Managing wealth – are the UK’s rich getting richer or are the poor getting poorer?
A recent report released by Oxfam and global wealth manager Credit Suisse claims that the UK has the highest income inequality in the developed world. Here the richest 1% own 20 times more than the poorest 20%, and further, Oxfam point to a politically and socially marginalised Britain voting for Brexit. The Oxfam report is being used to pressure government over corporate reforms, however; prior to its publication, it was widely reported, immediately post-Brexit, that the UK’s older demographic including wealthy retirees had swung the ‘Out’ Vote. Which, rather conflicts with Oxfam’s wealth-gap and EU referendum vote conclusions.
Are we right to assume that the UK’s rich are getting richer?
Well, according to the Sunday Times’ Rich List the richest people in Britain have suffered the worst fall in fortune since the economic financial crisis of 2008. Those in the top 25 have lost from between 50-75% of their fortunes on average and the Queen doesn’t make it into the top 300 this year. The sharpest decline in wealth comes from those that had invested heavily in commodities markets. Those that have assets spread across property have retained high positions in the rich list. This is helped by the buoyant UK property market and high unaffordability of housing.
Property researchers JLL have noted that British house-builders do not build houses evenly across the house price range: from under £250,000 to over £1,000,000. In fact in 2015 under 5% of houses valued at below £250,000 we under constructed and less than 5% of houses valued at under £250,000 were completed. This compares to over 35% of houses valued between £250,001-£500,000 being under construction, and over 45% being completed; or 7% of houses valued at over £1m being under construction and 5% being completed. Meaning that it’s easier to source a house valued at over £1m in the UK than it is to find one valued at under £250,000. This would suggest that house-builders target the high-income over low-income.
Apart from property in the UK where do the wealthy invest their fortunes?
As we noted above since the economic crisis of 2008 commodities markets have been hard hit, and whereas Brazil and other parts of Latin America were once growth economies, because of their reliance on commodity exports, they are now economies that are in decline. However it is still the case that asset-management, looking after other people’s money, is lucrative. Global asset-management profits were worth $102b in 2014. Currently asset-managers look after funds totalling $78 trillion worldwide. In the UK changes in asset-management regulation in 2013 led to greater transparency over investment portfolios and how asset-managers commission or fees were paid. The US is set to follow suit, which means that at least in the UK asset-managed funds are ahead of the curve in terms of regulation. However, concerns were raised post Brexit by UK asset-managers over compliance with the Markets in Financial Instruments EU Directive (MiFID II). This piece of legislation is aimed at improving transparency across EU markets in the wake of the 2008 financial crisis, it concerns cross-border selling of products and services; and is due to be implemented in January 2018. It is yet to be seen whether this will affect the UK on going after Brexit.
The introduction of greater regulation and transparency over fees has given rise to low-cost competition in the form of private equity investment opportunities.
It is apparent that wealth management and investing wisely present challenges for individuals because of todays’ rapidly changing markets. Our advice is to make your first port of call your current financial advisor who should be able to guide you through your initial enquiries. If it is not their area of expertise, they will be able to recommend other financial experts accordingly.