Principles Of Strategic Wealth Management
A useful set of principles for effective long-term wealth management, which can be applied equally well to managing a nest egg of $1 million or $1 billion, regardless of time and family complexity, and whether your ambitions are aggressive or conservative, can be outlined as follows:
1.Take Charge and Do It Early: You must educate yourself about your family finances and decide how to structure family and financial goals so they can become integrated and reinforce one another. If this is not done early, forces such as taxes, fees and inflation can erode your family’s wealth.After you and other family members define your values, you’ll have a basic template in place to develop a long-term strategy.
2.Align Family and Business Interests Around Wealth-Building Goals and Strategies: Creating strong alignment of family members around common goals is critical to ensuring successful implementation of wealth-management strategies and goals –– especially when they are multigenerational.As the Wealth Strategist, your job is to establish a legitimate rationale for people to want to work together. You also must be adept at focusing wealth-management discussions not only on a family’s history and values but also on its vision for the future. It’s equally important to ensure that that advisor interests are aligned with yours.
3. Create a Culture of Accountability: Wealth management is a business activity, and to successfully implement your strategies, you need to put accountability systems and performance metrics in place. You need a benchmark to judge the performance of the Wealth Strategist and the team of advisors.This will reinforce business goals, set expectations and drive the implementation of wealth-creation strategies.
4. Capitalize onYour Family’s Combined Resources: A family’s resources become distributed among its members over time, and as assets become distributed there’s a tendency to manage them separately.The challenge is to figure out how and how much to reassemble these distributed resources so they function more effectively. Disciplined family leadership is key. But this does not only include financial resources.You must also look within to examine the combined strength of family members’ personalities, experience, skills, affiliations and networks.
5. Delegate, Empower and Respect Independence: Supporting family members to identify and pursue challenges that they can call their own, away from the family’s immediate influence, encourages self-reliance and risk-taking. Furthermore, it encourages the personal growth of young adults who can learn to embrace responsibility and develop a sense of self-confidence.
6. Diversify, But Focus: Diversification and focus combine the best of both worlds. Diversification protects your wealth by investing over a broad range of areas, and focus provides the intensity that most people need to succeed in life.Without the focus to develop investment skills that are superior to most professionals, you won’t add value to your investment portfolio.
7. Err on the Side of Simplicity When Possible: The more complex the wealth-management strategy, the more variables you have to worry about managing, and the more difficult it is to reverse course. In addition, these schemes — often highly remunerative for advisors at the time of sale — can subject clients to long-term risks.Therefore, before choosing complex solutions to wealth-management issues, evaluate the simple ones.
8. Develop Future Family Leaders With Strong Wealth-Management Skills: To build and maintain wealth over multiple generations, you must develop future family leaders. However, no person in the next generation should come into the family business without spending at least a decade succeeding outside the family business, preferably in a related field.
Nepotism Can Be A Good
Thing Part of leveraging the scale of wealth is learning to take advantage of talents or business skills that your family members may possess. Putting family talents, skills and resources to good use is every bit as important to sound wealth management as shrewd investing, strategic thinking and the clear enunciation of values.
Unfortunately,Americans have an ambivalent attitude about nepotism.Yet with the right combination of leadership, resources and structures, families can strengthen themselves through a focus on “nepotistic advantage.” This can help to reinforce positive family values and equates privilege with responsibility, ownership, commitment and accountability among family members.
Everything Begins With Values
For most of us, discussing money and wealth is difficult to do, especially in a family context.Yet having these discussions is critical for purposes of wealth management planning and choosing the appropriate investment approaches, vehicles and timeframes to meet your needs.
What do you want to accomplish with your life and your wealth?You might want to:
• Maximize financial security in retirement. You must take charge of managing your wealth if you want to live well throughout your lifetime and pass wealth on to future generations.
• Channel your assets into additional wealth building.Two important things about allocating your capital are: Don’t allocate all your capital to one venture; always diversify your investments to mitigate the risk of large-scale market or business losses. Second, diversify the rest of your assets across a range of investments that have little in common with your career or your speculative business venture.
• Create a special place to bring family together. A vacation home can become an emotional homestead, a place to go on special occasions to nurture family bonds, enjoy a sense of community with those you love and create a retreat from pressures of everyday life.
• Become a collector. Collecting art or other objects can serve many purposes: fun, to build wealth, tax incentives, perhaps a family legacy in its community.
• Donate money and/or time to worthy causes. By “giving back” we strengthen the communities to which we are bound and make them more effective for the generations that follow us.
• Give money and companionship to people you care about. Financial gifts of cash, property, valuable objects or family heirlooms mean more when they celebrate the special relationships between benefactors and beneficiaries that come through shared experience. Bequeathing money across multiple generations goes far beyond normal wealth gifting.To do it well means doing it as part of a contract of values that you and your family establish in this generation and which future generations of your family will respect when it is their turn to be stewards of your wealth and values.
Communicating About Wealth
The family culture you establish will have an impact on your children and grandchildren even if your financial assets do not.Thus, it is important to nurture a spirit of kinship among family members by identifying and reinforcing common family interests and wealth management objectives.This should include all family members who are likely to benefit from it, even the youngest ones.
At the same time, review how wealth is to be used and what responsibilities each member will have. Such open communication is necessary to show the next generation that the privileges of wealth come with responsibilities that include maintaining family values
