Europe and America. Two continents with similar approaches to asset management... but with some differences. The Swiss private banker Lombard Odier Darier Hentsch is seeing demographic trends similar to ours. A population of older entrepreneurs and professionals have accumulated wealth and are now thinking about retirement and estate planning. The product choice for Europe: whole life insurance that is linked to the stock market.
In an exclusive interview with The Insurance and Investment Journal, Patrice Mégevand, bancassurance and financial planning manager at Lombard Odier, said that the clients’ needs are the same but that his firm uses different insurance products than ours.
In Europe (and at Lombard Odier), insurance used for asset management is based on two types of whole life insurance. Each can be used in its own way to meet the client’s capitalization requirements. In both cases, it concludes with death but there is an option to surrender the contract at any time. What is different is that in one product the insurance company assumes the risk of return, while in the other it is the client who bears the burden. These are “unit-linked” products.
In the first category, the premiums paid by the client are invested directly with the insurance company. They then pay the customer a guaranteed minimum rate of return.
In the second category, the performance risk is borne by the insured. For example, the insurer will open a bank account on behalf of the customer who wants to invest one million Euros. The insurer will then be able to “segregate” customer funds, and delegate management of these funds to an asset manager. For its part, Lombard Odier acts as custodian and investment manager.
This kind of product is modular and tailor made. The client can request that another layer of coverage be added in case the markets go down, in exchange for a premium adjusted to the cost of that risk. In the event of the insured’s death, the product can provide protection for $1 million, or $1 million euros plus a 1% guaranteed return per year.
This unit-linked category is the most popular, at both Lombard Odier and in Europe in general. Mr. Mégevand says that the contract’s underlying assets may be individual securities, shares in pooled investments, or both.
Product design must be flawless. According to Mr. Mégevand, these products should first and foremost answer an estate planning need. A product unsuitable for estate planning issues and the regulatory framework of the country of residence of the policyholder or his beneficiaries may have negative consequences, particularly in terms of how benefits are taxed. He adds that the contract must be configured properly ahead of time and reviewed by a tax consultant who specializes in this area.
These financial solutions are essential in Europe. A wealth advisor who is not able to include insurance planning in his offering will have a hard time differentiating himself from the competition, says Mr. Mégevand.