Walking the walk: Why finance professionals shouldn’t neglect their own finances

Key Takeaways

Time constraints can be hazardous: Extreme working hours often leave finance professionals with little mental energy or downtime to manage their personal portfolios effectively.

Beware the specialisation gap: Expertise in a specific niche, like derivatives or M&A, does not automatically translate to knowledge of personal wealth management or tax planning.

Be careful of a skewed risk perception: Constant exposure to high-stakes markets can lead to either dangerous desensitisation to risk or an overly cautious, low-growth investment approach.

Employment in finance can be volatile: The cyclical nature of the industry and high salaries make finance roles susceptible to sudden cuts, necessitating a secure personal financial buffer.

Finance professionals typically manage other people’s money. Some will take the savings of the general public and loan them to a third party for interest, while others will advise corporations on managing their cash more effectively. Those that work in asset management may be allocating capital for pensioners or assessing the advantages of private versus public markets. But wherever your finance career takes you, the chances are you are a shrewd custodian of funds that aren’t your own.

But does that proximity to the financial services industry automatically translate into well-managed wealth at home? Do private equity managers or fixed income traders put an adequate amount of time into thinking about their own finances? And are there specific pitfalls that working in the finance ‘bubble’ might create?

One obvious challenge of working in financial services, particularly at the senior levels, is the working hours. Professionals in the industry tend to be time poor and busy schedules could divert attention away from prudent wealth planning. When do you get to sit down and think hard about your finances during a 70-hour working week? Downtime is precious when the hours are long and it may be that the last thing you want to think about is, well, finance.

There is also the mild embarrassment that comes with having to ask. If you work in financial services, surely you should know everything about finance already and managing your own wealth would never be a problem. But should someone who works in derivatives be expected to know about estate planning? Or should an M&A adviser have a precise knowledge of differing income tax regimes? The world of finance contains a multitude of specialisms and no one can be expected to know everything. The objectivity of a dedicated wealth manager can be worth its weight in gold, literally.

There are also challenges for finance professionals in maintaining a healthy sense of risk. Those that work in a world of fast money or professional investing may over time come to have a skewed view of risk. Is the level of risk being taken by a frontier markets bond fund appropriate when it is applied to the family finances? Probably not. But when someone is surrounded by a high-octane investing environment all day, becoming desensitised to the dangers is a real possibility. An experienced wealth manager could be the person to guard against excessive risk in someone’s personal finances.

This daily exposure to risky investment strategies could also have the opposite effect. A finance professional that is hyper aware of the dangers of excessive risk may lose any appetite for taking it in a personal capacity. Witnessing the effects of crashes or bad investments up close may cultivate a certain risk-aversion and result in an approach that involves sitting on too much cash or investing too much of your net worth in low-yielding assets.

Then there’s the danger of the self-styled wealth managers that populate the corridors of finance. Spend enough time in the finance world and you will inevitably be peppered with a fair amount of advice on how to manage your wealth. Voguish ideas can take hold of the herd or exotic investment strategies can seem to be a sensible option. There will certainly be some good advice floating around the workplace, but sorting it from the bad advice may be tough.

Another choice that needs to be made is whether to take advice on managing your finances from your employer. Most companies operate share schemes and they can be very lucrative, but it is a good idea to keep in mind that companies like share schemes because employees are less likely to dump the equity during volatile periods, or may even have hard restrictions. This can be positive for the issuing company, but may not be good for the holder. Investing your wealth elsewhere should be considered before locking yourself in.

Companies may also offer a variety of other ways you can manage your wealth with them. They may provide financial advisers or recommend investment opportunities. But asking yourself how closely you want to be tied to a particular employer is always a good idea. Would an external wealth manager be a more sensible option?

The subject of job insecurity is always a sensitive one in finance. Sometimes it seems the axe can swing more ruthlessly than in other industries. This can mostly be put down to how sensitive some roles are to the changing economic environment. Finance is often hit first and fast when changes occur. The high level of remuneration that some finance professionals receive can be a factor when firms need to be make swift savings. Those that work in the industry can find themselves with a sudden and unexpected change in their financial circumstances. And it’s not always easy to climb back to the previous heady heights.

This volatility in earnings potential is yet another reason to make sure that you secure your finances while the sun is shining. If you are lucky enough to be in a good financial position, it makes sense to ensure your wealth is managed properly so that any future changes in fortune can be navigated.

At W1M, we understand the specific needs of financial services professionals when it comes to wealth management. And we are dedicated to ensuring that managing the finances of others does not mean forgetting about your own.

Glossary of key terms

Asset management: The professional oversight of client investments to increase wealth over time through strategic buying and selling.

Private equity: An investment class consisting of capital that is not listed on a public stock exchange.

Derivatives: Financial contracts whose value is linked to the performance of an underlying asset, index, or interest rate.

Estate planning: The process of arranging the management and disposal of an individual's estate during their life and after death.

Risk-aversion: A preference for certainty and lower returns over higher-risk investments with potentially larger gains.