Client Stories - Part 2
We wanted to share with you some of our client stories, to provide a snapshot of what we do and how we support our clients.
We need to be careful of privacy, so we wont be sharing names, locations, etc.
*All this information is general in nature and does not take into consideration your personal circumstances. Please seek personal financial advice for your specific situation.
Part Two
A couple in the mid to late sixties currently has a financial planner, but don’t think they can retire.
They have a $1.5m home that is unencumbered, $1m investment property and $1.5m in superannuation.
They have gifted their children $400k over the past few years to support with setting them up.
After having a discussion with the couple, we ascertained that they required $72k per annum to meet their living expenses plus 10-15k per annum for holidays each year.
They were concerned they would outlive their retirement savings.
It was quickly ascertained that their current financial planner was only looking after $500k of their total wealth and had not had discussions around their goals or retirement plans.
Running into retirement their current financial adviser had the client invested 80% in growth orientated investments that are subject to market volatility and with recent market falls is a significant risk to their overall financial stability in retirement.
In developing an investment strategy and constructing a portfolio, we looked to realign this to the clients risk tolerance and back to what they need to achieve to reach your goals.
Based on their current goal of achieving $90,000 per annum (indexed at inflation) to meet their living expenses of $6,000 per month, plus holidays of $18,000 per year, they need to achieve a rate of return of 6.21% per annum to not diminish their capital (obviously inflation comes into this, however you also spend less capital as you get older).
It was difficult to understand their investment strategy and why different investments are included in the portfolio.
Client 2, is invested in one diversified investment that is heavily tilted towards Australian & International shares.
Whereas Client 1, has over 40 investments in their underlying super account. This looks like an adviser has just plugged Client 1 into one of their model portfolios, without any consideration to your broader financial planning needs and/or goals.
This is highlighted with several investments holding less then $200. Why do we have a $200 investment? Is this in your best interest? Will a $200 investment get you closer to retirement?
The only person a 40 investment portfolio serves is an adviser and allowing them to justify their financial planning fees.
We need to start at the end and work our way back.
How can we generate a return of 6.21% each year to support them in meeting their living expenses. This will be made up of income and growth, so how can we get the right balance to meet their needs, without risking 80% of their capital.
A few investments of note:
Why do we have a significant holding to fixed rate bonds in a rising inflation environment?
When the cash rate goes up, the value of your fixed rate bonds goes down.
Why have we put GOLD into your portfolio?
Gold is normally a good inflation hedge. However, anyone that has been following the markets over the past few months would understand that this is not a normal environment and Gold is not providing the hedge we expect. In fact Gold has fallen 15.8% over the past 3 months.
8th March 2022 Gold hit $2,050 USD/oz and currently sits at $1,726 USD/oz,
BetaShares Asia Technology is down 36% over the past 12 months, and down 20% over the past 6 months. How does this support you in reaching your goals and how does this align to your risk tolerance?
You have exposure to small cap funds that have fallen over 30% in the past few months. Why is someone looking to retire and searching for income and financial stability and security gambling in the small cap market?
Why are we holding exposure to China, especially given the turmoil of the country at present? We have seen lock downs due to Covid with the most recent one only finishing a few weeks ago, we have the property market collapsing and a run on the banks in recent days. For someone in your position, with your goals this investment does not align.
All these investment questions had not been addressed by the client’s current financial planner and the client did not understand what they were invested in or why and how this was going to get them closer to retiring.
The total fees these clients were paying each year are in excess of $27,000 per annum.
Points to be addressed:
Why are we paying close to $6,000 per annum in insurance premiums for Client 2?
Do we need this insurance?
Can we save $6,000 per annum?
Investment fees are significantly high. We are looking to reduce this to $7,000 per annum saving over $4,000 per annum.
The administration fee we wanted to reduce to $2,700 per annum, saving the clients over $2,000 per annum in fees.
Total Fee saving is estimated to be $12,000 per annum
Assuming a 3% inflation rate, it is estimated your capital will diminish at age 96/87 respectively.
At this stage, you will need to consider downsizing your home and/or selling your investment property.
However, with most people aged in their mid 80s and 90s, there may be other concerns to consider at this stage including your health and care.
Therefore, we will require alternative plans to support you with in home care and potentially aged care support.
However, based on a conservative 3% capital growth on your properties, your home and Investment properties will be valued at over $4.8m which will be able to support you.
Based on our advice:
Move superannuation accounts, saving over $12,000 per annum in fees
Implement a salary sacrifice strategy over the next 12 months, saving $6,800 in tax
Implement a re-contribution strategy at retirement to save potential death benefit tax of $145,000
Use superannuation to generate retirement income needs of $90,000 per annum until capital diminishes at age 96/87
Our strategy has supported them retiring in the next 12 months whilst having over $90,000 per annum to meet their lifestyle and holiday needs.
This income will be entirely tax free for the rest of their lives.