DIY wealth management

 Somebody surprised me the other day by predicting the end of the Wealth Management industry. It brought to mind images of people selling off what was left of their investments and purchasing bus tickets.    A significant number of the wealthiest might be selling their private jets, but I don’t think they are quite at the point of figuring out public transportation routes.  Ok, maybe a few who had their money with Madoff.

Perhaps what this person was getting at was the “New Normal” that you might have heard mentioned. Those who buy services to assist them in managing their assets do indeed have a new set of rules to follow. New Normal refers to a few different things. It’s having to give more consideration to who has your money, where are you putting it, and what they are allowed to do with it once they get it.   The person, the institution and even the country of investment are considerations everyone needs to think about, because even if the smaller amount you have isn’t considered “Wealth” by the world’s standards, it’s still your wealth and therefore it needs to be taken care of. So the new normal applies to you too.  A strong bank with a good advisor in a responsible country like Cayman Islands is still my first choice. (But I’m a little biased.)

Let’s talk about the many people who are still at the stage of managing their own assets. So what do you do if you do have just a few thousand to invest?  The bad news is that right now, if it’s in cash, it’s earning zero.  Here’s the worse news. It’s going to continue to earn zilch for a while to come. Interest rates are not going to quickly climb back up. Yes they will increase, but it will be a very slow process.  You are simply not going to receive substantial income from term deposits any time soon.  What else is out there, you ask?   Well, if you are willing to take a risk, ask an investment advisor or private banker for a stroll up the risk–reward curve.  They can show you a few things that will earn you more than nothing and some of it is even capital guaranteed, meaning your original investment is not at risk.  Most bonds and similar instruments like “notes” require about $25,000 minimum of your money to invest into them, but there are a few that start as low as $1000 and some of those have the “capital guaranteed” descriptor.   So, there are alternatives for the “not so super” wealthy and the “not quite as rich as they used to be” wealthy.

If you’ve had your sights on something to buy, this isn’t a bad time either.   Almost everybody who is selling something has too much of it in inventory or it’s moving too slowly. There are deals to be had on just about everything. But if you listen to almost every economist, things are starting to pick up again so the bottom might be now or yesterday.  This year I bought property and a vehicle. Now, the risk is, if I lose my job, then it was a stupid time to buy.  But, if these 75 hour work weeks keep me from unemployment, then it was a good time to buy.  Because I don’t think I would have negotiated the same purchase prices in an upbeat economy.  My advice is to be as confident as possible about your job security (are any of us that confident?) before you part with your rainy day money; because it appears to be raining quite a bit these days.

Locally, we see a lot of job losses and lay-offs, less tourism, less construction, financial companies trimming and, obviously, less work permits needed … just a whole lot of “less”. The Wealth Management industry is no exception.  Is the reduction in labour force and operations in the financial services sector a sign of a collapse in this industry?  Personally, I think what we are seeing is practical application of better business sense in a threatened economic environment. Every Managing Director has looked at his or her income statement and asked him or herself what the business can live without.   After the financial services sector companies go through this process five or six times in one year, they get to the point where they are left with changes involving their most valuable and prized asset, people. And then, when every other cost cutting and revenue generating measure has been taken, words like centralizing, reorganizing, restructuring, right-sizing, down-sizing and other recession corporate-speak buzzwords all make an appearance.  Desperate times call for desperate measures so if there is something that can be done another way for less money, you do it.

And yet, I don’t think it’s a sign of the end of wealthy clients, or the service providers who love them dearly, nor, and more importantly, do I think it’s an end to those who aspire to be wealthy.  Its not Wealth DOA, its Wealth DIY. You can get there!  Unfortunately 2009 probably didn’t take you any closer and 2010 likely won’t be much of a catapult either. When you do get there, look back on what we learned in 2009 and be smart with your spending and your investing. You have great aspirations and once you get there, here’s to hoping you all have great, but also accurate, memories.

Deanna Bidwell isManaging Director of RBC Wealth Management for the Caribbean. Her team here in Cayman looks forward to offering you Wealth Management services in the future.