Many successful individuals in their mid-forties onwards realise that they should spend more time thinking about how to fund their retirement. The key role of a wealth manager is to help individuals make good decisions on these issues.
Finding the right wealth manager does take time and it is often difficult to understand the differences between firms in terms of the services, benefits and charges. This undoubtedly puts many people off, especially those who are busy. In addition to that, many people have a reluctance to pay for financial advice.
However, by avoiding or delaying this decision, people can end up paying many more thousands of pounds in tax and by investing in an unsuitable way, fail to reach their financial goals. Even simple solutions like contributing to a pension and an ISA can save tens of thousands of pounds over a career. Likewise, contributing to unsuitable investments can mean your goals or plans are delayed by a few years or not achieved at all.
In this article, we outline five reasons why you should consider using a wealth manager.
The five reasons are:
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- Structuring a good plan and sticking to it
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- Reducing the amount of tax you need to pay
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- Helping you grow your wealth
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- Maximising your income in retirement
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- Reducing the stress of financial planning
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- Structuring a good plan and sticking to it
A key benefit of a wealth manager is to devise a plan to enable you to achieve your long term financial goals. This may be retiring by age 55, seeing the children through school and university, buying a holiday home or simply living a comfortable retirement.
A good wealth manager will ensure the plan is formulated. He/she will also review it, amend it and make sure that it is achievable.
Life events happen and plans often change, so it can be crucial to have a wealth manager there who has the knowledge and experience of dealing with these issues, providing advice and acting as a sounding board for ideas.
The possibility of early retirement through redundancy has been a common event in recent years. Working with a wealth manager to re-work the numbers and amend the plan can make early retirement achievable.
For businesses owners, careful structuring of your affairs well in advance of selling your business can make a huge financial impact.
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- Reducing the amount of tax you pay
Reducing the amount of tax you pay is perhaps the most obvious benefit a wealth manager can bring. There are many different tax allowances and reliefs available. It is surprising how few individuals make best use even of their income and capital gains tax allowances. A good wealth manager will handle more complicated pension and inheritance tax issues, and advise you on other lesser-known opportunities. Structuring your financial affairs to minimise tax paid in the light of your personal circumstances can make a significant difference over the long term.
For example, contributing additional amounts to a pension can save up to 45% in tax. Investing into tax-free ISAs, over the long term, can save large amounts of tax and can then be enjoyed tax-free when the time comes to withdraw the savings.
At the more complex end, a wealth manager can provide advice on wider inheritance tax planning, including using Business Property Relief, for example, that can reduce the period of gifting money by up to 5 years.
It is all well and good knowing these different allowances exist, but ensuring they are suitable and relevant to each client takes a deeper level of knowledge and experience.
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- Helping you grow your wealth
You should obviously expect a wealth manager to be able to grow your wealth over the long term. Many believe they can do it themselves and during rising markets this is perhaps easy to achieve.
However, it is during times of market volatility where a good wealth manager will be able to make dispassionate and professional decisions which have the long term plan in mind. During the most recent market sell-off during the pandemic in 2020, some equity markets were down over 30%. Taking emotional, knee-jerk decisions by selling investments at the wrong time can have a ruinous effect on the long term and can take years to recover.
Wealth managers see through the short term noise and stick to the plan. They certainly will not get every decision right, but following a robust investment process will help avoid these bigger errors.
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- Maximising your income in retirement
During the earlier stages of your working life, managing your financial affairs can be relatively straightforward – join the company pension scheme, invest for growth, save as you can. However, as you head closer to the end of your career and into retirement, things can get more complicated and any mistakes can prove more costly as time is against you.
Deciding when you can retire and how much you can live on should all be part of the longer term plan formulated years before, but actually managing your wealth during the retirement years can be a very different proposition. The wealth manager combines constructing a portfolio of different accounts with income-focused investments to maximise your income in retirement.
A good wealth manager will invest with a specific time horizon in mind depending on your personal circumstances to minimise the risk of a permanent loss of capital which would be difficult to replace.
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- Reduce the stress of financial planning
It has never been easier or cheaper to set up different accounts than it is now, be it a pension or an ISA. However, it is also never been more complex in terms of the rules, regulations and options available.
The seemingly easy decision to contribute to a pension has been complicated by the myriad of rules involving the pension contribution limits, earnings, and past contributions. Even when choosing from the 1,000s of different investments choices for your ISA, for example, can be a minefield – fixed income or equities; UK or US; accumulation or income units; growth or income; small companies or large companies. The list goes on.
Many people simply do not have the time or energy to commit to the research during their working lives or the desire to do so in retirement. Hiring a wealth manager allows you to focus on what you do best and allows you to simply sit back knowing that your wealth is in trusted hands.
Conclusion
The initial difficulty in finding a suitable wealth manager is significantly offset by the benefits of using one. The main benefits are having a long term plan, saving tax, growing your wealth, maximise your assets and having a professional to worry for you.
