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Strategic wealth management

Strategic wealth management is the management of wealth (financial resources) according to a well-considered plan (strategy), focused on financial goals, known timeframes; and allowing for the investment risk aversion of the individual or family/ group for whom wealth is being managed.

[The term ‘wealth’ is limited to the financial resources for this discussion: we acknowledge that there are other factors that constitute wealth in lifestyle terms.]

What is ‘wealth management’?

In the context of this article ‘wealth management’ is the process of protecting and maintaining the financial wealth that has been accumulated to date (whether by inheritance, or by accumulation from individual or group endeavour); including, of the wealth contributors available to us.

For some, the ‘wealth contributors’ will mean their ability to earn a salary/ wage; for others it will be the composite growth they can obtain from moneys invested (in the forms of capital appreciation together with earnings on the invested assets); and for yet others, it will be what profit they can generate from operating a business venture(s).

What makes the wealth management process, ‘strategic’?

We have all heard the expression – ‘if you fail to plan, you plan to fail’. Successful plans for any aspect of our lives require strategic thinking: the more focused we plan for a particular outcome, the more strategic we become in taking the actions that will lead us to attaining that outcome. The actions of formulating the financial goals and implementing the strategic plan to achieve them can be related to a journey.

Considering the process of organising a road trip to a previously unfamiliar destination might help in understanding where strategy and planning help us to harness given resources to achieve a safe and successful outcome – in wealth management as well as on that road trip:

A successful motor journey results from deciding the purpose of the trip (what we want to achieve – goal setting): this might be to visit people, to visit some historic or geographic feature, to attend an event etc – and then planning the journey to ensure that the purpose is achieved. This aspect of the planning will include identifying the destination, any time constraints to undertaking the journey – and identify any resource issues that need to be addressed in making the arrangements.

The plan for the journey may detail some milestones to look out for along the way (the achievements that will tell us we are making the appropriate progress). A review of road and weather conditions may determine the timing of the journey (knowing the challenges that are likely to impact on the rate of progress we will make). The plan will also include deciding the mode of travel (which may become a strategic consideration); whether there are other travellers with needs to be met along the way (including meal, rest and comfort stops) – and how to deal with any unexpected incidents that impede our progress (risk management/ mitigation).

The strategy piece in relation to wealth management also starts with the goal setting:

  • is it to preserve capital for a particular goal (retirement; philanthropy; family bequests, etc)?
  • is it for one’s self, or for a family entity or foundation?
  • is it to attain financial independence and peace of mind for yourself or for dependents (particularly dependents with disabilities/ special needs)?

Having determined the goal(s), a plan is essential to guide as to how to achieve the goal(s): and in relation to strategic wealth management, the following matters need to be considered as to their effects on the plan:

  • current financial position (both asset-wise; and cashflow available);
  • the end goal (as well as any substantial costs anticipated in the meantime – see below);
  • investor risk aversion (and any investment asset preferences);
  • the role of debt/ gearing in the achievement of the goals;
  • asset protection requirements;
  • the timeframe available;
  • individual risk elements – such as family stability, health, earnings security and so on.

What are the key elements of strategic wealth management?

The holistic response to this question will incorporate –

  • investment management;
  • ‘asset’ protection; and
  • estate/ business succession planning.

The investment element of strategic wealth management:

Knowing the strategic outcomes required, investment planning is able to be undertaken and implemented, in most cases based on long-term outlooks (i.e., more than 5 years; and in many cases the plan takes us unto terms in excess of 20 years – embracing a latter period in retirement).

Even a simple ‘regular savings program (with/ without ‘gearing’) will serve most savers well whilst considering their financial independence into the future. Such a program will provide a capital sum ready to start your wealth accumulation process – and that process through time may well embrace lifestyle and financial items such as:-

The well-developed strategic plan embracing all of these events will include budgeting affordability, earning adequate funds to provide the financial demands of each part of the journey, surrounding the people and financial obligations with the protection of relevant insurance (including property insurances, asset-based policies, personal life insurance and income protection) – and making succession (estate) plans to ensure that all of this effort is not lost though accident, illness  or other misadventure.

Investment is a critical part of meeting the financial goals to attain the financial independence most seek in the retirement phase of life. The rewards of consistent investing with a purpose are reflected in the following extract:

(Note – the calculations in the extract, from the book – ‘Beating the Street’ by Peter Lynch1 , were made back in 1993: logic suggests they still have relevance today.)

“The following calculations, strengthen the argument for investing on a schedule. If you put $1,000 in the S&P 500 index on January 31, 1940, and left it there for 52 years, you’d now have $333,793.30 in your account.

If you added $1,000 to your initial outlay every January 31 throughout those same 52 years, your $52,000 investment would now be worth $3,554,227.

If you had the courage to add another $1,000 every time the (market) dropped 10 percent or more (this happened 31 times in 52 years), your $83,000 investment would now be worth $6,295,000.

There are substantial rewards for adopting a regular income of investing and following it no matter what, and additional rewards for buying more shares when investors are scared into selling.”

The asset protection element of strategic wealth management:

Having a substantial investment portfolio – or even a lesser, but strategically growing one – is all very well, but there are personal risks in life that can erode the accumulated wealth; or, in the case of an accumulating wealth position, could impede the continued growth of the wealth. There is a range of protection mechanisms to be considered, some of which include needing to decide whether to accept the risk, take mitigating action to minimise the consequences of a risk event, or to outsource the mitigation of those consequences from a financial perspective, to an insurer.

Accepting the risk and its consequences should only be undertaken within known circumstances and within the constraints of emotional and financial reserves.

Mitigating action includes: using investment and asset-holding structures (such as companies, trusts, superannuation funds) and putting appropriate succession plans in place in each instance.

Outsourcing to an insurer works for situations such as property (buildings, chattels, vehicles, other assets), health and medical (private health insurance; and trauma policies); and life insurance generally (Term Life, Total and Permanent Disability, Income Protection Insurance, Business Expense Insurance).

The estate/ business succession element of strategic wealth management:

Some may consider that this element of wealth management is a sub-part of the ‘mitigating action’ issue mentioned above. However, there are such specialised considerations to be considered in both Estate Planning and in Business Succession Planning that they warrant consideration in their own right.

For all of the best planning that we can undertake; and for all of the success that we might be able to achieve in our investment program – and the risk mitigation planning we undertake, there is the inevitability of death to consider (and in the business situation, the triggers for a discontinuation of ownership relationships).

Your strategic wealth management planning starts here –

Continuum Financial Planners Pty Ltd has experienced advisers available to help you with the drawing up up your strategic wealth management plan: we all work to the mantra – ‘we listen, we understand; and we have solutions’ – that we deliver in personalised, professional wealth management advice. You are invited to view our offerings as to our value-adding services; and our fee for service, ongoing relationship service packages as published on this site – and then, to arrange a meeting to start planning your wealth management adventure, please call our office (on 07-34213456), or go to our website Contact Us facility: in either case you will receive prompt and courteous attention.

1 Peter Lynch is a former Investment Director at Fidelity in New York.

[This article was originally posted in November 2011: it has been refreshed and updated occasionally, most recently in August 2016.]

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