The Hazards of Wealth

 If you are an entrepreneur and are smart about your wealth, you will be interested in Jacoline Loewen and her interviews in “Becoming Seriously Wealthy.” Jacoline shares conversations with entrepreneurs and stories of their financial journeys.  In this excerpt from her book, Jacoline explores the hazards of wealth.

Jacoline Loewen is a leader in the high performance wealth management arena. She has invested over 25+ years in entrepreneurship, finance and wealth management, having written several best seller books, including Money Magnet, (John Wiley) publisher).

Two weeks ago, I enjoyed a lunch with a former client at his private residence, looking across his sprawling lawn to the horse paddocks and fields. When I worked for a family office, I convinced this entrepreneur to partner with private equity. After six years, and much hard work, he succeeded in that entrepreneur dream where he sold his business and became wealthy beyond his financial goal set ten years back. 

I was curious how the sudden wealth had impacted his life and asked, “Now that you are a few years along from your sale, what is your big insight? We all think sudden wealth is wonderful but what are the risks? Do you think there are hazards to wealth?”

He laughed, “It's similar to winning the lottery.  It is wonderful and it is a shock to your life, your family, your friends and peer group. The question no one is going to ask you is ‘How are you going to replace this self esteem?’ You've been up Everest and back. Now what are you going to do for thrills and fun?”

My friend then commented, “Do you notice how many entrepreneurs buy an airplane? They have all this hunger for life, for adventure, and now that they have the money, buying a plane and learning to fly seems like a very good idea.”

The CAA reports that the most dangerous pilots statistically likely to have accidents or catastrophic incidents are those pilots with one hundred hours of experience, but less than five hundred. Jack McLeod, Skye Finance, who sold aircraft to entrepreneurs says, “Generally, this group gets bored with pre-flight checks and take short cuts to ‘show off’ to friends and family, feel nothing about flying inclement weather and are not too familiar with flying on instruments alone. Experience and hours are all important.”

My entrepreneur friend had been part of the Strategic Coach program run by Dan Sullivan which uses the Kolbe personality and skill assessment tool.  Apparently, the Kolbe test shows that it is common for entrepreneurs to be quick to start, but to not carry through with attention to rigorous and systematic detail.  He said, “Entrepreneurs learn how to fly initially, but soon skip through the tedious fifty-point check lists prior to flying and overlook the weather conditions. How many tragic tales do you know of entrepreneurs crashing their planes with loved ones on board? Remember the young Kennedy who crashed his plane at night, with his wife onboard?”

Thankfully, most entrepreneurs have been shown to be astute enough to recognize flying is not their skill set and to hire an experienced pilot. The entrepreneurs recognize that while they were talented at their skill set, flying and getting licensed takes time and attention they do not really want to dedicate.

Flying yourself, rather than hiring a pilot, is a terrible way to risk your future. It's misguided, risky and unfortunately, a common first foray into travel by former business owners.

The reality is risks, such as flying planes in poor weather, Black Swan events, pandemics and disasters are all out there. In the finance world, this risk is called beta . A beta of 1.00 is at the market level. If it's 1.5, it's approximately 50% more risky than the market. If it's 0.30 then it's 70% less risk.

When you run with entrepreneurs, risk is rarely mentioned. It's about returns. Winner takes all. Beta does not factor.

As you decide how to look after your wealth, you may want to be the person making all the calls. I have watched many entrepreneurs over the years. Don't fool yourself into believing you can call the risks. I would advice an entrepreneur with new wealth to ask if you want to spend your time checking on your money? Will your family be at risk if you are doing the decision making? What is the worst case scenario for your wealth? Above all, can you do a better job than the professionals with all of their time dedicated to understanding how to grow and keep wealth? Do you have their technology, their experience , their global view of the world, their ability to overcome country bias and the knowledge of beta which is harvested from overseeing your peers’ wealth?

Very much like the skills of the pilot , the skills of managing wealth are increasingly complex. Ensure you have the experts and, the world's best at wealth management .

