High inflation and the rising cost of living are expected to have the biggest impact on clients’ wealth this year, according to the findings of our latest Professional Paraplanner Parameter Survey.
More than half (52%) of paraplanners expect high inflation, which hit a 40-year high at the end of 2022, and the cost of living crisis to impact client wealth, while more than a fifth (22%) expect stock market returns to have the biggest impact.
A further 16% cited taxation charges, while 7% said rising interest rates would have the biggest effect and 1% listed uncertainty in the housing market.
Of those who cited inflation, many pointed to the volatile environment of 2022 and noted that while the UK economy has seen a good recovery, there is still a long way to go for global markets to recover.
One commented: “I think high inflation and costs of living has been having the biggest impact so far across most clients – incomes are not going as far and there is less disposable income.”
Another said: “We are coming out of a long period of low inflation and as cash flow planners, we may have to revisit our assumptions and adapt to a ‘new normal’ of inflation levels. I feel inflation will begin to come down in 2023/24 but not to recent levels. A concern is whether a lot of clients’ long term plans are going to be adversely affected if long term inflation rates are amended to e.g 4% per annum.”
Respondents also raised the impact of inflation upon defined benefit pensions, with one describing the effect as “ruinous.”
However, others pointed out that high net worth clients may be protected from the cost of living crisis and for those with higher wealth, taxation issues were likely to have the biggest impact, whether that be through cash, stocks and shares or property.
Commenting on changes in taxation, one paraplanner told Professional Paraplanner: “The majority of our clients are high net worth and fortunately, while we are all feeling the cost of living crisis and inflation, it does not affect their standard of living. Changes in taxation, however, do have an impact on where and when they save and draw money.”
Others echoed the sentiment. One paraplanner said: “Taxation changes affect all and could have an immediate effect on income and require action and changes to their financial plan.”
Another said: “Everything else is already in the system and accounted for but the taxation changes will have an impact on all business owners. It’s the same with personal tax rates if there is another shake-up lined up there to raise more for the government. The more clients are taxed, the less they earn and the less they will have to invest.”
Stock market returns are also expected to impact clients, with paraplanners pointing out that volatility will see clients wealth rise and fall, with a corresponding impact on their attitude to risk and loss capacity.
One added: “Those clients taking regular withdrawals have seen values fall and have been encouraged to consider reducing income to help the longer term sustainability of their investments.”
Parameters survey question:
Which of the following do you think will have the biggest impact on your clients’ wealth this year?
High inflation and cost of living crisis 52%
Stock market returns 22%
Taxation changes 16%
Rising interest rates 7%
Uncertainty in housing market 1%
