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The day you sell your dental practice can be the most exciting payday of your career and the most dangerous moment for your finances. We see it all the time: years of hard work crystallise into a lump sum, then the reality hits that the practice income has switched off and inflation is still running. So we sit down with financial planners Luke Hurley and Anik Sharma from Videre Financial Planning to map out what actually matters before, during, and after a dental practice sale in the UK.
We talk through how to improve dental practice valuation by reducing owner reliance, tightening systems, and presenting a business that a buyer can run without you. Then we get practical about deal structure: asset vs share sales, deferred payments, and earn-outs, and how each option changes tax and your real “money in your pocket”. The key idea is simple but often missed: know your number. With cash flow modelling, we can work backwards from the lifestyle you want across different retirement phases, include NHS pension and State Pension, and test whether a proposed sale price truly funds financial independence.
From there, we tackle what happens the moment the money lands: protecting capital, understanding FSCS limits, when NS&I can make sense, and why a cash management plan for the first 12 to 24 months prevents panic. We also cover behavioural traps like analysis paralysis and market timing, plus how portfolio stress testing across long-term history can guide sensible withdrawal strategies. Finally, we demystify inheritance tax planning, trusts, and when a family investment company might be appropriate, including why acting before the capital event can widen your options.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.
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Dr James (01:43):
Selling a dental practice is one of those massive
life decisions that peopleoften dreamwalk into a little
bit, and that's usually becausethey're just so busy thinking
about other things that the nextthing they know the day has
arrived.
And actually, there's a lot ofthings that you can do
beforehand, both to get the bestvaluation and also to ensure
that your money lasts as long aspossible so that there's zero
(02:03):
chance of you having to returnto work in old age.
That's the worst possibleoutcome that we can imagine
whenever it comes to a businessexit.
I'm joined today by Mr.
Luke Hurley and Mr.
Anick Sharma, who representVidere Financial Planning.
We're going to be talking aboutthe ins and outs, everything
you need to know to plan aheadfrom this decision, no matter
what stage you are at in yourpractice ownership journey, even
(02:26):
if you are still an associate,this stuff is well worth
listening to.
We do so in order to illuminatethe path and guide everybody so
that they know exactly what toexpect whenever the big day
comes.
As ever, you can claim your CPDfor this episode within the
official Dentists who InvestSmart Money Members Club.
Smart Money Members Club alsoincludes multiple mini courses
(02:47):
and webinar series on financefor dentists, including how to
become as tax efficient aspossible, as well as
understanding investing.
All of this content comments asverifiable CPD, and you can
download your certificates thereand then upon completion of
each lesson.
In addition to this, we alsoinclude a whopping 10% discount
on your dental indemnity and a5% discount on lab bills for
(03:08):
dental principals, amongst otherperks and discounts for
members.
Please use the link in thedescription to claim your
verifiable CPD for this episode.
Alright, guys, welcome toanother webinar this beautiful
Wednesday evening on sellingyour dental practice and how to
(03:28):
get the best deal and the thingsthat you can do beforehand,
long before that day comes, thatconversation comes, because
believe it or not, it's nevertoo early to put in prep.
And then also, as well as that,what happens afterwards, too?
Because oftentimes, and I seethis all the time, I literally
had a conversation with apractice broker the other week
who said that he held his handsup and said, I really
(03:50):
deliberately don't get involvedin what happens after someone
sells the dental practice, theyjust go and talk to their
accountant, and the clue's therealready.
Like the accountant is justthere to minimize tax, maybe a
little bit of tax planning aswell.
But what about how we get thecash to first of all, well, uh
protect its value as in as inprotect it against inflation?
(04:13):
Uh, and then second of all, howdo we siphon off some sort of
residual income from the cashafterwards so that we know that
we can get our money to last aslong as possible?
We know we can get the biggestbang for our buck.
Anyway, without further ado,that is what tonight's webinar
is about.
I am joined by two financialplanners, Mr.
Luke Hurley and Mr.
Anick Sharman.
Both of those financialplanners represent Federe
(04:34):
financial planning, and we'reall here today to learn about
what we can do beforehand whenit comes to selling the dental
practice, during selling thedental practice, and after as
well.
Luke, Anick, anybody like tostep up and take the lead from
the get-go?
Anick (04:49):
Hey everyone.
Um, yeah, so it's a sellingpractice, selling your business.
It's such a huge emotional andlife-changing event.
It's that whole adage offailing to prepare.
Um it's really important to getall your ducks in a row and not
rush into anything.
So plan, protect, and invest.
(05:15):
The opportunity cost ofbrushing into any irreversible
changes versus say going intosome sort of suboptimal
allocation or locking moneyaway, it's not worth it.
It's it's so important to geteverything sorted, give yourself
the space, the breathing room,and plan each decision
(05:38):
diligently.
Um, we don't want to be goingchasing the the best rate or the
best fund or whatever that evenmeans from day one.
Now, we will come on to a cashflow model later on.
Um, but a lot of this work, theplanning, the prep, it's all
underpinned by looking at yourlifetime consumption.
How much do you need now?
(05:59):
How much do you need in thefuture?
What about the future?
What about if there is excess,inheritance tax, all these sort
of things.
By having a clear vision ofwhere we want to get to, that
point B, it's a lot easier tolook at point A before the exit
or before the capital event andcreate a long-term strategic
(06:21):
plan in place to make sure thatwe get there efficiently and
everything is structured as itshould be.
Now, even before we get to saledate, essentially, it's
important to get everythingsorted beforehand.
So, from a business sellingperspective, get those ducks in
(06:43):
a row.
But what does that mean?
De-risk yourself as the ownerof Lions.
Don't just make everythingabout you.
Make sure systems, processes,infrastructure are clearly
documented.
You can show an evidence thatthere's been a clear pattern of
growth and patient retentionalong the journey.
Make sure systems, financials,etc.
(07:06):
Um, different structures aretidy, articles and whatnot.
Then when it comes to theactual structure of how you do
it, it can be sliced and dicedin in so many ways.
But understand the differencewith what you're doing, asset
versus uh share sale.
Are you gonna structure it witha deferred um payment or is it
(07:27):
gonna be an earnout over Xperiod of time?
Now, depending on what optionsyou choose, that's then gonna
have a different impact on yourlifetime cash flow and and how
much is in your pocket to liveyour life and do what you want
with it.
And that's gonna haveimplications on tax and and and
so on.
What's really important herethough is understanding your
(07:50):
number.
And it it's that whole adagehow much do I need to never run
out of money and go on holiday10 times a year, or whatever it
might be.
Now we've had a lot ofexperience with this, helping
people through the buying andselling process.
Naturally, there's a lot offriction.
The the seller wants thehighest possible price, and the
(08:13):
buyer wants the lowest possibleprice.
So naturally, it can be quite apoint of friction.
I've had situations where a asomeone has built up a fantastic
practice and they've anchoredto a certain figure in their
head, which the buyer wasn'twilling to give.
And that essentially led to astandstill.
(08:36):
No one was willing to budge.
Now, having gone through thecash flow planning exercise and
calculating lifetime consumptionand what that number needs to
be, it actually transpired thatthe individual needed a fraction
of that amount.
So they're tying themselves upin knots with a situation that
didn't need to be there, addinga load of stress when it it's
(08:58):
not required.
Going into that negotiation orstarting the process,
understanding what number youneed to live out the rest of
your life is so powerful, andhaving that in place is
important before before goingdown the journey.
Speaking of the cash flow,Luke, I think you have a bit of
a demonstration here.
Luke (09:18):
Yes, I do.
Let me just uh share my screen.
Just whilst that's loading, um,one thing that struck a chord
as you were talking there aboutthe importance of um taking your
time post well, pre-amppost-sale, but i in particular
in particular post-sale, notrushing into decisions.
(09:38):
I I have also encountered quitea few times the opposite of
that, which is where peoplehaven't necessarily done any
planning and a large lump sumappears in their bank account
and they might park it, as we'lltalk about later, in somewhere
relatively secure.
But then they're um overcomewith analysis um paralysis, uh,
(10:01):
where I've I've seen it as badas money being sat there for two
years post-sale, um, becausethe the individual is just not
sure uh you know what to do withthe cash and when to pull the
trigger.
And it there's a particularlyaround timing on in the markets.
Some people get very caught upin that um concerned.
Is this the right time toinvest or what happens if X, Y,
(10:23):
and Z uh insert geopoliticalevent um that you know, events
that happen every yearconsistently and have done
throughout time.
And so, yes, 100%, you need totake your time and plot your
course, but you also don't wantto see be on the opposite end of
the spectrum where the money'ssat there uh being eroded with
(10:45):
inflation, like James mentionedat the start.
Um, let me just find the rightscreen, screen number two.
And hopefully.
Anick (10:58):
Yeah, we've got that.
I can see why.
Luke (11:00):
Great.
Okay, so for those that don'tknow, this is um software that
we use to help people plan theirfinancial lives, ultimately.
Uh it's financial planningsoftware, very powerful, um, has
tax built into it, and thisenables us to chart somebody's
trajectory um from the point atwhich we meet them through to uh
(11:20):
unfortunately planning for forwhen they pass away, albeit we
uh we run these plans untilpeople uh are age 100 because we
don't know what the futurebrings.
So what's on the screen at themoment is is a is a timeline.
Now, this is uh for for twoclients looking to sell a
practice, uh, mid-50s, they'vegot one son who's currently at
(11:41):
school and going to university.
And you can see that we'vebroken up their uh retirement
into different phases.
The reason being, um, andthat's quite a simplistic
breakdown in truth for thepurposes of this example, you
don't spend the same amount ofmoney throughout the course of
your retirement.
It's very much um differentphases.
Uh, you're going to requiredifferent, different sums of
(12:04):
money.
Typically, in the earlierphase, you'll require more
money, you're more active.
Um, there's a lot more that youwant to achieve in that space
of time.
And as you get older, you tendto find your you know spending
slows as you slow.
Uh, and you might see it uhpotentially plateau.
There is evidence to show thatyou you spend considerably less
in your 80s than you do in your60s.
(12:25):
So it wouldn't be right for usto plan for uh a flat um level
of spending all the way through.
So what we do is we we put atimeline together for a client.
This is different for everyclient.
Um, we put various markers fordifferent events.
So on here, you've got theirson graduating, uh, sorry,
starting at university and thengraduating.
There's a gift here, I believe,um, that they want to make to
(12:49):
uh to their son.
Um there might be markers fordifferent events, financial
events.
So this is the the commencementof their 2008 NHS pensions.
Had they membership in the 2015section, there would be a
marker on that for that eventstarting at their normal pension
age.
Uh, we have slowing down at age80.
We have additional care costsat the the lot in the last five
(13:12):
years of life, because again, asI said, although spending might
plateau, there is a tends to bea spike in in somebody's later
years.
Uh, and then we've got hereFinancial Independence Day, um,
the point at which they want tobe able to sell their practice.
Uh, and so uh somebody's plan,uh everybody's plan looks
slightly different.
Uh, but we work with clients toto work out what their vision
(13:34):
is and and what those milestoneslook like and what those
milestones are likely to cost.
Um, those milestone goals couldbe anything, anything that you
you you envisage spending moneyon in the future.
But that's having a properplan, that's having a clear time
timeline of events that aregoing to um, in in your ideal
scenario, take place between thepoint that you start the
(13:55):
process and and uh passing on.
Um so once we've worked outwhat the timeline is, we can
then work out what certain costswould be.
So on this particular plan, wehave phase one retirement.
This client would like to beable to spend in the first phase
of retirement £100,000 as ahousehold net of tax, for
example.
I'm not saying that that's theamount that everybody should aim
(14:17):
for in retirement.
And actually, if you look atthe national statistics, it's
considerably less than that.
A comfortable retirementnationally, you know, a top-tier
retirement.
If you look at the data, thesuggestion is that that's around
about £60,000 a year, £5,000 amonth net of tax.
Um, but this client wants toaim for uh £100,000 uh every
(14:39):
year to fund their lifestyle.
And that, as I said before,everybody's lifestyle is
different.
I've met clients that are veryum conservative with their
spending, and I I've taken onmany clients as well who are you
know have have quite lavishlifestyles uh and uh you know
enjoy uh higher levels ofspending, and it's about
tailoring the plan to meet tomeet those objectives.
(15:01):
So we've got phase one, phasetwo, the spending dropping down.
There's a gift there to theirson.
We'll talk about gifting in amoment.
There's some care cost, uh, athousand pounds a week per per
person in care.
Um, that's again a very prudentassumption.
Um typically most people don'tgo into care homes, and if they
do, they don't go for fiveyears.
Uh, but we would always um bevery prudent in how we uh make
(15:25):
our assumptions and cautious.
So once we've decided what thevision is and what the
objectives are, we we can plugin what somebody's financial
situation is, we can talk aboutum what's their current income
before they're going topotentially sell.
So they're taking drawings fromthe practice from the limited
company, they've got some rentalincome from a freehold
property, um, or you know, thethe practice building.
(15:46):
They uh have a small amount inISIS, they've got a main
residence, uh, they've got thepractice freehold.
And then I've left this numberhere blank in terms of the
valuation of their practicegoodwill for for good reason.
I'll come back to that in amoment.
They've got two modest SIPs,which they're still funding, NHS
pensions, they've got statepensions, which is a ball state
(16:08):
pension at the moment, is justunder £12,000 per person per
year.
Um, so it's important to factorthat in.
But once we know what thoseinputs are, we can then look at
really how is that going to playout over time in terms of their
cash flow.
Uh, i.e., where is the everyyear?
So these lines here allrepresent an individual year's
worth of spending.
(16:28):
Um, where is the money going tocome uh from as they move
throughout their retirement?
And on this plan, you've gotthe pink, which is their free
the freehold rental income, um,because they've decided to hold
on to the practice building, ormaybe they've sold to a
corporate who didn't want to buythe practice freehold.
So they've held on to that andand they benefit from the rental
income throughout.
(16:49):
They've got the the navy bluehere, which is their state
pension.
Uh, they've got the green,which is NHS pension.
Um, they've got the startingpoint here, which is when
they're still working beforethey've sold.
And here's some money drawndown from the SIP.
But because we haven'tcurrently plotted out what the
proceeds from a practice saleare likely to be, you can see
that there's a shortfall.
Um, you can see the spike inthe later years for care costs.
(17:10):
You you can see the drop downhere for the point at which
they're, you know, we'reassuming they they're going to
be spending less money in theirequities.
Um, you can see that the lineis rising and it's increasing
because of inflation.
And there's a you know, there'sa mechanism for us to make that
those numbers a bit morerelatable by pulling that out of
the plan.
Um, this looks fairly messy,and that's because they're
(17:32):
taking money from uh SIPS, whichis is is uh really the the the
tax burden is is is potentiallyhigher there because it's not
optimized in terms of theirwithdrawal strategy.
Um but it's a very basicexample.
Obviously, we go into a lotmore detail for each client.
But at that point, once we'vegot got that position, we can
actually uh like Annick said, wecan we can actually work
(17:53):
backwards and see well, whatdoes the client actually need in
terms of um a sell proceeds atthe point of wishing to sell?
So this client, for example, ifthey were to sell their
practice at age 55, uh, we canuse the calculator to work out
what amount of money they neednet of tax in order to remove um
any shortfall.
(18:15):
And that conveniently producesa nice round figure that we know
that actually if they were toraise those proceeds um from the
sale of their practice net oftax, that doesn't include um
capital gains tax uh on the onthe sale proceeds, um, but it it
gives us a clear idea of whatwhat they need to bridge any
shortfall.
(18:35):
Um the second half of theequation to go back, so let me
just assume that we just comeback in here and say that the
practice goodwill is actuallyworth one million pounds.
Now when we come back in here,we can see that the shortfall
(18:58):
has been reduced.
So cash flow is half theequation.
Um, and in truth, this hasn'tbeen optimized in terms of a tax
efficient withdrawal strategy.
It's it's simply there as anexample.
So there would be work done toensure that um drawing down on
the assets is as tax efficientas possible.
That's part of financialplanning done properly.
Um but the second half of theequation is what does what does
(19:19):
that then look like in terms ofa client's overall asset
position?
Um, what's what's the impact ontheir withdrawal strategy and
on their lifetime consumption interms of what they're going to
be left with at the end of theday?
Uh, that's currently in realterms.
Um but the because they'repotentially accumulating wealth
(19:39):
because they hold on to quite alot of illiquid assets,
property, which is going to beappreciating in value, they run
the risk of having quite asignificant inheritance tax
liability in the future.
And so for us, financialplanning is part one,
retirement.
What does the client need forthe rest of their life in order
to be financially independentand not run out of money?
(20:00):
Um, ensure that that securityis provided.
Um part two, what does thefuture look like in terms of
their potential uh uhinheritance tax liability and
and where how comfortable arethey with the amount of money
that they stand to pass onto thethe government on death as
opposed to their their heirs andbeneficiaries?
(20:22):
Um so it's about dealing withuh the two elements, retirement
and inheritance tax, at the sametime.
And what I would say on that,in terms of preparing for a
practice sale, it's a lot easierif you go through that process
of working out what you needfrom a retirement perspective,
but also in order to deal withinheritance tax in advance of a
(20:43):
practice sale as opposed toafter.
There's more that you can dobefore you sell than after you
sell.
And so it's well worth havingthose conversations with
professionals in the lead up asopposed to post-exit, um,
because your options areslightly narrowed, um,
particularly around um certaintrust planning.
Um so the other uh, and thisthis tool is fantastic, there's
(21:05):
all sorts of things that we canmodel.
Um, inheritance tax, forexample.
Um, what's the potentialinheritance tax liability for a
client over time?
How's that likely to change?
Well, uh, when you sell yourbusiness quite significantly,
because if you've got a tradingbusiness, um then uh that
trading business, albeit thereare the rules are under review
(21:26):
and changing um in the not toodistant future, in terms of the
the the actual final detailsaround this, but your trading
business uh does bring with ituh inheritance tax efficiency.
As soon as you sell thattrading business, that money's
gonna be poured into your estateand your potential IHT
liability or your children oryour family's IHT liability is
going to increase.
(21:46):
Uh, and therefore it's wellworth having a strategy in place
to ensure that you know whatyou're going to do.
And that's not a one-offexercise, that's having a plan
for um a series of differentactions that you're gonna take,
um, that you're gonna carry outthroughout the course of
retirement in order to deal withthat IHT liability.
So um really powerfultechnology that we use to
(22:08):
deliver these financial plans.
Um, but as I said, the the mainconsiderations is know your
number, have a plan around umyour lifetime consumption, how
much money you need, the cost ofyour lifestyle for the rest of
your life, know what theimplications are from an
inheritance tax perspective.
Um, and then I would drill one,there's another plan that I
(22:29):
work the terminology I use,which is a cash management plan.
So if we're talking about afinancial plan being a slightly
zoomed out uh view of your yourfinances and how that will
change throughout the course ofyour life, uh we also need to
deal with the the day-to-dayspending.
Once you've sold your practiceand and you've and you've
stepped away from work, whichmight not be immediate, I
appreciate if if you're sort oftied in for a uh a period of
(22:51):
time.
But once your earnings haveswitched off, you then need to
know how are you going to manageum your your generating the
income from your assets.
Uh and that you know that cashmanagement plan is is is going a
bit more granular in terms ofthe the day-to-day, month to
month, year to year.
Um it's kind of a more uhfocused view of of how to manage
that process.
(23:12):
Um so that's that's how to umfrom our perspective, how to
work out what your number is andand go into those conversations
uh in a more informed way uh togive you that reassurance that
you know that you're on the umon the right track and that
you're gonna have enough money.
(23:32):
Uh and as Annick said, that'sgonna also help in those
negotiations if you really doknow what your number is uh as
you're having those discussions.
Uh I touched on it in terms oftax.
uh uh efficiency there butobviously the the the taxes to
be aware of or or uh at that atthis the the the point of sale
really for me um business assetdisposal relief clearly um which
(23:56):
is uh had had recent reform andis is obviously become becoming
less attractive uh over thenext couple of years um but
there is uh and uh still a uh aa band there of of um gains that
you can have which is subjectto a beneficial tax tax rate and
it's important that you utilizethat um so it's well worth uh
(24:18):
speaking with your accountant umor your tax advisor in advance
of any sale to ensure thatyou're gonna get the full
benefit from the relief thatthat's on offer from a capital
gains tax perspective you get anominal CGT annual exempt amount
as well on top of that £3,000which is not going to go a very
long way but it it does exist.
(24:38):
We need to be aware of therules around pensions um so
lifetime allowance the the therules around that were were
changed and and in effect thelifetime allowance was was was
uh removed I'm not convincedthat that's going to stay that
way for for the for the mediumto long term given the pressures
that the Chancellor is under inin in terms of trying to find
(24:59):
cash but um it's it's importantto know what that is and and and
um should it be reintroducedbut there is also rules around
how much lump sum you can takefrom your total or of your
pensions tax efficiently so it'simportant to to plan for that
uh inheritance tax I've touchedupon it's important to know
where you stand from a from anIHD um perspective.
(25:19):
Um a couple of other otherthings in terms of kind of
preparing for for a saleobviously you want to get the
right people in I touched on itthere about tax advisor for me
that's absolutely key you needyour your um day-to-day
accountant may not be the bestperson to advise you over the
the potential uh tax um pitfallsand and traps that that that
(25:41):
you you know you might encounterand that you need guidance
through they may well be I'm notsaying that they they can't be
yeah it's just making sure thatyou've got the right person and
it might be a different personin their firm actually that's uh
uh that's gonna deal with umthe more complex tax advice
that's that that could berequired um so make sure you've
got the right the right adviceand the right advisors um and
(26:03):
get that help in advance of anypractice sale to ensure that the
as Annick said that the thepractice is as in good a shape
as as possible to get maximumvalue for it um from the the the
business that you've built upum another quick reflection i i
know i feel like i'm slightly uhon a bit of a monologue um but
(26:24):
uh another reflection is prepareyourself emotionally for the
sow of your business i see thisa lot um it's a it's it's a
financial transition which needsplanning uh but it's also a a
life transition uh which canalso be quite unsettling for
some people um uh quite a lot ofthe time people's identity can
(26:44):
be wrapped up with what they doand if they've um dedicated a
huge amount of their life to tobuilding up a business then um
you know you need to plan forwhat comes next um and that
needs to be a well thought outprocess and it needs to um you
know and there's exercises thatwe help clients go through to to
enable them to really thinkabout the the the long term what
(27:06):
they want from life um it'sit's not just about the cash
flow model it's also you knowkind of life after life after
business um what it's not it'sit's not just the money um so
yeah a few reflections there umif I can pass back to Anick UK
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(28:39):
annual savings.
The purpose of this membersclub is to not only boost your
monthly income but also manageyour outgoings as much as
possible and therefore createmore profit.
To celebrate the launch of theSmart Money Members Club and
given that the CPD deadline iscoming up soon I've decided to
offer the first month of thisplatform entirely for free.
This offer will end in thecoming weeks as soon as the
(29:00):
current CPD cycle is up.
To collect your CPD for thispodcast episode using the Smart
Money Members Club feel free touse the link in the description
of this podcast thanks Luke umuseful to to see the cash flow.
Anick (29:18):
Just one point on that as well you mentioned about the
trust work and getting thingssorted that is such an important
point because often people maycome to us or I've had
experienced people come to me toto help them sort out their
arrangements just as you've beenthrough there.
But quite often coming afterthe capital event can reduce our
(29:43):
range of options um a capitalevent one time once in a
lifetime chance to to get thingsright um I appreciate some
people might decide to go againbut for the for the most part um
it is so important just to havea chat with professionals
beforehand because if you missthat window of opportunity you
could absolutely be shootingyourself in the foot um it we've
(30:07):
said at the start Luke said itthere but planning is so
important to get everythingsorted during the transaction as
well certain mechanics um Lukementioned about the emotional
aspect of it going through anearnout can be quite difficult
psychologically um then havingto you've built up a great
(30:29):
business and all of a suddenyou're answering to someone else
for a few years it's it's it'snot going to be easy they might
start doing things in adifferent way than you think is
best so it it's important to tobe clear with how that's going
to look because it's not goingto be your business anymore as
much as you the day to day mightbe somewhat similar and
(30:52):
depending on how that earnoutmight happen tax considerations
business asset disposal reliefetc um stage investing depending
on when the different tranchesare are received so having a
clear plan of what's due thatmoney is so important.
And then that Luke mentionedthere about narrowing down
(31:13):
tactics of cash the actualmechanism of it is something
that can often be overlookedeveryone everyone just thinks
about the long term andrightfully so but it's important
to take some time and thinkabout what about the day the
money lands what are you goingto do think about how you're
going to feel so let's say moneyhits the account there's a few
(31:36):
things you should absolutelyhave done beforehand and do at
the time so the main thing is toprotect the capital and give
yourself more breathing roomessentially so for most people
you you don't want the thecapital proceeds to be paid into
a current account so the thevery first step move it into a
savings account create anadditional layer of security
(32:00):
barrier um your existing bankwill likely pepe you with phone
calls when they see a large lumpsum um enter your bank so Luke
talk spoke about um analysisparalysis before and it can
quite often be overwhelming withwith what to do and all the
options.
The security of fundsabsolutely first and foremost
(32:22):
now with the planning work youmay have decided to set up a
trust or allocate money intocertain pots have that clear
strategy beforehand and executeon it so you're not caught in in
in between minds of what to do.
On the security of funds thisis it's an important one so most
(32:43):
high street banks will have athing called the financial
services compensation scheme.
So this covers £85,000 perbanking license now if we're
talking about a seven figureexit £85,000 is not likely to
cut it so securing the money isso important.
Now people often kick back andsay Anick don't be stupid insert
(33:07):
well known high street bank isnever going to go under well
said the same about CreditSuites SVB Lehman Brothers and
we know how that all ended sothat banking license risk can be
mitigated.
So think about having moneyacross various banking licenses
(33:27):
um different accounts there is atemporary high balance um which
could be useful the other thingis the use of um NSNI national
savings and investments so thatis it's essentially a a a range
of accounts backed by theTreasury so whilst the rates
(33:49):
aren't as competitive um yougain that security element and
in this situation it's all aboutthe return of cash safely
rather than the return on it inin those first seven days a week
or so now if money is to beallocated across trusts then
make sure the trustee accountsare opened.
(34:10):
Have that line of communicationopen between the savings
account and the trust account ornational savings etc because
the last thing you want to bedoing is making test payments
with a seven figure amount tosee if it lands.
So get that moving try itbeforehand then hopefully
(34:31):
beforehand you you've had a chatwith your planner someone to
look at the cash flow model andyou have a clear plan of how
money's going to be held in theshort, medium and long term and
that will help help identifywhat to do essentially um wills
the lasting powers of attorneyvery important to go back in and
(34:51):
revisit following a major lifeevent make sure it reflects your
current wishes um and it'saligned with beneficiaries and
any trust work that may havebeen done.
The use of good planningstrategies is so important here.
Then moving further along afterthose first couple of weeks
(35:12):
start to think about a cash flowlouder so the first 12 to 24
months how much cash do you needhow much are you going to be
spending on a monthly basis whatabout going on those big
holidays um you might betreating yourself to a new car
whatever it might be clearexpensive debt to ring fence
(35:32):
have that emergency buffer thatthat just in case fund then
after that a couple of yearsworth of expenses say it's
probably an argument to thenlook at the investment piece.
James mentioned it right at thestart inflation inflation will
rip money apart if we don't tryto hedge it and that's typically
(35:55):
why we invest we want our moneyto match and keep pace with
inflation now as business ownersyou are naturally okay with the
concept of risk because you'veset up your own business human
psychology can very quicklychange here from building up
(36:15):
your own business taking on allthat risk to all of a sudden
having to live out your life onthis capital that you've
received.
It's important to acknowledgethese biases ahead of time and
that behavioral risk side ofthings can impact long-term
financial outcomes and we see itin all the data and evidence.
(36:35):
Luke's example of two years satin cash and and missing out on
any potential upside can bedetrimental.
Likewise if people try andmarket time well all the data
shows us we can't do it.
It doesn't work it's not anefficient and appropriate
approach for most people havinga plan in place it it it beats
(37:01):
any product you might look atany fancy um way to try and
invest the portfolio powers ofplan and that is such an
important concept but havingthat clear plan in place then
that helps us to align thatasset allocation and and be very
precise with with where we'regoing to move our money to now
(37:25):
with within that portfolio umit's important to remember that
there are going to be inevitableups and downs within the the
the market mix.
So part of the thing that we dois kick the tires on it.
Luke mentioned well Luke wentthrough the cash flow before and
it void that financial planningsoftware is absolutely great.
(37:49):
You can go into incrediblygranular detail and create all
sorts of scenarios what ifs goto town on the expenditure it we
like to use it with another bitof kit um and I'll show you
this in a moment but this isreally useful especially for
(38:11):
withdrawal strategies because wecan we can make sure that the
asset allocation mix isappropriate and it's optimal for
for your lifetime consumptionessentially so let me let me
just fire this up now.
Dr James (38:27):
Just while Anick is doing that everyone I just
wanted to mention there will bethe opportunity for some QA's at
the end which should be comingup in about 10-15 minutes time
so if anybody does have aquestion feel free to pop it in
the chat it'll be on a firstcome first serve basis and I've
got a few questions as wellactually that I'm gonna throw
(38:49):
out there which I think will bevaluable should be coming up to
that very soon and another thingto add actually just for
everyone who is in the audiencetonight you know it's a real how
can I say this uh it's one ofthose decisions you know it's so
(39:13):
pivotal to our life but a lotof people just seem to kind of
meander into it or dreamwalkinto it.
Like I had I remember one guythat I was talking to and we
were talking about the sale ofhis practice and he said to me
James you know what they tellyou about when you've sold your
dental practice or you know whatthey don't tell you sorry about
when you've sold your dentalpractice you have no cash flow
(39:36):
afterwards and I was like healmost said it with a sort of in
sort of semi-joking but I couldtell that he maybe just hadn't
realized just quite howimpactful that lack of cash flow
that he then subsequently hadafter that event will it became
clear only really actually soldthe business.
(39:56):
And that's the whole point ofall this stuff that Luke and
Annik are talking about tonight.
It's how can you take that lumpsum of cash and extend its
lifespan in such a way that youcan reliably generate a certain
level of cash flow from it.
And then obviously what thatmeans is well that's replaced
your business in the sense thatit provides you cash flow which
is very difficult to do on yourown.
(40:17):
That's where all this softwarecomes in and the expertise of a
financial planner comes in.
Anick (40:23):
Yeah exactly James using a a better kit whether it's what
Luke shared us before or whatI'm about to show you now it's a
tool in our armory to to tryand to get the best possible
outcome and to get to a reasonedconclusion or of what the most
optimal approach is.
So I'll walk you through thisexample um but timeline works
(40:44):
broadly on a a higher levelperspective.
So it's not as granular ordoesn't work as well being as
granular as what Luke wentthrough with all the different
assumptions and expenditure andso on.
Where it does work is kickingthe tires to see what about if I
started my investment journeyin 1928 for example now we can
(41:06):
see it here it's showing thehistorical analysis and I'll
walk you through it.
But essentially it looks backover every single data set we
have say 110 years of historyacross circa 700 scenarios.
So what this means is we canlook at the various events
through history Luke mentionedbefore about geopolitical events
(41:29):
and that putting people offfrom investing one of the
challenges I get or clientssometimes say is an IC, but this
time it's different.
And it can often feel it is thecase the news is all doom and
gloom and it's always this eventor that event.
Now when you look at the datamarkets continue to to rebound
(41:51):
and markets continue to rewardlong-term discipline.
So as investors for the mostpart sitting tight and riding
those those storms and it willbe a bit of a storm depending on
how we we decide to allocateour our money well if we can sit
tight then our patients will berewarded and we'll we'll have a
(42:14):
look at some charts in a momentto have a look at this so this
is this is a a uh John and Jane.
So they've received their theirproceeds an of tax of two
million pounds here we'veallocated it into a 60% equity
portfolio.
(42:34):
So the decision with whatportfolio to invest in it's it's
quite complicated.
So we at the Dair adopt a threedimension approach so the first
is risk need and that's veryimportant that's what rate of
return do you need to neverallow out of money.
(42:54):
Now Luke mentioned some of theassumptions when he went through
the cash flow that within eachaccount there is a growth
assumption.
So depending on what that riskneed is will then depend on what
a portfolio we use and thenwhat assumption we use as a
consequently so risk needs amathematical construct and if if
(43:18):
we need to have a try and gofor an expected return that's
not achievable then then there'sa conversation there.
But if the expected return todeliver our cash flow our future
life um the holidays the giftsthe the spending it the living
your vision then that informs uson that first factor the second
(43:42):
dimension is risk capacity andthat's our ability to withstand
short-term losses so let's sayfor a moment retirement selling
the practice we are we're gonnatake it all out as a lump sum
and spend it in one hit forargument's sake.
