Get to the Essentials ?

We get it. Planning for the future can be overwhelming and emotionally draining.

“How do I know where my family will be in ten years? How much money will I need? Will I still be as healthy? Will my spouse be protected if I pass away first?”

There are a lot of factors to consider – but here at OneLife, we take pride in making your wealth transfer planning more secure, easier and believe it or not, inspiring.

Take a look at our succession planning checklist, to learn more about the factors you should consider when you start speaking to an adviser about inheritance: (Click below to download our Slide Share.)

Complicated? Unsexy? Inaccessible?

Life Assurance – those two words haven’t always inspired a great deal of enthusiasm or excitement.

But we truly believe we can change that. Here at OneLife, we have had enough of the complicated terms and multi-jurisdictional confusions – so we have put together some case studies to help you visualise what life assurance could do for you and your family.

These studies provide insight on three international families’ experiences with Luxembourg life assurance contracts.

>>> Click below to download our e-Book.

Putting all of your eggs in one basket?

They say, “Don’t put all of your eggs in one basket.” Clearly, the person who first came up with this expression didn’t have a Luxembourg Life Assurance contract.

How can we be so confident in assuming this?

Because these contracts are robust enough to prepare you for any life milestone – no matter if it is the death of a loved family member, saving up for a big move, or planning for your grandchildren’s future. OneLife has compiled the stories of three families across Europe, each of whom has identified the innumerable benefits that a Luxembourg Life Assurance contract has brought them.

The Blanchet family for instance, wanted to ensure their children from previous marriages would be appropriately cared for were something to happen to their father and mother.

The Peeters family is one of those classic international, 21^st century families – spread all across Europe, speaking several different languages and taking very different, interesting paths in life. Their main aim in signing up for a life assurance contract was to find a solution to avoid double taxation in the context of cross-border succession.

The Tuominen family relayed that their contract helped them financially manage their situation even when they themselves could not emotionally manage the death of a family member.

Do any of these concerns sound familiar? Then you’ve come to the right place. Delve into our Succession e-Book to explore the multitude of ways in which a Life Assurance contract can help you.

Click below to download our e-Book!

Do stop-loss limits protect or destroy performance?

As we know, most investors do not really perceive risk in portfolios as symmetrical. A scientific approach would state the risk of a portfolio in terms of volatility – the likelihood that actual returns may deviate from expectation, and the potential scale of that difference. That measure works in both directions, up and down, so a portfolio delivering a performance 20% higher than expected for a given period will be categorised as high risk – the kind of risk a client is delighted to accept. But if the portfolio had an expected return of 5% and came out 20% lower, the client would be unhappy about basically the same level of risk.

Therefore various techniques have been developed over the years to respond in an asymmetrical way whenever a portfolio’s performance deviates too much on the downside. Best-known – and familiar to our clients – are so-called stop-loss limits that trigger the sale of certain assets once their negative performance over a specific period reaches pre-established thresholds.

This approach gives investors a feeling of security, since they know they will never lose much more than the predetermined maximum drawdown that triggers the stop-loss sale of the risky asset. This perceived safety net can therefore help convince traditional fixed-income investors, especially in today’s negative yield environment, to consider broadening their horizons and accepting a little more (equity) risk in their portfolios.

Does that approach actually work in times of crisis?

It certainly has worked on a couple of occasions in the not so distant past. Take an investment in the Euro Stoxx 50 Index with a predetermined stop-loss level of 15%. Since the turn of the century, there have been two clear occasions where a lot of damage would have been avoided by selling up after a 15% drawdown: in the 2000-01 dot-com bubble crash and the 2008-09 subprime-induced financial crisis. During both periods the Euro Stoxx 50 dropped massively, by 66% and 61% respectively. In these scenarios taking a 15% hit and quitting would have been preferable to hanging on until the market turned.

But since then stock markets seem to have fundamentally changed, with no fewer than seven “mini-crises” since 2009 in which markets have fallen by more than 15%: 19% in 2010, 37% in 2011, 21% in 2012, 16% in 2014, 22% in 2015, and 24% and then 16% this year. Pulling out of the market after every 15% drop would have caused a series of 15% losses rather than a protected return, even though over this period as a whole the market did not lose money.

The biggest problem is the same in both cases: how do you time market re-entry? Starting to reinvest partially straightaway after a stop-loss is a bit of a nonsense: you might as well stay in if you expect a rebound. But waiting for a fixed period of time, such as 12 months, before re-entering the market would not have helped even in the longer crises of 2000-01 and 2008-09, both occasions when the 15% stop-loss would have been triggered a second time. And since then most re-entries would have put you back in the market just in time for the next mini-crisis.

The conclusion: stop-losses are not the perfect answer to all market volatility issues. They may give a secure feeling, and they will avoid the worst in a really massive downturn, but there is a big likelihood of losing out on performance over the long run by quitting the markets too often, as has been the case over the past seven years. Better portfolio diversification, even outside the traditional equities and cash/bonds mix, might prove better at keeping price swings within your comfort zone and avoiding being hit by the “saloon doors” of the next downturn swinging back at you.

