EY Pathway To Successful Family and Wealth Management

EY
About EY
Foreword
About us
Introduction
Section
1
2
3
4
5
6
7
8
9
10
Appendix
1
2
Contributors
References
Contact us
Pathway to successful family and wealth management
About us
EY Global Family Business
Center of Excellence
About our
research partners
Credit Suisse
Dear Reader
Pathway to successful family and
wealth management
The Center for Family Business
Peter Englisch
Peter Brock
EY
EY
1
Separation
The reasons why
Centralization of risk
Centralization of other services
Governance and management structure
Why might there be doubts about setting up a
Alignment of interest
Cost
Potential higher returns
Market, legal and tax infrastructures
2
The multi family office offering
Financial planning
Investment management services
The preference for privacy
Trust of external managers
Expectations on returns
Philanthropic management
Life management and budgeting

Training and education
Succession planning
Tax and legal advisory
Strategy
Reporting and record keeping
Compliance and regulatory assistance

Administrative services
Estate and wealth transfer
10
11
Determining servicing priorities:

the make-or-buy dilemma
Risk management and

insurance services
Ad
vi
Family
Life nt
me
nage
ma budgeting
and
Fina
nc
ial
ry
so
y
nc
ra
St
at
ea e
sf lth
er
e
cc
Su plan
Trai
ning
and
edu
catio
n
na
te
g
r
ve
Go
ting
Repor
cord
and re g
n
keepi
Services
s
ni sion
ng
12
P
ma hila
na nt
g
ng
nni
pla
Risk man
a
and insu gemen
t
r
servic ance
es
an Com
d
p
as reg
sis
Investm
manage ent
m
servic ent
es
ic
op t
hr men
e
e
nc ry
lia lato e
u nc
ta
al
nd leg
a
x
Ta visory
ad
Ad
min
is
serv trative
ices
ess
Busin cial
an
and n ory
advis
t
Es w
d
an tran
13
The traditional model
Type of services
Service category
In-house
Outsourced
Investment management and

asset allocation
Tax and legal advisory
Reporting and record keeping
Philanthropic management
Compliance and regulatory
assistance
Table 3.1. Key determinants of the make-or-buy decision

Cost and budget
Risk management and insurance

services
Life management and budgeting
Expertise
Training and education
Regulatory restrictions
Technology and infrastructure
Complexity
Business advisory
Estate and wealth transfer

Administrative services
14
15
Case study
Daniel Goldstein
Other external factors
Time-cost-quality
Likelihood of change
Repetition of the function

Value of the function
16
17
The costs of running a
Staff costs
Assets
Administrative
Hybrid
Chief
Chief
Chief
Investment
analysts
staff
Fully integrated
Accountants
Source:
18
19
5
think
Decisions
Decision-maker
In-house managed
In-house advised
Outsourced
Objectives and policy
Principal
Principal
Principal
Strategic asset allocation
Principal
Trustees
Trustees
Mandate design and manager selection
Internal
investment team
Internal
investment team
Advisor/fund
manager of funds
Security selection
Internal
investment team
Fund
manager
Fund
manager
Asset
Asset
Asset
Note: The lighter the shade, closer are the principal-agents. Deeper shade indicates higher level of principal-agent concerns.
Source: World Economic Forum, Future of Long-term Investing, 2011.
20
21
professionals
Retaining talent
1. Compensation
2. Feedback
Family
22
23
Constructing a business plan
The entrepreneur and the family business
Operational model
Family skills
Jurisdiction
The choice of jurisdiction, legal, regulatory and tax issues is

addressed in Appendix 1 and 2
Family business
24
25
scoping design build test

deploy
Figure 7.1. The phases of business planning

Scoping study
Step 1
Design
Scoping
Step 2
Design
Scoping study proposed approach

Business model assessment
Business and operating model alignment
Operating model assessment
Program management
1 week
26
4 weeks
1 week
1 week
27
Risk management
Figure 8.1. Risk management system
Risk
Return
Liquidity
Risk management system
Key risk areas
Source: xx.
Risk mitigation
Cost reduction
Risk management systems
Back to Business, Family
Building a Family
28
29
Turning risks into results
Value creation
Figure 8.3. The key risk areas that drive results

The RISK Agenda: Research study leading practices
Enhance risk strategy
Embed risk management
Figure 8.2. Risk management process

Risk measurement
Risk reporting
Risk mitigation
Turning
risk into
results
Back to Business, Family
Enable risk management |
30
31
Case study
JMH Capital Management
The investment process
Background
Family
32
33
Role of the family
Stress testing and modeling
Figure 9.1. Projected total return and volatility of various asset classes
13%
Private Equity
Tax considerations
Projected total return (5-year average)
11%
9%
Dev. Asia Equity (ex. Japan)
Australia Equity
UK Equity
Commodities
7%
EM Government
Hedge Funds
US Equity
Emerging Markets Equity

