“International Be Kind to Lawyers Day” may be somewhat short on celebrations, but findaWEALTHMANAGER.com is urging the UK’s legal professionals to mark the occasion nonetheless by doing themselves a kindness all too many seem to neglect: updating their wealth plan.
findaWEALTHMANAGER.com is an independent online matching service designed with busy high net worth individuals in mind, so it’s no surprise that lawyers are consistently represented among the 3,700 new users the site currently attracts a month.
Lee Goggin, co-founder of findaWEALTHMANAGER.com says:
“We often find that lawyers, and those in other demanding professions, come to us in a bit of a panic over their long-term finances. They may have started with the best intentions for managing their wealth, but in the course of building their career things get off track.
“The lawyers we speak to all want a clever investment and tax planning strategy, but many have accumulated scattered investments which are difficult to keep track of. These users are seeking a wealth manager to help streamline their portfolio and maximise their returns.
“Specialist advice is particularly important for professionals like lawyers. They may experience uneven income patterns or be an equity partner, which can complicate things. Happily, several wealth managers have dedicated teams for lawyers, but even the smaller ones are likely to have some special expertise. Lawyers are an important market for wealth managers and as clients face many common challenges.”
To help lawyers manage their wealth more effectively, findaWEALTHMANAGER.com has prepared the following tips:
1. Dig out those ISAs
As higher-earners, lawyers should already be in the habit of using their full ISA allowance every year (£15,000 for 2014/15). However, what many end up with is a series of largely forgotten ISAs which aren’t being managed properly.
A good wealth manager will help you get a full overview of your investments and how they are performing and could, for example, consolidate your ISAs into one actively-managed multi-asset portfolio likely to deliver far superior returns. This is particularly pertinent given the rock-bottom rates on cash ISAs at present.
It’s easy to miss the ISA deadline with a hectic workload, but with pension contribution limits coming down ISAs are an invaluable way to keep building retirement savings. You could ask your adviser to schedule the automatic transfer of assets into an ISA wrapper at the beginning of each tax year to take this stress away.
Extra tip: From 1 July your ISA allowance can be invested in cash or stocks and shares in any combination. The Budget shake-up also means that previous funds from stocks and shares ISAs can be transferred into cash accounts for the very first time.
2. Invest tax-efficiently
Higher-earners need to make sure they’re using all available tax reliefs and this might include taking advantage of all the generous incentives government has put in place for certain types of investment.
For example, investors who back unlisted, smaller UK companies through Enterprise Investment Scheme vehicles can obtain 30% income tax relief on investments of up to £1m per tax year, along with CGT exemption once shares have been held for three years.
Venture Capital Trusts, EISs and the new Seed EISs (which invest in start-ups) offer various tax planning opportunities. There are pros and cons to each type of vehicle, however, and it’s vital to take proper advice on these inherently riskier types of investment.
Extra tip: The Budget extended EIS-style tax reliefs to social investment, making it possible to generate social/environmental gains as well as attractive returns – all while minimising your tax liabilities.
3. Diversify your portfolio properly
Some still cling to the notion that a portfolio should be split 60/40 between stocks and bonds, but a professional investment manager is likely to favour a more sophisticated asset allocation (although stocks and bonds are likely to form the core of most portfolios).
Alternatives like hedge funds, private equity, commodities and real estate may all have a place within your portfolio, depending on your objectives, time horizons and risk profile. A good wealth manager will help you leverage the entire investment universe to maximise your wealth.
The fact that lawyers usually get paid an annual profit share means they tend to make lump sum savings contributions by making a few large investments, which can add up to an unbalanced asset allocation. A professional will monitor and rebalance your portfolio regularly to minimise risk and maximise upside.
Extra tip: Those with the time and confidence for DIY investing need to be aware of individual investors’ tendency to overly focus on trading a few securities and ignore the bigger picture. “Churning” your portfolio too much will also eat into returns due to dealing fees.
4. Be realistic about risk/return payoff
In light of recent year, many investors will be feeling quite risk averse. However, there is a certain level of investment risk you will have to take on to attain your financial goals.
Professional wealth advisers put a lot of effort into understanding your attitude to risk and capacity for losses and volatility (in both a financial and psychological sense). Time horizons are an incredibly important part of this process, particularly when it comes to saving for retirement. Younger people have longer to recover from losses and may also be able to hold more illiquid investments, for example. The Budget was a real game-changer for people of all ages, however, and you should certainly review things in light of it.
Wealth managers are required by the regulator to regularly review your risk profile to make sure your investments are suitable. But you should really inform your adviser whenever a life event is on the horizon. Children, marriage, divorce or even just changing law firm could mean overhauling your financial plan.
Extra tip: You could instruct your wealth manager to manage different “pots” of money along very different lines in terms of risk. The degree of volatility you will feel comfortable with will also probably be a function of what each tranche of money is for.
5. Choose the right wealth manager and relationship for your needs
There is huge diversity in the UK financial advice market. New entrants jostle among wealth managers which have operated for hundreds of years. Equally, some are owned by international banking groups while others are specialist boutiques. Each model has its own attractions (and pitfalls) and firms can also vary hugely in their style of servicing clients.
A big decision is whether to go with an advisory or discretionary investment management relationship. Time constraints will mean that many lawyers opt for the latter, where they set the parameters but day-to-day portfolio decisions are left to the investment manager. Bear in mind though that discretionary services are generally more expensive than advisory.
A further warning is that while industry reforms have greatly increased fee transparency, you still need to watch out for less reputable firms operating with opaque, layered fee structures.
Extra tip: Assessing a firm’s likely performance can be slightly tricky since every client portfolio is different, but a good wealth manager will provide indicative figures against standard benchmarks.