Wealth Management – the art of staying rich

The key for the wealthy to stay wealthy is to eliminate the surprises. Jeremy Blatch considers how this may be achieved.

New found Wealth

There are several ways to come into money and as we are graphically reminded by the tabloid newspapers the route to instant riches is probably illicit? But is it? It may have been true historically, but over the last few decades, the combination of two real estate booms since the fifties and the inexorable growth in the technology industry in the nineties and into the twenty first century, has provided many with affluence beyond their wildest dreams.

A new breed of highly successful entrepreneurs has emerged over this period creating new wealth due to the emergence of a global economy. The extraordinary rise of the so called growth economies with the acronym BRIC (Brazil, Russia, India and China) during the last three decades has seen many so called emerging economies overtaking older economies changing the balance of global economic power. The world’s most influential financial institutions headed by the victors of two world wars, have been forced to make way for others eager for greater influence and power. This has resulted in the formation of the G20, Mercosur and the BRIC Development Bank. The former now mandating the IMF into a global bank.

In addition to this new found wealth, society appears to have evolved a culture of blame and shame. Increasingly, many disputes be they personal or commercial seem to get buried in litigation and there appears to be no end to the spiralling awards made by the courts, adding several zeros onto personal and corporate bank accounts. “Horns locked” over product patents, information technology giants fight “winner takes all” in legal battles to keep or increase market share.

The unprecedented award from the courts to the technology giant Apple after its legal battle with rival Samsung, is testimony to the scale of this new phenomenon. Rich pickings for lawyers and chief executives. The Life Assurance industry distributes increasingly large claims. Statistically one in four of us will contract cancer and one in six will die prematurely. It is usual for Life Assurance and Insurance claims to run into millions piling again more zeros on personal bank accounts!

The traditional way to “come into money” through inheritance is also increasing as the distribution of wealth becomes more diversified, within a global economy. Estate and succession planning with the use of trusts and foundations more widespread.

People First

Most financial investment models are designed to optimise investment returns, and this is the overriding priority of both advisor and client. My priority is different, namely the comfort of the investor, this may sound paradoxical, but my experience is that, when executed properly it is a complementary strategy.

My agenda with clients is to keep the person of wealth, safe, secure, prosperous and relatively worry free. After all the desire for optimal investment returns implies potentially high risks. I have learned that the feelings of the client are paramount. Our investment decisions are, mostly driven by emotions, and it is important to consider all the changes that have taken place during the acquisition of that person’s wealth, which will have an impact on their financial decisions in the future. At the age of say fifty or sixty people want to simplify their accounts. They don’t want nor need investments spread all over the financial galaxy! In general, they want a limited number of relationships with money managers and simplified clear reporting. They need liquidity because it makes them feel better!

The overriding factor to success and peace of mind is therefore to eliminate surprises. The three most important questions that need to be addressed for the newly wealthy are:

  • Should I buy some of the things I’ve dreamed about?
  • Where should I invest the money?
  • What should I do financially about our children and others for whom I feel responsible?

The economic solutions to these problems are usually quite clear, but the difficulty arises in integrating these solutions with the emotional and temperamental needs of individuals. This is not an exact science and my experience has shown me that the best approach is to consider different solutions all of which could be effective, and modify the solution based on the strength of the investor’s reactions to them. Usually one ends up by accepting the solution, which makes you feel most comfortable!

For the wealthy, preservation of capital is most likely to be at the core of the financial objective. To achieve this, and eliminate the surprises we need to look at two different areas of speciality which, although employing differing skills are interrelated. Namely the protection of financial assets and “growing” the money.

Protection of Assets

“In this world nothing is certain save death and taxes”, said Adam Smith the father of economics. True in 1789 and certainly true today!

It is imperative therefore to consider this impact of taxation before embarking on any type of financial or investment strategy. Why? Well in considering this you are exploring the aspect of practical not theoretical confidentiality.

A clear understanding of your individual tax position is most important. It is common to find situations where people who are resident in two or more jurisdictions assume that advice received in one will apply to all cases. Proper cross border tax advice is a must to reduce the surprises that can occur in the future.” Succession planning”, as to who should inherit wealth is an increasing element in effective management of money. Little point in growing money for it not to reflect the wishes of the principal on their demise.

We will no longer take on a client unless they have a tax and legal advisor to cover these points before any decisions are taken with regard to financial assets. Where clients have not taken advice referral is made to appropriate specialists.

Growing the money

Here my aim is to ensure that the “Investment mandate”, is realistic and reflects accurately the wishes of the investor. Perception is a dangerous luxury and too often far from what may be considered realistic.

