The key to success.
Consulting. Information is the beginning of everything. That is why Alexander Etterer's digital reporting provides an informative, structured overview of the total assets of Rödl & Partner clients. This data is not only key to successful wealth management, but also helps with tax issues or succession planning.
"There is this one sentence that has been said at least once in every conversation with clients - I want proactive advice", says Elke Volland, responsible for succession planning at Rödl & Partner. "This means that we should make suggestions, sound out optimisation potential, provide individually tailored information. That sounds so natural. But it is extremely difficult. Because for this we need a complete overview of the assets - up-to-date, comprehensively reliable. And hardly anyone has that." Wealthy investors usually mandate three to six banks in Germany and abroad because they want to have their liquid assets managed in a diversified manner. In addition, there is often a range of illiquid investments - closed-end holdings, private equity, art, real estate, special automobiles, wine, balsamic vinegar or whiskey casks.
"Of course, these banks prepare regular reports. But it is usually superficial, not comprehensibly prepared, not consolidated, not up-to-date. With this base of figures and data, only reactive advice is possible," Alexander Etterer, head of the Wealth, Reporting & Controlling department at Rödl & Partner, makes clear. This is why Etterer has been tirelessly promoting professional wealth reporting to wealthy families and high net worth individuals for years. "With digital wealth reporting, a completely different depth can be achieved. And thanks to our strict professional principles, such as independence, discretion, conscientiousness, professionalism, objectivity and integrity as well as the prohibition of commission, such sensitive data is also safe with us".
Even the structure of the reports, according to Etterer, has countable benefits for the clients. "When we record the portfolio, we also analyse the asset management contracts including investment guidelines. If we discover that the costs are too high, I can take immediate action, for example, by agreeing on favourable tranches for institutional investors instead of expensive retail tranches when purchasing funds. This alone can save 0.5 to 0.8 percent annually. If the client then pays one-off premiums for fund purchases by his bank advisors, the fee burden is reduced by between three and five percent," Etterer calculates.
Significant weaknesses in the investment guidelines are also noticed in the so-called onboarding process and can be corrected immediately. "And because the > reporting is done digitally, it creates the prerequisites for navigating and informing very promptly, even in real time," continues Etterer.
Properly set up, this reporting becomes the central information, monitoring, control and management unit for wealthy people. And to wertvollen Datenquelle for all members of the family office group bei Rödl & Partner.
In fact, Etterer's data is also valuable for the preparation of income tax returns and the ongoing calculation of deferred inheritance and gift tax. "Everyone in the house has the required information individually configured and always at hand. Everyone obtains the same documents, for example via a central document management system, but works independently on their own specialist subject areas. This ensures an enormous gain in efficiency," explains Etterer.
For example, his partner colleague Ellen Ashauer-Moll can immediately use the tax report and other information from investment accounting to prepare her personal tax return. Anna Luce knows that sources of error are eliminated, which can otherwise occur when transferring international data. And can build on reliable foundations when structuring international assets for tax purposes. And Elke Volland is able to optimise the succession process in a flash.
Alexander Etterer himself bases his ongoing asset controlling on highly transparent reporting. "Reporting and controlling are closely interlinked. Together they ensure that risks are prevented and that a rational, goal-oriented and comprehensible management of assets is possible. Wealthy families can do no more to secure and increase their assets in the long term.
"This is a classic win-win situation. The client saves time and nerves because he does not have to bother with providing us with the necessary figures and data. And we can concentrate on proactive advice," says Elke Volland and illustrates this with an example: "One of my clients has been thinking about the succession issue for some time. When share prices collapsed in March 2020, I was able to see in real time how the value of the securities account he wants to leave to his three children had almost halved. One phone call was enough, and within a day we organised donations at the extremely low market value. As of today - after the recovery of the share price, this saved half a million euros in gift tax." ®
Optimize the move.
The medium-sized company was passed into the hands of the next generation some time ago. Although the next generation wants to keep and continue the company, they do not necessarily want to be active in the management. They withdraw into the role of an active shareholder and build up an additional asset base via an investment company.
The younger generation has much less regional roots. Two of the three siblings decide to study, live and work abroad.
