Wealth Management- What is it?
Pick up the business section of a newspaper nowadays and the term ‘wealthmanagement’ crops up all over the place.
It’s a reflection of the Celtic Tiger years when there was a phenomenal creation of wealth like we’ve never seen before. Total wealth per head (Bank of Ireland, ‘Wealth of the Nation’ report) at the end of 2005 was €148,130 and ranked the country second to Japan among eight leading OECD nations, and ahead of the UK and US.
More recent research (DKM for Investec) put the current figure just under €200,000 per head. The number of high net worth individuals – those who have investable assets of more than $1m (€620k) – increased by some 18% to 39,000 (Scorpio Partnership research) in 2007. This compared with a 4.5% growth globally.
Over the next 20 years, hundreds of billions of euros will be transferred to the next generation with the current annual property transfers in wills conservatively being estimated at €3 billion. This is proof positive of our economic transformation and also reflects the fact that almost 75% of our total household assets are made up of residential property.
Wealth management covers a very broad canvas of measures we should make to protect and grow our financial wellbeing. From the financial adviser’s position, it’s not just simply about products; it’s about understanding the clients needs, be they personal, family or business.
Increasingly this involves an integrated wealth management approach. A professional service that is the combination of financial/investment advice, accounting/tax services, and legal/estate planning.
In general, wealth management is more than just investment advice, as it can encompass all parts of a person’s financial life. Essentially, wealth management covers the following financial planning headlines:
Pensions / ARF’s, taxation, estate planning, business planning, life assurance, property, portfolio management and investment advice, finance/debt management and last, but not least, stockbroking.
You may not need to take action under all these headings but that’s why you should discuss your financial situation with a good adviser so as to tease out what exactly are your priorities.
A lot will depend on what resources you have at your disposal, how much, if any, of this is currently invested and where, and what are your likely commitments into the near future. There’s no sense tying up a lot of your money in a property venture just to create a liquidity crisis six months down the road.
A key goal should be to achieve a balance in your investing and not to have all your eggs in one basket. Many Irish people are risk averse and tend to favour deposit accounts. Your money will be safe, for sure, and everybody should keep some of their assets in cash, if only to meet unforeseen liquidity problems. But the safety that comes with low-risk deposits is matched by the relatively low level of return.
The higher the risk, generally the greater is the potential reward. By spreading your money over a range of asset classes – from cash, through equities and bonds to property – you achieve balance and reduce the risk associated with one asset class bombing out. When it comes to buying shares the choice has to be made between direct investments or through an equity-related investment product sold by a life insurance company. The latter should be the chosen route for the majority of people who are not that financially savvy.Naturally, most people are today very wary of equities because of the severe shakeout on stock markets this past 12 months. This is understandable but, at the same time, a bear market is often also a buying opportunity provided you can take a long-term view.
Investment-related funds and bonds should really only be considered as medium to long-term investments as the underlying fund needs time to grow in value. When we think of wealth management, it’s the high-net rich people we tend to focus on – those with large lump sums to work for them. But managing wealth is not just about the well to do; it’s also appropriate for those among us of more modest means with few aspirations above becoming regular savers. You could try to calculate how much money you earn in a month after taxes. Figure out your expenses. The best way to do this is to save receipts for a month. Knowing how much you have outgoing per month allows you to plan how much you can afford to save. Once you get in the habit of saving, you can look for advice on savings plans or small lump sum investments, which are the starting points to building and managing wealth.