Case study brief
Joanna, a widow, had just turned 50 when tragedy struck. Her husband, John, a successful international airline pilot, was unfortunately involved in a tragic aeroplane crash and died.
Due to her husband's job, she had spent a great deal of time travelling and held both a Dutch and a South African passport. She decided to settle
in the UK where she had purchased a home.
Joanna and John did not have any children but had family back in Holland. Joanna had been the sole beneficiary of John's estate and while the sum was substantial it was not necessarily life changing.
Joanna had inherited a capital sum of £800,000 and £700,000 of this was in a Dutch investment portfolio and the remaining £100,000 in an offshore savings account in South Africa. John had always looked after the finances and Joanna was clearly vulnerable, confused and frightened about what the future may hold. She didn't understand the portfolio she had inherited. We came away from that initial meeting with some clear objectives. Our aim was to simplify matters greatly and to put some meaning to the money.
This is a real life case study. Names and some other details have been changed to protect confidentiality. Picture posed by model.
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Joanna had just turned 50 when she was referred to us by her accountant. Joanna was widowed when she was 49.
Her husband, John, a successful international airline pilot, unfortunately died after being involved in a tragic aeroplane crash.
Due to the nature of John's job, Joanna had spent many years travelling and held both a Dutch and a South African passport. She decided to settle in the UK where she had purchased a home and started to work as a private "live-in" carer for elderly individuals who needed help around their own home.
Joanna and John did not have any children but had family back in Holland. Joanna had been the sole beneficiary of John's estate and while the sum was substantial it was not necessarily life changing. The funds were held in Holland, South Africa and the UK which added another dimension to the case.
When new clients come to us, they normally have a particular issue or problem that needs addressing. More often than not, the problem or referral relates to a particular product.
It is important for us to reassure clients that their issues will be dealt with sensitively. However, we have to remember that the purpose of our first meeting is also to find out about the client, their background, their aspirations and future goals. We don't believe we have the right to talk to clients about their money until we know more about them. Brunel Capital Partners has one service and that is comprehensive, lifestyle Financial Planning. We believe that our job as financial advisers is to help clients get and keep the life they want.
We spend the majority of our first meeting with new clients asking questions. Questions about them, their background, their family, their business or job, their hobbies, their future and their goals and aspirations. By the end of the first meeting, we would have a good idea of whether we think we can help the client. The client should also know whether we seem like the right firm to work with. Most importantly, we will have ascertained whether the client is right for us in terms of assets and equally importantly, whether they are someone we might enjoy working with.
In Joanna's case, and although her accountant had provided us with some background, the first meeting was tough. Discussing her late husband's death was clearly still difficult and the subject was still raw.
Joanna had inherited a capital sum of £800,000 and £700,000 of this was in a Dutch investment portfolio and the remaining £100,000 was in an offshore savings account in South Africa.
Although Joanna had family in Holland, she felt alone. John had always looked after the finances. Joanna was clearly vulnerable, confused and frightened about what the future may hold for her. She didn't understand the portfolio she had inherited, it had no meaning. Everything seemed complex. We came away from that initial meeting with some clear objectives. To simplify matters greatly and to put some meaning to the money.
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After that first meeting, we started to gather the information required to build a detailed picture of Joanna's current situation. This included obtaining details of the Dutch portfolio which was testing at times, due to language barriers. It was also important to obtain a detailed income and expenditure statement in order to ascertain the cost of Joanna's lifestyle, now and what it might look like in the future. This was particularly difficult as Joanna's income varied but it was important to reach agreement on the assumptions made. In addition to the invested capital, Joanna had a property which she owned outright and there was no debt.
Our first priority was to ensure that matters were simplified. We worked in conjunction with Joanna's accountants in this area. Although it is a bit of a cliché, we didn't want the tax tail to wag the investment dog. Once we had a good handle on the make-up and structure of the portfolio, we need to be clear on the tax implications (of disposing the portfolio). We also needed to factor in the offshore savings account. As her tax advisers, they had a clear understanding of her income and capital gains tax position. We were able to dispose of the investment portfolio over two tax years to ensure we used two annual allowances. Although it meant that a small amount of higher rate tax was to be paid, the decision to bring the offshore bank account proceeds back to the UK was taken. Things were already simpler and it was evident that Joanna was more comfortable now that everything was in the UK.
Work has now started to compile a lifetime cashflow forecast for Joanna. This is something that we do for our clients as we believe it is the only
way of ensuring the question "Am I going to be all right in the future?" The use of cashflow modelling software also assists greatly in the discussions around risk capacity.
A meeting was then called to bring Joanna up to speed with progress and our advice to date. This meeting was held jointly with her accountant. We reconfirmed our advice to dispose of the Dutch investment portfolio and repatriate the offshore account. We then approached the subject of investment risk.
