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Who is Your CFO?
In the corporate world, a team of skilled advisors led by a Chief Financial Officer helps the CEO manage the finances of the business. This internal relationship sits at the heart of every company’s financial world. In a family, the role of CFO is frequently filled by an outside entity. In our experience, it is the vitality of this relationship – between the family and their primary advisor - that will determine the outcome of a family’s financial blueprint.
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Independence
Conflicts exist in the financial services industry. It is important that we recognize this reality and tailor wealth management strategies accordingly. These parallel needs are the key to any discussion on independence. We believe that an advisor’s claims to independence should be evaluated on two narrow metrics: a firm’s architecture and the compensation arrangement that supports it.
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Leadership
Wealthy families typically manage multiple relationships, each of which has input into the family’s financial affairs: a short list of preferred brokers, one or two CPA’s and a team of attorneys, each with their own niche specialty. A successful Family CFO must have the time, the skills and the aptitude to ensure that The Big Picture is understood by everyone involved. No matter how well asset managers perform, if tax and estate issues are not addressed, the end result will be disappointing or, worse, disastrous.
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Investment Philosophy
There may be many successful approaches to investing, but we believe that there is only one way to make any approach successful: the steady, consistent application of methodology and process. These two parallel but distinct concepts reveal the way in which an advisor chooses to interact with the capital markets, both through the tools they use and the manner in which they gather, order and interpret the variables that impact portfolio performance.
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Access
Access is a simple concept: a firm’s ability - which cannot be easily replicated - to consistently offer opportunities in top-tier investments. The challenge lies in the fact that top-tier managers, funds and private investments are surprisingly exclusive: we don’t choose them, they choose us. Although we identify the firms with whom we want to work, we can’t force them to take our client’s money.
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Process
How many times, when interviewing advisors or discussing your portfolio with your current advisor, have you been asked these two questions:
   1. What are your return objectives?
   2. What is your appetite for risk?

We believe these questions are meaningless except when framed within the context of a thoughtful framework.
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Performance & Reporting
Every client wants to know how their investments are performing, how their portfolio is doing compared to relevant benchmarks, how well their cash flow is being managed and how much they are paying for these services. Yet every client struggles to balance the need for this level of information with the desire to have it presented succinctly. Many family offices and independent advisors offer a similar service, but with one key distinction: few, if any, offer the ability to incorporate private and alternative investments within the context of a composite report.
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Who is Your CFO?
Independence
Leadership
Investment Philosophy
Access
Process
Performance & Reporting
Process

How many times, when interviewing advisors or discussing your portfolio with your current advisor, have you been asked these two questions:
  1. What are your return objectives?
  2. What is your appetite for risk?
We believe these questions are meaningless except when placed within the context of a thoughtful framework. At the core of this framework lies the conviction that balance sheet goals determine return objectives, and that these return objectives determine portfolio risk. This is an iterative process that encompasses a wide-ranging conversation and touches on estate planning, income needs, insurance, business transitions, etc. Despite the breadth of the conversation, however, there are a handful of essential ideas, which underlie our thinking:
  • Our clients understand the income necessary to support their lives. This does not mean they all have detailed budgets. It simply means that our clients are aware of their cash flow, can articulate anticipated changes to it, and comprehend the choices and limits it offers.
  • Tax issues and inflation are critical elements of the equation that leads us to return objectives.
  • Individual managers and ideas can only be evaluated within the context of the overall allocation.
  • Correlation between asset classes means more to us than likely returns from individual managers. This relates to the previous point, but casts the observation in terms of capital preservation. Diversification between managers is only meaningful when those managers do not perform similarly during market fluctuations.



  
 
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Copyright © 2007 The CAPROCK Group, all rights reserved. The CAPROCK Group is an SEC Registered Investment Adviser. This communication is not a solicitation or offer to sell investment advisory services except in states where we are registered or where an exemption or exclusion from such registration exists. All written content is for informational purposes only and may not constitute a complete description of available investment services. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns.