BQ Yorkshire Editor Mike Hughes offers a personal view of the wealth management sector in Yorkshire.
It would be too predictable, too easy, if wealth management was allowed to set its own rules. This is a reactive industry that knows the ups and downs of personal finance just as well as the uncertainty of global government decisions and the sometimes alarming decisions from influential companies. Internationally, it took courage to predict the economic crisis in Greece, or that China would need to apply the brakes to its runaway growth strategy. Yet both have had profound specific effects on investment and savings plans as well as rewriting the rules on how much risk is too much.
It is certainly an international market out there, but in Yorkshire’s always-changing business landscape the role of the adviser is made just as complex. As BQ has been highlighting for years, the flame of innovation and entrepreneurialism has never burned brighter than it does now, so the choice of where money should be – saved, invested or slept on – needs a wise head.
Those entrepreneurs can be investment minefields – each bright idea may succeed, but to what level? Managers will need to know the market and its main players inside out. And the entrepreneurs themselves are potential clients, keen as they are to accumulate wealth and, at some stage, possibly exit a successful business with money in their pockets. The wisdom to encompass all of that exists in Yorkshire companies across the region in a variety of sectors
Law firms are well practised in the smooth transfer of wealth from one generation to the next, estate planning, wills and probate as well as tax planning services that will include advice on the reduction of taxes after a death in the family.
Succession planning is just as critical for families as it is for investors monitoring the future plans of a large company. They are also there to look after unexpected wealth. Perhaps a Lottery win has come your way or a generous payoff from work or perhaps even injury compensation, which is a specialism perfected by a skilled selection of management companies.
The finest investment managers are also here, bringing decade after decade of experience to bear when handling risk for their clients. They will advise when it is best to play safe and when the time is right for speculation and not always following the rest of the crowd.
Private banking teams based in the region will be competing for business and the industry awards that are so important in raising profiles. That rivalry means that more personally attractive opportunities are now being offered, from wine and art to classic cars. After the first Tory Budget for almost two decades set out a few challenges for wealth managers, particularly changes to dividend tax credits, the status of non-doms and the raising of the Inheritance Tax threshold, Chancellor George Osborne’s Autumn Statement included an increase in stamp duty on second properties.
So the government has its strategies and is bullish about being in the position to carry them out without coalition speedbumps. In his budget, Mr Osborne did not mince his words, making clear that wealth management was suddenly going to get a lot trickier.
He said then: “It is not fair that non-doms with residential property here in the UK can put it in an offshore company and avoid inheritance tax. From now on they will pay the same tax as everyone else.
“It is not fair that people live in this country for very long periods of their lives, benefit from our public services, and yet operate under different tax rules from everyone else.”
Mr Osborne has already thrown away dusty pension rules around what can be taken when and given that responsibility to the individual and is obviously in the mood – with a move to the top job in his sights – to offer more freedom to people who want to move their money around.
Back in Yorkshire, the manager-client relationship can literally be the beginning and end of the job for our experts. The trust you have to have to effectively hand over your savings is almost indescribable, so has to be earned from the first meeting. One bad move and it’s over and a reputation has gone.
A collaboration has to be developed, based initially on a proven track record, but even then the advice has to be innovative as well as sound because the market is growing as fast as the wealth of Yorkshire companies and there is plenty of competition out there. So your chosen manager has to be an expert in people as well as money, their fees have to sit at the right point and not feel like a hazardous investment, and they have to be decision-makers, because sometimes the client will need to be told they are doing it wrong, throwing away capital that could be used elsewhere.
The arrival of devolution will also affect the investment landscape, as combined authorities take more control of the purse strings and assume a more complete responsibility for attracting the biggest and highest profile companies. Cities will be ranked by wealth managers and the way they project their future plans will make them and the growing companies based there more – or less - investable than ever before.
Leeds City Region says 109,000 companies have already made their base there, from innovative technology start-ups to global law firms looking for cost-effective European headquarters. In Sheffield they flag up expertise in manufacturing technologies and techniques and a vast supply chain covering sectors such as nuclear, offshore wind, low carbon energy, aerospace and automotive.
Hull says its biggest opportunities for growth lie in ports and logistics, renewable energy and chemicals, but also in growing industries like healthcare, food and digital. Wealth managers will look at the benefits of each just as they would assess an opportunity abroad, or a recently-merged manufacturer. Who runs it? What is their market like? How’s the order book looking and how grounded are their projections for the next five years.
Internationally, a recent working paper by Oxford University researchers found that global investment opportunities were changing against a backdrop of political and financial upheaval.
Co-author Duncan MacDonald-Korth said: “Factors affecting the institutional and geographic structure of the industry include the direction of investment following the global financial crisis and the Eurozone crisis.
“Dollar- denominated assets, such as US Treasury bonds, and the dollar itself became safe havens for investments seeking to place capital. The strong forces which compelled investors to look for dollar assets also gave American firms an advantage over firms based elsewhere in the world.”
The landscape at home and abroad is changing all the time, and the work of the quick-thinking Yorkshire wealth managers highlighted in this report shows no signs of letting up. Study the market, develop your interests, find your wealth manager... and invest in Yorkshire’s future.