What Wealth Category Are You?

Mark Haynes Daniell in Strategy for the Wealthy Family, defined four categories of wealth for purposes of identifying strategic opportunities families might consider using.

It is interesting to note the strategies he suggests for each wealth category. Perhaps some of these strategies can be modified for use by the merely affluent.

All of his levels are defined as investible assets, which means that you don’t include your house and you net out your debts against your assets.

Wealth Category I: 1 – 10 million dollars.

Average: 5 million dollars.

Profile: Wealth was built from a professional career, a small business, investments or inheritance. The main family focus is still on the single family unit. There is no need of a broader, more formal family structure and it doesn’t make sense to have a family office.

Family support: Support is composed of an ad hoc network of brokers, bankers, accountants, lawyers and mass private banks.

Philanthropy: Most families pursue local charities, schools, churches and community healthcare projects.

Wealth management: Use of traditional asset class products and a few limited alternative assets, structured under a domestic trust, partnership or corporation is typical.

Inheritance Tax: Issues are typically addressed through life insurance.

Wealth Strategies: Prepare family members for inheritance, develop personalized asset allocation models, manage costs and risks in your portfolio, develop an estate plan and manage taxes.

Wealth Category II: 10 – 100 million dollars.

Average: 55 million dollars.

Profile: Families have potential for luxury lifestyle in every area, often with several residences and a big investment portfolio. If there is a family business, it may be publicly owned.

Family Support: High level advisers and more selective private banks with a team dedicated to multiple families may be used. This allows access to more interesting investments. Support is more centralized. The value of a more formal family structure increases and the family may have a small family office, or participate in a multi family office.

Philanthropy: Some families establish their own foundation or presence in the community.

Wealth management: Complex and better performing global asset allocations and alternative products are pursued, structured under series of independent trusts, domestic and off shore.

Inheritance Tax: Issues are addressed through multiple arenas

Wealth Strategies: All strategies in Daniell’s book are relevant, including focus on asset manager concentration issues, trust jurisdiction issues and trustee diversification needs.

Wealth Category III: 100 million to 1 billion dollars.

Average: Daniell does not give an average, although he states than only 15,000 families in the world have this level of wealth.

Profile: Family member’s personal spending can be taken care of for generations.

Family Support: A dedicated family office may be justifiable. The costs, according to Daniell, can be high – at a minimum they might be a million a year.

Philanthropy: These families have an opportunity to make very substantial contributions to the world.

Wealth management: The very best fund managers, any and all investment products and global scope and scale are used by families in this category. Structures are complex, such as multiple trusts, with multiple layers in multiple areas with multiple trustees – perhaps with a parent holding company or corporation. Global diversification of assets and managers is utilized.

Inheritance tax: Centralized management of planning, investments, organization and family services provides the platform to manage inheritance issues, including taxes.

Wealth Strategies: All strategies in Daniell’s book are relevant with a focus on structuring, investing and management including the potential to set up a private trust company, risk management becomes much more important, including the physical security of family members.

Wealth Category IV: 1 billion dollars to 100 + billion dollars.

Average: Daniell does not give an average, although he states than only 1,000 families in the world have this level of wealth.

Profile: Due to the massive amount of money families in this category have, they may be required to change the country in which they live in order to make the most of their long term tax impacts and their wealth.

Family Support: These families access the very, very best fund managers, the ones typically used by large institutions. They will have a private family office or even a network of offices or platforms.

Philanthropy: These families can and do benefit many thousands of beneficiaries for many generations by there philanthropy.

Wealth management: The most sophisticated asset allocation models and investment knowledge are utilized, along with access to other high level family office networks.

Inheritance tax: Managed by the family office(s).

Wealth Strategies: Strategies utilized by this category, in all areas, will be vastly different that the strategies used by the category one families.

Now that we are all sufficiently depressed about our level of wealth, Daniell notes that no matter what level we have, the strategies he outlines will allow our families to keep ‘the benefits and freedoms’ we derive from our wealth across future generations.

Sources include:

Strategy for the Wealthy Family – Seven Principles to Assure Riches to Riches Across Generations by Mark Haynes Daniell copyright 2008 by John Wiley & Sons