Asset and wealth management is a rapidly growing sub-sector of the financial services industry. According to PwC, the global value of assets under management (AuW) is set to increase by 70% in less than 10 years, from $84.9 trillion in 2016 to $145 trillion in 2025.
That can be interpreted as a reflection of the rapid growth in high-net-worth individuals. The fact that the number of billionaires in the world shot up by 30% over the course of the COVID-19 pandemic made headlines and raised a few eyebrows.
But the phenomenal growth in wealth management is also a sign that it works – high-net-worth and ultra-high-net-worth individuals trust in the expertise of wealth management professionals to protect and indeed increase their wealth through sound investment.
So how exactly does wealth management work? Fiducia Wealth is a specialist wealth management firm in Essex. Here are the four principles we apply to deliver the best possible results for every client.
1. Build a Strategy Around Clear Goals
One of the first things we ask clients when they approach us for wealth management advice is what they want to achieve with their money. It’s surprising how often this catches people off guard. Invariably they will reply, “I want to protect or perhaps grow my wealth.”
This is not a wrong answer. But what they are usually not prepared for is the next question – what do you want to protect or grow your wealth for. This is critical because there are lots of different ways you can use financial assets. They all have different strengths and purposes. Some will generate income, some will grow value over the longer term, some are best suited to creating a secure legacy you can pass on further down the line.
One of the key principles of long-term financial planning is that you need clear goals in mind so you can pick the right tools and shape a strategy that pulls everything in a single clear direction. Otherwise, things just drift, and you are unlikely to get the most out of your wealth.
That’s why, at the very start of our relationship with a new client, we ask you to consider carefully their long-term objectives. Whether you have ambitions to retire early, consolidate your estate for inheritance, put aside funds for later life or simply use your existing wealth to generate an additional source of income, this will influence the options we recommend and the strategy we shape. And of course, plans and ambitions change over time, so this is something we will return to regularly over the course of our relationship.
2. Tailor Investments to Suit Attitudes to Risk
Investing is one of the cornerstones of wealth management. It’s how you make your assets work for you and at the very least grow in line with inflation so they hold their value over time. But in most cases, people want more than that. They want to invest their wealth so it grows in value.
Any kind of investment carries an element of risk in as much as you cannot guarantee the asset you invest in will increase in value. Some will lose value. But the chances of that happening are very different for different types of asset. Stocks and shares, for example, are much more volatile than bonds or real assets like property. Yet equity in stocks can provide very high returns very quickly, while capital investments in property might grow much slower and be inaccessible for many years.
Investment portfolios have to be built around how much financial risk every individual is comfortable being exposed to. That will be influenced heavily by what your long-term goals are, but also by factors such as your overall net worth and how much of your wealth you are comfortable taking a risk with.
For example, if your main goal is to save towards an early retirement or to start consolidating your wealth for your children, you are less likely to be willing to take any big risks that could take a chunk out of your wealth if they backfire. Your ideal portfolio is likely to lean more towards more secure, longer-term investments that accrue value steadily but surely.
If you see yourself in a secure financial position and have capital to spare with all your future ambitions covered, on the other hand, you may be more comfortable taking a gamble and trying to generate some rapid returns. People in this situation often invest in equity markets as a source of income.
But a key point is that no two investors are ever the same. Every individual has different goals, different financial circumstances, different attitudes to risk. Effective wealth management is all about tailoring the approach to those individual needs.
3. Take Into Account Present and Future Financial Needs
We’ve talked about wealth management being built around future goals and ambitions, often in the long term. But of course, we all have financial needs in the here and now. Or goals that are more short-term than long-term, like buying a new house or paying for a child’s wedding.
Effective wealth management has to balance all of these things – present and future, short, medium and long-term needs. There’s no point robbing Peter to pay Paul, as it were. If you have long-term plans to retire abroad, for example, or buy a second property, the money you put away or invest shouldn’t come at the expense of your current financial requirements.
Wealth management should take a holistic approach. As well as investing for the future, it’s about considering your ongoing income situation, cashflow, taxation, etc, and feeding all of those things into an overarching strategy that gives you the platform from which your wealth can grow.
4. Reappraise and Reassess on a Regular Basis
Finally, effective wealth management has to be approached as an ongoing process, not a one-off act. After we’ve sat down with new clients, talked through their goals, discussed the exposure to risk they are comfortable with, weighed up future ambitions against present requirements and put together a workable strategy, that’s not our job done. In fact, you could say it is only beginning.
We always set out with the aim of building long-term relationships with our clients. People’s circumstances and aspirations change, investment portfolios require hands-on management. It’s by being proactive and working with clients to continuously evaluate and reevaluate the performance of their strategies that we can deliver success.