Private wealth management no longer the preserve of the rich

Traditionally, the world of “private clients”, whether in banking, wealth or investment management, referred to the bespoke services provided to only the wealthiest of a company’s clients. Changes in pensions legislation are ensuring such services are increasingly of interest to the rest of us too.

“Historically, it was more about the individual who has money to invest. Now it is about setting financial goals and helping people see how best to achieve them,” says Adam Cleland, head of wealth advice at Davy Private Clients.

The importance of this is perhaps most apparent in relation to retirement. “Traditionally, the individual didn’t have access to their retirement capital. Either the government or the pension company made the investment decisions. Now, with the growth of defined contribution pensions, the individual is given a big portion of that capital and has to look after it, planning for 25 years, and more, of their financial lives.”

Changes in the regulatory environment are shaping the wealth management sector too. “While the regulators here haven’t gone as far as they have in other European countries, there is no doubt that the industry is moving away from a product-sales-based approach,” says Cleland.

This move to a fee-based, rather than a commission-based, service is helping make the world of private client services more transparent. “Where the client pays a fee, the client is the paymaster. If you are getting advice where it is the company whose product you are buying that is paying the adviser, that can give rise to a conflict of interest. In other countries, the regulatory environment has moved further on this front. In Ireland, it has not been pushed as far but I think customers will eventually demand it.”

Impartial investment advice

Increased demand for impartial investment advice has already increased the level of training and upskilling required within the industry, he points out.

“As people realise how important these decisions are they expect more from their adviser. And it’s not just pensions either. Ireland is a very entrepreneurial country, so we have lots of entrepreneurs out there creating and growing wealth. We also have very many people with highly paid jobs, often from foreign direct investment employers. All this creates demand for private client services. “

Perhaps the most pressing factor driving demand, however, is the continuing low-interest-rate environment. “It is challenging. Cash is never a good preserver or grower of wealth in the long run, but at the minute that is particularly the case,” says Cleland. “This is encouraging people to look at other options.”

In the US, the term most often used is ‘’financial counselling”. It is an apt one, he believes. “It’s about helping people identify what is most important to them in terms of financial goals, and prioritising them. And it puts the client back in control, rather than have an adviser tell you about a product and what it does.”

It is also about good estate planning. “We tend to think that where people have lots of money there’s no problem, they just leave lots of money to their kids. But we know from research into lottery winners that people who have a windfall of

2 million often seem no happier a year later, and that it can in fact lead to a deterioration in relationships. It’s important to people not just to pass on their money but to pass on their values too. We help clients flesh out their thinking on that front, so that they know what ‘good’ looks like.”

One element of private client services that perhaps hasn’t changed in recent years is the age profile. “What private clients want varies enormously but the biggest characteristic that is apparent is that, by and large, if you are under 40 – unless you are very fortunate to have come into some money, or be a very highly paid individual – generally your needs are pretty simple,” says Dan Moroney, investment manager at Investec. ‘Only free lunch around’ “Under 40 it’s all about putting enough money into your private pension, or contributing as much as possible into your employer’s pension scheme, to make the most of the tax breaks, which are pretty much the only free lunch around. Also, it’s about making sure you are investing in a suitable manner. That is, not leaving it all in cash but putting it into equities and investing fairly aggressively.”

There isn’t “a huge complexity in that”, says Moroney. Where private client services come into their own “is where a person, who is typically older, has more moving parts to their overall financial position.”

He too, however, believes the advent of the ARF (approved retirement fund) has “changed everything”.

Traditionally, the advice from investment managers was to move out of equities and into cash as you approach retirement age, to avoid the adverse effects of volatility on your annuity value. The notion of such a “glide path” to retirement is now gone, given that what follows is likely to be another 25 years of investment decision-making.

It isn’t just the allocation of assets in a portfolio that must be considered either, but the currencies those assets are held in too. This in itself carries risk. “Anybody who is managing a portfolio of assets will typically utilise multiple currencies, whether in equities or bonds or whatever,” says Bryan McSharry of Moneycorp, a foreign exchange specialist.

“Private clients need to be aware of the fact that the underlying asset might perform well but the currency might perform adversely. Sterling, for example, would be down 20 per cent since last December.”

Faced with so many decisions, the appeal of private client services is clear. “A good wealth manager is priceless if they can turn a person away from either short-termism, or that one big mistake that looked so enticing but carried such risk, and can keep someone on a sensible plan, without diversifying on a whim,” says Moroney.

“That adviser is very valuable because, if you have one between the ages of 40 and 70, the sum of money you will have, and the quality of life you will have, will likely be significantly better.”