Sometimes it’s simple advice that helps steer clients in the right direction. Simon hoyle reports
The most successful financial plans aren’t always those that involve the largest investment portfolio or deal with the most complicated pieces of legislation. Putting clients on the right track, and giving them confidence about the future, sometimes requires only simple ideas, effectively implemented.
When Wendy and Russell (surname withheld) visited Deborah Kent, principal of Integra Finan- cial Services at Parramatta, they went in with one set of expectations, but came out with something quite different. Russell and Wendy are fans of the Wests Tigers rugby league team, and avid followers of the V8 Supercars – three-times Bathurst winner Craig Lowndes and Team Vodafone in particular. “I like the V8 Supercars. Lowndesy – I like Craig Lowndes,” Russell says.“He’s a great driver. Every time you see him on TV, he’s down to earth and he’s a decent bloke. And he can drive.” Russell thought he’d taken a big step towards an early retirement when he sold a property that had belonged to his mother. But just like in the Bathurst 1000 motor race, won this year by Lowndes and Jamie Whincup, Russell has learned that you don’t win a race until you actually see the chequered flag. A good co-driver comes in handy, too.
Russell’s mother had entered a nursing home, and his uncle, who had shared the house with Russell’s mother before her move, had passed away, leaving the property vacant. On advice from a solicitor, Russell decided to sell the property, in the expectation that the pro- ceeds could be invested for the benefit of Russell and Wendy themselves. But that was not to be – the solicitor’s advice turned out to be misguided.
“They were advised by a solicitor that they could sell that property and that the eventual ben- eficiaries of the estate – being Russell and his sister – would be able to take the proceeds of the house and basically use it as they wanted to,” Kent says.
“So they went ahead and sold the property.” Russell says:“My Mum lived in a house in Concord for 50-odd years, with her brother. Mum got crook and she had to be put in a nursing home. That left my uncle in the house – she always wanted him to stay in the house and to look after the house while she was in the nursing home. “Eventually my uncle got crook and he passed away, so that meant I had to make a decision on the house, whether to keep the house, rent it out, sell the house. So I decided to sell the house, sell the property, and we’d have the money, find out what we were going to do with it, and try to invest it.
“So I got in contact with Deborah.” Kent continues:“The problem was that they were coming to me originally to invest the proceeds on their behalf, but then they found that once the settlement of the property went through, another solicitor in the practice that they were dealing with suggested that they couldn’t in fact have the money because of the way the Will was written. “We then suggested to them they seek some more legal advice in regard to the Will. We referred them to a firm of solicitors here in Parramatta that we refer our clients to, and they then went through the Will and had to determine whether in fact the beneficiaries could utlilise the funds, or whether they had to be invested for the mother – bearing in mind that she is still alive.
“It was a large sum of money – 920-odd thou- sand dollars – and this ended up going on for quite a few months because we had both family parties dealing with this; one solicitor saying one thing, one saying the other. At the end of it, Russell was power of attorney over his mother’s affairs, so the legal people came to an agreement that the money had to be invested for the benefit of the mother while she is alive.”
This produced some unintended consequences for Russell’s mother, too. “That impacted on the mother’s standing in the nursing home, because she is a war veteran’s widow,” Kent says.
“While she didn’t lose her pension, she did lose some of what they call the supplement.
“There was a relative living in the house, so it wasn’t assessed for nursing home purposes.
“We had to go ahead and invest the proceeds for the mother; her nursing home fees went up substantially, because she all of a sudden, where she hadn’t had any money, she had 900-odd thousand dollars. She had a situation where she faced increased nursing home fees, and she lost part of her supplement.
“We went ahead and invested that money with Russell as power of attorney, and that money is now invested into a portfolio that generates a monthly income to help support mum in the nurs- ing home.
“So the original reason they came to us cer- tainly didn’t turn out the way it was going to be.” Kent worked with Russell and Wendy to decide how best to invest the sale proceeds. “[Deborah] spoke to me about how I wanted the money invested, and I told her I didn’t want any risks taken with the money, because it was a lot of money,” Russell says. “She said, right, she understood that. We sat down and went through everything about how the money should be invested, and that’s how she came up with the way it should be invested for us.” [See portfolio snapshot.]
That left Russell and Wendy in a quandary. Russell, aged 56, was keen to retire as soon as pos- sible. But without the sale proceeds of the house to use, it was very clear to Kent, very quickly, that Russell simply did not have enough money in his super fund to allow that to happen.
This realisation had dawned on Russell some years earlier. “Three years ago I was looking at my superan- nuation and I realised I was not going to have a great deal of superannuation when I wanted to retire,” he says. “We decided to have a look around to see if we could get ourselves an investment property. We got onto one in Queensland, and we had it for three years – we’ve only just recently sold it.”
