Securing a young couple’s future
Client profile:
A professional couple with a young family.
Financial and/or lifestyle position:
The couple are nearing paying off their home loan and wish to consider options to use the surplus income they will soon have. Their initial thoughts were on investing this surplus income into some form of share investments.
BDO Private Wealth Advisers’ initial advice:
We reviewed their situation and identified they had two investment properties with substantial loans still owing. We also identified the higher income earner had inadequate income protection insurance to meet their living expense and future lifestyle requirements if something were to happen to him. The BDO team then produced:
- Discussion Paper - this showed where the couple were at and provided various options for the investment of their surplus cash flow. Options included building a share portfolio, repaying the investment loans and contributing further into superannuation.
- Recommendations - repaying their other loans and building their super versus building a share portfolio showed they would be in a better financial position at an earlier age.
Practical outcomes:
We provided the client with an implementation plan and recommended the higher income earner increase their level of income protection cover. This demonstrated that if this person was unable to work their living requirements and mortgage repayments would be greater than what they would be receiving.
Paying off debt rather than investing their surplus income did not result in a financial product sale, however provided a lower risk solution to meet their objective.
Proactively planning for retirement
Client profile:
A couple in their fifties considering retiring within seven - ten years.
Financial and/or lifestyle position:
We first met this couple in 2007. They had a reasonable portfolio of shares and wished to consider setting up a self-managed superannuation fund. We noted they had a level of non-deductible and deductible debt, which they noticed was not reducing. Their share portfolio was mainly owned by a company which their accountant noted was not the best entity to hold growth assets in. They did not have an overall strategy to reduce debt and build assets for their retirement and had not reviewed their insurance needs.
BDO Private Wealth Advisers’ initial advice:
Our team reviewed their assets and liabilities, income and expenses (from all sources) and their insurances to provide options for the client. We then produced:
- Discussion Paper - this showed their present position and options for their situation. They hadn’t considered transferring shares from their private company to reduce the level of debt or contribute into the new self-managed superannuation fund (SMSF).
- Recommendations - The strategy they adopted was to transfer some shares held in the company into their SMSF, sell some shares and use the proceeds to reduce their non-deductible debt. We also assisted them to implement a disciplined approach of using their surplus cash flow to reduce debt. Our forecasts indicated they would repay their loans within 5.1 years. Then they would start using the loan repayments to build investment portfolios both in and outside of superannuation. They would then be in a position to retire within 10 years. We also confirmed their current levels of insurance were adequate. We agreed to meet with them annually to review their strategies to ensure they remained on-track.
Practical outcomes:
Several years on and the clients are now in a financial situation where they are able to retire now, if they wished to. They repaid their loans two years earlier than we originally projected, as they became better at managing their cash flow. Reductions to the level of insurance they needed resulted in annual savings of over $10,000.
In the four years since their loans were repaid, they have been able to increase their financial wealth by over $1.5 million due to increased funds being invested more effectively using superannuation strategies and good investment returns.
Helping protect the $20 million family business for just $5,500
Client profile:
Two brothers in their early 40s taking over the family business from their sick father.
Financial and/or lifestyle position:
The family business generates annual revenue of $60 million and the net worth of the family is $20 million. However, their father’s illness triggered the realisation that everything their family had worked for could be lost without the proper protection in place. In the event that either of the brothers died or was totally and permanently disabled, the goals of the brothers were to:
- Protect the business for the survivor
- Protect their respective family interests
- Repay debt to parents to protect their estate.
BDO Private Wealth Advisers’ initial advice:
We worked with the brothers’ accountant to recommend appropriate insurances for them. We also worked with their solicitor to tie the insurances to the buy/sell option deed for the business and property, to ensure that all elements had been provided for.
Practical outcomes:
This case demonstrates how BDO Private Wealth Advisers Pty Ltd can work with accounting firms to help clients protect their wealth and family. This creates the opportunity for ongoing relationships and business with the accounting firm.
In this particular scenario, the clients paid $5,500 for our advice about protecting the family’s net worth of $20 million.
