The Accumulator

The proposition

Phillip Rose, chief executive, Group IFA

Our target client is an entrepreneur who owns their own business, which means they must have an exit plan. The planning process for most of our clients ideally starts around 10 years before retirement. The discussion of the sale of the business cannot be done in 12 months; the client must prepare their business for sale.

10 years prior to their retirement we look at a client’s investment vehicle, be it an ISA, a pension or leaving it in the limited company. At around five years prior, we make sure the investment proposition suits the client’s aspirations.

The initial stage for all clients is cashflow forecasting, for which we use Voyant. Every 12 months we make a plan. Without cashflow forecasting you cannot know all of a client’s assets and the tax treatments of their underlying assets, you do not know where all the investments are sat nor do you know their aspirations for the future.

Each investment should be dictated by what the client wants in retirement and when they want it. If someone wants to race sports cars we can take more risk, because if the market crashes they can defer this plan for 12 or 24 months. If a client needs income to put food on the table they cannot defer that, so we need less volatility for those investments.

We store a certain amount of cash based on a client’s aspirations. If we know what the client needs for the next two years and a market crashes, the client will have two years’ worth of cash. Cash creates a drag on the portfolio’s overall performance but the alternative would be encashing investments when the market has fallen.




What’s in your wrapper?

We place most clients on a fully asset allocated portfolio. We do not act as a discretionary fund manager but we review the allocations and dictate the amount of money sat in cash accounts.

We generally hold anywhere between one and three years’ worth of cash in a cash type fund. The amount held is dependent on the level of income the client requires and other parts of the investment will be fully asset allocated across a broad spectrum.

That can include infrastructure funds, gilts, index links, fixed interest, corporate bonds, unit trust type property and investing across a broad spectrum of equities.

Retirement planning tips

  1. Let your client dream. Aim to deliver everything they want to achieve in retirement, but be brave enough to tell them if it will not work.
  2. Do not expect a client to plan the most important decision of their life without using a cashflow modelling tool.
  3. Encourage prospective clients to seek advice many years before they plan to retire.
  4. Review your client’s underlying assets and the asset allocations. Make sure their investments fit their aspirations and their capacity for loss is measured.
  5. Review your client’s tax structures and make certain you are using every possible tax saving.

My favourite client case

A client sold his business and had a relatively large pension fund and cash proceeds from the sale. His objective was to pay as little tax as possible and generate £120,000 a year, which is quite difficult. We used unit trusts, ISAs and had nearly every tax-efficient investment box ticked to ensure he was only paying the basic rate of tax. We planned that he would pay tax from around age 75.

Unfortunately the client died aged 74 and 11 months. However, the new tax rules allowed his wife to carry on receiving the £120,000 tax free and she will not have to pay tax for the rest of her life. The case is sad but the client fulfilled his objective after all.

Decumulation corner

In retirement we use cashflow modelling for every plan so we can match each investment against a client’s objectives. That way clients know where their investments sit and where we are going to decumulate from, whether from a pension, ISAs or unit trusts.

The more complicated the pension rules become, the more financial advisers need to be on top of what the tax rules are on all investments. Tax has become just as important as the underlying investments.