Now if we had invested thatmoney and the markets had
(44:05):
dropped by 20% let's say that'sa bit of an issue if we're gonna
withdraw it in one hit.
Now having the ability towithstand those short-term
losses it's important becausewhat people fail to remember is
that retirement's not a aone-off event it's an ongoing
(44:26):
journey.
So whilst someone might look atselling a practice in their 50s
like Luke said we financialplan for people until age 100.
So in that situation what aboutthe next 50 years of living
when we put it or frame it inthat context quite frankly it
doesn't matter how much marketsgo down over a week a month a
(44:49):
year five years 10 years whenwe've got 50 years in the
equation.
And then the third point orthird dimension is attitude to
risk as you may know it.
We like to call it risk comfortbecause we view as how
comfortable you might feel withwith volatility essentially so
we could create the mostoptimized portfolio on a
(45:12):
spreadsheet great it the riskneed is is appropriate the risk
capacity is it is suitable to ifit keeps you worrying every
night and you're not able tosleep and the the portfolio
every movement um you're you'rescared then that it's not really
a great or optimized portfolio.
(45:33):
So having something that you'recomfortable with that meets the
risk need and risk capacity isis where we we come at.
So Coming back into thisexample here, the 60% equity
portfolio we have for this £2million investment, this is in
line with the client's riskcomfort alone.
(45:56):
Now, quite often traditionaladvisors will have you complete
a risk-based questionnaire andit'll come out at some sort of
scale, or it'll say you are acautious investor, or
aggressive, or moderatelybalanced, or whatever that
means.
And portfolio decisions canoften be based on these
descriptors, which in our viewit's not enough.
(46:19):
Psychometric questionnaires andthat subjective nature,
depending on what's happened inthat moment, can heavily
influence the portfolioallocation.
And if it hasn't been testedmathematically using these
models, then we can quite easilybe setting ourselves up for
failure.
So coming back into thissituation, £2 million has been
(46:40):
invested according to their riskcomfort, which is a 60% equity
portfolio.
Now, if we have a look at someexpenditure, like Luke says, we
have a few different phases.
So early retirement, as at2025, so they've just sold and
the money has just beeninvested.
(47:00):
They're going to be spending£120,000 inflation adjusted
until 2035.
From 2035 onwards, it until2050, sorry, it drops to 80,000
pounds.
As they approach that laterretirement, things start to slow
down a little bit, but notcompletely.
And then from 2050 onwards, um,it drops £55,000.
(47:24):
Um, it becomes harder to godown the stairs, never mind
flying the long haul across theworld.
As Luke mentioned, this istypical.
We see expenditure trail off inlater life.
There's also a gift, so £60,000they want to give to the kids
uh 2031.
So coming back up here, we cansee it saying that the plan is
(47:49):
is not very sustainable.
So when we look at the furtherdetail, we can see out of those
circus 700 scenarios, in 437 ofthese scenarios, so 63%, no
problem at all.
Um the clients get to age 100without running out of money.
However, in 260 of thesescenarios, or 37%, they actually
(48:14):
run out of money.
And we'll have a look at somecharts in a moment.
This is insightful, um,particularly as as people give
those concerns, this time isdifferent, or or what about
insert new geopolitical events.
Now, throughout all thesescenarios, um, we can we can see
a bit of commentary here.
(48:35):
So the worst-case scenario, soif these clients had started
their investment journey in1915, um by age 59, they would
have run out of money.
Now, the median scenario, sothe 50th percentile, um some
would say most likely, um theywould actually be in alright.
(48:57):
Uh 1.7 million by age 100.
Now we can see at the far righthere, the best scenario, if
they had started theirinvestment journey um between
January 21 and January 72, theywould have ended with 25 million
um adjusted for inflation.
So we're getting a feel of whatthe different range of outcomes
(49:18):
are within this scenario.
But just to give you a bit morecontext here, this is across
world wars, pandemics, covet,hyperinflation, and various
other geopolitical events.
So we can we can actually lookat every single year um and how
this looks.
(49:38):
Let me just take a few of theselines off because it gets quite
messy.
So looking, each line hererepresents a single-year start
from the current age 49 withthat 2 million pounds invested
across their lifetime at thebottom.
Um and we can see how differentinvestment journeys result in
(50:02):
different pots at the end.
So, for example, let's justtake a random line.
So if they'd started theirinvestment journey in 1922 and
these are actual returnsdelivered, then they would have
actually been very well off.
Um the line goes off into thechart, but they end at age 100
(50:23):
with circa 10 million pounds.
So when we overlay it all ofthis together, we can start to
see, okay, what's the median,the 50th percentile?
Well, we're looking at all 110years of data, things actually
look pretty good.
Um, yes, it it's not assustainable as it can be, and
(50:43):
we'll come on to that in amoment.
But this is it's very useful tosee what the journeys would
have been.
Because as financial planners,we plan for the worst, and
everything else is upside.
So, in this scenario, we canquite clearly see this red line
demonstrating the worst case.
So they'd started theirinvestment journey in 1915, that
(51:04):
£2 million was invested in that60% equity portfolio as per
their risk comfort.
And they're running out ofmoney by 5960.
Um, this assumes it's inflationlinked and no ongoing reviews
and so forth.
So, in reality, it wouldn'thave happened that way.
But we can layer in the bestcase scenario and then the the
(51:25):
likely range of returns.
So this helps to narrow down onwhat those those range of
outcomes are and the likelihoodof of the financial success,
living, living out your vision,doing the things that you want
to do.
Again, the portfolio powers ofplan, but having that in place
is important to make the mostout of life.
(51:48):
Most people don't really careabout how a portfolio is
invested or what wrapper it isor the technical aspects to it.
They care about taking the kidsaway and and doing what they
enjoy.
So we we can look at a fewother things now.
Um if we were to invest as pertheir risk needs, say 80%
(52:09):
portfolio, and and we we tailthis with Voyant, the software
Luke used before, we cancalculate that risk need
exactly.
But assuming that we weincrease the exposure to match
their risk needs, um, which wecan do here.
And then the other thing is wewe've assumed the wife has been
(52:34):
inflation adjusted.
So every year, no matter what,the withdrawals will increase by
inflation to keep up in realterms.
Now, realistically, whenmarkets are falling, people
don't tend to have an inflationadjustment.
Um at the very least, it itstays the same.
And when markets pick up, thenwe might look to catch up that
(52:58):
inflationary increase.
We call that mechanism aguidance inflation adjustment.
Sounds slightly jargony or no.
But by applying it, we canquickly see the impact of how it
how it might make things look.
So if we go back to theoverview now, we can see that
we've gone from about 61% of 61%of scenarios and things were
(53:21):
looking okay.
So now 82%.
Now things look quite a lotdifferent.
So this represents a greatoutcome.
Um now most people will needongoing financial planning.
Um, I describe it to myclients.
It's a bit like saying you'redriving from London to
Edinburgh.
You you've you've set thatfinancial plan, you've set your
(53:44):
sat nav, but your phone dies.
Um your your you there's a roadclose sign happens as life
throws its inevitablecurveballs, essentially.
It's easy to become lost onyour journey on the route if you
don't check in regularly.
And this is what the ongoingvalue financial planning does:
having that objective soundingboard here to make sure you're
(54:05):
on track.
And by making adjustments in acouple of years, if we decide
not to increase the withdrawalsor amend the withdrawal strategy
along the way, then we can makesure we get to the plan end.
Um ensuring things areoptimized essentially.
I feel like that was mymonologue there now.
(54:28):
No, it's great.
Dr James (54:29):
Thank you so much, Anick.
Luke (54:31):
Alec, just just sorry, can I if you just hop into charts
and tools for two seconds, umand then go to the longevity
chart.
Um it's just that's alsointeresting context because
although we ended there withwhat was it, 81% uh probability
of success using historicaldata, um, that's on the uh
(54:55):
assumption that the person'sgonna live a very long time in
retirement.
Um and so actually there's alsoalways worth uh remembering
that you might not live till age100.
Um and uh this is just an extrathat overlays kind of the life
expectancy.
So the probability of yousurviving and the portfolio
(55:16):
being sustainable.
And I just always think that'san an extra um kind of
overlooking it.
Anick (55:23):
Yeah, 100%.
Dr James (55:26):
Interesting.
Thank you so much, guys.
Uh great presentation and a lotof learning points.
I actually had a quickquestion, which we should just
about have time for becausewe've got nine minutes until
half eight, which would takethis webinar to an hour overall,
which is what we usually aimfor.
And it was on trusts because Ifeel like a big question that a
(55:49):
lot of people ask whenever itcomes to retirement planning is
that they've heard of a trust,they feel like it's something
useful that will be able tosafeguard passage of their
wealth from themselves to theirkids and by way of tax
mitigation.
Is that correct?
Have people got the right endof the stick?
And if so, maybe if you couldshare some of the different
(56:10):
types of trust or just a littlebit of info on that front,
that'd be really useful, eitherlook or Anic.
Anick (56:15):
A trust is a completely separate entity, just as your
company is a separate entity,and it can be very easy to be
fixated on a trust.
I must put my money into atrust.
But a trust is a solution to aproblem, and it's one of many
(56:36):
solutions.
So the starting point is towork out what the problem is,
what the inheritance tax issueor potential inheritance tax
issue is likely to be.
Now, if there's a surplus whichwill be identified using the
cash flow model, um, then we canlook at the most appropriate
way of dealing with it.
Now, that might be directgifting, but people might not
(56:57):
want to give family members,kids that level of capital at a
young age.
They might not feel responsiblefor it.
So for some people, if theconditions are right, allocating
that capital into a trust canbe a useful, a useful thing to
do because it's earmarked forthe future use, future
(57:17):
beneficiaries, a bit of jargonreturn, um, when the trustees
deem it suitable to distributethat money.
Now, there are all sorts ofcomplex rules around how you put
money into the trust and theorder of it and the different
types of settling into a trust,all of which have varying tax
treatments.
So if that is something you'reinterested in, absolutely take
(57:40):
professional help because if youget it wrong, it's going to be
incredibly expensive and it'sgoing to be a pain for your
estate to administer.
Now, depending on how you wantthat structured and what you
want to do with that money andyour wishes for it might lend
itself to the sort of trustyou'll use essentially.
(58:01):
But summarizing, it it's just atool to to cascade money
efficiently if it's used withinthe right context.
Dr James (58:10):
Yeah, because I feel a lot of people come enter the
conversation with a financialplanner on the basis that they'd
like a trust, but it's oftenbecause they perceive that to be
the best way to achieve whatthey'd like to achieve, but it's
not necessarily the case.
And actually, it can be whilstthat is the conversation
initiator, what it can behelpful to remember is that
(58:33):
there are other options outthere, which is really cool.
So, yeah, and I'm sure we canmake a whole webinar about that
in and of itself.
Oh, great question just beforethe final whistle.
Oh, I think we've got sixminutes to quickly talk about
family investment companies,don't we, guys?
unknown (58:50):
Yeah.