 

Interested in risk-testing your portfolio? Please email me at jacoline.loewen@ubs.com

If you would like to read more of the series Becoming Seriously Wealthy, please email me at jacoline.loewen@ubs.com  

Twitter: @jacolineloewen

Praise for Money Magnet, J.B. Loewen

"Every ambitious private business owner should understand the role of investors and how to attract them. Money Magnet is an indispensible guide to the process."
—Austen Beutel, Chairman and CEO, Oakwest Corporation Ltd.

What are the fees for sale of your business?

For all of you entrepreneurs and business owners who are thinking about an exit, I am excited to tell you that the new M&A Fee Guide 2018-19 report by Firmex and Divestopedia is a must-read. After checking out this report, Founders and Owners will benefit from having a realistic and up-to-date overview of the fees for a proper advisor (not your accountant). Facts make you confident in selecting an expert. 

Over the years, I have observed how the fear of fees can be a block to exploring the wide range of ways to grow the business or exit. I have seen many owners think that fees will be too much.  Then they try and do by themselves - this most emotional job of all.  Don't be cheap on this part and don't think your accountant alone is the right expert. Get the facts. I think most owners will be surprised.  

Also, I have certainly seen that by using an advisor, you attract a better quality of buyer and end up with a sale price that fits expectations. Do check out this report and don't let fear of fees cost you lost profits.

Success fees, work fees, break fees…. M&A advisory fees can be structured in various ways and can differ greatly from region to region and city to city. I highly recommend checking out this free report to get a true assessment of fees for your sale of your business. Based on a survey of 480 M&A advisors – AKA the experts who will go out and find qualified buyers for your company and help negotiate the sale – this guide provides valuable data on what advisors charge their clients and why.

An exit can put owners in an uncomfortable position. While you know how to run your business better than anyone, this doesn’t necessarily mean you know how to sell it. When owners seek the expertise of advisors to help with a sale, they aren’t always familiar with how the process works or the fees that are being proposed. This report will provide the inside scoop you need to negotiate fees and terms for the sale of your business with confidence that you’ve done your homework.

I have personally partnered with my company with BDO and appreciate their ability to work with Canadian companies and their unique circumstances. Adam Mallon, the Managing Director of Transaction Advisory Services, for the mid-market, is someone who can read the situation and give clear and fair feedback to the founder as if it were his own business. Adam is one of the sponsors of the report which is an indicator of the accuracy.  

What I enjoy about Adam is that he does not waste time and gets to the real issues quickly. Adam says, 

“Sale mandates are complicated and, as this research shows, the associated fees can be calculated in many different ways. While price is an important element, is not the most important one. When selling a business, engagements can be long, intense, and often emotional. Business owners should make sure that their advisor is experienced, qualified, and a good fit personally.” 

Great advice for anyone who’s gearing up for a sale!

Get the Full Report
To download your free copy of the M&A Fee Guide 2018-19, click here.

Billionaires share one characteristic: They were not born billionaires.

The following is an excerpt from the Bloomberg Markets article titled How UBS Became Home to Half the World’s Billionaires

By Elisa Martinuzzi and Joel Weber | October 3, 2017

BLOOMBERG MARKETS: Almost half the world’s billionaires bank with you. That’s a distinct set of clients. What have you learned from them?

SERGIO ERMOTTI, CEO of UBS Bank: It’s always fascinating to hear how they became so successful. When you look at billionaires, many of them share one characteristic: They were not born billionaires. I was in Asia recently, where I met a few, and they have quite impressive stories. It feels like the American dream, only it’s no longer just in America. The main lesson for me is that with passion, focus, vision, determination, you can do a lot.

BM Which trait most stands out?

SE You see a lot of passion for what they do. And the same level of focus. It’s quite clear that it’s not all about money. Of course some people care about that, but at the end of the day, they enjoy what they do.

BM How much time do you actually spend with clients?

