As with any profession, wealth management has its own jargon for clients to get a handle on. Understanding these key terms will help to empower investors, wherever they are on their wealth journey.
In a time of increased economic volatility and uncertainty, more Britons are beginning to view investment management as the one crucial component that will ensure financial stability and a sustained standard of living.
But knowing you need to do something about your financial health, and doing it are still two very different things. As a result, many of us languish in inactivity until we are jolted into action by a significant financial event such as marriage, divorce, business investments, or inheritance.
When you are faced with the myriad of choices for right investment, this is the key question to consider: should you tackle wealth management yourself, or should you seek advice through an investment adviser or wealth manager?
Doing it yourself might be a good option for new investors, and for a good reason. At the beginning of an investment journey, needs are not too complicated, investment horizons are long and unencumbered by short and medium-term cash flow needs, investment amount is most likely low, and there’s few other asset types that might create portfolio risks or tax inefficiencies.
In our experience, the DIY approach works best if your profile is like this:.
In this case, managing investments purchased through a broker might be the way to grow your assets with low fees.
However easy at first glance, the DIY approach is in fact ill-suited for a large swathe of the population. While some of us are voracious consumers of personal-finance advice and market commentaries, executing this tsunami of information is often easier said than done, and might be best left to a seasoned professional. Compounding the technical problems with investing, managing money is also an emotional experience for many of us. So an unbiased third party can come in handy even for financially savvy clients. After all, you might be a brain surgeon, but would you actually operate on your own head?
With complex financial holdings and ever-changing cash flow and risk profiles, this might be the point where you find yourself on the steps of investment advisors and for many that step to having a professional advisor on your team is a step worth taking, and paying for.
Financial advisors are often the first step for many to seek professional advice about the wealth. An advisor is your financial planning partner, and his or her job is to help you understand and articulate your financial goals, and work on a long-term plan to get there.
For example, you may want to grow your assets by investing in the financial markets. In order to meet growth goals, a financial advisor will help translate your risk and return profile to day-to-day activities by picking the mix of stocks, bonds, ETFs, and mutual funds that suits your investment horizon and cash flow needs.
As time goes on, your financial situation will likely grow more complex. Add marriage, children and, eventually, a potential inheritance or retirement into the mix, and there’s suddenly a lot to keep track of.
An adviser can help you sort through an ever more complex financial landscape, create and execute a plan that continuously cater to your risk profiles, financial needs, and various milestone. It’s important to get these right the first time, since your time to recover from faulty decision-making becomes more limited as time goes on.
Their functions may stop at asset allocation, or they might go a step further, and step into the shoes of a full-service wealth manager.
Wealth managers take on an additional level of responsibilities for you. A good wealth manager is actively involved in every aspect of your financial planning, which means a customised assessment of your overall investment profile based on life events and where you are in the life cycle
Although asset allocation is common practice amongst all financial planners, wealth managers will be more actively involved in the investment management process, putting the financial planning and investment allocation on equal footing and dependent on each other.
Wealth managers may well be investment managers by background, with financial planning expertise in-house. A full-service wealth manager is akin to a client’s personal CFO, who coordinates clients with appropriate specialists such as accountants and legal advisors. This is in addition to other inheritance, insurance requirements planning, and risk mitigation activities.
While any investor can go out and buy a number of no-load mutual funds and probably do as well as most professionals, wealth management is not only about picking investments. Active wealth management is about making sure the allocation is consistent with time horizons, and continuously monitor and adjust the asset mix to suit your life cycle needs. And to make sure that across all your investment portfolios such as ISAs and Pensions, all investments are married up and working in the same direction, not over-exposing you to certain areas.
At a time when there is an abundance of choices when it comes to wealth management options, the most important thing is to get started.
While the DIY approach might suit a small group of beginner investors, we strongly advise anyone with considerable investment complexities and needs to seek out the advice of professional wealth managers.
A pure investment manager will offer you various investment strategies and products to grow your financial portfolio. A pure financial advisor will offer you guidance on your financial plan. A wealth manager should be able to handle your tax, inheritance, mortgage, and pension needs, in addition to just investment growth. Having this counsel, guide, critical friend, strategic advisor, and project-manager on your team will provide the steady hand to not only protect but continuously make your assets work harder for you.
To discover which wealth managers precisely suit your needs simply try our online smart tool making sure to specify all your financial planning and investment requirements.