What To Do When You Sell Your Dental Practice with Luke Hurley and Anick Sharma [CPD Available]

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Dr James (00:00):
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

(00:20):
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 LukeHurley and Mr Anik Sharma, who
represent Videra FinancialPlanning.
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 atin your practice ownership

(00:42):
journey, even if are still anassociate, 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.
I'm also happy to share thatthere is free, verifiable cpd
associated with this podcastepisode.
Whenever you finish the episode, all you have to do is click

(01:04):
the link in the podcastdescription.
It'll take you right throughthe Dentistry Invest website,
you'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
which is entirely free.
What that means is this podcastepisode will be able to
contribute towards yourverifiable CPD hours during this

(01:26):
learning cycle.
All right guys, welcome toanother webinar this beautiful
Wednesday evening on sellingyour dental practice and how to
get the best deal and the thingsthat you can do beforehand.
Long before that day comes,that conversation.
Conversation comes because,believe it or not, it's never
too early to put in prep.

(01:47):
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
deliberately don't get involvedin what happens after someone
sells the dental practice.
They just go and talk to theiraccountant and the clues are

(02:08):
already like the accountant isjust there to minimize tax,
maybe a little bit of taxplanning as well.
But what about how we get thecash to, first of all, well
protect its value, as inprotected against inflation, and
then, second of all, how do wesiphon off some sort of residual
income from the cash afterwardsso that we know that we can get

(02:28):
our money to last as long aspossible?
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
Anik Sharma.
Both of those financialplanners represent Fidera
Financial Planning, and we'reall here today to learn about
what we can do beforehand whenit comes to selling a dental

(02:49):
practice, during selling thedental practice, and after as
well.
Luke Anik, anybody like to stepup and take the lead from the
get-go?

Anick (02:58):
James, I'll take this one .
Hey, everyone, yeah, so it'sselling a practice your business
.
It's such a huge, emotional andlife-changing event.
It's that whole adage offailing to prepare and it's
really important to get all yourducks in a row and not rush
into anything.

(03:18):
Look like to split this up inthree different phases.
So plan, protect and invest theopportunity cost of brushing
into any irreversible changesversus, say, going into some
sort of sub-optimal allocationor locking money away.
It's not worth it.
It's.

(03:40):
It's so important to geteverything sorted, give yourself
the space, the breathing room,and plan each decision
diligently.
We don't want to be goingchasing the best rate or the
best fund or whatever that evenmeans, from day one.
Now we will come on to yourcash flow model later on.

(04:00):
But a lot of this work, theplanning, the prep, it's all
underpinned by looking at yourlifetime consumption how much do
you need now?
How much you need in the future?
What about the future?
What about if there is excessinheritance tax?
All these sort of things?
By having a clear vision ofwhere we want to get to that

(04:21):
point b, it's a lot easier to tolook at point a before the exit
or before the capital event andcreate a long-term strategic
plan in place to make sure thatwe get there efficiently and
everything is structured um, asit should be now, even before we
get to to sale date.

(04:43):
Essentially, it's important toget everything sorted beforehand
.
So, from a business sellingperspective, get those ducks in
a row.
But what does that mean?
De-risk yourself as the onlyreliant.
Don't just make everythingabout you.
Make sure systems, processes,infrastructure are clearly

(05:04):
documented.
You can show an evidence thatthere's been a clear pattern of
growth and patient retentionalong the journey.
Make sure systems, financials,etc.
Different structures are tidyarticles 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

(05:28):
understand the difference withwhat you're doing asset versus
share sale.
Are you going to structure itwith a deferred payment or is it
going to be a earn out over xperiod of time?
Now, depending on what optionsyou choose, that's then going to
have a different impact on yourlifetime cash flow and and how
much is in your pocket to liveyour life and do what you want

(05:51):
with it, and that's going tohave implications on tax and and
and so on.
What's really important here,though, is understanding your
number, and it's that wholeadage how much do I need to
never run out of money and go onholiday 10 times a year, or
whatever it might be?
Now we've had a lot ofexperience with this, helping

(06:14):
people through the, the buyingand selling process.
Naturally, there's a lot offriction, the the seller wants
the highest possible price andthe buyer wants the lowest
possible price, so naturally itcan be quite a point of friction
.
I've had situations wheresomeone has built up a fantastic

(06:36):
practice and they've anchoredto a certain figure in their
head which the buyer wasn'twilling to give, and that
essentially led to a standstill.
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

(06:59):
of that amount, so they weretying themselves up in knots
with a situation that didn'tneed to be there, adding a load
of stress when it's not requiredgoing into that negotiation or
starting the process.
Understanding what number youneed to live out the rest of
your life is so powerful, andhaving that in play is important
before, before going down thejourney.

(07:21):
Speaking of the cash flow.
Luke, I think you have a bit ofa demonstration here.

Luke (07:28):
Yes, I do.
Let me just share my screenJust whilst that's loading.
One thing that struck a chordas you were talking there about
the importance of taking yourtime post well, pre and
post-sale, but in particularpost-sale not rushing into
decisions.

(07:48):
I have also encountered quite afew times the opposite of that,
which is where people haven'tnecessarily done any planning
and a large lump sum appears intheir bank account and they
might park it as we'll talkabout later somewhere relatively
secure, but then they're umovercome with analysis, um

(08:09):
paralysis, uh, where I've seenit as bad as as money being sat
there for two years post-sale,um, because the, the individual
is just not sure.
Uh, you know what to do withthe cash and when to pull the
trigger, and there's aparticular around timing in the
markets.
Some people get very caught upin that and concerned is this

(08:31):
the right time to invest?
What happens if X, y and Zinsert geopolitical event events
that happen every year,consistently and have done
throughout time?
And so, yes, 100%, you need totake your time and plot your
course, but you also don't wantto be on the opposite end of the

(08:51):
spectrum where the money's satthere being eroded with
inflation, like James mentionedat the start.
Let me just find the rightscreen, screen number two.

Anick (09:05):
And hopefully yeah, we've got that.
I can see why great.

Luke (09:10):
Okay.
So for those that don't know,this is um software that we use
to help people plan theirfinancial lives.
Ultimately uh, it's financialplanning software very powerful.
Um has tax built into it andthis enables us to chart
somebody's trajectory from thepoint at which we meet them
through to, unfortunately,planning for when they pass away

(09:33):
.
We run these plans until peopleare age 100, because we don't
know what the future brings.
So what's on the screen at themoment is a timeline.
Now, this is for two clientslooking to sell a practice
mid-50s.
They've got one son who'scurrently at school and going to
university, and you can seethat we've broken up their

(09:56):
retirement into different phases.
The reason being and that'squite a simplistic breakdown in
truth, for the purposes of thisexample you don't spend the same
amount of money throughout thecourse of your retirement.
It's very much different phases.
You're going to requiredifferent sums of money.
Typically, in the earlier phaseyou'll require more money.

(10:17):
You're more active, there's alot more that you want to
achieve in that space of time,and as you get older, you tend
to find your spending slows asyou slow and you might see a
potentially plateau.
There is evidence to show thatyou spend considerably less in
your 80s than you do in your 60s, so it wouldn't be right for us
to plan for a flat level ofspending all the way through.

(10:41):
So what we do is we put atimeline together for a client.
This is different for everyclient.
We put various markers fordifferent events.
So on here you've got their songraduating sorry, starting at
university and then graduating.
There's a gift here, I believe,that they want to make to their
son.
There might be markers fordifferent events financial

(11:03):
events.
So this is the commencement oftheir 2008 NHS pensions.
Had they had membership in the2015 section, there would be a
mark on that for that event.
Starting at their normalpension age, we have slowing
down at age 80.
We have additional care costsin the last five years of life
because, again, as I said,although spending might plateau,

