Bessemer Trust is the largest privately held wealth management firm and widely recognized for its exceptional client service. No real surprise, given the firm's 100-year history catering to the needs of ultra-affluent families. Bessemer's three senior executives-John Hilton, Rob Elliott and Marc Stern-spoke at length with Hannah Shaw Grove, executive editor of Private Wealth, about their respective areas of responsibility and the opportunities ahead.

John A. Hilton Jr.
President and Chief Executive Officer

John Hilton joined Bessemer Trust in 1993 after nearly a quarter-century of financial services experience at Citibank and Merrill Lynch. He was appointed chief operating officer in March 2002 and assumed his current position in November of that year.

HSG:What are the origins of Bessemer Trust?

JAH: Bessemer has just begun its second century. The firm was founded in 1907 by Henry Phipps, a partner of Andrew Carnegie, to manage his and his descendants' wealth. In a letter to his five children, Mr. Phipps expressed a number of principles that have contributed to Bessemer's stability, continued independence and collaborative culture.

HSG:Are the Phipps still involved with Bessemer?

JAH:Very much so. Bessemer is managing the sixth generation of Phipps family assets, and the family still owns a majority of the economic interests and 100% of the voting stock. Other than our chairman and members of the board of directors, however, the Phipps family is not involved in day-to-day management of Bessemer.

HSG: When and why did Bessemer begin to work with other families?

JAH: Although the firm was not originally established to generate profits, the decision to open it to non-family members in the mid 1970s was ultimately driven by the cost of infrastructure. Rather than compromising the quality of the investment professionals, legal counsel and other specialists, the family and the Board sought a way to share the costs with a select group of substantial families with similar financial goals.

HSG: Did that transition have a material impact on the firm's operations or priorities?

JAH: No. From day one, Bessemer was committed to providing the same services to new clients as we had to the Phipps family for our first 70 years. Bessemer also committed itself to serving all clients equally, without any preferential treatment or access when it came to client services, investments or any other opportunity.

HSG: Explain the decision to stay private and how you think that benefits your clients and your employees?

JAH: The family still controls the future of the firm and is Bessemer's largest client. If there is any concern about the quality of the investment results or the service they receive, the Phipps will not replace their wealth management firm. They will replace the executive staff. That degree of client control and accountability can't be found at a public company. Secondly, we believe we can serve our clients better as a private firm because we're not pushed to deliver quarterly earnings. We can make long-term decisions, even if they adversely impact our financial results on a short-term basis. Our clients aren't interested in instant gratification. Most of them have a multi-generational focus and this structure helps us align our interests very closely with theirs. From an employee perspective, remaining private lets us do the things we need to do to help employees develop and to appropriately reward them. Our human capital is one of our greatest assets. By avoiding the turmoil that comes with corporate consolidations, we've enabled our employees to enjoy a real sense of stability. That is rare in our industry today.

HSG: If not earnings, what barometer do the owners use to measure success?

JAH: It's not that earnings are unimportant, but we understand the alternatives and weigh our choices carefully. If we increase Bessemer's earnings by 20%, for instance, that probably won't make a big difference in the lifestyle of the Phipps family. Imagine, however, if an investment in our human capital or infrastructure increased our portfolio returns by a percent or allowed us to come up with a new estate planning idea that saves tens of millions of dollars in taxes. Results like that are much more important to our owners-and to all of our clients.

HSG: What is Bessemer's core competency?

JAH: Our core competencies today are the same as they were 100 years ago: We manage wealth and we manage relationships. From that perspective, we have a simple business model. Clients initially sign on with us because of our competitive investment capabilities, and perceive this to be the nucleus of what we do. Over time, however, clients tend to gain a greater appreciation of our non-investment capabilities. They begin to more fully understand that wealth stewardship services, like educational programs and legacy planning, can be very important to their family's well-being.

HSG: How does that manifest itself?

