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Lombard Odier: from one entrepreneur to another
This article was published on September 23, on Lombard Odier’s blog " from one entrepreneur to another " on LeTemps.ch
How to optimise assets at a time of tax reform
The significant reduction of the corporate tax rate in Canton Vaud, as of 1 January 2019, has been a boon for many SMEs, bolstering their profit margins. For entrepreneurs, this raises the question of what to do with these additional profits, whilst keeping their private taxation in check. Hervé Felli, Relationship Manager at Banque Lombard Odier & Co Ltd, Vevey, explains the impact of this tax reform on the business and private assets of one of his clients, an entrepreneur, called Frédéric1, based in the Swiss Riviera.
Case Study
Frédéric founded and runs his own company and is a major taxpayer. His company generates substantial profits and its balance sheet accumulates cash that is not required for operations. This accumulation has increased since the 13.79% tax rate was implemented. Frédéric states, "We intend to redistribute this windfall to managers and employees, and to invest in renovating the power supply on our premises by installing solar panels on the roof.”
Anticipating healthy profits in 2019, Frédéric asked his relationship manager to perform an analysis of all his private and business assets.
Entrepreneur to entrepreneur: our unique approach
"Entrepreneurs need to think carefully about how their remuneration – in the form of salary, bonus, dividends, or even all three – is paid," says Hervé Felli. "This is important as taxation is a key consideration. As a family business, Lombard Odier has developed a personalised approach to allow entrepreneurs to manage their assets in a comprehensive, structured and efficient way, by integrating their private portfolios with their pension assets and the surplus liquidity from their companies."
Preparing for the future with a 'bel étage' plan
This task, carried out in close cooperation with Frédéric's trustee and usual tax advisor, led to the creation of a new pension plan (1E) for the company. The new plan allows executives and managers to build up individually managed pension capital. This means that insured members become active participants in their supplementary pension provision. If they make the right decisions, they will be able to supplement their basic benefits, which are likely to decline steadily in the face of an ageing population and the current low financial market returns, particularly due to negative interest rates.
Consequently, the private assets of the founder, as well as his managers, are considerably enhanced over the long term. At the same time, the company is able to dispose of surplus liquidity.
"It is important to reduce the company's surplus liquidity," says Hervé Felli. "Any funds not required for operations are protected if the company should fall into serious difficulty. It also makes it possible to reduce the selling price in the event of a sale. Banks grant loans to acquire economic assets, not to buy cash."
Converging management of private capital and pension assets
It is crucial that all private and business assets are analysed and then managed in a coordinated way. Viewing assets in this holistic manner is our guiding principle at Lombard Odier.
Back in 1910, the Managing Partners of our private bank, who were also entrepreneurs, created a pension fund for themselves and their employees. We have been considered a pioneer in the management of pension assets ever since.
Lombard Odier has continuously developed expertise in this field and, since 2011, has been developing solutions for the management of supplementary assets. Today, we have over CHF 1 billion pension assets under management. "We use our integrated banking platform, which enables the consolidated management of pension and private assets," explains Hervé Felli.
This approach makes it possible to allocate the various investment instruments to the corresponding portfolio for both regulatory and tax purposes. High-yield securities (coupons, dividends) are managed through pension funds, which means they are sheltered from income and wealth taxes. Investments with capital appreciation potential are allocated to the private account. Allocating the assets in this way makes it possible to enhance performance without changing the risk profile.
Ensuring a comfortable retirement
Planning for the future is essential, particularly when it comes to retirement. So one must view capital holistically and ensure that it is managed in a way that produces the returns needed to secure a comfortable retirement and preserve assets to pass on to future generations.
"Holistic financial planning makes it possible to identify the advantages and disadvantages offered by different scenarios and set the right course for retirement," says Hervé Felli. "The holistic investment strategy most closely aligned with the individual's needs is then chosen on this basis. At the same time, the aim is to achieve the highest possible return after tax." Occupational pension plans offer opportunities for significant asset appreciation.
"It is crucial to pool expertise. We bring together the entrepreneur's trustee, our wealth planners and external pension partners to make sure these considerations are covered in line with the entrepreneur’s expectations and needs," continues Hervé Felli. This expertise developed by Lombard Odier over many years supplements the expertise obtained by our clients through their usual advisors.
For Frédéric, the solution implemented gives him peace of mind for the future: "It’s reassuring," he says. "This financial planning exercise improved my understanding of how my pension, personal financial assets and real estate assets – which represent the lion's share of my estate – interact with each other. The creation of a '1E plan' means I can keep control of my pension assets. This will enable me to maintain my lifestyle in retirement while protecting my heirs' inheritance. This 'bel étage' plan also gives me a competitive edge, as managers can also benefit, offering a real advantage when it comes to retaining my highly qualified staff."
Every entrepreneur is unique. Their history and family shape their journey. Whatever stage they are at in their professional life, they must be able to rely on a financial partner who considers their assets as a whole. At Lombard Odier, we favour a holistic approach and take a long-term view.
You can count on the expertise of our bankers to find a solution that is tailored to your needs.
1 This is a case study and the names have been changed.
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.
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