Taking Stock: The Importance of Wealth Planning

Achieving financial certainty is a key part of that, according to Andrew Dixon, Head of UK & International Wealth Planning at Kleinwort Hambros.

“Anyone who has clearly defined goals has a much better chance of achieving success,” he says. “In the financial planning world, that success is defined by financial independence – people are building wealth to achieve that independence, and you put a plan in place to get there.”

Dixon defines a financial plan as a strategy to achieve financial objectives, and says a good one must look not only at the objectives you need to meet, but also at the most efficient way to reach them.

A wealth map for life

A financial plan can be put together at any age. It should follow your needs and goals and be updated along the way.

Individual priorities can change as clients get older and a plan must be flexible enough to ensure it meets all your needs.

“Most people’s first experience of financial products is their pension, as they have been auto-enrolled, into a workplace scheme, then a mortgage,” Dixon says.  “When they have children, they are probably thinking about financial security or school fees.

“When you reach your 40s, retirement planning comes into sharp focus – you  have more visibility over what retirement looks like for you and start to think about planning for it. When you get into your 60s and beyond, the focus starts moving from you and your partner to the next generation.”

A good financial plan will ensure that your money is on track to meet each of these goals.

First steps

Putting together an effective financial plan starts with understanding what you have and what you want. “It’s about deciding on the lifestyle you want to lead – not just now but in the future – and how you want to spend your time,” Dixon explains. “That’s the end game.

“We invest to build wealth, but without purpose how do you measure success? If you have a plan you can work out how to achieve it. It may seem counterintuitive, but the need (or not) to take investment risk becomes clearer for clients leading to a better client journey.”

He says it is important to think about your hierarchy of needs. The first priority is to protect your family from unforeseen circumstances, followed by the need for financial independence. Finally comes the desire to leave a legacy for the next generation.

How an expert can help

Although many of us can figure out our financial needs on our own, using a financial expert to help draft our plan has a number of benefits.

One is increased tax efficiency, which can help build wealth faster.

“With a financial planner, even though the broad objective is to have a strategy to meet your goals, they also try to find the most efficient way to do it, with their awareness of tax,” says Dixon.

“If you can minimise the tax burden that’s a quicker route to achieving financial goals.”

As time passes, the stock market and the economy will experience regular bouts of volatility. Dixon says that when markets fall sharply many investors panic and sell investments at the wrong time.

That’s when a financial planner can come in as the voice of reason. A calming reassurance that can provide guidance on those peaks and troughs based on your risk preference and medium and long-term goals.

“The mind plays tricks when you are in the eye of the storm.

“During the last financial crisis, when equity markets fell sharply, I remember lots of discussions with clients who wanted to sell everything. Fear had taken over.

“At that point you are the rational part of their mind. You are a sounding board making sure clients do the right things at the right time. This is much easier to do if both you and the client have clarity over why they are investing in the first place.”

A plan for difficult times

In 2021 a detailed wealth plan is more important than ever. Apart from the uncertainty surrounding Covid-19, Dixon says more people need to take control of their retirement planning because of the demise of final salary pension schemes.

“The world has always been uncertain, but the pace of change has accelerated,” he says. “If you go back 30 years, retirement planning was taken care of for most of the population. The notion that you work for one employer for most of your life and then receive a pension from them has become an alien concept. We are going to have to become more financially astute and take more ownership of areas of our personal finances such as retirement planning.”

Whatever stage you’re at in life, making a financial plan will provide some reassurance that you are on course to meet your future goals.

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