Bill, Hillary: Yeesh - think you've handled tough clients? Try fixing first family's financial messes

Sara Hansard and Anna Robaton
Investment News, Page 01, © 1998 Crain Communications, Inc. All rights reserved.

Yes, he's a liar and a cheat. And yes, he's facing impeachment threats. Yet Bill Clinton's globally televised 'fessup -- that he "misled" Americans and his wife and daughter about a "relationship" with Monica Lewinsky which was "not appropriate" and even "wrong" --means more than a damaged political future. It means a damaged financial future, too.

That poses formidable planning and investment challenges -- to put it mildly -- for the elite Boston firm that manages the First Family's money. Pell Rudman Trust Co. has been the independent trustee of the Clinton family's three blind trusts since 1993. In April it also picked up the prestigious account's investment management duties. Hometown colleague Essex Investment Management Co. Inc. resigned the assignment after publicly traded Affiliated Managers Group of Boston bought 68% of it in March. An AMG spokesman confirms the company quit the account because of a conflict of interest under the new ownership, but says it was "no big deal."

Pell Rudman's chairman and CEO, Edward J. Rudman, would say nothing about his $6 billion-asset firm's handling of Mr. and Mrs. Clinton's finances. A spokeswoman for publicly traded United Asset Management, which in 1993 acquired the then $1.4 billion-asset Pell Rudman, also declined comment.

But the Monica mess offers quite the case study in retirement and estate planning. The Clintons, observes Kay L. Maxwell of Maxwell Financial Services Inc. in Dallas, "need a guardian angel in the worst way."

• Mr. Clinton's earnings potential from speeches, board seats and consulting contracts could be crimped by the scandal. "We may be seeing the destruction of his earning capacity," says Dallas attorney Michael McCurley , president of the American Academy of Matrimonial Lawyers.
• Mr. Clinton would lose his post-presidential monetary allowance of $151,800 a year (technically, no president gets a federal pension) if he is impeached by the House and convicted by the Senate. He also could say goodbye to more than $1 million in annual allowances for staff, office, security and travel-related expenses.
• His Arkansas state pension is pure prole: Based on the $36,000 salary Mr. Clinton earned as governor, he'll receive between $3,370 and $5,328 annually at age 65, according to the National Taxpayers Union.
• His legal bills, approaching $6 million, vastly exceed his family's reported assets. And more lawsuits could be coming: "(The Clintons) need to protect themselves against sexual harassment lawsuits -- Monica could still turn on them and say, `Yes, I consented, but he was my boss,' " warns Burt Whitehead, a tax lawyer with Cambridge Advisors LLC in Franklin, Mich.
• He has most of the liabilities incurred by the First Couple, while she reports most of the assets. He'd better pray Hillary Clinton doesn't divorce him. "She is probably madder than a wet hen," says Mr. Whitehead. "She'd likely take everything."
• Even the obligatory book deal could get sticky. Says New York financial adviser Lewis J. Altfest: "I'd tell him to wait on writing his presidential autobiography, because a $5 million deal could be joint assets to be split up during a divorce."
• And even Mrs. Clinton could trigger land mines. "She is part of the debt problem with Whitewater," notes Ms. Maxwell, referring to the Arkansas real estate deal that first attracted prosecutors. "It might be a very delicate balancing act."

The president's blind trust was worth between $50,000 and $100,000 at the end of 1997, according to a disclosure statement filed in May that outlines broad ranges of wealth and offers few details. Mrs. Clinton's blind trust held between $1 million and $5 million (believed to be closer to $1 million, according to an unnamed White House source quoted in a recent Washington Post story). Daughter Chelsea's blind trust contained $50,000 to $100,000.

benchmark beaters

It's not clear exactly how the Clinton family's accounts have fared since 1993. Essex officials would not comment, but the firm's bond, mid-cap growth stock and small-cap growth stock portfolios beat the major indexes with compound annual rates of return of 7.81%, 21.42% and 20.47%, respectively, in the five years ending March 31.

New asset manager Pell Rudman, touts itself in a press release as providing "comprehensive wealth management services to the upper end of the high-net-worth market worldwide." In June it announced a three-year plan to open a Western outpost in Denver and to expand its 100-employee East Coast ranks by 30% in Boston, Washington and Baltimore. In addition, parent UAM will help create a Pell Rudman mid-cap growth fund to be offered in its group of mutual funds.

Pell Rudman's current mid-cap portfolio -- the one the First Family presumably invests in -- holds 70 to 80 stocks in "smaller, less-seasoned companies," according to a company statement, with a median market capitalization of $800 million.

