When a client’s situation demanded the services of specialist advisers, Dominic Cogger took on a project management role to keep the process running smoothly. Simon Hoyle reports.
Doctors see it all the time: a patient presents with a com- plaint, and after an investigation and some tests, ends up being treated for something much broader. Sometimes the initial symptom can paint an incomplete picture of the total underlying malady.
It happens to financial planners, too. Simon and Emma Willson (not their real names) initially presented to Woodbury Financial Services with a very specific issue. But now, months down the track, the scope of the advice and guidance provided by Woodbury to the Willsons encompasses a much wider range of issues, including a comprehensive intergenerational wealth transfer plan. And the job is not yet finished – the plan and the solutions initially put forward continue to evolve to this day.
A key element of the Woodbury proposition is that it works on a fixed fee-for-service basis, with all product commissions rebated to clients.
“The engagement appealed to the client as all commission from product, including insurance and debt, is rebated,” says Dominic Cogger, a senior adviser with Woodbury. First contact with the Willsons was through Simon’s corporate superannuation fund.
“Woodbury has for many years provided advice to senior executives across a section of industries,” Cogger says.
“We have done a lot of work with executives in the financial services industry, having spent years understanding their remuneration packages, and therefore this niche provided an opportunity to work with this particular corporate.
“There was a need, an education need, for the senior executives of this business.
“Trying to identify where we could assist, we had a meeting with the human resources people and identified a number of financial issues that their executives faced. As a result of these issues we prepared a white paper, education briefing and one-on-one sessions. As a result of this investigation and our research we became the experts on financial matters with this corporate.
“Simon attended the mainsession, and a one-on-one session, and then identified an issue that we were happy to assist with.”
Cogger says it’s wrong to assume that executives of financial services companies necessarily have all their financial affairs covered.
“Whilst their focus can be on wealth accumulation strategies – savings plans, debt repayment, maximising super contributions, investment properties and the like – wealth protection and distribution can sometimes be a second thought,” he says.
“Simon knew he had to do it, didn’t know who to go to, and needed someone to drive it.
“Our initial engagement was restricted to wealth protection and distribution issues – personal insurances and estate planning. But it was still [a huge] job because of Simon and Emma’s circumstances.”
Cogger says positioning Woodbury as a “project manager” for the Willsons’ financial needs took a lot of the pressure off the couple to find someone to help, and saved them the time it would take to do that.
“Our process is a disciplined process internally for us, and we adhere to that strictly because our client value proposition is that we discover and we understand what is important to the client. The way that we do that is through our initial meeting, where we start to move away from the one-on-ones to an actual client engagement. “It’s 90 minutes, we record it and we get it transcribed. Therefore we can go back over and look through that discovery piece.
“We also ask a series of values-based questions and we discover the client. We discover some things that they might not have known, nor even discussed with each other, especially if it’s a couple.
“It’s definitely an engagement tool and process that we believe builds trust a lot quicker.”
That initial 90-minute meeting was enough to cover the ground necessary for Woodbury to identify the couple’s key issues. In addition, the firm had requested substantial financial information from the couple prior to the meeting, so the two parts could be melded into a complete picture.
Cogger says Woodbury’s approach is to “present the diagnosis of what we see is critical, and the complex issues”.
“From the diagnosis it was clear the client wanted to engage on a particular issue at that time – and we were happy to assist.”
The picture that emerged from further discus- sions with Simon and Emma was one of a signifi- cant shortfall in personal insurance protection, and a major estate planning task.
“We went back to the corporate super plan and where possible increased the level inside there, based on both cost and tax-efficiency.
“However, from left-field, an issue arose that the corporate super plan did not offer binding nominations.
“For estate planning and asset protection…it was vital that a hedge of protection around all decisions or outcomes needed to be in place against potential other parties.
“There’s advantages and disadvantages of binding nominations inside super. In this case…there are external factors that are detrimental to what could potentially happen.
“Therefore it required us to seek a separate policy outside the corporate super fund, with no discretion to payment – in other words, [the benefit] went to who that person nominated. So we took out a non-super policy.
“Where we optimised the level of insurance inside the corporate super, it was limited because of the need for certainty of a certain amount at least. If the company is paying for that insurance, it’s very, very cost-effective inside that corporate super fund; you’ve got to weigh up the cost versus the benefit and say, look, we can still get $X million inside super, and we’re OK with that as long as we had absolute guaranteed certainty that for X amount [outside super] there’s absolutely no way anyone can come in and get it.
“That particular policy was put in place; it was for several million dollars, and a full rebate, which was equivalent to a 30 per cent rebate. So basically their premium was a third [lower] than what they would normally pay.
“At the same time, income protection was being underwritten, outside of super of course.”
Adequate and properly structured insurance also had to be set up for Emma.
“If something happened to Emma, it would rock Simon’s world,” Cogger says.
“So we took out a life and TPD policy [but through] a life insurance policy owned by the trustees of a superannuation fund.
“It’s an insurance policy owned by the trustees of a super fund, with a binding nomination, and funded by employer super contributions.
“There’s no account balance.
“You could go into a term-life policy, and pay with after-tax monies. But you’re not entitled to a tax deduction. Over here, you can get what we call a life cover super policy, which is owned by a super fund, but let’s say the [insurance] premium is $2000 a year. You make a contribution of $2000 and the contribution is exactly the premium. But what you can do, if you’re self-employed, is get a tax deduction, and get binding nominations.
“You could do that with Simon if he had not reached the concessional contributions cap with super via his salary sacrifice arrangement, whereas Emma is self-employed and had enough scope [to do it].”
Cogger says Emma had an income protection policy in place that was retained. But organising critical illness cover proved more complicated. She already had a bundled insurance policy offering life, TPD and critical illness cover.
“Interestingly, the life and TPD and critical illness was non-super and it was not structured to get any tax relief. It was a bundled policy, and it wasn’t a lot [of cover],” Cogger says.
“Having taken out a life cover super policy with life and TPD, she already had more than enough TPD. So we went back [to the bundled policy] and said, well you’ve got critical illness in place there, and that’s more than enough, but do you know you’re also paying a bundled premium for life and TPD?
“We were able to turn [the TPD] off. But if you wanted to keep the critical illness cover, it had to be connected to life or TPD, so you had to keep the life cover. It was a few bucks extra.”
Having sorted out the protection issues, the next step was estate planning. Woodbury introduced an expert into the picture at this point and took a step back into its project management role to make sure any estate planning advice dovetailed efficiently with the other elements of the plan.
“We’d come to a point, when we came to discover their needs, where there was a complexity around what their requirements were,” Cogger says.
“A flowchart was created from the lawyer, to say does this meet your needs, taking into account all the issues we’ve discussed?
“In addition, [it took into account] the fact that they have got other entities and structures as well, so there were issues around control of the company, decisions around a family trust. It was very complex.
“What happens if children of a previous marriage predecease children of their current arriage? How much do they get? If they don’t have any children, who gets it?
“And they wanted to go to that level. Because if they go on a family holiday, and they all get wiped out, who gets it?
“Bearing in mind there’s an update to the super structure, there’s the [binding] nominations – get- ting them in place and ready to go – it’s getting the insurances underwritten at the same time the drafts are happening, so we’ve got policy numbers that co- ordinate to the Will because inside the Will there’s legacy payments to their teenage children – so we need to identify all those things.
“We’re taking the helicopter view. We’re over- seeing; we’re disseminating information and the lawyer is coming to us to seek outstanding information. We sit in a project management role.
“We’ve already had a meeting with the lawyer, before [the clients] have come in, and presented to them and given to them all the information needed to prep them. So the lawyer comes in with a whole lot of clarification questions, confirming questions – not asking for the same thing again. Cogger says that once the insurances were accepted and structured correctly (including the commission rebate), estate planning documents drafted for signing (including Wills, power of attorney, power of guardianship, guardianship for the children, and advanced health directives), Simon and Emma were open to explore reviewing the existing structure of her business.
“Having identified some opportunities and strategies that had been implemented with other clients, we organised a meeting with a tax specialist,” Cogger says.
“Our involvement was to introduce the specialist and manage the relationship. We were also able to prepare for the meeting by meeting with the tax specialist prior to the client meeting to prevent regurgitation of the facts.
“The advice from the tax specialist considered the current business structures and strategies to optimise the best outcome, taking into account a newly created family discretionary trust and utilising the small business CGT concessions.
“The strategy ensured a greater level of asset protection, tighter controls relating to estate planning, more opportunities with financial planning and well as receiving tax benefits. At the same time, there was a debt
restructure taking place which involved us coordination the current lender and the client’s existing mortgage broker. Several conference calls took place to ensure everyone was on the same page.”
Cogger says there’s been a meeting where the whole plan has been presented to Simon and Emma, and that identified some issues that needed to be worked on further. It’s been three years since Simon came to the information meeting set up by his corporate super fund.
Cogger says the complexity of the issues identified mean it’s taken longer than usual to get the right structures in place.
“This is a unique situation,” he says.
“For a number of reasons the length of time is not typical. When we engage with clients we engage for a 12-month period, and generally advise and implement within the 12 months and then re-engage for future advice needs.
“I’m not an expert in all things, but our job is to bring the experts in and the true value is pulling all the disparate pieces of the puzzle together to form the complete picture.”
