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What we can learn from Downton Abbey about Wealth Management?

This article was originally published on Quadrant Group’s website. Quadrant Group was acquired by Progeny in March 2017.

It’s that time of year when we are all waiting in anticipation for pudding, crackers, the Queen’s speech and that other Great British institution, the Downton Abbey Christmas special. After dinner and a few sherries, even those of us who aren’t great fans of period drama can’t help but get into the spirit.

With our offices decked in tinsel and my gingerbread latte in hand, I wondered if Downton Abbey, which is loosely based on the historical, could teach us anything about wealth management. While few of us can relate to the upstairs/downstairs lifestyle of the early 20th century, the challenges of managing our wealth, however grand or modest, remain broadly the same.

The stock market has been around for many centuries and by the late 1840s telegraph networks permitted overnight reporting and new printing techniques provided affordable newspapers. While the pace of life and certainly the speed at which the stock market functioned was significantly slower than the tick-trading nanoseconds of today, most of the issues we face with investing would be very familiar to the Earl of Grantham and his family.

Protect Your Wealth with a Will and Lasting Powers of Attorney

A key theme throughout the series has been inheritance. The very first episode begins with the sinking of the Titanic and with it, the loss of Downton’s heir apparent. While we may no longer have the arcane fee tails that held estates in perpetuity to lineal male heirs, it is still essential to plan for one’s inheritance. If your estate is intestate, your wishes may not be carried out and your spouse could be liable for additional taxes.

It is also important to have lasting powers of attorney. A lasting power of attorney (LPA) is a legal document that lets you appoint one or more people to help you make decisions or make decisions on your behalf. You should have two types of LPA. One deals with decisions about your health and wellbeing and the other, property and financial affairs. This gives you more control over what happens to you if, for example, you have an accident or an illness and can’t make decisions at the time they need to be made. Having these firmly in place will help you to have peace of mind and a sound plan for the long-term requirements of managing your wealth.

Plan Ahead for Inheritance Tax

Along with who will inherit, one must consider the best ways to protect against the taxes that follow and this also plays a role in the drama’s plot lines. Lady Mary, the eldest daughter of Robert Crawley, has a much desired son, but her husband, who is the new heir apparent, dies. With the future of the estate secured, she worries about how to protect their wealth from taxes. Although death duties were introduced in 1894, it wasn’t until 1914 that Estate Duty, which charged a more typical rate of tax, was made into law by the liberal First Asquith ministry. Subsequently this caused large estates to be broken up or families to become more resourceful with their landholdings. This was replaced in 1975 by Capital Transfer Tax, which was renamed Inheritance Tax (IHT) in 1986. The tax is currently charged at 40% on the value of estates over a threshold of £325,000 – or £650,000 for married couples and civil partners.

At the Quadrant Group, we help clients to understand inheritance tax planning. Because our focus is always on long-term investment, we have the right perspective and are able to help clients plan effectively. While it is impossible to avoid IHT completely (even the Queen Mother reportedly had to plan a deal in 1993 to spare the £20M that would have been due in 2002), it can be assuaged through many legally available measures, such as ‘potentially exempt transfers’ (PETs), tax-free gifts, making use of trusts and having a ‘whole life assurance’ policy. Through good planning, you can make provision for paying inheritance tax when it is due. We help our clients understand the IHT thresholds and exemptions and how these can improve the value of their inheritance for future generations.

Understand your Risk Tolerance

In 1918, an ambitious Railway expansion plan, the Canadian Grand Trunk Railway, was funded widely by British investment. As an historical plot development, the Earl of Grantham invests a large sum of his wife’s money in this railway venture, which went bankrupt a year later and was subsequently nationalised by the Canadian government. Losing a vast proportion of Cora’s wealth brings more financial woes to Downton. Robert Crawley acted on emotional persuasion and failed to take into account his tolerance to risk.  He invested more than he could afford and put the estate and the people working for him into jeopardy.

Diversify your Portfolio

Railway Mania was a stockmarket frenzy in Britain. In the 1840s, it was fuelled by the expansion of the UK railways, which became a calamity of over-speculation. At its zenith, 272 Acts of Parliament were passed, setting up new railway companies and the proposed routes totalled 9,500 miles (15,300 km) of new railway. Around a third of these either collapsed due to poor financial planning, were bought out by a larger competitor, or turned out to be a fraudulent enterprise. It can be compared to the stock of telecom companies in the 1990s and the dot-com bubble of 1995 – 2000. These were ironically spurred on from the realisation that the same railway rights-of-way could make affordable conduits for fibre optics used in telecoms. Later, the many companies established to promote new services on this growing network.

Your portfolio should never be heavily invested in any one stock or asset class – a group of securities that behave similarly in the marketplace. Diversifying is the very best strategy that you have to ensure a profitable return. Our AstutePortfolios are designed with a mix of geographical regions, asset classes and non-equity holding such as bonds and property. A widely diversified portfolio must also be rebalanced regularly to maintain the original allocation. Read more about how we structure our portfolios.

So, what can we learn from Downton Abbey about wealth management?

Circumstances change and for the most part, this is beyond our control. However, planning for the future can protect your wealth over the long-term. These are the important steps you can take:

  • Make a legally binding Will and Lasting Powers of Attorney to ensure that your wishes are carried out and trusted decisions can be made about your financial affairs.
  • Plan provisions for your inheritable wealth by taking steps to avoid Inheritance Tax.
  • Understand your tolerance to risk. This will enlighten your financial planning and keep you from investing more than you should to give you peace of mind.
  • Build a portfolio structure that is highly diversified and allows you to spread your exposure to the market.

Appointing a financial advisor that understands your lifestyle as well as your financial goals will support you in the years ahead to enjoy a life well lived.

This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Author Andrew Pereira

Director, Wealth

Andrew has been working with families, high-net-worth clients and business owners for well over 20 years.

Learn more about Andrew Pereira

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