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Income Protection – The Glue that Holds Your Financial Portfolio Together

Income Protection is that still relatively rare product in many people’s financial portfolio. Why is this? Particularly when it covers far and away your biggest asset, your income.

The reason I believe that income protection remains ignored by many people is because they don’t have to take out this cover. Unlike car insurance, which is required to stay on the road, and house insurance and mortgage protection, which are probably conditions of your mortgage, income protection is a discretionary purchase. So it has to compete for your attention with your day to day spending, the spending on your social life, your saving for your holidays and all your other discretionary spending. It’s true paying for income protection is not the most enjoyable use of your money, however it’s a really important use of your hard earned cash. Without your income, everything goes; holidays, your lifestyle, your mortgage repayments, the lot. It’s your income that keeps all of these going for you.

Income protection provides cover against the loss of your income due to illness or accident. That is why we consider it the glue of a financial portfolio. It protects your income, which if you become unable to work may pretty much disappear. Income protection then steps in, replaces your income and enables you to maintain your financial objectives, continue your saving, your pension planning, and the protection for your family, as well as your lifestyle spending.

While obviously the best place to start looking for income protection is by talking to your independent financial adviser (which is covered in detail elsewhere in this newsletter), here are a few features you might not be aware of in relation to income protection.

Tax Relief

Did you know that the premiums paid for income protection policies qualify for tax relief at your marginal rate of tax? Unlike health insurance and other tax breaks that only get relief at the lower 20% rate, income protection (like pensions) attracts relief at your highest rate. This can reduce the actual cost by over 40%.
Align it with any existing entitlements

Income protection policies come in all shapes and sizes so this is where your independent financial adviser can really help you. One of the first places to start is to examine any existing entitlements you may have in the event of being unable to work due to illness or accident. Your employer may provide sick-pay for some time and / or you may have entitlement to some social welfare benefits. It’s really important to take these into account when identifying the right income protection cover for you.

The payment of income protection benefit usually begins after a deferred period (waiting period), usually anything from 8 weeks to a year from the date you are first out of work. The longer the waiting period, the cheaper the cover is. So it makes sense to take account of any sick pay that you might get in the short-term.
It’s all about claims

At the end of the day, income protection like all insurance is a simple concept. Lots of people pay in relatively small amounts of money (premiums), from which small numbers of unfortunate people claim relatively large amounts of money (claims) when an unforeseen event occurs.

To ensure you are getting the right insurance for your own circumstances, you need to examine in detail every aspect of the policy that you are going to take out. What does the provider mean by “unable to work”? What is their claims payment record, do they actually pay out? What added services are available – some providers will assist claimants in their rehabilitation and indeed will assist them in retraining etc. if this will help them get back to work, even on a part-time basis. Indeed some will continue to pay you a partial benefit if you manage to get back to work part-time.

The huge benefit of income protection is that claims can be paid right up to your retirement date. This is what makes it such a valuable benefit. There are claims that are currently being paid in Ireland that have been in force for literally decades.

And about premiums too…

Are the premiums that you pay guaranteed or might they increase over the years? While guaranteed premiums might look a bit more expensive at the outset, you get certainty that they will never change. It’s a bit like taking a fixed rate mortgage rather than a variable rate.

At the end of the day, the critical point is recognising how important it is to protect your income as this keeps all your spending possible. After that, you need to make sure that you get the right policy for you. And that is where we come in, your trusted independent financial adviser.

7 years on – what have we learned?

Think back 7 short years. A huge US investment bank that few people in Ireland knew much about called Lehman Brothers collapsed and started a shockwave in global banking that had huge ramifications in Ireland. Soon after, we saw the government guarantee scheme, followed by the collapse of Anglo Irish Bank and then the biggest recession in Irish history.

The recession has had enormous consequences for people in Ireland. However, some people have definitely been affected much worse than others. So as individuals, what are the lessons to be learned to best protect us against any future economic downturns?


Have a long-term investment strategy

The people who suffered most in the economic collapse were those who had no plan and tried to call the market. These people typically sold assets such as shares or property after significant falls in value and then after suffering so much, were very slow to re-enter the market and missed most of the recovery. In fact, stock markets had pretty much fully recovered in 2011, but many people were out of the market for much of the recovery period and their portfolios did not recover.

People with a plan typically stuck to it and avoided making short-term calls. As a result they did not make large scale asset movements and as a result, they experienced both the collapse, but more importantly the recovery in the markets.

