What are the three pillars of wealth management?

Protection, growth and tax reduction – Your guide to the three pillars of wealth management Protection. Unfortunately, wealth can be all-too transient, so first take steps to protect the money you have accumulated from common dangers. ... Growth. ... Tax Reduction.

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Unfortunately, wealth can be all-too transient, so first take steps to protect the money you have accumulated from common dangers.

Protect cash deposits

You may have accumulated wealth through your career, selling a business, inheritance or otherwise receiving a lump sum. Your first job is to protect that wealth. We often find that the affluent individuals using our service are “cash heavy”, unsure of what to do with a large amount of money or believing that cash is the safest way to hold wealth. There may good reasons to keep at least some of your wealth in cash form (at least in the short term), perhaps in a simple savings account with a bank. Here, you need to be aware that cash deposits are only protected under the UK regulator’s Financial Services Compensation Scheme up to £85,000 per account-holder for each institution (the limit for joint accounts is £170,000). This means that you may need to spread your deposits among several institutions to maximise your protection and look carefully at whether you hold money with several institutions that operate under the same banking licence. Never place your money with an institution that is not regulated to the highest standards, particularly if placing money abroad.

Protect against inflation

While cash might feel “safe”, the reality is it might be anything but due to the erosive power of inflation. If your money is not growing at a rate that at least matches inflation then in reality you are losing spending power over time. Although it is completely reasonable to be risk-averse, clinging to cash can be hugely self-defeating – particularly in a world of low interest rates. Most High Street banks have offered minimal interest for some years now, even for ISA accounts and fixed-term deposits. However, those with significant amounts to invest can access very much more attractive rates through a (fully regulated and reputable) private bank or wealth manager. If this is your situation, please let us know when beginning your search for a provider.

Find alternative safe havens for your capital

To lessen the risk of inflation eating away their wealth, most investors should explore alternative safe havens for their capital. Fixed-income investments (bonds) are also viewed as being safe investments yet, just as with cash, inflation erodes the real value of the principal investment and the coupon payment. Property is also considered to be a risk-free way to hold wealth, yet wavering prices give the lie to the phrase “safe as houses”. Property also needs maintenance and can carry hefty tax liabilities, particularly in the case of second properties/buy-to-lets. Precious metals and tangible assets like collectibles and cars also present real issues around storage, insurance and price volatility, so should never be used as the main store of value for your wealth. There are numerous options for even the most cautious individuals, many of which are quite close to cash in risk terms yet may offer far more attractive returns (short-term bonds, money market funds and bond funds to name but a few). You can also choose to have different risk exposures for different pots of money.

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