WEALTH MANAGEMENT SERVICES

There are so many baffling terms when entering the wealth management services industry, many of which mean either the same thing or something very similar.

In an industry full of jargon, we have tried to explain in plain English some of the terms you will hear whilst navigating the world of wealth management services.

TERMINOLOGY IN PLAIN ENGLISH

  • Cash

Although cash typically refers to money in hand, the term can also be used to indicate money in banking accounts, cheques or any other form of currency that is easily accessible and can be quickly turned into physical cash. Cash is often regarded as a ‘safe’ investment, but when taxes and inflation are taken into consideration, it can represent a guaranteed loss to an investor.

  • Foreign Exchange

Foreign Exchange Or ‘FX’ refer to the relationship between various global currencies. Currencies move interdependently of each other and are affected heavily by the country’s base interest rate, inflation rate and general economic strength among other factors. Clients generally become exposed to these when making overseas investments or going abroad

  • Equities

Equities are an instrument that represent an ownership position, or equity, in a corporation. An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains. The value of the stock depends on the supply and demand of the position.

  • Government Bonds

Often referred to as “Gilts” in the UK, “Treasuries” in the US or “Bunds” in Germany. A government bond is a loan to a government of a country with a fixed “coupon” or (interest rate) They are issued by a country’s government, promising to repay borrowed money a fixed rate of interest at a specified time. Bonds are also known as fixed income and fixed interest, because they pay out a fixed annual amount of interest. They are issued either as short- or long-dated bonds, and it’s even possible to buy a gilt for up to 50 years. During the ownership of a bond the value of the bond will fluctuate depending upon various factors including interest rates, inflation and the credit rating of the issuer.

  • Corporate Bonds

Corporate bonds are issued as a way of raising money for businesses. When you invest in Corporate Bonds you are lending money to a company in exchange for an “IOU”. The promise to repay the debt has a term and at maturity (typically five or ten years) the sum invested is returned. This may not happen if the company defaults. As a result, they are seen as riskier than gilts, as companies are generally considered to be more likely to default on debt than governments. During the ownership of a bond the value of the bond will fluctuate depending upon various factors including interest rates, inflation and the credit rating of the issuer.

  • Commodities

A commodity is a basic physical asset, often used as a raw material in the production of goods. Commodities are often referred to as the “fifth” asset class, after the conventional investment asset classes of cash, bonds, equities and property. Investors can gain exposure to this asset class by buying the physical commodity, through shares directly in commodity companies or indirectly through a funds.

  • Alternatives

An alternative asset is a broad term that includes assets that are not stocks, bonds, or cash. Examples could include commodities (like gold), hedge funds, collectibles art), and property. They often are more complex investments that are more difficult to value and harder to turn into cash.

  • Passive Funds

Passive Funds or Passive Management is often referred to as Index Managing, as the investor puts their money into investment funds that track a particular index, or market sector. The reason these funds are described as passive is because there is no active strategy for the fund manager to buy and sell securities at their discretion. Instead the fund manager buys and holds securities of a benchmark index. Whilst this approach is typically cheaper than an active strategy, it is also guaranteed to underperform after fees are paid.

  • Real Assets

Real assets are physical assets that have value due to their substance and properties. Real assets include precious metals, commodities, real estate, agricultural land, machinery and oil. They are appropriate for inclusion in most diversified portfolios because of their relatively low correlation with financial assets such as stocks and bonds.

  • Hedge Funds:

A hedge fund is an alternative investment that is designed to protect investment portfolios from market uncertainty, while generating positive returns in both positive and negative markets. As hedge funds can hold both long and short positions, they can be less volatile than typical long-only portfolios, and some funds can provide a layer of protection in a declining market. However, if the goal of the funds is to achieve high returns, it can subsequently involve a high degree of risk to the investor.

  • Premium Bonds

A Premium Bond is a lottery bond issued by the National Savings & Investments agency. The bonds are entered in a regular prize draw and the UK government promises to buy them back, on request, for their original price. The government pays interest on the bond (1.40% per year as at December 2017. Interest is paid into a fund from which a monthly lottery distributes tax-free prizes to bondholders whose numbers are selected randomly.

  • Inflation

Inflation refers to the general rise in the cost of goods and services over time. Because a sustained increase in prices results in a relative decrease in the value of money, it is important to consider inflation when looking at personal financial planning.

