News - Midlands
Wealth Management
With low returns and a mass of financial options, managing wealth has never been more problematic. There was plenty for our panel of wealth management experts to discuss at a round table hosted by Singer & Friedlander in Birmingham
According to this year's Insider Midlands Rich List, our region saw greater growth in the wealth of its 100 richest people than any other UK region outside London, with the figures particularly driven by property values. Does our panel see this growth in wealth continuing with ever more high net worth individuals to target?
Killingbeck From Singer's perspective we have recognised for a long time the importance of regions to our business and it is very much part of our strategy, fully recognising that a lot of individuals might not wish to have their monies managed in London and may wish to access advisers locally.
Shaw In the Midlands the high net worth individuals had a good year this year, notwithstanding the fact that the market did turn down in the first half of 2003. Property has held up very well and there have been some substantial gains in both the residential market and also particularly the commercial market this year. Birmingham looks like a booming city when you look around at the number of cranes and I see that in the private individuals that I act for.
Littlejohns I would support that view. I find a lot of my clients are now looking at bricks and mortar as an alternative way of going forward. They have perhaps been stung by the fall in the market in the recent past, but it is interesting to note that from March this year to today just look at what the market has done. It has seen a tremendous increase, so that decision might have been a bit short term. But I have had a number of clients that just say: "I've had it with pensions and I'm going into bricks and mortar."
Fears were expressed at this same event 12 months ago that a dangerous bubble was building in property. Is that the panel's view today?
Littlejohns Property prices are still rising fast and any talk of a crash is certainly not borne out in what I'm seeing. I'm seeing clients standing on tremendous profits on property portfolios. I personally don't see a crash yet among the people I am talking to.
Yeoward: What is so important is to spread your assets and not concentrate all your assets in one basket, whether it be property, equities or bonds. People's memories seem to be very short when it comes to asset classes. If we cast our minds back 10 years there were not many people standing up and shouting about how well they had done in the property market. With all these things markets tend to go on for much longer than people expect. It's all about spreading your assets. What we are starting to see among more sophisticated investors is that they are starting to put more money back into equities. I'm not arguing that they are taking it out of property but they are certainly putting more money back into the equity market.
Male I would agree with that. The first step for any adviser is really to establish asset allocation and talk about how a client's portfolio should be split between equities, fixed-interest cash and property, and the relevant weightings between those. Where the client has disappointment is where they typically swing from one extreme to the other and go in when they see equities doing well and go into property when it may be poorly priced. A well diversified portfolio should mean that the client is less likely to be disappointed in the medium to long term. However, what concerns me is those who are piling into property now and whether their costs are going to outstrip their incomes in the next few years. Those people who bought property five or six years ago are doing superbly well out of it.
With the interest rate rise we have seen today and the continued rise in equities, does the panel expect more of a shift to fundamentals with clients taking more of a spread of investments?
Shaw One would hope that with high net worth individuals that is exactly what they have already been doing. As we mentioned, a year ago advisers were warning of the dangers in areas such as property. The danger is for the mass of the population who simply follow the herd and always go for the wrong asset class at the wrong time. The wise investor is already reducing his asset allocation in property and increasing his allocation elsewhere. I know some people who have been quite badly hit this year by bond prices because the interest rates on bond prices and yields move in advance of interest rates.
Yeoward What is interesting is that you had the rally in the equity market starting in mid-March, yet the bond market was still performing well for another six weeks to two months, so both were performing very well for a period of time. It is possible that we could still see that in property, with prices continuing to do well alongside equities, before you get some reality returning.
How do such volatile markets affect the spending decisions of charities for whom everyone around this table also acts?
Arkley We are quite lucky in a way because we made an investment decision some time ago to invest in gilts, so we are sitting quite quietly at the moment. But on a broader level, it is a very difficult area to balance. For instance, if you have too many investments you fall foul of the Charity Commission. Although we have not had to make major decisions over the past few years the time is soon going to come for us where we are going to have to think about this. One of the things we are looking at at the moment is a major research appeal and that will inevitably bring with it major questions about how we invest that. Balancing your monies against restricted funds and having cash available is also very hard for a charity like us because we fund medical research too. It is an enormously hard area for trustees.
Is there a good enough advisory market for charities like Catherine's in the Midlands?
Littlejohns I can only speak for our practice but I think we have the necessary skills locally. We have an in-house financial planning crew that deals with charities and pension schemes. The more I look at the Birmingham market the more I think that we have every skill set that you need.
Shaw I think the difference is that in London everyone badges it up that we have a charity team for this and a charity team for that, when here we are a bit more down to earth. The one issue that is raised here is about time horizons which is something that people have forgotten about regarding equities in the past few years. People need to understand what is their time horizon. We have found clients in their late 50s and early 60s who were still working off the same time horizon they were 15 years ago and long term wasn't suddenly so long term. So if equities were to go down for several years, as some were suggesting not long ago, that became a serious issue for them. Likewise for a charity it is no good investing in an asset for the long term if you then need that money in two or three years time to invest in research.
Killingbeck Demographics are very clear for all of us in the western world with us all getting older, and I think the events of the last two or three years have very much brought back to people's mindset the need for risk controls in their asset allocation and not putting all eggs in one basket. Hopefully now we are seeing better expectations. The returns we saw in the last few years from property are unlikely to be repeated in the low inflation environment we have at the moment, and although interest rates have gone up today, the long term trend is for low inflation and financial assets will be returning high single digits rather than the 20 per cent-plus returns we saw in the late 1990s and in the property market in recent years.
Male One of the things we are likely to see more of is people needing to be more flexible about what their retirement plans are. There is going to be an interesting labour market developing over the next five years of people in their late 50s and early 60s that are looking for alternative employment opportunities. More people will be more flexible about how they take their money out of the investments they have. I don't think it will necessarily be a case of building up a pension fund and then simply retiring. We are going to see more people as they get older take more of a back seat with their business, phase their retirement, and let others take more of the strain.
Littlejohns One important point for the financial advisers here is that our advice must always move with the client and circumstances, picking up Andrew's point about the client and time horizons. The danger is that you can get too fixed in the way you approach things. One could say, right, I have sorted out my real estate planning, and then put it to one side. It has got to be reviewed every year to ensure it is still right.
On a broader level does the fact that we now live in a low inflation, low return, low interest rate environment affect the way the panel advises clients?
Killingbeck The margin for error is potentially greater in a low inflationary, lower return environment. It comes back to ensuring that the asset allocation is there. Some people might not agree that we are going to remain in a low inflationary environment in which case you may have a completely different strategy. It is very important to try and get some of the macro questions answered and filtered into the asset allocation process. As we touched on earlier, for private clients of all ilk there is a great human comfort from momentum, whatever asset class is leading the pack at that particular time.
Yeoward There are also a lot more asset classes to invest in today. Financial deregulation which started with foreign exchange deregulation has brought a lot more things in which to invest. If you go back 25 years it was pretty much gold, equities or property. Now there are so many other things you invest in, and complicated financial instruments along with it. There are far more opportunities and that is what we are seeing. When private clients come to us it is not just equities or property, there are so many other things they are considering. The truly rich may even be setting up family offices to look after their wealth. They really are looking at so many new and different types of financial instruments and ways to invest. That is why there are so many advisers too and why it is important that advisers work together too. The client has got to have proper planning in all areas. We all need each other to make sure the client is facing in the right direction.
Shaw Equally if you have an environment of low inflation and low interest rates then the cost of the investment advice by comparison with the investment returns is a greater proportion so you have to demonstrate value for money for the person, however wealthy they are. It is much easier to charge high fees if you are getting high returns on the investments.
Yeoward Going back to the point about the range of new products in the market, it is important to mention too that the industry has dished out a lot of fines where these have been mis-sold by banks or financial institutions. That adds to the complexities clients face.
Male It is very important for clients to be made totally aware of the downside risks of investments. There are a lot of products around at the moment because there is a lot of cash in banks, building societies and investment companies ready to be invested. There have been a number of high-profile cases recently of banks involved in distributing financial products where it would appear clients were not made aware of the downside. There are very few things which are guaranteed at the moment. One of the things that the government is concerned about and which comes out in successive reviews is that people feel the financial services market is overly complex, that there is too much complexity surrounding pensions legislation, too much complexity surrounding different types of investment vehicles. If you take away some of the complexities you will encourage more people to invest. One of the reasons people like investing in property is because they can see their property. They can take comfort from that, whereas pension funds are more remote.
THE PANEL
Richard Killingbeck, chief executive, Singer & Friedlander Investment Managment
Rupert Yeoward, director, Singer & Friedlander Investment Management
Catherine Arkley, chief executive, Children's Liver Disease Foundation
Andrew Shaw, managing director, Shaw & Co
Julia Cox, associate solictor, Pinsents
Simon Littlejohns, head of tax, PKF Birmingham
John Male, EMG Platts Flello
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According to this year's Insider Midlands Rich List, our region saw greater growth in the wealth of its 100 richest people than any other UK region outside London, with the figures particularly driven by property values. Does our panel see this growth in wealth continuing with ever more high net worth individuals to target?
Killingbeck From Singer's perspective we have recognised for a long time the importance of regions to our business and it is very much part of our strategy, fully recognising that a lot of individuals might not wish to have their monies managed in London and may wish to access advisers locally.
Shaw In the Midlands the high net worth individuals had a good year this year, notwithstanding the fact that the market did turn down in the first half of 2003. Property has held up very well and there have been some substantial gains in both the residential market and also particularly the commercial market this year. Birmingham looks like a booming city when you look around at the number of cranes and I see that in the private individuals that I act for.
Littlejohns I would support that view. I find a lot of my clients are now looking at bricks and mortar as an alternative way of going forward. They have perhaps been stung by the fall in the market in the recent past, but it is interesting to note that from March this year to today just look at what the market has done. It has seen a tremendous increase, so that decision might have been a bit short term. But I have had a number of clients that just say: "I've had it with pensions and I'm going into bricks and mortar."
Fears were expressed at this same event 12 months ago that a dangerous bubble was building in property. Is that the panel's view today?
Littlejohns Property prices are still rising fast and any talk of a crash is certainly not borne out in what I'm seeing. I'm seeing clients standing on tremendous profits on property portfolios. I personally don't see a crash yet among the people I am talking to.
Yeoward: What is so important is to spread your assets and not concentrate all your assets in one basket, whether it be property, equities or bonds. People's memories seem to be very short when it comes to asset classes. If we cast our minds back 10 years there were not many people standing up and shouting about how well they had done in the property market. With all these things markets tend to go on for much longer than people expect. It's all about spreading your assets. What we are starting to see among more sophisticated investors is that they are starting to put more money back into equities. I'm not arguing that they are taking it out of property but they are certainly putting more money back into the equity market.
Male I would agree with that. The first step for any adviser is really to establish asset allocation and talk about how a client's portfolio should be split between equities, fixed-interest cash and property, and the relevant weightings between those. Where the client has disappointment is where they typically swing from one extreme to the other and go in when they see equities doing well and go into property when it may be poorly priced. A well diversified portfolio should mean that the client is less likely to be disappointed in the medium to long term. However, what concerns me is those who are piling into property now and whether their costs are going to outstrip their incomes in the next few years. Those people who bought property five or six years ago are doing superbly well out of it.
With the interest rate rise we have seen today and the continued rise in equities, does the panel expect more of a shift to fundamentals with clients taking more of a spread of investments?
Shaw One would hope that with high net worth individuals that is exactly what they have already been doing. As we mentioned, a year ago advisers were warning of the dangers in areas such as property. The danger is for the mass of the population who simply follow the herd and always go for the wrong asset class at the wrong time. The wise investor is already reducing his asset allocation in property and increasing his allocation elsewhere. I know some people who have been quite badly hit this year by bond prices because the interest rates on bond prices and yields move in advance of interest rates.
Yeoward What is interesting is that you had the rally in the equity market starting in mid-March, yet the bond market was still performing well for another six weeks to two months, so both were performing very well for a period of time. It is possible that we could still see that in property, with prices continuing to do well alongside equities, before you get some reality returning.
How do such volatile markets affect the spending decisions of charities for whom everyone around this table also acts?
Arkley We are quite lucky in a way because we made an investment decision some time ago to invest in gilts, so we are sitting quite quietly at the moment. But on a broader level, it is a very difficult area to balance. For instance, if you have too many investments you fall foul of the Charity Commission. Although we have not had to make major decisions over the past few years the time is soon going to come for us where we are going to have to think about this. One of the things we are looking at at the moment is a major research appeal and that will inevitably bring with it major questions about how we invest that. Balancing your monies against restricted funds and having cash available is also very hard for a charity like us because we fund medical research too. It is an enormously hard area for trustees.
Is there a good enough advisory market for charities like Catherine's in the Midlands?
Littlejohns I can only speak for our practice but I think we have the necessary skills locally. We have an in-house financial planning crew that deals with charities and pension schemes. The more I look at the Birmingham market the more I think that we have every skill set that you need.
