Private Wealth Pathway

Private Wealth

Assets

ex real estate, equities, bonds etc.

Wealth Management

The service

ex investment/financial advice, accounting and tax service, legal/estate planning

Private Banking

Personalized finacial and banking service offered to HNW individuals

includes a range of services such as investment management, tax planning, and estate. planning, in addition to banking.

Asset Management (Portfolio Managemet)

managing clients investments and providing specialized investment strategies

Wealth Manager (Financial Advisor)

A person who offers a combination of financial planning, investment portfolio management and other services.

Client Type AUM Tiers

Retail: USD $0-250M

Affluent: USD $100M-1MM

HNW: USD $1-5MM

VHNW: USD 5-30MM

UHNW: USD $30MM+

Revenues in PNW Chart

PFOF

Payment for Order Flow

It's when a broker receives payment from a market maker for routing its customers' trades to that market maker.

Retrocessions

commissions or fees that an investment manager, fund provider, or financial institution pays to an intermediary for distributing or recommending its investment products

Individual Variable Remuneration Factors

• number of accounts

• Profitability

• NNBV (net new business volume)

• Margins

• Standard income ~33% of income generated for firm

11 Wealth Management Services

• custodian:

  • safekeeping. record keeping

• legal:

  • estate planning. expatriation, relocation

• tax advisors:

  • tax efficiencies

• banking:

  • personal, commercial, investment, M&A, cap raising, exit, cont.

• accountant:

  • bookkeeping, budgeting, forecasting. (essentially the CFO of the client)

• consultants:

  • Philanthropy, valuing: farms, wine, cars, horse, etc.

• insurance:

  • PPLI (cash value life insurance), liability (property), kidnap ins.

• health & well being:

  • concierge medicine, ie nurses brought to your house, personal doctor etc

• property management

• education & skills

  • often educating the kids who will be taking over the assets on how to run them

• office & admin (personal asst.)

Services for the UHNW

1. estate planning

2. philanthropy

3. risk management

4. family governance

5. transition planning

6. development of rising generation

7. family dynamics

8. health and well-being

9. financial management

OECD - Organization for Economic Co-operation and Development

Related to AML

Exchange of info between governments

Created a common reporting standard in 90 countries

FATF - Financial Action Task Force

Related to AML

IOSCO - International Organization of Securities Commissions

Security regulator in 120 jurisdictions

Not AML related

BCBS - Basel Committee on Banking Supervision

banking regs. cap requirements, liquidity, market & credit risk.

Not AML

1997–98 Asian Financial Crisis

Thai currency devaluation triggered a regional financial crisis, exposing weak banking regulation. Led to greater emphasis on transparency, accountability, and consistent international financial rules.

2001 September 11 Terrorist Attacks

Exposed vulnerabilities in the global financial system to terrorist financing. Led FATF to expand anti-money laundering (AML) and counter-terrorist financing (CTF) standards.

2004–05 Riggs Bank Scandal

Riggs Bank failed to report suspicious transactions involving foreign embassies and officials. Resulted in a $25 million fine and stricter AML enforcement.

2007–09 Global Financial Crisis

Excessive leverage and subprime securitization exposed weaknesses in financial regulation. Increased awareness of complex investment risks, responsible investing, and investor protection.

2008 Madoff Ponzi Scheme

Madoff defrauded investors through a massive Ponzi scheme, exposing regulatory oversight failures. Led to stronger SEC enforcement, surprise examinations, qualified custodians, and whistleblower protections.

2015 1MDB Scandal

Over US$4.5 billion was diverted from Malaysia's sovereign wealth fund through shell companies and intermediaries. Led to stricter AML enforcement, due diligence, and scrutiny of politically exposed persons.

2016 Panama Papers

Leaked documents exposed offshore shell companies linked to tax evasion, fraud, and sanctions avoidance. Increased beneficial-ownership transparency and due diligence requirements.

2017 Paradise Papers

Leaked documents revealed offshore investments involving prominent individuals and companies. Increased scrutiny of offshore financial structures, similar to the Panama Papers.

2017–18 Danske Bank Scandal

Over €200 billion in suspicious transactions flowed through Danske Bank's Estonian branch. Led to criminal investigations and stronger EU AML/CTF standards.

2021 Pandora Papers

Leaked records exposed offshore accounts of world leaders, billionaires, and celebrities. Increased public pressure for financial transparency and regulatory reform, although offshore activity was not necessarily illegal.

6 Characteristics of Families as Operating Systems (Company)

1. shared set of norms

2. clear roles

3. established power structure

4. forms of communication

5. rituals and traditions

6. navigating transitions

Shared Set of Norms

Unwritten rules that set expectations for appropriate behaviour

Clear Roles

The divisions of responsibilities, privileges, and resources assigned to each family members

Established Power Structure

How authority to make certain decisions, including the distribution of family resources is assigned

Forms of Communication

The preferred medium and style of communication among family memebers

Rituals and Traditions

How family members interact and engage in celebrating and honouring important events and achievements

Navigating Transitions

How responsibilities, privileges, and family resources are initially reassigned and possible later redistributed following a significant change in the situation of one or more family members, including, but not limited to, death, divorce, diminished abilities, or incapacitation.

