Wealth planning issues of various kinds have been a real feature of our conversations with High Net Worth Individuals in recent weeks.
Lawyers feature unique wealth characteristics, such as uneven income and equity partnerships, that wealth managers are used to working with.
Read on to find out more about wealth management for lawyers.
Lawyers, along with other busy professionals, are often in particular need of wealth management services. Those working in law may tend to be high earners but they can also face various complications in managing their financial affairs, such as uneven income patterns due to bonus payouts or them having become an equity partner. The other undeniable fact is that law is an extremely demanding career. So, while the financial rewards are great for those at or approaching the peak of their earning power, the intensity of lawyers’ working lives leaves them little time to manage their own investment portfolios, even if they are so inclined.
As high-earning professionals, most lawyers will be no stranger to investing. However, given the demands of their career many lawyers will find themselves having accumulated scattered investments over the years which are difficult to keep track of. For such individuals, engaging a professional wealth manager will be a vital first step towards streamlining their investments. Obtaining proper wealth management advice will also help to maximise returns while minimising their tax liabilities, as part of a holistic financial plan.
(Details correct for the 2014/2015 tax year)
Everyone’s financial situation and objectives are, of course, unique. Yet there are several wealth management strategies all lawyers should have on their radar.
Lawyers have long been a core client segment for wealth management institutions, and you could even say that some specialise in accommodating the needs of those working in law and other professional services.
Your choice of wealth manager should reflect the complexity of your needs, along with the amount of assets you are looking to put to work.
The annual pension contribution allowance has been reduced from £50,000 a year to £40,000, but perhaps more significantly the lifetime pension contribution allowance has been progressively lowered from £1.8mn to now stand at £1.25mn. This is an amount which high-earners like lawyers can easily breach, leading many to look to alternative tax-efficient ways to save for retirement, like ISAs (see below).
It is essential to seek professional financial advice if you anticipate approaching the annual lifetime pension limit (and bear in mind that if your investments are being managed properly they should be delivering robust growth in the long term). For example, you may not know that, under what is known as Individual Protection 2014, individuals whose pension pots were worth £1.25-£1.5m on 5 April 2014 can apply to protect their lifetime contribution allowance up to £1.5mn while still making contributions.
As higher-earners, lawyers should already be in the habit of using their full ISA allowance every year (£15,000 for 2014/15). However, what many end up with is a series of largely forgotten ISAs which aren’t being managed properly. A good wealth manager will help you get a full overview of your investments and how they are performing and could, for example, consolidate your ISAs into one actively-managed multi-asset portfolio likely to deliver far superior returns.
It’s easy to miss the ISA deadline with a hectic workload, but with pension contribution limits coming down ISAs are an invaluable way to keep building your retirement savings. You could ask your adviser to schedule the automatic transfer of assets into an ISA wrapper at the beginning of each tax year to take this stress away.
Higher-earners need to make sure they’re using all available tax reliefs and this might include taking advantage of all the generous incentives government has put in place for certain types of investment. For example, investors who back unlisted, smaller UK companies through Enterprise Investment Scheme vehicles can obtain 30% income tax relief on investments of up to £1mn per tax year, along with CGT exemption once shares have been held for three years.
Venture Capital Trusts, EISs and the new Seed EISs (which invest in start-ups) offer various tax planning opportunities. There are pros and cons to each type of vehicle, however, and it’s vital to take proper advice on these inherently riskier types of investments.
Some still cling to the notion that a portfolio should be split 60/40 between stocks and bonds, but proper diversification in light of your full circumstances may call for a more sophisticated asset allocation (although stocks and bonds are likely to form the core of most portfolios).
Alternative investments like hedge funds, private equity, commodities and real estate may all have a place within your portfolio, depending on your objectives, time-horizons and risk profile. A good wealth manager will help you leverage the entire investment universe to maximise your wealth.
There is huge diversity in the UK financial advice market and there are a plethora of wealth managers appropriate for professionals like lawyers. Some are smaller boutiques, while others are divisions of global banking groups. Each model has its own attractions and firms can also vary hugely in their style of servicing clients.
A big decision is whether to go with an advisory or discretionary investment management relationship. Time constraints will mean that many lawyers opt for the latter, where they set the parameters but day-to-day portfolio decisions are left to the investment manager. You should have a full, frank conversation with a potential wealth manager about how much involvement you can realistically have (or want to).
Lawyers are just one example of the kind of cash-rich, time-poor people wealth management professionals help with running their financial affairs. Those busy building a professional career need to make sure their money is working just as hard for them.
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