A critical resource for families managing significant wealth Wealth of Wisdom offers essential guidance and tools to help high-net-worth families successfully manage significant wealth. By compiling the 50 most common questions surrounding protection and growth, this book provides a compendium of knowledge from experts around the globe and across disciplines. Deep insight and thoughtful answers put an end to uncertainty, and help lay to rest the issues you have been wrestling with for years; by divulging central lessons and explaining practical actions you can take today, this book gives you the critical information you need to make more informed decisions about your financial legacy. Vital charts, graphics, questionnaires, worksheets and other tools help you get organised, develop a strategy and take real control of your family's wealth, while case studies show how other families have handled the very dilemmas you may be facing today.
Managing significant wealth is a complex affair, and navigating the financial world at that level involves making decisions that can have major ramifications - these are not decisions to make lightly. This book equips you to take positive action, be proactive and make the tough decisions to protect and grow your family's wealth.
Ensure your personal and financial success and legacy
Access insight and data from leading experts
Adopt the most useful tools and strategies for wealth management
Learn how other families have successfully navigated common dilemmas
When your family's wealth is at stake, knowledge is critical - and uncertainty can be dangerous. Drawn from interactions with hundreds ofwealthy individuals and families, Wealth of Wisdom provides a definitive resource of practical solutions from the world's best financial minds.
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
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TOM MCCULLOUGH is Chairman and CEO of Northwood Family Office, a multi-family office which serves the comprehensive financial needs of families of significant net worth. Northwood was founded in 2003 and has quickly risen to prominence as an international leader in its field. Tom has spent over 30 years in the field of family wealth management and is also an adjunct professor of Private Wealth Management at the University of Toronto's Rotman School of Management, and co-author of Family Wealth Management (Wiley, 2013).
DR. KEITH WHITAKER is President of Wise Counsel Research, a think tank and consultancy focused on families with significant wealth. He served as Managing Director at Wells Fargo Family Wealth and currently serves on the board of directors of the National Association of Scholars. For many years, Keith has helped enterprising families develop their rising generation, organize their estates, and plan leadership transitions.
SECTION 1 THINKING THROUGH WHAT MATTERS MOST 1
Chapter 1 Are You Wealthy? 3
Chapter 2 What Are the Most Important Factors in Living Well? 9
Chapter 3 What Are the Key Considerations in Crafting Your Legacy? 15
Chapter 4 What Does Passing on Values to the Next Generation Really Look Like? 23
Ellen Miley Perry
Chapter 5 How to Think Through Using Resources That Exceed My Personal Needs? 31
Chapter 6 Does Family History Matter? 39
SECTION 2 PLANNING THOUGHTFULLY 45
Chapter 7 Is It Worth Having a Financial Plan? 47
Chapter 8 What Is the Right Balance Between Saving and Spending in Retirement? 55
Chapter 9 How Do You Start a Family Conversation About Prenuptial Arrangements? 63
Chapter 10 How Can You Preserve a Beloved Family Vacation Home or Estate? 67
Chapter 11 How Can You Prepare for Longevity and Mental Incapacity Among Family Members? 75
Chapter 12 How Do You Prepare for a Good Goodbye? 81
SECTION 3 INVESTING WISELY 85
Chapter 13 How Can You Make Sure Your Portfolio Lines Up with Your Actual Goals? 87
Chapter 14 What Return Should You Expect from Your Investments? 93
Chapter 15 What Should Your Asset Allocation Be? 101
Chapter 16 Does Investing Have to Be Complicated? 107
Chapter 17 How Should You Understand and Deal with Investment Risk? 115
Chapter 18 What Is the Most Useful Definition of Risk for Family Investors? 119
Chapter 19 Is Active Management Still Worthwhile? - I 125
Chapter 20 Is Active Management Still Worthwhile? - II 133
SECTION 4 RAISING THE RISING GENERATION 141
Chapter 21 How Do You Raise Responsible, Independent, and Productive Children (versus Entitled Trust Fund Babies)? 143
Chapter 22 How Can You Help Children Thrive in a World Focused on Success? 149
Suniya Luthar and Nina Kumar
Chapter 23 How Much Money Should You Leave Your Children, and When? 157
Chapter 24 How Do You Start a Family Conversation About Financial Inheritance? 161
Chapter 25 How Can You Avoid the Negative Impacts of Giving Money to Family Members? 165
Chapter 26 How Can Your Family Encourage Financial Literacy in Every Member? 169
Chapter 27 How Can Families Support Both Individuality and a Shared Dream? 173
SECTION 5 MAKING SHARED DECISIONS 181
Chapter 28 What Are the Best Ways for a Family to Make Decisions Together? 183
Chapter 29 How Can You Improve Family Communication? 187
Chapter 30 What Are Practical Tools for Building Healthy Families? 193
Chapter 31 What Is the Point of Family Enterprise Governance? 203
Katherine Grady and Ivan Lansberg
Chapter 32 Should You Have a Family Meeting? 211
Chapter 33 How Can You Best Manage Conflict in Your Family? 219
Chapter 34 Should You Stay Together as a Family or Go Your Separate Ways? 225
SECTION 6 COMBINING FAMILY AND BUSINESS 233
Chapter 35 How Can You Engage Your Children in the Management of Your Family Wealth or Business? 235
Chapter 36 How Can Your Family Develop Leaders Ready to Face the Many Challenges of Business and Family? 243
Chapter 37 How Can You Ensure the Success of Your Successors? 249
Chapter 38 Why Is Family Unity So Important and How Can You Achieve It? 257
Andrew Hier and John Davis
Chapter 39 What Are the Signs You're Losing Control of Your Family Business? 263
Josh Baron and Rob Lachenauer
Chapter 40 Can a Family Stay Together After the Operating Business Is Sold? 269
SECTION 7 GIVING WELL 275
Chapter 41 What Is the Difference Between Charity, Philanthropy, Strategic Philanthropy, and Impact Investing? 277
Chapter 42 How Can You Encourage Generosity in Your Family? 285
Alasdair Halliday and Anne McClintock
Chapter 43 How Do You Engage Children and Grandchildren in Philanthropy? 291
Chapter 44 How Can You Wisely Develop a Long-Term Strategy for Your Philanthropy? 297
SECTION 8 SEEKING SOUND ADVICE 303
Chapter 45 What Types of Advisors Should You Consider? 305
Chapter 46 How Can You Find Trustworthy Advisors? 311
Chapter 47 How Can You Avoid the Next Bernie Madoff? 317
Stephen Horan and Robert Dannhauser
Chapter 48 Should You Choose a Single-Family Office or a Multi-Family Office? 323
Chapter 49 How Do You Choose a Good Trustee? 331
SECTION 9 FACING THE FUTURE 339
Chapter 50 What Does the Future Hold for Families with Significant Wealth? 341
Chapter 51 How Can You Chart Your Own Path, No Matter What Everyone Else Says You Should Do? 345
Fernando del Pino
Chapter 52 How Do You Balance Family Stability with Resilience Over the Generations? 351
Chapter 53 How Can We "Lift the Small Boats" Too? 355
About the Editors 365
How Did This Book Begin?
Managing significant family wealth is a complex affair, offering both opportunities and challenges. And those challenges have been on the rise with an unprecedented transfer of wealth across generations, shifting definitions of family, globalization, evolving family dynamics, increasing longevity as well as historically low interest rates, increasing tax demands, and massive wealth creation.
Many family leaders are not well prepared for management of wealth or family issues. It is often not their full-time vocation and they may not have had much training in the relevant disciplines. And even if they do have some of the required technical skills (investments, tax, legal, or business), they usually don't feel equipped to handle the vast number of non-technical "soft" issues that seem to arise (values, family relationships, succession, and decision-making). The challenges are similar for advisors.
In our travels around the world, speaking with thousands of families of wealth and advisors to families, we have heard many questions about the issues that confront them every day. Often these questions are tinged with a sense of hopelessness and frustration, and these feelings reflect the number of times that the questioners have tried to find good solutions and have come up empty. Here are just a few of the common questions that originally sparked our interest in creating this book:
- How much money should we leave our children, and when?
- How do we raise responsible, independent, and productive children (versus entitled trust fund babies)?
- How can we manage conflict in our family?
- How can we ensure the success of our successors?
- What's the best way to think through the prenuptial process?
- What return should we actually expect from our investments?
- What does passing values to the next generation really look like?
Hearing such questions repeatedly led us to think about how we could bring answers to these families in a way that would be helpful, practical, and easily accessible to them. There is a lot of information already written on some of these topics (and very little on others), but it can be hard to find, is typically too general, and it is definitely not all in one place. We decided to pull it all together into one volume so a family leader, family member, or family advisor could sit down and review all the key questions at one time.
Who Are the Contributors?
