Financial planning tips to help high-net-worth individuals achieve greater security

Financial literacy
Insights

How to avoid common financial mistakes so you can secure you and your family's long-term financial wellbeing.

Share

It can be tempting to hold back on financial planning when the headlines are focused on economic uncertainty and political instability. “It’s human nature to wait until you feel comfortable with the market conditions,” says Chris Wilson, an investment counsellor for RBC Wealth Management in the British Isles. “But such ideal conditions are rare. Taking action as soon as you’re able could produce significant benefits for your long-term financial wellbeing.”

With that in mind, here are six financial planning tips that can help you achieve your personal and financial objectives.

1. Develop a wealth strategy

It’s not enough to simply save your money – you need a wealth strategy, according to Adam Turner, associate director of Wealth Planning for RBC Wealth Management in the British Isles. “You might hold investments, but what’s the purpose of those investments?” he asks. “What do you need from them? The purpose should come first – before you develop and implement your strategy.”

Your strategy should take into account the age at which you’re planning to retire or at least taper off your working life. You’ll also want to think about the financial implications of what you’re planning to do when you work less – will you travel more, pursue hobbies or purchase another property? Then there’s gifts to children, grandchildren and charities to consider.

Having a holistic wealth strategy in place enables you to establish a financial foundation for the long term. This will underpin your approach to investing, too, where playing the long game generates the best returns. Research conducted by RBC based on data from the S&P 500 shows the probability of generating positive returns before inflation improves. It rises to about 75–80 percent for one-year rolling time periods, nearly 90 percent for three-year rolling periods and approaches 100 percent for rolling periods beyond five years.

Ideas that make a difference

Secure your financial future by contacting our wealth specialists.

Positive investment returns are more likely over longer investment horizons

Percent of positive total returns over various holding periods

The chart demonstrates the value and upward trend of staying invested over the long-term.
  • S&P 500
  • Source: RBC Wealth Management, Bloomberg. All values in USD and priced as of 31 March 2023 at market close.

    2. Have an up-to-date will

    A 2023 survey by the National Will Register  revealed less than half (44 percent) of UK adults have drawn up a will. Among those under age 55, the figure falls to just 30 percent. And dying intestate (i.e. without a valid will) can be especially difficult for high-net-worth individuals because their finances are often more complex.

    “I’ve seen some terrible cases where family members and dependents are badly impacted,” says Helen Clarke, a partner specialising in tax, trust and estates at Irwin Mitchell Solicitors . “They can end up going to court and spending a long time trying to restructure the estate.”

    High-net-worth individuals tend to own a greater number of valuable assets, some of which might lie in different legal jurisdictions. In cases where there isn’t a will to provide specific legal instructions, managing cash and assets after the person’s death can be more expensive, time consuming and contentious – all at a time when emotions are quite raw.

    Without appropriate estate planning, part of which could be putting a will in place, those inheriting the estate are more likely to face a greater inheritance tax bill.

    As with investments, considering your financial objectives is essential when you’re drawing up your will. “As well as thinking about who you want to provide for, you need to get advice on the tax implications of structuring your will in a particular way,” says Clarke. “Consider the use of trusts, maximise the use of available reliefs and exemptions, and plan carefully with business assets, for example.”

    3. Have the right kind of liquidity

    Life is full of curveballs, and in these moments, it’s important to have easy access to cash. Keeping accessible cash deposits on hand can help support your more immediate needs while accruing compound interest.

    Deposits also have the additional security of being protected by the Financial Services Compensation Scheme up to the value of £85,000 per person in the UK. In some circumstances, such as receiving money from a house sale or an inheritance, you could be covered for more than £85,000.

    But accessibility needs to be balanced with the better returns offered by long-term investments.

    “People sometimes ask, ‘What’s wrong with having savings in cash, now that interest rates are rising again?'” says Wilson. “But you also need to take inflation into account. The current rate in real terms means your wealth is being eroded. Central banks have a habit of raising rates slowly, but if there are problems with the economy, those rates could fall quickly – and your returns along with them.”

    “Speaking with a wealth professional can help you identify how much you can put to work in the markets for the medium-to-long-term, based on your objectives,” adds Wilson.

