Early retirement, holidays of a lifetime and the opportunity to give something back are often used as the sexy sales pitches for why someone should pay for a financial planner. But these are only particular outcomes and the tip of the iceberg for the real value of financial planning.
When we asked entrants to the New Model Adviser® Top 100 for their favourite financial planning case from the past year, we were inundated with fantastic stories.
For example, Milton Keynes-based boosst helped a client realise they had enough money to retire and set sail for the Galápagos Islands on the National Geographic boat for a trip of a lifetime.
Back in the UK, Bristol-based Paradigm Norton helped a client discover he had enough money to retire a whole three years earlier than planned. He now works pro bono as a lawyer for a charity.
These were just two positive outcomes from a long list of planning cases submitted to New Model Adviser®. But while highlighting holidays, early retirement or just ‘peace of mind’ (a phrase used by nine firms in the Top 100 when describing their favourite cases) shows the benefits of paying an adviser, it also underplays the value of a good financial plan by focusing only on the conclusion.
After all, in an environment where tracking the market has delivered significant returns, there is a feeling that money looks after itself.
Protecting vulnerable clients
However, financial planning firms do much more than just seek returns so the wealthy can meet their goals. Many planners deal with complicated cases to right wrongs, achieve fairness and prevent impoverishment.
Take the case put forward by Warwickshire-based MPA Financial Management. One of its clients was told by her landlord that he was selling her home at short notice, placing her in a stressful position. But her planner saved the day: they discovered a defined benefit (DB) pension that she transferred out of. She was then able to use the 25% tax-free pension lump sum to buy the house outright from her landlord. Not only was she able to stay in her home, but she saved the £500 a month rent she was previously paying.
In a different case, an adviser stepped in to help a client facing potential family trouble after winning £1 million on premium bonds. Shropshire-based Matrix Capital has a contract with National Savings and Investments to advise winners of the jackpot, and one winner was an elderly lady, who was the subject of an existing power of attorney held by her children at the time of her win.
But when Matrix Capital director Robin Melley met the client, he discovered the power of attorney ought to be contested. ‘When I met her, the nominated attorneys were in the throes of gifting nearly all the £1 million win to themselves and their [clients’] children,’ Melley told us. He clarified, however, that their intentions were honourable: they thought it would reduce her inheritance tax (IHT) liability.
Melley intervened to ensure the £1 million prize, which was in the process of being gifted to those with power of attorney, was instead put into a financial plan that would fund the client’s long-term care needs and allow for gifting when it did not hurt her own position. Melley’s specialist knowledge, obtained through the STEP advanced certificate in advising vulnerable clients, meant the client was protected and the family was still able to receive gifts without incurring possible tax penalties.
A number of cases involved a client who had been mis-sold an investment or financial product by a previous firm. Bradford-based Ebor Financial Planning’s operations director Jelena Savonina told New Model Adviser® about a client who approached the firm after receiving a retirement pack from her provider that showed an expected pension value of £44,000. But this missed the fact that the client had in fact been caught up in the pensions review of the 1990s after opting out of her employer’s DB scheme. That review considered cases of potential mis-selling of personal pensions policies between April 1988 and June 1994. With the technical help of Ebor Financial Planning, the client took her case to the Financial Ombudsman Service. She won her claim and is expected to receive compensation of £300,000.
Ebor’s case highlights how technical support from financial planners can lead to life-changing sums being paid to clients who have been poorly advised in the past. Newport-based Create Wealth has even gone to the lengths of obtaining claims management permissions in order to help out people who have lost money. It clearly pays to have a specialist on your side.
Difficult divorces
When it comes to specialist help, there is one area of tricky wrangling that financial planners often get involved in: divorce. Divorce cases featured in the following four examples, all put forward by Top 100 entrants this year.
Norfolk-based Just Financial Planning was approached by a solicitor representing a woman going through divorce. She was a nurse and her husband was a senior executive at a company in which he held a 15% share stake. There was a large wealth gap between the two: she had an annual income of £10,000 and small NHS pensions, while his annual income was worth £200,000 a year, he had pensions worth £1.5 million and his shares were worth £100,000. Or so he claimed.
Just Financial Planning director Holly Heald stepped in to investigate. She discovered the husband was receiving a regular partner’s annuity payment from his former employer, which could be shared. She then turned to Companies House, where she found that the husband’s business had recently restructured. This was a complicated bit of work, but it emerged that the shares he valued at £100,000 were actually worth £500,000. Again, specialist knowledge from a financial planner helped a vulnerable person claim what she was owed.