Shaw I think the difference is that in London everyone badges it up that we have a charity team for this and a charity team for that, when here we are a bit more down to earth. The one issue that is raised here is about time horizons which is something that people have forgotten about regarding equities in the past few years. People need to understand what is their time horizon. We have found clients in their late 50s and early 60s who were still working off the same time horizon they were 15 years ago and long term wasn't suddenly so long term. So if equities were to go down for several years, as some were suggesting not long ago, that became a serious issue for them. Likewise for a charity it is no good investing in an asset for the long term if you then need that money in two or three years time to invest in research.
Killingbeck Demographics are very clear for all of us in the western world with us all getting older, and I think the events of the last two or three years have very much brought back to people's mindset the need for risk controls in their asset allocation and not putting all eggs in one basket. Hopefully now we are seeing better expectations. The returns we saw in the last few years from property are unlikely to be repeated in the low inflation environment we have at the moment, and although interest rates have gone up today, the long term trend is for low inflation and financial assets will be returning high single digits rather than the 20 per cent-plus returns we saw in the late 1990s and in the property market in recent years.
Male One of the things we are likely to see more of is people needing to be more flexible about what their retirement plans are. There is going to be an interesting labour market developing over the next five years of people in their late 50s and early 60s that are looking for alternative employment opportunities. More people will be more flexible about how they take their money out of the investments they have. I don't think it will necessarily be a case of building up a pension fund and then simply retiring. We are going to see more people as they get older take more of a back seat with their business, phase their retirement, and let others take more of the strain.
Littlejohns One important point for the financial advisers here is that our advice must always move with the client and circumstances, picking up Andrew's point about the client and time horizons. The danger is that you can get too fixed in the way you approach things. One could say, right, I have sorted out my real estate planning, and then put it to one side. It has got to be reviewed every year to ensure it is still right.
On a broader level does the fact that we now live in a low inflation, low return, low interest rate environment affect the way the panel advises clients?
Killingbeck The margin for error is potentially greater in a low inflationary, lower return environment. It comes back to ensuring that the asset allocation is there. Some people might not agree that we are going to remain in a low inflationary environment in which case you may have a completely different strategy. It is very important to try and get some of the macro questions answered and filtered into the asset allocation process. As we touched on earlier, for private clients of all ilk there is a great human comfort from momentum, whatever asset class is leading the pack at that particular time.
Yeoward There are also a lot more asset classes to invest in today. Financial deregulation which started with foreign exchange deregulation has brought a lot more things in which to invest. If you go back 25 years it was pretty much gold, equities or property. Now there are so many other things you invest in, and complicated financial instruments along with it. There are far more opportunities and that is what we are seeing. When private clients come to us it is not just equities or property, there are so many other things they are considering. The truly rich may even be setting up family offices to look after their wealth. They really are looking at so many new and different types of financial instruments and ways to invest. That is why there are so many advisers too and why it is important that advisers work together too. The client has got to have proper planning in all areas. We all need each other to make sure the client is facing in the right direction.
Shaw Equally if you have an environment of low inflation and low interest rates then the cost of the investment advice by comparison with the investment returns is a greater proportion so you have to demonstrate value for money for the person, however wealthy they are. It is much easier to charge high fees if you are getting high returns on the investments.
Yeoward Going back to the point about the range of new products in the market, it is important to mention too that the industry has dished out a lot of fines where these have been mis-sold by banks or financial institutions. That adds to the complexities clients face.
Male It is very important for clients to be made totally aware of the downside risks of investments. There are a lot of products around at the moment because there is a lot of cash in banks, building societies and investment companies ready to be invested. There have been a number of high-profile cases recently of banks involved in distributing financial products where it would appear clients were not made aware of the downside. There are very few things which are guaranteed at the moment. One of the things that the government is concerned about and which comes out in successive reviews is that people feel the financial services market is overly complex, that there is too much complexity surrounding pensions legislation, too much complexity surrounding different types of investment vehicles. If you take away some of the complexities you will encourage more people to invest. One of the reasons people like investing in property is because they can see their property. They can take comfort from that, whereas pension funds are more remote.
THE PANEL
Richard Killingbeck, chief executive, Singer & Friedlander Investment Managment
Rupert Yeoward, director, Singer & Friedlander Investment Management
Catherine Arkley, chief executive, Children's Liver Disease Foundation
Andrew Shaw, managing director, Shaw & Co
Julia Cox, associate solictor, Pinsents
Simon Littlejohns, head of tax, PKF Birmingham
John Male, EMG Platts Flello
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