But who would answer these 50 questions? We might have written all of the responses ourselves, but we wanted to offer a diversity of perspectives, tone, and experience. In our travels, we have also had the privilege of meeting and getting to know an amazing group of people who regularly work with wealthy families on these key issues. These thought leaders, practitioners, advisors, writers, and teachers are among the most thoughtful people in the world on the topics that are most important to families of wealth. They understand the issues and challenges, but also the nuances of how difficult it can be to uncover workable solutions.
So we set about finding one or two uniquely talented and experienced people to answer each of the 50 questions. The people we found are business advisors, professors, consultants, speakers, and/or family members themselves. They are all leaders in their respective fields, they have significant practical experience, and they have earned the respect of their peers and the appreciation of many families who have benefited from their wisdom over the years.
Over the space of about a year we researched, winnowed and ultimately selected the key questions common to most families of wealth. We then painstakingly matched questions with contributors and worked with the authors to hone their answers so they best addressed the practical needs of families on the particular topics they took on.
We also asked each author to include some questions for further reflection at the end of their essay so that readers could continue thinking about the particular question and make as many applications as possible to their own family. These essays and questions for reflection also are designed to make possible family-wide discussions. In addition, we asked the authors to include a list of books and articles on the topic so readers could go deeper on any particular issue if they so desired.
The result? A wonderful collection of responses to 50 of the most often-asked questions about wealth and family, written by some of the most thoughtful, practical, and insightful family wealth experts in the world.
What Are the Questions?
As we analyzed the 50 questions, we found that they fell nicely into nine categories.
- Thinking through what matters most. The questions in this section address the basic existential issues of life and wealth, and we encourage readers to read the essays and make the application to their own families. The questions deal with the definition of wealth, what it actually means to live well, what difference our family history makes, and how we pass on values and a legacy. We wanted to start with the things that define us as families and communities, believing that this understanding will act as a foundation and reference point for all questions to follow.
- Planning thoughtfully. This section is about the issues that almost every family will face as they plan for and pass through the various stages of life - planning for good years and bad, seeing children married, transitioning farms and cottages, retirement, living into older ages (with all the good and bad that it entails), and finally death. Having wealth can add comfort, but also complication, to these life milestones, and many families wonder how best to plan for and deal with them as they come into view.
- Investing wisely. In this section, we help wealthy families think through the most important questions about their investments and the risks they need to take. We start by looking at how to identify and calculate goals, what are reasonable market return expectations, and how that can all come together into a practical asset mix and investment portfolio. For some reason, many investment practitioners like complexity, but most clients don't, so we provide some perspectives on simpler approaches to investing. We also address questions that family investors have about risk in the context of investing. And we look at the issue of whether investors should invest through active investment managers or pursue index investing, with an article on each side of the issue.
- Raising the rising generation. One of the biggest areas of concern for families is in the area of children, wealth, and succession. There is much concern about raising responsible, independent, productive offspring versus entitled trust fund babies. Families worry about raising children in a culture that is so focused on success, about how much money to leave their kids and when they should do it, and what the actual impact of large gifts could be. We address all these issues, as well as questions about how to have good family conversations about financial inheritance, financial literacy, and helping children find the balance between independence and staying connected to the family.
- Making shared decisions. Wealthy families, more than others, have shared decisions to make, due to common pools of wealth, shared business ownership, and communal assets. These can be significant challenges, both with and without the presence of the founder. In this section, we answer families' questions about how to make decisions as a group, how to improve family communication, and what practical steps they can take to build healthy families. We also look at the issues of governance, family meetings, and conflict management, and answer the question of whether families should keep their assets together or go their separate ways.
- Combining family and business. Many wealthy families have operating businesses, or have made most of their wealth from a business that has since been sold. It permeates family history, relationships, and decision-making. Many families still retain a family "enterprise" of some sort, whether that is a company, a pool of investments, a trust, or a foundation. Understanding and integrating the roles of family, ownership, and management is an ongoing challenge, epitomized by the classic Three Circle Model.1 In this section, we look at questions of how to engage children in the family enterprise, how to develop leaders and make successors successful, and the importance of business family unity. We also identify the signs that owners might be losing control of their business, and ask whether a family can stay together after the business is sold. Even if you don't have an operating business, these questions and answers contain rich veins of valuable insight.
- Giving well. Philanthropy is a central part of the lives of most families of wealth. Charitable giving is a natural option for families with excess capital beyond their needs, but more than that it is an expression of their values, vision, and commitment to their communities. In this section we address some philosophical questions about how to decide on your charitable choices, and some practical questions about how charitable goals can be best achieved - giving, investing, or a combination. We also address the important questions about how to encourage generosity among succeeding generations, and how to engage children and grandchildren in...
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