Bridgend-based Magenta Financial Planning director Gretchen Betts described a similar case involving divorce. Magenta markets itself as a financial planning firm solely for women and has helped dozens of women feel more confident about their finances, get control of their money and achieve their dreams. As you can imagine, this can involve intervening to achieve justice for women in vulnerable positions.
This year, Magenta helped a client who was trying to leave a marriage where money had led to arguments. The firm ensured that, as part of the divorce settlement, their client’s former husband took out insurance to protect her financial position into the future. This meant the woman could meet her objective of building a new house, safe in the knowledge that cashflow projections showed she would still have enough income to retire at 60. Magenta also introduced their client to impact investing, which engaged her with the positive effect wealth can have.
As Just Financial Planning’s story shows, pensions can be one of the trickiest areas to deal with in a divorce. That is why a group of academics with the moniker Pension Advisory Group created expert guidelines to help lawyers identify who they can trust to help them redistribute pension assets after a separation.
Financial advisers are well placed to meet these guidelines. Reading-based Bluesky Chartered Financial Planners helped a client going through what it described as an acrimonious divorce by spotting a mistake in her husband’s reading of an actuarial report on pension sharing. Cashflow planning showed the revised offer meant Bluesky’s client was able to retire comfortably.
In another hotly contested divorce case, Leicester-based Furnley House ensured a fair settlement between an academic and his wife by recommending he increase the amount he shared from his DB pension from £211,000 to £325,000. Not only did this pay off the rest of the mortgage on the couple’s house, but it also reduced the potential lifetime allowance (LTA) charge the academic was facing. Both parties can win from such settlements.
pension tax troubles
It will probably not shock anyone that the LTA featured heavily in Top 100 advisers’ chosen financial planning cases this year. Nor will it come as a surprise to discover that IHT was a common planning hurdle.
The complexities of tax in the UK, combined with recent chancellors’ preference for so-called stealth taxes, mean that many clients come to advisers without realising why they are being asked to pay hefty tax bills.
This was the case at York-based PenLife Associates, when a client discovered they were facing an LTA charge of £125,000 that would need to be paid in one go. Drawdown planning meant the client was able to pay the bill over her lifetime instead, putting her in a much better position. London-based Investment Quorum also saved a client from paying a 55% LTA charge on £14 million of pension savings.
Many would assume those facing IHT problems do not need help from financial planners. After all, it appears to only be a tax on the very wealthy. But our planning cases show this is not always the case: there are plenty of complex situations that need to be considered.
County Durham-based Eldon Financial Planning was presented with a difficult case when a client suffering from ill health came to them after the death of her former partner, whom she separated from two years previously. She was the executor of his estate, which faced a substantial IHT liability, not to mention the maintenance of properties that were previously being let out but were now costing money.
Eldon met the client at her house and established her straightforward objectives: having enough money to keep the heating on and treat her grandchildren. By building a financial plan based on those objectives, Eldon reassured the client that she did not need to worry financially. After further conversations revealed her intention to help others, the firm was able to recommend ethical investments. Good financial planning not only helped the client deal with her IHT issues, but also made her optimistic that money could be put to a wider social good.
Another firm that aided a client’s philanthropic goals while also addressing IHT questions was Dundee-based Verus Wealth. It helped an elderly widow with no immediate family leave her £2.5 million of assets to various charities, meaning there was no IHT exposure. Not only did the firm help her identify charities to include in her will, but it put in place regular donations to these charities so they could claim back 25% gift aid on donations and boost their value, as well as reducing her income tax bill. Verus also helped the client write to all the charities about her donations, many of which responded to her with letters and calls of thanks.
crucial care cases
The connection of IHT with other issues is clear in such cases. One accompanying issue can be care bills. Despite promises of reform, the government has yet to set out how social care will be funded with an ageing population. As a result, cases like the one explained by Chichester-based Lewis Brownlee Financial Services demonstrate the value of financial planning. The firm advised an 86-year old man in care who was concerned about how his £1.7 million estate would be taxed as well as how he would pay for the cost of being looked after.
His financial plan included a full explanation of his current IHT liability and how gifting to his children would reduce it, as well as an explanation of how a safe withdrawal rate would ensure he did not fall short on his care bills. The firm’s adviser explained complicated concepts such as pound cost averaging and sequence of return risk, as well as putting cash and bonds into trust to offer further protection. Without the planners’ help with IHT, the client would have been worried that his children could be liable to pay for his care.
