10 Tips For $50,000,000+ Portfolios - Bilyk Financial Advisors

Edmonton, Calgary, Vancouver, Winnipeg, Ottawa & Toronto.

10 Tips For
$50,000,000+
Portfolios

1. Prioritize Succession and Generational Wealth Transfer

Succession is often on the minds of wealthy families, but typically it isn’t a priority. Managing investments, running the family business, and general everyday matters often supersede any concerns about succession and wealth transition. More often than not, succession only comes to mind when there is a change of circumstances. Similarly, it could result from an external event, such as a shift in the political landscape in an individual’s home country, a stock market crash, or, as has been seen recently, a global health crisis.

“The next generation face challenges with a successful transition based on complicated family dynamics, understanding their role post-succession, and the absence of a formally written succession plan” – Rebecca Gooch

Regardless of the drivers, succession and wealth transfer typically come down to the desire for founders or principals to ensure as much of their wealth passes on to the next generation. This generally involves trusts, private trust companies, and foundations offered in various jurisdictions.

2. Create a Sense of Purpose

For many affluent families, purpose and legacy play a significant role in their businesses. Purpose can mean very different things to different individuals and their families. For some, it can relate to the family’s ongoing involvement in managing or being on the board of a family business. More commonly associated with purpose, however, are philanthropic endeavors and the value that wealthy families can bring to the outside world, including the communities where they live and run their businesses.

“A man without a sense of purpose, even one whose bank accounts are stuffed with money, is always a small man”

– Stephen King

Some families prefer to establish foundations to support specific causes; others want to be hands-on with their philanthropy, while some prefer to maintain a distance. There is often a significant cultural aspect to this, a sense of duty or, indeed, a religious responsibility.

3. Invest in an Institutional Grade Portfolio

Alternative investments have had a massive bump in popularity in the past several years, especially among institutional and high net worth investors. However, it seems many financial advisors are still lagging behind, in terms of awareness as well as usage in client portfolios. Alternative assets are often attractive because of the high returns they can generate, and the opportunity they provide to diversify an investment portfolio away from traditional investments, which consequently reduces overall portfolio risk.

“After taking into account inflation, traditional portfolios I believe will challenged to deliver what investors will need retire”

– Corrado Tiralongo

Whatever the economic climate or period, investors need to ensure that their portfolio is set up for success and effectively balanced across more than just traditional strategies of equities and bonds. Alternative asset classes can provide unique ways to generate income, diversification benefits, differing tax strategies, tax deferral and other tax efficiencies, and provide non correlated returns to offset stock market volatility.

4. Navigating Residency and Mobility

With the global economic and geopolitical landscape in flux – and the tax picture constantly changing – it is no surprise that navigating residency and mobility is a concern for wealthy families. The larger the global footprint of these families, the more complicated their picture. With families running businesses in multiple locations, children being educated in foreign countries, and individuals spending time in several countries in any given year, all sorts of residency issues might come into play.

“The joy of life comes from our encounters with new experiences, and hence there is no greater joy than to have an endlessly changing horizon, for each day to have a new and different sun”

– Christopher McCandless

Taxes will always likely be a factor for individuals considering relocating, but in many instances, it is no longer the prevailing one. For example, different states in any given country may have entirely different tax systems. Despite this, due consideration must be given to all the implications of moving either permanently or temporarily – or, indeed, splitting time between homes.

5. Focus on Asset Allocation

When most people think of the value financial advisors add they think of stock picking, sector rotating, and market timing. When, in reality, the most important decision an investor can make is proper asset allocation.

Studies have shown that more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of diversified portfolio’s return.

Change is coming. Across the world, the investment landscape is recalibrating: A new generation of high-net-worth investors is leading wealth ownership and applying their more global attitudes and values to investment strategies. As a result, innovative philanthropy, alternative investing, and impact investing are rising, while some more traditional sectors contract—signs of a worldwide economic slowdown and trade wars that are chilling business confidence compound this.

6. Stay Ahead of Tax Obligations

For many reasons, the tax environment for wealthy families has been challenging for several years. The global tax picture for high-net-worth individuals is complicated because tax policy can be introduced globally and implemented domestically. This creates all kinds of intricacy for families with international footprints, with significant penalties for failing to report accurately.

“In this world nothing can be said to be certain except death and taxes”

– Benjamin Franklin

While it is unsurprising that compliance with this constantly shifting tax landscape is vital, taking a holistic view of tax also means looking for opportunities where they exist.

7. Does Risk Matter?

The short answer is yes. The long answer is absolutely, yes. Managing risk is not about minimizing risk. Rather the objective of risk management is to take the right amount of risk, of the right kind, at the right times. Utilizing uncorrelated strategies within a portfolio is an effective tool to manage risk, deliver real long-term diversification benefits, build resiliency, and produce better results for investors. Most ultra-high-net worth clients will have some fund money, where risk gets thrown out of the window, but creating a balance is important in making sure those risks don’t take over.

“The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk”

– Seth Klarman

Ultra-high-net-worth individuals tend to be highly proactive regarding risk, and more aware of the role risk plays in their overall financial plans. They’re more likely to view risk management as an important goal (in many cases, it’s the primary goal). Understanding how long-term financial success doesn’t always depend on selecting superior performance but instead on avoiding capital-destroying risks.

8. Ensure Financial Literacy Among Heirs

Ultra-high-net-worth individuals spend the majority of their lives working hard and creating wealth. However, in many cases, the family members who inherit this wealth need more foresight to maintain its value and grow it further. Equipping the surviving family members, like the children and grandchildren, requires time and effort and should ideally start from a young age.

Few lessons, if any, about money have often been passed on. Bringing family into the conversations help provide a solid foundation for their future.

Successful wealth transfer planning does not happen in a vacuum. It’s likely that your family members will not understand the structure or purpose of your legacy plan without careful explanation and discussion. This is best accomplished through a series of advisor-facilitated family meetings.

9. Security – Protect your Loved Ones

Protecting your assets is a central part of any wealth management strategy. While most of us may plan for the usual threats, taking precautions such as installing home security systems and working with trusted advisors, not all of us are vigilant about the possibility of cybercrime.

A 2017 Study by Campden showed that 38% of ultra-high-net- worth families did not have a cyber security plan in place.

Cybercriminals are becoming more advanced every day, and the digital trail you have created on your road to success puts you in the crosshairs of cyber criminals looking to exploit you. Ensure your safety and security from a digital nightmare that could damage not only your financial situation but potentially your reputation of you, your brand, and even your family.

10. Life is Short – Enjoy it

If you have made it to this point, you get to see our true #1 recommendation. The single best investment you can make is in yourself. Life can be short, unfortunately, we see it all too often in this industry. We aren’t saying to spend all your money and not save for the future. Instead develop a plan that incorporates the things you enjoy and make sure life does not pass by.

Enjoy the little things in life… one day you will look back and realize they were the big things!

Creating a balance is key to being able to enjoy life now and in the future. Enjoying yourself today means understanding what you need to feel like you’re living fully and getting to experience the things that are most important to you. After all, tomorrow isn’t promised.