How to invest to realise your future and optimise taxation

corporate

How to invest to realise your future and optimise taxation

Investment portfolios, pensions, income tax and even mortgages. There are a wide range of factors that affect the performance and growth of your wealth. This begs the question: how can you maintain an overview of your situation and prepare for your future with peace of mind?

Our clients’ lifestyles and needs are changing ever more rapidly and this is provoking radical changes in the financial and regulatory spheres. Therefore, at Lombard Odier, we continue to overhaul our approach to asset management in order to make it more agile and more personalised. We adapt to the personal circumstances of each of our clients, whether they are independent professionals, employees, business owners and senior executives, or retired. Finally, we had the foresight to create a flexible wealth management approach, more than a decade ago, in order to cater to the needs of our clients.

Philippe Gay and Andreas Arni, both Co-Heads of Swiss Market at Lombard Odier, explain our cross-functional approach to tax-efficient management (TEM), portfolio management, wealth planning and technology.


Why was this tax-efficient management (TEM) approach created?

The world of investment has changed a great deal since the 2000s. Along with a significant drop in bond yields, we’ve seen a number of major financial crises, a rising tax burden and rapid regulatory changes. All of these factors can have a significant impact on wealth, especially for clients with a particular income structure or those who move around frequently, such as entrepreneurs or senior executives.

We know that efficient wealth management requires going beyond pure portfolio management, no matter how sophisticated it may be. We’ve always had wealth planning experts but ten years ago we decided to involve them more systematically to manage the wealth and tax implications on clients’ estates more efficiently.

We also incorporated more elements into our internal IT systems, to automatically ensure our clients’ investments are tax compliant and to facilitate their annual reporting and prepare their tax declarations.

Swiss society and clients needs have also changed. How do you take this into account?

Traditionally, wealth management services for Swiss residents have focused primarily on savings balances, particularly for those who are retired. Our "multi-pocket" TEM approach is a welcome complement, targeting individuals who are still in work and whose wealth is not limited to a savings balance. Their wealth is more often focused on their business activity, their company, or their pension assets and these components are not generally taken into account by private bankers.

In Switzerland, more than 200,000 baby boomers are set to retire within the next few years, and it’s estimated that 75,000 SMEs will change hands over the next 5 years . Our approach to managing wealth is a very specific response to the needs of our society. Being well prepared for retirement is crucial for wealth management: you can wipe out value, miss out on additional yields or benefit from an increase in wealth. Naturally, we aim for the latter. 

In Switzerland, more than 200,000 baby boomers are set to retire within the next few years, and it’s estimated that 75,000 SMEs will change hands over the next 5 years

What does this look like on a day-to-day basis for clients?

We offer a truly "global" approach, meaning that we take into account every component of wealth to create a solid architecture and avoid a silo approach. We situate each component of wealth in a global context to evaluate whether the structure is optimal so that different assets can be managed with adapted, efficient investment envelopes.

The performance of certain investments may be impacted significantly by the applicable tax to the individual or investment vehicle. What is important for the client is not the gross performance of their investments but the performance they actually see, after tax. We calculated that on a like-for-like basis and with an equivalent risk level, a tax-efficient management strategy can lead to 1% additional performance annually, which can make a considerable difference after 10 or 20 years.

This approach is not static, however, as it is in keeping with our clients' lives and projects. Are they thinking of moving abroad? Are they going to sell their company? Are they looking to retire early? Based on our clients' goals, we reassess their wealth architecture and propose adjustments for the future.

… a tax-efficient management strategy can lead to 1% additional performance annually, which can make a considerable difference after 10 or 20 years

One of the strong points of your offer concerns pensions. Why call on a private bank for this?

Pensions are a subject that is often put off without our having a real grasp on it, as it seems a long way off. However, the Swiss legislative framework offers a number of particularly interesting possibilities for investing your wealth, improving your retirement insurance and limiting your tax burden, as retirement assets are tax deductible.

We add value in advising on, planning and managing retirement, regardless of your age, as pension strategies can improve overall wealth performance from age 30 or 40. This fits perfectly with our long-term vision since these strategies can be implemented over many years or decades. However, clients can see results and benefits very quickly, from the first year.


How, for example?

I often give the example of clients who are entrepreneurs or independent professionals. Most of them have put a lot of time and energy into their business and, when they reach 50, they sometimes have the majority of their wealth invested in their company with little retirement provision. While they should be congratulated for their business success, their situation may not necessarily be ideal from a wealth perspective. Based on their situation, a number of strategies could be put in place, such as planning Pillar 2 buybacks or setting up a supplementary pension plan, for themselves or their company. This enables greater control of the overall tax burden while preparing for a more peaceful retirement thanks to support from an expert private banker.

This enables greater control of the overall tax burden while preparing for a more peaceful retirement…

And what about people who aren't entrepreneurs or independent professionals?

A number of options are available for employees and senior executives based on their life to date. To simplify and use the example of quite a typical life, you generally start working in your 20s, with a salary of 100’000 CHF for example. When you reach 40 or 50, this salary may have risen to 250’000 or 350’000. It’s then possible to buyback contribution years, as if you had been earning 250’000 or 350’000 from the start of your career. The amount of possible purchases is calculated using pension funds and is tax deductible. We can also put in place supplementary pension plans or manage a lump sum from vested benefits in a personalised way.


Is it possible to choose between different investment strategies?

Yes, it is. The option of setting up a supplementary pension plan (or alternatively a 1e) allows insured individuals to select their investment strategy for salary bands 1.5x higher than the maximum amount stipulated in the federal law LPP. Pension assets are then invested based on the person's individual risk profile. While possible losses must be borne individually, performances can also be higher than traditional pension investments which have to comply with the strict framework of OPP2. In all these cases, these types of plans may be a particularly attractive complement for those wishing to actively influence the investment strategy in their pension planning and benefit from the tax advantages.

Two years ago, we also successfully launched a number of turnkey investment strategies: My Private Pension.

We currently manage more than CHF 2 billion in pension assets on behalf of our private clients.

We currently manage more than CHF 2 billion in pension assets on behalf of our private clients

Aside from pensions, does the tax-efficient management approach also take into account other components, such as real estate?

Absolutely, our approach does of course take into account real estate, which is an important asset class for our clients. We offer our clients a mortgage advisory service to renegotiate their rate or to work out their optimum debt level based on their income, wealth and taxation. Even if you have the financial capacity to repay a loan in full, it is not always attractive to do so from a tax perspective. It is therefore important to weigh up all the possibilities and maintain a global approach.

Finally, our bankers are there to support clients in all events in their private and professional lives, whether purchasing real estate, moving abroad, starting a family, organising the sale of their company or transferring their wealth to future generations.

We offer our clients a mortgage advisory service to renegotiate their rate or to work out their optimum debt level…

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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