What is Wealth Management?
Wealth management is a service that is sought by fairly well off people who want to take positive steps to secure their financial future. As these types of people go through life, they like to always be in control of their own destiny and that means being in a position where they are always aware of their financial circumstances and be able to take proper account of their future known, and also some unknown, changing needs.
As this can be quite a complex process, it needs to be well considered, from a lot of angles, and most people in this category will generally turn to a professional Wealth Manager, either through a specialist Wealth Management Company or through a suitably qualified and experienced individual, to provide this service. In either case, the process should be similar.
Wealth Management Process
The first step is for the wealth manager to obtain a complete understanding of your current overall family situation including, but not limited to; their ages, health, employment, income, assets, debts and liabilities.
The second step will be to discuss with you, what your family’s expectations are for the future and identify, where practical, where specific events are expected that will require future funding or some other consideration.
With the above information to hand, the wealth manager will be able begin working out a plan which will, where possible, achieve the necessary progress towards your expected goals. Before doing this, particularly if the plan is to include investment, which inevitably it will, he or she will need to understand you and your family’s attitude to risk. This is very important as “attitude to risk” will place certain limits on the types of products that will be available to the wealth manager to recommend, and this will, to some degree, define the level of growth that would be reasonable to expect the plan to achieve over time.
Benefits of Wealth Manager
Your wealth manager would generally become your lifetime adviser and he or she would expect to meet with you, at least annually, to review your plan and check that it is still suitable to meet your future expectations. Progress made during the last year will be discussed and any adjustments thought to be beneficial to the plans aims, will be implemented.
Gradually, as time goes by, you should begin to see steady progress towards your set goals and gain confidence that your future wellbeing is being properly monitored, giving you and your family a very strong sense of financial security both now, and continuing throughout your lifetimes.
One other important factor that people with children often miss is, that once you have an established approach to managing your wealth, it tends to rub off on your children as they grow up and can often result in them following on your footsteps, with their own affairs, when they are older. This also means that when they inherit from you in the future, you can be content in the knowledge that they should be able to make the best on going use of anything they receive.
Areas of Consideration – Wealth Management
To provide a little clarity, on some of the areas that your wealth manager will want to consider, we have provided a little background information on some of the areas you may not have thought would come into the decision making process.
The Family
The family’s own internal relationships and the health of individual family members, could significantly alter how your wealth manager will plan ahead. Below are some of the things to be considered:-
- Marital status – These days, relationships are not always based on marriage but often, if they are not, the laws of a particular country may affect how any estate will be divided, on death, between the remaining family members. This has to be considered and addressed within your plan.
- Wills – These are important documents and if you haven’t made one, your wealth manager will advise you to do so, as part of his duty of care, to ensure any remaining family members are properly protected on the death of a key family member.
- Insurance – This is insurance to protect the family in the event of something major going unexpectedly wrong, such as; the death of a key family member, someone having a critical illness that limits functionality, end of life care provision and any of a number of other possible situations that are considered sensible to protect against.
- Pension – I have included this here because, although it is something that would normally come under investment, any pension entitlement that would normally be passed to a deceased member’s spouse can be affected by the marital status, or otherwise, that existed prior to that death.
Employment
Your current income and your expectations of future income, through promotion or increasing business profits, will give your wealth manager a basis for planning how to meet your family’s future security. Some of the things to establish and consider, will be;
For employed people
- Salary and taxable benefits – This will establish you basic income and when set beside your outgoings, will give an indication of any free capital that can be used by your wealth manager to provide a foundation on which to develop and grow your wealth.
- Pension – Your wealth manager will want to establish if your employer has a pension scheme and if you are enrolled in it. He or she will then need to obtain a clear understanding of all of the benefits it offers and, in particular, establish if it is a defined benefits scheme or a money purchase scheme.
- Future prospects – is your employment secure, are there good expectations for promotion and what are your intentions towards future retirement.
Self employed
Essentially, these same considerations will need to be established but they will focus more on how you run your business and what provisions, if any, you have made for retirement.
- The business – what is planned for the business when you retire, will it continue in the family and if so, will you still be able to receive an income from it. Can it be sold and if so, what will constitute its value.
Assets and Liabilities
Your wealth manager will want to assess the value of current your assets and establish the level of any known liabilities. This will allow your wealth manager to review these for their current suitability and, if necessary, recommend how to restructure them for maximum benefit.
Assets – Assets will fall into two main categories; these are A), fixed assets, which are assets that are generally needed to function, such as your main residence, land, business equipment and premises, and B), liquid assets, which are assets you hold that can be turned into cash fairly easily, without affecting your normal day today activities. These can take the form of; cash held in a bank, investment property or investments in gilts, bonds, mutual funds, company shares and precious metals etc., etc.
Liabilities – these will take the form of debts through such things as; mortgage loans on property, other secured loans, bank overdrafts, business loans, credit card debt etc., etc.
Future Provisions
There will be specific times in the future, when you know that you will need to have available funds to cover some important events, and your wealth manager will want to take these things into his or her planning. Typically, these could be:-
- Moving Home – This could be planning to move to perhaps a more expensive home, where you may need to have capital available to arrange this.
- Children’s Education – this could be for Private schooling or university fees and other personal support requirements.
- Weddings – this could be for yourself or for your children. Statistics currently show that an average wedding can often cost £20,000. Being confident that provision has been made for this will be very comforting. Within the UK, and a number of other countries, there is a growing reliance on the bank of mum and dad to help children obtain deposit capital for purchasing their first home.
- Medical and Care Provision – if a family member has a disability or, a serious disease that will require special care or, where elderly parents are likely to need residential care, provision for these situations need to be factored into your plan.
Attitude to Risk
Where the wealth manager is considering your savings and investment arrangements, to build your future wealth, your attitude to risk will be fundamental in his or her thinking. Virtually every type of savings or investment you make will carry a risk, to some degree, and that includes cash held in a high street bank. Just because the amount of currency you will get back when you withdraw it will be the same, or very slightly more, doesn’t mean you haven’t made a loss. If inflation, over the time that your cash was held, has been greater than the interest rate you received on your money, then you will not be able to purchase as much as you would have been able to, at the time you fist made the deposit. In this scenario, you have, in effect, made a loss.
Once your risk profile has been established, your wealth manager will recommend suitable investment solutions that are in line with your risk profile and which will contribute to achieving your stated goals.
Tax Planning
Tax will feature strongly in your wealth managers thinking, as making sure that everything you do will, at all times, be tax efficient will be one of the key factors affecting how well your wealth actually grows. Where Expats are concerned, tax can be complicated due to the potential for applying varying international tax rules.
As a consideration, if in the future, using hindsight, you were able to look at the outcomes of two plans where each with the same starting value and the same aims, but where one has used tax efficient planning while the other has not, you would be shocked to see the final difference in value of the two plans, which would be vast.
Who would need such a service?
People tend to think that Wealth management is only for those who have wealth. This is not the case and strictly speaking, everyone, whatever their circumstances would benefit from the wealth management process, as it’s about looking at what you have and giving you ways to improve your situation, however desperate. Unfortunately, most people are unable to access proper professional wealth management services but where this is the case, people should themselves, wherever possible, generally apply this type of thinking to their own situation and consider, as best as they can, some of the items we have mentioned above and see if they it were possible to obtain some benefit that might improve their future outlook.