Ruben De Roover
OneLife Investment Relationship Manager
https://lu.linkedin.com/in/ruben-de-roover

>>> For more information on the underlying assets available within our life assurance contracts, please contact our Investment specialists here.

>>> This article is part of the September 2016 edition of our monthly newsletter Life Insights. Click below to subscribe.

Tax efficiency with life assurance

Albert Einstein. A human being whose neurological connections moved at the speed of lightning. Yet in a moment of brilliant and unforgiving honesty, he once exclaimed – “The hardest thing in the world to understand is the income tax.”

We are quite certain many would agree. The puzzlement in finding appropriate tax structures has been a concern for decades, and in fact, results from our ‘Essential Wealth: The interplay between self and society’ report proved this.

Broadly, the European wealthy tend to consider financial products for reasons other than tax optimisation. The French are the disruptors in this case however – we found that 63% of French HNWIs have a life assurance contract in order to be more tax efficient. But these solutions are tools with high potential, not only in France, but globally, due to the benefits they can reap when it comes to succession planning, portability, and investments.

And as HNWIs become an increasingly mobile clientele, competition in the industry is expanding from being purely domestic to much more international. Inevitably, some key financial centres are emerging as key players in the wealth management space.

Luxembourg being one of them, has developed a core presence in the life assurance market.

Read more about the wealthy and how they feel about tax in our latest thought leadership paper below.

Nothing is certain but death and taxes…

Two in every five high-net-worth individuals surveyed in our most recent report, Essential Wealth, believe they are paying too much tax.

Their sensitivity to tax compliance means that an increasing minority are leveraging the legal solutions available to improve their tax rate, such as Independent Savings Accounts.

There are numerous tax efficient solutions out there! And having a Luxembourg life assurance contract happens to be one of them.

The Wealth Paradox

Amongst the 600 high-net-worth individuals we spoke to in our most recent study ‘Essential Wealth: The interplay between self and society’, more than half highlighted the anxiety they feel in relation to wealth creation.

These feelings of anxiety rise to 58% for those younger investors, under 35.

Equally however, it is this new generation of HNWIs that are generally more financially-educated, with an increasing thirst for knowledge and understanding to support all financial decisions they make. This is an opportunity for financial experts to jump in and play an increasingly supportive and indispensable role in these younger wealth creators’ discovery journey.

Warning – advisers must be wary however, of the importance in striking the right balance between the inevitable digital transformation and evolution to robo-advice, with the necessary levels of interaction these clients will request.

Access our most recent thought leadership release below.

Socially engaged HNWs

“A man’s true wealth is the good he does in this world” – these words hold true for many of the European HNWs surveyed in our Essential Wealth report.

Sixty-nine percent of our respondents believe that their wealth has been a positive force in improving their social engagement, increasing the interactions they have had with their communities.

Interested in learning more about the ways in which the wealthy engage with the world around them?

Access to our most recent thought leadership report, written in collaboration with Scorpio Partnership, by clicking below.

The wealthy’s helping hand

The wealthy often get a bad rep and are portrayed as the greedy, fat cats of society.

But actually, we have found that this could not be more incorrect – results from our report have showed that when it comes to wealth creation, HNWIs believe that obeying industry regulations, carrying out fair business practices and paying taxes compliantly are all of utmost importance.

In fact, 6% of HNWs readily admitted that they believed they should be asked to pay more taxes! Similarly, these European HNWs were very keen to emphasise that one of their main goals was ensuring their children would share similar attitudes to society, seeing social responsibility and philanthropy as an obligation they should take on whole-heartedly.

As such, the advisor working with HNWs plays a hugely important role in ensuring their clients receive the best possible advice and more up to date industry information. Previous research we have done however, found that a large number of these HNWs do not even have a professional advisor.

So perk up your ears, advisors!

Here’s a tip – millennials are the critical segment to target as we believe it is never too early to receive financial advice. Although claims that the younger population of wealthy individuals as digital natives will prefer to use robo-advice are abundant, a personalised approach can help them prepare better for the medium to long-term financial view.

Advisers can be the guardians of their wealth, accompanying them throughout their life journeys, paving their way to success from an early start. Our ‘Essential Wealth’ report is now available for download.

Click here to get your hands on a copy!

The never-ending wealth race

Wealth is like a hedonic treadmill – as soon as the desired wealth level is reached, the novelty settles and a newer, higher goal is set.

European HNWIs believe that to be considered ‘wealthy’ they must have over three times their current wealth level.

For those with assets of less than EUR2 million, EUR7.1 million is the entrance point in their minds, to be considered truly ‘wealthy’. Those with more than EUR5 million in net worth on the other hand, aspire to reach the EUR21.5 million mark. These insatiably ambitious HNWIs seek solutions which will increase their capital and combine high return with security and transparency.

The support of financial partners is needed to help them figure out which assets suit their profile, and whether to stick to the basics or take the plunge and be more adventurous.

Inevitably, these are all essential decisions to be made in conjunction with an adviser but previous research carried out by OneLife revealed that only a minority had professional support in these areas (Futurewealth 2015, Paper 1). Interested in learning more about the taboos of wealth?

Click below to download the report.