Burgeoning fortunes: Seeking sound financial advice from family offices

Family offices serve as curators of the wealth of high-net-worth individuals (HNWI), their families, and their heirs. Services they typically offer include wealth planning, tax and legal services, asset management and consolidation, asset performance monitoring, trusteeship, risk management, and even charity services. Depending on the client’s personal preferences, additional services may also be offered, such as arranging business trips, providing insurance solutions, building an investment portfolio (usually in private equity), or managing real estate.

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Ultimately, it is the client who decides exactly how the family office will serve him and his family. The family office works on a variety of roles which give them flexibility in accordance with clients’ desires. They can invest the money themselves or manage their clients’ relationship with banks, investment companies, and other financial institutions. They can manage all of the family’s assets or only a portion of them. They can also be responsible for current or future disbursement of payments to family members.

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A family office can take on high-level investment strategies on behalf of their clients. They can be given the power to design the family’s corporate (holding) and private investment structures as well as assist in setting up wealth protection or other wealth planning blueprints.

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Stronger capital structure: The need for a leveraged recapitalization

In a leveraged recapitalization, a company changes its capital structure by replacing equity (stocks) with increased debt. The transaction becomes “leveraged” because the company issues bonds to pay dividends and provide cash to shareholders without requiring a total sale of the company.

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Companies that implement leveraged recapitalization benefit from some kind of tax shield and cash discipline as this would effect a significant reduction in active cash flow. Moreover, it makes the firm less vulnerable to a hostile takeover.

Leveraged recapitalization can serve as a turning point in the business process, in which internal change is an inevitable result. This includes the establishment of a new objective, changes in compensation systems, and reorganization of manufacturing and capital budgeting processes. The system effectively illustrates how financing decisions can impact organizational structure, management decision making, and business value.

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To speed up approval from the board for leveraged recapitalization, owners often offer investors the option to trade their holdings for a different class of securities of the firm. The only downside of this system is that the company might lose its strategic focus as stronger emphasis on bonds normally addresses “current” challenges and generates income from short-term projects.

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Eliminating the sustainability conundrum of high net-worth individuals

Social impact, credit rating, and investment performance are critical factors in determining the sustainability of high net-worth individuals’ (HNWIs) asset preservation potential. Just like any other wealth-building vehicles, HNWI investments are subject to market fluctuations and specific risks. However, with proper financial planning and strategies, undesirable results can be mitigated, if not eradicated.

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Sustainability is what HNWIs need to remain in their status. Doing so is not easy and requires strong commitment, perseverance, and research. Included in the equation is a good credit rating and security against identity theft. Wealthy people, naturally, are the most common targets of high-profile fraud, whether in a conventional setup or online.

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High net-worth investors might also need to consider their social impact as a critical factor in preserving their wealth and keeping losses at bay. It also has the potential to identify investment opportunities on which to place their money. Those that are directly affected by their profile in their respective fields are particularly good resources to tap into (celebrities investing in social media is a good example). All they need is a person to turn to for advice on opportunities and execution.

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The ultra-high net-worth community—composed of elites whose investible assets reach or exceed $40 million—are the primary driver for growth within the high net-worth wealth segment of the economy.  

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