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FUTURE PLANNING


“I see too much focus on relative performance, which is interesting but not really


relevant to whether a family is on track to achieve its goals”


the family wealth a secret, and support the younger family members so they can learn more about the overall family enterprise. We like to see them included in meetings with financial and legal advisers so they can understand what’s going on with the family finances. We’ve also found that a family foundation is an ideal vehicle to have the younger generation learn at the feet of the more senior generation.” The financial advisers that families engage can also


have a large impact on the proper execution of their plan. DeMoss is a proponent of the family office model. “It gives the adviser a broad understanding of a client’s goals and situation, along with the ability to oversee a broad range of efforts, including taxes, estates and investment portfolios,” he says. “It’s important to remember how a great adviser can contribute to the family. It helps to have somebody serving as a quarterback for the various legal, investment, and accountancy professionals that families work with.”


Diversification Diversification is an important consideration with any portfolio, but it can be a particular problem when the bulk of a family’s assets are tied up in the family business. “Courts and banking institutions always stress diversification because that’s the safest thing from the standpoint of a trustee,” says Brown. “I know of two cases where somebody set up a trust with the stock of a private company and the value of the stock went way, way, way up. But the stock didn’t pay a dividend, so there was no income for the inheritors, and it could not be sold readily because it was a private company. At


some point, it becomes necessary to diversify to get the benefit to people in the second and third generation, for whom it was intended.” “One of the things 2008 highlighted was that you


can’t rely on simple efficient frontier models that assume a normally distributed return,” says DeMoss. “Going into the credit crisis, a lot of people thought they were diversified, or that the model diversification would help preserve their portfolios, and that was not the case in most instances.” Slud says families often question the value of asset


class diversification during extreme market events. “But it’s important for us as advisers to stress that diversification still worked during 2008, just not as well as in prior downturns,” he warns. “This market downturn, because it happened in conjunction with a liquidity crisis, was really quite different from a more traditional market downturn. If you were to look at the 2000-2002 bear market, when the S&P 500 index declined by half, you would see that some asset classes such as bonds, value stocks and small- cap stocks did not suffer as much in terms of losses as large-cap stocks and, in some cases, generated positive returns.”


Tom Collimore is head of industrial relations at CFA Institute, the global non-profit organization for investment professionals. Frances Melville and William Ortel contributed to this article. Go to www.cfainstitute.org/adviser


Disclaimer


The information contained in this piece is not intended to and does not provide legal, tax or investment advice. It is provided for informational and educational use only. Please consult a qualified professional for consideration of your specific situation.


FAMILY OFFICE: ASIA TOMORROW 79


2000- 2002


THE THREE YEARS WHEN THE S+P 500 INDEX DECLINED BY 50%.


OPERATIONS


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