Banking for family business a new challenge for wealth management part 2
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Banking for family business a new challenge for wealth management part 2
5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2rs or hold quotas or shares in family-owned firms (private companies) have some very particular features as regards investment or asset management. As a matter of fact, wealth management providers have to take into consideration two aspects of this type of clientele. On the one hand, an entrepreneur Banking for family business a new challenge for wealth management part 2 and his/her family or an entrepreneurial family are considered to be individuals with their own assets and annual income flows which must be optimizeBanking for family business a new challenge for wealth management part 2
d according to the established principles of asset management. On the other hand, however, the source of the income flows is closely linked to the man5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2s in terms of optimizing the client's wealth.This particular aspect has always had and continues to have considerable influence on those providing advisory services to entrepreneurs and entrepreneurial families. When financial intermediaries realized that this type of clientele presented some rather Banking for family business a new challenge for wealth management part 2 unusual features they began to gradually change their private banking activities. Although these activities initially focused mainly on managing theBanking for family business a new challenge for wealth management part 2
financial assets of high or very high net worth individuals, irrespective of the source of their wealth, they gradually turned into highly personalize5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2rall assets i.e. “wealth management'’. The search for a new role also meant segmenting the high or very high net worth clients even more and identifying groups of clients -including entrepreneurs and their respective families - with diversified needs due to the different source of their income or as Banking for family business a new challenge for wealth management part 2sets portfolio.Moreover, the entrepreneur clientele often requires services involving deal planning, deal structuring and funding special transactionsBanking for family business a new challenge for wealth management part 2
for companies in which the entrepreneur or his/her family hold equity stakes. Therefore, in the competitive arena, it is common to find not only oper5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2 consulting.This chapter focuses on the relationship between personal and company asset management. Since a considerable part of the family assets are tied up in running the company, it is necessary to examine how corporate finance and corporate financial advisory services are integrated within the Banking for family business a new challenge for wealth management part 2overall personalized management services. It is also necessary to precisely define what kinds of services can be offered, when they can be offered andBanking for family business a new challenge for wealth management part 2
who can provide these types of services and the kinds of business models they have developed.The chapter is divided in the following way. Paragraph 25 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2onsequences in terms of the services requested to optimize the personal wealth of the entrepreneur and his family. This paragraph aims to describe, in a prescriptive way. the services that an operator should provide in order to be considered a credible partner in the wealth management business. Base Banking for family business a new challenge for wealth management part 2d on the different kinds of services required, paragraph 4 describes the effects on the offering and the prevailing business models. As regards the fiBanking for family business a new challenge for wealth management part 2
rst point, we explain the links between private banking, corporate finance and the advisory services offered to entrepreneurs or entrepreneurial famil5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2ciated with management consulting and corporate finance. We also describe developing trends in wealth management services for family businesses that are empirically observable at the international level.5.2 Corporate Finance Operations and Wealth Management Services for the Entrepreneur and His/Her Banking for family business a new challenge for wealth management part 2FamilyCorporate finance and corporate finance advisory services in the area of family business - often referred to as M&A services - have one thing inBanking for family business a new challenge for wealth management part 2
common: what changes hands in a transaction is represented by a firm or part of a firm. Corporate finance advisory usually deals with shares or quota5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2 firm (parent company) by means of an equity carve-out or a spin-off before the sale takes place.5 Corporate Finance and Financial Advisory for Family Business 117As regards integrated wealth management services for entrepreneurs, there are two kinds of operations, depending on the owner's objective Banking for family business a new challenge for wealth management part 2:1entry and exit business operations:2operations aiming at the organizational and managerial rationalization of the existing businesses or the reorganBanking for family business a new challenge for wealth management part 2
ization of the existing ownership structure.The first group of operations involves the acquisition of assets or company equity stakes (even by resorti5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2l operators (private equity) or through listings on the Stock Exchange.1The second group involves a different approach. In the first place, it can involve modifying the company assets so that the organization and management structure best suits the company profile and the separation between company Banking for family business a new challenge for wealth management part 2wealth and personal wealth is sharper.2 A company is likely to request these services when it has reached a more mature stage in its life cycle. By thBanking for family business a new challenge for wealth management part 2
at time, its turnover is so high and management structure so complex that major changes in management have to be introduced. In this connection, parti5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2 tax havens. This group of operations also includes reorganizing the company ownership structure in order to resolve succession issues through donations, acquisitions/intrafamily sale of shares, spinoffs or mergers.This is shown in Fig 5.1. The matrix is made up of two dimensions.The first, shown on Banking for family business a new challenge for wealth management part 2 the horizontal axis, indicates the presence of equity stakes in the entrepreneur's assets. When the company is small, the legal form of the firm is lBanking for family business a new challenge for wealth management part 2
ikely to be an individual firm (a firm entirely owned by a single person) or a partnership. However, it has been empirically demonstrated that when co5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2terized by very different financial structures. The role of private equity is statistically more impoilant when the business is at a more advanced stage of development and when the company is rather large. See also Fenn and Liang 1998. As regards exit from the business through IPOs, Bitler, Moskowit Banking for family business a new challenge for wealth management part 2z and Vissing-Jorgensen 2001 empirically demonstrate that the percentage sold by the entrepreneurs has a negative impact on the subsequent valuation oBanking for family business a new challenge for wealth management part 2
f the firm. This confirms the literature on market signaling (the sale of a small quota should indicate that the entrepreneur has a good opinion of th5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2creating independent legal structures and concentrating equity stakes in the hands of the entrepreneur. However, transforming physical assets (the firm) into financial activities (equity stakes) affects both asset management - the acquision or sale of companies takes place through the acquisition or Banking for family business a new challenge for wealth management part 2 sale of equity slakes - and the lax system. As a mailer of fad. in many lax systems, the gains derived from the acquisition or sale of a company arcBanking for family business a new challenge for wealth management part 2
liable lo taxation jusl like corporate income. However, lhe capital gains derived from lhe sale of equity slakes by a physical person (lhe entrepreneu5 Corporate Finance and Financial Advisory for Family BusinessStefano Gatti5.1 IntroductionWealth management services for clients who are entrepreneur Banking for family business a new challenge for wealth management part 2sIUEs c LUI ra c p X3 &Medium/largeX OJp 5Ị. p c ễ oa □ pFirm Size ----;»Individual/SmallGọi ngay
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