February 2022 | 

Private Wealth Management: Creating Empowered Investors

Private Wealth Management: Creating Empowered Investors

It’s not hard to find investment advice. Advisors readily share a steady stream of stock picks, portfolio management tips, and inflation-beating pointers. What can be hard is sorting through it all, learning who to trust, and, as Wharton’s Richard Marston says, becoming a sophisticated consumer of that advice. “This is especially true for ultra-high-net-worth investors, who have access to investments that others don’t, and who, because of their wealth, may find themselves the target of unsolicited information,” he explains.

Creating sophisticated consumers is the goal of the Private Wealth Management program, which has been held at Wharton since 1999 with Marston at the helm. The program was first brought to Wharton by Charlotte Beyer, founder of the Institute for Private Investors (IPI), who designed the case study it uses. It is open to ultra-high-net-worth individuals and families; the registration process includes a confidential interview with IPI. “Our participants share many of the same challenges, whether understanding different kinds of investments for their portfolios, learning how to assess financial advice and investment performance, or even investing the funds received after the sale of a company,” says Marston. “One of the important takeaways is that these challenges are not unique, and there is much to learn from others who have successfully navigated them.”

Targeted Expertise

Program participants come with a range of knowledge about investing, and the faculty chosen to teach investment concepts — including portfolio risk and return, public versus private investments,or portfolio design— are skilled at making their content relevant and accessible to all. “Participants range widely in knowledge when they enter the program. A few may be seasoned investors in real estate or private equity, but others may be relative novices when it comes to investing,”says Marston. “Our faculty have a wealth of knowledge about the unique needs of these families and individuals, and enjoy working with them. And there are no conflicts of interest, unlike other learning opportunities.”

A topic of growing interest and importance is alternative investments, where ultra-high-net-worth investors have upwards of 50 percent of their assets. “Many of our participants have moved beyond public markets into private investing,” says Marston. “Private real estate, private equity, and venture capital partnerships, for example, are an important theme in the program. Our participants have access to these investment options that other investors don’t. But while it is relatively easy to join a partnership in real estate or private equity, understanding how to make these types of investments part of a diversified portfolio and how to choose a specific partnership requires a depth of knowledge most participants don’t have at the start of Private Wealth Management ,” he says.

Ultra-wealthy investors can easily get involved in speculative investments that they don’t understand, says Marston, and some investments are so risky you don’t want to be involved at all. “If your advisor says 15 percent of your portfolio should be in private equity, for example, you need to understand what that means and how to diversify those investments to minimize your risk. Venture capital investments, for example, need to be diversified enough so that even if a majority of the companies invested in go belly up, investors may still do well with a few successes,” he cautions.

Many participants are also interested in ESG investing, and the impact of environmental issues on stock returns has become another important focus. “Over the next decade,” says Marston, “there will be massive shifts in investments in energy, transportation, and other sectors. Some industries will experience explosive growth while others will be abandoned. Now is the time to understand where we are headed and to design portfolios that support this transformation.”

Building an International Peer Group

The interest in impact investing varies not just by generation — younger investors tend to be more concerned — but also by nationality, highlighting another strength of Private Wealth Management. Program participants are geographically diverse, with over half typically coming from outside the U.S. Families and individual investors from Brazil, Mexico, France, Belgium, Sweden, and China have recently attended. “A lot of the innovation in green technologies has occurred in Europe and China,” says Marston, “and the U.S. is now catching up. Those who are already involved in impact investing offer an important perspective.”

That international mix means the program deliberately refrains from presenting U.S.-centric knowledge and advice. “We don’t cover country-specific investment concerns such as tax and regulatory changes,” says Marston. “Sessions with our investing experts pertain to every participant, no matter their country of origin.”

Becoming CEO of “My Wealth Inc.”

The boom in IPOs over the past few years has resulted in record numbers of entrepreneurs who are transitioning from running their business to managing their money. “It looks deceptively easy from the outside,” says Charlotte Beyer. “But I have never met an entrepreneur who sold their business who didn’t say it was harder to manage their wealth than to build their business. The business was their passion. Once it’s sold, they have to deal with the proceeds, which requires a completely different skill set.”

Marston agrees, saying the task of preserving wealth is difficult and even confusing for those new to it. “You’re basically starting from scratch,” he explains. “Private Wealth Management is the right place to begin, because we teach all elements of investing, including how to choose a portfolio to meet family objectives; how to understand the different types of investments in that portfolio including stocks and bonds, real estate, private equity, and hedge funds; and how to monitor that portfolio to ensure top performance.”

Beyer adds that while the academic sessions fill in critical learning gaps, participants also learn from one another. They work in smaller teams each night on a case study that many describe as eerily similar to their own situation: a highly successful patriarch sells his company, hires an advisor too quickly, and makes mistakes. Family members become involved, and, inevitably, tensions arise. Participants in the program discuss the issues it raises, see how they are dealt with in other cultures and locations, and then devise investment plans for the family (which Marston describes as increasingly sophisticated).

The connections made between participants are furthered during meals, where they can choose to sit at tables with specific discussion topics such as second-generation concerns, choosing an investment advisor, or issues for entrepreneurs who recently sold their company. “These informal discussions are highlights for many of our participants,” says Marston. “They gain a group of trusted colleagues and friends who share their concerns and seek to work on solutions together. They learn through the program that their challenges are not unique.”