A guide to wealth management for high-net worth empty nesters by Equilibrium Financial Planning LLP

A Guide to Wealth Management for High-Net-Worth Empty Nesters September 2018

Contents 03 04 06 08 09 11

An introduction to wealth management The importance of: A financial plan The importance of: An investment strategy The importance of: Tax planning The importance of: Intergenerational and inheritance tax planning How Equilibrium can help

An introduction to wealth management We all want to protect our money as best we can, especially after working so hard to accumulate our wealth. This wealth management guide will serve as a handy accompaniment for people considering their financial options, and explain the importance of creating - and sticking to - a coherent financial plan. For high-net-worth empty nesters, effective wealth management is essential. Now is the perfect time to assess your finances and ensure you are fully prepared for the future. Having spent so long focusing on your childrenâ&#x20AC;&#x2122;s development, you can now focus on yourself. Typically, an empty nester is between the ages of 45 and 60, and will have seen the last of their children moving out of the family home. This is an important time for many parents, and you will likely experience mixed feelings as you help your children pack up their belongings. While sad to see them fly the nest, you may also be excited to start this new chapter of your life. You will likely find your disposable income increases, as your children become more independent and pay for

things for which they previously relied on you. This shift means there is no better time to take stock of your financial situation and put the foundations in place to grow your assets in the future. This guide explains why wealth management is a necessity for high-net-worth empty nesters eager to both protect and increase their assets. Planning ahead is key, and what better time to get your finances in order than when you have both extra time and extra income at your disposal? By making wealth management a priority at this stage, you will give yourself the best opportunity to meet your long-term financial goals.

â&#x20AC;&#x153;...there is no better time to take stock of your financial situation and put the foundations in place to grow your assets.â&#x20AC;?

The importance of: A financial plan It almost goes without saying that looking after your money is imperative all the way through your life. However, when you reach the age when you are old enough that your children have left home, but young enough to have plenty of working days ahead, it is particularly important to get your affairs in order. Previously, you may have spent significant money raising your children. Now you can think about how best to use your money for you. Some considerations at this point might include how best to increase your assets, how best to consolidate what you already have, or how best to save for retirement. A sound financial plan can help you in all these aspects. Effective wealth management, based on a strategic financial plan, can help you make the most of your assets and ensure your financial objectives are met. Whether through effective tax planning or sound investment, you need to make sure your money keeps working for you. Without a financial plan, you are less likely to set realistic goals and remain on track to meet them. By failing to identify your financial strengths and weaknesses, you are unlikely to build on the former and address the latter. Nor are you likely to put a plan into action and monitor its progress. A financial plan adds the organisation you need to make sure nothing slips through the net.

High-net-worth empty nesters: Managing money The way you, as a high-net-worth empty nester, manage your wealth will likely differ to that of

empty nesters with fewer assets. Although we should avoid overgeneralising, it is useful to consider the different attitudes to money that certain groups have. For instance, you are likely to be particularly savvy with your finances, and likely to have effective money management techniques already in place. When it comes to using your money - or, indeed, how you make your money work for you - you are likely to: • Have specific goals for your money • Be keen to make more money • Be smart with your money - understand that higher risk investments have the potential to generate a higher return, but also have the potential to fall quite significantly • Want diversification in your investments • Know when to do it yourself or when to trust an expert

Seeking financial advice This last point is key. People who accumulate significant wealth do not necessarily know the best decisions to make, but are willing to seek the advice of someone who does. Also, the effects of the financial crisis from 2008 will not have been forgotten, especially among investors keen to recoup any money lost. A financial plan enables you to be smarter with your money. A service tailored to match your personality and objectives will give you the best chance of getting the results you want.

The value of your investments can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The importance of: An investment strategy Investment forms an integral part of a successful financial plan. It can be particularly important not to mention rewarding - for high-net-worth individuals with more assets at their disposal. By investing strategically, you can continue to grow your assets as you progress through life. Investment recommendations will vary depending on the individual. Portfolios are compiled to meet an individual’s needs, preferences and goals, and no two portfolios are likely to be the same. However, it is common for a high-net-worth client’s risk to be spread across a well-diversified portfolio - one that includes a mix of equities, property and alternative assets. Their portfolios tend to be managed on a more bespoke basis, especially when they are larger in size and include many different options. Where appropriate, this can often involve higher exposure to risk.

Greater risk capacity Although the level of risk depends on the individual, high-net-worth clients often have a high capacity for loss due to their capital or their high levels of guaranteed income. This is in contrast to people with fewer assets, for instance an individual not classified as high-net-worth might be more likely to invest into a portfolio with a higher proportion of lower risk assets.