(11:26):
there tends to be a spike insomebody's later years.
And then we've got herefinancial independence day, the
point at which they want to beable to sell their practice.
And so somebody's plan oreverybody's plan looks slightly
different.
But we work with clients towork out what their vision is
and what those milestones looklike and what those milestones

(11:48):
are likely to cost.
Um, those milestone goals couldbe anything, anything that you
you envisage spending money onin the future.
But that's having a proper plan, that's having a a clear time
timeline of events that aregoing to um in, in your ideal
scenario, take place between uh,between the point that you
start the process and passing on.
So once we've worked out whatthe timeline is, we can then

(12:11):
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
for in retirement and actually,if you look at the national
statistics, it's considerablyless than that.
A comfortable retirementNationally, you know a top tier

(12:35):
retirement.
If you look at the data, thesuggestion is that that's around
about £60,000 a year, £5,000 amonth net of tax.
But this client wants to aimfor £100,000 a year, £5,000 a
month net of tax.
But this client wants to aimfor £100,000 every year to fund
their lifestyle and, as I saidbefore, everybody's lifestyle is
different.
I've met clients that are veryconservative with their spending

(12:59):
and I've taken many clients aswell, who have quite lavish
lifestyles and enjoy higherlevels of spending, and it's
about tailoring the plan to meetthose objectives.
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 costs £1,000a week per person in care.

(13:22):
That's again a very prudentassumption.
Typically most people don't gointo care homes and if they do,
they don't go for five years.
But we would always be veryprudent in how we make our
assumptions and cautious.
So once we've decided what thevision is and what the
objectives are, we can plug inwhat somebody's financial

(13:42):
situation is.
We can talk about what's theircurrent income before they're
going to potentially sell.
So they're taking drawings fromthe practice, from the limited
company.
They've got some rental incomefrom a freehold property, the
practice building.
They have a small amount inISAs.
They've got a main residence.
They've got the practicefreehold.

(14:03):
And then I've left this numberhere blank in terms of the
valuation of their practicegoodwill, for good reason.
I'll come back to that in amoment.
They've got two modest SIPswhich they're still funding.
Nhs pensions They've got statepensions, which is a bull.
State pension at the moment isjust under £12,000 per person
per year, so it's important tofactor that in.

(14:25):
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, ie, where is theevery year?
So these lines here allrepresent an individual year's
worth of spending.
Where is the money going tocome from as they move
throughout their retirement?
On this plan you've got thepink, which is the freehold

(14:48):
rental income, because they'vedecided to hold on to the
practice building, or maybethey've sold to a corporate who
didn't want to buy the practicefreehold, so they've held on to
that and they benefit from therental income throughout.
They've got the navy blue here,which is their state pension.
They've got the green, which isNHS pension.
They've got the starting pointhere, which is when they're

(15:10):
still working before they'vesold, and here's some money
drawn down from the sip.
But because we haven't currentlyplotted out what the proceeds
from a practice sale are likelyto be, you can see that there's
a shortfall.
You can see the spike in thelater years for care costs.
You can see the drop down herefor the point at which they're.
You know, we're assumingthey're going to be spending
less money in their entities.
You can see that the line isrising and it's increasing

(15:31):
because of inflation and there'sa you know there's a mechanism
for us to make that thosenumbers a bit more relatable by
pulling that out of the plan.
This looks fairly messy andthat's because they're taking
money from SIPs, which is reallythe tax burden is potentially
higher there because it's notoptimized in terms of their

(15:51):
withdrawal strategy.
But it's a very basic example.
Obviously we go into a lot moredetail for each client, but at
that point, once we've got thatposition, we can actually, like
Anne said, we can actually workbackwards and see.
See, well, what does the clientactually need in terms of a
sale, sale proceeds at the pointof wishing to sell?

