Lawyers, accountants and other professionals: two key risks facing your personal wealth

Legal and accounting professions are facing a slew of change as the Covid-19 pandemic accelerates powerful changes already in force.

Before 2020 professional service providers were already adapting rapidly to technological developments and a shift to more flexible working arrangements. But the onset of the pandemic – and its sudden requirement for remote working – has pressed these changes ahead at breakneck speed. Other regulatory and legislative developments, including for many UK firms the ongoing effects of Brexit, create additional background complexity.

More flexibility, but more pressure: the risk of neglect

For senior partners the challenge is to steer their practices through this period of extreme change while continuing to prioritise client service.

“We have an interesting vantage point from which to see the pressures faced by professional firms,” says Simon Barker, a Portfolio Director at Cazenove Capital who specialises in professional adviser relationships.

“These jobs have always been hugely demanding, and time has always been a problem,” he says. “But we’re getting a very clear message now that today’s rapid change is bringing with it new pressures. At one level greater workplace flexibility brings benefits. But for many senior partners it’s just another factor to manage. Overall, that can mean even longer hours and longer on-call periods.”

Inevitably professionals’ personal requirements take a back seat. And that poses a risk.

“Worryingly, even when times are not so challenging, a lot of professionals don’t get round to developing anything like a comprehensive financial plan,” Barker explains. “So when we are in difficult periods like now, the risk of neglecting their own affairs is greater.”

The failure to plan and invest can prove costly. Simon Barker points out that many professional advisers are knowledgeable about financial markets and may have invested successfully in the past. “They may think, ‘I’ll get round to this’,” he says. But a period of neglecting their affairs can mean, for example, a build-up of uninvested cash – at a time when real returns on cash are negative – or missed opportunities.

During 2020, thanks largely to the economic fallout of the pandemic and the response of central banks, savings rates on cash in the UK fell by almost 70%, reaching historic lows. Global stock markets rose sharply.

Even where investments are held for the long term, prompt action is sometimes required in response to market movements.

It’s also dangerous to ignore longer-term planning which can give rise to more choices in later life (see Andrew Ballheimer, below). “You need to take into account your evolving tax situation, your retirement plans and potentially also the need for financial protection,” Barker says.

Hands tied: the risk of conflict

Professional services firms have to be increasingly careful about the potential for conflicts of interest. As a result, compliance requirements relating to personal investments are on the rise.

This could mean restrictions on the kinds of investments that you are able to hold, as well as specific transaction reporting requirements.

“Many advisers’ work is likely to touch upon quoted businesses and there is growing scope for potential conflicts,” Simon Barker warns. “That in itself can hamper how and when you might choose to manage your investments – even if you did have the time and confidence to manage your own affairs.”

In many cases, this conflict risk can be defused by using a discretionary investment manager. With investment decisions taken by a third-party, a satisfactory distance is achieved between the client and the underlying holdings. This results in no impact on the risk profile or diversification of the portfolio.

Insider’s view: the dangers as seen by a senior partner

Andrew Ballheimer, Former Global Managing Partner of Allen & Overy 

Another problem lawyers can face is conflicts of interest with regard to clients of their firms. Working with a discretionary manager helped me avoid these issues. It would have been very difficult for me to invest directly in shares while I was a practicing lawyer: magic circle firms are likely to be advising a high proportion of Europe’s biggest companies in one capacity or another. A wealth manager takes away this headache. Looking back, and thinking about how senior lawyers tend to prioritise their firms and their clients, I’d say there’s a real risk of overlooking their own finances and futures. Better planning is so important – and the earlier you can start, the better.

What to expect from a world-class wealth manager

A good wealth manager will understand the challenges that successful lawyers and other professionals are likely to face over the course of their career. It will understand compensation structures that are similar to yours, if not identical, and the chances are it will have worked with some of your colleagues.

It may also have arrangements in place enabling it to liaise directly with your firm’s compliance department.

In terms of technology and reporting, you should expect excellent and easy access to your portfolio. You should be able to track performance, but you’d also expect excellent reporting for the purposes of tax returns and compliance.

Your career may involve spending time in different offices around the world. The best firms are likely to be those with offices in multiple jurisdictions, including the ability to provide services to US persons moving outside the US, or those people whose work entails periods of US residence.