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Nothing in this article should be construed as advice of any kind or solicitation to work and/or invest with the author or Finance Monthly. These are the thoughts and beliefs of the author based on his personal experience and knowledge. Readers should always consult their own advisers on their wealth-related decisions.
The epidemic and the escalation of the Russian-Ukrainian war were the key variables impacting the wealth management business in the last 2 years. However, these events have mainly influenced the assets themselves rather than how money and other assets are managed.
The movement of the Standard and Poors 500 clearly illustrates these tendencies. This index monitors the weighted average of the share prices of 500 big businesses listed on US stock exchanges.
During the pandemic
Financial market developments in the first half of the reporting period were heavily biased toward equity markets and, in particular, riskier assets. Overall, this had a twofold effect: on the one hand, wealth management firms and their customers who switched in good times were able to expect up to triple-digit returns; on the other hand, the resulting flood of money led to a significant increase in the real estate sector and other markets.
In this situation, not only were those with substantial savings able to increase their wealth, but also many new people joined the club. They typically came from the following industries:
Of course, there were some short-term losers in this situation, including real estate developers, restaurant operators, and some players in the construction industry.
After a pandemic, in a war
The weakening of the virus and the gradual increase in general immunity made it seem for a short time that economic life would remain stagnant at this high level for some time. But experts had already sounded the alarm: we are facing a global crisis and associated inflation due to the labour shortages caused by the pandemic and the massive problems in the supply chain. Moreover, inflation has been further exacerbated by the escalation of the conflict between Russia and Ukraine in February 2022, skyrocketing oil and energy prices worldwide. And a major attack on the crypto market has also had a serious negative impact on financial markets already in a downtrend (especially the riskiest cryptocurrencies).
Those who did not act in time were either stuck in their positions on the stock market and the crypto market for an unpredictable period or suffered significant losses.
While 2020 and 2021 may have been a time for wealth accumulation, today’s focus is on wealth preservation.
High net worth individuals and the market need fewer asset management experts
Research shows that high net worth individuals think about services quite differently than one might initially assume. For example, common sense and market logic would dictate that the number of wealth management professionals should decline during a crisis. A lower number of wealth management professionals are needed when overall wealth drops. On the contrary, research shows that demand tends to move toward asset management firms precisely because a more crisis-resistant portfolio needs to be built. Only assets managed by several firms with different strategies can be more crisis-resilient than a diversified portfolio.
Investing in Fortune 500 firms equals a balanced portfolio
Over the last ten years, many investors have depended only on the trendiest stock exchange companies. However, this strategy is only viable until there is a bull market (trending upward). Those who have followed this strategy may now realise that it makes sense to diversify much more broadly because the negative trend affects not just one sector but the entire stock market, almost without exception.
Instead of focusing on high-profile growth businesses, you may diversify your portfolio by investing in value stocks and stocks with varying market capitalisation to gain exposure to many industries. Furthermore, investing in an exchange-traded fund allows you to diversify and actively manage your assets without having to hire a financial manager.
Wealth management services that are prohibitively pricey
Many consumers misperception that this service is pricey due mainly to comparisons with typical bank costs. Private banking, asset management, and fiduciary services are more expensive than standard bank rates. However, they also offer considerably more significant potential for value generation. A professionally managed portfolio has a markedly better chance of generating significant returns in the short and long term.
Larger service providers offer better solutions in wealth management
Although many people believe that larger companies provide a higher level of service, and it may be true, this is an issue that should be considered from the perspective of individual preferences.
While small boutique agencies probably serve fewer clients than the market-leading large firms, they are also likely to devote more attention to individual clients. And it’s not difficult to bring in additional staff to assist when needed.
With a larger asset management firm, the benefits of decades of experience, a high-quality track record, or standardised processes are more likely to be reasons to choose. In addition, larger institutions may not cater to customers with less than £5 million in investable assets or may only give restricted services to such clients.
In this rapidly changing environment, wealth management firms are doing everything they can to understand the needs of their clients comprehensively and to maintain and increase the assets under management.
To do this, they apply the following best practices:
When creating a wealth management plan, professional service providers typically begin with an inventory of existing assets. Assets of five million pounds can be considered a diversified portfolio that includes several types of assets. These may include:
Asset management firms evaluate this framework and learn about the client’s thoughts as a first step. While some people do not care about the details, others are concerned with minor details.
Therefore, it is vital to assess the current situation and determine where the client wants to go in the short, medium, and long term. An overview of the structure is also important because an easily liquidated asset consisting solely of listed assets requires the management of artefacts and real estate.
As a result of the discussion, the trustee develops an overall picture based on which they create an asset management plan. This may include the creation of an appropriate legal form, such as the establishment of a trust for the proper management and simple inheritance of real estate and business assets.
One of the most significant global trends for the future may be a considerable increase in the number of high-net-worth individuals. Of course, this process has not just started in recent years. However, start-ups and cryptocurrencies have contributed significantly to democratising the path to wealth, making it accessible to an ever-increasing number of people.
The digitisation of the field and the use of artificial intelligence, neural networks, and learning algorithms are constantly improving the quality of services and the customer experience in countries around the world. Likely future trends include the proliferation of chatbots, which make contact even easier, and the further personalisation of portfolio management.
While the number of Russian oligarchs residing in the UK is not publicly available, at the time of writing, a significant number of them seem to have been restricted in connection with the war between Russia and Ukraine. This restriction primarily includes a complete freeze on assets managed here, including trusts belonging to them that have been uncovered to date – more than £10 billion in total. How the war will end, no one knows at this point. However, there is a good chance of long-term asset freezes that will negatively impact the value of all assets managed by the UK wealth management sector.
Other expected trends affecting the future of the industry:
2022 – Inflation, economic downturn, stock market highs and lows, cryptocurrency crash. Even with the benefit of hindsight, it will not be easy to review this year’s events, even now that we are in it! However, chances are, this year will be more about wealth preservation than significant gains. So let us consider some tips on how to preserve the value of your portfolio:
2022 is the third successive year that confirms we live in very exciting and eventful times. It is truly a historical time – with all its pros and cons. However, the economy is becoming more and more unpredictable, so you may want to consider wealth management and protection as an integral part of wealth creation.
Ramesan Doraisami is an entrepreneur, investor, business adviser and international professional Speaker.
For more than 20 years, he has been investing, training entrepreneurs and working with other investors in entrepreneurship and business. During this time, he created several businesses, both as his ventures and on behalf of global clients.
In 2013 he founded Azalea Ventures Limited as his investment firm and a global consulting firm, LCL Group, based in London. For the last nine years, he has worked with start-ups and small business owners as an investor, mentor, and adviser to help entrepreneurs generate personal wealth through their businesses.
Recently Ramesan launched the Entrepreneur Success Foundry, dedicated to providing much-needed training and education to both current and would-be entrepreneurs, significantly improving their success potential. Ramesan intends to share his knowledge and extensive experience with a more significant number of entrepreneurs through the Entrepreneur Success Foundry.
Katina Hristova is the editor of Finance Monthly magazine.
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