Last week, an autographed trading card featuring American quarterback Tom Brady sold for US$1.3 million. In the same week, Christie’s auctioned a digital artwork made by an artist only known as Beeple for US$69.3 million. Titled “Everydays – The First 5000 Days”, the jpeg file set a record for being the most expensive artwork ever sold that exists only digitally.
With traditional forms of investing languishing, high-networth individuals (HNWIs) have begun exploring other vehicles including trading cards, NFTs or non-fungible tokens and even sneakers. The Peak speaks to Yves Guelat, the group CEO of Charles Monat Associates, on wealth planning trends.
Do you think the Reddit retail investor vs hedge fund Gamestop saga will transform the financial landscape?
The Gamestop saga was interesting to observe, with many comparing it to the David & Goliath story. Market volatility is not new. However, this particular chain of events was unique in the way how retail investors moved in unison influenced by social media.
I believe some of these online communities will continue to expand their influence and can create group leverage for economic exchanges While the impact of this trend is huge for highly commoditised products, it remains a question to whether the same influence can create an impact on the overall financial world, especially for customised products like life insurance.
What are the biggest differences between HNWIs in Western countries and HNWIs in Asia when it comes to wealth planning?
We have seen with our team of international consultants and on-the-ground experts that while there is growing awareness and concern regarding the need for succession planning, HNWIs in Asia still lag behind those in the West. According to a survey by Transamerica Life (Bermuda) Ltd and Asian Private Banker, 57% of Asia HNWIs have done nothing with regard to estate planning and wealth transfer, as compared to 32% in the West.
With Asia being home to the fastest-growing pool of wealth, there is substantial opportunity for wealth planning solutions such as insurance, which is a valuable solution in the face of political and geographic elements, market volatility, and cross-border restrictions. Also, we see that the younger generations of HNWIs in Asia are often open-minded in adopting a more professional structured approach to family wealth, frequently desiring to focus on either their new businesses, their lifestyles, or even social impact pursuits. This is a clear indication that there is an increasing need for bespoke services and unique values.
What are some of the misconceptions that you’ve had to correct when it comes to life insurance and wealth planning among HNWIs?
One misconception is that life insurance is purchased for tax efficiency purposes. Jumbo life insurance policies are – at least in Asia – primarily purchased for legacy and estate planning and increasingly for the safety, protection and, more recently, the diversification of assets. The second is that during Covid-19, an individual who wants to purchase an offshore solution should defer the transaction until the travel restrictions are lifted. The insurance market has quickly adapted to a new norm. The quality of the advice to HNWIs with complex needs has not been impacted, but enhanced through remote interactions between clients, advisers, wealth planners, trustees, settlers and HNW insurance brokers.
A third common misconception is that “asset-rich, cash-poor” entrepreneurs cannot buy life insurance. Those clients require cash solutions. With premium financing widely available on the market and a number of products with multi-pay options, cash-poor clients should protect and diversify their assets and ensure proper planning for future transfers.
Lastly, it is also often considered that HNWIs do not need life insurance because they often believe they are in good health or have good access to healthcare and have sufficient assets. But death is sometimes unforeseen, and the impact on liquidity is often underestimated.
How has quantitative easing changed the way your clients approached wealth planning? Have there been shifts to other investments?
HNWIs have an increasing need to balance the higher investment risk with secure wealth planning through life insurance and structured advice. While Bitcoin and many other higher risk instruments have more people participating, in the current market environment, there is a need for protection even with a lower return. For example, a number of clients are investing profits they make on the stock market into savings plans for diversification.
If I would ask you for one financial prediction that you think will happen in the next five years, what would it be?
Increased unpredictability. Covid-19 has massively increased the awareness of the benefits of predictability, liquidity and the ability to move certain assets into cash quickly. A lot of our clients have done very well during the crisis, but they became afraid they could not find buyers for their holdings and might consider selling their properties, shares or other assets.
While we might return to normality, the true costs of Covid-19 will become apparent in the next five years. Governments might need to rebalance their budgets and revisit their taxation model and we might see some countries introduce estate taxes. This extended period of unpredictability might challenge the expected growth in corporate earnings, geopolitical risks might continue to increase, and unpredictability might become the new normal. While economies are beginning to recover around the world, the recovery might be slow and protracted, with risks of volatility in between.
As such, if 2020 has taught us anything, it is to be prepared for the unexpected. The current market volatility suggests that a move to cash and other low-risk assets by HNWIs would be prudent. More HNWIs will seek a greater return on investment over the mid to long term by diversifying their portfolios across other asset classes. HNWIs know they need equities for the return but will need more downside protection. Last but not least, the pandemic has only re-emphasised the need to mitigate mortality risks. One thing for sure is that the need for protection and legacy planning advisory and solutions will continue to be in demand.