“I work in markets so I can manage my own wealth.” Really?
You understand financial markets and may have successfully managed money professionally. But in our experience, this doesn’t always translate into achieving the best outcomes with your own wealth.
“Do I really need a wealth manager?” It’s a question we often hear from potential clients with successful careers in finance – whether in private equity, asset management or banking. We are admittedly biased, but we very much believe that you do.
As you build your wealth, you may find yourself with money spread across different banks, brokerages and investment firms. Each of these investments may be performing on a standalone basis – but it is probably a challenge to keep track of them all, let alone think in terms of a coordinated investment strategy.
There can be more costly consequences. A lack of planning could mean you are missing out on valuable allowances and potentially paying more tax than you need to. And, if too much of your wealth is tied up in your employer’s equity or funds, it may not be sufficiently diversified. This is especially true if you or your firm focus on a particular sector or strategy.
Very often, these situations arise because professionals with demanding careers have little time to focus on their own finances. This is a familiar scenario across many industries and professional firms - and sometimes even applies to colleagues in other divisions of Schroders.
As one executive client told us: “You intend to get around to it, but something else always crops up and takes priority over sorting out your own finances”.
There can also be compliance complications when you try to manage your investments independently.
We have worked with senior executives at leading private equity firms, hedge funds and investment banks and understand the challenges you may be facing.
We will help you bring everything together under one roof – and take on much of the administrative burden. We are familiar with the complex remuneration structures that can be involved at senior levels of financial services. We work with you to develop an investment strategy that complements shareholdings and fund investments arising from your work.
Take our quiz and think about how you would answer the questions below. They may well help you identify issues you haven’t thought of – and where we could help. As this case study here illustrates, we were able to help solve many of these challenges for one private equity executive.
Do you have the knowledge to manage your own wealth? Take our quiz to find out.
1. Investing through a managed fund can help you limit your capital gains tax liability?
• True
• False
2. In how many of the 50 years to the end of 2021 did US equities experience a fall of 20% or more?
• 5 years
• 8 years
• 14 years
3. Can you set up a pension for your children if they are under 18?
• Yes
• No
4. SIPPs are generally not subject to Inheritance Tax?
• True
• False
5. What are the total CO2 (and CO2 equivalent) emissions per $1 million of sales for companies in the MSCI All Countries World Index?
• 60 tonnes
• 135 tonnes
• 300 tonnes
6. An Offshore Investment Bond can help “non-doms” (individuals who are resident but not domiciled in the UK) manage offshore income and gains?
• True
• False
7. Can you “carry back” a charitable donation to the previous tax year?
• Yes
• No
8. Venture Capital Trusts offer attractive tax incentives but what is the maximum you can invest each year?
•£200,000
• £500,000
• £1 million
9. Wealth managers tend not to use passive funds (ETFs) when constructing portfolios.
• True
• False
10. UK drivers bought more electric vehicles in March 2022 than in the whole of 2019.
• True
• False
Do you have time for investment administration?
Managing your own investments comes with the burden of making sure you don’t miss tax deadlines and gathering information for your tax return. We can take over much of the heavy lifting, providing comprehensive tax packs and making sure you use allowances for ISAs, JISAs and other tax-efficient investments.
Compliance restrictions are another factor to bear in mind. Conflict risk can be mitigated by using a discretionary investment manager. This may mean that you can invest in areas that were previously restricted to you, resulting in a more diversified portfolio. We can also send any required reporting directly to your compliance department.
Are you paying more tax than you need to?
The tax burden on high-net-worth investors has risen in recent years – and could continue to do so as governments look for ways to reduce their deficits. The rules are also complex, especially for those receiving deferred stock and fund awards as part of their compensation.
We can help ensure that your asset base is structured as efficiently as possible to support your longer-term objectives, working closely with your existing advisers. We will help you make the most of the allowances available to you and your family, including the use of tax-advantaged investments where appropriate.
For those with a more international footprint, we can manage and hold assets in the Channel Islands, Switzerland and Singapore. We work closely with specialists who can advise on issues such as “non-dom” residency and US tax reporting requirements.
Is your wealth sufficiently diversified?
It is not uncommon for fund managers and senior executives to hold stakes in both the vehicles that they manage as well as shares in their employer. The risk of being insufficiently diversified is greater if you or your firm focus on a specific sector or strategy.
Our investment portfolios are, by design, highly diversified, whether we invest using a multi-asset, fund-based strategy or directly in equities and bonds. Many clients look to us to provide a core, central investment strategy that can be built upon with satellite investments within your own area of expertise. Our bespoke approach means that we are able to avoid areas that you would prefer to cover yourself. This can provide comfort that you are building a highly diversified portfolio with relatively low correlation to the investments you deal with on a day-to-day basis.
Are you sitting on uninvested cash…or need to borrow?
Many time-poor professionals unintentionally leave cash to build up in bank accounts through a lack of time to consider the alternatives. This is especially undesirable when inflation is as high as it is today. Having a plan to regularly put money to work, including the cash portion of bonuses or vested carried interest, will help mitigate this risk.
If you do need to hold significant sums in cash and worry about counterparty risk, we can offer attractive rates on fixed-term deposits from a carefully-screened panel of banks. Alternatively, we can manage a portfolio of short-dated bond investments for you.
