A GUIDE TO LOMBARD S SERVICES TO PRIVATE INVESTORS IN EUROPE

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1 A GUIDE TO LOMBARD S SERVICES TO PRIVATE INVESTORS IN EUROPE

2 The Privatbancassurer Lombard is the leading pan-european life assurance company specialising in wealth management services for high net worth private investors. Our business is privatbancassurance a concept which combines private banking and investment management services with the sophisticated use of life assurance as a financial planning structure to achieve fiscal advantages and security for wealthy investors and their families.

3 T HE SCIENCE OF C ERTAINTY The illustrations in this brochure pay tribute to the work of great scientists who discovered the underlying laws that lead to certain and reliable outcomes in the natural world. These same principles underpin the ability of Lombard to help you achieve certain and reliable outcomes in the management and preservation of your wealth. A GUIDE TO LOMBARD S SERVICES TO P RIVATE INVESTORS IN EUROPE

4 W EALTH MANAGEMENT IN AN UNCERTAIN WORLD Turbulent stockmarkets, low interest rates and increasing pressure from fiscal authorities have created an environment in which private investors, understandably, feel beset by uncertainty. In this climate, investors priorities and objectives have changed from the achievement of high returns from equity investment to the protection of capital. But volatile investment markets are not the only threat to wealth preservation. For high net worth investors, a further threat has been gathering momentum. This has its source in a major problem facing every government in Europe how to fund the escalating social security costs of their ageing populations. Governments have little choice but to increase taxes significantly to meet these costs. But increasing the rate of tax paid by the working man or businesses is almost certain political suicide. That leaves private wealth as one of the few remaining sources of tax revenue. The determination of governments to increase tax on private wealth and to reduce tax avoidance has been clearly demonstrated by, for example: It is therefore inevitable that wealthy investors will be facing higher taxes on their capital; yet at the same time many existing tax planning solutions will cease to be effective. In such a difficult environment, wealth management has become an extremely challenging business, both for investors and their advisers. But, as in any business, the keys to success are to face the realities of the market, to analyse the threats and opportunities and to develop practical strategies that can deliver certain and positive solutions. Thanks to the insight into the rotation of the earth gained by Hipparchus of Rhodes, we can predict with certainty where the stars will be located in the heavens. the EU Savings Directive tax amnesties the increased scrutiny of established tax planning arrangements a sustained attack by world regulatory authorities on off-shore tax havens. 3

5 W EALTH PRESERVATION THE KEYS TO SUCCESS Lombard s business is the creation of long-term wealth preservation strategies for high net worth investors, in consultation with their personal financial planning advisers. Our aim to provide practical strategies that deliver certain and positive solutions is based on four core principles: Maximum investor protection and security Thanks to the great work of Sir Isaac Newton on the effects of gravity, we can precisely anticipate the movement of the planets into the future. In a market beset by uncertainty, security and investor protection have become paramount. However, turbulent stockmarkets have not only eroded the wealth of private investors; they have also inevitably affected the financial strength of institutions such as banks and insurance companies. The only certain way for investors to achieve absolute security is from a state-backed investor protection regime. One country in Europe, Luxembourg, provides such security through its investor protection law a regime that provides maximum security to investors (this is described in more detail on page 9). 4

6 The importance of high quality independent professional advice Lombard is firmly committed to the principle that it is essential for private investors to obtain top quality independent investment, taxation and financial planning advice. For high net worth investors, it is particularly important that their advisers work together to create a co-ordinated and coherent long-term wealth management strategy. The foundation stone of your strategy a tax-efficient legal ownership structure The two essential components of an effective wealth preservation plan are an investment management strategy which will achieve growth in excess of today s low interest rates but will also control the downside risk, and a legal ownership structure which will protect capital from the erosive effects of taxation and facilitate the tax-efficient transfer of wealth to future generations. There is an important difference between these two components. Investment management is an art which relies on forecasting the future to achieve superior returns; as recent events have proved, this is extremely difficult to achieve. On the other hand, creating an effective structure to hold invested assets is a science that will achieve certainty in terms of sheltering assets from taxes and preserving wealth for your family and future generations, irrespective of the performance of your investments. It is for this reason the certainty of the benefits it provides that we believe the establishment of an effective structure should be the first priority and the first step in the creation of a successful wealth preservation plan. Privatbancassurance an extremely effective legal ownership structure There is no single wealth preservation panacea. Wealthy investors have differing needs family and business relationships, multiple domiciles, inheritance and succession wishes. It is the role of your personal advisers to design a structure to meet your particular requirements. And quite frequently a combination of different structures may be required to achieve your objectives. But as the advantages of many traditional tax planning arrangements are being reduced, a modern solution has emerged as one of the most effective wealth management structures today. This solution is called privatbancassurance; as its name implies, it combines an investor s private banking and investment management services with the sophisticated use of life assurance. Privatbancassurance is not a product but a tax-efficient legal structure which is tailor-made to meet the specific requirements of each investor, in particular to allow investors to retain their existing investment managers. An outline of how privatbancassurance works in practice is described on page 10 of this brochure. 5

