Brazil’s Best Counsel 2023 - Chapter Opening: Private Banks: Wealth Management

The importance to plan your wealth 

Albeit considered a fairly conventional business and historically related to long-standing heritage fortunes held by traditional families, Private Banking is evolving and it’s important to bring a slightly different perspective to this business without deviating from the basic concept. While maintaining all the solidness and customary ingredients of a successful private banking (such as a highly skilled and multi-faceted portfolio management team, experienced bankers and a comprehensive investment platform), the entrepreneurship spirit, associated to a technological, agile and modern driven approach are fundamental for this business to keep up to date with the changes in our society.

The core goal of Private Banking is to help its clients to develop the most efficient strategies to invest locally and abroad, taking into consideration not only the best asset allocation and seeking to achieve the “sweet spot” in terms of expected risk and return, but also developing the best investments and fiduciary structures to hold such investments, bearing in mind each client’s succession, taxation and governance needs.

Besides focusing on the foundation of the business, Private Banking professionals – as happens in any other business - need to keep up with the evolution of society and their clients’ needs. Ten or twenty years ago, we could say that high-net-worth individuals (“HNWI”) were, by default, members of traditional families, where the eldest (patriarchs and matriarchs) would take care of the entire family wealth and make all the decisions. Over the last few years, however, this environment has substantially changed for various reasons, mainly driven by a wealthy younger generation with very different needs, principles, and most importantly, diverse goals and motivations from those which their parents/grandparents used to have.

The ability to understand these changes, while quickly adapting accordingly, is a competitive advantage for the Private Banking professionals. They should frequently ask themselves how they can serve this new audience, which has never thought about planning their wealth or their families’ and has completely different needs and motivations than their ancestors.

Besides the clients’ ever-changing goals and needs, it’s important to understand that, when advising high-net-worth individuals (HNWI), investments are just a part – very important, certainly, but still just a fragment - of a larger puzzle. The concept of wealth must be expanded way beyond simply discussing capital: it involves deeper concepts, such as family values, principles, governance, and other practical (and sometimes not overly pleasant) matters, such as taxes, succession, asset protection and so on.

In this context, the Wealth Planning practice within a Private Banking division play a fundamental role by taking a holistic approach to the client’s wealth and, most importantly, conciliating the family’s common needs with each family members’ individual goals and expectations. This analysis, of course, is unique and customized to each family and its members – there are no “one size fits all” solutions when it comes to HNWI.

When advising a client, Wealth Planners should consider matters such as:

• Estate planning: understanding the patriarch´s and matriarch’s goals in terms of wealth transfer to their heirs, considering the different asset types and developing succession tools in all relevant jurisdictions. The best alternative for each “asset” (for example, who should inherit voting shares of the family business?) and specific needs of the successors (such as paying special attention to minors and disabled persons) are key pieces of the “puzzle”.
• Internationalization of the family’s investments (and why not all of the family members’?): advising on the best structures to access the international markets, as well as advising on the relocation of the family members.
• Taxation: setting-up the most tax efficient structures, both for ongoing income and capital gains, and for the succession event, in compliance with tax burdens, obligation, and reports, directly or indirectly by liaising with third parties’ specialists.
• Asset protection and risk management: recommending measures to deal with unsought access of the client’s assets (for example, by recommending on the best marital regime for the relationships, governing donations in order to avoid third parties to claim the gifted assets, etc.).
• Social investments and Philanthropy: understanding the clients’ desires and advising on the available structures and alternatives.

Does it make sense for a family to set-up a holding company to consolidate the real estate assets? How about a private investment fund and/or offshore company to hold the international investments? Is everything ready for an unforeseen succession?  At first glance, this may look like a miscellaneous of unrelated concepts which don’t fit together – and, as a matter of fact, if these matters are considered separately and without professional assistance, this impression may be true. However, this is exactly where the Wealth Planning team enters the scene: the Wealth Planner main goal is to help families assemble their ‘heritage and estate puzzle’. All these questions should be discussed between the Wealth Planner and their clients, with the objective of building a “wealth diagnosis” and planning the next steps.

In other words, the role of Wealth Planners is to help families with alternatives to make the relationship between family and heritage more efficient, while looking at preservation, perpetuation, and long-term protection. Contrary to what some may think, the need for a Wealth Planning analysis is not directly related to the size of wealth per se - it’s more related to the “complexity” of the family and its assets.