(16:12):
So this client, for example, ifthey were to sell their
practice at age 55, we can usethe calculator to work out what
amount of money they need, netof tax, in order to remove any
shortfall and that convenientlyproduces a nice round figure
that we know that actually, ifthey were to raise those

(16:32):
proceeds from the sale of theirpractice net of tax, that
doesn't include capital gainstax on the sale proceeds, but it
gives us a clear idea of whatthey need to bridge.
Any shortfall proceeds, but itgives us a clear idea of what
they need to bridge anyshortfall the second half of the
equation.
To go back, so let me justassume, let me just come back in
here and say that the practicegoodwill is actually worth £1

(16:58):
million.
Now, when we come back in here,we can see that the shortfall
has been reduced.
So cash flow is half theequation and in truth, this
hasn't been optimized in termsof a tax-efficient withdrawal
strategy.
It's simply there as an example.

(17:18):
So there would be work done toensure that drawing down on the
assets is as tax-efficient aspossible.
That's part of financialplanning done properly.
But the second half of theequation is what does that then
look like in terms of a client'soverall asset position?
What's the impact on theirwithdrawal strategy and on their
lifetime consumption, in termsof what they're going to be left

(17:40):
with at the end of the day?
That's currently in real terms,but because they're potentially
accumulating wealth, becausethey hold on to quite a lot of
liquid assets, property which isgoing to be appreciating in
value, they run the risk ofhaving quite a significant
inheritance tax liability in thefuture, and so for us,

(18:02):
financial planning is part oneretirement.
What does the client need forthe rest of their life in order
to be financially independentand not run out of money?
Ensure that that security isprovided.
Part two what does the futurelook like in terms of their
potential inheritance taxliability and where?

(18:23):
How comfortable are they withthe amount of money that they
stand to pass onto thegovernment on death, as opposed
to their heirs and beneficiaries?
So it's about dealing with thetwo elements retirement and
inheritance tax at the same timeand what I would say on that in
terms of preparing for apractice sale.

(18:44):
It's a lot easier if you gothrough that process of working
out what you need from aretirement perspective, but also
in order to deal withinheritance tax in advance of a
practice sale as opposed toafter.
There's more that you can dobefore you sell than after you
sell, and so it's well worthhaving those conversations with
professionals in the lead-up asopposed to post-exit, because

(19:05):
your options are slightlynarrowed, particularly around
certain trust planning.
So the other and this tool isfantastic.
There's all sorts of thingsthat we can model Inheritance
tax, for example.
What's the potential inheritancetax liability for a client over
time?
How's that likely to change.

(19:25):
Well, when you sell yourbusiness quite significantly,
because if you've got a tradingbusiness, then that trading
business albeit the rules areunder review and changing in the
not-too-distant future in termsof the actual finer details
around this but your tradingbusiness does bring with it
inheritance tax efficiency.

(19:46):
As soon as you sell thattrading business, that with it
inheritance tax efficiency.
As soon as you sell thattrading business, that money is
going to be poured into yourestate and your potential IHT
liability, or your children oryour family's IHT liability, is
going to increase.
And therefore it's well worthhaving a strategy in place to
ensure that you know what you'regoing to do and that's not a
one-off exercise.
That's having a plan for aseries of different actions that

(20:06):
you're going to take, thatyou're going to carry out
throughout the course ofretirement in order to deal with
that IHT liability.
So really powerful technologythat we use to to deliver these
financial plans.
But, as I said that the mainconsiderations is know your
number, have a plan around um,your lifetime consumption, how

(20:30):
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 draw one.
There's another plan that I theterminology I use which is a
cash management plan.
So if we're talking about afinancial plan being a slightly
zoomed out view of your financesand how that will change
throughout the course of yourlife, we also need to deal with

(20:52):
the day-to-day spending.
Once you've sold your practiceand you've stepped away from
work, which might not beimmediate I appreciate if you're
sort of tied in for a period oftime but once your earnings
have switched off, you then needto know how are you going to
manage your generating theincome from your assets.
And that cash management planis going a bit more granular in

(21:14):
terms of the day-to-day,month-to-month, year-to-year,
kind of a more focused view ofhow to manage that process.
So that's how to, from ourperspective, how to work out
what your number is and go intothose conversations in a more

(21:35):
informed way to give you thatreassurance that you know that
you're on the right track andthat you're going to have enough
money.
And, as Annick said, that'sgoing to also help in those
negotiations if you really doknow what your number is as
you're having those discussions.
I touched on it in terms of taxefficiency there, but obviously

(21:55):
the taxes to be aware of or atthe point of sale.
Really, for me, business assetdisposal relief, clearly, which
has had recent reform and isobviously becoming less
attractive over the next coupleof years.
But there is still a band thereof gains that you can have

(22:20):
which is subject to a beneficialtax rate and it's important
that you utilize that.
So it's well worth speakingwith your accountant or your tax
advisor in advance of any saleto ensure that you're going to
get the full benefit from therelief that's on offer.
From a capital gains taxperspective, you get a nominal
CGT annual exempt amount as wellon top of that £3,000, which is

(22:44):
not going to go a very long way, but it does exist.
We need to be aware of therules around pensions and so
lifetime allowance.
The rules around that werechanged and, in effect, the
lifetime allowance was removed.
I'm not convinced that that'sgoing to stay that way for the

(23:04):
medium to long term, given thepressures that the Chancellor is
under in terms of trying tofind cash.
But it's important to know whatthat is and should it be
reintroduced.
But there is also rules aroundhow much lump sum you can take
from all of your pensions taxefficiently.
So it's important to plan forthat Inheritance tax I've

(23:24):
touched upon.
It's important to know whereyou stand from an IHT
perspective.
A couple of other things interms of preparing for a sale.
Obviously you want to get theright people in.
I touched on it there about taxadvisor.
For me that's absolutely key.
Your day-to-day accountant maynot be the best person to advise

(23:45):
you over the potential taxpitfalls and traps that you
might encounter and that youneed guidance through.
They may well be.
I'm not saying that they can'tbe.
It's just making sure thatyou've got the right person and
it might be a different personin their firm.
Actually, that's going to dealwith the more complex tax advice

(24:06):
that could be required.
So make sure you've got theright advice and the right
advisors and get that help inadvance of any practice sale to
ensure that, as Annex said, thatthe practice is in as good a
shape as possible to get maximumvalue for it from the business
that you've built up value forit from the business that you've

(24:31):
built up.
Another quick reflection I knowI feel like I'm slightly on a
bit of a monologue, but anotherreflection is prepare yourself
emotionally for the sale of yourbusiness.
I see this a lot.
It's a financial transitionwhich needs planning, but it's
also a life transition which canalso be quite unsettling for
some people.
Um, quite a lot of the time,people's identity can be wrapped

(24:55):
up with what they do, and ifthey'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 longterm, what

(25:15):
they want from life, um, it'sit's not just about the cashflow
model, it's also, you know,kind of life after life after
business, um, what was not.
It's it's not just the money,um.
So, yeah, a few reflectionsthere.
Um, if I can pass back toannick, uk dentists.

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Anick (26:34):
Thanks, luke.
Useful to see the cash flow.
Just one point on that as well.
You mentioned about the trustwork and getting things sorted.
That is such an important pointbecause often people may come
to us or I've experienced peoplecome to me to to help them sort

(26:54):
out their arrangements, just asyou've been through them.
But quite often coming afterthe capsule event can reduce our
range of options.
Um, a capsule event one time,once in a lifetime chance to get
things right.
I appreciate some people mightdecide to go again, but for the
most part it is so importantjust to have a chat with

(27:18):
professionals beforehand becauseif you miss that window of
opportunity you could absolutelybe shooting yourself in the
foot.
We've said at the start Lukesaid it there but planning is so
important to get everythingsorted during the transaction as
well.
So some mechanics um, lukementioned about the emotional

(27:39):
aspect of it.
Going through an earn out can bequite difficult psychologically
.
Um then having to.
You've built up a greatbusiness and all of a sudden
you're answering to someone elsefor a few years.
It's not going to be easy.
They might start doing thingsin a different way than you
think is best.

