Q&A with the Authors of Family Wealth Management – 7 Imperatives to Successful Investing in the New World Order

Authors Tom McCullough and Mark Haynes Daniell are pleased to introduce their new book: ‘Family Wealth Management: 7 Imperatives to Successful Investing in the New World Order’. It is published by John Wiley & Sons and is available on Amazon.In this Q&A article, the authors discuss the purpose of the book, the writing process, and address a variety of topics of interest to family investors.

Q. What is this book about, and for whom was it written?

A. The book was written to help private and family investors protect and grow their wealth over time – and in a manner consistent with family vision, philosophy and values. It was written for family leaders, family members,staff of family offices and the wide set of advisors – lawyers, bankers, investment managers and others – who seek to advise their clients wisely on long term family wealth preservation, growth and transition.

Q. What is the ‘new world order’ you refer to in the book?

A. This particular crisis we have been through is far deeper and more significant than any crisis since the 1930s. While most credit crises last 5-7 years, the interventions by governments to stave off some of the more painful social and economic consequences of the crises may provide some buffers, but also may prolong the crisis. No matter how it isseen, there is still a long way for the dominos to stop falling – and the difficult environment (and the implications for investors) will be with us for some years to come.

Q. What lessons did families learn in the crisis? What should they have learned?

A. Different families learned different lessons, but many common perspectives emerged on the surprising correlation between assets and asset classes presumed to be non-correlated, the real risk of extreme ‘tail events’, the value of liquidity, the need to manage costs and monitor managers carefully, and the need to diversify in a different manner going forward.

Q. How will the future evolve, and what are the implications for investors?

A. The future is, of course, never entirely predictable, but the following are very likely to play a key role in investment decision-making for some time to come: increasing pressures for tax revenues from the wealthy, continued low yield on savings and deposits, increasing regulation and compliance requirements, a shift of the world focus from west to east (i.e. Asia), continued work-out for debt-burdened countries and consumers, civil unrest due to the rising wealth gap, a massive transition of wealth from boomers and their parents to the next generation, and need to blend family and financial perspectives, particularly given the increasing complexities within families. Investors will need to cope with these challenges in addition to the ‘regular’ ones of generating enough return to meet their needs, at acceptable risk levels.

Q. Where are major risks and opportunities for families?

A. The major risks are both family-related (too much spending, divorce, disengagement, dispute, etc.) as well as financial (bad investment decisions over-concentration, behavioral errors, poor advisors, high fees etc.) Failing to learn the lessons of the past on matters both family and financial may be the greatest risk of all, and, conversely, adopting a comprehensive and fully modern approach as advocated and spelled out in great detail in this book, may be the greatest opportunity for families interested in beating the heavy odds of a ‘shirtsleeves to shirtsleeves in three generations’ outcome, with very unfortunate consequences for both family and fortune.

Q. This is a big book. Why so much material?

A. This is a complex and serious subject with many interrelated parts that need considering as both individual elements and as part of an integrated whole. This is not a subject that benefits from ‘one minute management’, slick phrases or faddish themes. Long term successful investing for a wealthy family requires mastery and integration of many elements. This book shows how it can – and has been – done well, and we wanted to provide for our readers a very substantial input into their own plans, strategies and aspirations.

Q. What big mistakes have families made over the years? Is this changing?

A. There are as many mistakes made as there are family failures. Some recurring issues include not taking time to set out and prioritize family goals, falling prey to the dangerous patterns of behavioral errors, failing to adapt to changes in the environment, and proceeding without sufficient diligence or documentation.

Q. Is ‘shirtsleeves to shirtsleeves in three generations’ an inevitable pattern?

A. Not inevitable, but highly likely unless family investors and their advisors put in the effort required to set out clear goals, develop a forward-looking family culture, and establish a strong risk management regime to reduce the odds of this pattern occurring again.

Authors Mark Daniell and Tom McCullough at the pre-launch celebration of their new book Family Wealth Management in the Library of the Travellers Club, London, UK, September 19, 2013.

Q. Did you two co-authors agree on all points as you went along?

A. We came at this issue from two different approaches developed on opposite sides of the world: Mark bringing in his experience, primarily in Asia and Europe, with fewer, larger ($1+ billion) investing families, and Tom contributing his experience, primarily in North America, with $10 million - $1 billion wealthy families. Despite these initially different bases of experience, we shared a common set of family-centric values and were able to forge a common way forward that was well adapted to all legacy families and their advisors who are looking to apply the best available knowledge to their own investing objectives and challenges.

Q. What was your biggest challenge in writing the book?

A. Actually, paring back and providing a simple framework was our biggest challenge! There are so many important ‘moving parts’ to a successful family wealth management program that we were constantly balancing the need for an integrated overall approach interesting for everyone with the fascinating detail (and real life examples) of the individual elements. We hope we have found the right balance.

Q. How can a family best put this book to use?

A. The best way a family can put this book to use would be for a few members (probably those who are, or will be, most engaged in wealth management) to read the entire book and understand its applicability to the unique family environment of their own family. They then can provide a summary and adaptation of lessons learned to other members of the family. There are many examples and case studies in the book that would make for good boardroom or dinner table conversations. Family advisors will also benefit from a better understanding the factors that are critical in preserving and growing family wealth over the generations.