Wealth Managment- A Range of Diverse Needs

Wealth Management – A range of diverse needs

When it comes to financial planning your individual needs will require a bespoke solution, but in broad terms your objectives are likely to fall into three key areas:

• Build and preserve capital

• Manage cash and borrowings

• Gain financial protection against risk

Of course it is likely, because of changing circumstances and priorities, that you will need advice on all three areas and a good wealth manager should be able to do this.

Building and preserving capital will cover a number of needs such as pension planning, investments, portfolio management and trust and estate planning. When building capital, the management of risk is critical and can be best summed up in one word - diversification - both by asset class and by investment manager.

How much money should you hold in cash to meet your short-term needs and for emergencies? What is the right mix between UK and International equities and how should you gain exposure to commercial property and other alternative asset classes, are all central to the successful accumulation of capital. These asset allocation strategies can only be truly successful if the managers looking after the individual elements are of the highest quality, so it’s important to understand how your wealth manager selects the managers ultimately making the investment decisions.

Of course, in building your capital every effort should be made to take advantage of the tax-efficient vehicles available. Changes in legislation can open up fresh opportunities such as the new rules on pensions introduced on ‘A’ Day (6 April 2006) that have introduced a simple, single system making it easier to plan for your retirement.

Individuals can now invest in a tax efficient pension plan as much as they earn annually (equal to 100% of earnings or a maximum of £235,000 - whichever is lower). Although contributions above this limit may be made, there will be no tax relief on the excess contributions. A Lifetime Allowance has also been introduced which caps the size of an individual’s tax-relievable fund at £1.65m in 2008/09, rising to £1.8m in 2010. If a fund exceeds this level the excess is liable to be taxed at 55%.

Everyone has to save more for their retirement and, having made a retirement plan, you have to commit to it and take action.

Similarly, making regular use of Individual Savings Accounts has enabled people to often build up meaningful sums of capital in a tax-efficient environment and the management of these is a key element of any strategy. Some of us have created individual share portfolios in which we have taken an active and enjoyable interest, but may have reached the point where the daily management has become too onerous. This may lead us to appointing a discretionary portfolio manager or perhaps reviewing the arrangements all together to consider our options. So whether we are looking to build or preserve existing capital, there will be an ongoing need for high quality fund management.

Having built up significant assets preserving your capital for your chosen beneficiaries, how do you protect your wealth against a rising tide of taxation and HM Revenue & Customs taking a keener interest in your trust and estate planning strategies?

Soaring property prices in recent years have brought the issue of Inheritance Tax (IHT) to the forefront for millions more people in the UK. But while many people are aware of the existence of IHT planning, few still do anything about their potential liability. The calculation is often, although not always, simple. Broadly, you count up the value of all the assets remaining on death (including existing investments), subtract the current £312,000 nil-rate band for individuals, or £624,000 for married couples or civil partnerships – and what is left is taxed at 40%.

Therefore careful IHT planning is a central plank of any wealth management strategy in order to protect wealth, ensuring the bulk of it is passed on to families and not the taxman when you die. But how do you draw up your Will in the most tax-efficient way? How can you transfer assets by making lifetime gifts and create an IHT-efficient trust to help beneficiaries meet the tax liability without disturbing family wealth?

The last thing you want is for your family to have to face a large IHT bill when you die, whereas with careful planning, it is possible to ensure that the taxman does not take a greater share of your wealth than is necessary.

Along the way, you will of course need to manage your cash and borrowing requirements - so advice on mortgages, commercial banking, deposit and current accounts may be needed. Again the choice will be vast, so guidance on the most appropriate product or service is paramount to ensure that whether you are borrowing or depositing cash, the interest rates are competitive. These days some banks take a more enlightened view, allowing clients to offset the balances on any savings or current accounts they have with the Bank against any mortgage borrowing before calculating the interest payable. The key is to put into place arrangements that are most advantageous to you.

The last component of the planning process is to consider financial protection against risk - to your health, life, assets and, if in business, your partners and employees - to create a cushion against the unexpected. A wealth manager can help you determine and establish both adequate levels of insurance and appropriate kinds of cover, to protect you and those who depend on you, against all the most serious risks that you face and specifically to your life and your health. It can also be used in conjunction with certain types of trust as part of an IHT mitigation strategy ensuring that more of your wealth ends up in the hands of your chosen beneficiaries. So whilst insurance may not be the most exciting area of financial services it is, arguably, one of the most important.

St. James’s Place Wealth Management has produced a Guide to Wealth Management. To receive your free copy, please contact Andrew Kyle of the St. James’s Place Partnership on 01432 818758 or go to www.sjpp.co.uk/akyle

Date: 28/09/2008
Category: BUSINESS EDITORIAL