Thinking about general challenges that Brazil may face in the short- and mid-term, the tax reform agenda is certainly something to be watched. Considering the recent president elections result and the governing plan of the victorious candidate, there have been talks and news about taxation on dividends (currently nil for Brazilian residents), wealth tax, potential increase of estate tax, substantial changes on the taxation over consumption, and so on. In this scenario – with potential changes, but nothing yet confirmed – constantly communicating with clients is key to ensure they are up to date on these discussions, showing them the alternative paths, which can be taken depending on the developments of these initiatives. The Wealth Planners will play an important role when advising families in this uncertain environment.

Furthermore, we have noticed an increase in families’ interest in investing abroad, mostly motivated by portfolio diversification, asset protection, and sometimes even due to immigration wills. Families, in general, are becoming more global, and this will naturally require more exposure to the international market. This opens a wide variety of discussions in Wealth Planning, such as developing the most efficient investment vehicles, organizing the succession of the international assets, and managing cross-border challenges (for example taxes, report of information, conflict of distinct legal systems, etc.).

Regardless the economic and/or political scenario, it’s imperative for clients to understand the importance of planning and organizing their wealth, with the inputs of specialists, while constantly re-evaluating the current set up to ensure that it is still the best fit. After all, the only certainty one can have is that life changes, and everyone’s needs, circumstances, aspirations and plans will also evolve as the years go by – motivated by personal or familiar reasons, or perhaps by external motivations (such as politics and the economy). In this framework, the Wealth Planning team plays a vital role by supporting the clients along the way, helping clients define the best structures and providing clients with the best solutions for their objectives and needs at each moment in life.

Authors

Renato Folino

With over 25 years of experience in the financial industry, Renato Folino is a partner of XP Inc., head of Wealth Planning for the group and one of the pioneers in developing the concept of Wealth Planning in Brazil. Before joining XP in 2017, he has spent the past 15 years in Wealth Planning leading positions of large financial institutions, such as Unibanco, Itaú and UBS, responsible for developing solutions to clients and drawing the service models for the Wealth Planning divisions of the institutions.

Folino is also a founding member of the Brazilian branch of STEP (Society of Trust and Estate Practitioners).

He holds a Bachelor of business administration from EAESP/FGV and a postgraduate degree in finance from IBMEC/SP. Folino holds the CFP®(Certified Financial Planner) certification, and the TEP (Trusted Estate Practitioner) certification, issued by STEP.

Pedro Hilton S. Olmo

With over 14 years of experience in the financial industry, in Brazil and abroad, Pedro Olmo is a partner at XP Inc., responsible for the Wealth Planning division of XP Multi-Family Office since 2019. He has initiated his career as the first in-house counsel for Turin Family Office, where he spent 5 years, also looking after Wealth Planning and Compliance affairs. After that, Pedro has worked at Maitland Group, a multi-jurisdictional legal, fiduciary, trustee and family office provider, based in Canada and in the US, responsible for managing the Latin America Business with focus on Brazilian clients with international needs and structures, notably Family Offices, Asset Managers and UHNI.

Pedro is a licensed Lawyer in Brazil, holds a Bachelor of Law from PUC-RJ, a postgraduate degree in Corporate Law and Capital Markets from IBMEC/RJ, a postgraduate degree in Investments and Private Banking from IBMEC/XPEED. He holds the CFP® (Certified Financial Planner) certification, and the TEP (Trusted Estate Practitioner) certification, issued by STEP (Society of Trusts and Estate Practitioners). Professor at extension and financial certification preparatory courses.

Gabriel Campoy

With over 14 years of experience in the legal industry, Gabriel Campoy is a senior Wealth Planner at XP Private. He was a senior lawyer at Mattos Filho, a leading Brazilian law firm, where he was part of the Tax and Private Clients teams. In 2021 he joined XP and became responsible for developing wealth planning solutions for private clients with a focus on tax, corporate governance, family law and succession matters.

Gabriel is a licensed lawyer in Brazil, holds a Bachelor of Law from FAAP, holds a bachelor’s in accounting from FIPECAFI, and a postgraduate degree in Strategic Management from FGV. Gabriel is also an affiliate member of STEP (Society of Trust and Estate Practitioners), visiting professor at INSPER post graduate courses and co-author of several publications in the wealth planning area.