Take a more active role in strategic asset allocation Goals-Based Wealth Management is a manual for protecting and growing client wealth in a way that changes both the services and profitability of the firm. Written by a 35-year veteran of international wealth education and analysis, this informative guide explains a new approach to wealth management that allows individuals to take on a more active role in the allocation of their assets. Coverage includes a detailed examination of the goals-based approach, including what works and what needs to be revisited, and a clear, understandable model that allows advisors to help individuals to navigate complex processes. The companion website offers ancillary readings, practice management checklists, and assessments that help readers secure a deep understanding of the key ideas that make goals-based wealth management work. The goals-based wealth management approach was pioneered in 2002, but has seen a slow evolution and only modest refinements largely due to a lack of wide-scale adoption.
This book takes the first steps toward finalizing the approach, by delineating the effective and ineffective aspects of traditional approaches, and proposing changes that could bring better value to practitioners and their clients. * Understand the challenges faced by the affluent and wealthy * Examine strategic asset allocation and investment policy formulation * Learn a model for dealing with the asset allocation process * Learn why the structure of the typical advisory firm needs to change High-net-worth individuals face very specific challenges. Goals-Based Wealth Management focuses on how those challenges can be overcome while adhering to their goals, incorporating constraints, and working within the individual's frame of reference to drive strategic allocation of their financial assets.
JEAN BRUNEL, CFA, is the managing principal of Brunel Associates, a firm that serves ultra-high-networth individuals and their advisors. Formerly he was the chief investment officer of J.P. Morgan's global private bank and a director and member of the Executive Committee of J.P. Morgan Investment Management, Inc. He has been the editor of the Journal of Wealth Management since 1998 and the author of Integrated Wealth Management: The New Direction for Portfolio Managers, as well as many peer-reviewed articles. He received the C. Stewart Shepard award from the CFA Institute in 2011 and the Multi-Family Family Office CIO of the Year award from the Family Office Review in 2012.
Acknowledgments xiii Preface xv Introduction 1 PART ONE The Integrated Wealth Management Challenge CHAPTER 1 Many Interrelated Disciplines 11 Multiple Sources of Capital 11 Expanding on the Corporate Analogy 13 Multiple Interactions 16 Educating Future Generations and Wealth Transfers 18 The Make or Buy Decision 20 The Creation of a Wisdom Council 21 Summary and Conclusions 22 CHAPTER 2 An Example of a Crucial Interaction: Tax-Efficiency 23 The Tax Bite and Its Impact on Compound Returns 24 A New Analysis of Capital Losses 25 An Expanded Definition of Active Management 26 Applicability to Both Asset and Security Decisions 27 Abandoning the Murky Middle: The Barbell Portfolio 29 The Potential Role and Limits of Derivative Strategies 31 Summary and Conclusions 33 CHAPTER 3 The Need for a Financial Interpreter 35 What Makes Markets Work? 36 Asset Classes, Sub-Asset Classes, and Strategies 38 Developing Reasonable Expectations 39 Performance Analysis and Reporting 42 Summary and Conclusions 45 PART TWO Investment Policy Formulation: Goals-Based Allocation CHAPTER 4 A Brief Journey through Institutional Theory 49 Five Important Features of the Typical Institutional Investment Organization 50 A Quick Detour via Asset Liability Management 55 Summary and Conclusions 56 CHAPTER 5 Mapping Institutional and Individual Issues 57 The First Crucial Difference 59 A Second Important Difference 61 A Different Way of Defining Risk 62 The Law of Large Numbers 63 Implications 64 Summary and Conclusions 65 CHAPTER 6 Goals-Based Strategic Asset Allocation 67 The Basic Principle 67 Initial Theoretical Objections 70 An Academic Imprimatur 71 A Few Simple Principles 72 It Changes Everything 74 An Interesting Implication 76 Summary and Conclusions 77 PART THREE Goals-Based Wealth Management Implementation CHAPTER 7 Dealing with the Implications of the Process 81 Covering a Set Number of Bases 81 Mapping Asset Classes and Strategies to Goals 85 Understanding Limitations 87 Dealing with Client Objections 88 A Three-Phase Process 90 Summary and Conclusions 91 CHAPTER 8 Creating Goals Modules 93 Developing General Capital Market Expectations 93 Describing Sufficiently Generic and Specific Goals 95 Creating Constraints Appropriate to Each Goal 98 Optimizing the Composition of Each Module 103 A Possible Example 107 Summary and Conclusions 109 CHAPTER 9 Working to Understand Client Goals and Goal Allocations 111 Identifying Crucial Initial Client Constraints 111 Determining Whether Any Constraint Is a Show-Stopper 114 Time Horizon and Required Probability of Success 115 Settling on the Appropriate Module 120 Sizing Assets Needed to Meet Each Goal 122 A Possible Example 123 Summary and Conclusions 127 CHAPTER 10 Finalizing a Goals-Based Policy Allocation 129 Two Possible Approaches 129 Working from Assets and Modules to a Whole 131 Description of Deviation Ranges 132 Our Original Example, Modified and Completed 136 Summary and Conclusions 145 CHAPTER 11 Managing the Portfolio Tactically 149 The Complexity in the Absence of a Systematic Tool 150 Introducing the Concept of a Tilt Model 153 Five Possible Variations on the Same Theme 156 A Major Pitfall 159 A Possible Example 161 Summary and Conclusions 169 CHAPTER 12 Portfolio Reporting 173 The Current Challenge 173 A Simple Analogy 178 Adding Taxes Makes Things Even More Complex 180 Summary and Conclusions 181 PART FOUR Managing an Advisory Practice CHAPTER 13 The Currently Typical Firm Structure 187 Many Chiefs and Few Indians 188 The Root of the Challenge 189 Contrary Examples in the Legal and Medical Fields 191 A Simple Illustration 193 Summary and Conclusions 195 CHAPTER 14 Teams Versus Individuals 197 Too Many Disciplines for Anyone to Master All of Them Fully 197 Specialists, When Left Alone, Lead to Silos 199 The Crucial Role of the Team Coach 200 Only One Individual Can Play That Role 203 Summary and Conclusions 204 CHAPTER 15 An Alternative Structure 205 The Primordial Role of the Advisor 205 The Missions the Advisor Should Not Accept 207 The Difference Between Must and Does Not Need to Be Tailored 209 Imagining a Different Firm and Process Architecture 212 The Kind of Leverage That Can Be Built 217 Dealing with Objections 218 A Difficult Decision 222 Summary and Conclusions 225 Conclusion 227 About the Companion Website 233 About the Author 235 Index 237