JAH: Here is a recent example. A client for whom we manage hundreds of millions of dollars recently told me that it's our recognition of his concerns for the future that he values most. He is especially pleased that we have made a sustained effort to develop relationships with his spouse, his children and his grandchildren. Although there are any number of capable organizations that can manage his money, this client is impressed by our interest in helping his family benefit from their wealth beyond the most obvious financial aspects. He perceives this to be ingrained in our culture, and not simply another line item on a task list. For him and many other Bessemer clients, this distinction is not inconsequential.

HSG: Has the expansion into non-investment services been recent?

JAH: Expansion is probably the wrong word. Starting with the original family members, Bessemer has provided a broad range of wealth advisory services to clients for the firm's entire existence. Whether this refers to estate planning and insurance reviews or helping a client sell a business, establish a foundation or purchase a private jet-we've done it all. Services evolve, and go in and out of favor, but the core wealth-related needs of high-net-worth families have been surprisingly constant over the past century.

HSG: Isn't maintaining all of these other services an expensive proposition for Bessemer?

JAH: It's no secret that our business is built on a high-cost model. Since we don't charge separately for each service, you might assume that the narrower a client relationship is, the more profitable it will be but we think that's a shortsighted view. Bessemer enjoys very high client retention rates, and we believe that's due to a combination of competitive investment results, strong wealth advisory services and our multi-generational perspective. Although it may be costly, we are more than willing to maintain a model that builds such deep client relationships.

HSG: Servicing the ultra-affluent takes a high-touch approach. What is your staff-to-client ratio?

JAH: It's about one to three. Roughly speaking, we have 600 employees and 1,800 client relationships. This staff-to-client ratio appears to be one of the best in the industry and allows us to deliver the level of service our clients value.

HSG: Is that sustainable?

JAH: I don't see it changing dramatically, as it is fundamental to the way Bessemer conducts business. We have to manage our growth carefully to preserve our relationships with existing clients. This is another example where our private ownership can make a big difference. It gives us the luxury of moving at a pace that's right for Bessemer and its clients.

HSG: Over the past 20 years, more people have reached millionaire status than ever before. Equity in public or private businesses has helped create more middle-age multimillionaires, and inherited wealth is becoming less dominant. How have those dynamics changed the complexion of your customer base?

JAH: Over time, the average age of our clients has dropped. Nevertheless, if there is considerable wealth at stake, the goals are often preservation first and growth second, regardless of birth date. That makes our history and our capabilities attractive to a certain type of client, rather than a particular age group.

HSG: What is your footprint and how will that expand?

JAH: We have 14 locations, all opened with an eye toward being close to our clients and delivering more customized service at the local level. Twelve are in the U.S. in the major wealth centers, and the other two are in London and the Cayman Islands. We have our eye on a number of cities where we may open offices and recruit established professionals. We'll continue to evaluate strategic alliances as a way to create a presence in, or gain access to, a specific market or geography.

HSG: I've been told that Bessemer operates around five corporate imperatives. Can you elaborate on these?

JAH: The most important is for each employee to act in the best interests of the client and the firm and preserve the unblemished reputation we've built over the past 100 years. The second imperative is to deliver competitive investment results-at Bessemer this means using a wide range of traditional and alternative asset classes to help clients participate meaningfully in strong markets and protect assets when markets are less favorable. The next imperative is to deliver proactive, uncompromising, confidential service to our clients. It's the one area where we have 100% control and employee accountability, so there are no acceptable excuses for poor service. We received the Luxury Institute's number one ranking of private wealth services providers for the past three years. No other wealth manager has even held on to a top-five position during that time. The fourth imperative is to identify, cultivate and retain the best people, so that we can be an effective partner for our clients. I don't say this lightly. We need employees who feel that what they are doing is important, who can handle the authority and the responsibility to make decisions, and who like coming to work in the morning. The fifth and last imperative is profitability. I probably spend the least amount of time on this because I believe that getting the first four imperatives right will lead us to the fifth.

HSG: How are these different from any other firm's mission statement?

JAH: First off, our five corporate imperatives have the endorsement of our family owners, and that speaks volumes. Perhaps more importantly, they are deeply embedded in our culture, and dictate the way we think and act collectively and individually.