There are notable differences between the financial needs of high-net-worth clients and those outside this bracket. High-net-worth individuals may find that they are often cited as the target market for the latest ‘flavour of the month’ financial products - products that are not necessarily the best fit. They are also more likely to either seek or be given advice from many different people. While this has its obvious benefits, it increases the likelihood of not following a coherent strategy - therefore hindering opportunities to get the best returns.

Targeted investment strategy It is therefore essential you follow an organised, coherent and targeted investment strategy, making the most of the assets at your disposal. Although you may have more opportunity to take on greater risk, your strategy needs to account for your personal tolerance for risk, how much risk you need to take and how much you want to. As a high-net-worth empty nester, you are therefore advised to seek assistance, ensuring your strategy has the right mix. When constructing a strategy, emphasis also tends to be placed on spreading risk - a tactic aimed at protecting you from any sudden changes in the markets.

The value of your investments can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Diversification But what is the best way to spread risk? One of the most common methods is diversification. This involves investing in different areas, many of which have no connection to another. There are various ways to diversify a portfolio, and these include: • A mixture of assets There are various assets in which you can invest, including: fixed interest, property, alternative equity and equity • Different sectors Investing in different sectors could offer less volatility, as movement in some industries will have little effect on others

• A spread of companies You can delve a little deeper by investing in individual companies either within the same or across different sectors. Again, risk can be spread further by investing in multiple businesses • Consider different regions To maximise the spread of risk, consider investing in different regions. This has value for many reasons, such as reducing dependence on one country’s economy

The importance of: Tax planning Tax planning is essential in the formation of an effective financial plan, especially given the complexity of the subject. Tax legislation rarely stands still - it is very fluid and changes regularly and is often dependent on individual circumstances. It is therefore essential you stay ahead of the curve and do not suffer simply because changes have passed you by.

This is because tax planning is increasingly important with larger portfolios. People are often not aware of changes in relation to tax, and it can be difficult to actively manage tax on an ongoing basis. As a consequence, individuals may pay more tax than they are required to - and this can have a huge impact on high-net-worth individuals.

Through effective tax planning, you can ensure you keep on top of regulatory change and do not pay more than you are required. Income tax, inheritance tax and capital gains tax each have their own intricacies, and people will often need assistance to safely navigate these complex waters.

Tax mitigation strategy

Investment portfolio tax planning Tax planning with regard to investment portfolios is an often-overlooked area of financial advice. However, we feel it is essential this gap is plugged especially when it comes to high-net-worth clients.

A simple tax mitigation strategy, flexible enough to deal with change, can help you stay one step ahead, ensuring tax continues to work for and not against you. It is important to use the right tax wrapper best suited to your needs. Indeed, there are various tax wrappers compatible with larger portfolios. By selecting the right tax wrapper for the right investment, you can go a long way to ensuring your tax planning delivers the best results.

The importance of: Intergenerational and inheritance tax planning

Intergenerational planning While you, as an empty nester, may no longer provide for your children on a daily basis, you may want to continue helping them in other ways. For high-net-worth individuals, this might mean offering them a loan, or even simply giving them money. While this might sound simple enough, there are various things to consider, such as whether a loan might be best defined as a gift, or whether gifts are susceptible to inheritance tax. This is why intergenerational planning is an important part of any empty nesterâ&#x20AC;&#x2122;s financial plan. It is not uncommon for parents to be asked for, or to offer, a loan to their children. However, to do this effectively you should consider whether defining this as a gift might be more beneficial - if, for inheritance tax purposes, you are hoping to reduce your estate value, for example. If not, ensure that agreements are in place regarding repayments and rates of interest. By planning for these events properly, not only can you ensure everything runs smoothly, but that everyone involved gets the desired outcome. For instance, it can be far more beneficial for your children to receive money as a gift rather than as

inheritance. Many of us are living longer, which means our children are receiving their inheritances at an older age. By giving them a gift, you can better plan when they will receive, and use, the money. This could be when they are planning to start or extend their family, or when looking to move house, for example. For more information on how to help your children with financial support at the right time, read our article - â&#x20AC;&#x2DC;Beat the barriers to helping your childrenâ&#x20AC;&#x2122; on page 3 of our October 2014 Equinox magazine.

