"We also have university professors, mid-level managers, etc. – many of whom, if you asked them, wouldn’t ever consider themselves to be affluent and certainly not ‘rich’."
Part of the issue when it comes to financial planning and individuals seeking out financial advice is the perception of who that advice is for. Over the years, a misconception has grown amongst many people, who would be ripe for advice, that it’s ‘not for them’, and that it’s somehow only the ‘super-rich’ who can afford to secure that level of financial support and knowledge.
The financial advice profession has done much to counter such arguments but they still persist and therefore this shouldn’t be a cause we should simply give up on. In reality we all know that financial advice can be as beneficial for those on lower incomes as well as those in the top echelons of earners – if you’re on a standard variable rate mortgage, for instance, then being recommended a fixed-rate at considerably less interest, could make all the difference to your monthly outgoings.
Tax-planning is similarly a vital cornerstone of the financial advice proposition and the benefits can be just as substantial - whether that is clients utilising the tax reliefs offered by ISAs, or the benefits of utilising pensions, or whether it’s looking at wider tax-planning tools, including tax-efficient investments. The latter, in particular, has suffered from a perception of being the preserve of the ‘mega wealthy’ however this is no longer the case.
For advisers too, it’s important to have as many strings as possible on the advisory bow. In the post-RDR environment, advisers can no longer merely survive based on investment performance. Yes, this may well be important but where an adviser can demonstrate real value to a client, and often provide an immediate return on the cost of advice, is through the provision of prudent and effective tax planning. To this end we are seeing investors from all backgrounds utilising tax-efficient investments such as EIS, SEIS and Business Relief.
Geographically as well, both advisers (and clients) should not simply rule themselves out of investment(s) purely based on where they’re based. These are not investments purely for the London ‘glitterati’, indeed to date, only 11% of Deepbridge’s clients are from the London area, compared with 16% in the South West, and 22% from the North of England and Scotland. These are investments and schemes which can benefit clients wherever they might live in the country.
And the type of clients that these products might appeal too is just as broad. Yes, Deepbridge has city-based executives, doctors, premiership footballers, TV celebrities, and gentry amongst our clients but we also have university professors, mid-level managers, etc. – many of whom, if you asked them, wouldn’t ever consider themselves to be affluent and certainly not ‘rich’.
However, what they do have is an appropriate appetite for growth investing in unquoted stocks and usually also have a tax liability to be dealt with. Advisers and clients now understand that EIS, SEIS and Business Relief are Government initiatives. These are not ‘fly-by-night’ schemes for those who simply want to preserve their capital but instead are fundamental tools used by Government to further economic development in the UK, and are investing in the next generation of businesses who are vital to the lifeblood of our economy. The Government utilises such schemes to focus money into sectors and areas where it believes investment is needed – offering generous potential tax reliefs for those clients that invest.
Of course, financial advisers should always have the suitability and appropriateness of clients are the forefront of their mind but the important point here is not to dismiss such propositions simply because they don’t think a client is ‘rich’ enough to invest.
Rather, where a client has an appropriate appetite for risk and capacity for loss, perhaps the question should be ‘why not utilise the EIS’? Interestingly, an adviser recently told me that where he has clients for whom EIS might be appropriate, he conducts their annual review and starts by talking about how the tax planning and the income tax relief available under EIS can be utilised to cover the cost of his advice. It’s a simple tack to take but one that provides an immediate benefit to clients – as he suggested, “the Government is effectively covering the cost of the client’s financial advice”, and who wouldn’t see the appeal in that?
So, perhaps we all need to reconfigure the way we think about financial advice, and specifically the tax-planning element? I’ve not yet seen a client that wouldn’t benefit from some of the latter, at whatever level their earnings are, and for those that fit the mould, tax-efficient investments can make a huge difference. Our perceptions can be wrong so let’s make sure we don’t let them get in the way of delivering good advice.