Our banking team also offer secured lending against portfolios that we manage on a discretionary basis and against UK-sited residential property. This means you can access liquidity quickly and without having to sell assets. This has been a real benefit for clients who have needed to complete property deals at short notice, or where they have been let down by an existing lender.
Do you know the carbon footprint of your portfolio?
Sustainable investment is divisive. Some of our clients want their investments to achieve positive outcomes for people and the planet, others expect us to focus solely on returns.
We believe that markets are moving towards a middle ground, with environmental and social impact increasingly being “priced in.” We therefore incorporate sustainability considerations into our investment analysis for all clients, not just those with formal sustainable mandates. We draw on Schroders’ resources to help us stay ahead of the trends that are likely to influence markets for years to come. We also work closely with our asset management colleagues on voting and engagement, guiding companies toward best practices and helping to protect our clients' capital.
If you would prefer to go further in aligning your investments with your values, we can construct sustainable portfolios targeting specific areas of impact.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. For information purposes only and nothing in this article/on this slide should be deemed to constitute the provision of financial, investment or other professional advice in any way. You should seek professional advice for your individual circumstances.
1. Investing through a managed fund can help you limit your capital gains tax liability?
True
You only face a CGT liability when you sell units in the fund, not when the manager sells underlying holdings. This gives you more control over the timing of CGT. It also means your investment manager has more flexibility to make tactical decisions without the burden of tax constraints.
2. In how many of the 50 years to the end of 2021 did US equities experience a fall of 20% or more?
8 years
2022 will take the total to 9. That’s almost once every five years and shows that bear markets are part and parcel of long-term investing. Despite these regular bumps along the way, the S&P500 has delivered an annualised return of 11% over this 50-year period (on a total return basis, according to data from NYU Stern). Past performance is not a guarantee of future performance.
3. Can you set up a pension for your children if they are under 18?
Yes
You can contribute a net amount of £2,880 to a stakeholder pension until a child is 18, which gets topped up to £3,600 by HMRC. It’s a relatively small sum – but as your child can’t access the money until 57, the long-term compounding of returns means this should grow to a more meaningful amount.
4. SIPPs are generally not subject to Inheritance Tax?
True
Most SIPPs are written under a master trust and, as a result, sit outside of your estate, meaning IHT only applies in rare circumstances. While it is now difficult for higher earners to make meaningful contributions to a SIPP, many will have built significant pension pots before current legislation came into force. Therefore, it is worth bearing this favourable IHT treatment in mind as part of your broader estate planning strategy.
5. What are the total CO2 (and CO2 equivalent) emissions per $1 million of sales for companies in the MSCI All Countries World Index?
135 tonnes
We track the carbon intensity of our portfolios as well as other environmental impacts, such as water usage and waste generation. We believe that companies will increasingly be forced to bear the cost of these externalities with a significant impact on profitability – and often business models. Our Sustainable Growth Fund has a carbon intensity of 61 tonnes per $1m of sales while some stock markets – such as Australia – have a carbon intensity that is more than twice that of global equities. Data from MSCI as of 31 December 2021.
6. An Offshore Investment Bond can help “non-doms” (individuals who are resident but not domiciled in the UK) manage offshore income and gains?
True
Offshore Investment Bonds can be an attractive investment structure for non-doms. If they are set up correctly, they may allow for withdrawals into the UK that are deemed a return of capital rather than a taxable remittance. This is a complicated area, and it is important to take advice that reflects your circumstances.
7. Can you “carry back” a charitable donation to the previous tax year?
Yes
Providing that the donation is made in cash, it can be carried back to the previous tax year. This can give you valuable additional flexibility when your earnings can vary significantly from year-to-year. We help many clients with philanthropy and can advise on the most efficient ways of structuring your giving.
8. Venture Capital Trusts offer attractive tax incentives but what is the maximum you can invest each year?
£200,000
Venture Capital Trusts offer a 30% tax reduction on investment and any dividends are tax-free. These investments can be particularly beneficial for higher earners, who are unable to take advantage of the tax benefit of investing in pensions. We can help clients build a portfolio of VCT investments over time, helping to manage risk and improve diversification within this part of their portfolio.
9. Wealth managers tend not to use passive funds (ETFs) when constructing portfolios.
False
There is a common misconception that wealth managers only use active funds. This is far from true. Passive funds often make more sense in certain markets and/or at certain points of the cycle. For example, passives currently account for just under 40% of the US equity exposure in our GBP balanced strategy. However, when we have a high degree of conviction that active managers have the skill and opportunity set that will allow them to deliver net-of-fee returns ahead of an index, we will use them.
10. UK drivers bought more electric vehicles in March 2022 than in the whole of 2019.
True
The shift to EVs will be one of the biggest and most capital-intensive transformations in recent economic history. And there is still a long way to go. In the US alone, 250 million internal combustion engine trucks and cars need to be replaced. Our investment specialists are acutely aware of the opportunities this is opening up across a wide range of industries. For instance, French chipmaker ST Microelectronics has noted that the average EV has more than twice the semiconductor content of a combustion engine vehicle (c.US$1,000 vs. US$400). It can be hard to gauge which of the hundreds of EV start-ups will be successful. But we do know that the cars they produce will need far more semiconductors.
This communication is for information purposes only and is based on the author's understanding of the law in force at the time of publishing. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Readers should seek professional advice for their individual circumstances.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.
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