Episode 24 - Understanding the Needs of Ultra High Net Worth Families with Jonathan Beasley
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In this episode of Your Estate Matters, Greg and Nicole chat with Jonathan Beasley, a high net worth relationship manager at Citibank Canada. The trio discuss the intricacies of wealth management for ultra high net worth individuals and families. They explore the definition of ultra high net worth, the role of family offices, the specific needs and goals of wealthy clients, and the landscape of ultra high net worth individuals in Canada. The conversation also delves into cross-border wealth management, Citibank's global services, emerging trends in wealth management, and the importance of alternative investments and hedge funds.
Transcript:
Intro 00:00:02 Hello and welcome to Your Estate Matters with your hosts, my colleague Greg Brenand and myself, Nicole Garton of Heritage Trust. Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it's estate related, we'll be talking about it. We're having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow.
Nicole 00:00:30 Today on Your Estate Matters, we have high net worth relationship manager Jonathan Beasley with Citibank Canada.
Greg 00:00:40 Hi Jonathan, thanks for being with us here today to talk about wealth management for ultra high net worth individuals and families.
Nicole 00:00:47 So tell us about yourself and how you got into this area.
Jonathan 00:00:50 Well, that's a good question. And, an interesting story. So I said, I'm with Citi Private Bank, as you can tell by the accent, I'm not from these shores. I'm from the UK. I grew up there. I spent 20 years in the financial service sector, during which I started off with PWC, qualified as an accountant, decided accountancy wasn't really for me.
Jonathan 00:01:13 So, moved into banking first of all with RBS, not RBC, but the Royal Bank of Scotland, not Canada, then into Citibank, where I spent the last 12 years in the corporate investment banking side. from that experience, I was covering a global portfolio, shipping companies, and that gave me exposure to the globality of Citi, the exposure to investments, the exposure to high net worth individuals, family offices. And really that was how my linkage into Canada came. I covered a couple of Canadian shipping companies. then the head of Canada knew that I had a Canadian wife. So it was a case of being offered the great opportunity to come over here and look to really increase its presence in in the region. I think Citi is one of those best kept secrets in Canada, and I think we're looking to try and increase that exposure, increase that visibility. And I think we're we're making good strides in that.
Greg 00:02:10 So, Jonathan, what constitutes an ultra high net worth individual or family? And does it vary by regions?
Jonathan 00:02:17 You're right.
Jonathan 00:02:18 It does vary some definitions that change. But a normally tried and tested definition is investable net worth of $30 million or above. and that's the definition we use.
Greg 00:02:28 Like a US 30.
Jonathan 00:02:30 US. Yeah. So we tend to look at that. That's the global accepted definition of that. When we look at families we sort of and family offices, we tend to think that the, the level really should be 100 million, really to make an effective family office at least. But yeah, that's 30 million is the the target we try and, look for in our, in our client base.
Nicole 00:02:53 So you use the term family office. A lot of our listeners won't be familiar with that. What is the family office?
Jonathan 00:02:59 So family offices. When an ultra high net worth individual has got to a situation of wealth where he can no longer really look after that wealth independently on his own or his outsourced advisors. So they put in place a structure to help manage the estate in a more effective, more professional manner.
Jonathan 00:03:17 Again, it needs to be a certain size to make the economics work and the value add of that. But we're seeing that as that proliferation of family offices increased in Canada is as the wealth grows and and people, it comes into generational wealth, where people are starting to manage through those many, many different stages. So we think there's going to be, like I said, a real growth in the family office space and more the professionalization of that in Canada as the years go by.
Nicole 00:03:43 So what would that look like in practice if people aren't familiar with it?
Jonathan 00:03:46 So you could have a one person family office and you would sort of tend to have an accountant in there who does a bit of bit of tax, a bit of investments, a bit of wealth planning, a bit of estate planning, but then you can go all the way up to the large family offices that will have dedicated investment officers, dedicated accountants, multiple accountants. You'll have also, if there's an underlying business, you'll have the CEO who's looking after the operating business side of things.
Jonathan 00:04:12 So it can have a lot, as they say. You see one family office, you see one family office. They're very different. They're the needs and requirements of them very significantly. You're in a situation where a lot of it is also driven by the personality of the principal. so they're there to help the function and help the sort of management of that wealth. But they're very different in nature, a lot of them.
