Who advises the adviser?

Last year's Financial Conduct Authority Financial Lives survey found that while only 8 per cent of adults had received financial advice in the past 12 months, 87 per cent of those people trusted their adviser, and a similar number (84 per cent) were satisfied with them. 

But to pose a question: where do the financial advisers turn for their financial advice? While they may very well be adept at managing the wealth and investments of others, does that automatically mean they should manage their own? 

Typically we would say ‘usually not’. It is easy to assume that a financial adviser is well-placed to manage their own affairs but distance and objectivity can be a good thing.

We think that, to the extent possible, bringing in the right type of advisers from a range of professional backgrounds is likely to be the best way for many individuals to manage their wealth and investments, even in circumstances where they may be able to take it all on themselves.

Financial advisory work can be complex and multi-faceted. It is almost never the same from individual to individual.

One person may have developed a business and is now on the verge of a capital event. Another may have inherited money or assets and is interested in wealth preservation. Another may have been sitting on wealth for a while, and already have processes in place to manage and preserve it, but may now like to explore opportunities to deploy their wealth.

The types of assets held will almost certainly give rise to a different range of legal and tax considerations to be considered. Do you hold money? Art? Property? One person might want to set up a family office, another might not. All of this will ultimately drive who you might involve to support you. 

Is 'I can' the same as 'I should'?

An individual may have the experience and financial know-how to be able to navigate all of the complexities, but just because they ‘can’, does it mean that they ‘should’?

It is easy to believe that because they have been successful in business that they have the bandwidth to invest an equal amount of energy in the management of their own affairs. But this can be dangerous ground.

Executing a financial plan may be more complex and time consuming than one might think. It is not simply selecting what to do but rather having the capacity to do it properly.  ‘Properly’ in this context describes the process of:

• defining a financial plan for your family;
• making aligned investment decisions across multiple asset classes;
• navigating the red tape and paperwork;
• tax and estate planning; and
• ongoing management, review and adjusting course.

The breadth of skills necessary to manage wealth is one of the many reasons for the pronounced growth in the number of family offices globally. 

These offices are created with the sole preserve of managing the family wealth infrastructure, removing complexity and enabling families to achieve their goals in an equitable, efficient way.   

Human beings are complex and can be driven by emotions more than even they themselves realise.

Managing one’s own affairs can also risk creating tunnel vision. We are all humans with biases and, in many instances, it can be difficult for a person to look at their affairs and be objective about what they see.

Having advisers to bounce ideas off, and having people to speak to who are willing to challenge your biases or preconceptions, make you question whether another approach might actually be best in helping you to reach your goals, or offer alternatives – these are all things that can be extremely valuable. 

Economist Noreena Hertz once wrote on bad decisions for the New York Times, and what she said in that piece still holds true now: “All of us show bias when it comes to what information we take in. We typically focus on anything that agrees with the outcome we want.”

Sometimes we can be so fixated on an idea or a long-held dream that it can lead to poor decision-making. In order to arrive at the best outcomes, it is important to try and be as objective as possible.

It is not always about the money

While money may be at the centre of an individual’s goals for wealth preservation and/or deployment, their motives and aspirations almost always end up being broader than just financial.

There are often other goals at play beneath the surface: family, legacy and success; preserving, growing or divesting wealth – the list goes on. 

Whatever your goal might be, having the right legal framework in place will often be incredibly important. For example, family businesses may well be focused on how to pass their wealth to the next generation, or how to protect legacy family wealth should any of their family suffer a divorce, financial crises or any other curveball life can throw at us sometimes. 

Having the right legal framework in place before any of these events will invariably help protect wealth, reduce the likelihood of family fallouts, as well as manage expectations for the future generations.

People cannot know what they do not know, and there are only benefits to be gained from taking the widest possible view and pooling experience.

For another family business, the most important point to them may actually be education – ensuring that the next generation are educated on dynastic wealth preservation. That can often require support from a whole different discipline.

There may even be a need to assess how one structures a family office, depending on whether, for example, the entire family requires advice or just an individual, while still keeping everything under one umbrella. 

Again, the reason for this is that it is important to obtain advice that is as objective as possible. Objectivity is important for a myriad of reasons – for one, human beings are complex and can be driven by emotions more than even they themselves realise.

Additionally, people cannot know what they do not know, and there are only benefits to be gained from taking the widest possible view and pooling experience. 

Our general advice is for individuals – to the extent possible – to be willing to take their hands off the wheel a little and try to build a multi-disciplinary team around them, no matter their financial literacy or skill. 

Charlie Ring is corporate partner at Charles Russell Speechlys; and Ross Youngs is group commercial director at Belasko