Advising Ultra-affluent Clients and Family Offices

by Pompian, Michael M.

• ISBN13: 9780470282311
• ISBN10: 0470282312
• Edition: 1st
• Format: Hardcover
• Copyright: 2009-05-04
• Publisher: Wiley

Summary

Praise for Advising Ultra-Affluent Clients and Family Offices"Michael Pompian's book Advising Ultra-Affluent Clients and Family Offices is noteworthy for its comprehensiveness. Michael combines 'the big picture' with detailed, prescriptive, and actionable strategies; advisers to wealthy families will receive a detailed understanding of how a quickly evolving landscape impacts their business and its implications for their clients."-John Benevides, President, Family Office Exchange"This book should be on the reading list of anyone who wants to be a full-fledged professional in our industry. Michael Pompian has wisely chosen to focus on practical descriptions and recommendations; in my view this is a great plus, as we need more educational resources in this field. Congratulations. The book is well worth reading."-Jean L.P. Brunel, CFA, Managing Principal, Brunel Associates, LLC"Ultra-affluent clients want information and advice integrated and in real time. So planning, investing, and measuring become a continuous process. This is very hard to do. Michael Pompian articulates a clear and insightful road map which outlines the process, components, and human factors needed to create a sustainable world-class wealth management program-both advisers and wealth owners would be wise to follow Michael's lead."-Stephen Martiros, founder, Summitas (www.summitas.com) Managing Partner, CCC Alliance (www.cccalliance.com)"As wealthy families become more globalized, their needs for wealth preservation and growth have become more complex and sophisticated in times of financial uncertainty. Michael Pompian has crafted an insightful and comprehensive guide for enhancing your own capabilities and awareness on how to advise the most demanding clients. A must-read for all financial advisers!"-Dr. Kurt Moosmann, MBA TEP CFP; cofounder and Managing Partner of Dara Capital Ltd., Zurich, Switzerland"Without incorporating the critical components of effective family governance and the awareness of generational and behavioral issues, families of wealth and their advisers are operating blind in their wealth management pursuits. Michael Pompian's book gives both advisers and family members essential insights for discovering the risk factors they must consider in today's environment and in finding the resources required to provide consummate solutions."-Lisa Gray, graymatter Strategies LLC, author of The New Family Office and Generational Wealth Management"Advising Ultra-Affluent Clients and Family Offices is a valuable 'handbook' that covers all the major areas of wealth management. While Mr. Pompian has written the book primarily for wealth advisers, Advising Ultra-Affluent Clients and Family Offices will provide invaluable insights to ultra-affluent individuals and families, particularly those who are thinking about setting up a family office or becoming clients of a multifamily office."-Paul R. Perez, CFA, Managing Director, Family Advisory Services, Northern Trust"I like the way Michael Pompian presents this material. It covers the waterfront with a clear, concise, and compelling treatment. This book will prove useful for family members and family office executives. I especially admire the multigenerational orientation."-Bradley G. Fisher, CEO, Springcreek Advisors LLC (Multi-Family Office), Corte Madera, California

Author Biography

Michael M. Pompian, Cfa, Cfp, is the director of the Private Wealth Consulting Group for Hammond Associates-based in St. Louis, Missouri-which consults to over $55 billion. He works with some of the largest family offices in the United States. Prior to joining Hammond Associates, Pompian was a wealth management adviser with Merrill Lynch, a private banker with PNC Private Bank, and served on the investment staff of a family office. He earned an MBA from Tulane University and holds a BS in management from the University of New Hampshire. Pompian is a member of CFA Institute and the New York Society of Securities Analysts. He is also the author of Behavioral Finance and Wealth Management (Wiley & Sons). Pompian is married with three sons and can be reached at [e-mail].

