WEALTH MANAGEMENT

Bank Sal. Oppenheim jr & Cie Luxembourg

"If we believe that a particular investment concept makes sense for our clients, we try to find solutions which we would also use for our own investment needs." —François Pauly

In the competitive dynamics of wealth management, innovation is not driven by products alone, but increasingly by creating and benefiting from the right opportunities.

François Pauly, the CEO of Sal. Oppenheim in Luxembourg, explains, "There are two facets to our bank: on one hand we have tradition, and on the other we have innovation. For instance, in 2005 when we invested in a bank in China with Deutsche Bank, the decision partially reflected our natural affinity to new markets and our desire to get a direct feel for this emerging opportunity. This is the same with our products. If we believe that a particular investment concept makes sense for our wealthy clients, we try to find solutions which we would also use for our own investment needs. Our approach is different to that of the global banks, in that we do not develop such investment products internally. If there are good products in the market, we get them and they are then tailored to our requirements. This is a fundamental difference between us and many of the global banks, especially on the consulting side of our business where we feel we can only be objective if we look for the best available solutions, irrespective of the provider.

For example, in the top-end of the German market, we offer wealth management advisory services where we are not the primary bank, but function as the advisor. In this specific activity we can have 20% of a client's assets at Sal. Oppenheim and 80% with different banks and asset managers. As advisors, our objective is to find and recommend the best investment opportunities. For instance, if a client wants to make private equity investments in life sciences or biotechnology in Europe or the US, we do the due diligence and give advice on selecting the asset manager. Depending on what the client wants, we can manage the relationship or only look after the reporting and controlling. The advantage of our reporting is that we take the monthly reports from several asset managers and put them together in a single report. Because we use the same standard reporting tools for all the investments in the portfolio, our clients can easily compare the performance of the different assets and determine whether they meet the required benchmarks or not."

Although this data aggregation is not simple as it sounds, especially as many such diversified portfolios have assets with several banks and managers who might be using different criteria to measure performance. In addition, there are often other components in the portfolio such as real estate, rental income etc. Sal. Oppenheim offers such services to family offices and ultra high-net-worth individuals who have investable assets of euro 50 million or more.

"To all our clients," says Pauly, "irrespective of the type of mandate, we recommend products that are not only based on their risk profile, but also take their preferences and understanding into account. It does not make sense to put something into a portfolio that the client does not relate to or is not happy with. Having said that, what we always look at is ways to diversify risk. One way to do this is to have some products in the portfolio that do not have a correlation with the economic cycle. This is why we believe that in the long-term, clients in the ultra high net worth category for instance, should have between 5 to 10% or even 15% exposure to hedge funds."

"When we serve our different client groups," he adds further, "from the family office and the ultra rich (UHNWIs) mandates to the rich professionals (HNWIs), we first need to understand their objectives, expectations and their stage in the wealth cycle. Is it a family where new wealth is being generated through its own business, or is it a family with wealth in the second or third generation, where wealth preservation is a higher priority? Understanding the time horizon is equally important for developing a banking relationship. Because many of the investment products make sense only over a five or ten year period, we need to understand what the client's priorities over this time scale are. Call it long-term vision or financial planning, but it is necessary to have this long-term component. The wealth management process also becomes smoother when the client and the banker have a similar viewpoint. So if there is a downside, then the client is prepared to understand it.

The time horizon is also a key element in strategic asset allocation. Let us take the example of a person who is 50 years of age, has three daughters, has his own business and has approximately three million in investable assets. On retirement he wants to have a nice piece of real estate and wants to maintain a certain lifestyle with a specific amount in monthly income. On the basis of this profile, we can do a strategic asset allocation that would enable him to meet these goals. We develop such asset allocation models also for smaller clients whose assets are managed completely by us, but with a much higher level of support and closer client-bank interaction than is usually the case with many of the global banks.

An additional component is tax optimisation. Investments from an international taxation perspective can make a lot of sense or no sense at all. For instance, you can have an opportunity to invest in Vladivostok with a potential of a very high rate of return. The opportunity however, will not be very interesting if you cannot repatriate the dividends. But if you could use a Cyprus-based investment company to channel the dividends, then the investment could be an attractive one. These are some of factors we consider in our integrated approach to wealth management."

"We have one clearly defined market, which is the highly rich families in Germany, Switzerland, Austria and Luxembourg," explains Pauly. "Their historical and traditional link with Sal. Oppenheim runs very deep."

Sal. Oppenheim's historical market also includes Latin America. To enhance its European presence, it acquired Services Généraux de Gestion, SGG, a Luxembourg-based asset manager specialising in asset management services for European family-owned businesses. Building on its regional strengths, Sal. Oppenheim has also positioned itself as an important player in the growing economies of Eastern Europe. To this end, it opened a subsidiary in Prague last year.

From a wealth management perspective, Sal. Oppenheim in Luxembourg is the competence centre not only for the group's pan-European and international wealth management, but is also used by many German and European families as a platform for their investment pools. For all practical purposes therefore, Sal. Oppenheim in Luxembourg is an 'on-shore' location for EU residents.

Explains Pauly, "We have many people banking with us in Luxembourg, but declaring their profits in their tax returns filed in Germany or wherever they are based in the European Union. This is why we offer the same tax-reporting tools as in Germany."