Nicole 00:04:39 So for this unique demographic of ultra high net worth people or families, like what are their what are their particular needs or goals that that you try to meet?
Jonathan 00:04:52 I'm going to sound like a lawyer here, but there's no defined correct answer. Everybody has a different requirements, a different goal, a different objective. So you may, for example, be new to the high net worth space. And that's the start of your journey and your needs and requirements. There can be very different. You may be a very savvy businessman, and you've done really well to generate that wealth, but may not exactly understand the opportunities.
Jonathan 00:05:19 And what's available to you is in the banking sector. That can help you then manage that wealth after your liquidity event or after you've generated that wealth. But then on the other end of the spectrum, like family offices, you have significant wealth, significant experience, and they're looking to really probably increase the sophistication, gain access to new products on a global scale. So it happens a lot across a lot of aspects. But we recently did our family office survey and the results came out. And there are a couple of key trends in there that we're seeing that obviously what people are looking to achieve. I think obviously the key one is wealth preservation and growth. So from a preservation perspective, I think it's trying to define the ethos, the financial strategy that you're looking to achieve. I think you're into a situation where you're in succession planning, wealth planning, looking at the generational aspect of that. And then from the growth side, you've got, looking at opportunities that may be out there and exclusive opportunities, diversification of that wealth to really sort of solidify the wealth and grow it and going beyond the borders.
Jonathan 00:06:31 I think Globality is here today. We're seeing a lot of protecting protectionism from people, but that's sort of limiting some aspects. But there's going to be that continual global growth. I think you're in a situation where people are looking to use leverage to bring into the structure, to maybe help manage and reduce concentrated positions that they may have as a result of their wealth journey. So there's lots of aspects on that basis. And then you're going to have tax efficiencies. People are becoming more sophisticated around how they use those certain aspects of financial planning. You've got a situation where philanthropic and legacy is playing a more prominent role, as people look to see how they can give back and how they can plan for the future. You've got risk management, you've got the insurances that need to be put into place. You need sort of security, privacy. All of these things are becoming more prevalent. And then you've got to also enjoy your money. So we talk a lot about serious stuff, but it's also the needs of those to actually enjoy the money and understand what they can achieve with the money, as well as just squirreling it away and not doing anything with it.
Jonathan 00:07:40 So we're helping them, helping all our clients across the board on all those aspects and trying to make them understand what they're trying to achieve and us trying to look to help them achieve it.
Greg 00:07:51 Jonathan, in Canada, how many ultra high net worth individuals and families would you say there? there are.
Jonathan 00:07:58 Again, it depends on what source you look at. But we sort of qualify as around about 14,000 ultra high net worth individuals and families within Canada, which represents about $1.7 trillion in in wealth that places Canada on seventh in in the list of ultra high net worth individuals on a on a country basis. And we see that increasing that's increased over the last 4 or 5 years. That's increased by 50%. And we expect that growth to continue.
Greg 00:08:27 So obviously we create them within Canada, you know, but we've had many come into Canada that, that that have brought their money. And is that why we're staying at such a high level?
Jonathan 00:08:38 I think it's a combination of both. I think they have historically and cities.
Jonathan 00:08:43 Vancouver office Genesis was from the transfer of wealth from Asia from Hong Kong in, in the mid 90s. So that's where that's our sort of backbone. So yes, there's a lot of money moving in from what I would call the older wealth sort of sectors. Europe and Asia. But there are some restrictions on that, as we all know, that have come in to make that a little less, straightforward. I think a lot of the wealth is still generated internally. I think you're seeing this a mixture of old and new money in there. obviously you've got the old sector, the resources, the oil and gas, the mining guys. But there's more, more now focus on tech. There's a growth aspect there that's happening. So I think that's going to continue. And yeah, I think it's just from a Canadian perspective, just making sure that we foster that, that ability to make it attractive for people to come here, invest here and grow here.
Nicole 00:09:42 So in a related note, how does cross-border play with this group of individuals?
Nicole 00:09:47 Are they concentrated in Canada or do they have assets throughout the world? Do they have Canadian citizenships or do they have multiple country citizenships. What does that look like?
