Book Review: Freedom from Wealth

Freedom from Wealth: The Experience and Strategies to Protect and Grow Private Wealth. 2011. Charles A. Lowenhaupt and Donald B. Trone.

Review by Mark Harbour, CFA

Wealth is the slave of a wise man. The master of a fool.

–Seneca

An innovative collaboration between Charles Lowenhaupt and Don Trone, Freedom from Wealth is intended to guide investors, and those who serve them, in forming more holistic (and prudent) plans for managing wealth.

The book is divided into two sections, one for each author. The first section contains reflections by Lowenhaupt, who began his career as an attorney and, following his family dynasty, grew into a seasoned adviser to global families of wealth. A number of great questions and ideas in this section should stimulate wealth holders to review their fundamental priorities (or advisers to serve as catalysts for such action). Some samples:

• What is your wealth for? Exploring this question has two clear pathways (with many possible degrees of purity): the first is freedom and functionality, the second is control. The initial discussion describes the importance of exploring this area as fundamental to establishing objectives.
• How does one build comfort in a relationship with wealth? If freedom is the desired result, one must be able to be comfortable; thus, some analysis of what makes one uncomfortable is required.
• What do you really want your children to learn, and how do you want them to learn it? How do you want them to lead their lives? One interesting observation the author makes is that “exclusive courses limited to children of wealth do not help those children adapt to real life. In fact, those courses may unnecessarily isolate them from the rest of the world.”

Chapters 5–11 provide many examples of strategic possibilities in considering the relative importance of wealth, including philanthropy, governance, legacy planning, and educating the next generation. These chapters are thus good to review when prioritizing a family’s objectives.

Lowenhaupt notes that there are two fundamental components to investment advisory work: understanding the investment and understanding the investor. Lowenhaupt’s section clearly focuses on seeding conversations and formulating questions that aim at understanding the investor on a deep, fundamental level. The section crisply identifies the client’s key priorities as the most important aspect for the wealth holder and the adviser to discuss. However, as most of these topics reach deeply into the wealth holders’ personalities, I suspect that additional resources in psychology, behavioral finance, or family dynamics would prove particularly useful in putting these ideas to work. Although most advisers don’t feel comfortable probing their clients’ real intentions too closely, an integrated management process simply requires it.

The second half of the book provides a more dogmatic road map for the application of the theories discussed in the first section and is referred to as the user’s manual. It outlines the application of these principles in detail.

Trone suggests that of the five most prominent leadership theories espoused by business literature today, no one theory suffices. Accordingly, this position is defined as a meld of servant leadership, situational leadership, transactional leadership, and transformational leadership, and it requires emotional intelligence. This approach seems to call for a relatively small population of uniquely qualified players. Perhaps some practical suggestions as to where and how to find and qualify them would prove helpful.

In addition to comprehensive process descriptions, the second section of this book contains numerous insightful suggestions, including:

• When developing job descriptions, identify purpose rather than function. Performance assessments can then be approached from a more holistic perspective and will be more aligned with results than with activity.
• Make a clear distinction between your code of conduct and your code of ethics. The former is based on rules and the latter is grounded in principles. Rules are compliance driven, whereas principles require “full engagement of the head and the heart.” These days, that distinction is unusually important, but not typically discussed.

This book is a valuable combination of ideas that help investors and their advisers clearly articulate their objectives and then turn those objectives into a well-designed action plan to achieve them. It is as comprehensive a road map as I have seen.