The Oxford English Dictionary defines wisdom as applying knowledge and experience practically. The Bible tells us that wisdom and prudence go together. Well, whatever your definition of wisdom is, I believe that much wisdom is required when it comes to financial planning. This is because the subject is complex, the choices are wide and the legislation is ever changing. For professionals, entrepreneurs, executives in industry and many others, it is often difficult, if not impossible, to find the time to plan your finances and implement those plans. For people who are long on assets and short on time, the answer is to delegate to a competent and qualified independent financial adviser who charges on an hourly rate fee basis. If you are one of these people, this is the starting point of wise financial planning.
Once you have agreed that you need an expert adviser due mainly to your lack of time, the reason you need one who is independent and charges on an hourly rate basis, is so that there are no conflicts of interest that most often come with selling products for a commission. As long as the basis of charging is clear, commission offset is fine as this is to do with the settlement of fees. It is, however, essential that the measurement of the fee basis is hourly rate and that a broad estimate is provided for both the initial period, where there is likely to be more work to do, and ongoing annual fees. If you have non-property assets of c£2 million, it is entirely reasonable to expect to pay fees in the region of £10,000 to £20,000 per annum, depending on the simplicity or complexity of your situation. This equates to 0.5-1.0% per annum if measured as a percentage of the assets and the percentage is likely to decrease as the assets grow. For this, you should expect an appropriate number of meetings (one or two in the initial period if they are effective), a full report on your current position with specific recommendations, provision of documentation for implementation as appropriate, two half yearly reviews showing money weighted returns, and a good deal of ad hoc work in between i.e. questions from the reviews. Furthermore, you should receive wise advice on all aspects of your financial planning as it relates to income/expenditure, assets/liabilities and cashflow. You should, while optimising the tax planning throughout each area of advice, receive a very sound investment management service including a satisfactory level of overall performance, pensions advice, protection planning (i.e. life, disability and critical illness insurance) and estate planning, including charitable giving.
The areas of advice you should be concerned about in normal circumstances are mainly to do with your investments that are not own-use residential properties or investment properties (though there may often be some input required if buying i.e. debt management or selling i.e releasing capital). These assets could be pensions, where there is often significant capital, or non-property non-pension monies, such as directly held portfolios and cash. Regarding pensions, there are many questions, such as: should I contribute; should I draw benefits and if so how; and what investment strategy should I adopt. Any investment strategy for pensions should, of course, be considered in the context of your overall assets. It is essential, from a risk management point of view, that the combined asset allocation is considered and tax savings are maximised, as appropriate. For example, it is generally better to have index-linked gilts outside your pension policies than within them due to tax reasons. As far as estate planning is concerned, many believe that a private client solicitor is the first port of call. This is not necessarily correct. It is essential first to know to whom you are going to leave what and when - these are the three main strategic estate planning questions, which are intrinsic to overall financial planning. Once these questions have been broadly answered, a private client solicitor can help with the more specific and detailed advice together with provision of the appropriate documentation.
A world class adviser (let's call him Bill - and there is a very large dearth of Bills in the UK), will have a number of qualities. Apart from being wise, technically competent, qualified and experienced, Bill should, first and foremost, be intrinsically interested in making your life easier and making you money, while earning a very good living for himself (for a job well done) through the hourly rate business model - along the lines of a traditional professional services firm. This will mean that Bill will be a first class listener. Bill must be able to ask the right questions and listen very carefully to the answers. The right adviser for you should also be aiming at a long term relationship made possible because they love what they do and are very unlikely to ever change. The organisation to which Bill is attached, should ideally operate like a traditional professional services firm where, apart from the hourly rate basis of charging, there is a hierarchy of different professionals at different charging levels. This will enable you to receive a full and rounded service with the appropriate level of administrative back up, at a fair and reasonable price.
Believe it or not, financial planning remains an emerging profession. Traditionally, this area of work has received bad press due to pensions mis-selling, advisers of ill-repute and a general lack of knowledge, training and understanding among its practitioners. It is changing, but the pace of change is slow due to the dearth of "Bills". The author has dedicated the last decade and a half to developing a practice that exemplifies the characteristics described above and would be delighted to hear from anyone who would like to receive the benefits.
Nicholas M R Fletcher
Chairman and Chief Executive
Saunderson House
1 Long Lane
London EC1A 9HF
Direct Dial: 0207 315 6504
nick.fletcher@saunderson-house.co.uk
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