Receiving a substantial personal injury compensation payment can create a unique set of financial challenges. Unlike an inheritance, bonus or proceeds from selling a business, compensation may have been calculated specifically to provide for your future care, loss of earnings and other costs resulting from an injury.
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How To Choose The Best Wealth Manager For Personal Injury Compensation
The best wealth managers for personal injury compensation should therefore understand that the priority isn’t necessarily achieving the highest possible investment return. It is making sure your compensation can support you for as long as it needs to.
Look for personal injury experience
Personal injury compensation is a specialist area, so look for a wealth manager or financial adviser with experience managing compensation awards.
They should understand how investment decisions can interact with personal injury trusts, benefits, future care costs and, where relevant, arrangements involving the Court of Protection.
This is an area where your wealth manager may also need to work closely with your solicitor, accountant, trustee or professional deputy.
Consider a personal injury trust
Before investing compensation, consider whether a personal injury trust may be appropriate.
A trust can provide a legal structure through which compensation is held and managed. However, setting up a trust is a legal decision rather than simply an investment decision, so you should take specialist legal advice.
The FCA has previously warned about trusts being mismanaged or invested in unsuitable, high-risk investments and recommends obtaining independent legal and financial advice before placing assets into a trust.
Start with your future expenditure
A wealth manager should begin by understanding what the compensation needs to pay for.
This could include everyday living expenses as well as accommodation, rehabilitation, equipment, private medical treatment, carers or adaptations to your home. Some of these costs may continue for decades.
Your adviser can then use cash-flow modelling to estimate how much you may need in different stages of your life and how much of the compensation can reasonably be invested.
If someone else is managing the injured person’s finances as an attorney or deputy, government guidance specifically highlights the need to consider current and future expenditure, care and accommodation costs, major anticipated expenses, emergency reserves and the appropriate level of investment risk.
Don’t take unnecessary investment risk
Personal injury compensation shouldn’t automatically be invested in the same way as an ordinary investment portfolio.
If the money needs to provide financial security for the rest of your life, protecting capital may be particularly important. However, leaving a very large award entirely in cash could expose its purchasing power to inflation over the long term.
A wealth manager should therefore establish how much you need in readily accessible cash and how much can be invested for longer-term growth.
Be particularly cautious about high-risk, illiquid or complicated investments that could make it difficult to access your money when you need it.
Make sure the portfolio provides liquidity
Your investment strategy should reflect when you are likely to need mon