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Expat Investor : May June 2009
THE INTERVIEW Choose your wealth manager wisely Expat Investor asked Stephen Kearns, Chief Operating Office with FirstRand Private Wealth Management, to take readers through the necessary steps to ensure they teamed up with a successful wealth manager. The short, medium and long-term view Effective wealth management requires that a client’s full financial situation is understood. It is necessary to analyse both the balance sheet and income statement of a client and quantify their capital and income needs in the short, medium and long-term. A client’s capacity to take on risk will vary depending on their obligations and personal objectives, so it is essential to know what their financial commitments are and when they occur in order to structure a strategic wealth plan. “A client’s capacity to take on risk will vary depending on their obligations and personal objectives, so it is essential to know what their financial commitments are and when they occur in order to structure a strategic wealth plan.” Once you have established the True wealth management is a discipline that combines many factors and incorporates detailed financial planning. Establishing a client’s risk profile is a vital part of that process. Whilst it is common for clients to be questioned about their ‘attitude’ to risk, it is actually their ‘capacity’ to take on risk that is the most important thing to establish. The value of assets and the capital markets are driven alternatively by fear and greed, as 16 EXPAT INVESTOR ● recent events have shown all too well. Sentiment and confidence are emotions that are at their highest when markets are at the top and at their lowest when markets are at the bottom. Of course, that means that the majority of inexperienced investors get it totally wrong, buying at the top of the market when they have a very positive attitude and selling at the bottom when their attitude is at its lowest. Good advice recognises these traits and needs to be delivered May/June 2009 objectively, consistently and regardless of how the client is feeling. Like a good doctor, the medicine a wealth manager prescribes for a client’s finances should not necessarily be easy to swallow. Often, there is a need to protect a client from his own emotions, and none of us has a crystal ball, so the question, is how to persuade them to do the right thing? The answer is to objectively establish their ‘capacity’ for risk. At the heart of any plan for a expatinvestor.com client has to be an understanding of their personal circumstances. Everyone actually has a unique ‘balance sheet’ that can be projected out to retirement and beyond, which consists of their existing and anticipated future assets together with their known and expected future liabilities. By working out the probable cash flow of a client, looking carefully at the timing of certain events, it is possible to calculate their balance sheet at various points in time. personal road map of a client’s expenditure objectives, it is possible to identify the risks that need to be managed and calculate their capacity for risk, which can be defined in three categories. First, any funds that are needed for expenditure within the next two years should be held in investments where the capital is secure. Here, return is not really important, it’s all about not risking capital you know you are going to spend. Bank deposits and money market funds traditionally offer the highest level of capital security and pay a low, if certain, return. Although last month’s banking crisis caused widespread panic and some
March April 2009