The money manager outperformed the Russell Mid-Cap Growth Index between 1992 and 1996, but in 1997 dipped slightly below the benchmark with a 22.52% return. Yet Pell Rudman has other avenues for spiking its clients' returns. Among its holdings is Denver-based Sovereign Financial Services Inc., a private equity consultant that mines the rich but risky turf of leveraged buyouts.

Considering the 52-year-old Mr. Clinton's relative youth and his recession-free tenure, his financial prospects after leaving office could have been spectacular. But his humiliating admission last week clearly has faded his post-White House prospects in corporate America -- from the bluest of blue chips to a somewhat tawdrier teal.

Once there had been talk of the presidency of Yale University; now the chancellorship of the University of Arkansas may seem more appropriate. Most any Fortune 500 board seat would have been his for the asking; now that, too, seems clipped.

Not that he'll starve. Chicago-based executive recruiter Frederick Wackerle suggests that while the president would not be "at the Michael Jordan level" of executive stardom (earning some $40 million a year) , Mr. Clinton could still be a strong draw for companies with a global and heavily regulatory content, such as those in environmental work or telecommunications.

Board retainers are upwards of $50,000 a year, and board compensation increasingly is being supplanted with stock options, Mr. Wackerle notes. That can add up: Former Reagan administration official Frank Carlucci has sat on nearly 30 corporate boards. Could Mr. Clinton expect as much demand from friendly CEOs? If not, Mr. Wackerle says, an entrepreneurial ex-president can certainly count on consulting fees, a la Henry Kissinger.

Hillary Clinton could command a seven-figure law career, yet Mr. Clinton "has never done any serious law work -- he's been a politician," says Texas lawyer Mr. McCurley. The president also faces losing his law license if convicted of a felony. "To say he's burning his political bridges is probably an understatement."

It's not yet clear whether the donor-supported Clinton Legal Expense Trust will accumulate enough to cover their lawyer bills. The New York Times recently reported the fund has gathered more than $2 million in just six months, relying on friends in Hollywood and other Democratic hotbeds.

The legal fund has not revealed information on its collections, but Peter Lavallee, its administrator in Washington, says the fund is set up as a Crummey trust, which allows contributors to make up to $10,000 a year in donations without having to pay gift tax. Good thing Republicans haven't acted on the president's budget proposal this year to eliminate such trusts from the tax code.

"If they don't raise enough, they're still personally liable," Mr. Lavallee says. Another fund could be formed at some point, he adds.

hell hath no fury...

If more money is raised than is needed, Mr. Lavallee says, contributions would be returned on a last-in, first-out basis. Still, he acknowledges that the president and First Lady are beneficiaries of the trust, and they legally have rights to the money.

Of course, the couple's interests could diverge. And Mrs. Clinton may need to look out for herself.

"She's been just about as humiliated as any woman I've ever dealt with," says Mr. McCurley. "If I were Hillary's lawyer I would say, `Lady, you go back to work and start distancing yourself from him.' "

Diahann W. Lassus, president of Lassus Wherley & Associates in New Providence, N.J., often counsels women contemplating divorce. First thing to do: "Look at assets and look at reducing risk so that you make sure you have the reserves you need. One way might be to reduce exposure to the stock market -- you want to build up your cash reserves."

Divorce settlements have long been based on a division of current assets, but today, she says, planners need to account for the future earning potential of both partners.

"Prenuptial agreements are really important when you are dealing with anything where there is a valuation issue," she adds. "If you don't have some sort of agreement early, it creates total nightmares."

It seems unlikely the newlywed Clintons signed a prenup. But a postnup -- a similar contract made after a marriage -- is a distinct possibility after years of infidelity. A related tactic: put assets into the wife's name, then draft a postnup spelling out how things would be divided.

Then again, says Miami lawyer Maurice J. Kutner, "when you start putting all this down on paper, there isn't much of a marriage left."

Both Clintons, it should be noted, have stated they're committed to making their 22-year marriage work.

Mr. Kutner, head of the American Bar Association's Family Law Section, still would recommend reviewing their assets. "I'd want them all to be jointly titled, so that Bill couldn't control it, dispose of it, lien it, mortgage it, sell it or otherwise deal with it without Hillary's knowledge."

Tax lawyer Mr. Whitehead disagrees: "Get property out of joint names. There can be unlimited (tax-free) gifting between spouses."

If she hasn't already, Mrs. Clinton could create a Q-tip, or qualified terminable interest property trust, to allow her to remain married but to control her property after her death. Mr. Clinton would receive income during his lifetime, but he'd have no say over the principal.

"He couldn't leave it to a new wife or Monica or (Gennifer) Flowers or any of them," says planner Donna Barwick, a lawyer with Lefkoff Duncan Miller Grimes Miller & Barwick PC in Atlanta. "And it wouldn't be available for Kathleen Willey if she came for a loan."

Vineeta Anand of Pensions & Investments contributed to this story.