Goals–Based Wealth Management: An Integrated and Practical Approach to Changing the Structure of Wealth Advisory Practices

Praise for Goals–Based Wealth Management

"When in 2002 I wrote the foreword to Jean Brunel′s groundbreaking first book, Integrated Wealth Management, I noted how Jean ′was known for telling it like it is but shouldn′t be... [and] inventing the way it could be.′ In Goals–Based Wealth Management, Jean is once again ′ahead of the pack,′ incorporating the best of the past decade′s lessons by devoting his laser–like intellect to capture new and innovative ways to manage wealth and wealth management firms! This book will be a valuable reference for professionals for many decades to come."
Charlotte B. Beyer, Founder, Institute for Private Investors and author, Wealth Management Unwrapped

"Already one of the deans of the private wealth field, Jean Brunel has written the definitive book on goals–based wealth management. He clearly outlines the rationale for this highly sensible and effective approach to investing and then takes great pains to show how it can actually be implemented in the real world. It is a brilliant and muchneeded piece of work which should be required reading for all true wealth advisors and, I dare say, many wealth owners themselves."
Tom McCullough, Chairman and CEO, Northwood Family Office; Adjunct Professor, Rotman School of Management; and co–author, Family Wealth Management

"Good financial advisors are competent, conscientious, and compassionate guides. They guide clients to their goals as no robo–advisor can. Jean Brunel has been such a guide for decades. In this wonderful book, founded on behavioral portfolio theory, he helps fellow advisors do the same."
Meir Statman, Glenn Klimek Professor of Finance, Leavey School of Business

"The uniqueness of the book is that it marries deep investment process knowledge with the experience of dealing with family clients for decades. Brunel′s wisdom is particularly insightful in the role of the advisor."
Maria Elena Lagomasino, Managing Partner and CEO, WE Family Offices

"You′d be forgiven if you thought Jean Brunel′s most significant contributions to the profession were behind him, but in this tome he has drawn on his wisdom accumulated over 40 years in practice to synthesize his work and others′ to develop a definitive goals–based practice management framework for those serving the wealthy. Rather than replicate and rehash technical details, he draws on unassailable principles of wealth management, such as wealth being a responsibility for both the wealth manager and the wealth owner as well as the government sharing in both returns and risk with the taxable investor, to guide the wealth manager′s practice. In doing so, he humbly defines an operating framework for the practitioner."
Stephen M. Horan, PhD, Managing Director and Co–Lead, Education, CFA Institute

"Goals–Based Wealth Management is a provocative concept and a must read for individual wealth holders and their professional service providers. Wealth owners view their wealth individually and this concept gives a platform to achieve financial and non–financial goals. I recommend Jean Brunel′s latest book to creators of wealth and the beneficiaries of that wealth creation. It is a responsible way to look at financial wealth in the context of individual and family integrated goals. We have been clients of Jean for more than a decade and have benefited from his ability to truly understand the objectives of his clients. I am so glad other families and professionals will now be exposed to this proactive approach."
Jesse Fink, Managing Member, Marshall Street Management

An Integrated and Practical Approach to Changing theStructure of Wealth Advisory Practices

Acknowledgements

Preface

Introduction

Part 1: The Integrated Wealth ManagementChallenge

Chapter 1: Many interrelated disciplined

Multiple Sources of Capital

Expanding on the Corporate Analogy

Multiple Interactions

Educating Future Generations and Wealth Transfers

The Make or Buy Decision

The Creation of a Wisdom Council

Summary and Conclusions

Chapter 2: An Example of a Crucial Interaction:Tax–efficiency

The Tax Bite and its Impact on Compound Returns

A New Analysis of Capital Losses

An Expanded Definition of Active Management

Applicability to Both Asset and Security Decisions

Abandoning the Murky Middle the Barbell Portfolio

The Potential Role and Limits of Derivative Strategies

Summary and Conclusions

Chapter 3: The Need for a Financial Interpreter (Giventhe Complexity of the Investment Process)

What Makes Markets Work?

