Setting a solid base and protecting a client’s key assets are the first steps in a long-term financial plan. Simon Hoyle reports.
There’s a trigger point for most people that leads them to seek financial advice. It might be an unexpected inheritance, or the death of someone near.
For Kurt Armbruster, and his wife Brenda, it was the birth of a second child – now aged one, and a sibling to a three-and-a-half- year-old – and a reorganisation of his employer’s corporate super fund.
Kurt, 33, had suspected for some time that he wasn’t adequately insured, and also had nagging doubts about whether he was in the right superannuation fund.
Like many people, though, he’d simply never got around to looking closely enough at it. But he was prompted to address both those issues when the company he works for, Vision Finance and Property Services, retained Jennifer Davies, the principal of boutique financial planning firm Bloom Advisory Group, to advise members of its corporate superannuation plan.
“Through talking to her, and different comments that she made, I was impressed, and we sat down and talked about my personal situation,” Kurt says.
“I had seen a financial planner before, but I was not particularly fussed by the advice I had received. After talking to Jen I realised there were some serious voids in my [insurance] cover.
“The cover wasn’t suitable to my circumstances – the type of cover, the amount of cover, and the way it was structured wasn’t too flash.
“So I met Jen through the corporate super fund, and then, when that was sorted out, she reviewed my existing structure, my personal structure, and looked at options for super. When we sat down and looked at the whole financial arrangement, the most appropriate thing to do was set me up with more cover.”
Davies says some aspects of arranging adequate insurance are quite mechanical – income protection insurance, for example, is capped at 75 per cent of gross income.
To calculate adequate cover for other types of insurance, Davies analysed the Armbrusters’ current financial liabilities and the aspirations they have for their children – including the cost of a planned private-school education.
“With anyone Kurt’s age, who has a young family and a wife who’s just gone back to work, it’s looking at their liabilities and responsibilities,” Davies says.
“Brenda has only just gone back to work, so cashflow, with two children under the age of four, is an issue. It was a balancing act, between what they required and not causing them financial harm.”
Kurt’s insurance cover is divided between cover within his super fund, and cover held outside. Although there are differences in the tax-effectiveness of the two approaches, Kurt and Davies decided the split was appropriate. Kurt has set up a salary sacrifice arrangement to fund the additional insurance premiums, so they do not eat into his retirement savings.
Davies’ strategy to grow her business involves taking on corporate super plans, and then cultivating personal relationships with the funds’ members.
“Because I didn’t acquire a business, and because I am not working for anyone else, the fastest way is to acquire [clients] via corporate super plans, and then add value for them,” she says.
Davies says the vast majority of members of the corporate super plans she’s involved with have not previously received any advice at all, beyond super. In one case, only two members in a 70-member plan had increased their insurance to a “reasonable level”.
“Others had just put up with the dollar-a-week- style insurance, which was declining as they got older,” Davies says.
The Armbrusters now each have death cover, income protection insurance, total and permanent disablement (TPD) insurance, and trauma cover.
“In Kurt’s case, he has an investment property, and Kurt’s decision – and Brenda’s decision – was that if anything were to happen to either of them then they would like that [investment loan] paid out, in order for the property to create an income.
“But they also need enough so that if Brenda were to no longer work there’d be capital available to generate an income.”
Davies says the Armbrusters are going through the first phase in a longer-term plan. With adequate insurance cover now in place, their financial responsibilities can be met should the unthinkable happen.
Kurt has a more appropriate superannuation structure in place, and they are also paying down debt and managing their cashflow before embarking on a wealth-creation strategy.
“The next stage is to begin the wealth-building process,” Davies says.
Kurt says the next phase is “about a year” off yet.
“It’s quite a volatile period in a number of areas at the moment, so it’s better that we talk about it later.”
Kurt says he’s now got a much more solid financial foundation on which to raise his family. If not for the catalyst of his employer seeking help on its corporate super fund, he may still not have got around to doing anything about it.
“I work in finance, but it’s like the mechanic whose car never gets serviced regularly,” Kurt says.
“We had money going everywhere. [The outflow] wasn’t too bad, but it was disorganised. Jen has encouraged us to package it in a much neater fashion – it’s much easier now to see where the money is going.
“I feel a lot more confident now that my family is protected, which is something that you think about a fair bit when you have got two young kids. And a wife. But particularly the two young kids. It’s something that had been bugging me.”
