Saving and investing wisely – Dentistry

Regional dental manager Neil Richardson and specialist financial adviser Tom Chippendale share their savings and investment insights for dentists.

What are the biggest considerations for dentists when it comes to investment and savings in the current climate?

Neil Richardson (NR): For all our clients we would always use a starting point to look at their full circumstances. We look at their current life stage and what their plans are for the next 10 to 20 years. Then we break it down into manageable chunks.

We will then try to understand exactly what will be needed from their existing capital and spare income. Then we can draw up plans that determine what can be shared with what. This in terms of their objectives, based on the duration of the departure. We’ll also look at what tax breaks can be used, such as pensions and ISAs.

The most important thing before giving advice is to really understand the individual you are working for. What do they want to achieve and when?

What does risk really mean when it comes to investing?

Tom Chippendale (TC): How risk is interpreted is an interesting area in our industry. It is important that we, as advisors, educate our clients to help them understand that there is an element of capital at risk when investing.

For example, many people feel safe keeping their money in a bank account. But in fact there is a real risk here because of inflation.

Therefore, when we advise our clients, we inform them that yes, we must consider the risk to capital. But at the same time we would ask the following question: Are they willing not to invest, knowing that their money is currently being deflated?

NO: We regularly encounter clients who see themselves as being at a certain level of risk, but not necessarily acting on it.

An illustrative example of this was a client who had recently sold his practice. This individual thought they were risky in terms of their investment philosophy. But it turned out that they actually held their assets in two zones at opposite ends of the risk scale.

Proceeds from the sale of the practice were deposited into the normal Instant Access checking account. I found this shocking given that it was over £500,000. Their only other capital was approximately £80,000 of shares in a Venture Capital Trust.

Their perception of KTV was that it was low risk, as explained by their accountant when he bought these properties in the early 1990s. However, the reality was that these assets would remain at the top of the risk scale as far as belongs to the field of our consulting.

These clients had held these assets for over 20 years and watched them fluctuate wildly in value without questioning it. This meant that clients were somewhat comfortable with taking some investment risk. Despite their initial feeling that this would not be something they would consider.

Can you explain diversification in terms of investments?

NO: Diversification is a risk management strategy that refers to allocating investments across different types of asset classes with different levels of risk. This means that exposure to each type of asset is limited. Typically, different asset classes react and behave differently.

Mixing them in the right proportions within your portfolio can reduce the risk of higher volatility within your portfolio.

When helping clients navigate investments, many of our advisors are eager to use ours Investment Guide. As they take clients through it, they will talk about the types of asset classes that can be used within investments and the risk and reward thermometers.

They explain where each class asset sits on the thermometer and the relative risks that may come with it. The higher the thermometer and the hotter the asset, the more return it can deliver.

Having discussed possible asset classes and relative levels of risk, the adviser would usually go on to talk about potential reward. Not only in terms of return, but also in terms of risk compensation by diversifying across all different levels of risk.

The media has focused a lot on artificial intelligence (AI) in various industries. What do you think this means for financial planning and future savings and investments?

TC: This is current at the moment and something we need to embrace and understand. It has many exciting implications for society and for financial advice and investment management. As a young advisor, I’m excited to see how we can use AI to improve the service we provide over the next 10 years and throughout the rest of my career.

NO: I am sure that AI will help and improve many areas of society and business. However, I don’t think the human element of being able to understand a person can be easily replaced.

You need to understand their position, emotions and perspective. And then work with them on a bespoke basis to build something that is truly unique to meet their objectives.

The great dichotomy of the client-advisor relationship, as opposed to AI, is that an advisor can challenge the client and test them if they are being honest with themselves. For example, sometimes younger clients are reluctant to embrace saving for their future retirement. It is our responsibility in these situations to remind them that by taking no action now, they are cheating their future selves.

This concept of challenge and question is a constant within any client counseling relationship and a very human trait. It’s very hard to see this being replicated by AI.

You can book a no-obligation financial review with a specialist financial adviser at Wesleyan Financial Services at any stage. Visit wesleyan.co.uk/lifes-journey or call 0800 316 3784 to get started.