  • Interest Rates

Interest rates are the price which must be paid for borrowing money. For example, money deposited in a bank account is effectively being lent to that bank and, as such, attracts a level of interest based on the amount deposited. On the other hand, when a credit card is used to pay for goods, the credit card company is lending the money. They therefore charge a rate of interest based on the amount of the purchase.

  • Active Portfolio Management

Active portfolio management is an investment strategy that tries to generate maximum value to a portfolio, by actively managing the client’s exposure to different assets and asset classes at different points in the cycle. Investors, as well as fund managers use various techniques that evaluate which financial securities will yield the greatest returns.

  • Actively managed Funds

Active management is the use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund’s portfolio. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell.

  • Diversified Portfolio

In investment planning, portfolio diversification is the risk management strategy of combining a variety of assets to reduce the overall risk of an investment portfolio. The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

  • Managed Investment Fund

A managed fund is one type of ‘managed investment scheme’. In a managed fund, your money is pooled together with other investors. An investment manager then buys and sells shares or other assets on your behalf. You are usually paid income or ‘distributions’ periodically.

  • Portfolio Management

Portfolio management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.

  • Portfolio management service

Portfolio Management Service are offered by the Portfolio Manager, is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a certified investment advisor that can be tailored to meet specific investment objectives.

  • Investment advisory services

investment advisory services asr offered by a professional organisation and makes investment recommendations to an individual or group of investors. Investment advisors may be independent investment consultants or work as part of established firms, such as wealth managers.

  • Investment Advice

Any recommendations made by a professional regarding an investor’s portfolio. Many professionals, including financial planners, bankers and brokers, can provide investors with investment advice that is specific to their financial situation.

  • Investment portfolio management

Portfolio management includes a range of professional services to manage an individual’s and company’s securities, such as stocks and bonds, and other assets, such as real estate. The management is executed in accordance with a specific investment goal and investment profile and takes into consideration the level of risk, diversification, period of investment and maturity that the investor seeks.

  • Multi-manager funds

Multi-manager funds are investment products that consists of multiple specialised investment funds. Each investment fund may invest across different sectors and markets, or having managers investing in the same asset class but have different investment styles. Our partners at www.tbaileyam.co.uk are award winning experts at curating multi manager funds.

TAX EFFICIENT INVESTMENTS

  • ISA

An ISA (Individual Savings Account) is a tax-free way to invest and is a good place to start when thinking about personal financial planning.

Whereas with other investments you may have to pay income tax or capital gains tax, neither of these taxes are due on assets held within an ISA. The Government sets an annual limit on how much can be saved in an ISA each year.

Minimise the amount of tax you need to pay by speaking with an investment consultant and by using an ISA in your investment portfolio management.

  • JISA

A JISA (Junior Individual Savings Account) is a long-term, tax-free savings account for children which doesn’t allow withdrawals until the child turns 18. They are a useful tool when thinking about family wealth management.

Although it is unlikely that children will have to pay any tax until they start working, a JISA protects the assets from income tax and capital gains tax in the future. The Government sets an annual limit on how much can be saved in a JISA each year.

By using a JISA parents can start tax-efficient investment portfolio management for their children as soon as they’re born.

  • Pensions

A pension is a form of investment which pays out a lump sum or periodic payments (or both) to its owner from retirement to death. Pensions are, therefore, an integral part of retirement planning. Typically, the pension pot will have been built up over the years that person was employed. There are different types available in the UK and many companies offer their own for employees. Pension consultants will be able to guide you to a suitable product from the vast array on the market.

  • Self-Invested Personal Pension (SIPP)

A SIPP is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that a SIPP allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC).

  • Trusts

A trust is a way of managing assets for someone else. They are widely used in estate planning and for family wealth management. Someone puts assets into a trust, a trustee manages those assets and a beneficiary receives the benefit of those assets in accordance with pre-determined instructions (the trust deed).

There are different types of trust to fulfil different roles. As such, they are popular vehicles for retirement planning and inheritance tax planning.

  • Enterprise Investment Schemes

Enterprise investment schemes are venture capital arrangements which offer participants tax reliefs on investments in qualifying, non-listed UK companies. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are examples of existing schemes acknowledged by the UK Government which are designed to engender investment in smaller companies. Due to the higher risk of the underlying companies, it is advisable to seek advice from an investment consultant before considering them as part of your investment portfolio management.

  • Venture Capital Trusts (VCTs)

Venture Capital Trusts are a form of fund which are listed on the London Stock Exchange. The funds are designed to allow equity investment in small and expanding companies and they offer a number of tax reliefs to investors. Due to the higher risk of the underlying companies, it is advisable to seek advice from an investment consultant before considering them as part of your investment portfolio management.

