Have you ever heard people giving wealth advice? Whether it’s in books, websites, or YouTube videos, they usually say you need to save 15% of your income or whatever their magic number is. If these people were genuinely wealthy, they would know what happens when you become wealthy.
When you become wealthy, you have access to private wealth banking, and private wealth banking is the conspiracy come true.
What Is Private Wealth Banking?
When I was younger, I always heard, “Everything is designed, so the rich get richer, and the poor stay poor.” I used to think that was just cynicism and people trying to disparage the other side—the politics of envy. Then, when I became wealthy, I gained access to private wealth banking, and I realized it was true. You really do have an unfair advantage when you already have money. Private wealth banking—I’m talking about banks like UBS, Morgan Stanley, and Credit Suisse, to name a few.
This is not to be mistaken with private banking. Private banking is where you get a fancy credit card and a person who quickly answers the phone—nothing to do with private wealth.
In private wealth banking, there are no cards, no checkbooks. You get access to products that people who are not wealthy are not allowed to access. You have access to investment products that you can manage in a way that protects you from big market swings. They also provide much higher returns, higher rates of income, and lower management fees.
Would You Like a Bentley for $700 a Year?
Within private wealth banking, you get Lombard (collateralized) lending, enabling you to use that core portfolio effectively as an asset to borrow money against. For example, if you had $100,000 and you bought a $100,000 bond with your bank, you might be able to get leverage on that bond so that they might lend you 50% or 70% of the value of the bond for maybe 3% above the bank’s interest rate. The bank will typically insist that the leverage be reinvested with the bank and buy more bonds or stocks. This often unravels horribly in times of economic crisis, when there’s an adjustment in the value of the underlying assets and everybody takes a colossal bath (i.e., loses money).
Lombard lending is open to private wealth clients, and you can borrow massive amounts of money at low-interest rates without conditions on its use. At the time of writing, my bank will lend you euros at 0.7% a year, secured against your portfolio.
Put that into context: if you bought a Bentley for $100,000, and you purchased it using the Lombard loan; it would cost you $700 a year. When you sell the asset, you have the depreciation (or appreciation) cost over the time you’ve owned it, but basically, the cost of capital for that period would be $700 a year. Would you like a Bentley for $700 a year, plus the depreciation? I don’t think you have to be asked twice. Of course, you don’t have to buy depreciating assets. You can make any investment you choose: property, art, bonds, stocks, or whatever.
Acquiring More Assets
You can use Lombard lending to buy more assets. For example, you can buy other assets that provide income. You can have your core portfolio, which provides income, and then buy a real estate investment trust (REIT), which is effectively publicly listed property. It’s property, but it’s liquid, so you can buy it in the morning and sell it in the afternoon. That gives you exposure to property, a nice, regular income from the rental payments, and the exposure to capital appreciation on the property. REITs often have double-digit annual returns, and some of them pay monthly or quarterly.
The tricky thing with the traditional savings plans when you’re looking at saving 15% of your income is that you save 15% of your income, and then that’s it. You can’t lay your hands on it. With private wealth banking, you can keep 100% of your income and, if you do need some cash for a deal or a transaction, you can simply draw some money out immediately. It’s like you’ve tied up your money in investments, but you’ve still got access to cash. It’s a very flexible way of dealing with money and a great way of managing capital purchases such as planes, boats, and cars.
The Magic Number
Most banks need you to have $10 million of investable assets to let you on the private wealth-banking ladder. Some will consider a starting point a little bit lower, maybe $3 million, if they can see that there’s an opportunity to work with you to get up to that $10 million over a reasonable period.
So, your first goal is to get on the private wealth-banking ladder because it’s an absolute game-changer in terms of your wealth. Forget what the seminar speakers say about wealth. They probably didn’t make the grade, and so are only talking about their understanding of wealth management based on their financial circumstances. Also, people whom you think are wealthy are often just asset rich but totally illiquid. If you look at real wealth—the family offices, the family trusts, etc.—they all use this kind of banking relationship. At the Harbour Club, I quite often show examples of private wealth product offerings, and you would be staggered by what is on offer!
If you’d like to learn more about how you can get closer to the private wealth-banking ladder and other exciting benefits, I invite you to attend one of our Harbour Club events. Not only do I share the ins and outs of deals, but it’s also a place for you to network with other Club members and learn from them as well. Events are currently being conducted virtually, so your health and safety are ensured.
Join me next time when we explore why you should avoid brokers and lawyers when looking for businesses to buy. I look forward to connecting with you soon.
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