Global Standards for Private Wealth Management (Standards)

Transcription

1 Global Standards for Private Wealth Management (Standards) (To accompany the Principles of Wealth Management for Private Wealth Holders ) Whenever used in the Principles and the Standards the term: Wealth Holder may include: An individual of wealth; Trustees of a trust; Directors or trustees of an eleemosynary (foundation, operating charity, or endowment), or corporation (partnership); or Any person holding substantial wealth as a legal owner under the laws of the jurisdiction involved. Wealth is intended to include the investable assets and portfolio(s) of the Wealth Holder. Standards Director is intended to define the representative appointed by the Wealth Holder(s) to be responsible for the management of the Wealth in accordance with the Principles and the Standards. The Standards Director may be the Wealth Holder or a member the family. It is expected that the Standards Director will prudently delegate whenever the Director lacks expertise, or capacity, in a particular Standard. The Standards Director may serve in the capacity of an agent, steward, or fiduciary; and will likely be drawn from one of the following professions: Law; Accounting; Investment management; Banking; or Investment consulting. Investment Manager is intended to include not only a person managing a separate account, but also a person managing a mutual fund or a commingled trust. Service Provider(s) is inclusive of family office staff, attorneys, accountants, Investment Managers, investment consultants, custodians, and any other advisor providing investment-related services. The Standards are written to have global application no matter where the: Wealth Holder(s) is domiciled or residing; or Wealth is held in custody or located. Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 1

2 Notes to persons reviewing these Standards: The objective has been to identify Standards which are applicable to most, if not all, Wealth Holders. The Standards are intended to build upon one another, as opposed to each Standard having sufficient language to stand alone. To facilitate review of the Standards, there is a deliberate attempt to economize on words, and to use terms which have global application. Principles of Wealth Management for Private Wealth Holders Global Standards for Private Wealth Management 1. The wealth holder, the Trustees of a Trust, or the Directors of a Foundation shall articulate purposes, goals, objectives, expectations, and risk tolerance with respect to the Wealth; and shall be ultimately responsible for maintaining the currency of that articulation. Standard 1: The Standards Director prepares, monitors, and maintains a written statement which defines the Wealth Holder s goals and objectives in terms of: a. Core values: what the Wealth is for, and what does the Wealth Holder hope to accomplish with the Wealth; b. Time horizon for the management of Wealth (perpetuity; multi-generational); c. The relationship between Wealth and social or personal considerations; d. Mission-based or philanthropic activities; e. Long-term investment performance i. Absolute returns ii. Relative returns; and f. Risk management i. Financial risks ii. Governance risks iii. Hazard risks. Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 2

3 2. With respect to a Family Office, a Trust, or a Foundation; the governance structure together with various governance roles and responsibilities shall be clearly set forth and shall include provision for the communication of those roles and responsibilities and assurance that they are understood and accepted. STANDARD 2: The Standards Director: a. Defines in writing the roles and responsibilities of the Wealth Holder, and others providing advice to the Wealth Holder; and b. Confirms that each Wealth Holder, and others providing advice to the Wealth Holder, demonstrate an awareness of their roles and responsibilities. 3. Any Trust or Foundation and any Trustee or Director shall adhere to best fiduciary practices; and there shall be established process for monitoring the discharge of fiduciary duties by the Trust, Foundation, a Trustee, or a Director. STANDARD 3: The Standards Director defines in writing fiduciary best practices to be followed by all persons serving in a fiduciary capacity. (Continued on next page) Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 3

4 4. Succession shall be set out where possible and shall be considered. For the Wealth Holder, provisions shall be in existence for disposition of assets and management of affairs from and after death or in the event of incapacity. For the Family Office, Trust, or Foundation; provision shall be made for succession of governance and management. STANDARD 4: The Standards Director: a. Ensures that succession plans are in place for the Wealth Holder; b. Concludes that reasonable provision is made for succession for those providing advice or service to the Wealth Holder; c. Secures from legal counsel the appropriateness of wills, charters, trust instruments, appointments of successors, and similar instruments effectuating succession for the Wealth Holder; and d. Establishes or confirms there is a process in place periodically to review the succession plan for the Wealth Holder, and to review succession plans that are in place for others. (Continued on next page) Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 4

5 5. Each investment portfolio shall be diversified as completely as practical. There should be diversification of asset classes, investment managers, investment style, currencies, banking and brokerage exposure, and geopolitical risks. STANDARD 5: The Standards Director: a. Defines in writing an asset allocation and investment strategy for the management of the Wealth that is consistent with: i. Risk tolerances; ii. iii. iv. Asset class preferences (taking into consideration the Wealth Holder s other assets); Mission-based or philanthropic objectives (if defined in Standard 1); Investment time horizons; v. Performance objectives; and vi. Rebalancing guidelines. b. Ensures that the asset allocation and investment strategy are consistent with the Standards Director s implementation and monitoring constraints. 6. Every portfolio shall have an investment Policy statement, and every manager shall have a clearly articulated mandate; and the investment Policy statement and mandate shall be monitored. STANDARD 6: The Standards Director ensures that, for each portfolio, there is defined in writing an investment policy statement that includes monitoring criteria. (Continued on next page) Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 5