"Moving abroad raises the question of exit taxation", explains Anna Luce, responsible for tax optimisation of such situations at Rödl & Partner: "The aim is to structure the assets in such a way that this is not applied as far as possible".
The prerequisite for a reasonable result, Anna Luce makes clear, is a complete overview of the assets. "As up-to-date as possible in scope and value."
That sounds trivial. "But in reality, it's not. If the assets are very small, something is often forgotten. A bank account. A securities account. A small LLC investment. That can give rise to taxation."
A digital asset reporting system maps the legal structure of the assets as well as the market values and acquisition costs. It is the key to optimal advice. For clients who do not have such a tool at their disposal, a consultation is much more costly and error-prone.
When moving away, the principle applies: assets are considered sold without actually being sold. Taxes may then become due on these fictitious sales proceeds. "Therefore, it makes a big difference, for example, whether an account is directly in the taxpayer's name or whether the account is held by a Beteiligungs-GmbH, which then belongs to the taxpayer again. The Beteiligungs-GmbH is subject to the exit tax. It is regarded as sold. If, on the other hand, the account is directly in the taxpayer's name, he may even be able to move away without incurring tax. It makes a huge difference."
If the advisor knows exactly what form the assets take, he can structure the assets in such a way that as little of them as possible becomes taxable before moving away. "In our case of the holding company, a portion could be distributed beforehand. Or I could set up the investment structure in a completely different way. I can also deliberately entangle assets in Germany, i.e. leave them behind purely for tax purposes," explains Luce.
"So we can play around with the corporate forms and structures to deliberately trigger an exit tax or not. In addition, the tax situation in the country of immigration must of course also be examined. The aim is always to give the client the flexibility he wants. The subject of taxation should never stand in the way of life plans," concludes Anna Luce.
Organize the return to Germany.
The daughter of a German businessman has been living in the USA with a green card for some time. She manages a subsidiary of the family business there. In the past, she has built up assets with her US bank accounts and has also subscribed to investments in limited partnerships. Now she is to join the management of the holding company in Germany.
"Upon her return, the subsidiary will become taxable in Germany. However, she would like to keep her bank accounts and assets in the USA. This is a difficult situation because US banks do not usually prepare German tax reports. And because different rules apply to investments in the USA and in Germany," explains Ellen Ashauer-Moll, responsible for the taxation of investments at Rödl & Partner.
"First of all, we need to collect all the data and then convert it into formats that we can use in our tax returns. This is extremely time-consuming both for us and for the client, who often has to specifically request the data relating to the distributions of its investments," explains Ashauer-Moll. For example, it is essential to convert all securities transactions into euros at the right time.
"Digital asset reporting is therefore a blessing, especially for international mandates," explains the expert: "The documents are complete and the movements are fully documented in euros. I can then deliver tax reports almost at the touch of a button. And I can see very quickly whether we need to check a transaction specifically".
Processes of this kind appear more often in this case. "The client had invested in investments in the USA. Depending on whether it is a corporation or a partnership from a German perspective, the tax treatment is different. For example, it depends on this legal form consideration whether distributions are taxable in Germany or whether we can credit US withholding tax. It would not be clear from the pure account movement where the distributions come from. Reporting would be a great help," explains Ashauer-Moll.
The whole area of corporate actions is also critical: "In the USA, there are often spin-offs and then subsequent share deposits in the securities accounts. In the USA this is often tax-free. In Germany, however, it always requires separate consideration," explains Ashauer-Moll. "As a distribution in kind, for example, this would be taxable in Germany, but in the form of a capital reduction it would be tax-neutral. Within the scope of asset reporting, a tax assessment can be made in parallel and in a timely manner. Of course, we accompany any capital measures of the client's company from the very beginning.
Reduce risks with digital asset reporting.
A 52-year-old client sold his company and made a high double-digit million-dollar profit after deducting all taxes. After purchasing a property, he commissioned two asset managers to manage the remaining part of his liquid assets in two securities accounts. Since both asset reports were not very detailed and were partly incomprehensible, he is now looking for an independent reporting and controlling service provider.
