15 Top Books for Wealth Managers

Sunday, August 23, 2009 10:28
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15 Top Books for Wealth Managers

Wealth management is a broad and comprehensive field, something like the general practice of medicine in its scope. The practitioner needs a thorough grounding in all the different parts of the client's financial anatomy. Here are 15 top books covering basic aspects of this field. I recommend them all.

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1. Against the Gods: The Remarkable Story of Risk, by Peter L. Bernstein. Bernstein in this 1996 book chronicles the emergence of probabilistic thought and explains its profound importance in the development of civilization. Man learned to conquer risk when he learned to understand and quantify it, with implications for investing and many other aspects of life. Bernstein, a respected investment commentator and consultant, wrote just a handful of books; this one is magnificent.

2. The Black Swan: The Impact of the Highly Improbable, by Naseem Nicholas Taleb. The intellectual sparks thrown off by Taleb are just as random and unexpected as the investment market truths he describes. The probabilistic view chronicled by Bernstein (above) is enlightening but carries the seeds of trouble, Taleb would say, when humans limit their conception of the possible to anything within two standard deviations of the mean.

3. Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay. A fascinating history first published in 1841, this book is periodically reissued. Mackay offers ample evidence that financial hysteria and market manias are nothing new, nor are their causes. Let's hope it gets published again while Alan (Bubbles) Greenspan is still with us, so he can write a new forward.

4. Family Wealth: Keeping It in the Family, by James E. Hughes, Jr. Other forms of family wealth are much more important than money, many thoughtful observers believe. One of those observers is Hughes, an attorney, noted family counselor and a truly wise man. He provides the basic framework to help families understand and nurture their nonfinancial wealth. Insightful and also highly useful for family members.

5. The History of Interest Rates, by Sidney Homer with Richard Sylla. Homer was the bond meister at Salomon Brothers for many years, and knew whereof he spoke. He explains how the yield curve may be the most powerful distillation of information we have, incorporating mankind's hopes and fears about future economic and political well-being. What are interest rates trying to tell us? You should know. But if not, Homer offers guidance. Last published in 1996 and still available used.

6. Integrated Wealth Management: The New Direction for Portfolio Managers, by Jean L.P. Brunel. This sure-footed guide helps serve as a cognitive bridge between the world of institutional management and the world of private wealth management. The essence of the difference between those two worlds can be boiled down to one word: taxes. Brunel emphasizes their profound importance in advising private clients, and rightly so. The book's second edition came out in 2006.

7. The Management of Investment Decisions, by Donald B. Trone, William R. Allbright and Philip R. Taylor. Trone and his colleagues focus on the investment process from a fiduciary's perspective in this 1995 book. Much work has been done in the area since then by Trone and others, but this book offers a strong foundation that remains fully relevant today, for private-client advisors as well as those in the institutional world.

8. The (Mis)Behavior of Markets: A Fractal View of Risk, Ruin and Reward, by Benoit Mandelbrot and Richard L. Hudson. You'll need your thinking cap for Mandelbrot, the inventor of fractal geometry, so put it on and get ready for a fascinating ride. The authors said this in 2004 when the book was published: "The odds of financial ruin in a free, global-market economy have been grossly underestimated. In this sense, the common man is wise in his prejudice that...markets are risky. But financial theorists are not so wise..." Mandelbrot and Hudson proceed to tell you why.

9. Real Options: A Practitioner's Guide, by Tom Copeland and Vladimir Antikarov. One duty of wealth managers is to give clients more real options, cards they can hold in their hands to provide flexibility and choice in the future. Simple examples are the ability to convert term to permanent life insurance, or to refinance a mortgage without penalty. Real options can get infinitely more complex, and are worth study. There are many others potentially in tax, estate planning, business succession, etc. This 2001 book is the only one I know on the topic.

10. Wealth: Grow It, Protect It, Spend It, and Share It, by Stuart E. Lucas. The author is a wealth manager and an inheritor (the Carnation fortune), as well as an insightful writer--a rare triple-play combination. Published in 2006, the book is comprehensive and professional, yet practical. It's also very wise, and would benefit members of wealthy families. If you have such clients, buy it for them. It's addressed to family members in a family governance context; investment issues are secondary.

11. Pioneering Portfolio Management: An Unconventional Approach to Institutional Management, by David F. Swensen. This is one of the most important investment books, with a new edition out in 2009. Contrary to recent media reports, the endowment approach pioneered by Swensen at Yale was not discredited in the recent financial panic. Rather, many practitioners failed to appreciate the extent of their liquidity needs, something they won't forget again for a while.

12. Wall Street vs. America: A Muckraking Look at the Thieves, Fakers, and Charlatans Who Are Ripping You Off, by Gary Weiss. Keep this book close at hand in case you ever go wobbly and start thinking kind thoughts about Wall Street. Just a few pages will get your head straight. Weiss tells it all in detail, from the rapacious bankers to the feckless regulators. First published in 2006.

13. Wealth Management: The Financial Advisor's Guide to Investing and Managing Client Assets, by Harold R. Evensky. A pioneering practitioner's guide, this book was published in 1997 and is now difficult to find. Evensky is a veteran financial planner and a leader in that field. Along with Ross Levin (see next), he rightly places wealth management as a sub-discipline of financial planning.

14. The Wealth Management Index: The Financial Advisor's System for Assessing and Managing Your Client's Plans and Goals, by Ross Levin. Advisors miss a bet when they focus their clients' attention solely on investment returns. Levin has a better mousetrap in this first-rate 1997 book and describes it in detail, offering a framework for quantifying client progress toward reaching key planning goals.

15. Winning the Loser's Game, by Charles D. Ellis. If your client will only read one book about investing, see that this is the one. First published in 1975, the Loser's Game remains fresh and insightful. Attempting to outperform the market was a fool's errand then, and remains so. Charley Ellis explains why in a lucid and compelling way.

Some of the above were written by serial authors who have done other books worth a place on the wealth manager's bookshelf. They include Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life, by Naseem Nicholas Taleb; Unconventional Success: A Fundamental Approach to Personal Investment, by David F. Swensen; and Family: The Compact Among Generations, by James E. Hughes, Jr.

 

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