Wealth management for entrepreneurs

Business owners have unique financial needs, from planning for tax, to enforced saving around the wealth tied up in their businesses. That’s where professional advice on wealth management for entrepreneurs come in, explains the FWM team. There is a tendency for successful entrepreneurs to be a little reluctant to hand over assets to a third party to manage, since they might believe that the money would deliver a better return if ploughed into their own business. Yet there are several reasons entrepreneurs should consider engaging a wealth manager to obtain holistic financial advice and help with their investments.

How it works

Successful people know that no-one can be everywhere at once and that you have to delegate some things to people you trust. Never is that truer than with wealth management. As a busy entrepreneur (and many of course launch a series of businesses over the years) you are unlikely to be able to dedicate the time you would wish to managing your investments. More importantly, do you have the know-how to construct and manage a properly diversified portfolio which has been optimised to suit your investment needs as a business owner?

One of the key points about entrepreneurs is that their wealth is often concentrated in a single asset: their company. Business owners tend to devote themselves to assessing and taking risks when growing their companies, but all too often they don’t apply that same sharp focus to their personal assets. In fact, some of the attributes that make for a successful entrepreneur can be directly opposed to those which lend themselves to wealth preservation.

Entrepreneurs make a habit of seizing opportunities, yet this can result in poor performance when applied to investments outside of their own business ventures. Assessing investment opportunities as and when they come along and investing without a well-thought out strategy is unlikely to get you where you need to be in terms of achieving your financial objectives.

As an entrepreneur, your wealth manager’s first task is to assess your life stage, and what you need the money you’ve accumulated to do for you and your family. You may wish to grow your existing wealth quite significantly over a given period, or you may want to focus your investment strategy on preserving what you have made from your entrepreneurial efforts. Equally, while some entrepreneurs require liquid investments in case of cashflow issues others seek income-generating ones. In either case, it is likely that a significant proportion of your assets are tied up in your business and you will therefore have to take additional care with your investments.

Understanding your investment personality

How you evaluate and take risk in your business can be very different when it comes to wealth management; as a client you may need help to understand that. Getting a better handle on your financial tendencies can help you invest in a way that is better aligned with your goals.

Assessing the risk of investing in markets outside your area of expertise is more difficult. Furthermore, investing in your company is “within your control” but when it comes to you other kinds of investment you are at the mercy of the markets. Robust portfolio risk management, so that returns are maximised within the correct risk parameters is essential.

Prioritising your goals

You need to start by answering a few questions which will help you and your wealth manager zero-in on an appropriate investment strategy for your profile. What are you trying to achieve with your wealth? What are your short and long-term financial and life goals? When do you anticipate retiring, selling your company or handing it over for someone else to run? What minimum amount do you want to ensure you have available for retirement, regardless of your company’s future success?

Personal goals must be considered separately to your business objectives.

Reinvesting funds back in to your business is one thing but understanding the need to plan for expenses, such as your children’s education, is a crucial aspect of the holistic financial planning which lies at the heart of professional wealth management. Once your goals are understood then an investment and savings plan can be built around this.

Creating an investment strategy

Once your investment personality is defined and your goals noted, an investment strategy can be devised. This is where the investment manager can and should really add value. Your financial exposure to your business along with your personal investment portfolio must complement each other to mitigate risk – and hopefully even work to offset it. Proper diversification among asset classes is crucial and this is where the expertise of a wealth management professional really comes into its own.

For example, an entrepreneur in the financial industry may own a variety of assets, such as property and the stocks of a few large, publicly-traded companies. Yet if the property holdings are limited to a pair of office buildings in the financial district and the stocks are in other financial companies, a financial sector crash could depress the value of everything that entrepreneur owns.

Another really important consideration is liquidity, or your access to cash.

Usually, an investment in your own business is highly illiquid. So your investments outside of the business must have enough liquidity to serve as a cushion against recessions, industry down cycles or any rough business patch.

Planning for retirement

Entrepreneurs rarely want to retire completely, so let’s call it slowing down a little. Wealth managers can provide you with financial planning advice on how to prepare for the day that you eventually want to wind down a dynamic business career. This may be through the design of a pension plan or other long-term investment strategy which is a tax-efficient as possible. A good wealth manager will be able to suggest several strategies to make the most of your wealth.

Reviewing and refreshing your investments

Delegating the management of your assets to a professional wealth manager should save you time and give you piece of mind – knowing that your investment portfolio is precisely aligned with your objectives and risk appetite. But do be prepared to review the investment strategy at least a few times a year with them to assess how you’re making progress toward your goals. Entrepreneurs in particular may need to modify their portfolios from time to time because business conditions change and life goals evolve. Tweaking or selling certain investments can help you navigate the short-term turbulent waters for long-term security and prosperity.

Are looking for a wealth manager? You can start the process of finding the right professional to manage your wealth by trying our smart online tool. Or, if you would like to discuss your situation further with our straight-talking team, please do get in touch here.

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