Pros & Cons of Property Investment
Unique financial needs of High Net Worth Individuals (HNWI)
Unique financial needs of High Net Worth Individuals (HNWI)
The general profile of a local HNWI is a self made multi-millionaire between age 40-65 with a net worth of at least $3 million and investible assets of $500000 and above.
Other than the top high flyers who earn $1million and above annual incomes, the HNWI is likely to have amassed his wealth through leveraged investments in business ventures, stocks or properties. Without credit facilities from the banks, it would be difficult to have accumulated enough capital within one lifetime to generate such wealth solely on one's personal resource.
Thus such HNWI would have developed a keen sense of knowing how to make money work in his favour and would tend to rely less on the private banker's advice compared to those who have their wealth from 'old money' or inheritance.
Self-made HNWI tends to view money making the way they play Monopoly. He believes that in such a game of luck and skill, the better equipped he is with the latter the better the odds he has to win. Like all skills, you need both talent and hard work to perfect it and the few who capitalize on both conditions will tend to win. Having accumulated more wealth than they can spend within their lifetime, the HNWI now seeks to consolidate his wealth to achieve higher goals on how to preserve, maximize and ultimately distribute his assets.
Once the HNWI has determined the amount and type of his assets that he wishes to have absolute control over, the balance of his disposable wealth is typically best left in a trust for his preferred beneficiaries. A trust allows the HNWI to provide for his preferred beneficiaries at an arm's length, with the advantages of providing tax shelters, protection from creditors and perpetuity etc. However, most HNWI are reluctant to relinquish full control of their hard earned wealth under the ambit of a trust. Indeed it is a tough task to strike a balance between allocating funds for personal use and preserving control of the trust for the benefit of a third party. It is beyond the scope of this article to delve into the intricacies of trusts; which can be created locally or offshore.
This is where a trusted advisor in private banking comes into play. The advisor is usually a private banker who has at least a decade of experience managing funds for the well-heeled people and above, and has the full backing and support of his bank to cater to the needs of the HNWI. Such an advisor would have excellent relationship building skills with impeccable track records of performance and discretion. Few HNWI would walk into a bank with a million dollars and request the service of a private banker. Most of them would have obtained referrals from other HNWI who are happy with their existing private bankers. However, often neglected in the engagement of a private banker is the spouse's participation in the process of the financial planning. A prudent HNWI would seek his/her spouse's viewpoints in order to maintain a comfortable working relationship with their private banker over the long term. Ultimately, the HNWI must have the confidence that his or her spouse can rely and relate to his private banker in the event he leaves this world.
It is a given that women outlive men and with the growing economic clout of women in today's working world, the private banker would ignore the women's market at his own peril. If the private banker were to discuss financial issues with his client and his spouse separately, it could throw up surprising differences in needs and wants. It takes much skill to modulate conflicting needs and manage the expectations of his client and his spouse.
The dearth of private bankers in the local market has led to a musical chair syndrome, with poaching among financial institutions to secure top bankers. This phenomenon makes it increasingly difficult for the HNWI to cultivate a long term trusting relationship with his private banker. Just as we don't put all our eggs in one basket, the HNWI may prefer diversifying his portfolio among a few banks before narrowing it down to one or two if he has the resource to do so.
Other key issues such as the yield of the investment and the track record of the private banker's recommendations vis-ид-vis the risks must be considered as well. Having accumulated his wealth through his skills and acumen, the HNWI should regularly evaluate his risk appetite and profile to determine if his objectives are in line with the risk exposure he faces. Business owners in particular should note that there is a barely a thin line between entrepreneurship and gambling. Just as gambling can become addictive, a business owner's windfall may unwittingly lead him to continue betting bigger stakes. It is no coincidence that suicide and divorce rates go up during a financial crisis. Having the advice and guidance of a private banker who acts as a financial coach can help the HNWI to focus on his goals and moderate his risk exposure.
The HNWI should also ensure that his contingency funds for emergencies include a provision for adequate health insurance cover against hospital bills and long term care. It makes little sense to wipe out our life savings just so that modern medicine can save our lives. Thankfully health insurance premiums in Singapore cost just a fraction of those in developed nations for the equivalent healthcare. Typically the budget for the premium is not an issue but the good health to qualify for the coverage is. Singapore happens to have the highest rates of diabetes and high blood pressure in Asia and self-made millionaires usually work harder than others at the expense of their good health. Thus the HNWI should not hesitate to secure the best coverage that provides guaranteed lifetime renewability to ensure that their financial goals do not run askew due to an illness or injury. Upon discharge from the hospital, the post treatment costs such as nursing care, alternative medication and rare herbs may exceed the hospitalisation bills even though such expenses may not be claimable. Therefore long term care and major illnesses coverage should be insured as well to supplement hospital and surgical plans.
To take the first step forward is always the most difficult and the earlier the HNWI takes effort to plan his goals and work his plan, the more fulfilling it will be for him and his loved ones.
