Building wealth one pot at a time

What you need to know

• Our wealth framework helps break down wealth into clear, purposeful 'pots'
• Each pot focuses on a different goal, from near-term spending to nest eggs
• Your framework evolves as your life and objectives change
• Speak to a Client Adviser to find out how we can support you

Some people have a very clear picture of what they want to achieve with their wealth and how they're going achieve it. For others, the image is less defined – the broad brush strokes may be there, but the finer details are yet to be filled in.

Whether your plans are fully formed or still taking shape, it's often helpful to visualise your wealth in a way that brings your financial and lifestyle goals into sharper focus. Prudent advice and planning can then provide you with the clarity and structure needed to move forward with confidence.

At Rothschild & Co, we use our wealth framework – built around the concept of 'pots' – to help us better understand your needs and chart a clear course for the future. In this article, we'll take you through:

• What pots are and why we use them
• The benefits of using a wealth framework
• How our framework evolves alongside you

Understanding pots

When clients first come to us, they often lack a clear, structured view of their overall wealth.

For example, your wealth may include multiple income streams; various assets, investments and pensions; an operating business; or a cash lump sum from a business sale, family inheritance or other liquidity event.

In other words, there can be a lot of moving parts.

Our wealth framework brings clarity by grouping your assets into five discrete 'pots', each with a distinct purpose, risk level and expected return:

• Lifestyle: assets for your enjoyment, such as family and holiday homes, as well as art, cars and other items of personal value.
• Cash: short-term liquidity to meet day-to-day needs. We recommend keeping between 2-3 years of expenses in cash to avoid liquidating investments in challenging markets.
• Nest egg: a long-term wealth preservation pot, which is invested to outpace inflation and grow wealth in real terms.
• Growth: investments that target higher rates of return but typically come with higher risk, and often less liquidity. They include angel investments and private equity, as well as liquid concentrated equity holdings.
• Business: often the wealth creator for our clients. High-risk, though owners and executives rarely see it that way given their intimate knowledge of the business. On exit, or sale of shares or options, the proceeds are usually reallocated across other pots.

To better align the framework with your specific needs, we take a holistic view of all your assets, including any portfolios or investments that you may hold elsewhere.

Your Client Adviser will also work closely with you to discuss what is important in order to start putting a long-term plan in place for you and your family.

What assets do you have or expect to have? Are they working as hard as they should be? How much do you need to fund your intended lifestyle and enjoy a comfortable retirement? Do you have a plan for the next generation?

The answers to these questions can be complicated, and we don't expect you to know everything on day one. But we believe it's important to start discussions as early as possible so that you have strong foundations to build on in the future.

Once we have a clearer picture of your broader financial position, we use cashflow forecasting to create a range of possible scenarios, before investing your money sensibly according to your needs.

Why use a wealth framework?

The idea of setting out a 'big strategic plan' for wealth can be daunting for many people. What's more, they may feel pressure to put their money to work straight away. Pots can cut through the noise and help simplify the next steps.

Viewing wealth in distinct pots helps shift the focus away from abstract numbers and timelines towards the issues that matter most to people, such as buying a dream home, funding children's education, or supporting charitable causes close to one's heart.

Once you have a clear view, you can plan more effectively – either reallocating wealth from one area to another, or actively building certain pots using income or contributions over time.

Your framework can also remedy imbalances in your finances. For example, we see many entrepreneurs who hold all their wealth in their operating business. They know their businesses inside and out, and can see a solid runway for growth.

That confidence is usually well founded, but it can still leave owners and their families in a riskier position than they realise, so it's often sensible to set aside a long-term nest egg to balance that risk.

For high-earning legal partners, on the other hand, a great deal of wealth may sit in a family home because they've upgraded their lifestyle after receiving a promotion – and a partnership stake. As such, they often need to balance school fees and other expenses today while building a retirement or investment portfolio for the future.

Ultimately, whatever your circumstances, our framework gives you a better understanding of your financial position and how you can align your wealth to meet your goals.

A plan that moves with you

As a wealth manager, we strive to be trusted custodians of our clients' wealth, seeking to protect and grow what they have over the long term while guiding them through the challenges and opportunities they face along the way.

That said, life rarely follows a straight path. You can prepare for many milestones, but surprises – both welcome and unwelcome – are part of the journey.

Your wealth framework remains at the heart of your plan through these twists and turns, adapting to meet new circumstances and objectives. Sometimes that means a lifestyle purchase such as a luxury car or a second home; other times you may want to crystalise gains from growth holdings and add them to your nest egg.

That's why we meet with you regularly to review your framework, making adjustments where needed and reforecasting cashflows so they remain relevant and realistic, while continually matching our portfolios against your needs.

So whether life brings new responsibilities, a sudden windfall or an unexpected change in direction, your framework remains a reliable guide, helping you stay on course without losing sight of your long-term goals.

If you would like to explore your own wealth framework, or wish to discuss how we can support you, please get in touch.

Past performance is not a guide to future performance and nothing in this article constitutes advice. Although the information and data herein are obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, no responsibility or liability is or will be accepted by Rothschild & Co Wealth Management UK Limited as to or in relation to the fairness, accuracy or completeness of this document or the information forming the basis of this document or for any reliance placed on this document by any person whatsoever. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, targets, estimates or forecasts contained in this document. Furthermore, all opinions and data used in this document are subject to change without prior notice.