Photo: iStockPhoto
Photo: iStockPhoto

Complicated money life: problems and solutions

Taking care of money is as difficult as making it. The trend has been to take the middle-path

If you thought that life became simple after the first hundred million dollars, think again. As the number of millionaires in India increase rapidly every year (number of wealthy households increased by 16% to 117,000 in 2013-14), each such family and it’s head are learning that the preservation and growth of their financial assets require as much thought and hard work as it took them or their predecessors to create the wealth in the first place.

Choosing the right adviser

This is a great dilemma faced by many wealthy individuals, especially those who have recently acquired great wealth due to stake sales and equity infusions in their businesses. To hire one or more wealth manager, or to institute an in-house arrangement for managing one’s financial assets?

In recent years, the trend in these families has been to take the middle path—using the services of institutional multi-family office services.

Alignment of interest between the family office and the client is enshrined in the fee plans, which ensures that the quality of advice is not coloured by individual product commissions. Eventually, the role of a family office is to act as the personal chief finance officer and a great partner can deliver huge value to a family’s fortunes over a period of time by helping it choose the right avenues and avoid the riskier paths.

Risk allocation

As financial markets turned volatile in the recent past, many investors turned to real estate and gold, only to find those avenues mired in uncertain regulations and liquidity risks. As the India story promises to make a come back, wealthy families will need to re-assess their existing asset allocations and ensure that they are sufficiently diversified and yet well placed to gain from any rally in equities and bonds.

Involvement of family in financial decisions

As second and third generations join Indian family businesses, the heads of these families are striving to ensure they have a firm understanding of the families’ financial assets, which will help them manage these better in times to come. Many families encourage their children to work full time or take up internships in investment banks, brokerages and wealth management firms to give them a first-hand taste of deal-making and money management. This gives the next generation ability to understand and evaluate propositions placed in front of them at future junctures and reduces their reliance on external service providers.

Control mechanisms and family safety

With great wealth comes greater worries, as many a family have discovered in the recent past. The risk of financial malfeasance by own employees and the concern for the physical safety of family members are leading many families to engage the services of professional security firms that conduct risk analysis exercises and offer suitable solutions, which include in-depth forensic investigations of financial affairs and personnel for protection. These firms usually have exclusive divisions that offer such services discreetly and can be reached through multi-family offices and concierge services.

Growing importance of succession planning

The past few years have seen a rise in the interest among many rich families to actively plan for the preservation and succession of their estate. The changing profile of such families, growing awareness and access to quality professional advice is transforming the way they administer, protect and bequeath their wealth. The use of a formal and well-defined estate plan, which includes a trust structure, is now forming a part of every family’s agenda while managing their assets. Estate planning helps to build a bridge from one generation to the next and is the process of succession planning as well as financial planning. It makes provisions for estate management, estate preservation and creating a legacy for the estate.

Lifestyle advisory

Wealthy individuals, especially promoters and senior professionals who have hectic lifestyles, rarely find time to evaluate their luxury spending such as cars, yachts and holidays. They usually tend to rely on ad-hoc advice and suggestions from friends and family.

Luxury concierge services offered by various memberships such as credit cards and even family offices address this gap by ensuring that exclusive services and experiences are made available with a mere phone call. For instance, recently, the entire second generation of one of the better known business families in Mumbai flew to Rio de Janeiro at the last minute to watch the final of the football World Cup, with tickets being procured by the concierge service associated with their premium credit card.