HOFFMAN,
WHITE & KAELBER FINANCIAL SERVICES, LLC
Investment
managers & Wealth Advisors
This is the July 2005 monthly Wealth Management newsletter from Hoffman, White & Kaelber Financial Services, LLC. If you do not wish to be included in our circulation, please reply indicating your desire to be removed and we will be happy to oblige. Alternatively, any of your friends or colleagues may receive this on a regular monthly basis by sending their name and email address to info@hwkfs.com. Feel free to forward this to any of your friends who may find it useful. Thanks for your interest and I hope you enjoy the letter.
Which do
you think comes first – to be comfortably wealthy or to be wealthy and
comfortable? It depends!
An alarming
new problem seems to be striking Americans: Sudden Wealth Syndrome. Steven R. Pritzker, Ph.D. writes: “
Offering
yet another scenario, Harvard's senior philanthropic adviser, Charles W. Collier
has had many opportunities to observe the social and psychological dimensions
of financial wealth as it relates to the development and functioning of
families. In a recent interview he
noted: “Raising children in the context
of substantial financial wealth creates additional challenges in helping to
develop competent, responsible citizens.
Significant financial wealth (and the messages and modeling around that
wealth) has the potential to curb motivation and isolate children from the real
world.” He believes families with wealth
need to think seriously about sending positive messages concerning money to
their children and undertake “a program of financial education tailored to each
family member”.
Collier
also sees “a number of challenges connected with the opportunity of families to
govern themselves wisely. First, there
is the issue of communication and secrecy.
Families are not [often] accustomed to talking with their children about
money, its meaning, or its uses for them and succeeding generations. The second challenge is that as families
expand and new in-laws marry the next generation, there is often great
diversity within the family culture. Thus, it may be hard for families to agree
on where they want to go, much less even to meet once or twice a year.”
As mentioned in our prior newsletters, we strive to provide
articles on various aspects of wealth management to assist your understanding
of why planning for the present and for your future has importance. Yes, we also promote our services; yet, you
will find that we always seek to present thought provoking topics that are
relevant to our wide audience.
With this month’s letter, I’m happy to announce a new
addition to the Hoffman, White & Kaelber team. Dan Elash, Ph.D. (in psychology), is our new
V.P. of Client Relations and authors this month’s newsletter. I’m sure you’ll find his views on family
quite thoughtful and enlightening.
Lastly, we will finish with a review of the investing climate for the
month past, the current market outlook and our investment performance.
Pursuing a
Worthy Purpose
Each and every human
organization has a purpose, whether it is a business, a not-for-profit
organization or a family. One’s purpose
is one’s reason for being. It provides guidance
in ambiguous times, it creates a powerful focus for channeling energy and
resources, and it enables savvy decision-making.
Dig into the
backgrounds of the most successful organizations you know and you will find
them organized around the pursuit of goals that are important to them. They seldom drift off course. They aren’t easily distracted. They have a clear vision of the future they
are working to create.
Although every
organization has a purpose, not all organizations have articulated their
purpose clearly. The clearer the purpose
the more proactive they can be toward achieving their mission. Not only are these skills critical for
survival, these advantages are often the keys to long-term success. By the same token, every family has a purpose
at its core.
Unlike a business
endeavor, the fundamental purposes of a family are often assumed rather than
clearly stated. Let me repeat this! They are assumed. They operate implicitly.
In order to
understand the purposes of a family one has to look at how decisions are made
within the family. The pattern of
choices often reveals the true purpose or lack thereof. This pattern reflects the lived, as opposed
to the espoused, values of the household.
When a family learns to channel these values to be focused on working
toward a common purpose, there is a logical consistency in the pattern of
choices that is clearly discernable.
Without a clear purpose, patterns are harder to recognize, decisions are
more serendipitous, and the evidence of competing agendas is seen in actions
that conflict with each other over time.
Effective
Wealth Management for a Family
At its essence, the
value of a family’s wealth is its ability to create options for them. In order to calculate the best option or
choice at a particular time one needs a consistent reference point, a
compelling purpose. Otherwise, our
choices tend to be short-term and less consistent then they would be
otherwise. The greater the wealth, the
more options available. The more options
available, the more difficult it is to make consistently satisfying
choices.
Clarity leads one to
exercise options most wisely. So, what’s
required?
In order to develop
the most powerful strategy for managing its wealth a family needs several
things. These are:
Articulate a
Vision for Your Family
The first step in
creating a powerful focus for your family is to clearly articulate a vision of
the future you are striving to build. Where
are you going as a family moving through time?
How will you know when you get there?
What will success look like?
Just like a corporate
vision statement, this is a conceptual piece.
It doesn’t need to be lengthy or detailed. It needs to be broad enough to capture your
definition of success. It needs to be
compelling enough that it stirs the passions of all involved.
This vision serves as
a platform for your efforts to manage your wealth. It lets you and your advisors know the goals
and measure progress toward them. It
enables everyone involved to check priorities, critically evaluate decisions,
and assess progress from the same point of reference. It allows everyone involved to recognize the
need to shift gears or change course without becoming distracted from the main
goal.
The family vision
statement also provides the basis for on-going conversations about family
values, beliefs and choices. Expect that
your vision statement is a living document that will evolve and grow as the
family and its circumstances change over time.