Diversification is key

In Ireland in particular, this is one lesson that many people have bitterly learned. No matter what your investment objectives are, it is very important that you protect yourself by not being over-exposed to one asset category in particular.

A decade ago in Ireland, many people began to think that property was a one-way bet; that the only way was up! It was deemed disastrous to be “out of the market” as banks lent money with abandon and people over-extended themselves, buying in Ireland, the UK and then in more exotic places, some of which they knew nothing about. And then the global property crash happened. All those people who were invested only in property bore the brunt of the ensuing pain.

Debt must be carefully managed

A lot of the problems in Ireland were exacerbated by the easy access to credit, offered by the banks. Many people subsequently borrowed huge amounts of money, with little thought given to their repayment capability, assuming that capital growth would continue apace. The opportunity to make significant gains was there for highly leveraged individuals as the market continued to grow.

But unfortunately as the market collapsed, these individuals suffered greatly as their losses were multiplied in line with their high levels of leverage. Many have suffered to a point of no return financially and unfortunately face the loss of their assets and indeed in some cases bankruptcy. This has been a salutary lesson for all of us, to ensure our debt levels are manageable.

Keep emotion out of it

Investing is an art not a science. If investing were a science then there would simply be a formula for success. We all know this is not the case. Our successes (and failures!) are strongly affected by uncontrollable issues, which emotionally affect us and cloud our judgement. These influences are many. Things such as random events, investor sentiment, market momentum and of course, plain, simple luck all have an unpredictable and inconsistent influence on markets. Analysts are always trying to rationalize these issues, define them and ultimately predict their timing and influence. This is of course nigh on impossible.

The people who tend to suffer most are those who exhibit extreme emotions. Being too greedy is a recipe for disaster in a rising market, as these people often don’t take the opportunity to lock in any gains. In a falling market, excessive fear is also a big enemy as people exit the market and are too fearful to re-enter, thus missing a market recovery. The answer is to make investment decisions on logic alone…both yours and that of your adviser!

(Some) cash is king

The economic collapse resulted in a lot of pain for many people, with salary reductions and a large increase in unemployment being two of the most unwelcome effects.  For these people, cashflow became an immediate issue as their non-discretionary outgoings (such as mortgage and other loan repayments) typically did not reduce in line with the fall in income. This caused significant issues for people with no cash buffer as they struggled to deal with banks and other creditors, resulting in significant financial pressure, stress and a dramatic fall-off in their lifestyle. Going forwards, many people have prioritised a cash (or other liquid asset) buffer as one of their investment objectives.


Don’t go it alone

As people saw their portfolios collapsing and faced uncertainty about their financial futures, it became more and more difficult to make rational decisions. This is where a trusted voice became extremely valuable and for many, that voice was their financial adviser. They were able to stand back, remove the emotion from the situation and provide clear thinking in a difficult situation. Sometimes the advice given was to do nothing, often the right advice! For other people, their adviser was able to help them face up to their situation and plan on how to deal with it.

Having that second opinion, apart from the positive impact it will have on your financial wellbeing will also seriously reduce your stress levels!
I look forward to any comments you might have – are there any other big lessons to be learned?

Are you leaving over half the return from the stock market on the table?

“We have met the enemy, and he is us”, is a quote attributed to Pogo, a comic strip character created by American cartoonist Walter Kelly. Pogo may well have been referring to investors, whom it would seem are their own worst enemies when it comes to making investment decisions.

According to a recent study carried out by DALBAR, a leading financial services research firm, the average stock market investor over the last twenty years (to end 2011) has earned a return of 3.5% p.a. versus the average fund return of 7.8% p.a. Less than 50%! Are you leaving more than half the stock markets’ return on the table?

People make poor investment decisions because they are human. We all come with mental software that tends to encourage us to buy after results have been good and to sell after results have been poor. Exactly the opposite of what we are told to do, i.e. buy low and sell high.

So why does this happen? To explain, I’ll introduce two investment terms – time-weighted returns & money-weighted returns for funds.

  • The time-weighted return which is the return typically reported, is simply the return for the fund over time.
  • The money-weighted return on the other hand calculates the return on each of the Euros invested. These two calculations can yield very different results for the same fund.

So let’s look at an example to explain the difference between the two.