7 L OMBARD AN INTRODUCTION The concept of privatbancassurance was invented and pioneered by Lombard. We are the clear European market leader in this specialist niche business. Privatbancassurance is now recognised as an effective financial planning structure in all major EU countries. The pan- European development of the concept became possible as a result of the creation of the single market in financial services, which provides a passport to companies to market their services across borders. Lombard is an independent company. We are not tied to any bank, insurance company or investment management house. Lombard is an authorised life assurance company, but does not transact traditional life assurance business; our core business is the use of life assurance as a wealth management structure for high net worth investors. In spite of the difficult conditions in recent years, Lombard has continued to grow steadily and successfully and we are, by a significant margin, the largest cross-border life company in Europe. Lombard s distinctive strategy is summarised as follows: A partnership approach Lombard s strategy is based on providing its services in partnership with a limited number of private banks, family offices and other independent financial advisers who advise wealthy investors. Some of these partners are premier global financial institutions; others are local specialists. All of them recognise the value of privatbancassurance as a long-term wealth preservation structure. Pan-European with local expertise Lombard is a pan-european business operating in all major European countries under the EU freedom of services regime from our head office in Luxembourg. However, we recognise that each European country has its own distinctive culture, language and legal framework. One of the reasons for Lombard s success is our detailed understanding of the fiscal, legal and cultural realities of each country in which we operate. This understanding enables us to provide country specific solutions which comply with local tax and legal regulations and are tailored to meet the unique requirements of each client. 6

8 Open architecture investment management The work of Heinrich Hertz greatly advanced our understanding of the behaviour of sound waves, enabling architects to design concert halls with the certainty of acoustic precision. The role of Lombard is to provide investors with a tax-efficient wealth management structure to hold their assets. Lombard does not provide an investment management service. This enables each client to select an independent asset manager who is able to draw on the expertise of the world s leading investment managers to provide the optimum return, consistent with their personal risk profile and investment preferences. A private banking culture and exceptional service Lombard s business is unique in focusing exclusively on providing services to wealthy investors. Our culture is therefore based on a private banking ethos. This is reflected in the quality and style of service that we provide to our partners and their clients. Although modern technology plays an important role in providing our clients with up to the minute information, our service is highly personal. 7

9 T HE LUXEMBOURG ADVANTAGE Luxembourg, at the heart of Europe, is a major international financial centre. It is the private banking capital of the EU, the largest centre outside the USA for the administration and management of investment funds and the premier location for the pan-european cross border life assurance industry. Lombard s location in Luxembourg provides four key benefits to investors: A secure on-shore regulatory jurisdiction Historically, many high net worth investors turned to off-shore financial centres for confidentiality and tax mitigation. Apart from a lack of regulation and investor protection, off-shore centres have been subject to increasing attacks from European legislators and international bodies such as the OECD. As a result, confidentiality is giving way to disclosure and off-shore investment is becoming the worst of all worlds, with investors placing their assets in real jeopardy in return for no real or sustainable benefits. In contrast, Luxembourg s regulations are governed by European Union Directives that require strict financial controls and supervision to provide investors with a safe, secure on-shore regime. The famous theory of falling bodies of Galileo Galilei proved conclusively that all objects of the same mass fall at the same rate, whatever their size and weight. 1 second 1 second 2 seconds 2 seconds 3 seconds 3 seconds 4 seconds 4 seconds 8

