Can you help?
This is the sort of dilemma that wealth managers and their clients face on a regular basis. The retail distribution review interim report splits financial planning into advice and sales and the above problem is a clear example of why.
There is absolutely no product mentioned anywhere in the above enquiry. It may well be that products are placed, depending on the direction the clients choose to take, but the clients have first to decide which route is the best for them.
How does a financial planner go about showing the consequences of whichever route the clients choose to take? Enter Truth from Prestwood Software. In my opinion, this is an essential piece of financial planning kit that we could not operate without now.
We have to amass a huge amount of financial information from the husband and wife before unscrambling it into the program. This includes current and future income, current and expected expenditure, assets, investments, pensions, savings and debts. We then have to include or exclude items in the different scenarios in the question.
Time and care have to be taken to ensure that the information is accurate. In partnership with the clients, we then have to agree a set of assumptions regarding their expenditure, investment returns, interest rates, inflation, earnings and pension income, in the short term and after retirement.
Projections are then made assuming that they both live to age 100. We cannot predict that they will but we have to choose a point somewhere.
The couple then come into the office and we use the big screen in the boardroom to present the overall implications of the different scenarios so that they can consider their options.
In a nutshell, the results show that they can afford to follow whichever route they choose. The final figure at age 100 is different in each scenario but they never run out of money unless they exceed the expenditure assumptions.
Having this clarity on the financial side enables them to make the decision for Jim to accept the post. The financial plan has taken away the uncertainty, reduced their fears and helped them to create a roadmap for the future.
I do have to remind them that we will need to meet up again at least once a year to update the plan. One thing is certain – nothing will stay the same and the only guarantee is that things will change.
Working in partnership with clients in this way is very rewarding for them and for us. Our involvement has added significant value to their lives. They have been able to discuss the choices with a totally objective observer with the financial knowledge to accompany them on their journey. The choice to accept the post has become a lifestyle choice.
Only after this lengthy and thought-provoking process has taken place will we look at the tax-efficient frameworks, including pensions and inheritance tax planning, that underpin the plan and are essential to check the progress compared with the growth assumptions used in the underlying investments. For example, Jim has an old retirement annuity contract which includes life cover and gives guaranteed annuity rates. We have to check if it can remain in place during his secondment abroad.
The couple leave the office excitedly making plans.
Yvonne Goodwin is a director at Wealth Management