It also provides a key benchmark for maintaining a powerful family focus
and for reducing conflicting agendas.
Family
Leadership
Many corporate vision
statements prove to be useless as little more than wall hangings over
time. In these cases it isn’t the
concept but the execution that has failed.
A leader’s vision that never captures the imaginations of the
organization will not work. Neither will
a vision statement that lacks authenticity.
This means that the people involved need to believe in the vision enough
that they will commit to making it happen.
The job of the leader or leaders of the family is to create a vision
broad enough to include the aspirations of all involved. Not just their own! They must nurture conversations so that
everyone can see themselves benefiting from working to realizing the
vision. It is through these on-going
conversations that children grow in wisdom as they age and share a common
family focus.
Working toward a
compelling purpose provides a rational context for people to make sacrifices
for something worthwhile, to develop and maintain discipline, and to strive to
fulfill their potentials. These
challenges are often difficult for wealthy families to master. When there is enough wealth to indulge those
we love, people can lose perspective and children can fail to develop the inner
strength necessary to ensure their psychological satisfaction throughout their
lifetimes. Growing in the context of a
family purpose worthy of self-denial and commitment to goals bigger than one’s
self is particularly valuable for families with great wealth. It fosters genuine self-esteem and
self-respect in people.
Family leaders can
use their clear purpose to guide the family’s decisions on a day-to-day
basis. It establishes the game plan for
how family members need to relate to each other and to their resources in the
rush of daily living. They can also then
use that game plan to guide their advisors and ensure that the advice they
receive serves their core purposes.
Shared Purpose
People tend to fall
into comfortable ruts and routines.
Without constructive provocation we tend to become self-absorbed. We make assumptions and think that we know
each other better than we do. Families
can use their vision statement as the vehicle for discussing their needs, their
relationships and their values in a pragmatic manner. It provides a context for periodic reflection
and realignment with each other and their shared goals.
Families are often
wracked by the conflicting agendas of their members as people grow and evolve
over time. Without a common purpose
fissures emerge and people often grow at odds with each other. The dynamics are too complex to detail here,
but suffice it to say that the more families are built around a common
definition of success the stronger they are at managing these natural
conflicts. They are also better
positioned to use their wealth to create the conditions that lead to success
for everyone. Great wealth doesn’t have
to be the source of conflicts, resentments and frustration that it often
becomes. However, if its value is to be
optimized, it must be viewed in the context of the family’s purpose.
Knowledge and
Skills
Great wealth has the ability
to help the family aggregate the knowledge and skills required to thrive over
time. It can enable the family to gain
the information and operational intelligence to make shrewd decisions. It can be used to build the skills of its
members as they grow and evolve. It can
be used to hire the skills that family members lack. It is the clear vision of the future that the
family is striving to create that allows family leaders to be wise in the
decisions they make and the advisors they choose. The better the knowledge and skills at the
family’s disposal are aligned around a common purpose the more valuable they
become.
Concluding
Thoughts
To start off my
contribution to our firm’s monthly newsletter, I sought to open conversation
toward considering goals for managing your wealth. At first blush, people often say their goal
is to preserve or to grow their wealth.
However, to build a productive plan to serve your needs, either of these
answers is insufficient. I look at them
as only partial answers because they beg the real question, “…in order to
accomplish what?” Without addressing the
rest of this question, plans can never be as productive as they could be. Without a clear, compelling purpose to anchor
your plan there is too much room for ambiguity, inadequate decisions, and
ultimately, disappointment.
The implications are
clear. Wealth managed for a compelling
purpose will be better managed than it will be when the family’s goals are
vague and amorphous. Preserving and/or
growing wealth is important. However,
these efforts will be more productive for the family when they occur in the
context of “in order to accomplish what?”
I’m here to help.
Hoffman, White & Kaelber Financial Services Investment
Performance Update
The greatest puzzle about
the current
This relaxed view of the outlook is not shared by the Fed, which seems more
worried about inflation than the bond market and is not particularly concerned
about signs of weakness in the economy.
Moreover, some Fed governors and regional bank presidents have recently
expressed concerns about the pace of price growth in the housing market.
Any confirmation of
faltering growth over the next few months could send long-bond yields much
lower. Ironically, this will exacerbate
the housing bubbles in the
If the Fed is right about inflation being a bigger threat than a more
pronounced deceleration, then the bond market is in for a nasty surprise. Early evidence of such a scenario would
include further rises in core inflation and renewed strength in key sectors of
the economy, especially manufacturing.
This could lead to a sharp rise in long-term bond yields over the next
year. This could bring about an abrupt
slowdown in the housing market and hurt growth prospects.
For the month ended June 30, 2005, our
one-month performance is off 0.73%, our year-to-date return is up 1.22%, and
our average annualized return since inception is up 8.33%. While volatility has become exceedingly
vigorous in the equity markets, our risk profile continues further
downward to +/- 5.83%. This
conservatively low risk level remains consistent with our strategy. With our expectation that this statistic
gains increasing importance, our Sharpe Ratio is more than respectable at 1.16.
Is a comfortable retirement or preservation of wealth important to
you?
Want better long-term results from your investments?
Choose Us As Your Investment Manager!
Research us on the web at www.hwkfs.com