Jeff is a private banker who manages the wealth of high net worth clients – people with a net worth of S$5m and above. I invited him to the Bid and Ask show and got him to share the secrets of the rich.
You can watch the full interview below or you can proceed to read the summary of it.
How most of the rich made their money?
Jeff told me that majority (~80%) of the clients made their money from businesses. The remaining 20% are either corporate warriors who climbed to the C-suite appointments, or are professionals such as doctors.
Among the businessmen, those above 50 tend to have “old money” businesses such as real estate, while the younger ones tend to be in the tech industry.
Common Traits of the Rich
He noted that they often share a few common traits which could have contributed to their successes.
Firstly, they have a can-do spirit.
We know that businesses have very low chances of success and are full of challenges. Instead of being pessimistic or complain about problems, the entrepreneur think positively and make things happen. This is how they overcome the overwhelming odds and get the handsome payout eventually.
Another interesting trait was the ability to ‘smell opportunity’.
This sounded like a dark art, I am not sure if it is inborn or if it could be nurtured.
Jeff mentioned that he had some clients who were able to pivot their entire businesses into totally new areas and catch the right waves. And then there are the serial entrepreneurs who sold their businesses, started new ones and sold them again. They somehow have the knack of identifying the best opportunity which most people are unable to, or are not willing to take it up.
However, Jeff reminded us that his clients profiles do not cover every persona of the rich.
For example, those who got rich via investing are unlikely to engage the services of private bankers – a fund manager would often invest his personal wealth in the fund he runs.
Others may decide to hire managers to run their own family office.
Where do the rich invest their money?
Most of Jeff’s clients still have majority (~60%) of their wealth in businesses, if they have not sold them.
This is often because their own businesses can generate a much higher rate of return than they would if they invest in the public markets. They may consider selling part of their shares only when they get older and transit into retirement. That’s where they would use the proceeds to invest more of their wealth in the stock market.
Jeff is seeing less exposure in real estate as he believes that the heyday of property investing in Singapore has come to pass. In the 80s to 00s, you can make millions from property investments as Singapore’s economic growth rate was 10-15% per year spilled over to the real estate market. Moreover, there wasn’t much government intervention in the past. It is getting more challenging now to get a good ROI from property investments. The rich have about 20% of their wealth in real estate on average and the percentage has been declining.
The remaining 20% of their wealth are in stocks and bonds.
For foreign clients, Jeff saw lower levels of private ownership (~50%) and ~10% of their wealth in stocks. He thinks that the foreigners know when to encash their businesses because they want to slow down earlier in life and enjoy their fruits of success. It could also be cultural differences as Asian businessmen have the tendency to want to pass down their businesses to the next generation and hence most of the wealth are still tied to the businesses they started.
Does the rich have an advantage over the average guy when it comes to investing?
Jeff said that the rich do not have an edge over the others when it comes to investing. This is because most of them are business operators and investing in the public markets requires skill sets such as valuations and having an investment strategy. I elaborated about the differences here. This is one of the key reasons they engage a private banker to manage the investments for them.
However, he said that these businessmen are better at putting their skills and experience in evaluating private businesses as investments because they can get an intimate look into the management and finances.
Plus, the rich has access to more sophisticated financial products such as hedge funds, option strategies and trusts, that would give them more options to employ their wealth strategies.
Also, Jeff opined that private banking offers the highest quality of advice at the lowest cost. This is probably contrary to the common belief of exorbitant fees taken by the banks. He explained that private bankers are usually middle-aged and have experienced many booms and busts. They need to go through the rite of passage to qualify as private bankers, unlike readily available advisors who may be fresh graduates. Priority banking probably charges above 1% to even 3% while private banking charges 1% on average. Hence, the rich does have an advantage in this area – getting the best possible advice for a fraction of the cost.
How to become a private banker?
For those who are interested to be a private banker, Jeff has suggested a couple of routes you can pursue.
Firstly, you don’t need a finance background but it can be an advantage. Getting a CFA or CAIA qualification or simply attending courses to figure out how to invest would make you stand out.
One route is to enter as a management trainee and get rotated around different departments in the bank. You can opt to be an investment counsellor and understudy with someone who is probably 10 years in seniority for 5 to 6 years. You should be able to become a full fledged private banker around the age of 30.
The second route is through retail banking – doing sales as a relationship manager. It is important to identify and nurture the clients with higher net worth so that they can grow with you as you move up to priority banking. You can finally move into private bank once you have enough big clients.
The third route is to be an assistant to a private banker, helping him with all the administrative and routine tasks which the banker has no time to do. Your opportunity will come when the private banker has to groom you when he wants to retire. Jeff believes this is the best route because the assistant already has touch points with the clients for years and would be more ready than anyone else to takeover the portfolio.
Want more? You can visit Jeff’s blog here.