What the wealthy want

For many high net-worth individuals, there is no such thing as a retirement strategy — they simply don’t want to retire.

However, they do want to enjoy a comfortable lifestyle in semi-retirement.

This group is highly individual in its strategies and looks for tailored advice. Many, especially if they have worked in the financial services industry, take an active role in preparing and executing the strategies.

Perpetual Private Clients national manager for financial planning Steve Davis says many of their clients keep working into their early 70s before compulsory retirement from boards kicks in.

“Then they rely on their superannuation. By that stage, they often don’t need additional wealth-creation strategies,” he says.

National Australia Private Banking chief executive officer Trevor Hunt says the bank’s clients should have a minimum $2 million of investment assets for retirement.

“If they have $1 million, they will be running their retirement on a budget,” he says.

St George Private Bank Group general manager Nick Kalikajaros says the group’s clients usually have sufficient wealth for retirement, however, they need strategies to manage their investments.

“We see clients who have continued working on company boards and, because of the wealth strategies they have in place, they then offer themselves as business coaches or consultants in retirement,” he says.

“They still want to remain in touch with business, even in retirement.”

Nearly all clients in the private banking premium services sector use self-managed superannuation funds.

Davis says the biggest problem with self-managed funds is solving the reasonable benefit limit (RBL) problems.

“They usually have made the maximum superannuation contributions and the funds have performed well,” he says.

“One of the strategies we recommend is coupling a lifetime pension in a self-managed fund.”

Davis also says the amounts in the self-managed funds offer economies of scale, especially in fee reductions.

The funds are often large enough to enable Perpetual to place wholesale mandates with fund managers. This money is rarely given to off-the-shelf retail products.

Hunt says the bank offers its clients wholesale funds, usually through mandates.

“If a client wants somebody to manage a self-managed fund, we would offer a mandate to MLC to manage the wealth creation,” he says.

Commonwealth Bank Private Client Services provides tailored solutions for its wealthy clients.

“Various solutions are available including wholesale and retail funds, pensions and annuities and DIY superannuation structures particularly targeted at the self-employed,” according to a bank spokesperson.

The majority of Commonwealth clients who invest in managed funds are directed into wholesale funds because of the size of their investments.

However, the bank also offers direct equities investment through its advisers and the mix is determined after a detailed analysis of the client’s personal situation.

Kalikajaros says St George also advises on discretionary trusts in addition to self-managed funds.

“The core relationship with our clients is through self-managed funds and discretionary family trusts,” he says.

“Some of our clients have investment company structures. We tailor the structure to suit the client’s objectives.”

However, Kalikajaros says clients are now becoming aware of the responsibilities of being a trustee of their superannuation funds.

“The funds were often set up for tax-planning reasons, but now we are having to educate them on the responsibilities of being a trustee,” he says.

Davis says many clients are also realising that with the growing responsibilities of being a director, their wealth is often now tied up in super and family trusts.

“You would be crazy to be a director and not have your money tied up in superannuation and a trust,” he says.

“That allows a lot of flexibility and protects what is often substantial wealth.”

The background of private banking clients would suggest they have a low aversion to risk. Many have built their wealth through entrepreneurial skills and high-risk strategies.

However, most private banking managers say that as their clients age, their tolerance to risk drops.

“Risk profiles are particularly important in the retirement planning sector,” says the Commonwealth spokesperson.

“Risk needs to be considered somewhat differently though, as the time horizon tends often to be much longer than standard investments.

“Due to the fact that our investors are generally very high net worth, tolerance to risk tends to be higher than among the general community.”

Hunt says the National’s clients risk profiles are reflected in their earning capacity.

“Our clients set objectives and then adjust the risk accordingly,” he says.

“If they have been a conservative investor all their lives, then that will continue in retirement.”

Because of their buying power, clients are often offered investments directly, according to Davis.

“We are finding this includes offshore investments, but it is where this fits into the structure of a client’s portfolio that is important,” he says.

“As a result of global investing, we are often sitting down with an international taxation specialist at the table as well.”

This has become important as many countries now have death duties, which can be draconian if proper taxation advice is not obtained and followed.

Hunt says estate planning is a very important part of the services the bank offers to private clients.

“Estate planning is critical in retirement strategies,” he says.

“There is the potential to cause losses due to poor structures.”

National takes a team approach to estate planning. This involves financial planners, estate planning specialists, lawyers and taxation experts to create the right structures.

Davis says Perpetual does not offer a standard financial planning solution to estate planning and retirement strategies.

“Once we have created the strategies for retirement, through a variety of structures and investments, our clients can enjoy the fruits of their previous year’s efforts,” he says.

Kalikajaros says St George does not try to put its client’s retirement strategies into standard solutions.

“We avoid squeezing our clients’ objectives into pre-packaged boxes,” he says.

“We are creating wealth for retirement, through a variety of structures and in volatile markets. We are often acting as an educator to help them through what are frightening experiences.”

National’s Hunt admits private banking is more about wealth creation, rather than retirement.

Most retirees fall within the traditional banking operations,” he says.

“Our clients are more geared towards wealth creation, which provides a comfortable lifestyle in retirement.”