Socioemotional Wealth (SEW)

Social: the family’s reputation in the community

Emotional: identity derived from being a business owner

Non-financial

5 Dimensions of Socioemotional Wealth

FIBER

1. Family control and influence

2. Identification of family members with their firm

3. Binding social tires

4. Emotional attachment of family members

5. Renewal of family bonds to the firm through dynastic succession

Neoclassical Economics

• Individuals are rational and have well defined preferences

• Individuals maximize their utility. Wealth vs. risk to that wealth

• Individuals act independently in their interest using all information

Framing - Behavioural Economics

Decisions are influenced by how information is presented rather than the actual facts.

Anchoring Bias - Behavioural Economics

Relying too heavily on an initial number or reference point when making decisions.

Disposition Effect - Behavioural Economics

Won’t sell investments at a loss

Availability Bias - Behavioural Economics

Overestimating the importance or likelihood of events that are easily remembered or recently experienced.

Hindsight Bias - Behavioural Economics

Believing past events were predictable after they have already occurred.

Endowment Effect - Behavioural Economics

Valuing an asset more highly simply because you already own it.

Confirmation Bias - Behavioural Economics

Seeking or emphasizing information that supports existing beliefs while ignoring contradictory evidence.

Four Stages of Developing a Wealth Identity

1. Honeymoon Phase

2. Wealth Acceptance

3. Identity Consolidation

4. Achieving Balance

Honeymoon Phase

Initial excitement and enjoyment of newfound wealth, often accompanied by increased spending.

Wealth Acceptance

Adjusting to being wealthy and accepting the responsibilities and lifestyle changes that come with it.

Understanding what parts of your life will be easier and harder

Identity Consolidation

Integrating wealth into your personal identity without letting it define who you are.

Achieving Balance

Feeling comfortable with wealth and balancing money, personal values, relationships, and life goals.

Profiling (Segmenting) Clients

1. level of wealth

   • HNW, UHNW etc

2. generation

3. means of acquiring

   • acquirer (self)

     • first gen

   • immediate inheritor

     • second gen

   • inheritor and consumer

     • subsequent gens

Building Trust - Client Onboarding

Cognitive trust

• client trusts based on advisers competence, expertise and reliability.

Affective trust

• trust based on empathy, care and personal connection

• be empathetic

Single Family Office (SFO) Grid

Money Scripts

A persons beliefs or attitude about money

Money Worship - Money Script

People who tend to believe that personal happiness is equated with their level of wealth

Money Status - Money Script

People who tend to believe money is a good indicator of other admirable traits (such as power, intelligence, and personal character)

Money Avoidance - Money Script

People who tent to be ambivalent about wealth, often attributing wealth to bad outcomes, and are fearful of becoming too preoccupied with financial matters

Money Vilgilant - Money Script

People who tend to emphasize frugality, who have a sense of scarcity and who are discreet about their financial matters, often so that others remain unaware of their true wealth.

Power Distance Index

How much does the society accept unequal wealth distribution

Low: society is more comfortable with power sharing

High: society is more comfortable with authoritarianism

Individualism vs Collectivism

Does the society encourage individuals to rely on themselves or on their community

Collectivism: society encourages relying on others

Individualism: society encourages relying on oneself

Masculinity vs Femineity

Does the society align with “masculine” or “feminine” values

Femininity: society encourages “feminine” values, like caring for others and a cooperative mindset

Masculinity: society encourages “masculine” values, like competition and materialism

Uncertainty Avoidance Index

How intolerant is the society of ambiguity and risk

Low: more tolerant of ambiguity (uncertainty) and risk

High: less tolerant of ambiguity (uncertainty) and risk

Long-Term vs. Short-Term

Does the society value postponing gratification

Long-term orientation: society values hard work for distant reward

Short-term orientation: society values present experiences over future ones

Indulgence vs Restraint

How permissive is the society

Indulgence: society encourages the gratification of desire

Restraint: society discourages the gratification of desires

Golden Rule

treat people just as we would like to be treated

Principle of Equality

Treating people or situations in similiar ways

The Principle of Fair Allocation

Requires us to give each person that which is owed to them. This can involve balancing the claims of competing parties

This means you can give more to one kid if they have greater needs

Inheritor’s Dilemma

1. Lack of intimacy and contact with parents, with parents using money to control their children’s decisions and lifestyle choices

2. Family isolation and distrust of other people

3. Anxiety and fear

   • how to respond if they cannot rely on the family’s wealth

   • believe they lack the resources to be “wealth creators”

4. Confusions about career and life purposes

Polysemy - Identifying Values

The same work has different meanings to different people, causing misunderstandings

• ex security could be safety or financial security

Choice Overload - Identifying Values

Too many options make it difficult for clients to identify their values and make decisions

Social Desirability - Identifying Values

Client state values they think are socially acceptable rather than their true beliefs

Reflective Listening - Identifying Values

Seeking to understand the speaker’s ideas, then offering the ideas back to the speaker. Aims to move past the explicit meaning of the words.