Jonathan 00:09:57 Again very different for in each individual situation. but I think we all recognize that globalization is here today, and it's been increasing ever over the last few decades. As wealthy individuals assess what their optionality is for them, they see the value in cross-border activity be that through investments to diversify portfolios, give access to different opportunities, whether that's through tax efficiencies that they can leverage, whether that's through studies of their offspring, whether that's through holiday or second homes, whether that's through relationships that just gradually sort of develop over time. So that's where individuals are looking for the ability to seamlessly transact across borders and be able to have visibility to what's happening across those borders and in multiple jurisdictions. So it's not obviously that the typical one here is Canada, US, but that's that is the largest chunk of the if the cross border. But there's enormous amount of flows coming from Asia, Europe increasingly sort of some African flows as well.
Jonathan 00:11:08 And people are investing in all those different be that through advisers like ourselves or be that through direct investments they have through contacts. So being able to provide that ability to move money, invest money enables them to, to work through and to your point around citizenships, I think we're seeing with certain policies that have been put in place, people are looking at alternatives b that like say from a tax efficiency, is that is it more worthwhile being in the US? Is it worthwhile being in Bahamas? So they're looking through those processes and we have some clients that are sort of nomads. They move around the world and they spend three months here, three months there and there. They move around where they still feel. But one thing I would say is that the cross border, although there's an untold number of benefits to it, there are also risks and challenges around it. So I think it's imperative you have with you experts in the field of those cross border activities to ensure that not only you're getting the best service, but you're not getting tripped up, or you're expose yourselves to undue risk in the process of exploring what's beyond the Canadian borders.
Nicole 00:12:24 When you're talking about risk, what are you referencing taxes or what?
Jonathan 00:12:27 Yeah, I think taxes. I think there's always people. Taxes are one and we're not tax advisors. And we would never say we're tax advisers, but we would advise people to refer to experts to make sure they're not inadvertently tripping over things that may cause them future hassle. But there's also some people will portray certain things in a way, and it doesn't come to fruition. And they need to be aware of the risks and make sure they're doing their deed on certain aspects and making sure that what they're doing is, is, is for their best and long term interests.
Nicole 00:13:00 They're using fancy terms. So did you mean due diligence?
Jonathan 00:13:03 Yes. They need to do their deep due diligence.
Greg 00:13:06 Okay. Now with the with the speaking about the cross-border issues, what is the offering of city? How many locations do you work in? How many countries? How many jurisdictions?
Jonathan 00:13:18 Yeah. So we have a presence in about 130 countries around the world.
Jonathan 00:13:23 And that varies from full service, where you can get everything that city provides to more of a basic cash management, cash account structure. So we see that as the most comprehensive network of global financial services that you can get from any, any financial institution. So and the difference here is that that's all on one platform. So whether that be you want to look at what money you've got in say Hong Kong or what you've got in us or what you've got in the UK. It's all a seamless process of moving that cash around. There's no double lot different logins, different banks that becomes a smorgasbord of I can't see my money, real time, etc. so there's the real benefit from a city from a simple cash perspective. And then we also bring our experts to play because we have people on the ground all around the world that they can. They're proactively bringing in investment ideas, proactively updating research, proactively providing in-depth insight into certain sectors and countries that with our with our network, just allows us to do.
Jonathan 00:14:28 And we can be that sort of ear on the ground in these countries and make sure that things get done correctly and to the best value.
Nicole 00:14:35 So what are some upcoming trends for ultra high net worth clients, and what might me see from this group in the future?
Jonathan 00:14:42 So I think we're going to see a continue growth. I think it's going to be another 30% growth in probably the next 2 or 3 years time, with a number of ultra high net worth individuals, and obviously the underlying value that that equates to. I think you're going to see the continued desire to reach across the borders. You're going to see that continue. I think you're going to see a continued shift in maybe the investment focus as well. We've seen already. So you've seen from an alternative investments have gone they've doubled in the last decade. And we see it doubling again probably in the next five years.
Nicole 00:15:21 Can you tell our listeners what alternative investments.
Jonathan 00:15:24 So alternative investments are what commonly PE hedge funds, real estate, private credit.
