Suddenly, rural landowners are wealth managers’ best friends

By Chrissy Kadleck
4:30 am, December 3, 2012

Source: Crains Cleveland Business

After years of cultivating crops, writing off tax losses and living modest, grounded lives, landowners in eastern Ohio are rural kings sitting upon riches beyond their wildest agricultural dreams.
That makes these newly minted “shaleionaires” the most sought-after clients of money managers, bankers and financial planners around the Buckeye State.
From free seminars to word-of-mouth referrals to partnering with local advisers, wealth managers are eager to sign these landowners and help protect, invest and grow their riches from the shale oil and gas play.

It’s quite the turn of the tables for folks who largely have been off the financial radar most of their lives. And signing on the dotted line? Well, that’s not a move many rural and conservative landowners are quick to make.

“The thing that we are really struggling with is convincing (a landowner) that we are more valuable than H&R Block, where they’ve gone to get their taxes done for years,” said Daniel Riemenschneider, accountant and tax partner with Bruner-Cox LLP, who works out of the firm’s Akron office and has developed a practice with oil and gas landowners. “They are skeptical of flashy guys coming into town looking to help them. Their mindset is the flashy guys are looking to help themselves.”

Factor in that some landowners previously have been turned down for loans by the same large banks now courting them, and it makes for the occasional uncomfortable exchange during a seminar, says Mr. Riemenschneider. In the last 18 months, he’s attracted close to a dozen new clients from seminar presentations; one client, from Belmont County, received a whopping $3.8 million lease bonus check.

“At one meeting, one of the residents said to a bank, ‘I came to you looking for a farm loan and you told me ‘no.’ Why would I ever do business with you?’ That’s the kind of stark reality that the banks are all running into … that they have told these people ‘no’ at one point in time,” he said.

Trust trumps everything when it comes to financial relationships, especially in small communities. So it’s not surprising that the financial professionals that shale landowners find most trustworthy are neighbors and people who shop at the same grocery store or grab coffee at the same diner.

CENTERS OF INFLUENCE

Community banks, such as Canfield-based Farmers National Bank, North Canton’s Premier Bank & Trust, and even large institutions with local operations, such as Key Bank, have a distinct edge over banks without an established presence in the area.

In the Mahoning Valley, Farmers has relationships and deposit accounts with about 650 landowners from Mahoning, Trumbull and Columbiana counties.

Kevin Helmick, executive vice president of retail and wealth management at Farmers, attributes the bank’s success to its 125-year presence in the community and the creation of a Shale Resource Team in late 2010. That team brought together the bank’s key wealth advisers, lenders and insurance professionals to become subject matter experts in the shale play.

“This has been such an emotional thing for folks and a time of real disbelief for most of them,” Mr. Helmick said.

“When our clients got their lease payments and actually received the checks, we encouraged them to invest the money short term to take a pause and take a breather,” he said. “We take a team approach to help them understand what they’re about to face in terms of taxes and financial planning.”

Without question, landowners are a very close-knit group of individuals, said Lucia M. Pileggi, senior vice president and Eastern Ohio market manager for Key Private Bank.

“(Where) we felt we would have the most impact is really with those individuals who are already in our market,” Ms. Pileggi said. “For example, in our Eastern Ohio market — where there is a lot of the shale play going on — we have 42 branches.”

Key steered away from the general seminar approach and favored gatherings and efforts targeted at those clients who owned more than 80 acres of land.

In addition, Ms. Pileggi said the bank markets itself through gatekeepers with influence in the community and with landowners — advisors such as attorneys and accountants.

The strategy of Premier Bank & Trust, which has offices in Belmont and Stark counties, is also largely referral based, relying on accountants, attorneys and landowners who refer other landowners to the two-year-old institution.

“We are positioned well, between the Utica and Marcellus, to get us in front of some really nice prospective clients,” said Denise M. Penz, chief operating officer and wealth manager at Premier Bank, which is managing the funds of 20 to 30 landowners.

“Fortunately, we have had a lot of opportunity where we have helped one landowner as part of a group and then been introduced to the majority of the group,” she said. “One of the groups that we have talked with that is all in — if the contract they have negotiated comes to fruition — is about $20 million amongst about 100 landowners.”

Most of these landowners haven’t had a need to work with financial advisors in the past, but now, with their new wealth, need to do more money and estate management.

“There is a lot of excitement for them that this is happening. But with that comes a lot of responsibility, especially from a financial standpoint,” she said.

It’s a whole new set of problems for people who have wished for money all these years, Ms. Penz said. “Now they have it and they are like, ‘Wow, this is a lot more thinking than I expected to have to do.’”

A TAXING BLOW

The biggest financial shock landowners face — after they negotiate the dollars and cents of their mineral rights lease — is the amount of taxes they have to pay.

“If it’s over $380,000, you are going to pay taxes at the top rate, 35% for federal tax. Throw on a 6% state rate and you’re looking at a 41% tax rate,” Mr. Riemenschneider said. “When you tell somebody who has a $1 million lease bonus that they’ve got to send a $410,000 check to the government, they are always shocked by it. The comment that you get back is ‘We didn’t think rich people had to pay taxes,’ because that’s what they hear on TV.”

Many of these landowners have been in situations with struggling farms and agricultural businesses for years and haven’t had to pay taxes, Ms. Penz said. “One of their first questions is, ‘How can I avoid paying tax?’ It scares them.”

There are ways for landowners to avoid paying more tax than necessary. For instance, Mr. Riemenschneider advises his clients that they can save considerable money if they sell the property — but that’s not always a popular option.

“Well, to sell the property, you have to get off the property and typically they don’t want to move,” he said. “They are perfectly happy where they are.”

Setting some aside

Many landowners are aging, Ms. Penz said, and after a life of farming, don’t feel they need the wealth personally, but they want to provide for their family through succession planning, estate planning and creating trusts to preserve the money for future generations.

“Family is everything to them, so it’s something where they are looking to preserve that for the future,” Ms. Pileggi said. “They want to make sure that they have something to pass on and that they have a legacy.”

Another financial concern for landowners is the ability to continue to operate their farm.

“So many of them want to still work,” Ms. Penz said. “The drive is to find out what their ultimate goal is. . . . Not today, not a year from now, but ultimately, what do you want for yourself and your family long term?”