10 A tax-efficient environment All interest, dividends and capitals gains in Luxembourg life assurance funds are reinvested free of taxes. Furthermore, certain withholding taxes can be reclaimed from countries that make this deduction. Although your tax position will ultimately depend on the rules in your country of residence, the tax-exempt status of Luxembourg life funds provides a decisive advantage. Maximum Investor Protection Commissariat aux Assurances (CAA) Europe s strongest investor protection regime Unlike any other country in Europe, Luxembourg law provides complete protection to life insurance policyholders. The cornerstone of this investor protection regime is the requirement, by law, that all clients assets must be held by an independent custodian bank appointed by the Luxembourg state regulator. This arrangement is known as the Triangle of Security. This regime ensures the legal separation of clients assets from the insurance company s shareholders and creditors. Furthermore the custodian bank is required to ring-fence clients assets and is bound by the regulator s legal powers to protect policyholders interests. Lombard Financial Privacy Approved Custodian Bank Luxembourg law provides absolute confidentiality. It is a serious offence for any financial institution to divulge any information about their clients to third parties, except in relation to criminal activities. Whilst confidentiality does not in itself confer any advantage in terms of wealth preservation or planning, it does provide individual privacy, which investors, often high-profile individuals, quite rightly feel entitled to enjoy. 9

11 P RIVATBANCASSURANCE IN PRACTICE Following the keys to success in the creation of an effective wealth preservation strategy, the first step is a review of your financial situation with your personal advisers. This review will analyse your objectives and identify, for example: Your succession planning objectives, such as: The timing of the transfer of assets to your selected beneficiaries (you may, for example, wish payments to children to be deferred until they reach maturity). The level of control you wish to exercise over assets which will ultimately be transferred. Potential inheritance or succession taxes. The level of income you require, from your investments, after tax, now and in the future. Taxes that you are currently paying, or may pay in the future, which you wish to reduce. The tax and other implications if you have family members who may live in another country. A consultative advisory service The development of your plan should be a truly consultative advisory process, involving all your tax, legal and investment advisers as well as Lombard s specialised financial planning experts. Lombard s know-how is based on our detailed understanding of the relevant legal and taxation laws in each country in Europe. This expertise is constantly updated on the advice of leading local legal and tax specialists. Lombard is therefore particularly well positioned to provide solutions to families who may live in different parts of Europe, or indeed the rest of the world. Although a privatbancassurance structure should be the foundation stone of your wealth preservation strategy, it may not provide a comprehensive solution, particularly for wealthy families with complex affairs. There may well be a need to use privatbancassurance in combination with other estate planning structures, for example trusts. A summary of the benefits It is important to emphasise that your relationships with your advisers and investment managers remain completely unaffected. In particular, you are free to hold a wide range of assets within the structure, including money market investments, bonds and equities and to retain your preferred investment advisers. But, you will have made important and beneficial changes: You will have put in place a flexible structure that precisely meets your objectives during your own lifetime and for your family. The income and capital gains from your portfolio will in future accumulate free of taxes. Your affairs will have been simplified. You will enjoy the security of the strongest investor protection regime in Europe. You will know that you have achieved certainty in your financial planning. 10

12 L OMBARD AND THE FUTURE The trends that have driven the successful growth of privatbancassurance will continue. Governments throughout Europe will increasingly view wealthy investors as a prime fiscal target. As many traditional solutions cease to be effective, privatbancassurance will increasingly provide a more attractive alternative. We also see new opportunities arising in cross-border financial services. For example, the EU is committed to creating a single market for pensions. Pensions are an important financial planning tool and we intend to play a leading role in this market as it evolves. Archimedes experiment with gold and the displacement of water allows us to know that an object of greater volume will displace more water than an object of similiar size but lesser volume. As an independent business, with a specialised focus on privatbancassurance we are well placed to develop opportunities like these and broaden and deepen the scope of our business. But it is equally important to emphasise the aspects of our business that will not change. We will continue to focus on privatbancassurance. We will never introduce our own investment management. We will maintain our policy of working exclusively through the highest quality financial advisers. And we will continue to provide maximum protection and security for investors and an exceptionally high-quality service to our partners and their clients. 11

13 H OW TO CONTACT US For further details and information, please contact your private bank or independent financial adviser. Alternatively, you can contact Lombard: Marketing Department Lombard International Assurance S.A. Head office: 4, rue Lou Hemmer L-1748 Luxembourg Grand-Duché de Luxembourg T: F:

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