The Wealth Enterprise:The Wealth Enterprise:TREATING THE FAMILY WEALTH

AS A FAMILY BUSINESS

O t b October 21, 2013

Smith Family

Family StructureMr. & Mrs. Smith3 Adult Children

$200 Million Net Worth$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)150 Distinct Investments (Passive, Active & Partnerships)12 Distinct Ownership Structures For Estate Planning Purposes50 Distinct Financial Accounts19 Tax Entities100+ K-1s

2

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?a s e s a egy o a ue c ea o

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

What’s your plan for succession in key roles?What s your plan for succession in key roles?

3

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

What’s the mission and purpose of your wealth?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?in decision-making?

What’s your plan for succession and education?

What is o r ecos stem of pro iders hat role does each pla andWhat is your ecosystem of providers, what role does each play, and how much are you paying, all in, to your financial services providers?

4

The Wealth Management ParadoxThe 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

5

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

Business Enterprise Seeks To Maximize Financial C it lCapital

Wealth Enterprise Seeks To Maximize Financial Capital ea e p se See s o a e a c a Cap aPLUS The Family’s Human & Intellectual Capital

6

Managing Wealth As An Enterprise Entails Three Managing Wealth As An Enterprise Entails Three Primary Activities

SSStrategy, Structure & Governance

Strategy, Structure & Governance

Wealth M t

Wealth M t

Ecosystem Ecosystem

Family Wealth

Enterprise

Family Wealth

EnterpriseManagement

ActivitiesManagement

Activities

yof Providers

yof Providers

7

Strategy, Structure & GovernanceSt ategy, St uctu e & Gove a ce

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

Establish a mission and strategy – short term and long term

D fi d i i ki d f k f th t iDefine 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 rolesand 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

8

Wealth Management ActivitiesWea t a age e t ct v t es

A complex and inter-locking set of activities

Values & Mission

Governance & Education

I t t Ad iInvestment Advisory (Asset Allocation; Portfolio

Construction; Manager Selection; Performance Measurement)

&Financial & Estate Planning and Risk Management

Financial Administration

9

(Expense Management/General Ledger; Cash Flow; Net Worth; Tax Compliance; Reporting

Ecosystem Of Providerscosyste O ov de s

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

The ecosystem needs to be managedMap the current set of providers

Understand fees and manage expensesexpenses

Coordinate across providers

E ll ki dEnsure all are working around the family’s “big picture” and in support of the family’s strategy

10

Managing Wealth As An Enterprise Means Thinking Strategically About The Ecosystem Of g St ateg ca y bout e cosyste O Providers

Understand each provider’s role

Understand your role

Understand the implications

11

Understanding Each Provider’s RoleUnderstanding Each Provider s Role

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

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

12

Cutting Through The Clutter: The Key DiffDifferences

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 UnitsAffiliated Asset Management UnitsUnaffiliated Asset Management Firms (Open Architecture)

Paid by clients and by manufacturers for whom they distribute

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

13

When Mapping Your Ecosystem – Identify Whi h R l E h Fi I Pl iWhich Role Each Firm Is Playing

Which firms are “providers”:Which firms are providers : manufacturers and distributors

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

Wh t l d t t lWhat role do you want to play

14

Implications To Your Role Of Working With Each T Of Ad iType 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 t & i t ith bj tiat cross purposes & in consort with your objectives

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

Need to solve for aggregated reporting and risk analytics

Need to solve for quality controlNeed to solve for quality control

15

Implications To Your Role Of Working With Each T Of Ad iType Of Advisor

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

Conflicts of interest and high costs can be a challengeConflicts 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 controlNeed to solve for quality control

16

Implications To Your Role Of Working With Each T Of Ad iType Of Advisor

Working With Advisors:

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

SourcinggAvoiding conflicts of interestBuying/NegotiatingAggregated ReportingQuality Controly

Requires families to pay an explicit fee

Not all advisors are the same with respect toNot 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)( )

17

There Is No “Right” AnswerThere Is No Right Answer

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

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

18

Bottom Line: Making Sure Your Enterprise M t F ti I E li it & I t ti lManagement Function Is Explicit & Intentional

StrategyStrategyStrategy, Structure & Governance

Strategy, Structure & Governance

F ilF il

Wealth Management

Wealth Management

Ecosystem Ecosystem

Family Wealth

Enterprise

Family Wealth

EnterpriseManagement

ActivitiesManagement

Activities of Providersof Providers

19

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

20

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 activityp y

Have robust information systems and reporting that allows them to measure progress and support decision-makingp g pp g

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

21

info@wefamilyoffices.com I www.wefamilyoffices.com

Rockefeller Center 1270 Ave of The Americas, Suite 2101 | New York, NY 10020 | Tel: +1 212 218 5100

701 Brickell Avenue, Suite 2100 | Miami, FL 33131 | Tel: + 1 305 825 2225