General Description for CI Investments Family Office

The office is now designed to support most general family needs inclusive of: financial investments and their returns and distributions to family members, personal security particularly when traveling for family members and key executive management, philanthropic issues both passive and non passive, toy management including usage schedules for watercraft, aircraft, shared real estate, healthcare and health insurance, third party legal considerations for investment activity, reporting, performance and estate issues.

We believe we have structured one of the more comprehensive family offices at this time because of an extensive support system in place for most aspects that are outside of normal daily living including direct third party interface for travel and travel coordination, security considerations for travel, banking access, tax preparation and filing etc. The system has been designed to utilize internet tutorial and individual budget planning templates.

Chief Considerations for Designing a Family Office Organization

Most existing family offices require restructuring to better suit the specific needs of the supported families involved. There are many facets to consider, but as general guidance, we can offer some of the challenges that were addressed during our re-organizational phase.

1) Is there an existing mandate and if so, what are the limitations and provisions that need to be respected and understood by management.

2) What is the primary motive for the creation of a family office and who are the beneficiaries and what roles do they play? In many cases, family members involved in a family office are not from the generation that created the wealth as a result of business sale or other origins. Each member generally has their own agenda. It is therefore generally in the best interest of most families to be run by third party, trusted management with checks and balances and regular reporting.

3) The financial structure of the family office is critical. Too many factors to consider for a short narrative, but generally consider what the goals of the office are. They may be as simple as just wealth preservation. They may be more complex and require a charitable component and perhaps an emphasis on wealth creation to support many families or individual family members.

4) When creating the family office, plan for the future. Simple guidelines: each family beneficiary needs to be broken down into subsets. Direct beneficiaries and spokespersons for the beneficiaries. Spokespersons might be a husband or wife that represents a family of five that are entitled to one share of distribution. In such cases, it is important to have one voice, preferably by bloodline as opposed to marriage. As the family members grow, considerations for fair and equitable distributions are needed as well as voting on issues. Generally, for larger families, a three or five person board should be elected by the eligible voting members of the individual families represented. They should serve for 2 year terms and be the gate keepers and hierarchy for management to report to. They generally refer all business issues to management and request that management present business solutions for the needed support and tasks for the family office in general.

5) If the office is required to provide annual or quarterly distributions, what are the intended or projected amounts and is this achievable by management, which will dictate what investment strategies they will use. For family offices over $25million in Assets, direct investments should be considered as it is a more efficient and beneficial way to manage money as opposed to third party selection. Smaller offices might consider consolidation with other families or a simpler version of this.

6) If there is a charitable component for giving, this needs to be baked into the office mandate and how it will be supported.

7) If there are other issues such as “support,” what is to be supported? Travel, common holdings such as “family residences,” planes, yachts and other items including family heirlooms need to be addressed.

8) Personal security issues relative to emergency, travel or general considerations such as kidnapping, extortion, media
management, etc. This is generally done by outsource except for the largest of offices. Security procedures such as
residence emergencies and incidences require personal attention such as a bombproof room in the living quarter areas
and one that has ample food, water and self-sanitation supplies for one month.

Private and personal information concerning dissemination of social security/social insurance numbers (or similar) or
home residence addresses should NEVER be given out to third parties except to your trusted prime bank. Everything
else should be done through trusts or corporate information.

If a personal background check is ever requested the only information to provide would be three (3) references who
have been instructed never to give out personal information such as residence or private contact information. All
mail and packages should be sent to a third party service and NEVER to one’ s home. All packages accepted should
be opened in a public place and the packaging should be discarded prior to bringing home for security and safety
reasons. You do not know where such packages have been, nor do you know if there is any sort of tracking device.
No cell phones should ever be in your name or have your social security or government ID attached to them and they
all should be private trackable enabled. Automobiles should all have remote starting devices. The same hotel or hotel
chain should not be used each time you travel to a city. Rental cars and airlines or private plane services should be
changed around regularly.

