Wealth Management From a Banking Perspective

Good morning!

I dreamed a pleasant dream that you were suddenly awash in all the wealth you truly deserve.

Then I came to and thought, “Oh no, the bankers are coming!”

When private bankers come, and come they will, you need to have an easy-to-remember schematic about their jobs.

Here we go…

The Private Bankers

I’m going to talk to you today about wealth management because I imagine some of you are doing swimmingly in your business and investments.

You’re probably going to get in a position where private bankers will solicit you for business. 

First, private banking, wealth management, and private client services are synonymous.  (Unfortunately, finance has at least three names for every one service or product.)

Private banking is a step up from retail banking.

When I teach this to my classes, I always say, “Rich people have rich people’s problems.”

They don’t have poor people’s problems anymore, and they’re surviving just fine. They’ve got a roof over their head, and they can engage in “impulse buying.”

But they still have problems nonetheless.

Let’s talk about the five problems that rich people encounter and why bankers would be eager to help them out… for a “small” fee.

Asset Protection

With people in office like Joe Biden, Justin Trudeau, Boris Johnson, Scott Morrison, and Jacinda Ardern, the entire Anglosphere and its governments are not only broke, but spending ever more of other people’s money. Let’s not even get into the EU…

They’ll never admit to this. So, where will Government get this additional loot to spend?

They need to go and raid your coffers. Governments will do anything that they can to get their hands on your money legally… or questionably.

So the most important thing a person must do when they get to this level of wealth – we’ll call it over a million dollars – is to secure that wealth.

Think of it as building a digital fortress around your booty.

And how do you do this?

You do this with trusts, foundations, and companies. Some of you will already own a company, so that’s great.

But you’ll need the services of a sophisticated accountant or lawyer to know exactly how to protect your assets.

Private bankers purport to know how to do this. And some do.

Some private banks are excellent in setting up trusts for you. But many other people can.

The important thing is to make sure that your wealth is out of the government’s reach.

Portfolio Management

The second thing you have to do is figure out where to stick all that money.

That’s called portfolio management or investment management.

Portfolio management takes a new meaning when you have oodles of cash.

This is where it’s good to get a feel from an expert on where to allocate that cash, whether it’s in equities, bonds, commodities, real estate, or alternative investments, such as private equity or venture capital.

Much will have to do with your time horizon.  Time horizon is how long you need to invest: is it retirement, college education, buying a chalet in France?

Your risk tolerance is also essential.  Risk tolerance is the qualitative measure of how much risk you like.

Do you feel ill when you’re down 0.1% on the day?  Are you happy with investments that swing around like TSLA stock?

You need to answer those questions honestly.

Risk ability is different in that it’s the quantification of the risk you could take on.  Questions like, “How long will your wealth last if you never work another day in your life?” and “How much of this wealth is already allocated towards plans, commitments, and liabilities?” are fundamental to answer.

Tax liability

Next is the management of your tax liabilities. Growing up in a middle-class household, I never grasped the difference between how rich people think and how middle-class and poor people think.

For rich people, their most significant liability every year is the tax they pay.

It’s not the quarter of a million-dollar Harvard education for their kids, and it’s not a mortgage, that’s for sure.

What it is, is tax liabilities.

What you must make sure of is that you have competent accountants and lawyers that will put your money in places where they won’t inadvertently trip off a tax liability.

Most are very, very good at this.

But you’ve got to make sure of their competence, so you don’t have an unforeseen bill that would take a good chunk of your wealth away.

The super-rich are great at this, but that’s a minimal sample size.

Succession Planning

The third thing you have to worry about is succession planning.

Estate planning, succession planning, and inheritance are roughly synonymous.

Now, this is one of the funnier parts because when do you think about succession planning, you think, “As long as I don’t go through probate, I’ll be okay.”

Probate is the legal process where a will is reviewed to determine its authenticity and validity. During the probate period, the deceased person’s will or the estate of a deceased person without a will is adminstered.

The problem is going through probate can cost you up to half the estate, depending on which country you live in.

This is the primary reason why you need to put your wealth into trusts.

When Burt Reynolds died, he left nothing for his son in his will.

Why?

Not because he disowned him – far from it.

Burt had already taken care of his son through trust structures to avoid probate.

If you also own a company, you need to think about who runs it after you’re gone.

Do your children want to manage it?

Does one of your kids want to manage it, and the rest just want to live off it?

I have listened to hilarious conversations about high-net-worth individuals concerning this.

For instance, in Hong Kong, a banker might have a conversation with a high net worth individual about their “Tai Tai,” the main wife or “Supreme of the Supremes,” who lives on the peak with his first three kids.

Then, he’s got a girlfriend in Kowloon, who no one knows about, but who’s living in an apartment the rich guy set up for her.

And then, there’s a secret second family that lives over the border in Shenzhen.

These things must be managed by a private banker.

And it’s challenging for them to do that because they need to figure out who wants to own what. 

This becomes a crucial question and often degenerates into a ridiculous discussion between the children of who will be the company’s CEO first.

Ludwig von Mises pointed out “the difference between the bosses and the cousins,” and it’s worth talking about.

Here’s what he had to say about it in The Anticapitalistic Mentality (a fabulous little book!):

Even in these lucky families, the qualities required for the successful conduct of big business are not inherited by all sons and grandsons. As a rule, only one, or at best two, of each generation are endowed with them. Then it is essential for the survival of the family’s wealth and business that the conduct of affairs be entrusted to this one or to these two and that the other members be relegated to the position of mere recipients of a quota of the proceeds. The methods chosen for such arrangements vary from country to country, according to the special provisions of the national and local laws. Their effect, however, is always the same. They divide the family into two categories—those who direct the conduct of affairs and those who do not.

The second category consists as a rule of people closely related to those of the first category whom we propose to call the bosses. They are brothers, cousins, nephews of the bosses, more often their sisters, widowed sisters-in-law, female cousins, nieces, and so on. We propose to call the members of this second category the cousins.

Philanthropy

Philanthropy is vital to rich people because they’ve got to bribe their way into heaven.

No, I’m just joking.

There have been some extraordinarily generous souls in our time and the past.

David Barclay, the founder of Barclays Bank, was revered as a banker in his time because he gave so much money away to charity.  He wasn’t hoarding his wealth; he gave it away while he was alive, and he wasn’t distasteful about it. Barclay was a model worthy of emulation.

I wish more affluent people would act like this instead of using charity as a marketing gimmick.

It’s paramount for someone who’s made a lot of money to figure out how they want to give it away.

Private banks offer the service.

But you could do this all with the help of a good, and probably cheaper, advisor. There’s no doubt about it.

Wrap Up

So those are the five big things you’ve got to worry about when you make a lot of money.

Do you need the services of a private bank?

I don’t think so. I think they overcharge and may not be as expert as they claim.

What you need to do is make sure you have a great accountant, a great lawyer, and that they have your best interests at heart.

And not just your “best interests,” but what you are interested in doing with your money. 

Your advisors are there for you to direct; they are not there to order you.

They must implement your wishes in the most tax-efficient way possible.

And of course, I wish you good luck with that.

Have a great day!

All the best,

Sean

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