Ultra-High-Net-Worth Investors: Preparing for What's Ahead
Consider the future and how to make your wealth work on your behalf
Strategic Planning
Strategic Planning
Family Office
Ultra-High-Net-Worth Investors: Preparing for What's Ahead
Consider the future and how to make your wealth work on your behalf
Strategic Planning
Strategic Planning
Family Office
Strategic Planning
Typical Needs of Wealthy Investors
We have observed some typical needs and considerations faced by those with substantial wealth. These needs broadly result from one's goals and the thought processes, resources, and structures to maximize a family's satisfaction. Here we discuss some of those needs and approaches used to achieve them.
Strategic Planning
Typical Needs of Wealthy Investors
We have observed some typical needs and considerations faced by those with substantial wealth. These needs broadly result from one's goals and the thought processes, resources, and structures to maximize a family's satisfaction. Here we discuss some of those needs and approaches used to achieve them.
Scope of Needs and Required Expertise
Wealth management must follow your priorities, preferences and personality.
In general, we find that wealthy individuals and families often express or seek some combination of the following attributes (in no particular order):
-
Occasional large capital purchases for personal and aesthetic enjoyment (house, boat, art, etc.)
-
Ongoing annual expenses for living/lifestyle and overhead
-
Support for family, especially their children, during the parents’ lifetime and beyond
-
Philanthropic interests and activities, again during their lifetimes and potentially beyond
-
Given the above, an investment goal of generating sufficient returns (after investment costs and taxes) to support outlays and protect and grow portfolio value over time
-
An ongoing ownership interest in their foundational business/asset/activity (usually the source of the original wealth) and a potential need to divest/diversify this over time
-
Comfort accepting tax obligations but with a desire to structure and manage affairs to minimize avoidable tax “leakage”
-
Freeing up time for high-priority activities and interests, often translating into a desire for administrative and advisory support. In other words, increasing focus on what matters while avoiding unnecessary burdens
-
A long-term view, including with respect to investment horizon, and as a result, some tolerance for near-term volatility and illiquidity if part of a careful plan to manage risk
-
Greater simplicity, wherever possible
Individuals and families will have different takes on each of these and place different weights on their importance (up to indifference).
But, on balance, the goals and preferences outlined above merit consideration of:
Some of the activities above are up-front exercises with only an occasional need for review and updating, while others are ongoing.
Resources and Infrastructure
In managing these activities, a central question arises:
Which are best served by engaging third-party providers, and which may be better provided by dedicated (in-house) staff?
Generally, one-time or episodic needs for advice or execution are also those that require the most specialized expertise. These almost always involve engaging third-party expert professionals – e.g. attorneys and accountants – as the most effective route for estate planning (and legal structure more generally) and tax matters.
While often more expensive from an hourly perspective (vs. in-house), outside experts are a variable cost and offer two additional benefits. Their specific expertise is often more current due to their work serving other clients on similar issues, and they can add additional professional resources when needed (“power-by-the-hour”).
It will come as no surprise that resources needed to support a family’s day-to-day interests and activities differ dramatically, reflecting their varying priorities, preferences and personalities.
Thus, the depth of support and engagement with philanthropic activities or managing personal property, for example, will depend entirely on where such things sit in your hierarchy of priorities.
On the other hand, administrative support is almost always needed and ongoing. These activities often include basic things like book-keeping, bill-paying and paperwork, among others. Universally, our clients want to free up time from tasks like these, so it’s an early area of focus.
We elaborate on the investment portfolio here as one of our core competencies.
Its strategy, oversight and implementation (managed internally or by outside advisors), should be a broad-scope and dynamic activity involving:
Only the very largest Family Offices – of perhaps $2 billion or more of investible assets, in our estimation – may have sufficient scale to merit hiring an in-house team of investment professionals and related staff to carry out all these functions. So private families and individuals are usually best served by using a third-party investment advisory firm, which in turn researches and recommends specialist portfolio managers.
What Should the Solution Look Like?
The structures, activities and resources brought to bear to plan and execute solutions should be tailored to your needs reflecting your priorities, preferences and personality.
There are lots of ways to do this, but, in all cases, harmony and coordination are the keys to a good solution.
Expert professionals naturally tend to “stay in their lanes,” often leaving a client to seek advice from various perspectives (such as whether to sell an asset and incur taxable gains to achieve potentially higher returns). So, the principals (individuals or families) must develop and communicate an overarching vision of their goals and priorities to guide those professionals developing, weighing and integrating advice to achieve the best result.
As another example, consider cash flows. Decisions about the types of investments, their proportions, specific characteristics, liquidity, and resulting anticipated investment cash flows may influence distributions and the ability to support the owners’ lifestyle and other plans. Therefore, investment decisions must reflect the principals’ vision. Similarly, when designing investment strategies and plans, investment advisors should seek input from tax advisors when selecting specific investment vehicles (e.g., onshore vs. offshore) and their place in your ownership structure based on the mix of expected return from the underlying investments (e.g. income versus capital gains).
The key concept is a “hub” to connect the various experts at the ends of the “spokes.” You, dedicated Family Office professional leadership, or your wealth advisor may play that central role. The selection of functional experts (including those from your existing professional relationships) should follow and be consistent with that decision.