"Comprehensive and comprehensible reporting is the basis for information, comparability and understanding," explains Alexander Etterer. "Controlling is not just a look in the rear-view mirror, the decisive factor is always looking ahead. The client must know what he has in his portfolio and when the risk for him is increasing. Only then does he have a reliable basis for his decisions".
"Digital reporting is the basis for first-class controlling. Whether the right conclusions can be drawn depends on the quality of information. We record all transactions, store all facts, figures and data on the individual securities, consolidate them and make them available almost in real time. In this way, the client has a reliable information base when it comes to acting quickly. He can also understand the manager's performance, measure it against a benchmark and evaluate it against other risk indicators," Etterer explains.
Risk management only works if the risks are known. "We therefore also see ourselves as translators or interpreters of the work of asset managers. We provide transparency and information without any conflicts of interest. If, for example, there are changes in the creditworthiness of securities or if the prices of derivative products approach important brands, the client must be aware of this. We inform if somewhere a fund manager changes or an asset manager changes the investment strategy. And we point out when dark clouds form on the capital markets. Above all, however, in difficult situations we don't reassure, but speak plain language," Etterer enumerates.
The ultimate goal is to protect clients from sustained losses. "On request, we are also present during the discussions with the asset manager - as an extension of our client, as translator, constructively critical mind and fee negotiator".
In the further course of the business relationship, it would then be necessary to check and monitor whether the agreements with the bank and asset manager were actually being observed. "For this purpose I also need a digital, consolidated reporting. After all, it's all about recognising, reading and understanding the asset manager's handwriting. How do the investment ratios actually change? How active is he? How much does he change the risk? How high are the maximum setbacks? How long does the recovery take? "In order to develop a feeling for whether the respective asset manager is really the right one, clients need quick and comprehensive evaluations," concludes Etterer. Only if it is clear how the respective asset manager actually works in practice can the entire portfolio be better managed in the future.
"Reporting from a bank-independent service provider who is master of all the figures makes it possible to analyse a portfolio like an onion down to the core", concludes Alexander Etterer, "typical bank reporting, on the other hand, usually only opens the bowl".
Prepare the succession.
An entrepreneur - 60 years old, married, three adult children - besitzt besides his company mainly bonds, stocks and real estate. Recently he has been dealing with the question of what happens if something suddenly happens to him.
"The central question is whether the heirs can pay the expected inheritance tax. Or are they forced to make emergency sales - in the worst case at an inopportune time", Elke Volland explains. "Often the uncertainty about this is very great and leads to the concern that the heirs may not be able to afford the inheritance at all.
In the first step Elke Volland talks about who should get what. "Then it's all about liquidity management. I like to use digital asset reporting for this. It provides a complete overview of the existing financial situation at the push of a button. Thanks to our professional expansion of the reporting system to include inheritance tax figures, I can see immediately and at real-time rates what inheritance tax burden would be due to the client at that moment.
However, a complete, up-to-date overview of the liquidity requirements that would then arise is only the beginning of a consultation. "Our goal is to proactively make suggestions in the next step," explains Volland.
In this case, the client has invested heavily in real estate. If these are held as private assets, the children do receive allowances. But that was it. A better alternative might be to bundle the properties in a housing company, for example a GmbH & Co KG. "The real estate is then no longer in private assets, but is taxable business property. In this case I achieve a tax advantage. Units in such a housing company can finally be transferred completely free of inheritance or gift tax under certain conditions," explains the expert.
All of this can be carried out at the push of a button with the help of digital asset reporting on a current valuation basis. "We have created a special area in reporting just for inheritance tax. All relevant data is stored there - for example, year of construction, use, size of the property and much more. After all, all this information is relevant for determining the value of the property at a later date, which is then used to calculate the inheritance tax. With the help of the reporting, we can simulate a wide variety of variants and thus provide the client with a perfect basis for decision-making," explains Volland.
The main focus of the advice, Volland continues, is on gifts, the transfer of assets during one's lifetime. "With the data from the reporting, the client can control very precisely when the optimal time for a donation has come", explains Elke Volland and concludes: "This flexibility and ability to react is worth cash money, especially when it comes to liquid assets".
Rödl & Partner GbR; www.roedl.de
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