Say, a fund starts with €100 and goes up 20% in year 1. It’s now worth €120. The next year however, let’s assume it loses 10% (-€12). So the €100 invested at the beginning is worth €108 after two years and the time-weighted return is 3.9% p.a.

Now let’s say we start again with the same €100 and the same first year results of a 20% return. Investors see this very good result, and because they assume the good returns will continue (remember we’re human!), they pour an additional €200 into the fund. So now they have €320 at the end of year 1 — the original €120 plus the additional €200 invested. The fund then goes down 10% in year 2, now causing €32 of losses.

The fund will still have the same time-weighted return, 3.9% as this is calculated on the fund’s performance over two years (an increase of 20% in year 1, a drop of 10% in year 2).

But now the fund will be worth only €288, which means that in total, investors put in €300 — the original €100 plus €200 after year one — and lost €12.

So the fund has positive time-weighted returns but negative money-weighted returns. Investors’ tendencies for buying high and selling low means that investors earn, on average, a money-weighted return that is less than 50% of the market’s return (as per above). The results of our decisions with respect to timing are simply appalling.

The DALBAR study also identified something even more startling. An investor committing money on a regular basis to the stock market fared even worse than the lump sum investor, with a return of just 3.2%. So what are we to make of this?

Patterns of stock market returns are important to the regular investor. Investment strategy cannot be simply ignored if an investor is committing money on a regular basis. You can’t just throw money blindly at the market.

To investors that commit lump sums to the stock market, you’re pre-disposed to undermining your return through your own actions. Emotions, like hair growth or your heartbeat can’t be controlled. You need to take the emotion out of the investment decision making. To do this, at a very minimum, have a proper plan when investing and seek external validation of your plan. Or better still, employ an expert who won’t get caught up in the emotion of the investment decisions to invest the money on your behalf.

Where do you find and get access to such an expert? Well this is where we come in. It’s our job to show you the range of investment options available to you, to talk you through the different funds and fund managers available and to help you find the one that best suits your needs. We’re on your side and again, will be able to leave the emotion out of the decision making!

If you have any comments or queries in relation to this article, we look forward to hearing from you!

Make the most of your money in 2015

It’s a new year and traditionally now is the time to commit to some well-intentioned resolutions. We probably all set some goals; for some it might be to spend more time in the gym, for others it might be about getting a better work / life balance. So in this vein, we’ve put our thinking caps on and identified 8 areas for you to consider that will help you make the most of your money in 2015.


1. Get a full financial healthcheck

This is where we can really help you! We can help you to look at your particular circumstances and your financial objectives and then help you to get your money working harder for you. This might be through wiser investment choices or lower cost policies – there really are lots of areas in which we can potentially help you!

2. Create and follow a household budget

It’s really important to know how much money is coming in and going out every month and where you are spending it. Once you get a handle on this, you can start planning your personal finances in a structured way. This will help you to both manage your day to day spending, and will also help you to plan better for the bigger costs you face such as buying a house, a car or planning your holidays.

3. Reduce your tax bill

Take a lot of care completing your tax return – have you claimed all of your medical expenses and other deductible expenses? Lots of people fail to claim back all of their allowable expenses – a little effort might result in a nice refund cheque from the Revenue Commissioners!

Also, have you maximised your pension contribution in order to reduce your tax bill and also to save for the future? Have you claimed tax relief on your income protection premiums? What about your life cover – some policies qualify for tax relief…can you avail of this? Ask your independent financial adviser to review all your policies to ensure you’re availing of all the tax reliefs and other potential savings available to you.

4. Pay off your credit card every month

We all know this one but it is surprising how many people still run up and keep credit card balances that sit just below their spending limit. With such penal interest rates, credit card debt eats away quickly at your personal budgets. Make a big effort to reduce or better still, to clear your credit card balance and then make sure your credit card bill is paid off in full at the end of the month, every single month.

5. Protect your biggest asset – your income!

It’s your income that enables you to maintain your lifestyle and indeed covers the cost of the insurance you have for your car, house and indeed your life itself. But what happens if you lose your income? Income protection provides you with a replacement income in the event of an illness or accident and provides you with the comfort of not having to worry about money if or when you get sick.

6. Make sure you’re not paying too much for your life assurance

Premium rates for many protection products such as life assurance have reduced significantly in recent years. On top of this, since the end of 2012, premium rates for all insurance related products are the same for both men and women. This will result in potential savings in some areas.. Ask your financial adviser to do a review of your protection portfolio to see if there are any areas of potential savings for you with your protection products.

7. Make spare cash work harder for you

If you’re in the fortunate position to have some surplus funds, it might be some money left over every month or indeed a little nest egg set aside, make sure that it is working as hard for you as possible. Don’t just leave it sitting in your current account. Check out the different deposit rates on offer with your bank or better still, get an independent financial adviser to do the work for you and find the best rates to suit your circumstances.

8. Know the risk of your investments

Make sure that any investments you have in place reflect your personal appetite for risk. How important is capital protection to you? Will you be able to sleep if the values of your investments fall in the short term? Ensure your financial adviser has designed an investment portfolio that reflects your own appetite for risk.

We’re here to help you make sense of each and every one of these money saving ideas and to help you to manage your finances better in 2015. Please give us a call and we’ll work out how to get your money working for you as hard as possible.

Image courtesy of www.stockmonkeys.com

8 Investment Tips Worth Remembering!

People face a whole range of different personal finance challenges and often ask us for tips. The area of savings and investments is the one we’re asked about the most. So we thought it might be useful to give you a few tips to consider to best manage your hard-earned cash. Of course we strongly advise you talk to an expert about these first, to help you identify which of these are right for you.


Pay yourself first & save up to 10% of your monthly income

One of the biggest mistakes that people make in relation to saving is that they place it as the lowest priority item in their monthly budget. They pay their mortgage, their bills, they go shopping, they spend on luxury items and entertainment, they probably waste a few bob…and then they save whatever is left over! So effectively you’re paying yourself last.

One great habit of saving is to pay yourself first every month, immediately after you are paid. If you’re running out of money then at the end of the month, yes, you’ll have to “dip in”. But you’re much less likely to waste money, if you have to dip into your savings to do so. And how much should you be saving? Aim for 10% of your income, even more if you have no pension scheme in place.

Be careful of individual shares

So you get a great share tip. What do you do? Throw a lot of your money at it to really make a worthwhile gain? Well, be really careful, this is a very risky strategy. We only have to consider all the unfortunate people in Ireland who only 6 years ago had their wealth tied up in the shares of an Irish bank. Because they were a “sure thing”, with no risk attached. These people lost the lot.

Always spread your risk and build your wealth through funds or pools of shares. This diversification will give you some protection against one of the companies you’re invested in going south.

Learn the ” Rule of 72″

The Investopedia definition of the Rule of 72 is that it is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.

For example, the rule of 72 states that €1 invested at 10% would take 7.2 years ((72/10) = 7.2) to turn into €2.

Knowing this rule will help manage your expectations in relation to the performance of your portfolio or will help you identify the return needed to double your money in a specific timeframe.

Follow an Asset Allocation Strategy

Spending time getting your asset allocation right, and adjusting it as your investment objectives and/or market conditions change, is a much more robust investment strategy than trying to pick the right stocks. Yes picking the right stocks can result in very sharp gains in a portfolio. However they also can result in very steep drops too. Spending the time getting your asset allocation right and then adjusting it as required is likely to result in a more consistent return. Of course this is where we can really help you! We can help you identify the right allocation to suit your investment objectives and risk profile, and then help you to implement it.

Use investment strategies to increase wealth

There are a number of different strategies that you can use that are likely to serve you better than an ad hoc approach. A few to consider include:

  • Buy and hold: This is where you buy investments (usually stocks) and keep them for a long time, ignoring short-term fluctuations in the market.
  • Pound cost averaging: This is where you invest a fixed amount of money in a fund or basket of shares on a regular, monthly basis. When prices are high, your monthly amount will purchase less shares of a well-performing asset, but if the price falls, your “new” money will buy more shares.
  • Rebalancing: This is where you identify your desired asset allocation at the outset and then buy or sell assets in your portfolio to maintain this allocation as the prices of the assets change.


Adopt a non-emotional investment approach

Look at investment markets coldly and don’t allow emotion to cloud your judgement. Greed and fear are two of the greatest threats to a good investment strategy.                                                                                       

Learn the Market Cycle                  

The investment market usually (but not always) follows a typical cycle as shown below. While you obviously cannot rely on all of the different factors coming together as illustrated, this is a useful picture to bear in mind.


Get independent advice

Well we would say that, wouldn’t we? But this is so important. Your independent financial adviser can help you navigate your way through the choppy investment waters, with their sole objective being to help you achieve your investment goals. We’d be delighted to talk you through any of the tips in this article.

Warning: If you invest in these funds you may lose some or all of the money you invest.
Warning: The value of your investment may go down as well as up.


Budget 2015 – Good or Bad News for Pensions?

So Budget 2015 has come and gone and everyone is now getting a little clearer about the impact that it will have on his or her income. Of course the budget is about a lot more than income tax and USC rates though, so we’ve taken a look at how Budget 2015 will impact an area that is close to our hearts – your pension fund and future pension planning.

So let’s take a look at all of the impacts;


Some areas of “no change”

First of all, there were a large number of areas that remained untouched in the budget in relation to pensions. The main ones of note are;


  • Marginal Rate Tax Relief: This is the one we always breathe the biggest sigh of relief about! The government have wisely continued the allowance of tax relief at your marginal (highest) rate on your pension contributions. This is really important to encourage people to save for their future.
  • Tax Relief Contribution Amounts: There are no changes to the percentage amount of your income that you can attract tax relief on, in respect of pension contributions. This percentage amount is driven by your age.
  • Net Relevant Earnings Limit: The percentage amount identified above is then applied to your income, in determining your individual maximum pension contribution that is allowable for tax relief. However there is a limit of €115,000 of your income or “Net Relevant Earnings” that can be used in calculating the maximum contribution allowable.
  • Standard Fund Threshold: This is effectively a cap on the size of pension fund that you are allowed to build up. There was no change to this in Budget 2015, the limit remains at €2m.


The Dreaded Pension Levy

The pension levy attracted a huge amount of commentary prior to the budget. This was an extremely penal levy applied to pension funds that was introduced in 2011. At that stage, the exchequer took 0.6% of the value of everyone’s private pension funds to fund jobs initiatives. This was then increased to 0.75% for 2014.

The good news is that the government have stuck to their promise of reducing the levy to 0.15% in 2015, and then totally abolishing it at the end of 2015.

This levy was really bad news for pension holders and was seen as a very unjust way for the government to raise revenue. First of all, there was a belief that it unfairly impacted private sector workers as the levy applied to all of their pension funds, unlike public sector workers. And secondly, on the one hand the government wants everyone to take responsibility and provide financially for themselves in retirement, and then they turn around and raid your savings!

While the percentage amounts might appear small, they really add up. If you ignore any investment gains or losses, a pension fund of €100,000 at 30th June 2011 will have been reduced by €2,700 as a result of the levy, by the time it ends in 2015. Good riddance to the pension levy!


Changes in income tax rates and USC rates

The top rate of income tax is reducing from 41% to 40% (good news), while USC rates are changing – reducing at the lower levels and increasing for earnings in excess of €70,000 and again for earnings in excess of €100,000 for self employed people.

Income tax relief is allowable on pension contributions. However there is no relief from USC. As a result of the reduction in income tax rates and the increase in USC rates, the effective tax relief on pension contributions for higher rate tax payers is reduced by about 2%.

What does this mean for you? Well, if you are a higher rate taxpayer and are in a position to make a personal / AVC lump sum payment to your pension, you are better off doing this in 2014 and indeed you can backdate this against 2013 taxes if paid before the Pay & File deadline.


So our overall verdict is that this was a good budget for pensions because of the reduction in the pension levy from 1st January next. Thankfully approved pension products remain as the most tax advantageous method of looking after your financial challenges in your later years.

What’s it costing you to keep your Cash on Deposit?

How times have changed for savers! It wasn’t so long ago that some deposit providers were offering retail savers interest rates of over 4% p.a.  As well as attractive returns, the capital was protected with an unlimited government guarantee through the Eligible Liabilities Guarantee (ELG) scheme.

But today we see interest rates that have decreased dramatically (now close to zero) and the ELG scheme now closed, meaning no protection for deposits over €100,000. Savers today are also now facing an increased DIRT rate.

And maybe the final straw emerged at the start of May as the OECD in its biennial economic outlook, called on the ECB to loosen policy even further “to move inflation more decisively towards target” and to be prepared to adopt unconventional measures such as negative interest rates or quantitative easing to prevent a drift into deflation. What does this mean to you and me? Well now you would pay the bank for letting them keep your money!

So now just might be the time to re-examine the approach you’re taking with your hard-earned nest egg and maybe take a look at alternative investments for your long-term savings.


Why shouldn’t you just hold cash?

Well apart from the reason outlined above, where soon you might be actually paying for the privilege, people often think that holding cash is less risky than investing. However this isn’t necessarily so. It’s worth considering some of the reasons why it might be preferable to move some or all of your cash into investment funds. While this approach may not be for everyone, there are many savers who are not happy seeing themselves getting gradually poorer.

Inflation risk: This is often overlooked especially when interest rates are low.  Any price inflation will erode the purchasing power of your savings as costs rise.

Lost opportunities: Sitting on cash can mean missing potential growth in market upswings. If out-of-favour investments can be bought at a low price, then you may get a higher return over time.

No return on investment: For savings to grow, investment returns in equities and bonds can help build assets in a way that cash can’t particularly in a low/no interest rate environment.

Tax advantages: Returns from investment policies through life assurance companies grow tax free, and tax is only payable when the policy is encashed (or after 8 years, whichever is earlier).  This compares with tax paid on the interest on deposits, which is usually applied yearly.

Time horizon: it’s wise to have cash in hand to take advantage of investment opportunities, but a portfolio that is too conservative may not generate enough returns to reach your financial goals – saving for a deposit for a house, building up an education fund for your children etc.


How can I get the best return with the least possible risk?

Getting the best return for you may not be about getting the highest return possible.  It’s about how much risk you’re comfortable taking to achieve a particular return on your investment.

To do this, we can help you to identify your own risk profile. In order to achieve higher returns, you must be willing to accept some risk. However you can tailor your investment to suit your attitude to risk.  For example, with Standard Life’s MyFolio Active funds, you can select from five funds.  Each holds a combination of lower risk assets and higher risk assets, which are adjusted to maximise the potential returns for your attitude to risk.

Getting independent advice from us in this really important area can help you focus on your lifetime goals, such as saving for retirement or building a college fund for your children.  With good impartial professional advice, you can be confident that you have a flexible and efficient plan in place for your long-term financial future. And a chance of watching your money grow and achieving your financial goals.

If you want to get your money working harder for you, we’d love to hear from you and help you invest in a way that meets your appetite for risk.

Warning: If you invest in these funds you may lose some or all of the money you invest.


Warning: The value of your investment may go down as well as up.


Warning: This investment may be affected by changes in currency exchange rates.

The Financial Lives of our Clients

We spend our days helping clients to plan their financial futures. What we see is that people face similar challenges depending on their stage of life. At the same time of course, each and every one of us has a unique set of circumstances, has our own specific financial objectives and needs bespoke advice to help us reach our goals.

You see, financial planning is not an exact science. It depends completely on those unique circumstances; your current and potential earnings, your family situation and your assets and liabilities to name but a few factors. And it also depends on what it is you are trying to achieve. For you, is it all about comfort in retirement or are you seeking to maximise your wealth in the shorter term? Is the security of your family your primary concern?

While we clearly acknowledge that everyone is unique, we thought it might be useful to give you a sense of the type of issues that many of our clients see as the big financial challenges at various stages in their lives, and the typical solutions they seek out from us.



The carefree years: Age 20 – 35

Ah the carefree years! At least that’s how they start out for this age group before they start placing one eye on the future. For most of our clients in their late teens and early twenties, there are really just a small number of areas that they come to us looking for help with. The first area of focus is savings, often with one eye on building a deposit for that eventual house purchase.

As our clients move through their twenties and into their thirties, mortgages tend to dominate as we help people get loan approval for that first home. As many of our clients also get married at this time and start their families, they tend to focus on getting protection (health insurance, life assurance, income protection etc.) in place to safeguard their families financially. The very forward-thinking of our clients also turn their attention to building education funds for their children and also their retirement funding. These smart people realise that the earlier they start their funding, the more they are likely to have available at retirement!



The growth years: Age 35 – 50

Hopefully now the mortgage is not hurting quite as much and there is a little spare cash available for other purposes. At this stage in our clients’ lives, we see a real commitment to pension funding – making sure that they can maximise the tax breaks available and finding the best pension vehicle for them. We also find at this stage that our clients become a little more aware of their infallibility (remember how indestructible we all felt when younger?), and want to ensure that they have the right protection in place to protect themselves and/or their families against the financial consequences of ill-health or death.

For those who are in the fortunate position of having some spare money, they also seek help in building an investment portfolio, particularly in the current low deposit rate environment.



