Wealth planning issues of various kinds have been a real feature of our conversations with High Net Worth Individuals in recent weeks.
Compensation packages are proportionate to the harm and intended to provide financial support over many years, so the amounts involved can be very significant indeed. Here is a high-level guide to the daunting task of managing these monies effectively.
When someone sustains a life-changing injury or illness they will often rightly receive a large amount of personal compensation either awarded by the Courts or otherwise arranged as a settlement.
Although compensation cannot undo a devasting blow, it can soften it considerably by providing for a lifetime of care and support, not just for the individual concerned, but for their wider family too
Although compensation cannot undo a devasting blow, it can soften it considerably by providing for a lifetime of care and support, not just for the individual concerned, but for their wider family too. Much depends, however, on the funds being properly managed and invested. This can be far more complex than it initially seems.
Looking after the finances of a loved one can be a daunting task, particularly when very large sums are involved. The responsibility is just as great – if not greater – if you are a trustee or deputy appointed by the Court of Protection and who owes a professional duty of care to what might be a wide range of vulnerable clients.
The good news is that many wealth managers have made a real speciality of managing personal compensation awards, whether that be for the individuals directly, the loved ones caring for them or the professionals working on their behalf.
The sheer complexity of these cases is the reason that specialist teams are required. Funds have to be invested in such a way that they will last many years, potentially a lifetime, all the while with multiple and often unpredictable calls on that wealth. Then, there are all the complications of financial planning and taxation to contend with too.
Funds have to be invested in such a way that they will last many years, potentially a lifetime, all the while with multiple and often unpredictable calls on that wealth
There is a great deal to consider when managing personal compensation awards. Here are some pointers to help responsible individuals get a handle on the challenge and what to look for in a wealth management provider in these circumstances.
The perspective of a wealth manager can be highly valuable before a decision is reached. They can collaborate with legal teams to forecast long-term financial needs, advise on whether lump sums or periodic payments are preferable, and can even act as expert witnesses to help secure the best outcome for the claimant.
Exploratory consultations are free of charge with any good wealth manager and you can speak to a shortlist of ones suited to your/your client’s needs fast by using our search tool.
Cash flow analysis should be one of the first ports of call once a settlement has been reached. Here, a wealth manager will project the individual’s investments, income, expenditures and debt liabilities into the future, examining the scenarios emerging when investment returns, interest rates and inflation change.
Cash flow analysis should be one of the first ports of call once a settlement has been reached
These are highly complex calculations, but are the only way to get a real grip of what financial plans need to deliver year by year. Definitely consult a professional with the right tools here.
The decision is often made to hold compensation funds in a trust structure, variously known as disability, compensation protection or personal injury trusts. The benefits of doing so may be very significant indeed, including protecting the beneficiary from the misappropriation of funds by third parties and taxation at favourable rates.
It may be helpful to use a wealth manager with an associated trust arm, or at least one with good links to trust companies to cut down the administrative burden of finding provision if you are new to all this.
Although appropriate wealth structuring and a well-considered investment strategy are crucial, so too is keeping sufficient cash on hand to deal with any unexpected expenses that might come up.
A wealth manager experienced in this field will understand the need for a degree of flexibility and will be able to ensure that your cash holdings are performing as well as the rest of the portfolio.
As compensation funds are likely required to last a lifetime without further inflows, managing the investments has to have particular regard to risk. Steady growth and income generation with the focus on capital preservation is likely to be the aim.
As compensation funds are likely required to last a lifetime without further inflows, managing the investments has to have particular regard to risk
When comparing wealth managers’ track records on returns, ask specifically about clients in analogous situations.
It is often underappreciated just how many specialist teams leading wealth managers have.
Personal compensation management is just one area of specialism; I’ve seen teams focused on elder care, professionals in law or medicine, sports people, media moguls and more.
Whatever your situation, you can be sure there is a wealth manager with deeply relevant expertise. Why not get in touch to see how precise a fit can be found for you?
Although it is often neglected, tax mitigation is one of the key pillars of managing wealth effectively. The assets you select, who holds them, the structure selected and when you choose to sell can all make a huge difference. Looking far ahead, Inheritance Tax considerations should always be in mind with any significant sum.
You may want to choose a wealth manager which offers financial planning as well as investment management to benefit from a “one-stop-shop” solution.
Protecting the State benefits the individual and their family are entitled to should remain a priority, whatever the size of compensation package in view. Complications can arise when council properties are purchased with proceeds or when family members are providing care, for instance.
Wealth managers are often very experienced in making cases to the authorities to protect State benefits and putting structures in place to ensure that they are.
Any significant wealth is often best looked at through a family lens, so that it can be used for the benefit of as many members as should rightly be included and transitioned efficiently down the generations when the time comes. This is particularly the case if loved ones are giving up their own earning potential to care.
Any significant wealth is often best looked at through a family lens, so that it can be used for the benefit of as many members as should rightly be included and transitioned efficiently down the generations when the time comes
Seek a wealth manager with expertise in family-wide wealth management and all the tax and financial planning intricacies that includes.
Compensation management is a particularly sensitive area which requires considerable soft skills as well as prowess with running money. Your manager will need to have deep conversations with those being compensated/their loved ones as well as a raft of professionals, acting as a point person to coordinate lots of elements of provision.
It is vital that you mesh well with the advisors that you choose, whether you are acting for yourself, for a family member or in a professional capacity
It is vital that you mesh well with the advisors that you choose, whether you are acting for yourself, for a family member or in a professional capacity. We can help you find good factual matches so that you can decide who makes the best personal connection with everything else being equal.
It hardly needs to be said that if compensation funds are poorly managed, this amounts to a double blow to the injured party. The effects of excessive fees or lacklustre returns will compound to be very great over the years. Ill-considered risks could be catastrophic.
Personally or professionally, most will feel duty bound to look for a better provider and we can make the process of change fast and painless
Wealth management relationships work best if they have longevity, but that certainly doesn’t mean putting up with poor service or results. Personally or professionally, most will feel duty bound to look for a better provider and we can make the process of change fast and painless.
Whatever capacity you are acting in, you can secure the optimal compensation management package easily by comparing wealth managers like-for-like through us.
Our objective matching service will address the full spectrum of needs involved via a short questionnaire, saving you hours of research. However, if you require a little more guidance on the help available, please do get in touch with our expert team.
The investment strategy and/or financial planning content of this piece is for informational purposes only, may represent only one view, and is not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.