Asset Classes, Sub–asset Classes and Strategies

Developing Reasonable Expectations

Performance Analysis and Reporting

Summary and Conclusions

Part 2: Investment Policy Formulation Goals–BasedAllocation

Chapter 4: A Brief Journey through InstitutionalTheory

Five Important Features of the Typical Institutional InvestmentOrganization

A Quick Detour via Asset Liability Management

Summary and Conclusions

Chapter 5: Mapping Institutional and Individual Issues

The First Crucial Difference

A Second Important Difference

A Different Way of Defining Risk

The Law of Large Numbers

Implications

Summary and Conclusions

Chapter 6: Goals–Based Strategic Asset Allocation

The Basic Principle

Initial Theoretical Objections

An Academic Imprimatur

A Few Simple Principles

It Changes Everything

An Interesting Implication

Summary and Conclusions

Part 3: Goals–Based Wealth Management Implementation

Chapter 7: Dealing with the Implications of theProcess

Covering a Set Number of Bases

Mapping Asset Classes and Strategies to Goals

Understanding Limitations

Dealing with Client Objections

A Three–phase Process

Summary and Conclusions

Chapter 8: Creating Goals Modules

Developing General Capital Market Expectations

Describing Sufficiently Generic and Specific Goals

Creating Constraints Appropriate to Each Goal

Optimizing the Composition of Each Module

A Possible Example

Summary and Conclusions

Chapter 9: Working to Understand Client Goals and GoalAllocations

Identifying Crucial Initial Client Constraints

Determining Whether Any Constraint Is a Show Stopper

Time Horizon and Required Probability of Success

Settling on the Appropriate Module

Sizing Assets Needed to Meet Each Goal

A Possible Example

Summary and Conclusions

Chapter 10: Finalizing a Goals–based Policy Allocation

Two Possible Approaches

Working from Assets and Modules to a Whole

Description of Deviation Ranges

Our Original Example, Modified and Completed

Summary and Conclusions

Chapter 11: Managing the Portfolio Tactically

The Complexity in the Absence of a Systematic Tool

Introducing the Concept of a Tilt Model

Five Possible Variations on the Same Theme

A Major Pitfall

A Possible Example

Summary and Conclusions

Chapter 12: Portfolio Reporting

The Current Challenge

A Simple Analogy

Adding Taxes Makes Things Even More Complex

Summary and Conclusions

Part 4:  Managing an Advisory Practice (And How thatCan Impact the Sustainability of Advisory Firms)

Chapter 13: The Currently Typical Firm Structure

Many Chiefs and Few Indians

The Root of the Challenge

Contrary Examples in the Legal and Medical Fields

A Simple Illustration

Summary and Conclusions

Chapter 14: Teams versus Individuals

Too Many Disciplines for Anyone to Master All of ThemFully

Specialists When Left Alone Lead to Silos

The Crucial Role of the Team Coach

Only One Individual Can Play That Role

Summary and Conclusions

Chapter 15: An Alternative Structure

The Primordial Role of the Advisor

The Missions the Advisor Should Not Accept

The Difference between Must and Does Not Need to Be Tailored

Imagining a Different Firm and Process Architecture

The Kind of Leverage that Can Be Built

Dealing with Objections

A Difficult Decision

Summary and Conclusions

Conclusion

About the Companion Website

About the Author

Index

JEAN BRUNEL, CFA, is the managing principal of Brunel Associates, a firm that serves ultra–high–networth individuals and their advisors. Formerly he was the chief investment officer of J.P. Morgan′s global private bank and a director and member of the Executive Committee of J.P. Morgan Investment Management, Inc. He has been the editor of the Journal of Wealth Management since 1998 and the author of Integrated Wealth Management: The New Direction for Portfolio Managers, as well as many peer–reviewed articles. He received the C. Stewart Shepard award from the CFA Institute in 2011 and the Multi–Family Family Office CIO of the Year award from the Family Office Review in 2012.