The consolidation years: Age 50 – 65

As the state pension age moves out (eventually to 68) over the next few decades, this consolidation period is going to expand. We see our clients at this stage furiously continuing to build up their pension funds. However at this stage many are looking to take some of the risk out of their portfolios as they recognise the damage that could be done by a large drop in the value of their funds as they approach retirement.

Another area that we get asked a lot about among this group is in relation to the whole area of wealth transfer. Our clients have seen the reduction in Capital Gains Tax thresholds and the increase in the CGT rate, and seek out ways to avoid leaving their families with big tax bills. These tax bills can often result in families being forced to sell an inherited family home, just to pay the tax bill. So we help them plan the transfer of wealth in a tax efficient way.



The Drawdown years – age 65+

And now the spending years – hopefully! This is where hopefully you get to enjoy the fruits of your labour and your careful financial planning over the years. Usually our clients no longer have a salary coming in at this stage, but of course we hope that we’ve been able to help them accumulate a good pension for themselves!  Our work with clients who are in the latter stages of their lives tends to be around helping them manage their spending wisely. The risk these clients want to avoid is running out of money, so we help them to manage their assets carefully.

What we also see among this group is the amount of time they spend thinking about others and how important their legacy is to them. They are thinking a lot about their families in particular and how they can leave a lasting legacy (financial and otherwise) with them. Again we help them with their wealth transfer strategy to ensure their financial legacy is valuable and accessible for their families.


We hope this article gives you a sense of the types of challenges our clients face. If you would like to discuss your own particular situation with us, we would of course be delighted to hear from you.

How well are you looking after your Business Partner?

The health and welfare of your business partner is a really important factor in your financial planning. After all, they have probably been working alongside you since you came up with the idea for your business, and also have shared the highs and lows as your business survived those difficult early years and has hopefully grown as time went on. Your partner has toiled alongside you, shared the stresses and hopefully you’ve built a business you’re both proud of. It wouldn’t have been the same, or indeed may not have happened without them.


Now I want to tell you a story about a situation we came across recently. Two business partners (let’s call them Tom and Gerry) built a great manufacturing business in the Southwest of the country. They built a great business that supported them nicely and indeed also a small team of dedicated staff. Unfortunately Gerry developed a very serious medical condition and passed away after a very short period of time. Tom was of course devastated; the 2 men had been a great team working together, very reliant on one another and sharing everything down the middle. And that included having an equal share of the value of the business. They had never felt the need to formalise the situation, they were very trusted friends to each as well as partners.


After Gerry’s death, his son who had just finished college decided that he would (with his mother’s blessing) take his father’s place in the business, minding what was an important financial asset to them. Tom was not 100% happy with this as he now had an equal business partner again, but not the one he had built the business with. The 2 partners tried hard to make it work, however they just had very different visions for the business. In the end, after real slippage in the business and quite a bit of bad feeling creeping in between Tom and Gerry’s family, Tom managed to secure a sizeable bank loan and bought out Gerry’s family.


Tom now owns all of the (smaller business), under pressure to pay off the loan and without his friend alongside him. And all of the angst and financial pain could have been avoided… Unfortunately, such situations are repeated frequently each year around the country.


Business Protection

There is a range of business protection solutions available to help businesses survive the death or indeed the serious illness of someone that would result in a financial loss for a business. These solutions provide a number of benefits for businesses;

  • They offer real peace of mind benefits to the directors or partners, as they remove the financial worries associated with the death or serious illness of a colleague.
  • They remove the need for businesses or surviving partners to borrow money to buy out their partner’s share of the business.
  • They remove the need for a surviving family member to take the deceased’s place in the business.


In the situation mentioned earlier, if Tom and Gerry had co-director’s insurance to the value of their shares in the business on each other’s lives, all the stress would have been avoided. When Gerry died, Tom’s insurance policy would have paid out, and he would have been in a position to immediately buy out Gerry’s share of the business for a fair price and keep control of it – which could have been agreed as a right for each of them when effecting the policies.


There are a number of different types of business protection solutions available to suit the different types of business structures.


Co-director’s insurance

This would have been the answer to Tom & Gerry’s issue! Each director insures themselves against the death of their partner, enabling them to buy out the partner’s shares on death and/or serious illness. As an alternative, the insurance can be effected by the company itself.


