Client’s situation:
This private banking client has a liquid net worth of US $10 million. A moderate investor, he currently holds his assets in deposits after having had a bad experience at a brokerage firm in 2000 when he lost more than 30% of his portfolio in the technology-led bear market.

The client requires a 2% annual return for living expenses, with another 2% cushion to maintain lifestyle and, conservatively, an additional 4% to 5% for inflation. This would mean a target return of 8% to 9%, or about 4% more than current deposit rates. This type of return is midway between bond returns, which historically earn about 2% above deposits, and equity returns, which historically earn about 6% to 7% above deposits.

Our solution:
We recommend including equities in this portfolio as the world’s equity markets tend to appreciate about 67% of the time and fall 33% of the time. Over longer periods—such as 10 to 15 years—the growth in equities overcomes the negative impact of inflation and down years for the equity market.

We suggest some exposure to alternative investments, such as hedge funds, because if they are selected carefully they can have the potential to produce a very attractive return pattern with a number of positive months and only a few, generally small, negative months, depending on market environment.

Moving 80% of holdings to bond and market neutral hedge fund investments should earn a return approximately 2% to 4% more than deposits, which is closer to the objective of earning 4% more than deposits. With the remaining 20%, we recommend that the client invest in global equities for capital growth. Allocating only 20% will limit the impact of any bear markets on the portfolio. Over time, the goal should be to increase the equity allocation to 30% to 40% to earn the needed returns.

We believe the advice, recommendations and products referred to in these examples to be appropriate for the individual clients profiled in the examples, based upon their individual circumstances and particular goals, but may not be suitable for you. These examples are not a recommendation to invest in certain securities or other financial instruments, and do not constitute an offer or solicitation of an order to buy or sell securities or other financial instruments, or to provide investment advice or services. You should consult your investment advisor before making any investment.

Client’s Situation:
This client has a highly profitable and established manufacturing business. He has three grown sons and two daughters who are still in school and a net worth of US $30 million.

His two elder sons joined the family business while the youngest son will do the same shortly. The client’s daughters have indicated to him that they prefer to pursue their own interests and will not join the family business unless absolutely required.

The client would like his estate to be distributed equally but has decided not to give his daughters shares in the family business. He also wants to make sure there is enough additional cash to pay off the mortgages on the properties. Finally, he would like the eventual devolution of his estate handled confidentially.

Our solution:
We would prepare a comprehensive estate plan for the family that meets a range of needs, including avoidance of probate, privacy, confidentiality, succession planning and equalisation of inheritance. We would recommend a family trust, setting up the two younger sons as beneficiaries to the non-voting shares, which would entitle them to dividends. In addition, the eldest son, currently the most qualified person, would be the beneficiary to the voting/participating share.

The trust documents will specify, according to the client’s wishes, exactly how he wants his sons to benefit from the trust upon his death. If circumstances change, he can always adjust the terms in the trust documents at any time during his lifetime. In addition, the trust arrangement is not open to the public but is private between the client and the Trustee, and the Trustee will always act in the best interests of the beneficiaries.

For the two daughters, we recommend that he take advantage of Standard Chartered Bank's insurance referral program, which will allow him to discuss his needs with a licensed insurance representative who could arrange a life insurance policy that would ensure he will be able to leave each daughter the expected amount, with enough of a payout remaining to take care of the remaining balance of the mortgages upon his death. The insurance policy could be owned by an "insurance trust" which would offer all the benefits of a trust listed above, including distribution flexibility - eg he could have the death benefits paid out to his daughters over a period of years and restrict the use of the funds, if he wishes.

We believe the advice, recommendations and products referred to in these examples to be appropriate for the individual clients profiled in the examples, based upon their individual circumstances and particular goals, but may not be suitable for you. These examples are not a recommendation to invest in certain securities or other financial instruments, and do not constitute an offer or solicitation of an order to buy or sell securities or other financial instruments, or to provide investment advice or services. You should consult your investment advisor before making any investment.