How wealthy people protect their money

[omni550]

"A sociologist realized that if she were ever going to understand global inequality she would have to become one of the people who helps create it. So she trained to become a wealth manager to the ultra-rich."

"Wealth management is a profession on the defensive. Although many people have never heard of it, it is well known to both state revenue authorities and international agencies seeking to impose the rule of law on high-net-worth individuals. Those individuals—including the 103,000 people classified as “ultra-high-net-worth” based on having $30 million or more in investable assets—pay wealth-management professionals hefty fees to help them avoid taxes, debts, legal judgments, and other obligations the rest of the world considers part of everyday life. The general public doesn’t hear much about these professionals, since there are only a few of them worldwide (just under 20,000 belong to the main professional society) and they strive to keep a low profile, both for themselves and their clients."

How Wealthy People Protect Their Money - The Atlantic


omni

 

[Sunset]

Yep.
Nothing like making money and not having to pay any tax on it.
Normal folks are not such a big target, that they have to worry about being judgement proof, as insurance will take care of it.

Problem for the rich is the fees wealth managers charge.

 

[travelover]

Very interesting article.

 

[W2R]

I always thought that wealth management was just one more way to let someone strip a few percent off of one's portfolio every year.

Seems to me that some of the ultra-rich are busy with whatever made them rich in the first place. They just don't have the time to manage their own portfolio, and this entire "industry" is taking advantage of that situation when it applies. But then, if I was in that situation I'd probably be glad to pay someone to take that chore off my back too.

 

[marko]

As I've mentioned on several threads over the years, I have to chuckle whenever some wonk decides to "go after the rich" by closing some loophole or some new tax. It sounds nice, but...good luck with that.

The ultra wealthy have far too many options to avoid getting dinged.

Problem for the rich is the fees wealth managers charge.

I think they view it as an investment instead of a problem.

 

[Neill]

Isn't this article rubbish? First of all:

Media coverage of the 2012 presidential campaign of Mitt Romney noted that his $250 million personal fortune was spread out through a network of offshore trusts and bank accounts, lowering his effective income-tax rate to just under 15 percent.

Total rubbish. Mitt Romney used capital gains to generate that 15%. I don't need a wealth manager to do that or some trust. We have to say 15% because it sounds better than the current 23.8%.

Next:

Remember when the Facebook founder Eduardo Saverin renounced his American citizenship for a Singaporean passport? Classic wealth-management strategy. And thanks to the expanding number of practitioners, U.S. citizenship renunciations are at an all-time high, and growing.

Actually we know that whats driving this is FATCA and the renewed interest in FBAR and that the people renouncing don't need wealth managers. These are people who the exit tax would never hit for the most part. You can read a never ending list of their stories online.

I couldn't see anything that told me how to avoid taxes on my income legally.

 

[athena53]

I laugh, too, when my FB contacts demand that the ultra-rich be taxed more to provide benefits to everyone else. If you make it hard enough on them, they'll move money offshore, change their citizenship, whatever is necessary. France is losing wealthy citizens to Belgium since increased their tax burden.

Remember tax shelters that let you write off $10 for every $ you invested? I used to see them advertised in the WSJ in the 1970s and, I think, even in the 1980s. They were horse-breeding farms, oil wells and other businesses that had heavy up-front depreciation.

 

[marko]

Quote:
Media coverage of the 2012 presidential campaign of Mitt Romney noted that his $250 million personal fortune was spread out through a network of offshore trusts and bank accounts, lowering his effective income-tax rate to just under 15 percent.

Whenever someone starts their position with "media coverage noted" as fact, you know you're getting scammed.

 

[ArkTinkerer]

Yep.
Nothing like making money and not having to pay any tax on it.
Normal folks are not such a big target, that they have to worry about being judgement proof, as insurance will take care of it.

Problem for the rich is the fees wealth managers charge.

Wouldn't you pay a wealth manager 2% to drop your tax rate 5% or more?

That and the other comment here about wanting your time for yourself instead of your investments.

 

[RetiredGypsy]

I laugh, too, when my FB contacts demand that the ultra-rich be taxed more to provide benefits to everyone else.