Inheritance tax planning It is never too early to think about matters such as inheritance, and a strong financial plan gives you the peace of mind that everything is falling into place. Leaving a sizable inheritance to family, friends or an organisation of your choice is something we all hope to do. It makes sense that the money you have accumulated throughout your life should be passed on to whomever you wish, giving them the best chance of making the most of their own life. However, inheritance tax is something that can make a serious dent in the amount you leave to your beneficiaries - so it is important you minimise the loss through effective inheritance tax planning. 09

Asset distribution Because inheritance tax is only due if your estate (which may include assets held in trusts and gifts made within seven years of death) is valued above the current inheritance tax threshold of ÂŁ325,000, and sits at a rate of 40%, it is imperative high-networth individuals can plan how best to distribute their assets. In addition, a new main residence nil-rate band was phased in from 2017 starting at ÂŁ100,000 and will increase up to ÂŁ175,000 by 2021. By moving assets both at the right time and in the right way, you can reduce the amount of money you waste through inheritance tax. We recommend you consider an inheritance tax plan sooner rather than later, ensuring you are able to distribute your assets as you wish.

With these calculations made, you can enjoy greater peace of mind that your affairs will be managed comprehensively upon death. To whom you wish to offer gifts is another major consideration. As well as, or instead of, family members, you may be keen to support a charity or political cause. Indeed, you can stand to reduce your inheritance tax bill by giving to charity. If you leave 10% of your taxable estate to charity, the tax paid may be at a reduced rate- 36% instead of 40%. This is because any gifts made to a qualifying charity are exempt from inheritance tax, and if you leave at least 10% of the net value of your estate to such a charity - which is the sum of all assets after debts, exemptions, reliefs, liabilities and the nil-rate band have been deducted - you can qualify for the reduced rate.

Effective inheritance tax planning and giving to charity It is important that calculations are made to ensure the value of your estate, and the subsequent inheritance tax levied on it, is correct. The information provided is based on our understanding of current rules and regulations, which may change. The impact of any tax changes will depend on individual circumstances.

How Equilibrium can help For high-net-worth empty nesters, effective wealth management organised through a sound financial plan is a great way to ensure you make the most of your assets. This is an important stage of your life, and with your children now making their own way in life, you have an opportunity to concentrate on protecting and increasing your assets. This guide has shown that, as a high-net-worth individual, you need to think a little differently when putting your financial plan together. There is no one-size-fits-all approach in wealth management - strategies must be tailored to the individual, based on numerous factors. Among the main considerations are personality and objectives. Your investments, for instance, are based on your circumstances and the level of risk you are comfortable with, while they must also meet your goals. It is therefore important to devise a coherent strategy with multiple factors in mind, such as

investment, tax planning, intergenerational planning and inheritance planning. These are particularly important for high-net-worth empty nesters, keen to both safeguard what they already have and to ensure assets are passed on correctly. High-net-worth empty nesters tend to diversify their investments and are more willing to take bigger risks with them, for example. But it must be stressed that every plan needs to be different, specifically tailored to meet the needs of the individual. It is important to seek advice early to make a robust financial plan. Every plan needs to be different, specifically tailored to meet the needs of the individual. Equilibrium can help create a bespoke plan to help you achieve your objectives.

We place great emphasis on understanding our clients from the very outset of our journey together. Our fact-finding exercises help us understand all we can about our clients and we draw up our financial plans with their significant input. From here, we help them make the right decisions, with our experience and expertise complementing their personal wants and needs.

Equilibrium Asset Management offers Restricted advice. Our investments are not like building society or bank deposit accounts, as the capital value and any income can rise and fall and your capital is at risk. The tax treatment of investments depends on your individual circumstances and may be subject to change in the future.

We can help you make the right decisions on investments, tax planning, intergenerational planning, inheritance tax planning, and all other aspects of wealth management. You know where you want to be - and we can help you get there. But don’t just take our word for it, here’s what some of our clients have to say:

“I was impressed with the way that Equilibrium Asset Management explained how my portfolio had been managed over a twelve month period” - Mr Snook “A personal but also very corporate service at Equilibrium. Clear newsletters explaining strategy” - Mr Thompson

Head Office: Equilibrium Asset Management LLP Brooke Court Lower Meadow Road Handforth Dean Wilmslow Cheshire SK9 3ND Chester Office: Equilibrium Asset Management LLP 19a Telford Court, Chester Gates Business Park Chester CH1 6LT

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+44 (0)161 486 2250 +44 (0)800 168 0748 askus@eqllp.co.uk www.eqllp.co.uk

The information provided in this guide is based on our opinion and is for general information purposes only. It is not, and should not be construed as financial advice. You should be aware that the value of an investment can go down as well as up, and no guarantees as to the future performance, income or capital growth are given expressly or by implication.

Equilibrium Asset Management LLP (OC316532) and Equilibrium Investment Management LLP (OC390700) are authorised and regulated by the Financial Conduct Authority and are entered on the financial services register under references 452261 and 776977 respectively. The FCA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission.