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Family Wealth Management: Seven Imperatives for Successful Investing in the New World Order by Tom McCullough, Mark Haynes Daniell

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Chapter 3

Addressing the Differences between Private and Institutional Investing

The total amount of private wealth is growing quickly around the world, yet much of the investment industry and most of the financial models are still oriented toward the institutional investor, primarily pension funds, insurance companies, endowments, mutual funds, and sovereign wealth funds.

Although there are many similarities between family and institutional investing when both are done well—good process, thorough review of each individual investment, and balanced asset allocation—there are some fundamental differences that can influence how a family works in the management of its financial wealth.

For many families, it is worthwhile to consider carefully the relevance of an institutional investment model for a wealthy family. In fact, private investors who are not aware of the important distinctions between traditional institutional investing and the special issues facing families, and who do not factor them into their planning, may be at more risk than they know.

Summary of the Differences
There are at least seven key differences between institutional investment management and the management of substantial private wealth:
1. Private and family investors are normally taxable, whereas institutions are not. This has a whole range of impacts beyond the obvious diminution of income.
2. Private investors also have very different patterns of fund flows from institutions, with family wealth often ...

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