Opening the conversation on wealth management

Wealth management
robert-outram By Robert Outram, Editor of CA magazine

25 October 2016

In a volatile global political climate, how is the wealth management sector faring and evolving? A panel of experts met recently to discuss the industry’s future.

Last month, the CA magazine and Investec Wealth & Investment, one of the leading names in wealth management and an ICAS partner organisation, brought a group of advisers from different disciplines together to discuss the challenges, opportunities and changing environment in wealth management.

Chairing the discussion was Murray Mackay, Executive Director for Scotland and Northern Ireland with Investec Wealth & Investment. 

His first question addressed the way the financial markets are reacting to a period of great political volatility and uncertainty, from the recent EU referendum in the UK to a controversial presidential election campaign in the US.

As he put it: “With all this uncertainty, why are the markets going up?”

Murray Mackay

His colleague Gary Laing, Associate Investment Director with Investec, explained this in terms of the actions taken by central banks, especially the Bank of England.

“The weakness in the economy following the Brexit vote has given central banks the excuse to not only not raise interest rates, but to inject more liquidity into the financial markets,” he said.

He added that the sharp fall in sterling had also helped to boost profits for companies on the stock market as most of them derive a significant portion of their earnings from overseas.

Gary continued: “When you compare them to other asset classes, notably bonds, the risk premium makes equities look reasonably attractive. 

"That’s probably an example of quantitative easing (QE) working, forcing investors up the risk spectrum to seek a return.”

“With all this uncertainty, why are the markets going up?”

Graham Campbell, Chief Executive of Saracen Fund Managers, was sceptical about whether even lower interest rates would encourage growth.

He said: “Cutting rates isn’t working and QE clearly is not stimulating economic growth. Equities appear still good value in places, and it is likely we will see more spending on things like infrastructure, that will have a more direct impact on the economy.”

Zane Hunter, Managing Director with French Duncan Wealth Management, commented: “People are moving up the risk curve to try to get yield. 

"If you are making long-term decisions as an investor, the danger with that is you adopt a knee-jerk reaction when the yield goes the wrong way in the short-term. We advise that investors should make decisions and stick to them.”

Zane Hunter

Craig Hendry, Managing Director of Johnston Carmichael Wealth, agreed: “Our role is trying to stabilise clients and make sure they don’t buy at the wrong time and sell at the wrong time. They need to be strong and hold on through the white-knuckle ride.”

Jim Higgins, a Director of Deloitte’s private client practice, pointed out that different clients will have different motivations. 

He said: “Clients who need to seek a return are moving up the yield curve, whereas ultra high net worth individuals (HNWIs) are often happy to sit on cash.”

The problem, of course, is that the search for yield in today’s market can lead investors to assets that are illiquid, highly risky, or both.

[Clients] need to be strong and hold on through the white-knuckle ride.

Can interest rates stay as low as they are? Laura Lambie, Senior Investment Director with Investec Wealth & Investment, believes not.

She commented: “In the UK you would expect to see inflation coming back into play with sterling where it is, especially once the government turns to fiscal policy.”

Planning and risk

One of the key roles of a trusted financial adviser is to assess the client’s needs and risk appetite. Craig Hendry stressed: “HNWIs generally have a different risk appetite and requirements, compared with other people. 

"For example, maybe they don’t need growth. If they have £20m, £30m and they can live on £5,000 a month they do not need to take risks.”

Wealh management panel

The panel also considered the impact of the tax system. Alan Barr, Partner and Head of Personal Tax Planning with law firm Brodies, said there is a risk that the drive to shelter against, say, inheritance tax through tax-favoured investments can lead to investors potentially losing their capital.

David Ogilvie CA, a Director of Scott-Moncrieff who headed his own practice for many years, noted: “There is no better medium than an agricultural estate for sheltering against inheritance tax.”

He added, however, that a combination of Scottish government policy and economic factors threatens to drastically reduce yields on many of the large estates in Scotland.

'Tax planning' itself has also become a controversial area, the panel agreed. Stephen Hay, Head of Tax in Scotland for RSM, commented: “Tax avoidance has been virtually compared with tax evasion, and it has become harder to convince a client that even planning which is perfectly acceptable is going to be OK. 

"We are seeing retrospective investigations and enquiries and changing legislation – I think it has gone far too far.”

Tax avoidance has been virtually compared with tax evasion.

He added that the perception of vehicles such as employee benefit trusts and film partnerships is now negative whether or not the individual package stands up legally.

Alan Barr suggested that we are simply seeing the pendulum swinging back in response to abuses of the system. 

He said: “When these reliefs were introduced, it was for economic reasons, to stimulate investment; but people were not using these reliefs but abusing them. 

"They are the ones that hit the press. It’s no surprise at all that the government, the courts and the public are not prepared to see this go on anymore. It should have come before now.”

Alan Barr

David Ogilvie said: “We can’t use ‘schemes’ any more. Each approach for a client has to be individually planned, detailing the implications of following any given course of action.”

James Paterson, Tax Director of BDO, agreed: “It’s a case of working out the tax implications of what the client wants to do. It’s bespoke planning; it’s not about using an off-the-shelf scheme.”

An added layer of complexity has been created for clients in Scotland, where tax on non-savings income is due to be a responsibility of the devolved government, and also where a 'general anti-avoidance rule' (GAAR) will operate, as opposed to the 'general anti-abuse rule' applying to the rest of the UK.

John Coats CA, a Partner with Greaves West & Ayre, a firm based in Berwick-upon-Tweed, noted that many advisers and clients in England are not very well informed regarding Scottish tax issues.

It’s bespoke planning; it’s not about using an off-the-shelf scheme.

Finally, how is wealth management changing as a discipline? While technology is bringing down the cost of managing investments, the cost of advice has gone up sharply.

John Coats commented: “Ten years ago, the perception was that the tracker approach was going to be the solution for the mass market, but that has been proven wrong.”

Laura Lambie said that changes in regulation have made it hard for professionals to advise anyone without a significant sum to invest. She noted that individuals should start to save and invest as early as possible, perhaps starting out with an ISA.

She added: “At the early stages, with relatively modest sums, it is unlikely that an investor would be able to get face to face, cost-effective advice from a qualified professional. 

"However there is a lot of information online, and there are investment houses, including ourselves, who are developing an online advice proposition.”


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