Successful wealth management is not just about creating wealth and keeping it, but also ensuring its sustainability for future generations. Managing wealth includes allocating assets efficiently, lowering risks, and maintaining any necessary liquidity.
Anybody who is building wealth, or anyone with existing wealth who wants a better way to manage it, can benefit from understanding the 10 essential principles of strategic wealth management.
- Understand That Wealth Management Is Important and Begin Early
Wealth management should begin as early as possible, to ensure success and the highest likelihood of creating generational wealth. By understanding the principles and the importance of wealth management, families will have a higher likelihood of starting and maintaining a financial plan.
- Apply Diversification to Asset Allocation
Lowering risk is not just about finding the right investments, but also diversifying investments to reduce risk. Effective diversification will significantly reduce risk, without sacrificing overall returns.
- Reduce Expenses
Investment expenses with typical portfolios may not be suited to strategic wealth growth and management. Estate and family focused financial advisors will have access to advanced share classes that are not always provided through retail investments. These can be more rewarding from a financial standpoint and can also be more cost effective to maintain.
- Change Behavior to Remain Disciplined
Underperformance is closely linked to poor decision making, often based on emotions. Having a long term strategy helps to maintain a vision, which helps with focus. There should be a barrier between emotions and the long term strategy, and a financial advisor can be helpful to define and implement the right behaviors.
- Create a Spending Strategy
Where can funds come from in emergency situations? Where are the most liquid assets? Lifestyle maintenance spending should already be equated into a wealth management strategy, but sometimes unexpected costs can arise. It’s critical to have a well-defined spending strategy, based on the total income and assets that are available.
- Build a Culture of Accountability
Regular evaluations and the creation of performance metrics can help to motivate family members who are involved in managing and creating wealth, and can help to create areas of accountability. Having a culture of accountability will push individuals to succeed within a family wealth management organization and can promote better decision making.
- Aim for Simplicity in Wealth Management
An overly complex portfolio of investments can be hard to understand and can make it easy to lose track of losses and risk. Although diversification is important, overall simplicity should still be maintained. Layered investment products and inflexible term investments should be avoided, as they can create unnecessary rigidity and complexity within an investment portfolio.
- Families Should Create Leaders Who Possess Wealth Management Skills
Wealthy families have developed internal cultures where the management of wealth is a prominent aspect. A family represents a pool of immense talent and individuals from within the unit can contribute to the continued management of wealth. Families should aim to create a culture where they identify and nurture the potential of talented leaders.
- Don’t be Afraid to Slow Down
Wealth management sometimes needs to be put on hold. Unexpected expenses, changes in income and other issues, can create situations where it’s no longer possible to contribute new wealth to a management program. Slowing down is necessary and even recommended in some cases. However, it’s important to note that the longer that there’s a lapse in creating new wealth, the more difficult it will be to get things started again.
- Choose Reliable Executors and Trustees
Generational wealth can be maintained and distributed by designing inheritance structures. Because these structures can sometimes create conflict within a family, it’s important to choose reliable executors and trustees. They should possess the right knowledge to perform their task as an executor and in some cases an independent, professional executor can be the best choice.