Private clients and families wanting wealth advice, typically want holistic wealth advice.
That's why it's worth remembering that investment capital is only one form of capital.
Client fact finding should go well beyond understanding an investment portfolio, to account for other forms of capital - what it is and how it's structured.
What are the other key forms of client capital to consider:
Land: the oldest capital of all, since "they just don't make it anymore" - how is it held, how is it managed. In the UK agricultural yields nose-dived when the US prairies got going and crisis-related spikes aside, have never fully recovered. But "green gold" remains a resilient, and tax-efficient, store of value, and a source of collateral where productive.
Property: principal, residential, and commercial property all require attention and management. Providing a store of value, an income yield and a source of collateral, it's no wonder that bricks and mortar continues to play such an important role in overall wealth. It's all the easiest "immovable" thing to tax. In the UK, taxation for properties has tightened for offshore owners, and now residential buy-to-let properties. Staying on top of the changing tax position is key for any type of property - whether owned for lifestyle or investment.
Business: operating businesses can continue to provide an engine for family wealth. Again how it's owned and managed is key, as well as a picture of its capital intensity and capital requirements. How and whether returns are paid out or re-invested all form part of the broader financial landscape.
Chattels: chattels are subject to their own esoteric tax treatment, and are a source of pleasure as well as a store of value. Inventorying, maintaining and insuring them are the larger headaches, with different experts needed in different fields.
Trust capital: is the client a settlor or beneficiary of discretionary, life interest trust: if so, what are the terms of the trust, who are the trustees, how is it managed, and what is the tax position. Like personal capital, trust capital could simply be an investment portfolio, or itself made up of a mixture of the different types of capital outlined here.
Charitable capital: whether supporting a historic, or creating a new charitable fund or trust, ensuring charitable capital is efficiently managed requires a keen eye on economies of scale. Ensuring it is properly and transparently deployed requires commensurate due diligence.
Human capital: most of all, there's not much point to well-managed wealth if it can't be modeled to suit client objectives and needs - be these material or emotional. After all, you can't take it with you. Balancing this with an intergenerational view and succession plan is probably the hardest part for an adviser.
So whilst there is no shortage of investment portfolio managers to choose from (and selecting, monitoring and reviewing one is another whole challenge), a holistic approach requires much greater scope and a flexible coalition of expertise.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This article has been written for a UK audience. For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product. This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates. For information on Elston’s research, products and services, please see www.elstonconsulting.co.uk Photo credit: Google Images; Chart credit: N/A; Table credit: N/A
The cuddly caption announcing the move says “Smaller Fees means Bigger Dreams”, which is warm-hearted. But it’s also sort of fair. Today’s retail investor has more access to breadth and depth of international markets than our parents ever dreamed of (if they ever dreamed of that sort of thing).
What does this mean, apart from being cheaper?
Well firstly, Moore’s law applies to ETF pricing & capacity as much as it does to semiconductors. That’s not new or surprising. But the sustained deflationary pressure on fund fees is forcing the convergence of institutional and retail investment offers. This will create pressures on asset managers that do not adapt.
Adapt to what?
The quest for elusive alpha from security selection looks like the right way of solving the wrong puzzle.
The puzzle to solve is how to design asset allocation strategies to help investors achieve their desired or required outcome. Put differently, investment houses need to offer solutions (or “dreams”?), not products (“funds, OEICs, ETFs”).
Who are the winners?
Market access has basically become commoditised, so the only value in the value chain is in distribution (having customers), and solution design (giving them what they want).
Asset managers and financial adviser that embrace this new reality should flourish. Those that linger on in yesteryear’s product based world will gradually lose momentum.
NOTICES: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.
This article has been written for a US and UK audience. Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers. For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product. For more information see www.elstonconsulting.co.uk Photo credit: coinquest.com Chart & Table credit: N/A