Family Office: Family Businesses, Wealth and the Economy

Regarding family businesses, family wealth, and the economy: What are the drivers of risk management we should all be paying attention to during the current turbulence?

One of the central factors family businesses must contend with, especially during a period of economic uncertainty and volatility, is the successful management of risk. Family businesses and families of wealth are seeking the most effective methods for accurately accessing and effectively responding to all sorts of risk – whether it impacts business operations and productivity, governance, maintaining adequate liquidity, human capital utilization, returns on R&D, protecting brand equity, determining M&A options, or the security of personal assets.

Right now, the family enterprise is challenged to employ the most effective strategies for sustaining its competitive viability while world economies wrestle with the fallout of contraction and issues of globalization. This year, therefore it is imperative that your Financial Advisor is focusing on the nature, function, and management of risk - and it is critical to the family enterprise with its complex mix of tradition and innovation.

One could consider these questions:

What is the most critical risk issue my portfolio faces in this current environment?
How is this issue playing out within the unique context of the family enterprise that may be different than another private or publicly-held organization?
What is the most important macro concern family businesses need to be aware of when the turbulence has finally settled?

Family Offices: What are they?

Family offices are exclusive wealth management firms that usually only accept clients with at least $10-$25M of investible securities. They typically have less total clients; however, spend more time with each client often assisting with tax, estate planning, charitable giving, foundation, and even budget issues in addition to traditional wealth management services. The costs are typically a little higher than a traditional wealth management office but you get more personal comprehensive service and usually a more sophisticated view of portfolio construction with access to alternative investments.

Family office professionals will take the time to ensure your separately managed account investments and Hedge Funds are balanced and in line with your 401k or IRA investments. Their employees are often experienced and sophisticated enough to understand unified managed accounts (umas), and will be able to explain them to clientele so they may be employed where appropriate. While many family offices use hedge fund of funds, family office professionals will often find an individual hedge fund manager that fits you best if they do not already have one that they work with, and ultimately they are known for working harder to make you happy because they only work with a smaller group of core clients. Many high net worth individuals belong to health groups where doctors will take the time to set down with you for a couple hours each quarter or year and talk about your health and habits. This type of highly personal attention is equivalent to what you get in a financial sense at the best family offices.

The Future of the Global Financial System 2009: World Economic Forum

The value of your portfolio is contingent upon macro-economies, is your advisor on the ball, do they know where the world is heading? Watch this video by the World Economic Forum...

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What questions should I ask my Attorney?

1. Are GRATS (Grant or Retained Annuity Trust) a good way to transfer wealth to heirs with minimum levels of taxation?
2. Are IDGTS (Intentional Defective Grantor Trust) an ideal instrument as a seed gift?
3. If I rely on real estate wealth to pay for estate taxes why should I reconsider Life Insurance?
4. Will self-settled trusts help protect me in a downturn?
5. How is a CDAR (Certificate of Deposit Account Registry) protected by the FDIC?
6. Is an intra-family loan a good way to ensure the lowest taxable rate?

Can you Bank on Your Bank?

The reshuffling of the financial cards has seen so many changes recently: Merrill Lynch, Lehman Brothers, Washington Mutual, Neuberger Berman, Wachovia, and a host of Private Wealth Management operations are changing hands. Some of these deals both here and abroad (even in Switzerland) will precipitate significant changes within the banking culture and possibly operational changes for clients. Can you bank on your bank?

Seven Principles to Consider

1.Accept That Uncertainty is the Rule,Not the Exception

When building long-term wealth, periods of uncertainty are the rule, not the exception. However, despite such uncertainty, it is imperative to bear in mind that the long-term progress of the stock market has been upward.

2.Focus on What is Important and Knowable

Since uncertainty is the rule not the exception, it is crucial to focus on what is important and knowable versus important and unknowable. Such an investment approach can help uncover investment opportunities during many different market, economic and political environments.

3.Patience is a virtue.

A patient, buy and hold investment approach is the best way to build long-term wealth. Such an approach allows investors to filter out the noise, maintain their investment strategy and allow the power of compounding to help build wealth.

4.Expect Periods of Disappointment

It is crucial to understand that even top performing investment managers will go through periods of disappointment. By recognizing this fact, you may be less likely to engage in unhealthy investor behaviour and make unnecessary modifications to your long-term investment strategy.

5.Engage in Healthy Investor

Having conviction in the investment managers you entrust your capital to and working with a financial professional can help investors engage in healthy investor behavior.
6.Have an Investment Strategy

Investing is an emotional experience, so develop a “roadmap” to maintain your focus and discipline necessary to build long-term wealth.

7.Set Realistic Return Expectations.

Stocks have historically been the best per-forming asset class for growth of capital over the long term. When planning long-term financial goals, it is important to be a realist,and not an optimist or a pessimist.

High-end luxury real estate....

Several high-end luxury residential developments have hit the skids as developers’ rosy estimates of demand for second and third homes among the ultra-high net worth have proved wrong. Those who purchased land or actually built homes on spec face the possibility of steep losses. Even individuals who are happy with their homes could be in for headaches. Already, several highend luxury developments have run into financial difficulties, raising problems for their homeowners. Are any of my homes in jeopardy?

Several banks have gone hat in hand to sovereign wealth funds

in Abu Dhabi, China and Singapore, seeking to raise capital to offset their recent massive losses. These deals, mostly convertible bonds or convertible preferred stock, have the potential to massively dilute existing shareholders’ stakes when they do convert. Should I sell my positions in the banks that have issued them, or is the earnings-per-share dilution already factored into their current stock prices?