Wealth Planning: What Really Matters

In uncertain times, it is more important than ever to know where we are heading and how we want to get there.

Achieving financial certainty is a key part of this journey, explains 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 world of wealth planning, 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.”

Andrew defines a wealth 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 wealth plan can be created at any age. It should follow your needs and goals and be updated along the way. Individual priorities can evolve over time 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,” Andrew says.  “When you have children, you 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. In your 60s and beyond, the focus starts moving from you and your partner to the next generation.”

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

First steps

Putting together an effective wealth plan starts with understanding what you have and what you aspire to. “It’s about deciding on the lifestyle you wish to lead – not just now but in the future – and how you want to spend your time,” Andrew 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 establishing personal priorities helps to clarify the need (or not) to take investment risk.”

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

Using a wealth planning expert to help draft a plan has a number of benefits.

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

“With a wealth 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, given their awareness of tax,” says Andrew.

“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 sees regular bouts of volatility. Andrew says that when markets fall sharply many investors panic and sell investments at the wrong time.

That’s when a wealth planner can serve as a voice of reason. A calming reassurance, providing guidance throughout 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 a wealth planner helps focus the rational part of their mind. As a sounding board, we help ensure clients do the right things at the right time. This is much easier to do if both you and your 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, Andrew 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 wealth.”

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

The Kleinwort Hambros Group does not provide tax advice. The level of taxation depends on individual circumstances and such levels and bases of taxation can change. You should seek professional tax advice in order to understand any applicable tax consequences.