Anick (58:51):
So for a family investment company, that's a
series of webinars.
We're not gonna get this in infive minutes now.
But essentially, Theresa,exactly the same principles.
So, what's the issue we'retrying to solve?
For most people, that isinheritance tax.
As business owners, companyowners, um, individuals might be
(59:16):
more familiar with the thecorporate structure of a family
investment company.
But is it's trying to do thesame, the same sort of thing,
but within a differentstructure.
And family members can haveshare classes and you can bring
people on when it when they'reready to.
The thing to remember here isthat it will operate uh as any
(59:38):
company.
So you need directors, you needpeople managing it.
Um and the costs are are high.
Typically, you wouldn't look todo it for money less than three
to four million, um, given theinitial costs up front and
ongoing.
But yeah, absolutely.
Family investment company canbe a great solution within the
(01:00:00):
right circumstances, and and ifthe the the situation lends
itself to that solution.
Selling a dental practice is one of those massive
life decisions that peopleoften dreamwalk into a little
bit, and that's usually becausethey're just so busy thinking
about other things that the nextthing they know the day has
arrived.
And actually, there's a lot ofthings that you can do
beforehand, both to get the bestvaluation and also to ensure
that your money lasts as long aspossible so that there's zero
(02:03):
chance of you having to returnto work in old age.
That's the worst possibleoutcome that we can imagine
whenever it comes to a businessexit.
I'm joined today by Mr.
Luke Hurley and Mr.
Anick Sharma, who representVidere Financial Planning.
We're going to be talking aboutthe ins and outs, everything
you need to know to plan aheadfrom this decision, no matter
what stage you are at in yourpractice ownership journey, even
(02:26):
if you are still an associate,this stuff is well worth
listening to.
We do so in order to illuminatethe path and guide everybody so
that they know exactly what toexpect whenever the big day
comes.
As ever, you can claim your CPDfor this episode within the
official Dentists who InvestSmart Money Members Club.
Smart Money Members Club alsoincludes multiple mini courses
(02:47):
and webinar series on financefor dentists, including how to
become as tax efficient aspossible, as well as
understanding investing.
All of this content comments asverifiable CPD, and you can
download your certificates thereand then upon completion of
each lesson.
In addition to this, we alsoinclude a whopping 10% discount
on your dental indemnity and a5% discount on lab bills for
(03:08):
dental principals, amongst otherperks and discounts for
members.
Please use the link in thedescription to claim your
verifiable CPD for this episode.
Alright, guys, welcome toanother webinar this beautiful
Wednesday evening on sellingyour dental practice and how to
(03:28):
get the best deal and the thingsthat you can do beforehand,
long before that day comes, thatconversation comes, because
believe it or not, it's nevertoo early to put in prep.
And then also, as well as that,what happens afterwards, too?
Because oftentimes, and I seethis all the time, I literally
had a conversation with apractice broker the other week
who said that he held his handsup and said, I really
(03:50):
deliberately don't get involvedin what happens after someone
sells the dental practice, theyjust go and talk to their
accountant, and the clue's therealready.
Like the accountant is justthere to minimize tax, maybe a
little bit of tax planning aswell.
But what about how we get thecash to first of all, well, uh
protect its value as in as inprotect it against inflation?
(04:13):
Uh, and then second of all, howdo we siphon off some sort of
residual income from the cashafterwards so that we know that
we can get our money to last aslong as possible?
We know we can get the biggestbang for our buck.
Anyway, without further ado,that is what tonight's webinar
is about.
I am joined by two financialplanners, Mr.
Luke Hurley and Mr.
Anick Sharman.
Both of those financialplanners represent Federe
(04:34):
financial planning, and we'reall here today to learn about
what we can do beforehand whenit comes to selling the dental
practice, during selling thedental practice, and after as
well.
Luke, Anick, anybody like tostep up and take the lead from
the get-go?
Anick (04:49):
Hey everyone.
Um, yeah, so it's a sellingpractice, selling your business.
It's such a huge emotional andlife-changing event.
It's that whole adage offailing to prepare.
Um it's really important to getall your ducks in a row and not
rush into anything.
So plan, protect, and invest.
(05:15):
The opportunity cost ofbrushing into any irreversible
changes versus say going intosome sort of suboptimal
allocation or locking moneyaway, it's not worth it.
It's it's so important to geteverything sorted, give yourself
the space, the breathing room,and plan each decision
(05:38):
diligently.
Um, we don't want to be goingchasing the the best rate or the
best fund or whatever that evenmeans from day one.
Now, we will come on to a cashflow model later on.
Um, but a lot of this work, theplanning, the prep, it's all
underpinned by looking at yourlifetime consumption.
How much do you need now?
(05:59):
How much do you need in thefuture?
What about the future?
What about if there is excess,inheritance tax, all these sort
of things.
By having a clear vision ofwhere we want to get to, that
point B, it's a lot easier tolook at point A before the exit
or before the capital event andcreate a long-term strategic
(06:21):
plan in place to make sure thatwe get there efficiently and
everything is structured as itshould be.
Now, even before we get to saledate, essentially, it's
important to get everythingsorted beforehand.
So, from a business sellingperspective, get those ducks in
(06:43):
a row.
But what does that mean?
De-risk yourself as the ownerof Lions.
Don't just make everythingabout you.
Make sure systems, processes,infrastructure are clearly
documented.
You can show an evidence thatthere's been a clear pattern of
growth and patient retentionalong the journey.
Make sure systems, financials,etc.
(07:06):
Um, different structures aretidy, articles and whatnot.
Then when it comes to theactual structure of how you do
it, it can be sliced and dicedin in so many ways.
But understand the differencewith what you're doing, asset
versus uh share sale.
Are you gonna structure it witha deferred um payment or is it
(07:27):
gonna be an earnout over Xperiod of time?
Now, depending on what optionsyou choose, that's then gonna
have a different impact on yourlifetime cash flow and and how
much is in your pocket to liveyour life and do what you want
with it.
And that's gonna haveimplications on tax and and and
so on.
What's really important herethough is understanding your
(07:50):
number.
And it it's that whole adagehow much do I need to never run
out of money and go on holiday10 times a year, or whatever it
might be.
Now we've had a lot ofexperience with this, helping
people through the buying andselling process.
Naturally, there's a lot offriction.
The the seller wants thehighest possible price, and the
(08:13):
buyer wants the lowest possibleprice.
So naturally, it can be quite apoint of friction.
I've had situations where a asomeone has built up a fantastic
practice and they've anchoredto a certain figure in their
head, which the buyer wasn'twilling to give.
And that essentially led to astandstill.
(08:36):
No one was willing to budge.
Now, having gone through thecash flow planning exercise and
calculating lifetime consumptionand what that number needs to
be, it actually transpired thatthe individual needed a fraction
of that amount.
So they're tying themselves upin knots with a situation that
didn't need to be there, addinga load of stress when it it's
(08:58):
not required.
Going into that negotiation orstarting the process,
understanding what number youneed to live out the rest of
your life is so powerful, andhaving that in place is
important before before goingdown the journey.
Speaking of the cash flow,Luke, I think you have a bit of
a demonstration here.
Luke (09:18):
Yes, I do.
Let me just uh share my screen.
Just whilst that's loading, um,one thing that struck a chord
as you were talking there aboutthe importance of um taking your
time post well, pre-amppost-sale, but i in particular
in particular post-sale, notrushing into decisions.
(09:38):
I I have also encountered quitea few times the opposite of
that, which is where peoplehaven't necessarily done any
planning and a large lump sumappears in their bank account
and they might park it, as we'lltalk about later, in somewhere
relatively secure.
But then they're um overcomewith analysis um paralysis, uh,
(10:01):
where I've I've seen it as badas money being sat there for two
years post-sale, um, becausethe the individual is just not
sure uh you know what to do withthe cash and when to pull the
trigger.
And it there's a particularlyaround timing on in the markets.
Some people get very caught upin that um concerned.
Is this the right time toinvest or what happens if X, Y,
(10:23):
and Z uh insert geopoliticalevent um that you know, events
that happen every yearconsistently and have done
throughout time.
And so, yes, 100%, you need totake your time and plot your
course, but you also don't wantto see be on the opposite end of
the spectrum where the money'ssat there uh being eroded with
(10:45):
inflation, like James mentionedat the start.
Um, let me just find the rightscreen, screen number two.
And hopefully.
Anick (10:58):
Yeah, we've got that.
I can see why.
Luke (11:00):
Great.
Okay, so for those that don'tknow, this is um software that
we use to help people plan theirfinancial lives, ultimately.
Uh it's financial planningsoftware, very powerful, um, has
tax built into it, and thisenables us to chart somebody's
trajectory um from the point atwhich we meet them through to uh
(11:20):
unfortunately planning for forwhen they pass away, albeit we
uh we run these plans untilpeople uh are age 100 because we
don't know what the futurebrings.
So what's on the screen at themoment is is a is a timeline.
Now, this is uh for for twoclients looking to sell a
practice, uh, mid-50s, they'vegot one son who's currently at
(11:41):
school and going to university.
And you can see that we'vebroken up their uh retirement
into different phases.
The reason being, um, andthat's quite a simplistic
breakdown in truth for thepurposes of this example, you
don't spend the same amount ofmoney throughout the course of
your retirement.
It's very much um differentphases.
Uh, you're going to requiredifferent, different sums of
(12:04):
money.
Typically, in the earlierphase, you'll require more
money, you're more active.
Um, there's a lot more that youwant to achieve in that space
of time.
And as you get older, you tendto find your you know spending
slows as you slow.
Uh, and you might see it uhpotentially plateau.
There is evidence to show thatyou you spend considerably less
in your 80s than you do in your60s.
(12:25):
So it wouldn't be right for usto plan for uh a flat um level
of spending all the way through.
So what we do is we we put atimeline together for a client.
This is different for everyclient.
Um, we put various markers fordifferent events.
So on here, you've got theirson graduating, uh, sorry,
starting at university and thengraduating.
There's a gift here, I believe,um, that they want to make to
(12:49):
uh to their son.
Um there might be markers fordifferent events, financial
events.
So this is the the commencementof their 2008 NHS pensions.
Had they membership in the 2015section, there would be a
marker on that for that eventstarting at their normal pension
age.
Uh, we have slowing down at age80.
We have additional care costsat the the lot in the last five
(13:12):
years of life, because again, asI said, although spending might
plateau, there is a tends to bea spike in in somebody's later
years.
Uh, and then we've got hereFinancial Independence Day, um,
the point at which they want tobe able to sell their practice.
Uh, and so uh somebody's plan,uh everybody's plan looks
slightly different.
Uh, but we work with clients toto work out what their vision
(13:34):
is and and what those milestoneslook like and what those
milestones are likely to cost.
Um, those milestone goals couldbe anything, anything that you
you you envisage spending moneyon in the future.
But that's having a properplan, that's having a clear time
timeline of events that aregoing to um, in in your ideal
scenario, take place between thepoint that you start the
(13:55):
process and and uh passing on.
Um so once we've worked outwhat the timeline is, we can
then work out what certain costswould be.
So on this particular plan, wehave phase one retirement.