Scope of Needs and Required Expertise
Wealth management must follow your priorities, preferences and personality.
In general, we find that wealthy individuals and families often express or seek some combination of the following attributes (in no particular order):
-
Occasional large capital purchases for personal and aesthetic enjoyment (house, boat, art, etc.)
-
Ongoing annual expenses for living/lifestyle and overhead
-
Support for family, especially their children, during the parents’ lifetime and beyond
-
Philanthropic interests and activities, again during their lifetimes and potentially beyond
-
Given the above, an investment goal of generating sufficient returns (after investment costs and taxes) to support outlays and protect and grow portfolio value over time
-
An ongoing ownership interest in their foundational business/asset/activity (usually the source of the original wealth) and a potential need to divest/diversify this over time
-
Comfort accepting tax obligations but with a desire to structure and manage affairs to minimize avoidable tax “leakage”
-
Freeing up time for high-priority activities and interests, often translating into a desire for administrative and advisory support. In other words, increasing focus on what matters while avoiding unnecessary burdens
-
A long-term view, including with respect to investment horizon, and as a result, some tolerance for near-term volatility and illiquidity if part of a careful plan to manage risk
-
Greater simplicity, wherever possible
Individuals and families will have different takes on each of these and place different weights on their importance (up to indifference).
But, on balance, the goals and preferences outlined above merit consideration of:
Some of the activities above are up-front exercises with only an occasional need for review and updating, while others are ongoing.
Resources and Infrastructure
In managing these activities, a central question arises:
Which are best served by engaging third-party providers, and which may be better provided by dedicated (in-house) staff?
Generally, one-time or episodic needs for advice or execution are also those that require the most specialized expertise. These almost always involve engaging third-party expert professionals – e.g. attorneys and accountants – as the most effective route for estate planning (and legal structure more generally) and tax matters.
While often more expensive from an hourly perspective (vs. in-house), outside experts are a variable cost and offer two additional benefits. Their specific expertise is often more current due to their work serving other clients on similar issues, and they can add additional professional resources when needed (“power-by-the-hour”).
It will come as no surprise that resources needed to support a family’s day-to-day interests and activities differ dramatically, reflecting their varying priorities, preferences and personalities.
Thus, the depth of support and engagement with philanthropic activities or managing personal property, for example, will depend entirely on where such things sit in your hierarchy of priorities.
On the other hand, administrative support is almost always needed and ongoing. These activities often include basic things like book-keeping, bill-paying and paperwork, among others. Universally, our clients want to free up time from tasks like these, so it’s an early area of focus.
We elaborate on the investment portfolio here as one of our core competencies.
Its strategy, oversight and implementation (managed internally or by outside advisors), should be a broad-scope and dynamic activity involving:
Only the very largest Family Offices – of perhaps $2 billion or more of investible assets, in our estimation – may have sufficient scale to merit hiring an in-house team of investment professionals and related staff to carry out all these functions. So private families and individuals are usually best served by using a third-party investment advisory firm, which in turn researches and recommends specialist portfolio managers.
The structures, activities and resources brought to bear to plan and execute solutions should be tailored to your needs reflecting your priorities, preferences and personality.
There are lots of ways to do this, but, in all cases, harmony and coordination are the keys to a good solution.
Expert professionals naturally tend to “stay in their lanes,” often leaving a client to seek advice from various perspectives (such as whether to sell an asset and incur taxable gains to achieve potentially higher returns). So, the principals (individuals or families) must develop and communicate an overarching vision of their goals and priorities to guide those professionals developing, weighing and integrating advice to achieve the best result.
As another example, consider cash flows. Decisions about the types of investments, their proportions, specific characteristics, liquidity, and resulting anticipated investment cash flows may influence distributions and the ability to support the owners’ lifestyle and other plans. Therefore, investment decisions must reflect the principals’ vision. Similarly, when designing investment strategies and plans, investment advisors should seek input from tax advisors when selecting specific investment vehicles (e.g., onshore vs. offshore) and their place in your ownership structure based on the mix of expected return from the underlying investments (e.g. income versus capital gains).
The key concept is a “hub” to connect the various experts at the ends of the “spokes.” You, dedicated Family Office professional leadership, or your wealth advisor may play that central role. The selection of functional experts (including those from your existing professional relationships) should follow and be consistent with that decision.
Continue reading Ultra-High-Net-Worth Investors: Preparing for What's Ahead
The term “Family Office” is often used with differing meanings. We view the concept of a Family Office as a network of resources and activities that serve wealthy individuals or families – its form can take many shapes. So, the questions become: what are those needs and how to create, organize and coordinate that ecosystem to best meet them?
Family Office
Understand the key functions of Family Offices: which aspects are best suited to highly qualified third-party providers and which to dedicated staff. Some ways to think critically about directing and coordinating a family office network.
Continue reading Ultra-High-Net-Worth Investors: Preparing for What's Ahead
The term “Family Office” is often used with differing meanings. We view the concept of a Family Office as a network of resources and activities that serve wealthy individuals or families – its form can take many shapes. So, the questions become: what are those needs and how to create, organize and coordinate that ecosystem to best meet them?
Family Office
Understand the key functions of Family Offices: which aspects are best suited to highly qualified third-party providers and which to dedicated staff. Some ways to think critically about directing and coordinating a family office network.
