Managing wealth

YAP MING HUI: Managing wealth like a business
By YAP MING HUI

2008/09/20

MANAGING and maximising wealth is a vastly different kettle of fish from creating wealth. However, all entrepreneurs and business owners who have successfully mastered the art of creating wealth will need to know how to maximise their created wealth, or risk losing it. Managing created wealth becomes even more challenging when it grows tremendously, usually due to the sale or listing of a business.

When business owners sell their enterprises or take their companies public, they will have a huge amount of cash to manage.

Indeed, the task of managing such wealth is similar to managing a company. In other words, you might have sold one business, but as a direct result, you have now gone into the business of managing your wealth, with the goal of maximising it.

Being in the "wealth maximisation business" involves more than simply hiring investment fund managers to invest in listed shares, bonds, real estate, commodities or hedge funds.

In addition to investment, this business involves other critical components like developing a family philosophy concerning the goals for the wealth, establishing an investment policy, selecting good professional advisers and getting family members interested in and educated about the process.

As with any other business, you need proper planning and effective execution for your wealth maximisation.

Where should you start? It makes sense to go over some general issues. Since your family will be directly affected by any decision you make, make sure you get input from your family through family meetings when asking questions like those below:

- What are the goals for your wealth maximisation? Figure out your priorities and take all the financial, mental, physical, family, social and spiritual dimensions into account when formulating your goals. Clearly defining your core values for the family and goals for the shared wealth are critical elements for sustaining the family legacy. Where do you envision your family a generation from now? What are your goals for the wealth?

- Do you want to preserve the "purchasing power" of your assets, striving for returns that outstrip inflation and taxes? What level of risk are you willing to face to gain these higher returns?

- Which ownership structure is appropriate for you? Structuring assets properly has a greater long-term impact on your wealth. At times, its impact is greater than some of your investment decisions. How will the decisions you make about asset ownership structure today affect your children's grandchildren?

- How do you diversify your wealth so that not all your eggs are put in the same basket? What dimensions and levels of diversification should you consider? What alternatives are available out there for you to effectively and efficiently diversify and preserve your wealth? Is your current wealth allocation well diversified?

- Every family faces its own unique set of risks that may deplete or even wipe out its hard-earned wealth. Discussing, identifying, documenting and developing measures to address the risk factors prepare the family with the necessary competencies to weather distressing events.

- How active can you and other family members be in the wealth maximisation process? Documenting the family's mission and a process for decision-making are critical first steps in developing a wealth maximisation framework. How involved will family members be in the wealth maximisation process? Who will make important decisions and how will these important decisions be communicated to the rest of the family?

- How will you ensure the financial education of younger family members? Great wealth carries great responsibility. Family members who are taught that they are stewards or protectors of the family wealth are usually far-sighted in making decisions that are best for the family in the long-term.

- What positive changes do you want to affect in society? Is it important for your family to create a foundation or to develop a philanthropic programme to support your social aspirations? How do you involve your family members and align your family values with your charitable goals?

- What are the benchmarks of successful wealth maximisation? It is important to periodically assess actual performance relative to wealth maximisation goals and the family mission. How does your family incorporate the latest changes in the family and environment to achieve mid-term and long-term goals? How often and how should an assessment be conducted?

- Where can you find professional advisers with the expertise and integrity to work on your behalf and to represent your interests? The most critical issue is to find intelligent, strategic thinkers whose judgment you can trust in advising you about financial decisions. They can facilitate the setting of objectives, the formulation of a strategy and plan, and the correct choice of structures and people to implement and monitor the plan effectively.

How do you identify, engage and motivate the professionals you need to pursue the family's agenda?

According to Sara Hamilton from the Family Office Exchange (FOX), managing wealth successfully, like managing a business, requires thoughtful planning, diligent research and the construction of a fully-integrated plan to coordinate all the components of the process. The steps include documenting a family mission statement, articulating investment goals, and providing beneficiaries of the wealth with the financial information needed to make good decisions. Managing wealth properly is as complicated as managing a business properly.

The ultimate challenge is to synchronise the goals of family members with the necessary strategies and structures required to maximise wealth.

To achieve this, you will need to coordinate a team of experienced professionals to ensure that decisions are made with the goals of the family in mind.

To succeed in your new business of wealth maximisation, it is important that you take enough time to think through the important issues listed above, learn from the experiences of other families who have gone through the experience with success and get your family members to be involved in the process.

Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, the first multi-client family office in Malaysia


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