SE Not as much as I would like. The most interesting discussions are actually when we are fortunate enough to bring them together. We organize events where our clients can get together. It’s also a way for them to foster a level of cooperation, of getting to know each other—which is important for business regardless of UBS being involved or not.

BM You’re like Tinder?

SE At these events we are a kind of sophisticated speed-­dating organizer, sure. It adds value for our clients. Take Art Basel. The idea is that people attend because they share a common interest, a passion. And while attending the events, maybe they start to talk about other issues or opportunities.

BM What did you think of UBS before you got here?

SE I thought it was an incredible franchise with almost 150 years of history that had survived a dramatic moment. My predecessors had stabilized things, but it was not clear yet what the path was going to look like going forward. I’ve always been impressed by the fact that, as bad as things got here, only 2 percent of clients closed their accounts. I figured the franchise and the quality of the people who are able to retain the clients during such a crisis must be extremely high. My view was, I want to be a part of this.
Bloomberg Markets: How would you describe your business today?

SE We are the undisputed global leader in wealth management. We think that this is a huge advantage. It’s a very fragmented market still. And if I look at our position and the growth expectations of wealth creation, which is expected to be twice as high as GDP, we should stay focused on doing this. Sell-side analysts, rating agencies, and the media still consider us an investment bank. I find it totally ridiculous. If you look at where our business comes from, we are basically the world’s most expensive investment bank and its cheapest asset manager.
BM What advice did you get when you arrived here?



Jacoline Loewen and team

SE Some competitors were telling me, “Shut down the investment bank; we’ll serve you.” They wanted to grab flows and build out their business. People also told me to sell Wealth Management Americas. My popularity would have soared, especially in Switzerland; UBS wouldn’t be where it is today; and I doubt I’d still be here. That was a defining moment—to say, These are businesses we can turn around. It was a good reminder that the consensus is not necessarily the right thing to do.

BM Was there a company, maybe even outside your industry, that you looked to for inspiration?

SE Not for strategy. But when I joined, I said I wanted UBS to be the Apple or the IBM of the financial-services industry: from glory, to near-death, and then back to glory.

Read Full article here
Follow on Twitter @Jacolineloewen

Wealthy families and their trusts

Trusts that use multiple advisers. 
Traditionally, the directed trust model called for electing a trustee and an investment adviser. Now, the wealthiest families are slicing and dicing trustee duties into many different functions. 
Directed trusts are showing up with as many as eight different roles, including a “special assets advisor,” a “distribution advisor” and a “trust protector.”

How do you select a financial planner when you sell your business?

When you sell your company and all of a sudden, you have millions to invest, it can make you quite giddy. All of a sudden, your long last relatives will appear on your doorstep asking for a loan or an investment. Your niece will want you invest in her new app which is "brilliant".  Suddenly, you can access wealth manages who need you to have more than $2million to open an account. These wealth managers are the elite of financial planners.

Financial planners advise clients on how best to save, invest, and grow their money. They can help you tackle a specific financial goal—such as giving you a macro view of your money and the interplay of your various assets. Some specialize in retirement or estate planning, while some others consult on a range of financial matters. At the very least, they should find out about your family.

Don’t confuse planners with stockbrokers — the market mavens people call to trade stocks. 

Financial planners also differ from accountants who can help you lower your tax bill, insurance agents who might lure you in with complicated life insurance policies, or the person at your local bank urging you to buy their off the shelf mutual funds.

Anyone can hang out a shingle as a financial planner, but that doesn’t make that person an expert. They may tack on an alphabet soup of letters after their names, but CFA (short for certified financial planner) is the most significant credential. A CFA has passed a rigorous test on the specifics of personal finance. CFAs must also commit to continuing education on financial matters and ethics classes to maintain their designation. The CFP credential is a good sign that a prospective planner will give sound financial advice. Still, even those who pass the exam may come up short on skills and credibility. As with all things pertaining to your money, be meticulous in choosing the right planner.

Their firm is important. Some small planner make you pay dearly. They are smart but you end up paying more as they still have to place orders for your portfolio and they will have to pay a fee and pass that along to you.