This client would like to beable to spend in the first phase
of retirement £100,000 as ahousehold net of tax, for
example.
I'm not saying that that's theamount that everybody should aim
(14:17):
for in retirement.
And actually, if you look atthe national statistics, it's
considerably less than that.
A comfortable retirementnationally, you know, a top-tier
retirement.
If you look at the data, thesuggestion is that that's around
about £60,000 a year, £5,000 amonth net of tax.
Um, but this client wants toaim for uh £100,000 uh every
(14:39):
year to fund their lifestyle.
And that, as I said before,everybody's lifestyle is
different.
I've met clients that are veryum conservative with their
spending, and I I've taken onmany clients as well who are you
know have have quite lavishlifestyles uh and uh you know
enjoy uh higher levels ofspending, and it's about
tailoring the plan to meet tomeet those objectives.
(15:01):
So we've got phase one, phasetwo, the spending dropping down.
There's a gift there to theirson.
We'll talk about gifting in amoment.
There's some care cost, uh, athousand pounds a week per per
person in care.
Um, that's again a very prudentassumption.
Um typically most people don'tgo into care homes, and if they
do, they don't go for fiveyears.
Uh, but we would always um bevery prudent in how we uh make
(15:25):
our assumptions and cautious.
So once we've decided what thevision is and what the
objectives are, we we can plugin what somebody's financial
situation is, we can talk aboutum what's their current income
before they're going topotentially sell.
So they're taking drawings fromthe practice from the limited
company, they've got some rentalincome from a freehold
property, um, or you know, thethe practice building.
(15:46):
They uh have a small amount inISIS, they've got a main
residence, uh, they've got thepractice freehold.
And then I've left this numberhere blank in terms of the
valuation of their practicegoodwill for for good reason.
I'll come back to that in amoment.
They've got two modest SIPs,which they're still funding, NHS
pensions, they've got statepensions, which is a ball state
(16:08):
pension at the moment, is justunder £12,000 per person per
year.
Um, so it's important to factorthat in.
But once we know what thoseinputs are, we can then look at
really how is that going to playout over time in terms of their
cash flow.
Uh, i.e., where is the everyyear?
So these lines here allrepresent an individual year's
worth of spending.
(16:28):
Um, where is the money going tocome uh from as they move
throughout their retirement?
And on this plan, you've gotthe pink, which is their free
the freehold rental income, um,because they've decided to hold
on to the practice building, ormaybe they've sold to a
corporate who didn't want to buythe practice freehold.
So they've held on to that andand they benefit from the rental
income throughout.
(16:49):
They've got the the navy bluehere, which is their state
pension.
Uh, they've got the green,which is NHS pension.
Um, they've got the startingpoint here, which is when
they're still working beforethey've sold.
And here's some money drawndown from the SIP.
But because we haven'tcurrently plotted out what the
proceeds from a practice saleare likely to be, you can see
that there's a shortfall.
Um, you can see the spike inthe later years for care costs.
(17:10):
You you can see the drop downhere for the point at which
they're, you know, we'reassuming they they're going to
be spending less money in theirequities.
Um, you can see that the lineis rising and it's increasing
because of inflation.
And there's a you know, there'sa mechanism for us to make that
those numbers a bit morerelatable by pulling that out of
the plan.
Um, this looks fairly messy,and that's because they're
(17:32):
taking money from uh SIPS, whichis is is uh really the the the
tax burden is is is potentiallyhigher there because it's not
optimized in terms of theirwithdrawal strategy.
Um but it's a very basicexample.
Obviously, we go into a lotmore detail for each client.
But at that point, once we'vegot got that position, we can
actually uh like Annick said, wecan we can actually work
(17:53):
backwards and see well, whatdoes the client actually need in
terms of um a sell proceeds atthe point of wishing to sell?
So this client, for example, ifthey were to sell their
practice at age 55, uh, we canuse the calculator to work out
what amount of money they neednet of tax in order to remove um
any shortfall.
(18:15):
And that conveniently producesa nice round figure that we know
that actually if they were toraise those proceeds um from the
sale of their practice net oftax, that doesn't include um
capital gains tax uh on the onthe sale proceeds, um, but it it
gives us a clear idea of whatwhat they need to bridge any
shortfall.
(18:35):
Um the second half of theequation to go back, so let me
just assume that we just comeback in here and say that the
practice goodwill is actuallyworth one million pounds.
Now when we come back in here,we can see that the shortfall
(18:58):
has been reduced.
So cash flow is half theequation.
Um, and in truth, this hasn'tbeen optimized in terms of a tax
efficient withdrawal strategy.
It's it's simply there as anexample.
So there would be work done toensure that um drawing down on
the assets is as tax efficientas possible.
That's part of financialplanning done properly.
Um but the second half of theequation is what does what does
(19:19):
that then look like in terms ofa client's overall asset
position?
Um, what's what's the impact ontheir withdrawal strategy and
on their lifetime consumption interms of what they're going to
be left with at the end of theday?
Uh, that's currently in realterms.
Um but the because they'repotentially accumulating wealth
(19:39):
because they hold on to quite alot of illiquid assets,
property, which is going to beappreciating in value, they run
the risk of having quite asignificant inheritance tax
liability in the future.
And so for us, financialplanning is part one,
retirement.
What does the client need forthe rest of their life in order
to be financially independentand not run out of money?
(20:00):
Um, ensure that that securityis provided.
Um part two, what does thefuture look like in terms of
their potential uh uhinheritance tax liability and
and where how comfortable arethey with the amount of money
that they stand to pass onto thethe government on death as
opposed to their their heirs andbeneficiaries?
(20:22):
Um so it's about dealing withuh the two elements, retirement
and inheritance tax, at the sametime.
And what I would say on that,in terms of preparing for a
practice sale, it's a lot easierif you go through that process
of working out what you needfrom a retirement perspective,
but also in order to deal withinheritance tax in advance of a
(20:43):
practice sale as opposed toafter.
There's more that you can dobefore you sell than after you
sell.
And so it's well worth havingthose conversations with
professionals in the lead up asopposed to post-exit, um,
because your options areslightly narrowed, um,
particularly around um certaintrust planning.
Um so the other uh, and thisthis tool is fantastic, there's
(21:05):
all sorts of things that we canmodel.
Um, inheritance tax, forexample.
Um, what's the potentialinheritance tax liability for a
client over time?
How's that likely to change?
Well, uh, when you sell yourbusiness quite significantly,
because if you've got a tradingbusiness, um then uh that
trading business, albeit thereare the rules are under review
(21:26):
and changing um in the not toodistant future, in terms of the
the the actual final detailsaround this, but your trading
business uh does bring with ituh inheritance tax efficiency.
As soon as you sell thattrading business, that money's
gonna be poured into your estateand your potential IHT
liability or your children oryour family's IHT liability is
going to increase.
(21:46):
Uh, and therefore it's wellworth having a strategy in place
to ensure that you know whatyou're going to do.
And that's not a one-offexercise, that's having a plan
for um a series of differentactions that you're gonna take,
um, that you're gonna carry outthroughout the course of
retirement in order to deal withthat IHT liability.
So um really powerfultechnology that we use to
(22:08):
deliver these financial plans.
Um, but as I said, the the mainconsiderations is know your
number, have a plan around umyour lifetime consumption, how
much money you need, the cost ofyour lifestyle for the rest of
your life, know what theimplications are from an
inheritance tax perspective.
Um, and then I would drill one,there's another plan that I
(22:29):
work the terminology I use,which is a cash management plan.
So if we're talking about afinancial plan being a slightly
zoomed out uh view of your yourfinances and how that will
change throughout the course ofyour life, uh we also need to
deal with the the day-to-dayspending.
Once you've sold your practiceand and you've and you've
stepped away from work, whichmight not be immediate, I
appreciate if if you're sort oftied in for a uh a period of
(22:51):
time.
But once your earnings haveswitched off, you then need to
know how are you going to manageum your your generating the
income from your assets.
Uh and that you know that cashmanagement plan is is is going a
bit more granular in terms ofthe the day-to-day, month to
month, year to year.
Um it's kind of a more uhfocused view of of how to manage
that process.
(23:12):
Um so that's that's how to umfrom our perspective, how to
work out what your number is andand go into those conversations
uh in a more informed way uh togive you that reassurance that
you know that you're on the umon the right track and that
you're gonna have enough money.
(23:32):
Uh and as Annick said, that'sgonna also help in those
negotiations if you really doknow what your number is uh as
you're having those discussions.
Uh I touched on it in terms oftax.
uh uh efficiency there butobviously the the the taxes to
be aware of or or uh at that atthis the the the point of sale
really for me um business assetdisposal relief clearly um which
(23:56):
is uh had had recent reform andis is obviously become becoming
less attractive uh over thenext couple of years um but
there is uh and uh still a uh aa band there of of um gains that
you can have which is subjectto a beneficial tax tax rate and
it's important that you utilizethat um so it's well worth uh
(24:18):
speaking with your accountant umor your tax advisor in advance
of any sale to ensure thatyou're gonna get the full
benefit from the relief thatthat's on offer from a capital
gains tax perspective you get anominal CGT annual exempt amount
as well on top of that £3,000which is not going to go a very
long way but it it does exist.
(24:38):
We need to be aware of therules around pensions um so
lifetime allowance the the therules around that were were
changed and and in effect thelifetime allowance was was was
uh removed I'm not convincedthat that's going to stay that
way for for the for the mediumto long term given the pressures
that the Chancellor is under inin in terms of trying to find
(24:59):
cash but um it's it's importantto know what that is and and and
um should it be reintroducedbut there is also rules around
how much lump sum you can takefrom your total or of your
pensions tax efficiently so it'simportant to to plan for that
uh inheritance tax I've touchedupon it's important to know
where you stand from a from anIHD um perspective.
(25:19):
Um a couple of other otherthings in terms of kind of
preparing for for a saleobviously you want to get the
right people in I touched on itthere about tax advisor for me
that's absolutely key you needyour your um day-to-day
accountant may not be the bestperson to advise you over the
the potential uh tax um pitfallsand and traps that that that
(25:41):
you you know you might encounterand that you need guidance
through they may well be I'm notsaying that they they can't be
yeah it's just making sure thatyou've got the right person and
it might be a different personin their firm actually that's uh
uh that's gonna deal with umthe more complex tax advice
that's that that could berequired um so make sure you've
got the right the right adviceand the right advisors um and
(26:03):
get that help in advance of anypractice sale to ensure that the
as Annick said that the thepractice is as in good a shape
as as possible to get maximumvalue for it um from the the the
business that you've built upum another quick reflection i i
know i feel like i'm slightly uhon a bit of a monologue um but
(26:24):
uh another reflection is prepareyourself emotionally for the
sow of your business i see thisa lot um it's a it's it's a
financial transition which needsplanning uh but it's also a a
life transition uh which canalso be quite unsettling for
some people um uh quite a lot ofthe time people's identity can
(26:44):
be wrapped up with what they doand if they've um dedicated a
huge amount of their life to tobuilding up a business then um
you know you need to plan forwhat comes next um and that
needs to be a well thought outprocess and it needs to um you
know and there's exercises thatwe help clients go through to to
enable them to really thinkabout the the the long term what
(27:06):
they want from life um it'sit's not just about the cash
flow model it's also you knowkind of life after life after
business um what it's not it'sit's not just the money um so
yeah a few reflections there umif I can pass back to Anick UK
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of this podcast thanks Luke umuseful to to see the cash flow.
