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Family Wealth Management: Seven Imperatives for Successful Investing in the New World Order

Book Description

Introducing a fresh perspective on wealth management, with proven solutions to the challenges of preserving wealth and investing well in turbulent times

Family Wealth Management is coauthored by two experts in the field of private wealth - one, a former director of Bain & Company and the chairman of two of the world's largest family trusts, and the other, a CEO of a leading global family office and professor of finance from University of Toronto. The book introduces you to a unique model of wealth management that produces the desired return outcomes while being consistent with a family's overarching goals and values. The approach combines the best traditional investment and portfolio management practices with innovative new approaches designed to successfully navigate through economic climates both fair and foul. While the authors address the critical "hard" issues of asset management, they also emphasize important "soft" issues of working with families to ensure that actions are congruent with objectives, in alignment with family governance principles and designed to help sustain and grow family wealth over multiple generations.

The authors provide clear guidance on how to master each component.

  • How to establish clear family vision, values, and goals as a critical foundation to a sound wealth management strategy

  • How to establish a practical, integrated investment framework that will ensure a consistent, disciplined approach in all environments

  • How to set a long-term family wealth strategy and define an asset allocation model that will produce the desired

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. Foreword
  7. Preface
  8. Acknowledgments
  9. Introduction and Overview: A Critical Time for Family Investors
    1. Chapter 1: Setting Out a New Approach to Family Wealth Management
      1. Continuity and Change
      2. A Unique Time for Family and Finance
      3. A Comprehensive and Balanced Approach
      4. Family-Centric
      5. Structured and Managed for Multiple Purposes
      6. Based on a Different Model and Practical Framework of Investment
      7. Considering a Goals-Based Approach to Wealth Management
      8. An Integrated, Disciplined, and Documented Approach
      9. Managed by the Horizons, Not the Headlines
      10. Fully Global in Seeking Opportunity
      11. Sustainable and Principled Investing
      12. Integrating the Family Business into Family Wealth Plans
      13. Defining and Managing Risk
      14. Supported by a Fully Aligned, Effective, and Efficient Ecosystem
      15. Monitoring Performance and Cost against Internal Goals and External Benchmarks
      16. Family Engagement and Education
      17. An Integrated and Holistic Approach
      18. Consistent with Family Approach to Governance and Leadership
      19. Business Family Parallel
      20. Unchanging Purpose in a Changing World
    2. Chapter 2: Arriving at a Point of Inflection in the History of Family Wealth
      1. A Point of Inflection
      2. A Century of Dramatic Changes in Family Fortunes
      3. Ghosts of a Gilded Era
      4. Losing Family Wealth and Stature
      5. Vast and Rapid Accumulation of Wealth
      6. Three Generations of Crisis and Challenge
      7. Past the Point of No Return
      8. Where We (Thought We) Were
      9. All Good Things Must Come to an End
      10. The Great American Wealth Implosion
      11. A Crisis of Confidence in Past Approaches
      12. Differing Perspectives
      13. Short-, Medium-, and Long-Term Change
      14. Some Old Investing Truths Remain Relevant in the New World Order
      15. Resetting Best Practice—and “Next Practice”—in a World of Change
      16. Wide Range of Potential Outcomes
    3. Chapter 3: Addressing the Differences between Private and Institutional Investing
      1. Family Risk and Opportunity
      2. Taxation
      3. Cash Flow Patterns
      4. Family Complexity and Influence
      5. Behavioral Biases
      6. Identifying and Managing the Risks of the Family as a Social Unit
      7. The Challenge and the Opportunity
    4. Chapter 4: Reinforcing the Importance of a Disciplined Investment Process
      1. Start with the End in Mind
      2. The Tyranny of the Urgent
      3. Mastering the Phases of Family Wealth Strategy
      4. Imperative 1: Establish Family Vision, Values, and Goals
      5. Imperative 2: Set a Practical Framework for Family Investment
      6. Imperative 3: Set a Long-Term Family Wealth Strategy and Define the Asset Allocation Model
      7. Imperative 4: Draft the Investment Policy Statement and Refine Investment Tactics
      8. Imperative 5: Monitor Performance and Respond to the Need for Change
      9. Imperative 6: Select and Manage an Ecosystem of Trusted Financial Advisors
      10. Imperative 7: Engage and Educate the Family
      11. Process Objectives and the Definition of Success
  10. The Seven Imperatives
    1. Imperative 1: Establish Family Vision, Values, and Goals
      1. Chapter 5: Documenting Family Philosophy, Vision, and Values
        1. Understanding Context and History
        2. What Is Family Culture?
        3. No Single Approach
        4. Defining a Clear Philosophy of Family Wealth
        5. Balancing Different Views
        6. Immigrants and Natives to the Land of Wealth
        7. Consensus and Coexistence