If those 103,000 were worth $30 even each, and they were taxed at 50%, it'd be about 0.3% of just the military budget's $600+ billion/year they'd be helping along. Not exactly amounts leading to sweeping social change and balancing the budget.

What gets me is how vague this article is.

Wealth management is a profession on the defensive. Although many people have never heard of it, it is well known to both state revenue authorities and international agencies seeking to impose the rule of law on high-net-worth individuals.

Who are these mysterious authorities and agencies?

I spent weeks in hotel conference rooms in Switzerland and Liechtenstein learning about trust and corporate law, financial investment, and accounting. Ultimately, this earned me the “Trust and Estate Planner” qualification (TEP): an internationally recognized credential in wealth management, much like the CPA for accountants.

This makes it sound like this mysterious profession is learned in the same kind of fashion as people who go to hotel conferences to learn how to flip houses. This sounds like you can suddenly go learn to become a wealth manager after catching a radio ad.

And it just goes like this. Stories without details and facts to back them up. Maybe the book he hints at publishing would have more details.

He seems focused on the net worth and avoiding taxes on that net worth, but what about the taxes paid on whatever was earned to generate that net worth? Like in The Millionaire Next Door, where the example is given of someone with low net worth and someone of high net worth both being taxed the same amount on their income, but the high net worth individual being taxed far less as a total percentage of their net worth.

What are these institutions doing with this money? Are they letting it sit in accounts being unused until the owner wants a new whatever? How many jobs are that whatever providing? Or is it being funneled to loans, grants, etc? How long are these ultra high worth individuals remaining ultra high worth individuals? Where are the details?

Even presupposing higher taxes are a good thing and all tax loopholes should be closed, I don't understand the point of arguing socioeconomic inequality against high worth individuals. Since the math doesn't work out that taxing them higher will help with government spending, it seems less about forcing them to provide services and more about bringing down to a lifestyle level someone deems fair. But where does fair start and end?

This article reads less like investigative journalism and more like a veiled ad for this book he's publishing.

 

[marko]

Wouldn't you pay a wealth manager 2% to drop your tax rate 5% or more?

That and the other comment here about wanting your time for yourself instead of your investments.

As F S Fitzgerald said: "The wealthy are different from you and I".

 

[mpeirce]

And the article lumps everyone together. The article views them basically as criminals. Which is fine for Russian oligarchs like Rybolovlev or convicted felon Trudeau, but this group also includes folks like Buffet and Gates, who clearly aren't.

 

[Chuckanut]

We have a complicated tax system. Complications tilt the playing field in favor of those who can afford to hire experts to guide them. The same is true in business. A complicated regulatory environment burdens the small business owner far more than the MegaCorp that can hire a few experts to ensure they at least appear to meet the standards.

 

[marko]

And the article lumps everyone together. The article views them basically as criminals. .

Just pandering to the envy contingent.

 

[rodi]

semi - hijack. I am forever amused by the job title "wealth manager". They are basically a financial planner... but the term "wealth manager" is to appeal to ego... folks who use wealth managers are soooo much better than lowly people who use a financial planner.

A former coworker/friend often talked about how awesome her "wealth manager" was and the 1.5% of AUM was worth it. She's retiring early - but a few years behind me. (We're the same age.) She also had no idea what the "wealth manager" was doing because she didn't want to be bothered with the details.

 

[retiredinnyc]

How to protect money

I called a investment radio show once about if I hit the lottery , what should I do type question. He basically told me since I would have a lot to lose to make sure I had adequate insurance. Well I didn't hit that jackpot but I did add a $5,000,000 umbrella policy to my home. It didn't cost that much and I sleep better at night, that's how I protected my money

 

[ChiliPepr]

Instead, taking advantage of a research fellowship I was awarded in Germany, which freed me from teaching and administrative responsibilities for a few years

Must be nice. Wonder who paid for this fellowship?

When I explained, he laughed and said that since the financial-services industry had grown so powerful on the island, crime rates had shot up.

I also like how the Financial industry is the cause of her getting robbed.

make it possible for the wealthiest people in the world to gain all the benefits of society, while flouting its laws

The one example of "flouting its laws" and skipping customs on a flight from EU to Zurich.

