Independent Financial Advisors key to high net worth individuals’ wealth management
25 November 2013 | Intermediaries / Brokers | General | Windall Bekker, REZCO
The complex financial needs of high net worth individuals, coupled with the challenging economic markets that investors need to navigate, together highlight the need for independent financial advisors (IFAs) who are familiar with high net worth strategies. This is according to Windall Bekker, Partner at REZCO Asset Management, who says high net worth individuals like to know that they are protected against market drawdowns while at the same time participating when markets rise.
Bekker comments, "Usually, once a high net worth individual has made their fortune, they look to protect what they have for their family’s financial security as well as for their retirement years. The smart ones generally realise when they have enough capital and don’t put all their existing asset base at risk to try and make more.
"They like to know that their strategies protect them against market drawdowns, while at the same time allowing them to participate when markets rise. In essence, this strategic combination firstly protects what they have, and secondly assists them in accumulating more without putting too much at risk.”
Diversification is a key element of the strategy that high net worth individuals should have in place, says Bekker. "Because they can generally take on more risk than less wealthy investors, high net worth individuals can invest in a more diverse set of products. These could include hedge funds, property syndications, private equity deals and structured products.
Bekker says there are different ways of categorising high net worth individuals and that, in REZCO Asset Management’s view, this could be an individual with assets greater than USD 1 million. "However, one should also consider liquid and illiquid assets. For example, someone might think their house is worth R5 million, but the market may pay only R2.5 million at a certain point in time. Due to the asset not being valued often, it is often challenging to gauge the actual level of wealth. Another indicator of being a high net worth individual is someone who needs to establish a family trust to protect their personal assets.
"Quite a few people are actually quite wealthy but without the conspicuous consumption that goes with it. Many wealthy people have family trusts to protect their assets. This means that, as individuals, they might not be that wealthy, but the family trusts that hold and protect their wealth are quite valuable. Many people are heavily invested in the markets and so the value of their wealth is highly correlated to the market’s performance.”
Because of these variables, says Bekker, wealth can be eroded over years, and if not managed correctly, individuals may reach retirement and not be able to afford the same luxuries and the lifestyle which they were accustomed to during their working lives. "These high net worth individuals need to have certain strategies and risk management elements in place to make sure they are following an investment strategy that is appropriate to their age, their investment goals and the amount of risk they are willing to take on at any given moment.”
The role of the independent financial advisor is therefore very important, and trust in this relationship is paramount. "If trust between you and your independent financial advisor is broken, it’s a bit like a marriage: very hard to move forward together once more. There are many highly regarded IFAs with long track records and loyal customer bases. Make sure that you know who you are appointing to be your IFA and that they have the appropriate technical skill sets and abilities as you begin the relationship,” concludes Bekker.
