Wealth management is about maximising the financial potential and prosperity of everyone involved. For each individual, it is an entirely bespoke package. It is not designed for everyone, only those who understand the advantage of paying for individual advice. With this in mind, here are some ideas to get you started.
As expected, Chancellor Gordon Brown confirmed in the Budget that the single pension tax regime will go ahead but there were several surprises.
A-Day has been delayed to April 6, 2006 and the lifetime allowance has been increased to £1.5m at the outset, with a promise of future pre-determined increases likely to be above inflation up to 2010.
All this is good news. It means that advisers and providers have more time to understand the massive level of changes and develop an advice and transition strategy for wealth management clients.
Three main opportunities now exist to provide advice to wealth management clients as a result of A-Day – those who are close to or who could breach the £1.5m lifetime allowance at A-Day, those who may have over 25 per cent tax-free cash at A-Day and those who need advice and overall guidance on the proposals.
There are various issues to consider for each of these categories.
For clients close to the £1.5m lifetime allowance, establish whether they want to boost their pension savings and how this can be done and establish which clients can increase their salary to achieve this.
For clients who may have over 25 per cent tax-free cash at A-Day, identify which ones can boost funding for tax-free cash. Do they want to increase their savings and how can this be done?
Can any of these clients increase their salary to achieve this? Are these clients in the right contract? Tax-free cash protection is lost if the client transfers after A-Day.
What alternative savings arrangements would be suitable for these clients if they were no longer contributing to their pension? Has the right information been recorded about these clients?
Looking beyond the A-Day proposals, there are various other issues that advisers can focus on with their higher-net-worth clients.
For many, inheritance tax planning will be a priority. The IHT nil rate band rises from £255,000 to £263,000 on April 6. This is an increase of just over 3 per cent.
The IHT nil rate band is not keeping pace with house price inflation which was 17.18 per cent in the year to February 2004, according to the Halifax house price index).
Halifax also reports that over the last year, the number of properties valued at more than the 2003/04 inheritance tax threshold of £255,000 has increased by 390,000 to 1.94 million, with more than two-thirds of the rise in areas outside London and the South-east.
These statistics suggest that IHT planning is becoming an ever more important area for financial advisers.
Drawdown is popular with higher-net-worth clients and the increased flexibility afforded by the simplified tax regime should see the market grow.
The drawdown market is currently worth around £1.3bn and now is probably the right time to take a fresh look at drawdown transfers for wealth management clients. What are the issues to consider?
Price: Some of your clients may be paying higher char-ges than necessary such as extra charges for things such as ad hoc withdrawals and investment switches.
Service: With such a complex product, service is particularly important. Getting the income levels right and getting it to a bank with no errors is vital. Bad service is a good reason to move to a new provider.
Poor investment choice: Transferring to a new provider which has a wider investment choice is an excellent way to create a new bespoke investment portfolio, taking advantage of such new tools on the markets as investment profilers and fund supermarkets.
Resetting Government Actuary Department limits: Clients' circumstances are constantly changing. Many want to preserve their funds and so opt to take the lowest level of income permitted. By transferring to another provider, the GAD limits are automatically reset. For some clients, this may allow them to reduce the level of income they are taking and therefore protect the size of their fund.
Whatever opportunity you decide to take advantage of when dealing with higher-net-worth individuals in the advisory end of the market, you need products that reward you for the time and effort involved in giving advice.
Wealth management can provide your business with long-term security.