money to offering advice and more, is massive. But there are too few stars who understand that success requires looking at things from a client's perspective. And my criticism of the industry also extends to many financial centers, including Switzerland, Hong Kong, the USA, and others, that have failed to take leadership in the interests of wealth-owning families and their communities.
Hopefully, some of my criticism may positively influence the way forward. For the wealth owner, understanding how the business of wealth management works is an important step toward taking ownership of the succession and asset-protection process, and helping to protect wealth and family relationships.
This book begins with some stories – stories about real families and the difficulties wealth has presented them with. Sadly entertaining, the challenges I outline are meant to show how easy it is for wealth to destroy families and relationships, and how advance planning can reduce the risk of the same patterns recurring. Throughout this book I continue to use both examples of real families whose situations have been in the news and examples from my experience of working with families over the years. In terms of my experience of working with families, I have made sure to reflect in my examples a mix of the issues I have seen occurring – this to ensure that no particular family will see any confidences breached. But I can say with certainty that I have seen far worse than some of my stories suggest.
I then move on to discuss some of the psychological issues associated with wealth that I have observed in my work with families and their advisors. There are many psychological issues that arise in and around wealth, and these impact the thinking of wealth owners as they get older and their life circumstances change. I also discuss the effect of gifts on the recipients of the gift – as well as the effect of not receiving the wealth that one may expect to receive. Gold-diggers, mistresses, toy-boys, illegitimate children, and many more interested players come into the mix. I am sometimes playful in relation to the messy relationships that come into the picture, but I do believe that there are some very practical lessons to be learned for all from reading this book. Not everyone is as evil as I might suggest, and there are many nuances to the complexity of human relationships. But protecting wealth, businesses, and families requires me to approach things in a frank and practical way. These psychological issues are often referred to as being part of the “soft” issues in wealth planning – but the reality is that they are not so soft and certainly are not unimportant, despite their neglect by many associated with guiding wealth owners through the asset-protection and succession process.
International taxation was the primary focus of my career, and clearly tax issues are relevant to most families considering the succession process and the protection of their wealth. Tax laws are ever-changing, and in too many countries unfair approaches to taxation are part of the political risk, making the navigation of the tax world a critical thing for any wealth owner. My view, however, is that all too often tax is a distraction in the succession-planning process. An over-focus on tax minimization leads to the neglect of what may be more important issues to the family. Where the wealth owner does not fully understand the tax planning being implemented, dangerous losses of control and other consequences result. All too often it is the tax advisor, obsessed with taxation and ill-equipped to address other areas, who handles succession planning for a family. The inevitable result is an insufficient focus on the many other needs of the family.
This book addresses the fast-changing global tax landscape, and my hope is to equip wealth-owning families with the information they need to understand the advice they receive, and to permit them to ask the right questions. But it is important to understand that tax is only one of the many needs families have, and this book also focuses on some of their other needs, ranging from protecting assets from political risk to dealing with second (and subsequent) marriages, divorce, and the many other challenges to wealth and family harmony that lurk around the corner. All wealth owners have needs, but many of these needs are latent – needs the wealth owner has but does not know he has. And if the need is latent, and the right questions are not asked, the succession and asset-protection plan may fail a family that neglected to address a need that only comes to the surface when it is too late.
Some of the needs of wealth owners are shared by all wealth owners, while others are needs particular to a family. Yet other needs are driven by the laws and circumstances of the countries to which the family is connected by residence, citizenship, or investment. Growing tax transparency, technology, and other developments are challenging the human right to privacy – and making the maintenance of privacy a key need of families globally. But is it politically correct to champion privacy in a world of growing wealth inequality? Or is privacy a real need in a world where dangers to those with wealth are increasing? The issue of inequality of wealth is a growing topic politically and otherwise around the world. What does this mean for the wealth owner, and are there risks of increasing taxes, overnight capital levies, and other means of wealth redistribution that may arise? Can a wealth owner protect their family against populist governments that may have other than the genuine best interests of society in mind? Has the abuse of secrecy laws in Panama, Switzerland, the British Virgin Islands, Singapore, and elsewhere created an environment where governments will over-react, against the interests of not only wealth owners but also their own economies?
How does the wealth owner address their needs? This is done using the help of advisors – lawyers, accountants, private bankers, trustees, and others. Advisors who, in turn, use the “tools” of wealth planning to address the needs of their clients. The “toolbox” is a big one, containing trusts, foundations, onshore, “midshore,” and offshore companies, partnerships, insurance strategies, and many more structures and approaches that can be mixed and matched and adapted to meet changing circumstances. It is these too that the wealth owner and their family need to understand to be able to ask the right “what-ifs” and to make sure that the succession plan will do its job in addressing the holistic needs of the family. What is a trust, and how does it work? What are the right checks and balances to protect the interests of the family for the long term? Not every trust or foundation is the same – there are huge differences from one to the other, given how they are set up and maintained, and because of who is involved. This book discusses the various ways the tools of wealth planning can be used, and also how they are all too often misused.
Relevant to the use of wealth-planning tools and how they work is an understanding of the business of wealth management. Private banks, insurance companies, trust companies, lawyers, accountants, family governance advisors, asset managers, and many others participate in the process. Advice and help for many families is a real need, but it is key to understand the conflicts of interest that inevitably exist, and how those advising families should best be managed by the families consuming their services. Here, I try to shed light on an opaque industry, hopefully helping families to ask the right questions and make the right choices.
At the end of this book is a short glossary, designed to help readers in their understanding of some of the terms that are used in dealing with the succession and planning approaches taken – trusts and foundations, the role of the settlor or protector, retrocessions (a nice word for the kickbacks an asset manager may get for introducing an unwitting client to an investment), and so on. Hopefully the glossary will provide some help in allowing the owner of wealth to ask the right questions and to demystify the succession process.
Finally, a bit more on the soft issues. When should the older generation discuss succession with the younger generation? Should the details of assets be provided, and if so when? Should in-laws be involved in family retreats that are organized to allow the older generation to communicate matters relevant to succession to the family? Will wealth destroy the dreams of the younger generation, or are there ways to avoid this happening? Are there ways to avoid wealth coming in the way of family relationships, or is it normal for a parent to encourage their child to call their elderly aunt on her birthday because if you don't, your cousin will get her money when she dies? As wealth owners age, is there a risk of their becoming paranoid about staff and family members stealing, and are they afraid that if they give up their wealth their family will no longer visit? Do failing memories put assets at risk? Are the grandchildren only spending time with their grandmother for fear that