    Remaining in cash results in wealth erosion

    As inflation is running well above the level of interest rates, the supposedly conservative strategy of putting money in the bank can destroy your purchasing power. This visual demonstrates the impact of inflation on deposits.
    • Nominal value of cash invested at the Bank of England Base Rate
  • Real value of cash (e.g. nominal value adjusting for inflation)
  • Source: Morningstar and Bloomberg.

    4. Have adequate life insurance protection

    “There’s a common misperception that employee benefits will fully cover family protection or life insurance needs, but many high earners don’t realise this may not provide the level of cover they require,” says Turner.

    Some people think life insurance policies offer no return, but Turner points out certain whole of life policies provide guaranteed benefits on death and will often pay out significantly more than you pay in premiums. “In the current higher interest rate environment, we have found insurance pricing to be more attractive, especially for whole of life policies. There are inheritance benefits too, as the guaranteed pay out could be made free from inheritance tax, provided the policy is placed into an appropriate trust,” he says.

    5. Know how much you need to retire comfortably

    Some 68 percent of UK high-net-worth individuals aren’t sure how much they need to retire comfortably, according to a 2022 RBC Wealth Management survey.

    “’How much is enough?’ is the question most people will ask as soon as we’ve sat down to talk about saving for retirement,” says Turner. “You need to think carefully about the kind of lifestyle you want while factoring in inflation and potential extra costs, such as long-term care.”

    A wealth planner can look at several scenarios based on your anticipated expenditure and show you the amount of capital necessary to achieve your desired retirement lifestyle. “That can also inform your investment strategy and risk appetite,” says Turner.

    6. Use your full tax allowances

    Nearly three-quarters (72 percent) of UK high-net-worth individuals need guidance on tax planning, according to the RBC Wealth Management survey. And it’s unsurprising given the complex wealth profiles of many high-net-worth individuals.

    Turner recommends starting with the basics first. Personal allowances, an investment savings account (ISA) and pensions will make your money go further. “A £20,000 ISA contribution per annum might not sound like much, but compounded over a lifetime it can make a big difference,” he says. “Once you’ve utilised these options, you may then want to consider alternative investment structures such as international bonds.”

    High-net-worth individuals can also take advantage of the various tax reliefs offered by the Enterprise Investment Scheme (EIS). Another option is a venture capital trust (VCT), which offers 30 percent income tax relief on an investment of up to £200,000 each year. It can be free from capital gains tax – and when it comes to retirement income, dividends are tax-free. It’s worth noting that both vehicles invest in smaller, less liquid companies, so carry a higher risk than traditional investments.

    There are many factors to consider when working to meet your financial objectives. And turbulent markets can often make it seem overwhelming. However, with guidance from a professional wealth planner, you can develop a robust wealth strategy that improves your financial security and helps you achieve your personal and financial aspirations.


    Risk warning

    Past performance is not a reliable indicator of future results and the information in this article does not constitute investment advice. RBC does not provide tax advice and the tax treatment of all investments depends upon individual circumstances and may be subject to change.

    Disclaimer

    This publication has been issued by Royal Bank of Canada on behalf of certain RBC ® companies that form part of the international network of RBC Wealth Management. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by Royal Bank of Canada, its affiliates or subsidiaries.

    The information contained in this report has been compiled by Royal Bank of Canada and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgments as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada, state in the U.S. and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.

    This material is prepared for general circulation to clients, including clients who are affiliates of Royal Bank of Canada, and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law neither Royal Bank of Canada nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of Royal Bank of Canada.

    Clients of United Kingdom companies may be entitled to compensation from the UK Financial Services Compensation Scheme if any of these entities cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. The Channel Island subsidiaries are not covered by the UK Financial Services Compensation Scheme; the offices of Royal Bank of Canada (Channel Islands) Limited in Guernsey and Jersey are covered by the respective compensation schemes in these jurisdictions for deposit taking business only.


Ideas that make a difference


Secure your financial future by contacting our wealth specialists.

Related articles

How to navigate volatility and grow your investment portfolio

Investing 7 minute read
- How to navigate volatility and grow your investment portfolio

Four ways a weak pound can affect your personal wealth and investments

Wealth planning 7 minute read
- Four ways a weak pound can affect your personal wealth and investments

How to talk about money with your partner

Family finances 6 minute read
- How to talk about money with your partner