It is often a lengthy process to ensure that the investment mandate reflects accurately the wishes of the investor. At the heart of this process is helping the investor know their emotional strengths and weaknesses, their financial knowledge and ability to accurately select a time for the life of the investment. The latter may shift when one progresses in life, although in practically all circumstances this should be the long term.

Once this is agreed upon, the Investment Strategy, will need to eliminate possible “surprises”. With some exceptions I find that this is best achieved through a diversification of styles and methodology. Diversification is the only “free lunch” in the investment world. You can however be too diversified as easily as you can be too concentrated.

The allocation of capital to the right areas of the market, is key for successful investment success. If the Strategic Asset Allocation (the foundation) is weak or wrongly constructed, no amount of clever tactics will produce a successful outcome. If on the other hand the allocation of capital is sound a degree of tactical errors will not bring down the house. The secret, if one can call it that, of “long term” investing is to avoid serious permanent loss. We make money by not losing it. Sadly statistics over many years show that the harder investors try to beat the market the more likely they are to fail!

At this stage the relationship between advisor and investor needs to be a consultative not a sales process! Taking the salesperson out of the investment equation puts the odds in your favour. Money is far too precious a commodity to be sold.

There are in reality few money managers in the world, who are consistently achieving superior returns against the market indices against which they are compared.

This is an intensely competitive arena. The good players are success and performance driven. Their only mandate is to turn capital into more capital. The issue is to win; they often, have the humility to admit their mistakes, and are in general contrarian not being content to follow the herd! Perhaps not always good team players, but fanatical about knowing what the others are up to and gathering data.

It’s worth reflecting at this point, that most money managers fail consistently, to even beat the index against which their fund is benchmarked! There are a handful who consistently outperform the market, but over the long term (15 years plus) when all costs are included, not by very much! Much active management will simply not cover the costs, over the long term paid in fees, let alone costs.


It is essential for successful investment management to take a long term view. It is also essential to understand what is in our control to influence or change and what is not.

We cannot influence or control individual or global stock markets: the currency markets; individual countries’ economy or geopolitical events; although some of us might like to think we can!

We can however control: our feelings, emotions, costs, where we allocate capital and the time over which we wish to invest. As to our feelings and emotions, most money enters the markets on spikes, at the top when prices are highest and leaves in the troughs when prices are lowest. In other words most investors and this would include institutions as well as individuals, buy high and sell low. Whilst very difficult to not panic when all media pundits and column inches are telling us to sell or lose everything or buy or lose the opportunity, success over the longer term comes counter intuitively from not “don’t stand there, do something” but “don’t do anything just stand there”!

Passive management, puts the costs in the favour of the investor and if compounded over the long term creates a substantial tailwind to performance.

There are only three principles that an investor needs to understand to be successful. A compound interest table. (Which Albert Einstein referred to as the eighth wonder of the world. “He who understands it earns it. He who does not, pays it.”) Regression to the mean. (Everything is cyclical) and the relentless logic of humble arithmetic in relation to costs.


To be totally transparent to clients is, I believe, the cornerstone to a successful business relationship. The only way to ensure complete transparency in all matters is for advice to be fee based and advised to the client up front.

As manufacturers strive for greater market share, inevitably their marketing ambitions become more aggressive and costs and margins may be hidden. Commissions may also be masked from clients, with disclosure left at the discretion of the advisor. Large capital sums should be placed on margin minimums thereby enhancing performance. Fees can be discussed, accepted or rejected; costs that are not disclosed to the investor are nevertheless paid for by the investor. Vigilance and prudence in keeping costs to a minimum is essential for long term success. A great deal of fat is built into margins in the financial industry; this can be stripped away in many instances, to enhance overall returns.


One of the nice things about being wealthy is that you can create an environment that accommodates you. You are able to transfer an inconvenience onto those who are compensated for dealing with it. When we have wealth, it becomes a sanctuary and to preserve this, is really what people want! The problem is that unless you are informed constantly about the money markets, you need to be reassured that you’re not missing out on something. The whispered word at a dinner party or a remark at the Golf Club, can quickly sow the seeds of doubt, when someone else seems to have “double digit” returns when you are showing very little.

When you accrue wealth, one way to understand how little material acquisitions really mean is to be able to act out some of your fantasies. Once you’ve tasted the grape it’s not necessary to taste it with every meal. Addiction to the need is another matter.

Preservation of capital and the comfort of knowing that you have done all you can to eliminate the surprises is a recipe for sound financial and perhaps also mental and physical health.

Jeremy Blatch TEP
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