Family Capital. Curtis Gregory

dialogue as it actually happened, some of this dreariness will be dissipated and readers will recognize themselves and their families in the conversations.

      Organization of the Book

      The chapters in this book follow each other largely in the order that most families will encounter the various challenges involved in managing private wealth. Consequently, the book is designed to be read straight through from the preface to Chapter 11. However, there is no reason a family or advisor couldn't decide simply to read an individual chapter, say, the chapter on setting investment objectives. In that case, the reader may wish to review the Titan family tree, which appears at the front of the book, in order to keep the family members straight.

      The book is organized as follows:

      Prologue. In the prologue I introduce the Titan family, founded by a poor Italian immigrant named Georgio Titano. Over the course of a remarkable lifetime, Georgio will launch a business, change his name to the more American-sounding George Titan, marry a pretty Scots-Irish girl named Ellie, father two children who lived to adulthood, and die quite a wealthy man. We will also meet George's children and grandchildren and some of his later descendants.

       Chapter 1 . In Chapter 1 we fast-forward to the mid-1970s. I chose that period for two reasons. First, it's the most remote investment decade that people now alive will well remember, and hence in some sense it represents the beginning of the “modern era” of investing. Second, the mid-1970s were dominated by the terrible Bear Market of 1973–1974, an event seared in the minds of anyone, including myself, who lived through it. In the late summer of 1974, George Titan III, grandson of the original George Titan, will make a catastrophic investment mistake that will eventually result in the loss of his wealth. Shirtsleeves-to-shirtsleeves in three generations is the normal outcome for wealthy families, and George III's branch of the Titan family proves to be no exception.

       Chapter 2 . We are now well into the modern era. It is 2005, and Ned Titan and Rose (Titan) Wainwright, fifth-generation descendants of the original George Titan, join the family investment committee and begin to learn the business of managing capital. When their father suffers a second stroke, he steps down from his role at the family office and Ned and Rose succeed him as stewards of the family fortune. We observe their interactions with the advisory firm their father had engaged and watch as they make at least one serious investment error. As the great Financial Crisis of 2008 settles across the land, Ned and Rose find themselves floundering. Unhappy with their current advisor, they find out, almost fortuitously, that there are other, more interesting advisory options available to them.

       Chapter 3 . Here we follow Ned and Rose Titan as they search for and ultimately engage a new financial advisor. The Titans meet with various firms, put together a request for proposal, interview the finalists, and hire a firm we will call Spenser Advisors. Over the years the Titan family had progressed through string of satisfactory and unsatisfactory advisors: a local trust company, a bank, a brokerage firm, and, finally, Spenser – an independent, employee-owned, open-architecture firm.

       Chapter 4 . In Chapter 4 the Titans meet for the first time with their new advisor. The purpose of this meeting is to discuss governance issues and investment policies, but the real purpose of the meeting is for the family and their new advisor to become acquainted. We meet the lead advisor for the Titan account, Clarissa (Carrie) Knowlton.

       Chapter 5 . The creation of an investment policy statement for a family is all-too-often glossed over. Many advisors simply pull out their standard-form policy statement and change the name at the top of the first page. But Spenser Advisors considers the policy statement to be a crucially important document. Moreover, Spenser believes that the process of creating the policy statement is itself a very important learning experience for both the family and the advisor. As a result, the entire Jake Titan branch of the family attended this meeting, and we meet Ned and Rose's children, who are all young adults. Carrie Knowlton sensibly brought along to the meeting a younger advisor from Spenser named Roger Epperson, since she believed that the Titan children might relate better to a younger person.

       Chapter 6 . As with the creation of an investment policy statement, the establishment of appropriate investment objectives is a crucial task. If the investment objectives for the family are improperly understood or incorrectly articulated, all else will fail. Carrie Knowlton and Roger Epperson had managed to involve the Titan children in the process of setting objectives, viewing this approach as being more likely to capture the interest and attention of the younger family members.

       Chapter 7 . As all advisors know, asset allocation is a vital part of the capital management process. Unfortunately, asset allocation often seems impenetrable to family members. Carrie and Roger devoted a very long meeting to describing the process and answering the family's questions about it.

       Chapter 8 . Most investors, especially including family investors, dramatically overestimate the impact that investment managers will have on their portfolio returns. In this meeting, the Spenser advisors do their best to put managers in the proper context, pointing out to the Titans that many other aspects of the investment process will probably have a larger impact on their returns.

       Chapter 9 . Once an advisory relationship is up and running, most of the meetings between a family and its advisors will center on performance reporting. In Chapter 9, we listen in on the initial performance reporting meeting between the Titans and Spenser, as Carrie Knowlton and Roger Epperson walk the family through the nature of performance reporting and the actual performance reports.

       Chapter 10 . This chapter assembles in one place a variety of topics that are more or less directly related to investing capital, but which don't require the full treatment of a dedicated chapter. Spenser and the family discuss family investment education, how value is added to portfolios through the portfolio management process, the use of investment committees, and socially responsible investing.

       Chapter 11 . In the course of any long and close advisory relationship, many topics arise that are not directly related to investing but that can nonetheless have a dramatic impact on whether the family remains wealthy across many generations. This chapter isn't meant to represent an exhaustive list of these types of topics, but only a representative list. The Titans and Spenser discuss, for example, hiring an asset custodian, using family limited partnerships, philanthropy, the family office, how much money to leave the kids, and, finally, the delicate topic of economic inequality in America. Inequality is a major concern to all Americans, but it has a special resonance for families who aren't just in the 1 %, but in a tiny fraction of the 1 %.

      Throughout the book I make periodic observations, commenting on the discussions that are going on. Most of these comments are designed for wealth advisors, but they may be of interest to families as well.

      A Note to Middle-Income Investors

      This book describes a very wealthy family as it struggles to manage its wealth and to discharge its stewardship obligations to future generations. More than anything else, the Titan family is striving to avoid the usual outcome for the rich: shirtsleeves-to-shirtsleeves in three generations.

      On the other hand, the issues the Titan family grapples with are, for the most part, the issues every family faces in managing its money. We tend to think that “the rich are different,” but in my experience, Hemingway was right: