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How to deliver the core strength necessary for a robust financial plan

It’s always important to start by uncovering what is most important to our clients, what they see their life looking like at various times in the future, what they’d like to spend more time on, what they’d like to spend less time on, etc.

It’s also a good idea to try to understand why these answers we get have been given -why those things are important. Then, together with an understanding of their current financial position, we can start to identify any gaps between our client’s reality and their aspiration. From that foundation we can then build a plan for making the aspiration a reality. For getting you financially fit.

If you compare achieving financial fitness with achieving physical fitness you can find a strong correlation.

If your goal is overall, “holistic” financial fitness then it’s important that your plan involves appropriate attention being given to all “muscle groups”. The physical epitome of this not being done is the classic “gym bunny” with an over developed top half and little skinny legs. You know what I mean! And it’s the same with your financial fitness plan. A lack of attention to all the muscle groups and aerobic and anaerobic fitness will produce an unbalanced plan.

Over the past few years there has been enormous and understandable attention paid to wealth creation, accumulation, preservation and transfer. And there’s nothing wrong with that. If you add tax planning or tax efficiency maximisation that’s most of the financial planning muscle groups covered. But the “whole” will be missing what in my opinion, is core strength – protection. And you all know what happens without core strength.

Here’s a summary of some key consequences of a weak core:

  • Poor posture.

  • Frequent pain.

  • Frequent injuries.

  • Lack of stability.

And this, regardless of how strong your biceps, triceps and quads are.

If we relate this to the lack of core strength in your financial plan then for all the strength that there may be in the “wealth” creation, management and preservation aspects of your plan, the overall plan will be prone to suffering (financial) “pain” and “injury” if serious illness or death strikes.

Essentially it will be materially unstable building protection into your financial plan for most people will deliver that core strength. It will materially improve the posture of the plan and it will definitely contribute all important stability for you and your family.

Apart from the feeling of well-being that “doing one of those jobs” gives you when its done, protection will enhance the effectiveness and balance of your financial plan.

I am a strong proponent of taking an “all asset” approach to all aspects of financial planning.

This is particularly important I believe in relation to:

  • Assessing what you need to do to achieve your accumulation goals. So as well as your investments, cash and pension taking account of your business (if you have one), pension, your business (if you have one) your property and your “human capital” – in other words your ability to generate income. This last one is really important. Sometimes the ability to continue earning is overplayed in the plan – especially by business owners. A variation on that theme is relying on the business to be the sole source of capital to sustain you in retirement. You know, “my business is my pension”. But some, maybe more, don’t take enough account of their ability to continue earning - something increasing numbers do.

  • Decumulation. Where to most tax efficiently take money from when you need it. And, here, advice and taking an all asset approach to planning is absolutely essential. By this I mean looking beyond pensions and ISAs and looking at all of your assets (including property, collectives, equities and bonds) to decide where to draw from. General best practice would point towards maintaining funds in the most tax efficient environment as far as possible. And at the point of designing a decumulation strategy, for many, wealth preservation will assume increased importance.

  • Wealth preservation and transfer. Where to keep your wealth to best preserve it from tax, which assets to transfer – when and how appropriate protection should be factored into these all asset approaches. The strong core that it delivers will enable smarter and more complete risk protected, planning to take place, during accumulation, decumulation and transfer.

Consider these specific roles for protection to enhance many aspects of the wealth creation, preservation and transfer process:

  • To ensure income (and investment plans) continue during ill health;

  • To ensure debts will be paid;

  • To create a legacy;

  • To bridge the gap between the wealth you want your family and dependants to have and what they will get should unexpected death occur;

  • To maximise the estate planning efficiency of a loan trust while the loan is outstanding;

  • To make sure a Discounted Gift Trust achieves an optimal outcome in its first seven years;

  • To pay the inheritance tax (IHT) on an ISA;

  • To pay the IHT on your estate.

  • To ensure that a business continues – especially important when an interest in a business is a main asset class;

  • To give a family financial security from the sale of a deceased’s business interest.

We could go on.

All of these utilities delivered from simple life insurance are the strong fibres that contribute towards a powerfully strong core to your financial plan.

Doesn’t a plan without that core seem that bit weaker, prone to (financial) pain and with a less than perfect posture, unstable even?

The answer is simple – work on your core!

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