10 #Hacks Towards Bulletproof Financial Planning

Five times as strong as steel and the main fabric of bulletproof vests.  This post is inspired by the late Stephanie Kwolek, award winning chemist and inventor of  Kevlar.   It made me think, can I make a bullet proof financial plan for clients that will deflect the bullets and absorb the shocks of our volatile, uncertain, changing and ambiguous world.

Maybe....

Hello,  my name's Jill Turner, I love to engage people with financial planning and it was my priveledge to put this presentation together for the Dales and Peak  Business Networking  Group


Here's 10#Hacks that can be implemented in your financial planning  that will definitely make an impact on your lifestyle,  beginning with : 

1.  Reduce uncertainty - underpin your financial goals with life, serious illness cover and income protection.                              
What will happen to our goals if we fall ill along the journey, we cannot work and our income dries up.  " I'm saving, I have money in the bank", I hear you say - but how long will that last?  The office of national statistics have published the average household savings as £177 per month.  Leaving the money on deposit would take 12 years and nine months to save the average salary of £27,000.
Why not take a small portion of the £177 and buy life assurance or income protection.  A 30 year old non smoker can have £13,470 per annum of short term income protection,  paid after 13 weeks for up to five years, for £18.94 per month.   That will go a long way to keeping the wheels turning.

2.  Use a menu of protection benefits
You can buy differing levels of life protection, serious illness cover and income protection.  For example if serious illness cover for the full amount of your mortgage borrowing blows your budget, then buy an amount equivalent to one or two years salary, this could be enough to take time out of work or pay for some medication that may not be available on the N.H.S. 
Buy what you need, mix and match covers, make sure its index linked  and there are guaranteed insurability options - then adapt as you journey on.

3.  Make use of the appropriate trusts 
Life insurance companies love trusts, it means they know who to pay any claims money to and there's no need to go through the probate process.  It also keeps the money outside of your estate, essential if you are using life assurance to cover any inheritance tax bill.  

4.  Switch to clean share class funds
If you are saving through mutual funds or collectives ( OEICS ) examine a switch to the clean share class version, with no bid offer spread, no exit or entry charges and no kick backs to platforms or wealth managers.  This  could provide an immediate improvement to your financial planning but beware of incurring a capital gains charge.

5.  Diversify 
An interesting paper was published in the 80's, "Determinants of Portfolio Performance" where 93.6 % of the variations in return on investments were attributed to asset allocation.  Getting the right mix of assets and an investment strategy for your purposes, can seriously improve your financial planning outcomes.

6.  Don't follow the herd.
There's a rather unsavoury phrase that sticks in my head when it comes to investments, "buy on the sound gunfire" apparently attributed to Nathan Rothschild in the 1800s.  It means buy when things are out of favour or having a torrid time.  The media is always full of what's doing well, its an easier story but Warren Buffet said, if everyones's talking about it, its time to sell.   Sell before the doom mongers move in with greater negative sentiment by which time, its too late.  Examine the figures and make decisions on facts.

7.   Save little and often
How many times have I heard I can't afford to save, my business or my children are taking me for every penny.   Its always easiest to save first rather than wait to the end of your pay period to see what's left.  Besides, if you were to save the price of a coffee for five days a week, that would be £50 per month.  With an investment return of 5% in a stocks and shares ISA over 10 years it could be at least £7,718.   Regular investments can also give a better return through participating in pound cost averaging (  a subject for a future post ). 

8. Use your tax allowances.
Most higher rate tax payers aim to be basic or non tax payers in retirement.  If you can receive tax relief on your pension contributions at the higher rate  of 40% or more when the money goes in and pay tax at the lower rate of 20% when you take your retirement income, its  a no brainer to get an immediate uplift on your investment.  Tax relief is costing the exchequer billions and in an age when the chancellor wants to bring in as much tax as possible, higher rate tax relief is definitely under threat.  There has been a stay of execution with the introduction of the L-ISA.  Higher rate tax relief for pension contributions may not be around forever so take advantage while you can, maximise contributions in this current tax year and even go back three years and carry forward any unused annual allowance in those years. 

9.  Consider blended retirement income solutions
Once upon a time there was a standard cup of instant coffee and fairly similarly there was a standard annuity that gave you an income in retirement in return for giving an insurance company your pension pot.
Then you were told annuities are bad because the insurance companies keep all the money if you die.  Then interest rates fell which gave less annuity income in return for your pension pot.  Then came drawdown, taking an income straight from the pension pot, which seemed a good idea until volatility entered the investment markets.  So what do you do? 
There have been a number of innovations in product design since the Taxation of Pensions Act in 2014.  Short term annuities are coming back into favour providing secure income for set periods and leaving the remainder of the pension pot untouched or available for income drawdown.  Annuities are now available with improved capital guarantees and longer guarantee periods, up to 30 years.  There are even hybrid products which combine features of annuities with an income drawdown.
It's no longer all or nothing,  a blended solution, mixing income drawdown with some secured income through annuities, could  be the caramel machiatto of retirement income planning.

10. Nominate Beneficiaries
Good practice in financial planning has always included a discussion of what is to happen to any remaining pension fund upon the death of the member.  The Taxation of Pension Act 2014 has widened out the class of beneficiaries from just dependants to include non dependants and  introduced the concepts of nominee and successor beneficiaries.   It's important to fill out the nomination  forms correctly and consider nominees and successor beneficiaries.


In the course of my work as a financial planner, legislation and politics are always changing.  We are living in a VUCA world, volatile, uncertain, changing and ambiguous but these things remain consistent: 

• Most clients want to minimise risk
• Most clients want to retire comfortably 
• Most clients want to make sure their families and businesses are adequately protected and that they can transfer wealth in a tax efficient manner.

These 10#Hacks won't constitute a bullet proof vest on their own and the caveat that this article is for information purposes only and does not constitute advice, applies.  But I hope it gives food for thought and if you have any queries about your own position please don't hesitate to get in touch. 

Jill Turner :  May 2016   http://www.jillturnerassociates.co.uk