The Wealth Enterprise:

TREATING THE FAMILY WEALTH AS A FAMILY

BUSINESS

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Smith Family

Family StructureMr. & Mrs. Smith3 Adult Children

$200 Million Net WorthOperating Company Net Worth $100 MillionLiquid Wealth $100 Million

Liquidity/Investment ProfileRelationships With 3 Primary Financial Institutions/Private Banks150 Distinct Investments (Passive, Active & Partnerships)12 Distinct Ownership Structures For Estate Planning Purposes50 Distinct Financial Accounts19 Tax Entities100+ K-1s

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An Interview With The Principals Around The Business Enterprise ($100 Million):

What’s the mission of the company?

What’s the strategy for value creation?

What does your P&L look like?

How much do you spend on critical activities and suppliers to your company?

Do you have high quality MIS to support your decision-making?

What’s your plan for succession in key roles?

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An Interview With The Principal Around The Wealth Enterprise ($100 Million)

What’s the mission and purpose of your wealth?

What’s are the objectives – short term and long term – for your wealth?

Do you have high quality MIS to support your wealth management decision-making?

How do you make decisions around your wealth and who’s involved in decision-making?

What’s your plan for succession and education?

What is your ecosystem of providers, what role does each play, and how much are you paying, all in, to your financial services providers?

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The Wealth Management Paradox

Families that are successful in creating wealth do not always apply the same best practices they use to manage their business enterprise, when managing their personal wealth enterprise

Families often abdicate, rather than delegate, critical wealth management decisions, something they would never do with respect to their operating companies

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Perhaps Another Reason Why, Is That Managing A Wealth Enterprise May Be More Complex Than Managing A Business Enterprise

Business Enterprise Seeks To Maximize Financial Capital

Wealth Enterprise Seeks To Maximize Financial Capital PLUS The Family’s Human & Intellectual Capital

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Managing Wealth As An Enterprise Entails Three Primary Activities

Strategy, Structure & Governance

Wealth Management

Activities

Ecosystem of Providers

Family Wealth

Enterprise

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Strategy, Structure & Governance

Conceptualize wealth as a “business”, NAME it, and map out all the pieces

Establish a mission and strategy – short term and long term

Define decision-making and governance framework for the enterprise

Articulate key roles in the management of the enterprise and who inside and outside the family will play what roles

Be explicit about succession for key roles and have development plans for leaders identified to take on key roles in the future

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Wealth Management Activities

A complex and inter-locking set of activities

Values & Mission

Governance & Education

Investment Advisory (Asset Allocation; Portfolio

Construction; Manager Selection; Performance Measurement)

Financial & Estate Planning and Risk Management

Financial Administration (Expense Management/General Ledger; Cash Flow; Net

Worth; Tax Compliance; Reporting

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Ecosystem Of Providers

Given the complex set of activities – a complex network of providers is often necessary

The ecosystem needs to be managed

Map the current set of providers

Understand fees and manage expenses

Coordinate across providers

Ensure all are working around the family’s “big picture” and in support of the family’s strategy

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Managing Wealth As An Enterprise Means Thinking Strategically About The Ecosystem Of Providers

Understand each provider’s role

Understand your role

Understand the implications

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Understanding Each Provider’s Role

The simple truth: all wealth management firms sound the same in their marketing material

The stark reality: there are fundamental and important differences between wealth managers

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Cutting Through The Clutter: The Key Differences

ManufacturersCreate & Sell ProductsSell To Investors Directly Or Through Distributors (banks, brokerage firms, RIAs)Paid by investors in funds – management fees

DistributorsSell Products To Their ClientsProducts Sourced From Manufacturers

Affiliated Asset Management UnitsUnaffiliated Asset Management Firms (Open Architecture)

Paid by clients and by manufacturers for whom they distribute

AdvisorsAdvise Clients On Which Products To BuyUnaffiliated With A Manufacturer Or Distributor (Ideally)Paid Only By The Clients They Represent (Ideally)

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When Mapping Your Ecosystem – Identify Which Role Each Firm Is Playing

Which firms are “providers”: manufacturers and distributors

Which firms are “advisors”: paid by you to represent you and buy/source for your enterprise

What role do you want to play

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Implications To Your Role Of Working With Each Type Of Advisor

Working Directly With Manufacturers:

Can be economically beneficial by avoiding the added cost of the distribution firms

Sourcing and diligence across all asset classes can be a challengeIntegrating across all providers to be sure they are not working at cross purposes & in concert with your objectives

Need to solve for getting support around overall asset allocation & portfolio construction

Need to solve for aggregated reporting and risk analytics

Need to solve for quality control

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Implications To Your Role Of Working With Each Type Of Advisor

Working With Distributors:Category with which most families have familiarity and longstanding relationships

Conflicts of interest and high costs can be a challenge

Need to solve for being sure the “right” products are being bought at the “right” price for the “right” reasons

Need to solve for aggregated reporting and risk analytics across providers since most families work with multiple “distributor” firms

Need to solve for integration across providers

Need to solve for quality control

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Implications To Your Role Of Working With Each Type Of Advisor

Working With Advisors:

Category which can help families solve for challenges of working directly with manufacturers or distributors

SourcingAvoiding conflicts of interestBuying/NegotiatingAggregated ReportingQuality Control

Requires families to pay an explicit fee

Not all advisors are the same with respect toAllowing you to stay in controlAccommodating your unique constraints and preferencesAccommodating your desire to work with more traditional wealth managers (manufacturers and distributors)

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There Is No “Right” Answer

But thinking strategically about your ecosystem of providers – just as you would about the providers for your business enterprise – is a critical activity

Being clinical about which providers are playing what role and what role you therefore have to play, is essential

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Bottom Line: Making Sure Your Enterprise Management Function Is Explicit & Intentional

Strategy, Structure & Governance

Wealth Management

Activities

Ecosystem of Providers

Family Wealth

Enterprise

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By Thinking Of Their Wealth As An Enterprise, A Family Can Achieve Significant Benefits

Think of developing the family’s wealth as a business or professional endeavor

Manage wealth in a purposeful, strategic manner

Take a greater role in managing the enterprise and those they hire to support them.

Focus on effective decision-making, governance and succession/leadership preparation

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Continued….

Be explicit about all of the activities required to manage wealth, how they are connected, and identify the most effective providers to accomplish each activity

Have robust information systems and reporting that allows them to measure progress and support decision-making

Buy only those products and services that are right for them, at the right price.

info@wefamilyoffices.com I www.wefamilyoffices.com

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