The privilege of advising private clients

    No two days are the same, says Jeremy Hill, senior private banker at the Newbury office of Kleinwort Hambros, one of the leading wealth managers in the UK.

    It is a privilege to advise individuals as they are all unique and at various stages of their wealth planning. To be on top of all the issues, and given Kleinwort Hambros does not offer tax advice, we have to engage with our local professional network across the southern region. We also work closely with our in-house specialists, covering investment, wealth planning, credit and trusts. It’s all about delivering value to clients, and often this means simplifying and speeding up outcomes that clients would otherwise be too busy, or overwhelmed, to achieve themselves.

    What’s our current view on global financial, economic and geo-political issues?

    From a range of options, we can advise and update our clients using our daily ‘Morning Chat’ from our in-house investment team, and our quarterly CIO blog.

    Our investment strategy supports the belief that much of what we have witnessed in the fourth quarter is relatively normal: equities are a volatile asset class, and almost every year sees 10% swings in value. Over the long-run, equity returns are very compelling, especially when compared to other asset classes. Volatility, and sometimes sharp falls, are the price paid for those potential long-term results.

    At present, the global macroeconomic environment – decelerating but still reasonably healthy – remains supportive of risk assets and corporate profits. Moreover, equity valuations are fair: the often-cited price-to-earnings ratio for US equities is 14.8x (next 12 months), cheaper than 17.1x this time last year; other regions remain cheaper still. Furthermore, the asset class remains far more attractive than most other alternatives. Sentiment, which is widely negative, suggests the bulk of the selling may already have occurred. Momentum, however is on a downtrend, this is cautionary.


    So, what does all this mean for clients? A couple of case studies

    Often our clients’ investments form only part of their overall planning. For example, some entrepreneurs have parallel requirements once they have turned their hard work and risk in a private company into cash. This is often around building up their own private wealth with the flexibility to have cash to invest in another business.

    One of my clients did just this. At the peak of his borrowing with Kleinwort Hambros, this client had over £10 million of credit facilities, allowing him to both fund a personal property project and to fund his own seed-equity position in his latest technology start-up. In parallel, Kleinwort Hambros has been managing his £3.5m personal investment in a low-risk, income yielding investment, which was also used as collateral for the lending. The successful sale of the property project allowed the client to clear his credit from Kleinwort Hambros, and to establish additional net personal wealth.

    Another client discussion focused on the re-structuring of their asset base. Having sold a much-loved UK second home to release capital for investment, our client chose to focus on family commercial ventures, plus gearing up for their chosen debt-funded management buyout (MBO). My questions initially focused on pensions management for the patriarch and family business founder. Was there scope to establish a Small Self-Administered Scheme (SSAS) for those family members owning the business, owning the company HQ?

    Helping to drive dynamic businesses

    We also work with third parties to provide advice about Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT). This involves a joined-up approach with the client, their accountant, and us to ensure suitability. We have a panel of providers which is reviewed annually in line with the historic needs of our clients. Some clients have seen exits of 10x in the EIS space, and/or tax-free dividends as high as 25% in a year from some VCT investments, however we recognise that these types of schemes are high-risk investments which may not be suitable for all clients and such returns may not be achieved.