Scaling Questions - Identifying Values

Invite the speaker to rate a current situation, challenge, or opportunity on a numbered scale.

Miracle Questions - Identifying Values

Invites the speaker to consider what life would be like, if overnight all their problems disappeared

Channeling - Identifying Values

Diverting the focus and energy of the conversation from present or past experience to future hopes and goals

Specifying - Identifying Values

Focusing the discussion of desired change to encourage “well-formed” goals

Narrowing the discussion of a clients desired change to develop clear, well-defined goals

Theming- Identifying Values

Widening the lens to explore the thematic significance of desired change

Rather than focusing only on what the client wants, the adviser explores why it matters and how it connects to broader life goals.

Example:

• Client: “I want to retire early.”

• Adviser: “What would retiring early allow you to do?”

Interrelating - Identifying Values

Inviting clients to consider and express a desired change in relationship or interactional terms

Will your relationship improve if x

Mutualizing - Identifying Values

Identifying commonalities or shared stories in people’s experiences and hopes

Prioritizing - Identifying Values

Clarifying which issues and requests needs immediate attention and identifying a starting point for change

Goals Based Planning

Align an individual’s financing with their goals and future needs

Less about portfolio performance, more about achievement of goals

Implicit Assets - Goals Based Planning

non-liquid and hard to quantify

ex: human capital, future pension benefit, expected inheritance

Explicit Assets - Goals Based Planning

current financial assets

4 steps of goals-based planning

1. describe the goal

2. quantify and prioritize

3. Structure portfolios

4. Manager

Describe the Goal

Times frame

• short : 0-5 years

• intermediate: 5-15 years

• long: 15+ years

Minimal probability of success

Quantify and Prioritize

Questions to ask:

1. do we expect our lifestyle to change

2. how certain are we about our future needs

3. do we need to keep score

   • do we have the desire to keep up with other

4. do we need to worry about unexpected inflation

5. do we need to protect against generational fragmentation

   • as the family grows with generations do we need to care about even distribution across all

For each goal we may have a non-discretionary, discretionary, and aspirational level

Structure Sub-Portfolios

Structure them to meet objectives

Discount cash flows, or assign lump sums for unknown future values

Consider time frame, probability needed and liquidity

4 Timelines of Goals and Respective Probabilities

Short-term → > 95%

Long-term → > 80%

Capital preservation → > 75%

Growth → ≤ 75%

4 life cycle stages

Early career → people develop human capital

Career development → people shift to long term goals, accumulation

Pre-retirement → focus on debt repayment or asset collection

Early retirement → maintain lifestyle and generate income

Dynastic Planning

An investment portfolio designed to preserve and grow family wealth across multiple generations, rather than fund one individual's lifetime spending.

Estate planning

Business continuity planning

Independent entrepreneurship

Holistic (Comprehensive) Wealth Planning

Holistically manage financial and business affairs

• establish appropriate legal ownership

• minimize tax liabilities

• proactively address family conflicts

Internal Assets - Holistic Wealth Planning

What the client controls on their own

• business with controlling ownership

• private real estate

• human capital

External Assets - Holistic Wealth Planning

Financial accounts managed by other people

Wealth Allocation Framework for Entrepreneurs

Territorial Tax System

Tax only income earned in their borders

Worldwide Tax System

Tax residents on their worldwide income regardless of where income is earned

Double taxation

Citizen Tax System

Tax their citizens regardless of residency

United States

Tax Exposure Formula

Liability Insurance

Protects wealthy individuals against financial losses from lawsuits are legal claims as wealthy individuals are often targets for legitimate or illegitimate lawsuits

Modified Duration Rule

for high-quality bonds, holding the portfolio for approximately twice its modified duration makes the annualized return more predictable, even if interest rates change

Capital Market Assumptions for Equities

More difficult to predict than bonds as corporate earnings grow slower than GDP

Methods

• Gordon Growth Model → E(r) = D1/P + g same as P = D1/(r-g)

• CAPE (Shiller) → ratio or current price of an equity index to 10 yr average real earnings

  • PE ratio of the market

Estimating Risk

measured by variance and covariance with other asset classes

illiquid investments (cheat) since variance will be understated

Other methods

• VaR

• Expected shortfall

• Stress test

  • ex monte carlo simulation