Anick (29:18):
Just one point on that as well you mentioned about the
trust work and getting thingssorted that is such an important
point because often people maycome to us or I've had
experienced people come to me toto help them sort out their
arrangements just as you've beenthrough there.
But quite often coming afterthe capital event can reduce our
(29:43):
range of options um a capitalevent one time once in a
lifetime chance to to get thingsright um I appreciate some
people might decide to go againbut for the for the most part um
it is so important just to havea chat with professionals
beforehand because if you missthat window of opportunity you
could absolutely be shootingyourself in the foot um it we've
(30:07):
said at the start Luke said itthere but planning is so
important to get everythingsorted during the transaction as
well certain mechanics um Lukementioned about the emotional
aspect of it going through anearnout can be quite difficult
psychologically um then havingto you've built up a great
(30:29):
business and all of a suddenyou're answering to someone else
for a few years it's it's it'snot going to be easy they might
start doing things in adifferent way than you think is
best so it it's important to tobe clear with how that's going
to look because it's not goingto be your business anymore as
much as you the day to day mightbe somewhat similar and
(30:52):
depending on how that earnoutmight happen tax considerations
business asset disposal reliefetc um stage investing depending
on when the different tranchesare are received so having a
clear plan of what's due thatmoney is so important.
And then that Luke mentionedthere about narrowing down
(31:13):
tactics of cash the actualmechanism of it is something
that can often be overlookedeveryone everyone just thinks
about the long term andrightfully so but it's important
to take some time and thinkabout what about the day the
money lands what are you goingto do think about how you're
going to feel so let's say moneyhits the account there's a few
(31:36):
things you should absolutelyhave done beforehand and do at
the time so the main thing is toprotect the capital and give
yourself more breathing roomessentially so for most people
you you don't want the thecapital proceeds to be paid into
a current account so the thevery first step move it into a
savings account create anadditional layer of security
(32:00):
barrier um your existing bankwill likely pepe you with phone
calls when they see a large lumpsum um enter your bank so Luke
talk spoke about um analysisparalysis before and it can
quite often be overwhelming withwith what to do and all the
options.
The security of fundsabsolutely first and foremost
(32:22):
now with the planning work youmay have decided to set up a
trust or allocate money intocertain pots have that clear
strategy beforehand and executeon it so you're not caught in in
in between minds of what to do.
On the security of funds thisis it's an important one so most
(32:43):
high street banks will have athing called the financial
services compensation scheme.
So this covers £85,000 perbanking license now if we're
talking about a seven figureexit £85,000 is not likely to
cut it so securing the money isso important.
Now people often kick back andsay Anick don't be stupid insert
(33:07):
well known high street bank isnever going to go under well
said the same about CreditSuites SVB Lehman Brothers and
we know how that all ended sothat banking license risk can be
mitigated.
So think about having moneyacross various banking licenses
(33:27):
um different accounts there is atemporary high balance um which
could be useful the other thingis the use of um NSNI national
savings and investments so thatis it's essentially a a a range
of accounts backed by theTreasury so whilst the rates
(33:49):
aren't as competitive um yougain that security element and
in this situation it's all aboutthe return of cash safely
rather than the return on it inin those first seven days a week
or so now if money is to beallocated across trusts then
make sure the trustee accountsare opened.
(34:10):
Have that line of communicationopen between the savings
account and the trust account ornational savings etc because
the last thing you want to bedoing is making test payments
with a seven figure amount tosee if it lands.
So get that moving try itbeforehand then hopefully
(34:31):
beforehand you you've had a chatwith your planner someone to
look at the cash flow model andyou have a clear plan of how
money's going to be held in theshort, medium and long term and
that will help help identifywhat to do essentially um wills
the lasting powers of attorneyvery important to go back in and
(34:51):
revisit following a major lifeevent make sure it reflects your
current wishes um and it'saligned with beneficiaries and
any trust work that may havebeen done.
The use of good planningstrategies is so important here.
Then moving further along afterthose first couple of weeks
(35:12):
start to think about a cash flowlouder so the first 12 to 24
months how much cash do you needhow much are you going to be
spending on a monthly basis whatabout going on those big
holidays um you might betreating yourself to a new car
whatever it might be clearexpensive debt to ring fence
(35:32):
have that emergency buffer thatthat just in case fund then
after that a couple of yearsworth of expenses say it's
probably an argument to thenlook at the investment piece.
James mentioned it right at thestart inflation inflation will
rip money apart if we don't tryto hedge it and that's typically
(35:55):
why we invest we want our moneyto match and keep pace with
inflation now as business ownersyou are naturally okay with the
concept of risk because you'veset up your own business human
psychology can very quicklychange here from building up
(36:15):
your own business taking on allthat risk to all of a sudden
having to live out your life onthis capital that you've
received.
It's important to acknowledgethese biases ahead of time and
that behavioral risk side ofthings can impact long-term
financial outcomes and we see itin all the data and evidence.
(36:35):
Luke's example of two years satin cash and and missing out on
any potential upside can bedetrimental.
Likewise if people try andmarket time well all the data
shows us we can't do it.
It doesn't work it's not anefficient and appropriate
approach for most people havinga plan in place it it it beats
(37:01):
any product you might look atany fancy um way to try and
invest the portfolio powers ofplan and that is such an
important concept but havingthat clear plan in place then
that helps us to align thatasset allocation and and be very
precise with with where we'regoing to move our money to now
(37:25):
with within that portfolio umit's important to remember that
there are going to be inevitableups and downs within the the
the market mix.
So part of the thing that we dois kick the tires on it.
Luke mentioned well Luke wentthrough the cash flow before and
it void that financial planningsoftware is absolutely great.
(37:49):
You can go into incrediblygranular detail and create all
sorts of scenarios what ifs goto town on the expenditure it we
like to use it with another bitof kit um and I'll show you
this in a moment but this isreally useful especially for
(38:11):
withdrawal strategies because wecan we can make sure that the
asset allocation mix isappropriate and it's optimal for
for your lifetime consumptionessentially so let me let me
just fire this up now.
Dr James (38:27):
Just while Anick is doing that everyone I just
wanted to mention there will bethe opportunity for some QA's at
the end which should be comingup in about 10-15 minutes time
so if anybody does have aquestion feel free to pop it in
the chat it'll be on a firstcome first serve basis and I've
got a few questions as wellactually that I'm gonna throw
(38:49):
out there which I think will bevaluable should be coming up to
that very soon and another thingto add actually just for
everyone who is in the audiencetonight you know it's a real how
can I say this uh it's one ofthose decisions you know it's so
(39:13):
pivotal to our life but a lotof people just seem to kind of
meander into it or dreamwalkinto it.
Like I had I remember one guythat I was talking to and we
were talking about the sale ofhis practice and he said to me
James you know what they tellyou about when you've sold your
dental practice or you know whatthey don't tell you sorry about
when you've sold your dentalpractice you have no cash flow
(39:36):
afterwards and I was like healmost said it with a sort of in
sort of semi-joking but I couldtell that he maybe just hadn't
realized just quite howimpactful that lack of cash flow
that he then subsequently hadafter that event will it became
clear only really actually soldthe business.
(39:56):
And that's the whole point ofall this stuff that Luke and
Annik are talking about tonight.
It's how can you take that lumpsum of cash and extend its
lifespan in such a way that youcan reliably generate a certain
level of cash flow from it.
And then obviously what thatmeans is well that's replaced
your business in the sense thatit provides you cash flow which
is very difficult to do on yourown.
(40:17):
That's where all this softwarecomes in and the expertise of a
financial planner comes in.
Anick (40:23):
Yeah exactly James using a a better kit whether it's what
Luke shared us before or whatI'm about to show you now it's a
tool in our armory to to tryand to get the best possible
outcome and to get to a reasonedconclusion or of what the most
optimal approach is.
So I'll walk you through thisexample um but timeline works
(40:44):
broadly on a a higher levelperspective.
So it's not as granular ordoesn't work as well being as
granular as what Luke wentthrough with all the different
assumptions and expenditure andso on.
Where it does work is kickingthe tires to see what about if I
started my investment journeyin 1928 for example now we can
(41:06):
see it here it's showing thehistorical analysis and I'll
walk you through it.
But essentially it looks backover every single data set we
have say 110 years of historyacross circa 700 scenarios.
So what this means is we canlook at the various events
through history Luke mentionedbefore about geopolitical events
(41:29):
and that putting people offfrom investing one of the
challenges I get or clientssometimes say is an IC, but this
time it's different.
And it can often feel it is thecase the news is all doom and
gloom and it's always this eventor that event.
Now when you look at the datamarkets continue to to rebound
(41:51):
and markets continue to rewardlong-term discipline.
So as investors for the mostpart sitting tight and riding
those those storms and it willbe a bit of a storm depending on
how we we decide to allocateour our money well if we can sit
tight then our patients will berewarded and we'll we'll have a
(42:14):
look at some charts in a momentto have a look at this so this
is this is a a uh John and Jane.
So they've received their theirproceeds an of tax of two
million pounds here we'veallocated it into a 60% equity
portfolio.
(42:34):
So the decision with whatportfolio to invest in it's it's
quite complicated.
So we at the Dair adopt a threedimension approach so the first
is risk need and that's veryimportant that's what rate of
return do you need to neverallow out of money.
(42:54):
Now Luke mentioned some of theassumptions when he went through
the cash flow that within eachaccount there is a growth
assumption.
So depending on what that riskneed is will then depend on what
a portfolio we use and thenwhat assumption we use as a
consequently so risk needs amathematical construct and if if
(43:18):
we need to have a try and gofor an expected return that's
not achievable then then there'sa conversation there.
But if the expected return todeliver our cash flow our future
life um the holidays the giftsthe the spending it the living
your vision then that informs uson that first factor the second
(43:42):
dimension is risk capacity andthat's our ability to withstand
short-term losses so let's sayfor a moment retirement selling
the practice we are we're gonnatake it all out as a lump sum
and spend it in one hit forargument's sake.
Now if we had invested thatmoney and the markets had
(44:05):
dropped by 20% let's say that'sa bit of an issue if we're gonna
withdraw it in one hit.
Now having the ability towithstand those short-term
losses it's important becausewhat people fail to remember is
that retirement's not a aone-off event it's an ongoing
(44:26):
journey.
So whilst someone might look atselling a practice in their 50s
like Luke said we financialplan for people until age 100.
So in that situation what aboutthe next 50 years of living
when we put it or frame it inthat context quite frankly it
doesn't matter how much marketsgo down over a week a month a
(44:49):
year five years 10 years whenwe've got 50 years in the
equation.
And then the third point orthird dimension is attitude to
risk as you may know it.
