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Private banking moves beyond the bean counters

Finance : Private Banking

Tax, estate planning and inheritance issues are now important strings to a private bank's bow. Maria Scott reports on exactly what large, multinational private banks are offering, and whether they are catering for the precise needs of today's HNWIs.

Maria Scott is a freelance journalist based in New Zealand.

David and Victoria Beckham are not the owners of a traditional family business. But as Brand Beckham, their enterprise epitomises trends in the way money is being made and managed in the modern world. Wealth has come quickly for the Beckhams, certainly too quickly for them to have grasped much about the tax and legal regimes that might affect their financial affairs now that they span several countries. With a growing family there is also a Beckham dynasty to plan for.

Private banks are gearing up to cater for clients like them. The banks have provided banking and investment management services to the wealthy for hundreds of years, but increasingly they are offering help with tax, estate planning and inheritance. Catherine Tillotson, head of research at Scorpio Partnership, a consultancy specialising in the wealth management industry says: "Many of today's private clients are new wealthy who have earned their fortunes in business or through professional careers. By nature, this type of client is time poor and therefore is seeking the most efficient solution."

"As the world's tax regimes become tighter and more complex, there is a growing role for private banks to develop financial products that maximise tax efficiency for clients such as insurance wrappers or structures that separate income from capital gains. So the role of the private bank in these matters is growing."

International banks for international clients
The largest private banks are multinational organisations known for their work in investment banking, stockbroking and the global financial markets. With offices at the heart of financial centres around the globe, they believe they are well placed to help clients who also have international interests.

Credit Suisse, for example, says it aims to offer a "holistic" service to individuals drawing on the group's expertise in investment banking, private banking and asset management. Jeremy Marshall, CEO of Credit Suisse UK says that, globally, the group has expanded into inheritance and estate planning, advisory services on cross-border and multinational expansion, and assistance in dealing with regulatory changes.

"Typical estate planning needs vary depending on the domicile of the client. For example, families in Brazil and Argentina may seek trust and estate planning to address concerns around personal physical security of their families given the high incidents of kidnapping in those markets.

"Families in the UAE or India may be interested in general succession planning, insurance planning, estate planning or consolidation of wealth issues. In addition, many families in these countries have beneficiaries in Anglo-Saxon countries such as Canada, the UK or the US. These families have particular estate planning needs, together with tax planning, that require specific expertise such as foreign grantor trust planning in the US."

"We are also able to offer a variety of highly specialised services such as aircraft financing, executive pension administration, asset protection structures, cross-border tax issues advice, commercial and residential real estate holding vehicles, charitable and philanthropic structures, and film financing."

JPMorgan says that it has provided a rounded service to clients since the days when founder Pierpont Morgan worked with the family dynasties behind the railroad and steel fortunes of the US. But clients' needs are changing says Paul Knox, UK wealth adviser at JPMorgan Private Bank. 

"The most common issue that wealthy individuals face is that increasingly their wealth is global and their personal circumstances are increasingly international. This comes about either because they own assets in overseas countries, they are moving to live or work overseas, or they have married a person from a different country.

"Any of these circumstances will immediately introduce various tax and estate planning issues in more than one jurisdiction and they will need to understand the way in which double tax agreements between various countries operate, and how international conflict of law issues can be resolved. On the law issues, for example, there is a notable difference in estate and succession law between common law countries, such as the UK and countries which base their legal system on UK law, and civil law countries such as most of those in Continental Europe."

"Even within the EU, there are significant differences and frequently the issues within the EU can be as complex as where an individual's assets are spread globally. The complexity of the situation will depend on the client's circumstances."

HSBC Private Bank, which has offices in 74 locations around the world, says that its acquisition of Bank of Bermuda three years ago made it a leading provider of private client trust service. Mike Mount, managing director, business development for HSBC Private Bank (UK), explains: "The provision of these services is an essential component of our strategy to be a full service wealth manager. We are well-positioned to look at new sources of clients and Eastern Europe, as well as China and Latin America, are interesting markets. There is also still huge potential in the developed markets."

HSBC has in-house financial planners and tax advisors, and also draws on outside expertise. "Our clients will sometimes have well-established tax advisors with whom we work. We are used to acting as part of a virtual team," says Mount.

Specialist fees
Private banks vary widely in their fees and in criteria for taking on a clients. HSBC, for example, looks for $3 million of assets available to invest or borrowing requirements of more than $2 million and Mike Mount adds: "We are a bank and credit is often a part of even the wealthiest client's overall requirements."

For JPMorgan, Paul Knox puts it this way: "There is no minimum entry level to become a client. We find, however, that families and individuals with at least $10 million in investable assets or $25 million net worth generally can make the best use of the service we offer as they have a certain level of complexity in their financial affairs."

But for anyone considering appointing a private bank to handle all aspects of their finances, key considerations will be what the arrangements are for calling on specialist advisors, what their backgrounds are and how the advisors will be coordinated. 

Catherine Tillotson at Scorpio Partnership says that the fit between client and bank is not always comfortable. Where private banks do not have tax accountants and lawyers in-house, they are not in a strong position to offer such services. She adds: "Private banks regard tax accountants and estate planning lawyers as a major source of referred business. So, if the bank starts to offer such services in-house, they can potentially disrupt their flow of new business."

The solution many private banks adopt, says Tillotson, is to be "tax aware" without actually providing tax or estate planning advice. Many are starting to employ financial advisers to provide clients with a long-term financial plan, implemented using a panel of external experts.

"Our research would suggest that private banks are moving in the right direction but that private clients find this team approach is often not as well coordinated as they would like: the process is slow, things get lost between the cracks, meetings are called but not all the relevant experts are present, and other things get lost in translation because the different professions use different jargon."

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