If you have a large amount of cash to invest, perhaps following the sale of a business, an inheritance, property sale or a large bonus, choosing a wealth manager can help you decide how to put that money to work.
Use our wealth management finder to compare the best wealth managers for investing a large amount of cash.
How To Choose The Best Wealth Manager For Investing A Large Amount Of Cash
The challenge isn’t simply deciding what to invest in. You also need to consider how much should remain in cash, how quickly you should invest, how much risk you are prepared to take and how the money fits into your wider financial plans.
Start with your objectives
A good wealth manager shouldn’t start by immediately recommending investments.
They should first establish why you have the money, what you eventually want to do with it and when you are likely to need it. Someone investing £1 million following the sale of a business at the age of 45 could have very different requirements from someone investing the same amount after retiring.
The FCA says suitability assessments should consider your financial situation, investment objectives, attitude towards risk, capacity for loss and investment knowledge and experience.
Decide how much should actually be invested
Having £1 million in cash doesn’t necessarily mean you should invest £1 million.
You may need to keep money aside for tax, property purchases, school fees, business commitments or other planned expenditure. You should also maintain an appropriate emergency cash reserve.
Investing generally makes more sense for money you won’t need in the short term. The FCA suggests investing should usually be approached with a timeframe of at least five years.
Investing immediately versus phasing your money in
One of the biggest decisions when investing a large lump sum is whether to invest it immediately or gradually.
Investing everything at once gets your money into the market straight away. Alternatively, a wealth manager may recommend phasing investments over several months to reduce the risk of committing all your capital immediately before a market fall.
There isn’t one approach that will be appropriate for everyone. Ask prospective wealth managers how they would invest your cash and, importantly, why they recommend that approach.
Diversification
Be particularly wary of putting too much of your newly acquired wealth into a small number of investments.
A wealth manager should be able to construct a diversified portfolio across different companies, asset classes and geographical markets. Diversification cannot remove investment risk, but it can reduce your dependence on any single investment or market.
Depending on your circumstances, a portfolio could include shares, bonds, funds, cash and other assets.
Tax planning
Receiving a large amount of cash is also a good opportunity to review your wider tax position.
A wealth manager or financial planner should consider how investments can be structured alongside pensions, ISAs and existing investment accounts, as well as whether you have potential capital gains, income or inheritance tax considerations.
For more complicated circumstances, look for a wealth manager that can work alongside your accountant and solicitor.
Pay close attention to fees
Fees become particularly important when investing large sums.
A 1% annual fee on £1 million is £10,000 a year, while 1.5% is £15,000. Make sure you understand the complete cost of the service, including wealth management, financial advice, underlying fund charges, custody or platform fees and transaction costs.
FCA rules require relevant investment costs and charges to be disclosed both as a percentage and a cash amount.
Don’t feel pressured to invest quickly
Perhaps the most important consideration is that you shouldn’t feel rushed simply because you have a large cash balance.
The FCA specifically advises investors not to invest in a rush or in investments they don’t fully understand.
The best wealth manager for investing a large amount of cash should therefore start with what you want the money to achieve, rather than simply trying to get as much of it as possible under management.
A good wealth manager should be able to explain clearly how much you should invest, how quickly you should invest it, what you will be invested in, what risks you are taking and exactly what it will cost you.