Financial Planning
Case Study
Damian Wallace MSc QFA CFP®
Certified Financial Planner
Topics

Definition

Macro and Environmental
considerations

Examples

Some thoughts on transitioning to a
financial planning business
Definition
“Process of developing
strategies to assist clients in
managing their financial
affairs to meet lifestyle
goals.”
Financial Planning
Capital accumulation
from surplus earnings
Use of capital to
generate income
What type of assets should my clients own?
What type of ownership structure(s) should they use?
What would happen if there was a break in the earnings supporting
this picture?
Financial Planning Process

Step 1 -
Establish and define the relationship with
the client

Step 2 –
Collect the client’s information

Step 3 –

Step 4 –

Step 5 –
Implement the client’s financial plan

Step 6 –
Review the client’s situation
Analyse and assess the client’s financial
status
Develop and present financial planning
recommendations
Analytical Process
Map out the current position
2.
Define Client’s financial and lifestyle goals
3.
Determine what resources are available to
meet goals
4.
Identify and agree client issues
5.
Present options
6.
Recommend solution

Strategic

Product
7.
Review
1.
What is Financial Planning

Every aspect of a client’s financial life

In a consultative and highly individualised way

Complete range of products, services and
strategies

Individualised series of recommendations

Completely tailored to each client

Connecting with clients on personal level

Way beyond the norm
Including………

Lifetime cash-flow modelling

Asset/Wealth Management (incl.
retirement)

Risk assessment and management

Tax planning

Estate planning

Legal advice
The Financial Planning
Environment

Taxation

Income

Assets

Pensions Legislation

Social Welfare

Economic considerations

Insolvency Arrangements
Summary of Macro
Considerations

Increased Income Taxes/USC

New Wealth/Asset Taxes

Social Welfare Entitlements – to what extent
will they be available in years to come

Significant lack of education/understanding
on retirement planning
Summary of Macro
Considerations

Accelerated move from DB to DC leaving
population exposed in retirement

Dependency on State pension increasing
but life expectancy will impact on the
State’s ability to pay

Insolvency and debt restructuring options
Sample Case Study





Susan age 45 and Joe age 46 are married, they
have two children Conor age 9 and Mary age 7
Susan is CEO of a medium size business and earns
120K per annum with a potential bonus of 30k per
annum she is due a bonus of 60K for 2015 and
2016
Joe an IT consultant has had serious health
problems but has now returned to work and draws
a salary of 45K
They each have a DC pension fund in place and
Susan has 430K and Joe 100K built up.
The company pays 4K per month for Susan, no
current contribution for Joe.
Sample Case Study

They have a mortgage of 345K on their PDH
which is valued at 750K and a rental property
with a mortgage of 240K and a value of 270K

They have savings of 50K made up of shares
and deposit accounts

They have limited disposable income. Their
mortgage is 2,200 per month and they need
to supplement the rental property loan by
600 per month.
Sample Case Study

Susan’s primary objective is to pay off the home
mortgage as soon as possible. She would like to cut
back on work to spend more time with the children
but cannot see how this is possible with their current
outgoings.

They would like to retire fully at age 60. They wish
to know what they need to do to have an income of
€50,000 gross ,excluding social welfare pension in
today’s values in retirement. This requirement will
increase with inflation over the next 14 years.

Wish to create an education fund to provide for their
children’s 3rd level education.

Their outlook on life changed after Joe’s illness and
they now seek a better work life balance.
Analysis - Retirement Income

50,000 PV = 66,630 in 14.5 years

Guaranteed annuity will cost €3.045m

Life expectancy to age 84 - then €1.4m
will suffice in an ARF structure

Current combined fund of 530k
Analysis - Retirement Income

€126,791 per annum payment to achieve
annuity option.

€33,319 will achieve ARF option

€1,658,000 will be the value based on the
current contribution
Notes:
Assumed Inflation 2% per annum
Assumed Growth after charges 3% per annum
Annuity Rate – 2.188 includes indexation and 50% reversion
Analysis - Education Fund

10,000 PV x 4 years each.

Conor 9 years to go – 12,189

Mary 11 years – 12,433

Conor €374 per month or 34,036 initial lump sum

Mary €299 per month or 32,052 initial lump sum
Notes:
Assumed Inflation 2% per annum
Assumed Growth after charges 4% per annum
Analysis - Mortgage

Establish the mortgage balance at various dates in
the future based on current repayments:

At age 50 - €287,695

At age 51 - €274,287

At age 52 - €260,242

If Investment property is sold this frees up 30K in
equity and €600 per month outgoing:

Question – how should this be used?
The Financial Planning Piece

At age 50, based on a continuation of current contributions
the overall pension fund will be €751,667 generating
€188,000 tax free cash while the balance on the loan on
the PDH will be €287,695.