Jonathan 00:15:31 It's something that provides obviously it's different risk profile than your normal liquid stocks and bonds. But it provides you with a diversification away from that. and it also provides you with hopefully enhanced yields. There is obviously offsetting risk to it with alternatives. But if the way we look at it is we go out and try and find the best managers for those alternative assets. So we bring options and selections to people that are not readily available here in Canada. And that's a key thing. So yeah. So that that's going to that's going to continue going. We've seen it for the last ten years. And we'll see it again for the future, I think you're going to have a massive wealth transfer happening in the next few years. I think it's like 3 trillion in Canada is going to be transferred. And that again poses its own challenges as people think through how that how that happens and next generation, what they're going to do with it. They tend to have different views, they tend to have different opinions.
Jonathan 00:16:31 So there's an education process there that needs to go on and helping people manage through that. And again, that comes down to estate planning and succession planning as well. So we're seeing a great a great sort of transfer of wealth. We're seeing that there's going to be a continual shift of that wealth from largely male dominated hands into also females. So we'll see the movement from that. I think it's about 90%, 10% at the moment. So we'll see that continue to shift. And again there's there'll be different approaches and different perspectives that come into play there, which is it's going to be welcome. And I think that's going to hopefully bring another, another view. So I think there's going to be a number of trends around a lot of things. And I think cross-border will play out again. I think that's going to continue, as a strong one and transfer of wealth.
Nicole 00:17:23 So Jonathan, you mentioned that Citibank gives investors opportunities to invest in alternative investments that they wouldn't otherwise have available to them in Canada.
Nicole 00:17:33 That's really interesting. Like what are some examples of those opportunities?
Jonathan 00:17:37 So maybe give you a bit of context to how Citi approaches alternatives. So city approaches it from a perspective that we go and identify key trends and key opportunities in the market that we think will resonate over the next one, two, three, five, ten years. We go and find the best manager in the world that we believe can achieve that, and we undertake significant deed. We do a lot of due diligence to ensure that those managers are the best in class. We then because of our balance sheet in our reach, we then bring those opportunities to our to our qualified clients to access a qualified
Jonathan 00:18:19 Client. So qualified client to us is, is someone who's in that 20 to $30 million range and looking for ways to, to access alternatives. What we do is so there's no specific strategy that we'll follow on a yearly basis. So it's not a case. We'll do fund one, fund two, fund three if it doesn't fit with our protocol.
Jonathan 00:18:41 And that's slightly different to maybe the Canadian banks will have a lot of Canadian products. and then some of the international banks will have their own funds that they're also looking to put forward to people where a city is agnostic. We don't have our own funds that we're alternative funds we're trying to put money into and go from there. We're completely independent on that. so the opportunities we have across the peace based hedge fund space, we have the leading PE funds and hedge funds on our platform.
Nicole 00:19:11 What do you mean by PE? Are you referencing private equity?
Jonathan 00:19:14 Correct. Yes. Private equity. And people hear private equity. And sometimes they get a little bit scared. They think it's people taking high risks. That's it's a little bit of a gamble. What I would say to that is that there are ones that are more riskier, but there are lots of different strategies under the umbrella of private equity. So that could quite easily be mortgage backed securities that could quite easily be, secondary offerings that could quite easily be pre-IPO.
Jonathan 00:19:43 There's lots of different alternatives under that broad blanket sort of definition of private equity. And what we bring is we tend to go into the private equity fund and where there is the ability to make a good return and have a good track record. We're not going to go. We tend not to go into funds that are sort of 20 or 30 billion. We tend to go into the smaller, more defined strategies where we think there's the ability to raise that. And then so if you were an individual and you were looking to go into one of these funds, you'd have to go in there and write a check of 10 million. Even if you were lucky enough to find the fund manager who was dealing with it. What Citi has ability to do is write a check that allows our clients to come in for as little as 250,000 into these strategies. It gives them access to those that are not readily available to the individual on their own, even if they had 10 million. It's finding the access to them as well.
Jonathan 00:20:38 So we have that ability and those funds, let's say we had a sports franchise fund. We had the secondary offering. We had more like secondary mortgage backed securities. We have pre IPOs. We have energy transition funds we have. We have a selection and we tend to bring about 10 to 12 onto our platform a year. We then have our hedge funds, which we have all the lead and hedge funds on our, on our platform. and they rotate through. They give a good, good diversification in the strategies. Unlike PE funds, PE funds tend to be a little bit more illiquid, whereas the hedge funds tend to be a bit more a bit more liquid. and a good mixture of that I think will complement any investment strategy that is undertaken by the individual or family office.