We like to call it risk comfortbecause we view as how
comfortable you might feel withwith volatility essentially so
we could create the mostoptimized portfolio on a
(45:12):
spreadsheet great it the riskneed is is appropriate the risk
capacity is it is suitable to ifit keeps you worrying every
night and you're not able tosleep and the the portfolio
every movement um you're you'rescared then that it's not really
a great or optimized portfolio.
(45:33):
So having something that you'recomfortable with that meets the
risk need and risk capacity isis where we we come at.
So Coming back into thisexample here, the 60% equity
portfolio we have for this £2million investment, this is in
line with the client's riskcomfort alone.
(45:56):
Now, quite often traditionaladvisors will have you complete
a risk-based questionnaire andit'll come out at some sort of
scale, or it'll say you are acautious investor, or
aggressive, or moderatelybalanced, or whatever that
means.
And portfolio decisions canoften be based on these
descriptors, which in our viewit's not enough.
(46:19):
Psychometric questionnaires andthat subjective nature,
depending on what's happened inthat moment, can heavily
influence the portfolioallocation.
And if it hasn't been testedmathematically using these
models, then we can quite easilybe setting ourselves up for
failure.
So coming back into thissituation, £2 million has been
(46:40):
invested according to their riskcomfort, which is a 60% equity
portfolio.
Now, if we have a look at someexpenditure, like Luke says, we
have a few different phases.
So early retirement, as at2025, so they've just sold and
the money has just beeninvested.
(47:00):
They're going to be spending£120,000 inflation adjusted
until 2035.
From 2035 onwards, it until2050, sorry, it drops to 80,000
pounds.
As they approach that laterretirement, things start to slow
down a little bit, but notcompletely.
And then from 2050 onwards, um,it drops £55,000.
(47:24):
Um, it becomes harder to godown the stairs, never mind
flying the long haul across theworld.
As Luke mentioned, this istypical.
We see expenditure trail off inlater life.
There's also a gift, so £60,000they want to give to the kids
uh 2031.
So coming back up here, we cansee it saying that the plan is
(47:49):
is not very sustainable.
So when we look at the furtherdetail, we can see out of those
circus 700 scenarios, in 437 ofthese scenarios, so 63%, no
problem at all.
Um the clients get to age 100without running out of money.
However, in 260 of thesescenarios, or 37%, they actually
(48:14):
run out of money.
And we'll have a look at somecharts in a moment.
This is insightful, um,particularly as as people give
those concerns, this time isdifferent, or or what about
insert new geopolitical events.
Now, throughout all thesescenarios, um, we can we can see
a bit of commentary here.
(48:35):
So the worst-case scenario, soif these clients had started
their investment journey in1915, um by age 59, they would
have run out of money.
Now, the median scenario, sothe 50th percentile, um some
would say most likely, um theywould actually be in alright.
(48:57):
Uh 1.7 million by age 100.
Now we can see at the far righthere, the best scenario, if
they had started theirinvestment journey um between
January 21 and January 72, theywould have ended with 25 million
um adjusted for inflation.
So we're getting a feel of whatthe different range of outcomes
(49:18):
are within this scenario.
But just to give you a bit morecontext here, this is across
world wars, pandemics, covet,hyperinflation, and various
other geopolitical events.
So we can we can actually lookat every single year um and how
this looks.
(49:38):
Let me just take a few of theselines off because it gets quite
messy.
So looking, each line hererepresents a single-year start
from the current age 49 withthat 2 million pounds invested
across their lifetime at thebottom.
Um and we can see how differentinvestment journeys result in
(50:02):
different pots at the end.
So, for example, let's justtake a random line.
So if they'd started theirinvestment journey in 1922 and
these are actual returnsdelivered, then they would have
actually been very well off.
Um the line goes off into thechart, but they end at age 100
(50:23):
with circa 10 million pounds.
So when we overlay it all ofthis together, we can start to
see, okay, what's the median,the 50th percentile?
Well, we're looking at all 110years of data, things actually
look pretty good.
Um, yes, it it's not assustainable as it can be, and
(50:43):
we'll come on to that in amoment.
But this is it's very useful tosee what the journeys would
have been.
Because as financial planners,we plan for the worst, and
everything else is upside.
So, in this scenario, we canquite clearly see this red line
demonstrating the worst case.
So they'd started theirinvestment journey in 1915, that
(51:04):
£2 million was invested in that60% equity portfolio as per
their risk comfort.
And they're running out ofmoney by 5960.
Um, this assumes it's inflationlinked and no ongoing reviews
and so forth.
So, in reality, it wouldn'thave happened that way.
But we can layer in the bestcase scenario and then the the
(51:25):
likely range of returns.
So this helps to narrow down onwhat those those range of
outcomes are and the likelihoodof of the financial success,
living, living out your vision,doing the things that you want
to do.
Again, the portfolio powers ofplan, but having that in place
is important to make the mostout of life.
(51:48):
Most people don't really careabout how a portfolio is
invested or what wrapper it isor the technical aspects to it.
They care about taking the kidsaway and and doing what they
enjoy.
So we we can look at a fewother things now.
Um if we were to invest as pertheir risk needs, say 80%
(52:09):
portfolio, and and we we tailthis with Voyant, the software
Luke used before, we cancalculate that risk need
exactly.
But assuming that we weincrease the exposure to match
their risk needs, um, which wecan do here.
And then the other thing is wewe've assumed the wife has been
(52:34):
inflation adjusted.
So every year, no matter what,the withdrawals will increase by
inflation to keep up in realterms.
Now, realistically, whenmarkets are falling, people
don't tend to have an inflationadjustment.
Um at the very least, it itstays the same.
And when markets pick up, thenwe might look to catch up that
(52:58):
inflationary increase.
We call that mechanism aguidance inflation adjustment.
Sounds slightly jargony or no.
But by applying it, we canquickly see the impact of how it
how it might make things look.
So if we go back to theoverview now, we can see that
we've gone from about 61% of 61%of scenarios and things were
(53:21):
looking okay.
So now 82%.
Now things look quite a lotdifferent.
So this represents a greatoutcome.
Um now most people will needongoing financial planning.
Um, I describe it to myclients.
It's a bit like saying you'redriving from London to
Edinburgh.
You you've you've set thatfinancial plan, you've set your
(53:44):
sat nav, but your phone dies.
Um your your you there's a roadclose sign happens as life
throws its inevitablecurveballs, essentially.
It's easy to become lost onyour journey on the route if you
don't check in regularly.
And this is what the ongoingvalue financial planning does:
having that objective soundingboard here to make sure you're
(54:05):
on track.
And by making adjustments in acouple of years, if we decide
not to increase the withdrawalsor amend the withdrawal strategy
along the way, then we can makesure we get to the plan end.
Um ensuring things areoptimized essentially.
I feel like that was mymonologue there now.
(54:28):
No, it's great.
Dr James (54:29):
Thank you so much, Anick.
Luke (54:31):
Alec, just just sorry, can I if you just hop into charts
and tools for two seconds, umand then go to the longevity
chart.
Um it's just that's alsointeresting context because
although we ended there withwhat was it, 81% uh probability
of success using historicaldata, um, that's on the uh
(54:55):
assumption that the person'sgonna live a very long time in
retirement.
Um and so actually there's alsoalways worth uh remembering
that you might not live till age100.
Um and uh this is just an extrathat overlays kind of the life
expectancy.
So the probability of yousurviving and the portfolio
(55:16):
being sustainable.
And I just always think that'san an extra um kind of
overlooking it.
Anick (55:23):
Yeah, 100%.
Dr James (55:26):
Interesting.
Thank you so much, guys.
Uh great presentation and a lotof learning points.
I actually had a quickquestion, which we should just
about have time for becausewe've got nine minutes until
half eight, which would takethis webinar to an hour overall,
which is what we usually aimfor.
And it was on trusts because Ifeel like a big question that a
(55:49):
lot of people ask whenever itcomes to retirement planning is
that they've heard of a trust,they feel like it's something
useful that will be able tosafeguard passage of their
wealth from themselves to theirkids and by way of tax
mitigation.
Is that correct?
Have people got the right endof the stick?
And if so, maybe if you couldshare some of the different
(56:10):
types of trust or just a littlebit of info on that front,
that'd be really useful, eitherlook or Anic.
Anick (56:15):
A trust is a completely separate entity, just as your
company is a separate entity,and it can be very easy to be
fixated on a trust.
I must put my money into atrust.
But a trust is a solution to aproblem, and it's one of many
(56:36):
solutions.
So the starting point is towork out what the problem is,
what the inheritance tax issueor potential inheritance tax
issue is likely to be.
Now, if there's a surplus whichwill be identified using the
cash flow model, um, then we canlook at the most appropriate
way of dealing with it.
Now, that might be directgifting, but people might not
(56:57):
want to give family members,kids that level of capital at a
young age.
They might not feel responsiblefor it.
So for some people, if theconditions are right, allocating
that capital into a trust canbe a useful, a useful thing to
do because it's earmarked forthe future use, future
(57:17):
beneficiaries, a bit of jargonreturn, um, when the trustees
deem it suitable to distributethat money.
Now, there are all sorts ofcomplex rules around how you put
money into the trust and theorder of it and the different
types of settling into a trust,all of which have varying tax
treatments.
So if that is something you'reinterested in, absolutely take
(57:40):
professional help because if youget it wrong, it's going to be
incredibly expensive and it'sgoing to be a pain for your
estate to administer.
Now, depending on how you wantthat structured and what you
want to do with that money andyour wishes for it might lend
itself to the sort of trustyou'll use essentially.
(58:01):
But summarizing, it it's just atool to to cascade money
efficiently if it's used withinthe right context.
Dr James (58:10):
Yeah, because I feel a lot of people come enter the
conversation with a financialplanner on the basis that they'd
like a trust, but it's oftenbecause they perceive that to be
the best way to achieve whatthey'd like to achieve, but it's
not necessarily the case.
And actually, it can be whilstthat is the conversation
initiator, what it can behelpful to remember is that
(58:33):
there are other options outthere, which is really cool.
So, yeah, and I'm sure we canmake a whole webinar about that
in and of itself.
Oh, great question just beforethe final whistle.
Oh, I think we've got sixminutes to quickly talk about
family investment companies,don't we, guys?
unknown (58:50):
Yeah.
Anick (58:51):
So for a family investment company, that's a
series of webinars.
We're not gonna get this in infive minutes now.
But essentially, Theresa,exactly the same principles.
So, what's the issue we'retrying to solve?
For most people, that isinheritance tax.
As business owners, companyowners, um, individuals might be
(59:16):
more familiar with the thecorporate structure of a family
investment company.
But is it's trying to do thesame, the same sort of thing,
but within a differentstructure.
And family members can haveshare classes and you can bring
people on when it when they'reready to.
The thing to remember here isthat it will operate uh as any
(59:38):
company.
So you need directors, you needpeople managing it.
Um and the costs are are high.
Typically, you wouldn't look todo it for money less than three
to four million, um, given theinitial costs up front and
ongoing.
But yeah, absolutely.
Family investment company canbe a great solution within the
(01:00:00):
right circumstances, and and ifthe the the situation lends
itself to that solution.
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