The subject of risk needs to be handled carefully with a widow who has very little knowledge or experience of investments. Soon after our first meeting, Joanna had completed our online risk tolerance questionnaire. At our meeting, we had a detailed discussion around the subject and more specifically, the three elements that make up a client's risk profile. These are risk tolerance, risk required and risk capacity. We discussed the output from the questionnaire and went through the risk group that matched the description that Joanna fell into and pointed out any inaccuracies in her answers. Once we were satisfied that the tolerance score was correct, we put that to one side and moved on to the risk required.
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We presented the lifetime cashflow forecast that we had put together. We use modelling software for this purpose and we entered a rate of return in the assumptions that was sufficient for Joanna to achieve her objective of ensuring that she can continue to live her current and future lifestyle, without fear of running out of money.
During this discussion, we identified a gap between the level of risk that Joanna would normally choose to take (her tolerance) and the investment risk associated with the return required to achieve her objectives.
Joanna's tolerance score put her into risk group 4 (out of 7). We demonstrated that a portfolio aligned with risk group 3 would deliver a long term return that would be sufficient to achieve Joanna's goals. We looked at the likely return characteristics of a risk group 3 portfolio and how it would have performed in the past which would give us some idea of how it may behave in the future. This was to ensure that Joanna did not end up in a portfolio that provided any surprises in the future. The software was also used to demonstrate
What happened next
Joanna's capacity for loss, which is basically her ability (or the ability of her investment portfolio) to withstand a fall and for her objectives to still be met. This meeting lasted for over two hours but it was an essential investment of time. It meant that we had reached an agreement about the future investment strategy and that we had Joanna's informed consent to proceed. Joanna went away comfortable in the knowledge that whatever happens with her investments in the future, none of it would come as a surprise to her. Shortly after the meeting, an attendance note was produced which Joanna signed to confirm that she was happy with the discussions and agreed with the way forward.
Our report that followed the meeting, detailed the specific recommendations to utilise Joanna's Isa allowance each side of the tax year, with the balance to be invested in an unwrapped General Investment Account. In addition to six months regular expenditure, we suggested that Joanna reserve a further six months expenditure in a liquid account. Her income varied due to the nature of her work and an additional six months buffer would give her the comfort that she would not need to call on her long-term portfolio to fund day to day living expenses should there be a reduction in her hours. Joanna was keen to take an additional qualification which would involve evening classes. Once qualified, her income would be less variable as she would probably take on an employed position with more security of income.
We discussed the need to protect her income from illness and disability but after her husband's death, Joanna had been diagnosed with stress which unfortunately prevented us from going down this avenue. Death cover was not considered as appropriate, however, but we recommended that Joanna review her Will and put in place a Lasting Power of Attorney (property and health and welfare).
After one final meeting, during which the paperwork was completed, Joanna asked us to implement the recommendations and make the investments in the appropriate portfolio, all through a platform. Once implemented, Joanna was put on to our system which would ensure that she received a six monthly review and an annual forward planning meeting.
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Joanna's capacity for loss, which is basically her ability (or the ability of her investment portfolio) to withstand a fall and for her objectives to still be met. This meeting lasted for over two hours but it was an essential investment of time. It meant that we had reached an agreement about the future investment strategy and that we had Joanna's informed consent to proceed. Joanna went away comfortable in the knowledge that whatever happens with her investments in the future, none of it would come as a surprise to her. Shortly after the meeting, an attendance note was produced which Joanna signed to confirm that she was happy with the discussions and agreed with the way forward.
Our report that followed the meeting, detailed the specific recommendations to utilise Joanna's Isa allowance each side of the tax year, with the balance to be invested in an unwrapped General Investment Account. In addition to six months regular expenditure, we suggested that Joanna reserve a further six months expenditure in a liquid account. Her income varied due to the nature of her work and an additional six months buffer would give her the comfort that she would not need to call on her long-term portfolio to fund day to day living expenses should there be a reduction in her hours. Joanna was keen to take an additional qualification which would involve evening classes. Once qualified, her income would be less variable as she would probably take on an employed position with more security of income.
We discussed the need to protect her income from illness and disability but after her husband's death, Joanna had been diagnosed with stress which unfortunately prevented us from going down this avenue. Death cover was not considered as appropriate, however, but we recommended that Joanna review her Will and put in place a Lasting Power of Attorney (property and health and welfare).
After one final meeting, during which the paperwork was completed, Joanna asked us to implement the recommendations and make the investments in the appropriate portfolio, all through a platform. Once implemented, Joanna was put on to our system which would ensure that she received a six monthly review and an annual forward planning meeting.
Joanna was extremely grateful for the advice and support we provided. In her words, a huge load had been lifted from her shoulders. She had previously felt "stuck" but said that the "depressive" feeling had now gone.
She was now feeling more in control of her life and having established a relationship with a firm with whom she believed she could trust, Joanna was able to enjoy her life more and make other life changing decisions.
At the first six monthly review point, Joanna's portfolio had fallen in value but it did not seem to faze her. In fact she wasn't interested, she wanted to tell us more about her future plans.
At the first annual planning meeting, Joanna told us of her desire to take four months off work and train in a completely different area. We gave her the green light at that meeting and she hasn't looked back since.