Private banks must go back to basics
There’s more to investment than profit, as managers reeling from single-digit returns concentrate on asset structure and supplementary portfolio features.
“It takes a great deal of boldness and a great deal of caution to make a great fortune,” said Nathan Mayer Rothschild of the famous banking dynasty back in 1834. “And when you have got it, it requires 10 times as much wit to keep it.”
His words are particularly resonant today, when double-digit portfolio returns are a distant memory and capital preservation is almost as important as growth. Rothschild has re-organised accordingly, and its private banking offices in Zurich, London, Paris and Guernsey are devoting significant resources to determining clients’ risk tolerance and asset allocation choices, as well as the optimal structuring of investments in trusts or private open-ended investment companies.
Rival institutions
It is a similar story at arch-rival Cazenove. These old-style private banks have now modernised and improved their investment operations so they are almost unrecognisable. But they insist that before clients are pushed towards multi-manager/best of breed or internal investment expertise, the structure of assets has to be correct.
Cazenove has talked about seeing clients defecting from rival institutions where only investment returns were discussed, not the vehicles in which assets were invested. In high tax areas such as Spain or the UK, this could lead to losses of 40 per cent plus before returns are even discussed.
JPMorgan Private Bank is investing substantially in its concept of Family Wealth Centres, ensuring family members can create correct structures to preserve both wealth and family unity.
Fifteen years ago, private banks in Luxembourg and Switzerland were just beginning to come under scrutiny. The charge against them was that they were not concentrating enough on selecting performing assets. Today, many institutions are still struggling to find the Holy Grail which matches service, performance and fiscal structure.
One way of achieving this is through partnership with a third party such as an insurance company. Lombard International in Luxembourg, for instance, has wrapped E4bn of investors’ assets in international life policies – offering 100 per cent protection against bankruptcy and fraud under Luxembourg law – which are particularly popular in Germany, France and Belgium. The likes of Lombard can offer generational planning, a tax shelter and admin help. Lombard has attracted pan-European partners like Nordea, Pictet and Commerzbank. For private clients, the choice of structure is fast becoming the primary concern, before asset allocation or investment returns.
