Taking the time to review your financial plan is a real investment in the health of your wealth – and your peace of mind – so seize the opportunity this summer.
Nick Travis, an associate director at Smith & Williamson, explains his firm’s approach to meeting the wealth management needs of entrepreneurs.
Entrepreneurs comprise an important part of our client base and they cover everything from house builders and shirt-makers to health technology start-ups.
The point when entrepreneurs come to Smith & Williamson, or when they start to engage with the investment management part of the business [as opposed to the accountancy arm] is usually when one of two things has happened.
Either they’ve exited their business through a trade sale, or they have taken on private equity investment to grow their business and/or de-risk their personal wealth position. In both cases, the entrepreneur is likely to have realised the most significant amount of cash they have ever received. After (typically) paying down the mortgage and treating the family, they recognise that a good proportion should be used for long-term investment. This is the point at which entrepreneurs tend to engage formally with us, but often we already know them through our activity in the entrepreneurial community.
It’s important to entrepreneurs that there is a safe pair of hands for their investments. However, what really grabs their attention is access to meeting people like them who have similar issues and dilemmas. We hold entrepreneur forums and more tight-knit lunches, where we get lots of very successful business owners to discuss matters such as selling a business, taking a business international or how to incentivise employees. Through this, entrepreneurs know we’re familiar with their commercial issues as well as their personal wealth concerns, as the two are usually inextricably linked. We are also engaged with external organisations which add value to the entrepreneur community, like FD Centre, Envestors and Vistage.
At the point when a sale happens, entrepreneurs may get dozens of approaches from wealth managers. It is difficult for an entrepreneur to make a qualified and accurate judgement of who is best to look after them when wealth management is not their area of expertise. We encourage entrepreneurs to find out as much as they can about us, and our services, before they need our assistance and, where possible, build a wealth plan before it needs to be implemented.
Working in partnership with our accountancy and financial planning arm, we can provide a whole range of wealth solutions for our clients. We are the eighth largest accountancy firm in the country*, so if you are on an entrepreneurial journey we are able to assist you every step of the way. We can help from setting up your company through to putting employee benefits schemes in place, setting up tax structures for investors, structuring for international growth and then – when you sell – managing your family’s investment and tax affairs for decades, if not generations.
Security. Up until engaging with us, entrepreneurs are likely to have had all of their wealth in one investment: their business. After making a success of that, they want to de-risk somewhat and provide a ‘nest egg’ for the family. Every entrepreneur is different but a typical entrepreneur might ask us to invest for steady growth and will not take an income from the portfolio for a number of years whilst going through an ’earnout’. After this period, they might want to increase the income generated by their portfolio. Running bespoke, liquid, flexible portfolios allows us to modify the strategy quite quickly when circumstances change, which they often do.
Entrepreneurs, by nature, tend to be risk-takers and so often want to use some of their capital for high-risk investments like angel investing or starting a new venture. Although these are not the types of investments we can formally advise on, we can make beneficial connections with angel networks and similar organisations. We can also ensure that they are investing in the most tax efficient way, using schemes such as SEIS, EIS and Entrepreneurs’ Relief where appropriate.
We are focused on making sure that our clients understand not only what we are doing but why we are doing it and so we spend a good deal of time at the start of the relationship working with the entrepreneur to discuss not only risk appetite and investment objective but also the type and frequency of reporting desired.
A client who is nearer retirement will typically have more experience of investment markets and may be used to receiving the type of services we offer. This type of client, who may be looking to retire, is more likely to want to use our investment portfolio for day-to-day living and in which case we usually focus on income generation for them. They are usually are content to take a broader view of our investment strategy.
With clients who are new to our services, it’s more of an education process. They may have ISAs and some savings already but they may not have learnt about, for example, pensions or offshore bonds. Similarly, they are very unlikely to have constructed a diversified, asset-allocated portfolio. We spend as much time as necessary to help these clients feel comfortable with our services.
As all clients are different, so are their portfolios. We use our collegiate investment process together with our knowledge of each client to build bespoke portfolios from scratch, adapting them over time as our clients’ circumstances and financial goals change. Our portfolios tend to be very liquid and most investments can be sold and in cash within a week or so. This means we can be nimble in the way we manage money.
Diversify. Entrepreneurs are highly-focused individuals with an incredible drive and self-belief. It is sometimes their inclination to put all their capital into something that they have full control of – usually their next venture. Whilst we can understand their reasoning, history has taught us that any number of unforeseen factors can mean start-up companies run into trouble, even with experienced entrepreneurs behind them. We encourage entrepreneurs to spread their risk by acquiring a range of assets and an investment portfolio is likely to be one of those. By taking care of our entrepreneurial clients’ rainy day funds we free them to get on with what they do best: building new successful businesses.
If you’d like to start a conversation with Smith & Williamson please contact the findaWEALTHMANAGER.com team HERE. We will ensure you get direct access to the investment professional who matches your profile.
*Accountancy Age Annual League Table 2014