Rappler speaks with UnionBank and Swiss private bank Lombard Odier to understand how the wealthiest individuals manage their fortunes across generations

MANILA, Philippines – Picture this: after decades of hard work, your business has blossomed into its own little empire, and you’re preparing to pass the torch to the next generation.

But what exactly do you do with your fortune, and how do you ensure that it continues to provide for your family in the many years to come? That’s where private banking and wealth management come in.

Although they are separate concepts, private banking and wealth management often go hand in hand. Private banking involves offering a specialized, exclusive level of service for high-net-worth individuals. This service usually revolves around wealth management, such as by offering a broader range of investments or offering advice on how to optimize a client’s portfolio, or the mix of investments that they hold.

To explain how it works, Rappler spoke with Union Bank of the Philippines (UnionBank) and Swiss private bank Lombard Odier.

“In the area of wealth management, achieving their financial goals has always been the driving force behind investment behavior among Filipinos. They want to ensure that they accumulate their wealth and then be able to pass this on to their next generation,” UnionBank Private Banking head Arlene Tanjuaquio-Agustin told Rappler.

Private banking is all about giving high-net-worth individuals a structured approach to growing and preserving their wealth across generations – an area which both UnionBank and Lombard Odier, as family-owned businesses, should know well.

Agustin said that rather than simply push certain products, private bankers examine a client’s portfolio on a case-by-case basis and “look at the best in class in terms of asset classes and investment options.”

To do this, the Aboitiz-owned bank recently partnered with the Geneva-based Lombard Odier.

“We believe in asset allocation. We believe in diversification, and we believe in building up strong, sustainable portfolio for our clients that can deliver a long-term positive and strong performance,” Lombard Odier Asia regional head and global head of strategic alliances Vincent Magnenat told Rappler.

Let’s unpack what these financial concepts mean. Asset allocation refers to the way that you split your investments into different assets. This can vary per client. For instance, some may prefer holding stocks and bonds, while others might want to keep more money market instruments.

Asset allocation is also related to diversification, which is all about spreading your investments across different assets to lessen risk. In general, the best way to diversify your portfolio is to own several assets that do not face the same risks.

For example, if you hold multiple stocks in technology companies, you should consider investing in stocks from unrelated industries as well. This helps mitigate the risk of your entire portfolio being wiped out if a major issue hits the tech sector.

Where do they put that money?

Currently, the Philippines is not an economy that offers investors the best return. Inflation continues to linger at the higher end of the government’s target range, and the performance of the local stock market remains sluggish compared to markets in other countries that have already far exceeded pre-pandemic levels.

Because of this, clients are increasingly looking to invest beyond borders for better diversification and stronger performance, Magnenat said.

“The reality is, these clients are more and more sophisticated. They understand, they have the information they need to diversify their portfolio,” Magnenat told Rappler. “Investing globally creates this diversification that you need.”

Seeking investments outside the country can be a tedious and difficult process, requiring clients to fly to a financial center like Singapore or Hong Kong to open an account.

But through private banking services, high-net-worth individuals are able to invest in global equity markets in the United States, India, Japan, and Korea using an account here in the Philippines. Savvy investors can even add precious metals, private equity, or real estate to their portfolio.

“We are also looking at the goals of our investors of seeking higher yields given the prevailing market condition. It’s quite challenging because of the high inflation, so their target ROI (return on investment) has been very steep,” Agustin said.

Besides seeking global investment opportunities, high-net-worth individuals are also looking for investments linked to sustainability. These can include passive investments like index funds that aim to reduce carbon emissions, as well as playing a more active role by investing in private assets.

“We are convinced – and for us, that’s a conviction – that it will generate superior returns to invest into sustainability,” Magnenat said.

Who qualifies as ‘wealthy’ in the Philippines?

Although it might be exciting to avail of these services and invest abroad, private banking comes with a high barrier. For instance, clients wishing to enter the private banking segment of UnionBank need to bring with them at least $500,000, equivalent to P29 million.

That’s not even a lot for high-net-worth individuals. The average assets under management for a UnionBank Private Banking client is $1,000,000 or P58 million, according to Agustin.

Who are these individuals, and where do they get their wealth from? Those who belong to the first generation are usually owners of big industry players and corporations. Banking clients also include the next generation – the owners’ children and their families.

But while the number of ultrawealthy people in the Philippines might not be that high, that doesn’t mean the market is small. In fact, it’s quite the opposite.

“One of the trends that we are seeing in the Philippines is also the interest in ensuring that the family enjoys their wealth over time and across the generations,” Agustin said.

Lombard Odier also describes the Philippines as a “key market for wealth management.”

“Most probably by 2026, the number of high-net-worth individuals will go up by 50% to be over 30,000 high-net-worth individuals in the Philippines,” Magnenat said, defining a high-net-worth individual as having a net worth over $1,000,000.

The Lombard Odier executive also said emerging countries throughout the region – Indonesia, Thailand, and China – have seen an explosion of upper middle class families that are seeking to invest their money and pass it on to the next generation.

“In the next decades, we have within Asia only 70,000 families that will pass the wealth to the next generations. We are talking about $2 to $3 trillion that will move to the next generations,” Magnenat added. – Rappler.com

Finterest is Rappler’s series that demystifies the world of money and gives practical advice on how to manage your personal finance.