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Why professionals need wealth managers

Being less likely to own a saleable asset at retirement is one reason.
As their income is commensurate with the hours they work, most professionals don’t have time to investigate the investment universe properly. Image: Shutterstock

Professionals such as doctors, lawyers and accountants are generally high salary earners, but have often not been great investors, nor have they planned well for their retirement.

This is for a number of reasons. First, while professionals may save, they tend to also have an expensive lifestyle, thus eating into possibly higher savings.

Second, professionals are extremely busy by nature, as their income is commensurate with the hours they work. As such, they often don’t have the time or inclination to investigate the investment universe properly and thus invest almost exclusively in property and retirement products.

Finally, professionals generally earn well during their working life but, unlike entrepreneurs, do not own a saleable asset at retirement.

They are essentially the commodity themselves and earn a share of the profits only while they are employed.

In other words, professionals often lack a clear financial plan or strategy and require a clearly defined financial road map to guide them in formulating a better plan for retirement.

The first and simplest step

The benefit of starting the financial planning process as early as possible cannot be understated. It is disheartening to discover how many of the professionals we meet have reached retirement age and have unfortunately left it too late to build the wealth needed to generate sufficient income to meet their future expenses.

As a professional, it is therefore crucial to seek the guidance of a well-educated, experienced and professional financial advisor in order to adopt a more disciplined approach to your financial future and make the difficult financial planning decisions that are necessary to achieve financial independence.

The first step is to develop a clear-cut financial and retirement plan that incorporates cash flow analysis, fiduciary and financial planning, as well as risk management.

This plan should also address the professional’s ‘firewall’; the amount required to achieve financial independence.

Key deliverables needed

One of the key purposes of a financial advisor that is often overlooked is their role in ensuring that a professional’s portfolio is properly diversified both locally and offshore – an area of particular concern for professionals given the numerous other demands on their time.

It is important to note that retirement funds are limited in terms of the amount that can be invested offshore in compliance with Regulation 28 restrictions, and that investments in physical properties can become burdensome when considering vacancies, unforeseen expenses and upkeep requirements.

Diversification in terms of both asset class and geographic allocation therefore remains a priority.

Additionally, tax structuring and estate planning are absolutely critical in financial planning and are often overlooked by professionals. A financial advisor would, for example, be able to advise on the most appropriate mechanism to protect a professional’s assets from creditors, or how to enhance the tax efficiency of their investments by splitting income between spouses, taking advantage of capital gains tax as opposed to income tax, and utilising endowments or offshore retirement vehicles and structures where appropriate.

Additionally, a financial advisor is necessary to guide professionals in ensuring that their will is in line with latest legislation and that it remains up to date at all times.

All-in-all, the particular financial circumstances of professionals means that they should seek specialised knowledge and tailored advice from a financial advisor with whom they are prepared to build a lifelong relationship based on trust.

Michael Hertz is an advisory partner at Citadel.

The views and opinions shared in this article belong to their author, cannot be construed as financial advice, and do not necessarily mirror the views and opinions of Moneyweb.


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Looks like financial advisers are looking for work?

That’s what this WHOLE website is about

Yes, very true – many professionals have only a high lifestyle to show for their years of hard work, and almost nothing else. Here is a little test you can perform on yourself right now: Take your current or highest gross annual income and multiply it by 10% of your age. The answer should be equal to your total savings (all investments including shares in a business, pensions, annuities etc) – that is, if you are an average accumulator of wealth.
If you have double this amount saved, you are a prodigious accumulator of wealth – congratulations!
If you have only half this amount saved, you are an under-accumulator of wealth.
Oh, and any “investments” in items that cost significant upkeep or ongoing expense to own, or that do not maintain value over time do not count as savings – cars, boats, private planes, timeshare, leisure property, etc.
It is debatable whether the house you live in should be counted as part of your savings, as arguably you will always need at least that amount to have a roof over your head – so you will never be able to realise the value and use it for anything else. (Your heirs may be able to realise the value after your death, but this is of course merely interesting, from your point of view.)
And yes, professionals as a group have more under-accumulators of wealth than most other job types. Teachers and auctioneers are often prodigious accumulators of wealth.
[Very loosely summarised from “The Millionaire Next Door” by Stanley and Danko, a book that changed my outlook on money and life 20 years ago.]

Interestingly the Millionaire next door has recently been updated and not much has changed over two decades.

Very important read for everyone.

So for example, a a 30-year-old, with a 4 year university degree, earning R500k before tax should already have saved: 500e3 * 0.1*30 = R1.5mil?

I find that very hard to believe. Most starting salaries are quite low.

Pretty darn accurate in my case

No thanks. I will do what Buffet does ie read, read, and read and do it myself. Thank goodness these days there are products like ETFs which just track the index and are very successful over time. Thank you Jack Bogle!

Yes, with the ease of index funding, this article just ‘bogles’ the mind

There is a lot more to successful investing than just the use of index fund plus index funds DON’T provide index returns – they provide index returns less costs (direct, indirect and execution). Sometimes I feel index investors live in a fantasy world where they think they invest without costs.

Getting so tired of this advisor vs selfhelp debate on Moneyweb. Over and over the same story. Some people are simply not interested in chasing their money all the time and leave it to people whose work it is to do so. Nobody works for free, but apparently financial advisors must. Pore over your computer and read about money, you will maybe make more, or not, if you are not really savvy. Or you can choose to look at the sunset, enjoying a glass of wine. Bit less money, lot more life.

Griet, nobody ever said that they don’t want to pay for services rendered, the issue is and will always be the method used to pay for such a service.

Other professionals charge a transparent fixed value.

The financial advisers charges a percentage of your entire portfolio. That is simply wrong since different people will be charged differently for the exact same service.

Wealth managers? Sorry but they are more like commission (spaza shop) vendors.
They are more worried about selling where they can earn the greatest commission, than managing wealth.

How many “Wealth Managers” follow their own advice? They are guessing the market like the rest of us.

What most professionals need is effective tax advice, and then investing to delay the payment of tax (in products that keep up with inflation).

My growth due to lowering my tax burden is multiple times more than the growth every year, as most “investments” hardly keep up with inflation.

End of comments.





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