It was sold on Kent’s advice. “What we needed to do was assess how we were going to assist them [to] get through to retire- ment,” she says.“It was very much a budgeting and cashflow exercise, and how we are going to top up superannuation so [Russell] can retire at some stage. “In the background we know that he will eventually inherit half of this money, but we decided to say, look, that’s there, that’s just something that’s nice, that you will get one day, we don’t know when – let’s concentrate on today. “One of the things that they found was they owned an investment property in Queensland, which was negatively geared, and they had no debt other than their negatively-geared property and an overdraft that was linked to the home loan, that paid for a new car.
“When we did their cashflow we found that they were going backwards. Money-wise, per month, they were behind the eight ball. We were struggling to determine how we could get Russell to put more money into super, when there was no money there. “So we did a plan that outlined a number of different scenarios.
“When we looked at the cashflow side of it, they came out better off if they sold the property, extinguished the debt which freed up cash for him to then contribute more money into super, to do some more salary sacrifice.
“I said to him, in my nice financial planner way, that he had to survive at work until age 60. He was a little bit disappointed, but at least we told him the cold, hard facts of life. He was going to be a lot better off if he worked through to 60. It meant he was going to have some funds – forgetting the inheritance – so he could retire OK.
“Luckily, they sold the property very quickly, and they did make a small capital gain, which we were then able to use to extinguish the overdraft.
“So the net result was that we went from having debt and cashflow deficit, to positive cashflow and being able to put more money into superannuation.
“It was a good result, because we were scratch- ing our heads for a while. We had some real issues there – I’m looking at this, thinking hang on, their debt is getting more, and when we really drilled down into it, we could see where it was coming from.
Even though Russell has put his retirement plans off for a few years, he says he’s comfortable with how Kent has steered them towards their financial finishing line.
“The way things are at the moment, [retirement is] probably still a few years off,” he says.
“I’m 56 now, so I’d be looking at probably towards the 60 mark. But with everything that’s go- ing on at the moment, we don’t know. I think we’ve just got to go with the flow, and don’t panic, and see how things pan out.
“First time we met [Deborah] we were very im- pressed. Everything was explained properly; there was no hard sell. And everything was put down on paper, in a nice book for us to read and go through. Everything was there for us – it was really good.
“I was a bit worried about it before, but as the time has gone on and we’ve had a property and then sold it, I’m a lot happier now that we’ve got it all sorted out and we’re on track.”
Portfolio from proceeds of property sale Macquarie Wrap:
Australian Shares – Managed Funds: $119,907 Ausbil Australian Emerging Leaders; Perpetual Wholesale Industrial Fund
Australian Shares – Listed: $150,508 Argo Investments Limited (ARG); SPDR S&P /ASX 200 Fund (STW)
Property – Listed: $69,409 SPDR S&P/ASX 200 Listed Property (SLF)
Property – Managed Funds: $59,211 Vanguard Property Securities Index Fund
International – Listed: $101,021 Platinum Capital (PMC); Templeton Global Growth (TGG) International – Managed Funds: $80,000 AXA Wsale Global Equity Value Fund; Zurich Invest Global Thematic Share Fund
Fixed Interest: $299,730 Credit Suisse Syndicated Loan Fund; Blackrock Monthly Income Fund Class D; Perpetual Wholesale Monthly Income Fund; UBS Hybrid Income Fund; Vanguard Aust Fixed Interest Index Fund
cash: $35,214 Macquarie Cash Management Trust
Russell & Wendy
Russell Personal Super
Australian Super Monthly salary sacrifice & SG contributions.
ThE PLANNER deborah Kent
Integra Financial Services Parramatta NSW
Kent started in the industry as a financial planner in 1987, during the sharemarket crash, with St George. In 1993 she started her own business with Bridges Financial Services. There, she joined forces with another Bridges planner to form Integra Financial Services in 1996. They moved dealers to Charter Financial Planning and Kent bought out her partner in 1998. Kent holds a Diploma in Financial Planning, is a Certified Financial Planner, and has extensive industry experience, including 15 years with the Financial Planning Association and four years as a director on the Authorised Representative Association Board (consulting board to AXA representing Authorised Representatives). In 2000 Kent was named runner-up in the Money Management Financial Planner of the Year Awards.
Integra Financial Services became a fee-for- service practice in 1996 after the transition to Charter Financial Planning. The practice has refined its fee structure over the years and now charges an hourly rate based upon the amount of work required to place the business. The practice services about 300 clients and has about $110 million under management. Clients are segmented by level of service and fees charged accordingly. Integra has five staff: two planners, one practice manager, one paraplanner and one admin support person. Kent recently sold equity stakes in the business to both the firm’s younger financial planner and the practice manager.
Russell and Wendy were initially referred to Integra by family members to assist with a large sum of money that they had received by selling Russell’s mother’s family home. But their expectations had to be revised after receiving misguided legal advice relating to a Will.
Kent’s advice to Russell and Wendy focused mainly on improving their cashflow – primarily by selling a negatively-geared investment property and extinguishing other debt – and increasing contributions, via salary sacrifice, to Russell’s superannuation fund.