Greg 00:21:23 Jonathan, you're mentioning hedge funds. Can you explain them a little bit more to us about the different types of offerings? Because people don't really have a good idea of what they are.
Jonathan 00:21:32 Yeah so hedge funds take multiple different structures and, and characteristics.
Jonathan 00:21:39 I think it's important to sort of qualify that hedge funds have a bad name historically, and people will see them as a risk, risk on product. Yes. and the bad things come out in the press, But by and large, hedge funds are a way that we view of diversifying portfolios, managing risk, managing, managing sort of protecting capital with the funds that we look at tend to be those more conservative that are trying to hit singles as opposed to home runs. But there's lots of different strategies that can be employed from the hedge fund sort of universe. So you have the long, short equities of buying stocks. Expect to rise on long and then short selling stocks expected to fall. You have event driven. So that's investing based on mergers and acquisitions. You have global macro which is taking into account interest rates currencies global commodities. We have market neutral which is aimed to reduce market exposure by balancing that long and short positions. And you have quantitative, which we're seeing an increase in the quantitative signs of computers doing more and more, arbitrage trading, etc..
Jonathan 00:22:46 So there's lots of different strategies that are employed and they all will depend on the individual's risk tolerance, what their current exposures are in their either their investment portfolio or their underlying business, their understanding of certain aspects within those different structures. So we see them as a way of diversifying the portfolio. And we see this in combination with private equity playing an increasing role within a portfolio makeup. and it all depends on your liquidity requirements, etc., and risk exposure. But we believe that and we're seeing a trend towards people's portfolios being up to around about 30% in in private equity, hedge funds and alternatives, maybe real estate, etc.. So we're seeing that increasing percentage coming. And that's one going back to actually one of the trends, we're seeing that trend happening.
Greg 00:23:39 And in generally high net ultra high net worth wealthy people, it's like you said, they're not looking for the home run. They want a consistent return, but they can wait four years for it, whereas somebody else is looking for dividends next month and continually.
Greg 00:23:55 But they see the future. Yeah?
Jonathan 00:23:58 Exactly. I think the private equity is historically more illiquid. So you can have time frames of anywhere 2 or 3 years up to ten plus years. And it's again selecting that right strategy for the individual who may not need the liquidity. So they're happier taking that longer term view. And the hedge funds tend to be a little bit more liquid. So it's not like you can get out of them tomorrow. It's not like your cash account, but you can get out of them more on a month, more on sort of a quarterly basis, six monthly basis, as opposed to having to wait sort of ten years to realize the right.
Greg 00:24:30 And when you go into them, they usually tell you what the restrictions are.
Jonathan 00:24:32 Exactly, and they'll be slightly different from different. Each private equity offering will be slightly different. Hedge funds will be slightly different, but they tend to have those characteristics.
Greg 00:24:42 Terrific.
Nicole 00:24:44 So just follow up question if someone was an ultra high net worth person and they were Funding through Citi, what would be their approximate MER fees management expense ratio fees.
Jonathan 00:24:56 So again, it depends on the size. The more money you put to work, the cheaper we can be the fee side, I wouldn't want to state a specific amount, but I we can be extremely competitive on those fee sides. And we're a relationship driven institution. We're not a transactional driven institution. So where we can build that long term relationship and if we can do that through providing competitive either investment advice and solutions or competitive leverage, we'll try and help through every avenue. So yeah, it depends on the situation.
Greg 00:25:34 Thanks, Jonathan. And just so people know, where can they get ahold of Citibank in Canada?
Jonathan 00:25:40 So I know so you can get in contact with me on the email, which I think will be provided after this. And my phone number. We're here to really just engage and talk to people and understand what they're trying to achieve and if and hopefully we can help them, even if it's just a bit of advice, but hopefully we can do a lot more for them.
Nicole 00:25:56 Great. Thank you.
Greg 00:25:57 Thank you Jonathan.
Jonathan 00:25:58 Thanks. Super. Thank you.
Outro 00:26:00 This podcast is for informational purposes only and should not be considered individual, legal, financial or tax advice. Make sure to consult the advisor of your choice to advise you on your own circumstances. Thank you for joining us for this episode of Your Estate Matters. If you like this podcast, make sure to follow it on your podcast platform of choice.
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