It is not just the elderly who may require care though. North Wales-based RPG Financial helped a young girl who had recently received a personal injury award invest so that the money would cover her care needs. RPG’s planning determined that although a substantial initial lump sum and an index-linked annual income payment would provide her enough money to cover the cost of a carer for the time being, plans to raise the minimum wage and pension contributions for employees meant her investments needed to generate returns in the long run. By considering the impact of inflation, the financial plan helped shape the girl’s life after a devastating injury and build an important relationship between her family and the care provider.
Care needs were also at the heart of the case chosen by Mansfield-based Cowens Financial Architects. A client came to the firm after he was diagnosed with motor neurone disease and given one year to live. He had no idea how much he owned and was concerned about how much care would cost him. Cowens waived all initial and ongoing fees for the client and discovered he had a DB pension. A transfer was arranged and the client then used this money to fund necessary costs such as a mobility scooter. Without the advice he would not even have known about the DB pension, let alone transferred it to achieve his needs.
These cases about care also show the value of a financial planner in conversations about difficult topics. Facing up to the fact that you will likely need some sort of care in later life is not easy. It is expensive, emotionally stressful and inevitably involves a discussion about death.
Great financial advice allows clients to tackle these kinds of questions head-on by providing a safe space for that conversation. London-based Cavendish Ware has pioneered the concept of ‘dying neatly’ to help clients ensure their affairs are in order prior to their passing. This has involved using cloud storage to store wills, funeral requests, trust information and other documents in one secure place. It is a simple idea, but one that many people would not consider without speaking to a planner.
Other cases from our Top 100 highlighted the importance of getting death right. A widower – who inherited what Pembrokeshire-based Thomas and Thomas managing director Darren Lloyd Thomas described as a ‘complete tangle’ of ISAs, shares and funds – was stressed about managing his money.
‘dying neatly’
Thomas and Thomas looked at the client’s pension, sorted out his wife’s pension benefits and dealt with the additional permitted subscription allowance rules to help him claim his deceased wife’s ISA. The firm consolidated everything and crunched the numbers to conclude that the client could work for two days less every week and retire at 60 if he wanted to. A clear plan emerged from a stressful situation thanks to the way the firm approached difficult tax problems.
Solicitors work on divorce cases, but they work on deaths too. When a client of London-based Partners Wealth Management passed away, the business helped his wife work with solicitors to draw up a will and work out who would be the guardians for their children if she also died.
The firm also showed the value of a financial planner when inheriting assets. It built a financial plan to help the client get her affairs in order to ensure she would not be forced out of the family home and that their children were able to finish their education. The plan involved organising investments and placing them in three discretionary fund management models with different risk profiles for the short, medium and long term. It also meant establishing how the client could get the most out of cash savings to make sure there was enough money for school fees. With the help of Partners, the client increased her savings deposit rate from 0.15% to 1.5% over the course of her children’s time in school. A lot of research significantly boosted the family’s financial security.
Cheltenham-based Ashlea Financial Planning offered a cautionary tale about taking complicated finances on without an adviser. The firm’s director Diane Weitz described how it dealt with a case involving a widow. The client’s late husband had taken out equity release on the couple’s house at a high interest rate. He then invested this money in high-risk investments with direct-to-consumer platform Hargreaves Lansdown. The investments were not generating income.
Following his death, Weitz and her team helped the client to rebroke the equity release agreement to receive more money for a lower interest rate. The firm then transferred the investments to cash and left the Hargreaves Lansdown platform, setting aside some of the money in cash as an emergency fund. The rest was moved into a portfolio on Transact, which now provides the client with a monthly income. The portfolio has grown, so she could increase her income if she wanted. In this case, paying for advice ensured a client received better value for money than if she had stuck to the investments her husband made.
Service and foresight
The lengths Ashlea went to help its client highlights something often overlooked: financial planning is hard. Getting a full picture of a financial situation often requires specialist knowledge and time that not everyone can give.
Many of our Top 100 planners have stepped in at the point where government or regulators can no longer solve individuals’ problems. For example, advisers have helped clients face problems they could not have dealt with alone. When we argue about the value of financial planning, these skills are what should be at the front, ahead of clichés like ‘peace of mind’ or ‘achieving your dreams’. They are important parts of a financial plan, but it is the skills of a planner that really deliver value to a client and to society more generally.
- Charles Walmsley
