What Is Wealth Management?

Wealth Management is the provision of a service built on a long term relationship between client and financial adviser. It will encompass the advice, care and provision of various solutions depending on your needs, with respect to your aggregated wealth in all of its forms.

The ‘Management’ involves building a plan around your financial and lifetime goals to ensure that tax, risk, complication and worry are all kept to a minimum, but at the same time seeking to maximise opportunity, growth and income. The ‘Wealth’ is all forms of your saved, earned, inherited and physical finance. This can range from your first simple savings plan to a complex international portfolio.

Investment Process And Philosophy

Our Investment Philosophy describes our approach to the provision of investment advice. It outlines our beliefs about investment and explains our approach to managing your money. Our philosophy also focuses on you, and how you are involved with investment decisions; after all it is your money.

If you don’t understand anything here please ask us, there is no such thing as a ‘dumb question’ when it comes to looking after your money!

Our Beliefs

All investors should understand the reasons for investing and how it will help them to achieve their goals. The world of investing can be complex, but a lot of this complexity has been created by investment professionals to enable them to extract greater financial rewards from investors. We believe in keeping things simple. So while there is a lot of science and evidence behind our investment philosophy and process, we are keen that every client understands our recommendations and how they fit with their own financial objectives.

When advising on your investments, our conversation with you will look into a number of key areas, including:

  • your need for capital security
  • your age
  • your family commitments
  • the need for income and or growth
  • whether there is an investment target
  • the investment time horizon
  • interest rate risk
  • inflation risk
  • any regular income needs
  • the impact of charges and penalty fees

When delivering investment advice, we always begin with a detailed understanding of your financial planning objectives. These help to inform decisions about the level of investment risk that needs to be taken.

A conversation about risk and its many dimensions is the essential first step when investing. When it comes to investing, risk and reward are inextricably entwined. Don’t let anyone tell you otherwise. All investments involve some degree of risk – it’s important that you understand this before you invest.

The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, such as stocks or bonds, rather than restricting your investments to assets with less risk, such as cash equivalents. However, investing solely in cash investments can still be appropriate for short-term financial goals

To help our clients understand risk, we break it down into four elements:

Investment Risks

These are the risks associated with different types of investment and can include the following: Volatility – ups and downs. Liquidity risk – the ability to get your money back when you need it. Company risk – the risk that one company goes bust. Default risk – the risk that a bond doesn’t pay you back. Emerging market risk – the fact that some markets are less efficient and transparent.

Your Attitude To Risk

Risk attitude has more to do with the individual’s psychology than with their financial circumstances. Some will find the prospect of volatility in their investments and the chance of losses distressing to think about. Others will be more relaxed about those issues.

The Need For Risk

 All these risks might start to put you off. But even investing in cash carries risk. For example, inflation risk can occur meaning that your spending power will decrease. Default risk could also occur, meaning that your deposits are not safe. For some investors, and certainly for short term savings, cash investment might still be the best fit for your needs.

Your Ability To Tolerate Risk

 If things go wrong what would that mean for your finances? Can you afford to take risks with your investment? You may be a risk averse investor, but are you saving enough?

Generally speaking, a person with a higher level of wealth and income (relative to any liabilities they have) and a longer investment term will be able to take more risk, giving them a higher risk capacity.

Your ability to tolerate risk is very different to your attitude to risk, and understanding this is a key part of our investment process. We try to understand the level of investment risk that needs to be taken and can be taken, rather than simply the maximum amount that you feel happy with.

Investing for the long term is very different than saving for the short term. While there is an understandable desire to keep things safe when investing, the impact of inflation and the value of investing for the long term in more risky assets are compelling.

Real assets such as equities, property and commodities make a better investment than the apparently safe option of cash deposits in the long run. It is also worth noting that in eight of the ten year periods of the last century, equities beat gilts

Real returns (after inflation) over 20 years

%pa. Asset class       Return

UK Equities                 6.0

Gilts                             5.8

Index-linked               4.3

Cash                            2.6

Get in contact with the team at Lowndes Alexander Daniel now by email or telephone.