Penny Wise

In the post-pandemic reappraisal of how we engage with the workplace, wellbeing has taken centre stage. Discounts at a local gym just do not cut it anymore – people want consideration of their mental, physical and financial wellbeing and even more so if they are expected to spend their time and money commuting.

For many years the broader financial aspect of wellbeing has been neglected. It is the least common focus for HR strategies, despite money worries affecting 47% of UK employees, according to HR body the Chartered Institute of Personnel and Development. The CIPD also reports that although around half of employers have a financial well-being policy in place, only 11% are actively focused on it as part of their overall HR and well-being strategy. Mindful of the increased demand for help with financial advice, this article addresses the key steps lawyers should take from the beginning of their careers to optimise financial security.

Given their jobs, lawyers, accountants and others in the professional services sector may be assumed to have a better understanding of personal financial management than most. In-house lawyers often benefit from a suite of benefits including pension, of course. However, as time-poor people often focus on climbing the ladder to partnership – a career structure that throws up its own peculiarities – practitioners can require additional help with managing personal finances. Without proper financial management, many lawyers may not be taking full advantage of in-house benefits or be aware of how to best utilise tax reliefs available on investments.

When starting a traineeship, the prospect of partnership, home ownership, bringing up a family and retiring on a pension seems a long way off. And for those not in receipt of the bulging pay packets, who must grapple with high rents and the spiralling cost of living, putting money away for a distant future may seem a stretch. Yet establishing the basic infrastructure for sound financial planning at the earliest stage possible can reap enormous benefits.

‘Any wealth manager will tell you that the answer to when to start planning is yesterday’, says Leon Buckley, managing director of the professional practice group at Evelyn Partners in London. ‘The mistake people make when they hold off financial planning is that they often think that they have to make a rigid plan now and stick to it – this is not the case. The plan can evolve as circumstances change.’

How law firms can help

Some law firms have addressed the need for financial wellbeing by linking up with HR consultants, financial advisers or wealth managers, who guide staff through in-house presentations and financial wellbeing checks.

‘Financial wellbeing has historically lagged behind that of physical and mental in terms of wellbeing support programmes, but employers are starting to realise that it is all interlinked,’ says Joanne Wilson, an HR specialist at employment and HR consultants Peach Law in Cheadle. ‘Communication is really important,’ she says. ‘There is no substitute for someone going into the office and giving a presentation to explain how the financial benefits an employer offers can help an individual, for example.’

Early on in a career, the term ‘wealth manager’ rather than ‘financial adviser’ may be off-putting – as these individuals counsel high-net-worth individuals. But if financial planning is put off to partnership it can be too late to take full advantage of the reliefs and allowances available through saving plans such as pensions or ISAs.

It may be tempting to limit oneself to the suite of benefits provided in-house: pension contributions, life cover, income protection and medical schemes. This is a good start, but there is more that can be done. ‘The run-up to partnership is also the time when many lawyers can have large mortgages, young families and potentially not much money or time to spare, so it is worth structuring your finances as early as you can,’ says Buckley.

Choose a wealth manager carefully

When choosing your wealth manager, take time to consider which is the right option for you. This is a relationship that could last decades, through multiple employers, births, deaths, marriages and divorces. ‘I would advise junior lawyers to speak to their peer group, not just at their law firm. Ask colleagues from law school and elsewhere for personal recommendations,’ says Simon Barker, portfolio director at Cazenove Capital in London. Make sure that you choose someone familiar with the professional services sector, he adds, and check the small print to ensure that you are not ‘locked in’ to the relationship.

The wealth manager market is varied, from small boutiques to divisions of global banks. Clients can decide whether to enter into an advisory, discretionary or execution-only investment management relationship, depending on the level of involvement that they want in the management of their assets. Many busy lawyers will often opt for discretionary – where they set the parameters but the day-to-day portfolio decisions are made by the investment manager.

It is usual to check in with your wealth manager once a year – and obligatory if they are managing investments – but you will also need to contact them in the event of a big life change, such as the birth of your first child, making a partnership or inheriting money. You will be sharing more information about your life with this person than with many of your family and friends, so it is important to feel comfortable.

What they will want to know

Wealth managers will want to know about you as an individual, including your short-, medium- and long-term objectives. Do you plan to go into partnership? Buy a house? If you have children – or plan to have them – what type of school would you like them to attend? What does retirement look like to you?

‘A wealth manager needs to set the foundations for financial planning, the “what ifs?’’,’ says Buckley. ‘A good adviser will listen carefully to what the client is saying to them. Understanding what they want in the short-, medium- and long-term will save a lot of time.’ It is also important for the wealth manager to counsel the family group, not just the individual, to work out where they can compromise and what they want to prioritise. ‘It is a question of evaluating risk versus return, spending versus saving,’ adds Buckley. ‘A good wealth manager will help their client achieve their personal finance objectives.’

Planning for Partnership

Making a partner is undoubtedly a career highlight, but it entails very different financial obligations to being an employee. In a traditional equity partnership, there is personal financial as well as reputational risk associated with the performance of the firm to consider. Risk should be properly evaluated with attention to the firm’s profitability outlook, liabilities and risk profile before a partnership offer is accepted. Some events will be difficult or impossible to foresee – such as the effect of the pandemic, where partner drawings of some firms were immediately cut by 20%.

Some new partners initially find that their net take-home pay is less than it was before, although this should be compensated by higher returns within the next couple of years. Nevertheless becoming partner requires planning and a personal finance recalibration.

‘As a partner you become self-employed and lose all employee benefits – pension contributions, income protection insurance, life and critical illness cover. You also have to do a tax return. Before becoming a partner you will need to assess what benefits you personally will need to retain and make provision for them,’ says Buckley.

Under the drawings system, partners receive uneven amounts of money that they then have to make decisions about while managing a busy workload. A good wealth manager will be familiar with this scenario and be responsive when the partner needs advice.

Pitfalls

A common mistake in financial planning – for everyone, not just lawyers – is inertia. With work, children, elderly relatives, mortgages and other commitments, many find it difficult to strategically review personal finances, whether in the present or planning for the future.

‘There is a tendency for some people, even educated high-earners, to keep their money close and do nothing,’ says McNally. ‘This means their money is not working for them.’

A 2020 survey of financial wellbeing by wealth management firm Brewin Dolphin also found that ‘a lack of knowledge’ was holding lawyers back from consulting a financial adviser. ‘If people do not know the choices and options that are available, they do not know what personal compromises to make to reach their financial objectives,’ says Buckley.

Another common scenario for lawyers is to defer investment decisions due to fears of conflicts of interest rules and the risk of falling foul of regulators. ‘The right wealth manager will work with the firm’s compliance team to ascertain what a client can and cannot invest in,’ says McNally.

‘This means that individual investment opportunities are not lost.’

The Brewin Dolphin survey also revealed that just 35% of legal professionals believed that they were saving enough for the long term, while 94% stated that their finances caused them some degree of stress.

‘When people are earning more, they spend more,’ Wilson says. ‘They can still have a considerable amount of debt that causes worry. Plus, in the legal profession they may feel there is a stigma attached to having financial difficulties. That is why it is important that employees fully understand the benefits that are being offered to them in-house, and that firms make financial wellbeing part of their overall well-being strategy, as it is inseparable from physical and mental health.’

Sourced from Law Society Gazette