gross Sales


2,394,530 $

Net Sales


Gross Profit (Loss)



Prepaid expenses


Total Current Assets Long-term investments Total Net Fixed Assets

Advertising Dues and Subscriptions Employee Benefit Programs Legal and Professional Fees











Licenses and Fees Office Expense Payroll Taxes Rent Travel Wages

$ $ $ $ $ $

15,870 12,500 329,150 125,990 23,260 1,235,000

Total Expenses Net Operating Income

Net Income (Loss)


Securities Owned 2,394,530



$952,699 $250,965 $250,965 $1,203,664

Current Liabilities Accounts payable Short-term notes Interest payable Total Current Liabilities

$153,595 35,210 20,963 $209,768

Long-term Liabilities Total Long-Term Liabilities








Shareholders' Equity Capital stock Retained earnings Total Shareholders' Equity TOTAL LIABILITIES & EQUITY

$650,000 128,244 $778,244 $1,203,664


Elm Advisory Services PCFC Case Competition 2014

COMPANY CHALLENGES This section summarizes the company challenges detailed in earlier pages, and consolidates the issues into two categories: market challenges and demographic challenges.

DEMOGRAPHIC Elmâ&#x20AC;&#x2122;s current client base remains limited to Chinese physicians in Manhattan, but Elm must expand if Chen wishes to maintain stable profits and growth into the future. Chen wishes to attract new clients, but must figure out how exactly to draw these clients in, whether that be through expanding his network to other cities around the world or through accepting different client demographics, such as Princeton alumni. Additionally, Chen is attempting to restructure Elm to only serving clients with a net worth greater than one million dollars. How exactly to do this remains unclear. Finally, these changes affect the organizational structure of the company (figure to the right): how will Elm have to adapt its structure in order to achieve these goals?

MARKET The market is increasingly competitive as the current fiscal policies of the developed world are dramatically increasing the assets of wealth management companies while emerging markets are stagnating and increasing costs are taking larger bites out of profits. While Elm initially increased profits in the early stages of its growth, it quickly began to reflect market trends with regards to its returns and assets under management (figure to the right). Understanding how to decrease costs, diversify asset holdings, and draw in new clients is essential for any future growth.

PCFC Case Competition 2014 Elm Advisory Services

CLOSING REMARKS As he sat at his office desk in Manhattan, Jeff had high hopes for the future. He was confident that it was the right time to act on the challenges and opportunities ahead.

conference for managers and wanted to exploit Elmâ&#x20AC;&#x2122;s potential and expand its asset base whilst maintaining his companyâ&#x20AC;&#x2122;s values and ensuring a high level of client satisfaction.

Historically, it takes both effort and time to transform a boutique private wealth management firm into a large, established company that frequently appears in the paper. However, with an established niche in the Manhattan region, Jeffâ&#x20AC;&#x2122;s main focuses are on growth and the future. That being said, Jeff is aware of many of the challenges that lie ahead and is willing to do what it takes to overcome them.

As the future approaches, Jeff requests your expertise in formulating a sustainable and optimal five year growth plan that best meets the four targets mentioned earlier. There are three key factors to consider as you advise Jeff: the potential to acquire new, higher networth clients; the application of an efficient, well-performing investment strategy; and the design of a practical and holistic plan.

Furthermore, Jeff was inspired by the Wichita

Jeff is excited and looks forward to review the suggested solutions.



Elm Advisory Services PCFC Case Competition 2014

Case Writers:

Graphic Design

Darwin Li, PCFC President

Darwin Li, Dhruv Bansal, You-You Ma, Alan Du

Benjamin Huang, PCFC VP Management

Photographs and Images

Eric Huang, PCFC VP Magazine

Maggie Zhang (Princeton Traveler), Daveâ&#x20AC;&#x2122;s Photo Odyssey, Flickr, PWC, McKinsey, WikiCommons

Dhruv Bansal, PCFC AVP Magazine On behalf of the PCFC Case Competition 2014, the writers wish to thank the following people and organizations for their valuable inputs and support throughout the writing process:

Inspiration and Support

The Princeton Corporate Finance Club

Deutsche Bank (Platinum Donor) Fullbridge Program (Platinum Donor) Julis-Rabinowitz Center (Platinum Donor) Bendheim Center (Gold Donor) ORFE Department (Gold Donor) InterviewBay

All the board members and officers who made an effort to contribute to the success of this competition: fundraising, design, editing, and advertising.

Mentoring Tejaswi Patel CEO of Evyavan Advisory Services Kevin Wong, PM at Princeton Asset Management Brad Stanger, Associate at Blackrock

Evyavan Advisory Services

Funding and Support

Disclaimer: Information presented within this case is the responsibility of the writers alone. The case may not be used outside of PCFC Case Competition 2014 and may not be reproduced or publicly quoted without writersâ&#x20AC;&#x2122; consent. Direct questions to

PCFC 2014 Case Competition Case  

Case for Elm Advisory Services. Used in the 2014 Princeton Corporate Finance Club Case Competition.

Read more
Read more
Similar to
Popular now
Just for you