Typically Grierson Dickens’ clients will have an annual family income upwards of £150,000 and or total assets in excess of £2 million.

Below is a fictional case study which encompasses issues which we see regularly when working with our clients.


Scenario

Mark & Karen Groves are both 44. Their children, Rosie and Charlie attend private school and Mark is CEO of a FTSE 250 company earning between £200,000 and £400,000 pa plus share incentives. Whilst Karen is not currently engaged in a career she has a demanding job looking after the children, running the household and contributing to local charities.

Mark & Karen approached Grierson Dickens after a recommendation from a friend. They were concerned that although they felt fairly well off they didn’t really know ‘what it all meant’. Karen was particularly concerned because she felt removed from the finances having never met their existing adviser. She is worried that if something happened to Mark she would not know what they had, where it was, and what to do.

Mark is conscious that he is getting bored with his work and has discussed a business opportunity with a friend from university. However he isn’t sure about the feasibility of leaving his current employment for the uncertainty of a business start up. He has a significant shareholding in his employer and is worried that if the share falters he could lose a lot of money.


Process

Having talked at length with Mark and Karen about their aspirations we agreed a very clear picture of how they think the rest of their lives would ideally look. We recognise that there can be no fixed plan in life but working on the basis of these assumed objectives we could provide Mark and Karen with a good basis on which to make future decisions.

We started off by preparing a financial analysis including a comprehensive asset and liability statement, a lifetime cashflow analysis, a summary of urgent and important issues to be addressed and some preliminary recommendations.

We then met again with Mark and Karen and discussed what we had discovered about their financial position and in particular the feasibility of their life objectives. We also agreed to tackle the most urgent and important issues.

In our third meeting we agreed the exact lifestyle assumptions to be made in creating Mark and Karen’s financial plan, and the relevant actions. We then implemented those actions and set a review date.


Outcomes and Actions

The lifetime cash flow analysis demonstrated the relationship between accrued assets, estimated future income and the cost of Mark and Karen’s proposed lifestyle. This indicated very clearly that Mark could take a significant decrease in income and still be able to fulfil his family’s lifetime objectives. This encouraged Mark to pursue the idea of a business start up. Leaving Mark and Karen to ponder on this new found context we set about dealing with the urgent and important issues.

Mark and Karen’s Wills were out of date and failed to take advantage of recent planning opportunities. They would also have left over £5 million to their children at age 18 had they both died. We instructed a trusted private client solicitor to draft new wills and arrange lasting powers of attorney.

Mark had paid no heed to the shares he had accrued from his incentive plan and we identified the significant capital gains tax liability associated with them. Recognising the risk associated with such a concentrated asset we initiated a program of disposals making use of business asset taper relief before it was abolished, inter spouse transfers and capital gains tax allowances. We redirected some of the proceeds, together with existing cash, to repay the existing mortgage leaving Mark and Karen debt free.

We arranged for Mark and Karen to make a principal private residence election enabling them to elect for their holiday home to be treated as their principal private residence at some point in the future hence making significant capital gains tax savings on its ultimate disposal.

In the past, the family accountant had sent Mark and Karen checklists to fill in for the preparation of their tax returns. This led to a frantic scramble for information at the end of January. We arranged for the accountant to deal with us directly in future, taking this burden away from Mark and Karen.

Whilst our calculations showed that Mark and Karen did not need any additional life assurance we noted that their existing policy was not in trust and no beneficiary nomination had been made for Mark’s death in service benefit. This made the potential payouts from each arrangement vulnerable to inheritance tax and would have caused unnecessary delays in the event of Mark’s death. We therefore arranged for Mark to make new beneficiary nominations.

We discovered that if Mark increased contributions to his money purchase pension scheme with National Alliance bank the company would double their own contribution. We arranged for the contributions to be increased and negotiated with Mark’s HR director for the increase to be retrospective.

In our preliminary recommendations we proposed that Mark and Karen repaid existing debt from his current cash and some of the proceeds of the National Alliance Bank Share Disposals.

We suggested that all existing collective investments be consolidated onto one investment platform and reinvested where appropriate in low cost Exchange Traded Funds. We proposed that these collective investments, and other liquid assets and pensions be earmarked into medium term, long term and ‘discretionary’ pools.

At our third meeting with Mark and Karen we agreed that we would assume that Mark worked for National Alliance Bank for three more years and then initiate a business start up. We segregated all liquid investments and pensions into a medium term pool to meet shortfalls between income between ages 47 and 55 and a long term pool to provide income after financial independence at age 55. We identified how much of Mark’s income during the next three years needs to be ‘captured’ and set aside and implemented a suitable strategy to do so. Finally we identified that there was surplus income to form a ‘discretionary’ pool. We directed this income towards stakeholder pension contributions and a bare trust for Rosie and Charlie. The agreed actions were summarised in a financial plan and we agreed a review date.


Summary

As a result of working with Grierson Dickens Limited Mark and Karen now

• Have the context to make good financial decisions.
• Know that they are secure in the event of a health problem or premature death.
• Understand exactly where and why their money is invested and what rate of return is required
• Have a much simplified financial position with no inefficient, irrelevant or inappropriately risky investments or assets.
 

Additional information:

Asset & Liability Statement  (pdf)