Option 1 Take early retirement from current role, use the
tax free cash to pay off the loan and be left with a loan
balance of €100K. The residual balance of the pension
would then be €660K

Option 2 Try and bring the pension fund to €1 million by 50
and at 25% drawdown, even allowing for the tax, there
would be €240K available to pay off the mortgage. A
monthly contribution of 8,190 per month would be
required to get there.
The Financial Planning Piece

Option 3 alternatively put the bonus of €60K
into the pension now and a further €6,979
per month will suffice. (subject to complying
with Revenue rules on salary sacrifice)

Option 4 Delay drawdown to age 51 and the
monthly figures above would change to
€6,281 and €5,270 respectively. The
mortgage would also have decreased by then.
The Protection Piece

What happens if something goes wrong
along the way – what is in place

Life cover €1 million

Critical Illness Cover €250,000

PHI €60,000

Cost €400 per month
The Trade Off

Will they sell the Dublin property

Is she happy to allocate the future bonus to
pension contribution

Is the education fund a greater priority than the
mortgage redemption

Is she happy to change role at 50/51 in order to
pay off the loan

Will they keep the protection benefits in place
Potential Risks

Susan and Joe’s retirement plans, and indeed their
current lifestyle is very much predicated on Susan’s
continued employment in a similar role

If interest rates increase, it will have an adverse
impact on the costs of purchasing their properties.

As the children get older the financial expenditure
and commitments are likely to increase, at a time
when Susan wants to reduce her working
commitment

There is uncertainty about Joe’s ability to continue
working due to his health concerns
What is involved

Detailed cash-flow modelling

Capital and Income tax estimation

Sinking fund analysis for school fee costs

Accumulation of assets pre-retirement

Decumulation of assets post-retirement

Asset Allocation strategy and portfolio
construction
Typical Features in a
Financial Plan
Current Overview
Record the Facts
 Set out the objectives
 Tax Calculation
 Cash Flow
 Balance Sheet
 Asset Allocation Summary

Typical Features in a
Financial Plan

Risk Profile

Protection

Investment

Retirement Options

Estate Planning
Typical Features in a
Financial Plan

Identification of Issues/Problems

Recommended Strategies

Trade -off Analysis

Impact of the recommendations

Disclaimer /Fee section

Details of Assumptions used
Financial Planning - the
future
Developing a Financial Planning
Business
What are the implications
for Business Models
Transactional
Relationship
Interviews
1 to 2
4 to 6
Process driven
by….
Needs based
Objective driven
Focused on..
Product
Strategy
Payment
Commissions /
Fees
Commissions /
Fees
Business
transacted
1/2
Multiple
Advice – Old Model
ADVISERS
SUPPORT
Professional Services Model
FINANCIAL PLANNERS
Paraplanners
Customer service
Compliance
Training
Technical support
SUPPORT
Specialised IT
Resources – a barrier to entry ?
How does the financial
planner get paid?



100% commission
Hybrid commission / fee models
100% Fees

How is income collected





Client writes cheque?
Collected from product commissions?
Cost to client (VAT considerations)
Process of evolution not revolution
With or without regulatory influence ?
32
Key Success Factors
1.
Business Model
2.
Charging model
3.
Service offering
4.
Team Approach
Client Service Proposition
1.
What are your core services?
2.
Offering a comprehensive service or a set
of packaged products?
3.
When did you last ask your clients what
they wanted?
4.
When you undertake an annual client
review – what do you review?
The Professional services model
Has Five Key components:
1.
2.
3.
4.
5.
Fee based/Full time recovery – no longer
working for free
Career progression – partnership/equity
opportunity
Team work – delivers consistent service
Clarity of offering and product – allows
focus on what you do best
Technical expertise and qualifications based
– it’s what our clients expect
How many Clients?

Segment your client bank

Determine your offering

Disengage those that do not suit
your ‘client service model’

Watch your cash flows. Disengage
systematically (Evolution not
revolution)

Design your practice around your
new client profile
The commodity that
clients value most is
our knowledge and
wisdom
What can we learn from elsewhere?
The key objectives of the RDR is
to deliver standards of
professionalism that inspire
consumer confidence and build
trust so that, in time, retail
investment advice is seen as a
profession on a par with others”
FSA 2011
Thank You