Asia Listed Real Estate
Eurobloc Equity
Japan Equity
US HY
Europe Real Estate Funds
5%
US Listed Real Estate
Global Equity
US Real Property
EM Europe Equity
US Conv. Bonds
Swiss Equity
Gold
AUD Cash
AUS Government
3%
US Corporation
Europe Corporation
Europe Government
UK Government
1%
US Government
USD Cash
EUR Cash
JPY Cash
1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Projected volatility (5-year average)

Source: Credit Suisse, Data Stream, 2013.
34
35
10
IT, trading tools and platforms
Custody platform
36
37
Consolidated reporting
Figure 10.1. Structure with global custody
Human capital and technology
Client
Trading and portfolio management tools

Global custodian
Centralized custody and administration of all securities
Portfolio
Global custodian
Portfolio
2
Portfolio
3
Portfolio
4
Global custodian
Portfolio manager
2
Portfolio manager
3
Portfolio manager
4
External positions
Securities
trading
Securities
trading
Securities
trading
Securities
trading
Asset
management
Asset
management
Asset
management
Asset
management
Real estate
Yacht
Car
Private jet
Business
A portfolio management system
Implementing technology
An execution management system
Source: Credit Suisse, Global Custody Pitchbook, 2013.
Order management system
CRM tool
38
39
Appendix
The legal setup

Setting the scene
Germany
Regulatory environment
Finanzdienstleistungsaufischt
Eigengeschft
Limitation regarding legal and

tax advice
Asking the right questions

on location
UK
Germany
Switzerland Austria
US
Limitation of liability
40
41
Dodd-Frank Act
The US
The UK
Austria
42
43
Background
Germany
Limited liability partnership
Legal structures
structures
and tax
Tax issues
Limited liability company
Legal structures
UK
Germany
Switzerland Austria
Stock corporations
US
44
45
Austria
Legal structures
Informal or contractual
relationship
The UK
Tax structures
Legal structures
Limited company
Tax
Partnerships
A trust
46
47
Setting up a
in the Middle
East: the Dubai
International
Financial Center
The process
US taxation of partnerships
Letter from a regulated lawyer

or auditor
operating companies
The US
Legal structures
Letter from a regulated entity such as

a bank, law firm or audit firm
Single Family Office Application Form
US taxation of corporations
Activity plan
Private trust companies
the DIFC
Letter of intent
Duration and DIFC fees
US taxation of individuals
and trusts
S corporations
48
49
Appendix
US regulatory and tax issues
Investment adviser registration

prior to 2011
50
Investment adviser registration,

2011 and thereafter
51
IRS oversight
52
53
US taxation of partnerships
US legal structures
and trusts
Cost allocations and treatment

of expenses
54
55
S corporations
US taxation of corporations
56
57
EY
Credit Suisse
Peter Brock
Eberhard Dilger
Peter Englisch
Christopher Riedel
Astrid Wimmer
Adib Rashid
Bernard Fung
Raphael Matt
Johannes Volpini
Roland Suter
Lucia Moreno
Christian Wasser-Petrnousek
Pascal Rohner
John Cooney
Bill Woodson
Craig DeLucia
Jeff Brodsky
Marc Halsema
EY, Credit Suisse and University of St. Gallen would like to thank the following individuals for generously sharing
their time, expertise and insights:
Christian Sulger-Buel
Alexander Hayward
Daniel Goldstein
58
59
Contact
us
Global and EMEIA
Peter Englisch
Business
Peter Brock
US, Canada, Central and South America

Carrie Hall
Ringo Choi
Or just email us
60

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EY

Pathway to successful family and wealth management

The Center for Family Business

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Pathway to successful family and wealth management

The reasons why

Centralization of other services

Governance and management structure

Why might there be doubts about setting up a

Potential higher returns

Pathway to successful family and wealth management

Market, legal and tax infrastructures

Pathway to successful family and wealth management

The preference for privacy

Trust of external managers

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Life management and budgeting

Tax and legal advisory

Compliance and regulatory assistance

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Determining servicing priorities:

Risk management and

Pathway to successful family and wealth management

Pathway to successful family and wealth management

The traditional model

Investment management and

Table 3.1. Key determinants of the make-or-buy decision

Risk management and insurance

Training and education

Estate and wealth transfer

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Other external factors

Repetition of the function

Pathway to successful family and wealth management

Pathway to successful family and wealth management

The costs of running a

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Objectives and policy

Strategic asset allocation

Mandate design and manager selection

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Constructing a business plan

The entrepreneur and the family business

The choice of jurisdiction, legal, regulatory and tax issues is

Pathway to successful family and wealth management

Pathway to successful family and wealth management

scoping design build test

Figure 7.1. The phases of business planning

Scoping study proposed approach

Pathway to successful family and wealth management

Pathway to successful family and wealth management

Figure 8.1. Risk management system

Risk management system

Key risk areas