Private banks only serve the uber rich. But what happens if you (and your personal wealth) don’t quite make the cut? How do you preserve, grow and pass down this wealth?
Our CEO and investment advisor Qiaojia Li looks at how successful professionals are missing out on all the benefits by not starting early, in the right way.
As a former wealth manager at Credit Suisse and Coutts, I have worked alongside the billionaires and their army of advisors (tax, immigration, trust, private education, you name it), but decided that the knowledge of how to preserve, grow and pass down one’s wealth should not be reserved for the very few.
£2m cash is the minimum that a small private bank would require to speak to you and to consider providing a “white glove”, holistic service in the UK market. If you prefer the international brands, the likes of UBS and Credit Suisse, the minimum is £5m. By the way you won’t find this requirement stated on those banks’ websites. That is just a glimpse of how secretive and inaccessible premium financial advice is.
Yet so many of us have obtained great education and impressive career tracks; we managed to put aside meaningful savings, despite living in expensive cities such as London. What we need next is access to guidance on how to invest our savings for our future.
But looking around, no obvious option is available. This realisation troubled me.
I started building Rosecut, my own Fintech company with a team of former banking colleagues and some of the best technologists, in order to bring private banking quality services to the masses.
Two years into this journey, here is my finding:
The real difference between the rich and everyone else is just about mindset and prioritisation.
The lack of a trigger to seek out help
For many high net worth individuals (HNWIs), the typical moment that they realise that they need professional help, is when they get a large sum of cash in their hands, large enough for them to say, “I actually don’t know how to look after this but I don’t want to lose it”.
From this moment on, finding and hiring a financial advisor becomes a priority, and maintaining the relationship with the advisor turns into a norm, just like the relationship with their GP/family doctor, dentist, personal trainer and nanny. Along this process they take on this new learning curve of wealth management.
However for highly successful, well-paid professionals (let’s call them affluent individuals), such a clear, defining moment is unlikely. Although they may get their first six figure bonus as an investment banker or build up serious savings, they don’t invest. I have seen £600k sitting idle over a decade.The mindset is typically: “that is not a life changing amount of money, and I am too busy with my life and career”. They then miss out on huge long-term wealth benefits by not understanding the opportunity cost of holding a lump sum of cash.
Some cultural background (e.g. Chinese are pro investing), or professional knowledge (finance professionals usually understand the erosion power of inflation and the magic of compound return) may help. But to most people, the lack of a trigger event becomes a lack of urgency of seeking professional financial management — the benefit of such action is not immediately visible.
Get rich vs. stay rich
“Old money” is a myth, or at least I have only seen it once or twice in my whole private banking career; HNWIs these days are almost all from one path — entrepreneurship. But the skills that entrepreneurs have to allow them to succeed could be their weaknesses when it comes to money management (I’ll be writing more on this).
Once HNWIs have generated some liquid wealth, from listing or selling the whole or part of the business, or getting paid through business dividend for example, they embark on the journey of “staying rich”.
The primary goal is wealth protection, so they can maintain the lifestyle they enjoy, and hopefully leave a solid financial foundation for their future generations (how to educate and train the next generation on looking after this wealth is a separate challenge). The more wealth one has, the more downside protection is the focus here. But in short, they have “made it” already.
On the other hand, affluent people will need to “get rich” first. Unless they go down the route of high risk high reward, low probability entrepreneurship, progressive wealth creation through investing is the way to go. Again this is a completely different skill set from earning a professional career by education and professional development, and very often the latter becomes all consuming in the competitive workplace, and leaves no time for them to take on the learning curve of growing personal wealth.
Many affluent people are good at saving a portion of their after tax income, but when it comes to investing, they can be either too conservative: “I don’t want to lose money and can’t stand the ups and downs of the investment value in my account,” or too aggressive: “Let me find the next Tesla or Gamestop to get rich and retire tomorrow.”
There is so much short term oriented information i.e. noise in the market; today’s value of a stock or quarterly earnings of a listed company means very little to one’s lifetime money management. It is like wanting to get fit by dieting and exercising for one day — it’s not going to happen. This is a lifetime marathon that requires knowledge, self discipline and skills.
And it is best to start early.
I’m Q, the co-founder and CEO of Rosecut, and I write to challenge perceptions on our financial life. If you have enjoyed reading this article, please let me know your questions or comments below, you can connect with me on LinkedIn and subscribe to receive future updates on our website.