Maintaining a comfortable lifestyle after selling a company

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Maintaining a comfortable lifestyle after selling a company

Franco Fortunato - relationship manager at Bank Lombard Odier & Co Ltd, Geneva

Franco Fortunato

relationship manager at Bank Lombard Odier & Co Ltd, Geneva

Article published on October 26, 2019, on Lombard Odier’s blog " from one entrepreneur to another " on LeTemps.ch

Successful entrepreneur Michel may well have reached retirement age, but his lifestyle is no less active. The Geneva native is gradually reorganising his business activities, selling off his companies, on which he built his wealth, one by one and reinvesting in new opportunities.

In preparing for the capital pay out of his Pillar 2, his relationship manager recommended a comprehensive analysis of his personal and professional assets, taking into account his family circumstances. “The client’s needs were clear: simplify his finances, bearing in mind his tax situation1, include estate planning and maintain his comfortable lifestyle”, explains Franco Fortunato, a relationship manager at Bank Lombard Odier & Co Ltd, Geneva. “Understanding his family situation was crucial. He wanted to help his children create their business, which required a certain amount of capital to be freed up. In addition, his wife, who was still working, was eligible for a supplementary pension plan – a key factor when it comes to taxation.”

The client’s needs were clear: simplify his finances, bearing in mind his tax situation1, include estate planning and maintain his comfortable lifestyle

An internal team of wealth planning experts supported the banker in conducting his comprehensive analysis, which made it possible to evaluate Michel’s needs, align the management of his assets with his personal and tax circumstances, and implement relevant solutions for future cash inflows.

Supporting his lifestyle and future projects

The significant pension capital paid out was used to create a securities portfolio. This enabled Michel to diversify his assets, which had previously been predominately invested in real estate. “We first identified the level of income required for the client to maintain his desired lifestyle. To do this, we determined together the amount of capital needed and the best way to invest it to ensure as far as possible that these ‘basic requirements’ would be met,” explains Franco Fortunato. “We then looked at his ‘life goals and aspirations’ and allocated the remaining capital to these. This definition of goals and timelines led to the creation of several portfolios. This goal-based investment approach can be likened to a GPS: our starting point is the current situation, we determine the destination together, and follow a route set to suit the client’s personality.”

However, wealth management is not just about building a portfolio. Michel has a real estate portfolio that includes commercial and private properties. Striking a balance between financial and real estate assets, while ensuring appropriate debt levels, is therefore paramount.

This goal-based investment approach can be likened to a GPS: our starting point is the current situation, we determine the destination together, and follow a route set to suit the client’s personality

A coordinated approach incorporating debt

“We also planned a mortgage repayment schedule to reduce his interest expenses when he received his Pillar 2 pension and sold his company”, continues Franco Fortunato. Partial mortgage repayment was first achieved by taking out a Lombard loan, which offers favourable interest rates over the short term whilst awaiting a further inflow of funds.

“Lombard loans require an excellent grasp of the markets and must be entered into with caution but provide the borrower with short-term liquidity without the need to realise financial assets”, says Franco Fortunato. In this way, the borrower is able to maintain all the advantages associated with the assets and the related returns.

“Lombard loans require an excellent grasp of the markets and must be entered into with caution but provide the borrower with short-term liquidity without the need to realise financial assets”… The borrower is able to maintain all the advantages associated with the assets and the related returns.

“With a coordinated approach that includes liabilities, clients expect more than asset management alone and want to see low borrowing costs over the long term”, explains Franco Fortunato. “By providing advice on real estate finance, we help optimise the structure of our clients’ assets.”

Moreover, based on our analysis of his wife’s pension cover and taking into account their financial capacity as a couple, we decided to create a ‘bel étage’ plan for his wife, who is self-employed. This plan offers all the tax advantages of a Pillar 2 pension, including income tax deductibility for buy-ins of missing contributions to the plan.

This strategy, which was adopted following a comprehensive asset analysis and taking into account future cash inflows from the pension capital to be paid out and the sale of a company, enabled the client to diversify his assets, reducing his exposure to a single asset class (real estate), whilst also lowering his expenses and optimising his tax situation. Appropriate asset allocation means that Michel can maintain his lifestyle without eroding his capital. He has also been able to release the funds needed to create a new company with his children – a project particularly close to his heart.

Appropriate asset allocation means that [the client] can maintain his lifestyle without eroding his capital

All business owners want to know how to allocate their assets in the most efficient manner in order to obtain the best return after tax. Their banker, backed up by a team of wealth planners, is on hand to lend the necessary expertise. The sale of a company is an extremely sensitive time for an entrepreneur because their business is the result of a lifetime’s work. “What is special about our approach is that we offer holistic solutions that take account of all the factors relating to the client’s family, assets and business.”

1 Bank Lombard Odier & Co Ltd does not provide legal or tax advice. It is recommended that clients obtain independent professional advice with regard to the potential legal, tax or accounting implications.

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