  • Retirement Planning

The process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings scheme and managing assets.

  • Estate Planning

Estate planning is the act of preparing for the transfer of a person’s wealth and assets after his or her death. Assets, life insurance, pensions, property, cars, personal belongings, and debts are all part of one’s estate. Estate planning can be done by professional wealth management firms.

  • Inheritance tax planning

Inheritance tax planning is based on the value of your estate when you die. This may include the value of assets you have given away or put into trust during the previous seven years. Careful inheritance tax planning with your investment manager can reduce or even eliminate the IHT payable and is an important part of drawing up or reviewing your will.

DIFFERENT TYPES OF ADVISOR

Broadly, a private wealth management services firm will contain the following specialists who will work together to create holistic wealth management services.

  • Private Wealth Management Advisor

Private wealth management services is a practice that in its broadest sense describes the combining of personal investment management, financial advisory, and planning disciplines directly for the benefit of high-net-worth clients. A private wealth management advisor or financial advisor is an individual certified in the required qualifications to give investment advice to private investors.

  • Financial Advisor or Financial Planner

A financial advisor or Financial Planner is a generalist who gives individuals financial advice or planning by providing financial advice on money issues such as investments, insurance, mortgages, savings, estate planning, taxes and retirement, depending on what the client requests help with. These people tend to be generalist and will look after smaller clients.

  • Pension Consultant or Pension Advisor

Pension consultants and pension advisors are a category of investment advisor or financial advisor who provide analysis and recommendations on investment options to an individual’s pension fund and offer financial advice.

  • Investment Manager or Portfolio Manager
  • Investment Consultant or Investment Advisor
  • Family Office Wealth Manager
  • Boutique Investment Manager
  • School Fees Advisor

An investment consultant or Investment Advisor provides investors with financial advice, investment advice and/or personal financial planning advice. Investment consultants do in-depth work on formulating clients’ investment strategies, helping them fulfill their needs and reach their financial goals.

  • Personal Tax Advisor

Personal tax advisors who operate within private wealth management services are usually retained to minimize taxation while remaining within the law. Tax advisors can include accountants, tax solicitors and financial advisors.

WHAT IS WEALTH MANAGEMENT?

Private Wealth Management advice is the combined practice of Investment Management Services, Personal Financial Planning, Personal Tax Advice and financial advice, typically for private clients, although this can extend to companies and charities.

To legally be able to give this advice investment consultants will have to have passed rigorous professional qualifications and wealth management firms must be authorised by the Financial Conduct Authority (FCA).

There are various roles with the private wealth management industry which can lead to confusion as they often overlap. These roles include terms like, wealth management advice, investment advice, investment portfolio management, investment advisory services, retirement planning, financial advisory services, personal financial planning, portfolio management services, investment management services, wealth management services, private wealth management, pension advice and personal tax advice.

In general, most of these roles will contain an element of investment advice, retirement planning, inheritance tax planning, estate planning, pension advice, financial advice and tax advice, although in practice most firms have a speciality and finding a private wealth management company which is good at every discipline is hard to find. Although they do exist.

Private wealth management services combine both financial planning and specialised financial services, including personal banking services, estate planning, legal and tax advice, and investment management services. The goal of private wealth management is to sustain and grow long-term wealth.

Broadly, a private wealth management firm will contain the following specialists who will work together to create holistic wealth management services.

WHAT IS FINANCIAL PLANNING?

Personal financial planning is the ongoing process of evaluating your personal financial position and putting a plan in place to achieve your financial goals. Personal financial planning will usually be multi-faceted, and the approach will likely change as your circumstances change for example, as you get older.

Basic personal financial planning is something which might be done yourself.  However, a financial advisor might be required to help with investment portfolio management and other financial advisory services.  As you get older, retirement planning and inheritance tax planning become more important, so a specialist financial advisor or pension advisor will be better suited to offer specialist advice.

WHAT IS INVESTMENT MANAGEMENT?

Within wealth management advice, investment management services is primarily focused on the optimal performance of the investment portfolio, by using different asset classes to manage the risk and return. Some investment managers use a passive approach meaning that the portfolio remains static in its asset allocation and some will adopt a more proactive approach, hopefully adding value.

Investment management services is arguably the most difficult element to get right and the most important factor within private wealth management as if investments do not grow the tax advice becomes a non-issue and the personal financial planning often becomes impossible. Despite this, it is an area financial advisors often focus less on.