        8. Investment Implications
        9. Creating a Family Vision
        10. Family Values
        11. Values Relevant for Investing
        12. Determining an Investment Profile
        13. Capabilities and Constraints
        14. Financial Scale, Sophistication, and Experience
        15. Trusts’ Terms and Letters of Wishes
      2. Chapter 6: Determining the Purpose of Wealth and Setting High-Level Financial Goals
        1. Sample Family Goals
        2. Hierarchy of Goals
        3. Lifetime-Legacy Approach
        4. Lifetime Requirements
        5. Legacy Goals
        6. Combining Lifetime and Legacy Assets in a Single Portfolio
        7. Determine the Family Balance Sheet and Range of Potential Options
        8. The Family Balance Sheet
        9. Key Questions for Family Investors
      3. Chapter 7: Structuring Assets and Aligning Investments to Serve Multiple Purposes
        1. Multiple Nonfinancial Purposes to Consider as Well
        2. Dividing the Pool
        3. Institutionalizing Values and Opportunities across Generations
        4. Trusts
        5. Matching Form to Purpose
        6. Corporations and Companies
        7. Partnerships and Dedicated Fund Structures
        8. LLCs and LLPs
        9. Other Vehicles
        10. Multijurisdictional Approaches
        11. Tax Obligations and Options
        12. Types of Taxes
        13. Marital Issues
      4. Chapter 8: Integrating the Family Business into Wealth Management Strategy
        1. Definition of a Family Firm
        2. Evolving Role Across Generations
        3. Differing Risk Profiles
        4. Emotional Ownership
        5. Family Business Performance and Portfolio Consequences
        6. Creating Liquid Family Wealth through Sale of a Family Business
    2. Imperative 2: Set a Practical Framework for Family Investment
      1. Chapter 9: Rethinking Modern Portfolio Theory, Considering Goals-Based Wealth Management
        1. Historic Background to Asset Allocation
        2. The Traditional “60–40”
        3. Firmly Focused on Family Goals
        4. The Rise of Goals-Based Wealth Management
        5. Suitable, but Is It Optimal?
      2. Chapter 10: Reviewing Different Approaches to Asset Allocation
        1. The Evolution of Asset Allocation
        2. Core and Satellite
        3. The S-Curve: Balancing Risk and Return, Short and Long Term
        4. The (Alternative) Time Dimension
        5. Opportunity and Choice
        6. Ivy League Lessons
        7. The Role of Scenario Planning
        8. Holistic and Active Portfolio Management
        9. Best (and Next) Practice: The Expert Family Office’s Approach to Investing
        10. Choosing a Framework That Is Right for Each Family
      3. Chapter 11: Comprehensive Risk Management
        1. Old Tools Not Sharp Enough for New Challenges
        2. Black Swan Events
        3. What Is Risk?
        4. The Evolution of Risk
        5. Financial Risks
        6. Family Risks
        7. Less Stability in the New World Order
        8. Government Overspending
        9. Tax Climate Heating Up
        10. The Starter Kit: Four Basic Principles of Risk Management
        11. What Cannot Be Controlled?
        12. What Can Be Controlled?
    3. Imperative 3: Set a Long-Term Family Wealth Strategy and Define the Asset Allocation Model
      1. Chapter 12: The Elements of Long-Term Strategy
        1. Components of the Plan
        2. An Integrated Framework
        3. Integrated Wealth Management
        4. Starting with High-Level Family Objectives
        5. Legacy Assets
        6. Cash Flow Forecast
        7. The Core Role Played by Cash Flow
        8. Other Factors
        9. Asset Allocation and Long-Term Strategy
        10. Indicative Allocation
        11. Keeping Up with the Changes
        12. Planning Constraints
      2. Chapter 13: Investing for the Future: Mega-Themes and Principled Investment Management
        1. Trends and Opportunities
        2. Mega-Theme Opportunities
        3. Principled and Sustainable Investing
      3. Chapter 14: Long-Term Strategy Document (Example)
        1. Long-Term Strategy (LTS): The Reynolds Family
        2. The Family Context
        3. Family Goals and Objectives
        4. Family Balance Sheet
        5. Long-Term Strategy
        6. Family Elements of Long-Term Strategy
        7. Family Financial Ecosystem and Advisor Selection
        8. Economic and Market Perspectives
        9. Asset Allocation and Investment Policy
        10. Asset Classes and Investment Strategies
        11. Operational Considerations
        12. Performance Reporting and Risk and Cost Management
    4. Imperative 4: Draft the Annual Investment Policy Statement and Refine Investment Tactics
      1. Chapter 15: Drafting the Annual Investment Policy Statement and Refining Investment Tactics
        1. Investment Universe and the Role of Asset Classes
        2. Changing Role of Asset Classes
        3. Drafting the Investment Policy Statement
        4. The Value of Simplicity
        5. IPS as the Bridge between Insight and Action
      2. Chapter 16: Rethinking the Role of Traditional Asset Classes
        1. Cash and Fixed Income
        2. Expected Returns from Fixed Income
        3. Range of Strategies
        4. Past and Future Returns
        5. Why Hold Bonds at All?
        6. Equities
        7. Expected Return from Equities
        8. Reversion to the Mean
        9. Can Investors Outperform the Indices?
        10. The Value of Value Investing
