The increasingly complex nature of UHNW families’ wealth means that getting a clear “helicopter-level” view of investment and finance requires an “infrastructure” to understand how all the pieces fit together. 

Investing money for clients, particularly those at the high net worth or ultra-HNW end of the spectrum, increasingly resembles a complex jigsaw puzzle.

As this news service discussed a few days ago, it is not just what assets ("asset allocation") make up the picture (stocks, bonds, cash, property, etc) that counts, but also where ("asset location") and in what forms (onshore or offshore funds, funds that are liable to be taxed as income, or capital gains, etc). And then there are questions about how many funds to use, what type of funds (open-ended, closed, etc). Before too long, the decision resembles hacking one’s way through a briar patch.

The increasingly complex nature of UHNW families’ wealth means that getting a clear “helicopter-level” view of investment and finance requires an “infrastructure” to understand how all the pieces fit together. 

That’s certainly the view of Charlie Grace, managing director, family enterprise solutions in the private client practice of Cambridge Associates.

In fact, the business of making sure that all these elements are correct has encouraged Cambridge Associates, which is a global investment firm working with clients such as family offices, to issue a white paper. The document is entitled Optimizing Wealth Infrastructure for Families, authored by Sean Sullivan and Heather Jablow.

Jablow is MD and head of private client practice for the Americas at the firm; Sullivan is senior investment director, private client practice.

The paper covers services that compose a family’s investment infrastructure including investment management, banking, lifestyle services, legal representation, tax accounting and reporting, and philanthropy.

Cambridge Associates launched the document with families and centres of influence (advisors, lawyers, etc) in mind, Grace said. 

While advisors can highlight some of the challenges that wealthy families encounter in putting plans together, not many of them can provide the kind of comprehensive view that the CA paper covers, he said.

Grace said Cambridge Associates has pioneered understanding and explaining what is known as “investment administration” – the business of putting the building blocks of investment together, with an eye to governance, tax, ownership structures, consolidated reporting, portfolio administration (such as placing and signing off on trades, completing subscription documents, paying capital calls, cash monitoring, approving consent documents), terms of brokerage and custody accounts, and other tasks. 

Discretion
One particular area, for example, where ensuring that details are correct is crucial, concerns which part of a family’s investment is run on a “discretionary” or “non-discretionary” basis, Grace said. In the discretionary case, a set of broad goals and risk tolerances will be set out, and an outsourced chief investment officer and asset managers use their discretion – hence the word – to carry out money management on a day-to-day basis. But there is more to this than meets the eye. For example, Grace said that legal structures holding financial assets of the family and its members have to be taken into account when deciding what type of discretionary approach works best.

“Too often, he said,`discretionary’ is simplified and viewed too much as a black and white issue, but there can be shades of grey,” he said. 

In any event, an OCIO should always promote good communications with the client, Grace added.