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A Strategy for Sustaining Wealth

In this month’s column, we’ll explore how to sustain personal wealth after a big liquidity event. Oftentimes, the new liquidity is unknown territory for the wealth creator, necessitating a thoughtful wealth sustainability strategy. 

Why is formulating a wealth management strategy so important after a liquidity event, which could be the sale of a business, an IPO or recapitalization? Wealth creators generally are not passive individuals and may deploy the resulting liquidity into a new business venture. Unfortunately, this may not be a sound strategy for sustaining wealth because past business success does not predict future success.

Statistically, one-third of new ventures close within two years; half close within five years. A variation of this strategy is investing the business sale proceeds into a financial asset portfolio and utilizing the portfolio as loan collateral to fund a new venture. Some wealth owners experienced business failures during the recession when loan margin calls depleted their financial portfolios and left them without additional funding.

A different strategy is delegating the wealth management plan to private banks and brokerage firms. Given the product sales model of the wealth management industry, though, the result is typically an over-diversified, costly portfolio. Most entrepreneurs will not give discretion to business vendors, as higher costs and less profitability are a likely consequence of this business strategy. Similarly, portfolio management expenses rise with the number of investments due to sales charges, investment manager fees, trading costs, embedded structure costs, etc. This strategy will not necessarily promote the sustainability of one’s wealth but rather the profitability of the wealth management industry.

So, given this, what are some best practice components of a wealth management strategy? For starters, one needs to develop a thoughtful asset allocation plan that incorporates his or her wealth goals (Do I want to remain rich?), plus a corresponding risk allocation, part of which may include allocating a portion of capital to new business ventures.

Another best practice is using the family office to develop an asset management fee budget and knowingly allocating the fee budget across asset classes and strategies. 

Finally, the family office can optimize the financial provider relationships and utilize products that benefit the family and not those that maximize revenue for the providers.

Various studies conclude that concentration of one’s capital creates wealth, while well-planned diversification ultimately sustains wealth. Interestingly, within one generation, less than 10 percent of the original Forbes 400 list, which started in 1982, are in the present-day ranking. It might be insightful to study those that have remained on the list. ?

Julie Neitzel is a partner and advisor with WE Family Offices in Miami and a board member of the Miami Finance Forum. Contact her at Julie.Neitzel@wefamilyoffices.com or 305.825.2225.

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.