6 7. Any investment portfolio shall be designed taking into account the assets, objectives, needs, and character of the owner and/or beneficiary; and should be monitored with those in mind; and a Foundation shall have a process to determine whether the investment program reflects the values of its mission and its philanthropic grant program. STANDARD 7: The Standards Director defines a process to periodically monitor the investment management program to ensure that it is meeting defined goals and objective (Standards 1 and 5). 8. There shall be clear, disciplined, and objective process for selecting, monitoring, removing, and replacing investment managers, custodians, banks, trade execution, accounting, and other professionals. STANDARD 8: The Standards Director defines a process to periodically evaluate the performance of all professionals involved in providing investment management services, including: a. Investment Managers; b. Custodians; c. Broker dealers; d. Investment consultants; e. Accountants; f. Attorneys; and g. Any other investment service providers. (Continued on next page) Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 6

7 9. Any investment manager or specific fund to be used shall have a strategy and style which can be easily understood and explained to others by the Wealth Holder or by one of the trustees, directors, or staff members of the Trust, Foundation, or Family Office. If no one other than the Investment Manager or the fund representative is able to explain the strategy and style, the manager or fund shall not be used. STANDARD 9: The Standards Director defines a process for selecting Investment Managers, which includes, as a minimum, the following due diligence screens: a. The Investment Manager has a defined investment strategy that is consistent with goals and objectives (Standards 1 and 5), and can be understood and explained to others by the Wealth Holder, or the Standards Director. b. The Investment Manager has a defined investment strategy that can be monitored by the Standards Director. c. The same investment management team has been in place for a period commensurate with the period of the performance evaluation. d. Securities in the Investment Manager s portfolio are consistent with the stated investment strategy. e. Investment performance has been verified by an independent third-party, and compared to the Investment Manager s peers. f. Investment performance adjusted for risk has been compared to the Investment Manager s peers. g. The Investment Manager s fees and expenses have been compared to the Investment Manager s peers. h. The investment structure (separate account, mutual fund, commingled trust, or hedge fund) is appropriate for the given strategy, and the Standards Director s ability to monitor the strategy. Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 7

8 10. Special scrutiny and limitations should be applied to any Investment Manager who does not provide complete transparency, or whose portfolio is not liquid. Such investments are not prohibited, but should be limited in proportion to total portfolio investments. STANDARD 10: The Standards Director defines a process which flags and limits investments with any Investment Manager: a. Who does not provide complete transparency of their investment holdings; b. Is investing in illiquid assets; or c. Whose fund or program is not transparent, or is illiquid. 11. Custody of assets, accounting for assets, and investment management services shall each be performed independently and separately. STANDARD 11: The Standards Director defines a process for evaluating custodians and broker-dealers, which includes, as a minimum, the following: a. As a best practice, custodians are independent of Investment Managers, except as may be required by trust law, or by the necessity of employing a commingled investment vehicle. b. Custodian can provide appropriate security of assets, with insurance or otherwise. c. Custodial statements provide sufficient detail that the Standards Director can monitor the Investment Manager s best execution of trades (generation of soft dollars). d. The expense ratio of the custodian s cash sweep and money market fund is compared to peers. e. The ability of the custodian to provide investment performance reports and tax reporting. Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 8

9 12. There shall be established a process for managing and monitoring internal and external resources. STANDARD 12: The Standards Director develops and places in operation a defined process for monitoring Service Providers. 13. There shall be full transparency of fees and expenses. STANDARD 13: The Standards Director periodically analyzes all fees and expenses associated with investment management including: a. Fees paid to Investment Managers, custodians, and investment consultants; b. Brokerage costs, and use of soft dollars; and c. Fees and expenses of Service Providers. 14. Compensation and fees paid to staff, directors, and governors of Family Offices, Foundations, or Boards shall not be calculated on the basis of investment return of shorter duration than five years. Any salary, bonus, or fee must be fully disclosed as to its amount and its calculation. Any direct or indirect payment to or for staff or governors other than a payment designated salary, bonus, or fee (or similar designation) is prohibited. STANDARD 14: The Standards Director periodically reviews compensation agreements and service agreements of Service Providers to ensure that they do not contain provisions that: a. Conflict with goals and objectives (STANDARD 1); and b. Are based on short-to-intermediate-term (less than five years) investment results. (Continued on next page) Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 9

10 15. Self-dealing by staff, trustees, or directors of any Family Office, Trust, or Foundation is strictly prohibited. Investment portfolios of these parties shall be subject to strict disclosure rules which ensure compliance with the prohibition against self-dealing. Any grant or payment to any agency or company in which such a party has any interest whatsoever should clearly reflect that interest in the deliberation relating to that grant or payment. STANDARD 15: The Standards Director defines in writing an ethics statement, and periodically checks for conflicts of interests. The ethics statement requires all persons involved with managing the Wealth to: a. Annually acknowledge the ethics statement; and b. Disclose all conflicts of interest as they become known. END OF STANDARDS To complete a survey and opinion poll on the Standards, please go to For questions or comments, please contact: Don Trone Charles Lowenhaupt Strategic Ethos Lowenhaupt Global Advisors [email protected] [email protected] (860) (314) Global Standards for Private Wealth Management Copyright 2009, Strategic Ethos. All rights reserved. Page 10