        11. Alternatives to Traditional Assets
      3. Chapter 17: Assessing Alternative Assets and the Search for Recurring Alpha
        1. Interest in Alternatives
        2. Alternate Views about Alternative Assets
        3. Performance Shortfalls
        4. Real Estate
        5. Private Equity
        6. Infrastructure
        7. Credit Strategies
        8. Hedge and Absolute Return Funds
        9. Swaps, Derivatives, and Structured Notes
        10. Commodities
        11. Foreign Exchange
        12. Direct Strategies
        13. Islamic and Other Religious Products
        14. Collectibles
        15. Exotica and Passion Investing
        16. A Broader Search for Alpha and Creative Alternatives
      4. Chapter 18: Selecting Individual Investments and Investment Managers
        1. Issues to Consider
        2. “The Five Ps” of Investment Manager Evaluation
        3. Documentation and Discipline
        4. Initial Allocation and Tactical Decisions
      5. Chapter 19: Investment Policy Statement (Example)
        1. Investment Policy Statement—the Reynolds Family
    5. Imperative 5: Monitor Performance and Respond to the Need for Change
      1. Chapter 20: Monitoring Performance against Internal Goals and External Benchmarks
        1. Investment Manager Monitoring
        2. Benchmarks
        3. Analytical Tools
        4. Concerns with Standard Statistics
        5. Reporting to Multiple Stakeholders
        6. Other Reports
        7. Investment Policy Statement Review
        8. The Family Wealth Strategic Dashboard
        9. What Gets Measured
      2. Chapter 21: “White Water Investing” and the Management of Wealth in Turbulent Times
        1. Adapting to Change
        2. White Water and Whitecaps
        3. Sailing with the Right Crew
        4. Throttle Back
        5. Proceed with Caution—and Increase Sensitivity to Risks
        6. Cross-Check
        7. Hold More Frequent Reviews with More Detailed Reporting
        8. Remain Flexible
        9. Batten Down the Hatches
        10. Ensure That the Hull Is Sound
        11. Jettison Unwanted Cargo
        12. Make Needed Change
        13. Stay Ahead of or Sail around the Worst Storms
        14. Seek Safe Harbors
        15. Pick Up Valuable Flotsam
        16. Keep Your Crew Focused and Content
        17. Resume Full Speed When the Crisis Is Over
    6. Imperative 6: Select and Manage an Ecosystem of Trusted Financial Advisors
      1. Chapter 22: Designing the Ecosystem and Selecting Advisors
        1. Managing the Ecosystem
        2. A System Centered on the Family
        3. The Family Center
        4. The Inner Circle of Trusted Advisors
        5. Network of Selected Professionals
        6. What Is Wrong with the Current System?
        7. Chief Investment Officer
        8. Investment Committee
        9. Selecting and Managing Advisors
        10. Individual Elements and Holistic Team
      2. Chapter 23: The Role of the Family Office
        1. Typical Family Office Activities
        2. Rationale for Having a Family Office
        3. Comprehensive Wealth Management
        4. Administration, Reporting, and Family Services
        5. Objective Advice and Counsel
        6. Family Office as Repository of Values
        7. Family Office Services
        8. Internal or External?
        9. Organizing and Outsourcing the CIO Function
        10. Choosing the Right Multifamily Office
        11. Separate from the Family Business
        12. Range of Costs
        13. Cautions
        14. A Focus on the Family’s Objectives
    7. Imperative 7: Engage and Educate the Family
      1. Chapter 24: Determining the Right Wealth Distribution Strategy
        1. The Financial Perspective
        2. The Family and Individual Perspective
        3. Philosophy, Practicalities, and Policy
        4. Hard Issues in Distribution Policy
        5. A Sustainable Rate of Withdrawal
        6. Reculer pour Mieux Sauter
        7. What Is the Right Amount to Leave to an Heir?
        8. How Much Is Too Much?
        9. At What Age?
        10. Practical Distribution Options
        11. Milestone Methodology
        12. Making Their Own Way
        13. Criteria and Values
      2. Chapter 25: Preparing the Family for Successful Management and Transfer of Wealth
        1. A Tidal Wave of Wealth
        2. Engagement and Education
        3. Emotional Ownership
        4. What Do We Need to Learn?
        5. Checklist for Financial Education
        6. Engagement, Education, and Experience
        7. Family Structures
        8. Costs of Disengagement
        9. History and Values
        10. Understanding and Engaging with the Full Definition of Wealth
        11. How Can We Best Learn What We Need to Know?
        12. How Much Should Be Invested in Family Education and Engagement?
        13. Two Key Questions
        14. A Shared Responsibility
        15. Two Sides of the Coin
  11. Conclusion
    1. Chapter 26: Pulling It All Together: The Successful Management and Transfer of Wealth Across Generations
      1. Serving Multiple Family Purposes
      2. Adopting a New Approach
      3. Integrated Approach
      4. Achieving Consistently Superior Returns
      5. Successful Transfer of Wealth Across Generations
      6. Hope Is Never a Strategy
  12. Bibliography
  13. List of Essay Writers
  14. List of Figures and Tables
  15. About the Authors
  16. About the Raffles Family Wealth Trust
  17. About Northwood Family Office
  18. Index