Table of Contents

Foreword	p. xiii
Preface	p. xv
Acknowledgments	p. xvii
Introduction to Advising Ultra-Affluent Clients and Family Offices	p. 1
Who Are the Ultra-Affluent?	p. 3
Defining the Ultra-Affluent	p. 5
Quantifying Ultra-Affluence Among Total Global Wealth	p. 10
Looking to the Future	p. 11
A World of Opportunities for Advisers	p. 17
Understanding the Mindset of the Ultra-Affluent Client	p. 19
Why Advising the Ultra-Affluent is Different	p. 20
What Ultra-Affluent Clients Value in and Adviser	p. 23
Building Relationships by Asking Questions and Listening to the Answers	p. 29
Matching Client with Adviser	p. 32
Consultant Questionnaire	p. 33
Conclusion	p. 37
Wealth Attitudes, Aspirations, and Investor Behavior of Ultra-Affluent Clients	p. 39
Family Aspirations	p. 40
Wealth Attitudes of Ultra-Affluent Clients	p. 42
Where Psychology Meets Finance	p. 47
Investor Biases	p. 48
Conclusion	p. 60
Noninvestment Best Practices	p. 61
The Challenges Associated with Wealth	p. 61
Guidelines for Sustaining Multigenerational Wealth	p. 63
Conclusion	p. 71
Investment Strategies for Ultra-Affluent Clients and Family Offices	p. 73
Practices of the Best Investment Organizations	p. 75
Differences between Endowments and Private Investors	p. 76
Investment Committees	p. 77
Investment Policy Statements	p. 82
Key Considerations for Portfolio Oversight	p. 88
Conclusion	p. 93
Asset Allocation Considerations for Ultra-Affluent Clients and Family Offices	p. 95
What is Asset Allocation?	p. 96
The Importance of Assumptions in the Asset Allocation Selection Process	p. 97
The Importance of Asset Allocation	p. 99
Considerations in Asset Allocation for Individual Investors	p. 100
Domestic and International Equity	p. 111
Introduction to U.S. and International Equity Securities	p. 112
The Five-Step Equity Strategy Process	p. 115
Domestic and International Bonds	p. 135
Introduction to Bonds	p. 137
Descriptions of Bond Asset Classes	p. 141
Private Equity	p. 159
What Is Private Equity and How Does It Work?	p. 162
Three Primary Types of Private Equity Investments	p. 166
Creating a Customized Private Equity Program	p. 172
Hedge Funds	p. 179
What Is a Hedge Fund?	p. 180
Hedge Fund Investing by UACs and Family Offices	p. 185
A History of Hedge Funds	p. 187
The Legal Environment of Hedge Funds	p. 189
Hedge Fund Strategies	p. 191
Manager Selection	p. 202
Real Assets	p. 203
The Portfolio Benefits of Real Assets	p. 204
Real Estate: A Long-Term Inflation Hedge	p. 205
Natural Resources	p. 210
Multigenerational Considerations for Ultra-Affluent Clients and Family Offices	p. 223
Selecting an Adviser	p. 225
Trust: The Key Ingredient	p. 226
How UACs Select an Adviser	p. 228
Questions for Prospective Advisers	p. 234
Conclusion	p. 237
Selecting a Custodian and Investment Vehicle Structure	p. 239
Custodial Services	p. 239
Investment Vehicle Structure	p. 250
Conclusion	p. 257
Considerations for Creating a Family Office	p. 259
What is a Family Office?	p. 261
Challenges of Wealth	p. 262
Practical Reasons to Create a Family Office	p. 264
Challenges of Running a Family Office	p. 265
Services Provided by a Family Office	p. 267
Administrative Considerations for Establishing a Family Office	p. 268
Considerations for Establishing a Private Trust Company	p. 274
Conclusion	p. 277
Wealth Transfer Planning	p. 279
Estate Planning Basics	p. 282
Conclusion	p. 295
Special Topics for Ultra-Affluent Clients and Family Offices	p. 297
Concentrated Equity Risk Management	p. 299
What Constitutes a Concentrated Equity Position?	p. 300
Concentrated Stock Risk Minimization Strategies	p. 304
Conclusion	p. 315
Family Governance	p. 317
Generational Division	p. 318
Family Governance: An Essential Part of Successfull Wealth Transfer	p. 319
The Incredible Family	p. 320
Policies	p. 326
Stages of Development	p. 327
Conclusion	p. 328
Risk Management and Asset Protection	p. 331
Family Office Risk Management	p. 332
Individual Family Member Risk Management	p. 337
Legal Assert Protection	p. 341
Conclusion	p. 344
Philanthropy	p. 345
Philanthropic Strategy Development through Asking Questions	p. 347
Mission Statement	p. 348
Implementation of Philanthropic Strategy	p. 349
Philanthropic Investing	p. 352
Best Practices of Giving Large Gifts to Colleges and Universities	p. 355
Appendix: The Next Generation: Redefining the Philanthropic Landscape	p. 358
Multigenerational Asset Allocation Strategies	p. 367
Different Asset Allocations for Different Generations	p. 369
Single Allocation for an Entire Family	p. 370
Customized Asset Allocation by Generation or Family Unit	p. 371
Asset Allocation Targeting	p. 374
The Behavioral Finance Approach to Asset Allocation	p. 374
Conclusion	p. 375
Notes	p. 377
Index	p. 387
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