Around 80% of financial products in the UK are bought via IFAs. This would suggest that IFAs are the most successful wealth managers. But, in fact, it can be argued this is the wrong way of measuring the service provided by wealth managers. Buying individual financial products may not be the most effective way of meeting your financial planning needs.

This has been most clearly illustrated in recent high-profile examples. These examples encapsulate the benefits of a comprehensive wealth management service over your lifetime.

The sale of a certain type of structured product known as precipice bonds attracted a great deal of negative publicity. Precipice bonds can be structured in various ways and are typically closed ended investments with a three to five-year maturity although there have been shorter products.

They were marketed as offering investors high income. But they did not offer protection against a loss of the capital the investor originally invested. It was possible that at the end of the term of the precipice bond, investors received a double digit income but no return of capital.

Newspapers have been full of sad stories of how elderly investors lost a high proportion or even all of their savings when some products failed to provide any return of capital.

If these investors had taken a comprehensive approach to their wealth management, however, they would not have devoted most, if not all, of their savings to precipice bonds. Even if some investors in precipice bonds were moderately well off but not wealthy, this does not reduce the importance of diversification to spread their investment risk.

The possibility of losing more than 70% of your assets is not a low-risk investment. It may have a role in a portfolio for a small, high-risk proportion of your investment assets. But investments such as precipice bonds should certainly not comprise most or all of a portfolio.

Diversification is not the only benefit that wealth managers could have brought to these investors. Good wealth managers would have considered if precipice bonds had met the investors’ risk profile and investment objectives in the first place.

A financial plan is the bedrock of wealth management. Simplistically, a wealth manager will discuss what you are trying to achieve. This could be to buy a new house, acquire a holiday property abroad, pay school fees in the future or ensure you have sufficient income in retirement. It could even be all four, and many more, of these aims.

The wealth manager will draw up a cash flow analysis. This will reveal exactly how much money you will require in retirement or to pay school fees, for example, as well as present income, expenditure and assets. The next step is to establish over what time period you want to achieve your objectives.

Armed with all this information, a wealth manager will draw up a strategy to meet your objectives, and say whether you need to reduce your expectations, raise the amount of money you invest or take longer to achieve your goals.

Once you have your finances in order, wealth managers should not leave your portfolio alone. Your objectives and risk profile are likely to alter over time, and therefore so should the asset allocation and investments within your portfolio to reflect this. Furthermore, even if your risk profile and goals change little, investments need to be reviewed regularly to ensure they are meeting the mandate and risk parameters that they initially advertised.

Such an approach would have prevented you putting all your savings into one precipice bond.

Other examples where investors may have suffered through a failure to undertake comprehensive wealth management are endowment mortgages and split capital investment trusts. Disregarding whether the full risks of endowments and split capital investment trusts were explained to borrowers, some of the problems could have been avoided or at least reduced through comprehensive financial planning.

Undoubtedly, some people could only have gained a mortgage through buying an endowment in the 1980s. But just by carrying out an annual review of borrowers’ full financial affairs would have helped prevent some problems with these products.

In the late 1990s and into the start of the 21st century, interest rates fell to historically low levels. At the same time, investment returns were lower than expected. This meant many endowments have not delivered sufficient returns for borrowers to repay their mortgages.

An annual review, however, would have identified the fact that returns were likely to fall short at an early stage and, by highlighting the fact interest rates were lower than expected, the borrower would have realised that mortgage repayments were less than when the mortgage was taken out. Borrowers could have diverted saved money from the reduced interest payments to make up for at least some of the shortfall in their investment returns. They could also have planned on how to deal with the shortfall in the mortgage at an earlier stage.

It is estimated that up to 50,000 people lost money in so-called “low risk” split capital investment trusts. They were particularly popular among investors planning for school fees and older people seeking extra income. While 21 trusts went “bust” over another 10 had their shares suspended because of what has been described as a “contagious cocktail” of trusts having invested heavily in each other, high levels of borrowing and rapid falls in the stock market from 2000 onwards.

It was reported that elderly investors faced having to sell their homes because they lost their income as a consequence of trusts being suspended. Once again this raises questions about the level of advice they were given. First, is why were investors aged in their eighties relying on income from an investment that in reality was not low risk. Second, as we said earlier, a portfolio should be diversified to reduce risk. If split capital investment trusts had only comprised a small proportion of the portfolio then losses as a proportion of overall wealth would have been lessened.

The above are extreme examples but have been used to illustrate the importance of not focusing on individual financial products but to use comprehensive wealth management and to keep your finances under constant review. You will not be able to achieve your lifetime goals by buying individual products and then not reviewing their appropriateness on a continual basis. During a review, all investments, products, income, expenditure and tax liabilities should be covered so you can assess the full extent of your financial affairs.