Mr Poggioli (aged 64) is the Managing Director of a successful family business. The business, Poggioli Pens Ltd, specialises in making high-quality writing pens and accessories. The business has grown significantly in the last decade, especially in Asian markets. A professional corporate valuation firm was engaged to value the business in 2022. The estimated total value of the company at that time was £4,000,000.
Mr Poggioli (who owns 50% of the company’s shares) will retire from his active role in the family business in three months’ time (assume today’s date is 1st February 2023). This decision was made over a year ago, and Mr Poggioli has been outlining his plans to the other major owners of the business – his son, Renato, and daughter, Greta. Renato (who owns 25% of the company shares) is currently acting as the Finance Director for the company, and Greta (who owns the remaining 25% of company shares) is the newly appointed Production Director. Mr Poggioli also has a younger child who is studying in Paris for the next four years.
Whilst there are many issues to be resolved as part of the succession planning for the business, Mr Poggioli has requested advice regarding three specific issues, as follows:
Investment Portfolio Construction
Mr Poggioli wishes to part-fund his retirement from the family business by investing £1,000,000 in a bespoke investment portfolio. He has not yet met with you to discuss the full nature and purpose of the investment portfolio, but he has indicated that his overall aim is to generate a personal annual income of £55,000 (before tax) from the investment portfolio, and that he is willing to accept some risk if the portfolio compensates him with sufficient additional returns. In addition to the personal income required, Mr Poggioli would also like to extract £15,000 per annum (for the next 4 years) to pay for the university fees of his youngest child. The other data you have available at present is outlined below:
▪ Mr Poggioli is willing to invest in all classes of investment asset, and has also indicated that he believes that markets in South America offer promising returns, and would like some exposure to this market;
Mr Poggioli has a total personal wealth of £4,000,000. This total value can be disaggregated as follows: the value of equity shares in the family business is £2,000,000 (based on the professional valuation in 2022); £900,000 (an estate agent valuation in November 2015) in the value of a residential property; £1,000,000 in existing investments –these assets will be sold and the value transferred to the new investment portfolio; and the remaining £100,000 is currently being loaned to Mr Poggioli’s cousin to support a private business venture in Laos.
Upon retirement, Mr Poggioli will have an income, derived from his membership of the Poggioli Pens Ltd Directors’ Pension Scheme, of £50,000 per annum (before tax).
Family Business – Transfer of Control
Mr Poggioli is aware that his elder children, Renato, and Greta, have widely divergent views about the future direction of the family business. He is concerned that his withdrawal from an active role in the business will lead to conflict at the board level. The agreed succession plan (as developed in 2019) is that Renato will become the new Managing Director of the company after Mr Poggioli’s retirement, whilst Greta will remain the Production Director. However, Mr Poggioli is now considering an option to recruit an external candidate into the role of Managing Director for an interim period of three years. The youngest child is not expected to enter the family business after university, but Mr Poggioli plans to transfer 1/5th of his shares in the company to the youngest child after the completion of his educational studies.
Fees / business model
Mr Poggioli has requested further information regarding the nature of the fees that he will have to pay for the construction and ongoing maintenance of his investment portfolio.
Required
You are to adopt the role of a wealth manager working in a family office. You have been assigned the task of responding to the specific issues outlined above.
To complete the assignment, you must provide two deliverables as follows:
Deliverable One: The Investment Portfolio
You are to prepare a report that recommends a portfolio of investments for Mr Poggioli. The report should include:
▪ Specification of the individual investments selected.
▪ A rationale for the selection of each element of the investment portfolio that refers to either the needs and attitudes of your client, the portfolio benefits derived, or both.
▪ Computation of the expected returns of the portfolio over an appropriately selected time horizon (detailed computations should be included in the appendices to your report).
▪ A critical discussion of the risk attached to the investment portfolio.
▪ Documentary evidence outlining the details of the investment products you have selected.
This might be in the form of printed materials or screen prints from electronic sources. This material should be included in an appendix.
▪ An appendix that states and justifies the assumptions you have made in preparing the report.
You should assume that Mr Poggioli would invest in the recommended portfolio on 1st May 2024 (this is therefore the date of your report and the date to use for the valuation of your selected investments).
Word limit for Report: 2,500 words (excluding bibliography, references, and appendices).
Deliverable Two: Family Business Issues and Fees
Prepare a letter that outlines:
i. The possible strategies that might be used to avoid conflict within the family business, and how all the children can be treated equitably given the current succession plan (and how the succession plan might be amended to improve the potential outcomes).
ii. The fee structure you recommend being adopted with respect to the design and management of the investment portfolio, with supporting justification for your approach.
Word limit for Letter: 500 words (excluding bibliography, references, and appendices).
Note: Total word count for Deliverable One and Deliverable Two combined: 3,000* words