Particularly in floundering economic times, you must always avoid being a target of malfeasance that can often come
from the most innocent of settings where someone has access that should not. Any home security systems should
be installed by someone from out of the area and by the proprietors of the Company and their family only. Home
surveillance should be installed by a separate Company and should have an Internet feature for third party access in
case of emergency for health or robbery.

9) Compensation for family representatives for serving on the board should not exceed a reasonable sum. This is somewhat dependent on how much work is required. As a general rule, 10-15% of the annual distribution amount should be allocated for board expenses and compensation. Professional management should cost between 2-5% of the assets under management at the beginning of the year. In this way, a 10% gross performance return would equate to a net 5-8% before taxes.

10) Taxes can be a major consideration having jurisdictional implications as well as financial structure. With each new investment or division of the office, consider separate entities for liability and function purposes and use domiciles friendly to what you are intending to do.

11) Unlike what wall street has attempted to force family offices into (buyers of hedge fund and private equity fund products with some fixed income scattered into the portfolio), determine what best suits the office and what experience management brings. Most family offices were created from specific and targeted businesses as opposed to passive investments. Consider a grass roots approach to owning businesses as opposed to managing investments or managers of investments for which you have no experience in doing. 30+ years of doing this professionally still shows how little I know by comparison with what there is to know. This would suggest that focusing on an investment portfolio philosophy and approach targeting experience and skill sets has a better prospect of returning a higher rate of return as opposed to a shot gun, diversified portfolio of beta investments.

12) Consider running the office like a merchant bank if income generation for distribution purposes is a high priority. If there is plenty of money and not many beneficiaries, consider a very conservative approach in fixed income instruments not requiring much thought or monitoring. This might provide more time for the family to pursue enriching activities.

13) A family office should also be a focal point for a close-knit family that is cohesive and loving as opposed to dissent and problems. Design the office with care and much of this can be addressed during creation.

14) If the family office requires high income potential but does not have a specific business in mind, consider researching successful licensing and franchise opportunities where holdings can be increased with a high degree of prior success.

15) Individual and generational estate planning is critical. Again, too many variables to discuss. Ask your favorite attorney about private placement, self-directed life insurance policies. These can be customized to fit your needs and allow wealth transfer in cash and kind to beneficiaries tax free in every jurisdiction. Such policies are generally large (over $5mil in contribution) but also allow the policyholder to borrow against the cash value. At death, this is paid off with tax-free distributions to the beneficiaries listed. You will also need to find a bonafide company that will allow you to structure such a policy—generally a non-US Company is more flexible.

16) Health plan administration is also a consideration and a possible support point for larger offices with many beneficiaries. Part of the office is to support the specific needs of the individual members.

17) Investment monitoring. This always requires procedures to be put in place depending on the type of investments. Insist on annual audits and 3rd party administrators—no access by professional management to any accounts except for petty cash. This helps separate responsibilities. Unfortunately, the larger brokerage firms and professional investment TPA’s have gotten stupid with their fees. A more sensible alternative is to use a trusted law firm of regional size to reduce costs. When using law firms, negotiate fees and place caps and parameters. Use several firms to keep each on their toes. Do not let lawyers run anything. Give them specific direction and you will save big time. Lawyers love to blame everyone else. Hard to find good business attorneys but they are out there.

18) Good will preparation for estate planning reasons by all is a must. This avoids costly disputes in the future. There should be no exceptions to this.

19) Those that marry into an existing family office beneficiary situation must sign prenuptial agreements and should never be allowed to vote or speak for the individual family. All rights must be waived to any claim on assets. Provisions in mandate need to be in place to remove family members with spousal dissent issues from the benefits of the office until resolved.

If you have any questions that I might answer, please feel free to email me. I don’t charge for what I do to help others. This is a learning process and I have been fortunate enough to have learned from others. Our office is very unique and will likely continue to be. We are also contemplating sharing a portion of our short-term investment software with specific individuals representing family offices or other institutions. This would allow you to see what real time trading might be like and allow you to speculate in much the same way that we do. Although returns cannot be promised, the system generally produces 100-200% per year on invested capital. If you can make a case for the proper time allocation (at least one hour per trading day), I will consider sharing limited access to you by request. Please contact me under separate cover for this participation.

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