True, you’ve been running a profitable operation for years; you know all about your markets and customers and when asked about the secrets of success you have all the answers.
But then everything changes. You sell the business, bank the cheque and suddenly you’re faced with the burning question: “What do I do now?”
This is a common scenario, when the wealth creation vehicle changes hands and all that you’re left holding is a cheque. More than likely this is the starting point to create an income that will sustain you from here on in.
For those who are not prepared, and for those asking questions for the first time such as “where do I turn?”, “who do I speak to?”, “what is the best strategy to pursue?” the moment can be daunting.
It needn’t be, especially if part of your preparation for selling focussed on this area of enquiry. The time to make decisions and learn about this new world of wealth management needs to start well before the sale has started. Like all well run businesses there needs to be a plan in place.
I recently met a very successful business person who had sold their business. The money was in their business account sitting there waiting. They knew they needed to get some advice but they didn’t know which way to turn.
Their knowledge of the wealth management industry didn’t match their savvy when it came to business matters. To their credit they recognised this gap and set about learning all they could about investment options. Yet that process produced its own problems. They wrote down everything they were told. They did a huge amount of research on the internet. They were consumed by the sheer amount of information that they had to take on board. It felt like they were cramming for an exam and they eventually fell prey to overload.
Again, the trick is to start early so that the process and what needs to be absorbed doesn’t take on a life of its own and become unmanageable.
An important first step is to build up a relationship with a wealth professional that you can trust. Look around and ask for a referral. Meet professionals from different areas; banks, trust companies and stockbrokers. They all offer something different and understanding their individual propositions and how they can add value will help you decide what best suits your needs.
Also be aware that from 1 July 2011, the Financial Adviser Act came into force. This means that anyone providing financial advice needs to be authorised by the Financial Markets Authority. As such there is a strict set of criteria and code of ethics that must be followed. If the person you’re considering as your wealth manager doesn’t have AFA status then it’s best to go to someone who has.
The concept of asset classes is one that you’ll hear about and it pays to understand the differences. The four main asset classes are cash, fixed interest, property and shares. Investment products are often made up of a mix of these. The reason for the ‘mix’ is that each one provides a different result and, over time, will produce greater or lesser returns. Having a balanced investment means that you should have an allocation with all the asset classes. The percentage will depend on what your investment goals and needs might be. This will more likely than not be related to your attitudes towards financial risk vs. reward.
It’s important that you consider this issue when assessing your choice of investments. Generally the greater the risk the better the return, but, in some cases the sake of a few percentage points of increased return may mean the risks are too high for some investors.
Make sure you deal with someone who asks questions. There needs to be discussion and debate about an investor’s attitudes to risk and return, to establish their rick profile.
Like any relationship, time should be taken to ensure your wealth manager knows you well enough that they’re providing correct, accurate and relevant financial advice. With over 20 years in the financial services industry, I have seen how taking the time to go through a proper process ensures that the advice that is given matches the investor’s needs. The conversation should be about how they work and then all about you. What do you have and why? Where do you want to be and why? The rest is up to the wealth manager to help you understand how you are going to get there.
After working all your life to build up a successful business it is vital that great decisions are made. To do this dealing with a professional is key. But don’t wait for D day. Start the process now. It will reap benefits in the long run.
Jonathan Beale is Head of Private Banking and Wealth Management at ASB