I also find it interesting that

when Oxfam estimates that just 1 percent of the world’s population will own more than 50 percent of the world’s wealth by 2016

From that article, the average wealth of the top 1% is $2.7 million.


To me, this article seems like a hatchet job.

 

[ziggy29]

A former coworker/friend often talked about how awesome her "wealth manager" was and the 1.5% of AUM was worth it. She's retiring early - but a few years behind me. (We're the same age.) She also had no idea what the "wealth manager" was doing because she didn't want to be bothered with the details.

Wow. Getting to siphon off 1.5% of someone's nest egg without them having the slightest idea what (if anything) you are doing? Above and beyond the possibility of churning the portfolio to generate even more commissions for yourself?

Sweet gig. Where do I sign up?

 

[Danmar]

semi - hijack. I am forever amused by the job title "wealth manager". They are basically a financial planner... but the term "wealth manager" is to appeal to ego... folks who use wealth managers are soooo much better than lowly people who use a financial planner.

A former coworker/friend often talked about how awesome her "wealth manager" was and the 1.5% of AUM was worth it. She's retiring early - but a few years behind me. (We're the same age.) She also had no idea what the "wealth manager" was doing because she didn't want to be bothered with the details.

The article implied that "wealth management" was some sort of nefarious secret society. Really, my experience is that they are mostly just financial planners trying to get 1% of your portfolio by putting you into some standard asset allocation. I agree that much can be done to close offshore tax havens but this article is wealth envy at its finest.

 

[Andre1969]

I've heard that some wealthy people get around paying federal income tax is by simply investing it all in tax free municipal bonds. I'm sure they have their own pitfalls, though. But still, couldn't you theoretically put it all in these, and if you live in a state with no income tax, you'd get off on paying the state tax as well?

People whine about the rich "not paying their fair share", but then the government ends up creating the very means that enables them to do it!

 

[Totoro]

The article implied that "wealth management" was some sort of nefarious secret society. Really, my experience is that they are mostly just financial planners trying to get 1% of your portfolio by putting you into some standard asset allocation. I agree that much can be done to close offshore tax havens but this article is wealth envy at its finest.

If we're talking 30+ milllion it's not about financial planning alone, but much more.

It's about tax planning, estate planning, getting your boat financed creatively, structuring ownership (look at IKEA for instance), coaching in how to setup efficient trusts, enabling access (to get electricity near your private island), support in finding a successor CEO discreetly for your family business, right up to arranging kidnapping prevention measures and such.

 

[marko]

People whine about the rich "not paying their fair share", but then the government ends up creating the very means that enables them to do it!

Like the welfare system at the other end of the spectrum, it is intentionally designed to encourage "creativity".

But the low-information crowd laps it up.

 

[marko]

If we're talking 30+ milllion it's not about financial planning alone, but much more.

It's about tax planning, estate planning, getting your boat financed creatively, structuring ownership (look at IKEA for instance), coaching in how to setup efficient trusts, enabling access (to get electricity near your private island), support in finding a successor CEO discreetly for your family business, right up to arranging kidnapping prevention measures and such.

....and, (as my granddad used to say) cheap at twice the price!

 

[Danmar]

If we're talking 30+ milllion it's not about financial planning alone, but much more.

It's about tax planning, estate planning, getting your boat financed creatively, structuring ownership (look at IKEA for instance), coaching in how to setup efficient trusts, enabling access (to get electricity near your private island), support in finding a successor CEO discreetly for your family business, right up to arranging kidnapping prevention measures and such.

Yes, I understand this but the article used the generic term "wealth management". Every bank in the world has a wealth management business, but very few do the kinds of things you mention, other than in the tax havens of course. I would also submit that $30 million is a low cut off for the kinds of things you mention. Maybe $100 million more like it. I suspect that many $30millionaires don't do any of the stuff you mention.

 

[marko]

I would also submit that $30 million is a low cut off for the kinds of things you mention. Maybe $100 million more like it. I suspect that many $30millionaires don't do any of the stuff you mention.

ummmm....I think they do.
If they don't, they should. I suspect the multi-generational wealth crowd might be more inclined.