Investment Guide for Legal Professionals:
Why is it so challenging to invest directly as a Legal Professional?
Legal professionals particularly those engaged with corporations as clients, face a distinct challenge in investing their wealth and Self-Managed Super Funds (SMSF). Often barred from investing in the companies they represent due to potential conflicts of interest, they need alternative pathways to grow their financial portfolios effectively. One such path lies in the strategic use of Separately Managed Accounts (SMAs) via a financial advisor, this strategy uses a Fund of Funds approach via employing managed funds and managed through investment platforms.
Join us as we dive into this issue and discuss a successful strategy being used by our clients today.
What are SMAs & what is the Fund of Funds Approach?
An SMA is a portfolio of assets overseen by professional investment firms, offering a personalised investment portfolio. In contrast, a Fund of Funds approach involves investing in various investment funds rather than direct investment in stocks or other securities, allowing extensive diversification and robust risk management. Platforms further streamline this process, providing easy access and management of multiple managed funds.
Why it's easier for a legal professional to invest via a Funds of Funds approach compared to buying direct shares in the context of conflict of interest restrictions?
1. Indirect Investment:
When legal professionals invest in managed funds, they are not directly investing in the shares of a company. Instead, they are buying units in a fund that holds a diversified portfolio of investments. This indirect form of investment helps in avoiding direct conflicts of interest, as the individual is not directly owning the shares of the companies they may be representing legally.
2. Professional Management:
Managed funds are overseen by professional fund managers who make the investment decisions, including buying and selling assets. This separation between the investor and the investment decisions further mitigates the risk of conflict of interest, as the legal professional is not actively involved in the decision-making process.
3. Diversification:
Managed funds typically invest in a diverse range of assets, spreading the investment across multiple companies and sectors. This diversification not only helps in managing risk but also avoids the concentration of investment in any one company, further mitigating potential conflicts of interest.
4. Compliance with Ethical Standards:
Investing in managed funds can help legal professionals to comply with ethical and professional standards. The investment in managed funds is handled by external entities (fund managers), which adds an additional layer of oversight and ensures adherence to legal and ethical investment standards.
5. Simplified Investment Process:
Legal professionals can invest in managed funds with ease, without the need to analyse and select individual investments, which can be a labour-intensive and complex process. This simplification of the investment process allows legal professionals to invest their money while focusing on their legal practice without getting embroiled in potential conflicts of interest.
Considerations
1. Associated Costs
While providing multiple advantages, this approach may involve additional fees that could impact overall returns.
2. Limited Direct Control
Investors may experience limited direct oversight over their investment portfolios.
3. Potential Performance Risks
Like all investment strategies, this approach does not guarantee returns and is subject to market conditions.
In Conclusion: An Effective Path Forward
In navigating the investment landscape, legal professionals can find a solid path in utilising SMAs, FoFs, and platforms. Despite the considerations of cost, control limitations, and market risks, the potential for diversification, professional oversight, and streamlined management makes this approach a compelling option. Thorough research and professional consultation are essential in ensuring this investment route aligns seamlessly with individual goals and risk tolerances, offering legal professionals a viable and ethical investment journey.
In summary, the structure and management of managed funds provide a suitable investment avenue for legal professionals, offering a way to grow their wealth while effectively navigating and adhering to conflict of interest restrictions and ethical standards.
Until next time.
Murdoch Gatti
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