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Wealthy families unprepared for market downturn


After 15 years of relative prosperity, most wealthy families were unprepared for the dramatic turn of events that led to recent market crisis, according to a study by Family Office Exchange and Harris myCFO.

The study, Managing Threats and Opportunities through Effective Risk Planning, found that many families are still recovering from the market downturn and determining the best actions to manage the events likely to follow, including regulatory and tax changes, realignment of compensation structures and changes in public attitudes toward wealth.

The study outlines the best strategies and techniques for managing downside risks while emphasising the importance of capitalising on new opportunities for wealth enhancement.

It also identifies a management process for families that ensures thoughtful deliberation during times of crisis or uncertainty.

The study says families must have the willingness to communicate fears and concerns about the future and an ability to reach consensus on their most critical risks.

They should implement a process to continuously scan the environment and surface potential threats as well as wealth enhancement opportunities.

Family members must also recognise that wealth comes from risk-taking and have a clear decision-making process for determining which risks are appropriate for the family.

"With the financial crisis still fresh in the minds of wealth owners, families are motivated to re-evaluate their structures and processes for mitigating downside risk and capturing upside opportunity," says Sara Hamilton, founder and chief executive of Family Office Exchange. "Wealth owners have a better understanding of their own reactions to extreme events and are now ready to make changes that will provide them with consistent decision-making even during times of crisis."

"Our partnership with Family Office Exchange for this study underscores the importance we place on being a thought leader for clients during periods of economic change," says Joe Calabrese, president of Harris myCFO. "Throughout our participation in this research, we have had the opportunity to share many of the risk management processes that are ingrained in our practice, while learning about how others address risk in the financial and other facets of their lives."

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