A guide to succession planning, asset protection, taxation and wealth management by Philip Marcovici.

For some time I have thought that I should create a ‘handbook for wealth management – how to get it right’, bringing together best practice from families I have encountered over the past 20 years. Well, I think Philip Marcovici has saved me the effort.

Marcovici is, in my opinion, one of the most vivid, articulate and insightful commentators on the ills of the traditional and secretive world of private banking. I was intrigued to see that he’d written a book. This is a masterful summary of knowledge that I think every creator, owner, inheritor and advisor to families of wealth should read and absorb. As such, here is a short overview of what I feel are the key points to note.

I can see why the publisher may have suggested this attention-grabbing title, but I hope readers will come to the book for learning and education. It should help families ask the right questions – a critical skill which will lead to employing the right advisors. It is also a means for wealth owners to understand ‘how things work’.
As to the meaning of the title, Marcovici explains: “all too often wealth destroys relationships, families, and the dreams of the younger generation. This destruction can be avoided”.

There’s a rather depressing theme oft-repeated in the book: assume everyone’s a gold-digger – everyone! If you start from this view, conflicts can be managed more easily and surprises might be avoided for the wealth owners and their successors. Marcovici warns that even if they are not now, your nearest and dearest and your advisors will become gold-diggers; be prepared; and he stresses that it’s not just multimillionaires that need to be concerned, “because any amount of wealth is enough to destroy a family”.

Marcovici’s gloomy view has allowed him to successfully advise families to plan for the worst outcome in the hope that things will turn out better. Personally, this pejorative attitude saddens me: “Trust no one”. But bow to Marcovici’s core belief that, “with the right scepticism, wealth, friendships and relationships can be preserved”, and I suppose he’s right, yet it still saddens me!

He suggests that recognising that wealth is transitory is key in establishing the right construct, demeanour and environment for succession. “If the wealth is gone, is the family also gone? Or does what family represents and the relationships involved survive and thrive whatever happens to family wealth?”.

Marcovici has thought-provoking and sometimes challenging perspectives;

One golden rule: never give a mistress or toy-boy a lump sum of cash. In each case, be sure of clear communication with explicit consequences of both good and bad behaviour.

Another perspective: giving children life-long financial independence is a precious gift. Equal treatment between siblings is probably the best route to stability and peace.

And: Governance is always central to business and family success. Planning and creating a Family Constitution can help.

We now live in a new era of tax transparency and governmental scrutiny: “play by the rules of your country, or get out of your country”. In the current environment, Marcovici emphasises that too many people have too much information about the affairs of a family so no-one can assume that evasion is a tenable strategy.

Inevitably, Marcovici focuses on tax and how owners need to understand the tax system sufficiently to be able to instruct advisers; because ultimately they must maintain or put in place tax structures that are efficient and compliant. Too often a legacy is a mess because of the tangled tax-influenced web created by well-meaning predecessors.

Marcovici’s message for the globally wealthy is clear and he underlines the importance of understanding taxation on a worldwide basis. Pay close attention to after-tax returns and ensure that you understand the impact of an investor’s residential status. He highlights that what applies to individuals also applies to companies, stating that the use of corporate structures of convenience “is becoming part of history”. Marcovici maintains the new approach is that of substance – and traditional offshore solutions rarely deliver.

The book outlines other useful golden rules:

  • Know what you own and who controls (and who will control) these assets;
  • Have an effective Will;
  • Understand the impact of divorce;
  • Understand the implication of second families;
  • Talk about pre-nuptials with children long before they meet ‘the one’ who will become their spouse;
  • Be aware of the risks and knowledgeable about the right responses to kidnap.

In addressing the tools of wealth planning, Marcovici adds sage advice: “Effective planning requires that the family understand the tools that are in place in relation to their wealth, at least such as to allow them to be in a position to ask the right questions of their advisors and other service providers”. This book aims to give the wealthy a basic introduction to Wills, Trusts, Foundations, Partnerships, Companies (onshore, offshore, mid-shore) and ‘Family Banks’.

Advisors are ever-present in this ferociously complex world; Marcovici stresses that we need to understand how necessary they are, but also how they can profit from a relationship and have a capacity to “kidnap” a succession process: “for many advisors there is no better client than a dead client”! It is important that the family take control of the process, or others will step into a vacuum. Always agree on a budget for each advisor-led task in advance.

With regard to Asset Managers, families need to understand how charges are levied and how commissions might be hidden. They should seek a trusted advisor who is also able to help the family in a broader sense – one who understands the complexities of the lives of the wealthy. Marcovici sees the wealth management industry as a “huge business in chaos. Change is happening on many fronts, with the business models of the past falling away as tax and related transparency become the norm”.

As for family offices…. (interest declared!), Marcovici believes they are “products of the failings of the wealth-management industry to serve the real needs of families.” These come in all shapes and sizes, some working for one family, others for many; “if there is a real focus on aligning interests, the multi-family office can be an effective way for the wealth owner to get what they need.” – Amen to that. But above all, the wealth owner needs to understand that everybody has a conflict of interest.

Entrepreneurs establish great wealth because they are ferociously focused. Until the wealth is there, there is little marginal value in studying the complexities inherent in its preservation and management. But there is real value in establishing knowledge and perspective along the way so that when the time comes, structures and advisors are in place.

I really think this is a tremendously useful book and I agree with Marcovici’s parting words: “It is possible for families to get it right. And it is very important that they do.”