The start of a new year is a great time to detox your finances and establish the wealth management habits that will help you achieve your goals. Here is our accumulated wisdom on what those looking to maximise their financial health should be doing.
1. Know your net worth (as of now)
It may sound simple, but working out your current net worth is a vital first step towards better wealth management. Often, getting an overview of all their savings, investments and other assets has been just the prompt our users have needed to get professional advice on how to make things work better.
Rest assured, it is very common to have an array of ISAs, pensions and other accounts which are not working together in any concerted way, but you might be surprised to learn just how much better you could be doing with a more strategic approach that takes tax mitigation into full account too.
2. Ensure your insurance is adequate
Again, this may sound basic, but it is surprising how many High Net Worth Individuals have insurance policies that are entirely inadequate for their needs – and often more expensive than they need be.
It is surprising how many High Net Worth Individuals have insurance policies that are entirely inadequate for their needs – and often more expensive than they need be
Given that the range of assets may include art, classic cars, collectibles, wine, second homes and horses among other high-end belongings, the affluent can find themselves negotiating a web of separate policies each year and often exposed to small print that will fail to provide the protection their precious assets require. Private client insurance presents many benefits for those with more sophisticated needs.
3. Up your ISA game (across the whole family)
You and every member of the family should make sure to maximise their ISA allowance each and every year. For the 2019/20 tax year the allowance is £20,000 and this may be deployed in cash or stocks and shares (or a mixture), and any gains made on the money, whether from interest or investment returns, are tax free for life.
ISAs therefore represent a very generous tax break that everyone should take advantage of – even children
ISAs therefore represent a very generous tax break that everyone should take advantage of – even children. Junior ISAs allow for £4,368 in 2019/20 to be put aside for under-18s in cash or stocks and shares, making these a great savings option for children (although bear in mind they become legal owner at 18). ISAs are also increasingly recognised as a great alternative retirement savings route due to the progressive lowering of the Lifetime Allowance for contributions (currently £1.055m).
4. Review your retirement plan regularly (with someone qualified)
Whether you are in, approaching or some way from retirement, it is vital to review your plans on a regular basis to ensure that they stay fit for purpose and that your investments are working as hard as they might. A well-funded pension doesn’t necessarily mean a well-run one.
Whether you are in, approaching or some way from retirement, it is vital to review your plans on a regular basis to ensure that they stay fit for purpose and that your investments are working as hard as they might
Retirement should form part of your wider plans and the earlier you implement tax mitigation strategies the better. Certainly, do not take any major, irrevocable decisions without taking professional advice. Many people have been transferring out of final salary pension schemes when this is entirely the wrong move for them, for example.
5. Remember to “look under the bonnet” of your investments
Many DIY investors make the mistake of buying many funds with the same underlying holdings, and so take on outsized exposure to one company. In fact, if the recent implosion of the Woodford Equity Income fund taught us anything, it’s that diversification is key. It seldom pays to have to much of your wealth allocated to one “star” fund manager – or market, sector or type of asset class for that matter.
It seldom pays to have to much of your wealth allocated to one “star” fund manager – or market, sector or type of asset class for that matter
Due diligence has to be your top concern, so make sure that you only allocate capital to managers who are likely to be good stewards of it. Make sure that any adviser can give a good account of their process for selecting investments and a good investment track record.
Top Tip
It’s really hard having the discipline to keep on track of everything required to manage your wealth optimally (particularly when you are still busy making it!). A wealth manager will automatically take care of things like ISA funding and drip-feeding money into the markets, often taking care of all your tax needs too.
Lee Goggin
Co-Founder
6. Diversify your wealth
One of the key roles of wealth managers is to ensure that your investment portfolio reflects an asset allocation strategy designed to meet your objectives. This means the proportions of equities, bonds, passive funds, active funds and so on that will best meet your return and risk parameters. If your investments aren’t being looked at “in the round” there is a high risk that they will be dangerously unbalanced in some way.
If your investments aren’t being looked at “in the round” there is a high risk that they will be dangerously unbalanced in some way
Diversification should also be taken in the widest sense. Many affluent individuals have piled into buy-to-let, despite much of their wealth being tied up in their main property already, and have found the recent tax assault on landlords a real issue.
7. Seek alternative “safe havens” for your capital
Too few people appreciate the way that inflation erodes wealth if it is not at least growing at the same rate, and that keeping large amounts on deposit at rock-bottom rates is therefore anything but “safe”. At the very least, those with large cash holdings should consider the rates on offer via private banks, as those with large amounts to deploy can offer get very much better ones than on the high street this way.
Too few people appreciate the way that inflation erodes wealth if it is not at least growing at the same rate, and that keeping large amounts on deposit at rock-bottom rates is therefore anything but “safe”
Beyond this simple step, consider how many alternative safe havens for your capital you can seek in the investment world that can deliver far superior returns with very tightly controlled risk.
8. Really understand your risk-profile
Wealth management advisers are extremely adept at understanding the situation of investors and drawing out their true attitudes so that their portfolios can be built precisely in line with their risk-profile. You must be both comfortable and still stand a good chance of meeting your financial objectives, and achieving this delicate balance – which will furthermore change over time – is one of the biggest ways that wealth managers add value.
What the right level of risk is for your age, level of wealth and life plans is a complex question that will need revisiting fairly frequently. This is why we warn that automated questionnaires are unlikely to capture the full picture.
9. Always look through the tax “lens”
Tax reduction is one of three key pillars of wealth management and should always be one of the lenses you see your wealth management plans through. There are numerous financial planning strategies and investment strategies you can deploy to reduce the bills you – and your family – would otherwise face in Income, Capital Gains and Inheritance Tax.
There are numerous financial planning strategies and investment strategies you can deploy to reduce the bills you – and your family – would otherwise face in Income, Capital Gains and Inheritance Tax
How you manage your pension contributions from a tax perspective could be a major determiner of meeting your lifestyle objectives, and you will need professional advice in both the accumulation and decumulation phases to make the most of your money. Elsewhere, tax-efficient investing can create benefits in a number of areas simultaneously.
10. Never settle
Financial services is unfortunately one of those areas where people tend to fear change, and wealth management is no exception. However, it is only by never settling that you can ensure that you are always getting the best deal for your money.
It is only by never settling that you can ensure that you are always getting the best deal for your money
The magic of compounding means that a seemingly small reduction in fees or increase in performance can make a big difference long term, so even if you are broadly happy with a provider it is healthy to periodically review the relationship to see if a better offer is out there. With so many firms eager for your business, you really can seek a “perfect partner” to help you meet your financial goals.
