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.
2019 has been an exceptionally interesting year on the wealth management front, with many trends coming to the fore in both clients’ changing needs and how wealth firms themselves do business. Here is our roundup of the year’s top themes.
The implosion of Neil Woodford’s immensely popular Equity Income Fund has been a game-changer for DIY investors, with many coming to realise far too late the folly of putting entrusting a disproportionate amount of their capital to one “star” fund manager. The affair has also hammered home the importance of looking at the underlying holdings of multi-manager funds to be sure of just how much exposure to any one manager (or company, sector or region) you have.
The Woodford debacle has provided ammunition for those opposed to active fund management, but we would rather argue that it has highlighted the need for very careful due diligence to ensure those promising outperformance are geared up to actually deliver it.
Passives may fulfil a very useful function in portfolios, but hanging your whole wealth management strategy on them is looking increasingly unwise
Further complicating matters for the DIY investor have been warnings that passive investments such as Exchange-Traded Funds now constitute a bubble set to soon burst. Investors may well be able to purchase tracker funds for just 0.3% in annual charges, but our users seem very much less sanguine about simply buying these and hoping that markets continue to rise. Passives may fulfil a very useful function in portfolios, but hanging your whole wealth management strategy on them is looking increasingly unwise.
Regulatory changes (under MiFID II) meant that this year investors started to receive fees and performance documentation of a level of granularity many will never have seen before. These pounds and pence breakdowns of how much it is costing to have their investments run have surprised a lot of people, particularly when these illustrations show just how much of a drag on returns excessive fees are over time. In addition to realising just how much they are paying in charges, many of our users have been prompted to explore alternative providers by a lack of clarity in the reports they receive.
There is no excuse for a lack of clarity now, and we have been delighted to see so many HNWIs using our Guide to what to expect from wealth management fees in order to empower themselves when weighing up providers. Even a 0.5% difference will add up to a huge difference in the long term, so seek it out.
For all the increased focus on fees and performance we have seen this year, it has been instructive to note just how much store our users continue put by service standards.
People who are new to wealth management typically focus on fees and performance, particularly if they are DIY investors. But once they are reassured that the firms on our panel will add value, it is a personal connection with an adviser that invariably seals the deal.
For all the increased focus on fees and performance we have seen this year, it has been instructive to note just how much store our users continue put by service standards
Correspondingly, this year we have found poor service to be even more of a “deal-breaker” than ever before. A very challenging investment environment and a bombardment of bad news has had investors worried, and wealth managers which have not provided sufficient transparency and support have paid the price in client moves. If you are dissatisfied with a current relationship, it is only good practice to see what alternatives are available.
Procrastination is the enemy of peace of mind, but it when it comes to wealth management it will also have very real pecuniary consequences. Compound growth is your biggest ally building your wealth, so shunning investing in favour of rock-bottom savings rates is self-defeating rather than “safe” once inflation is factored in. Also remember that most financial planning strategies take a lot of lead time to bear their full fruit. Don’t be someone who saw the need for wealth advice but didn’t actually take it!
Wealth managers have continued to hone their business strategies this year, with firms variously raising – or lowering – their minimum investment thresholds and altering the way that they service clients at different levels.
While outright “orphaning” of clients is rare, some will have found that their package has been altered so that more use is made of model portfolios and digital servicing, for example. Neither are necessarily a bad thing in themselves, but such changes have often prompted our users to explore alternatives more suited to their requirements.
On the flipside, many firms have moved to serve a broader range of clients at lower levels of wealth (although they may not have publicised this very heavily) and we have frequently been able to introduce users to big-name wealth managers they never thought they could work with previously.
These shifts are very difficult for the layperson to detect from their own research, and also highlight the frequent futility of “asking around” for recommendations from those who may have started a relationship long ago (or who have a very different level of wealth). Our two-way matching process means you will only ever be introduced to firms suitable for your amount of wealth and requirements, as changes to asset thresholds and so on are kept right up to date within our system.
Looking back over the past year (and into the next) reveals a raft of changes with important financial planning implications. Correspondingly, we have seen questions about retirement, tax and inheritance planning driving our conversations with users even more than usual.
Final salary pension transfers have been a hot topic, particularly given warnings from the government that half of those making this monumental decision have been wrongly advised. The tax realities of breaching the Lifetime Allowance for contributions have also been getting a lot of attention.
Inheritance tax and ever-changing reliefs have also been top of the agenda, alongside the exodus from buy-to-let prompted by an assault on landlords’ tax breaks which is set to worsen next year.
More than anything over the past year, we have seen the gap between the proactive and the procrastinators grow wider. All affluent individuals know that bank savings rates are desultory, rental properties are no longer a “safe as houses” investment and that making pension pots work as hard as they can is the only way to fund potentially decades in retirement adequately. They should also know that the earlier they take action the better. Whether they do so, however, is another question.
For our part, we are seeing the users of our service getting very much more proactive in ensuring they are ahead of coming changes that will affect their investments and savings – very often prompted by the content published in our Knowledge Centre.
This is great to see, but we do worry about those who have recognised their need for professional wealth management advice, but have yet to do much about it. Staying on the investment side-lines will rob you of compounded returns, while neglecting proper financial planning advice stores up problems all round.
So, as the year draws to a close, we would like to congratulate all those who have made 2019 the year they took control of maximising their wealth and offer fresh encouragement to those not quite there yet.
Engaging a professional adviser is likely to be one of the most valuable decisions you ever make, so why not ring in the New Year by arranging a no-obligation discussion with one of the leading wealth managers from our panel?
The whole team at findaWEALTHMANAGER.com wish you a happy holiday season, and a wealthier New Year!