Do Wealth Managers Sell Too Cheaply to Plug Portfolio Gaps?

Do Wealth Managers Sell Too Cheaply to Plug Portfolio Gaps?

Wealth management is under pressure in the UK. The sector is looking for potential new customers but falling short.

On the one hand, pension reforms have meant more people than ever before have full control of their own retirement savings. On the other, these potential customers typically have smaller sums to invest than other clients.

Where will the money come from that will help the wealth management sector thrive?

When it comes to valuing portfolios, wealth managers might look to plug gaps by encouraging customers to sell their businesses, but this risks undervaluing these assets, as Christiane Hutchinson, CEO of Biramis Management Partners, explains.

“For wealth managers to do the best for their customers, they must look first at optimising the value of the businesses they intend to sell.”

 

Why Building Value Makes Strategic Sense

“As an asset, a client’s business should work primarily as a wealth creation vehicle in its own right. Treating it as just another component in portfolio-building risks under-using it.”

However, to build this kind of value in a business, in preparation for selling it, requires a longer-term strategy.

“If you take someone on the cusp of retirement and only then look at selling their business to add to their assets, you’re probably leaving it too late to sell it at the best possible price.”

 

“What a business requires, before sale, is the kind of structure which will ensure it has a clear value that is independent of its current owner’s input, and the right kind of visibility in the marketplace”

Christiane Hutchinson, Biramis Management Partners

 

However, these aspects of value-building do not, traditionally, come under the remit of wealth managers.

“Wealth managers can make excellent decisions on behalf of their clients based on understanding risk profiles and building a strategy around key assets. However, what will allow them to maximise the value of the clients’ portfolios is the creation of more value earlier on.”

 

Upstream Activity

In nature, what happens upstream can have a profound influence on what happens downstream. For example, upstream land management can work to prevent flooding downstream.  What will support wealth management is the right kind of upstream activity

 

“To build stronger portfolios, this means optimising assets to create more inherent value in them”

Christiane Hutchinson, Biramis Management Partners

 

There is a logical synergy in helping wealth managers build value for their clients’ businesses.

“To manage wealth you must first create it. In a climate of uncertainty, it is vital that wealth managers can put their clients in the most advantageous position. Where they have a business they wish to exit, there are ways of building its value through both its structure and its outward-facing marketability.”

“In effect, the processes involved in preparing a business for sale are the same as those for improving it outright,” Christiane concludes. “For a business to have value, it must be structurally sound and demonstrate that it has the right potential for future buyers and investors.”

If you are wealth manager that wants to discuss the options for strategically adding long term wealth for your clients, please contact Biramis Management Partners on 0161 817 8052 or visit biramis.com.