Partnership insurance

Similar to the above, a partnership takes out insurance, protecting itself against the death or serious illness of an individual partner, enabling them to compensate the deceased partner’s estate for their share of the partnership.


Key person insurance

This helps a business to minimise the impact of the death or serious illness of a key employee. The insurance can be used to quickly attract a replacement employee or indeed to pay off loans of the company that may have been guaranteed by the deceased.


So the good news is that Tom & Gerry’s situation can be avoided. The key to finding the right solution is getting the right advice. And that’s where we come in! If protecting the future of your business is a concern to you, please give us a call and we can walk you through your options.

Photo courtesy of glasseyes view

10 Lessons to Teach your Children about Money

Every Irish child has at some stage heard an exasperated parent saying, “You know, money doesn’t grow on trees”. You may have even used it yourself! While it is a valuable lesson for a child, there are many ways we can guide our children to help them understand money and put them on the right path to managing their money wisely.

Here are some ways that you can help your kids with their financial futures. As the lessons apply to different age groups, we’ll start with a few for children who are still at a very early stage in their financial lives.


1. Establish a savings routine

This can start as soon as children start to receive pocket money. Encouraging them not to spend it all as they receive it and instead to save for a bigger treat to be bought every few weeks or months can set in place the benefits of delayed but ultimately greater rewards. We all know the benefits as we’ve got older of saving for holidays and cars etc. instead of borrowing and paying back far more than the actual cost.


2. If it looks too good to be true, well it probably is.

While we all may associate this only with a “great” share tip that eventually turned into a very expensive lesson, this is a useful lesson for children too. My nephew recently bought a 1,000 piece jigsaw from a friend of his for only 20¢ and was delighted with himself. That was until a few days later that he found the last four pieces were missing…


3. Look after the pennies and the pounds will look after themselves

Another old saying that many of our parents used but well worth remembering and passing on to our children. This one is all about small amounts eventually making a big difference, teaching children the value of not getting complacent and wasting what seem like insignificant amounts of money to them.


4. Beware borrowing

It’s important for children to understand debt. The line from Hamlet of “Neither a borrower nor a lender be” is probably not the best advice for kids as they grow up today. After all, they’ll probably need a mortgage one day and using debt can sometimes deliver savings – for example where there is a significant discount for paying a full year’s subscription in advance.

However children need to learn to plan debt carefully and to avoid expensive debt, particularly buying impulse purchases using credit cards that they won’t be able to immediately pay off.


5. Share our own mistakes

Now here’s one to test us all! We’ve all made mistakes over the years. Maybe we ended up overweight in property six or seven years ago, maybe we didn’t get proper independent financial advice early enough in our lives.  Tell your children about lessons you’ve learned and how they can avoid making these same ones themselves.


6. Make companies fight for your business

Your children need to understand that they have real buying power in relation to a lot of the products and services that they purchase. They offer the potential of being very long-term customers, the types that brands really want to attract. So whether they are opening a bank account, booking a hotel, getting car insurance, buying a car, some electronics or even just clothes, they should get into the habit of making sure they get the best price by haggling.


7. Plan your financial future

This is probably the most important lesson of them all… Financial planning shouldn’t start when people hit their forties and start worrying about retirement. Financial planning should start at a very young age; when children are thinking about all the things they want, but can’t afford! Choices have to be made, careful decisions need to be taken and a plan needs to be put in place to manage their limited resources to achieve the maximum effect and/or enjoyment!


8. A bank’s job is to sell to you

Banks are a necessary service provider for everyone and your children will need one (if they don’t have one already). But children need to understand that banks don’t provide their services and products for free. At the end of the day they have shareholders who want to see a return. That return is achieved by selling products to all of us – loans, credit cards, investments, insurance.

Children need to learn to separate the necessary services banks provide (current accounts, mortgages, deposit accounts) from the other optional products that they might try and sell them.


9. Fund your pension early

Every 10 years earlier that you start a pension, your fund approximately doubles. So children need to be taught that pensions are not for old people! They are for savvy young people who have planned their financial futures and who want to make their financial objective throughout life easier to achieve.


10. Get cover while it’s cheap and accessible

Life assurance, income protection and other such products are much cheaper and easier to get (younger people are healthier, underwriters take a more benign approach) so young people should get cover in place early. They should look potentially at convertible policies that they can maintain cover on, off into the future. These could be very valuable, particularly if they are unfortunate to suffer from ill health as they get older.