(28:00):
So it's important to be clearwith how that's going to look,
because it's not going to beyour business anymore as much as
you.
The day-to-day might besomewhat similar.
Um, depending on how that earnout might happen tax
considerations, business assets,disposal relief, etc.
Um stage investing, dependingon when the different tranches

(28:23):
are received.
So having a clear plan of whatto do with that money is so
important.
And then that Luke mentionedthere about narrowing down the
tactics of cash.
The actual mechanism of it issomething that can often be
overlooked.
Everyone just thinks about thelong term, and rightfully so.
But it's important to take sometime and think about what about

(28:47):
the day the money lands?
What are you going to do?
Think about how you're going tofeel.
So, let's say, money hits theaccount.
There's a few things you shouldabsolutely have done beforehand
and do at the time.
So the main thing is to protectthe capital and give yourself
more breathing room.
Essentially, so for most people, you don't want the capital

(29:10):
proceeds to be paid into acurrent account.
So the very first step moveinto a savings account, create
an additional layer of securitybarrier.
Your existing bank will likelypep you with phone calls when
they see a large lump sum enteryour bank.
So Luke spoke about analysisparalysis before, and it can

(29:34):
quite often be overwhelming withwhat to do and all the options.
But security of funds,absolutely first and foremost.
Now, with the planning work,you may have decided to set up a
trust or allocate money intocertain pots.
Have that clear strategybeforehand and execute on it so
you're not caught in in betweenminds of what to do.

(29:57):
On the security of funds, thisis it's important one.
So most high street banks willhave a thing called the
financial service compensationscheme.
So this covers 85 000 poundsper banking license.
Now, if we're talking about aseven figure exit, 85 000 is not
likely to to cut it.

(30:18):
So securing the money is soimportant.
Now people often kick back andsay annick, don't be stupid.
Insert, well-known high streetbank is never going to go under.
Well, everyone said the sameabout Credit Suisse, svb, lehman
Brothers and we know how thatall ended.
So that banking license riskcan be mitigated.

(30:42):
So think about having moneyacross various banking licenses,
different accounts.
There is a temporary highbalance which could be useful.
The other thing is the use ofNS&I, national Savings and
Investments.
So that is essentially a rangeof accounts backed by the

(31:06):
treasury.
So whilst the rates aren't ascompetitive, you gain that
security element and in thissituation it's all about the
return of cash safely, ratherthan the return on it in those
first seven days a week or so.
Now, if money is to beallocated across trusts, then

(31:28):
make sure the trustee accountsare opened.
Have that line of communicationopen between the savings
account and the trust account ornational savings, etc.
Because the last thing you wantto be doing is making test
payments with a seven figureamount to see if it lands.
So get that moving.
Try it beforehand.
Then, hopefully beforehand,you've had a chat with your

(31:53):
planners.
So once you look at the cashflow model and you have a clear
plan of how money is going to beheld in the short museum long
term, that will help helpidentify what to do.
Essentially, um wills, lastingpowers of attorney very
important to go back in andrevisit following a major life

(32:13):
event.
Make sure it reflects yourcurrent wishes, um, and it's
aligned with beneficiaries andany trust work that may have
been done.
The use of good planningstrategies is so important here.
Then, moving further along afterthose first couple of weeks,
start to think about a cash flowladder.

(32:34):
So for the first 12 to 24months.
How much cash do you need?
How much are you going to bespending on a monthly basis?
What about going on those bigholidays?
You might be treating yourselfto a new car, whatever it might
be.
Clear expensive debt ring fence.
Have that emergency buffer,that just-in-case fund, then

(32:57):
after that, a couple of yearsworth of expenses, say.
There's probably an argument tothen look at the investment
piece.
James mentioned a rise to thestar.
Inflation.
Inflation will rip money apartif we don't try to hedge it, and
that's typically why we invest.
We want our money to match andkeep pace with inflation.

(33:20):
Now, as business owners, you arenaturally okay with the concept
of risk because you've set upyour own business.
Human psychology can veryquickly change here, from
building up your own business,taking on all that risk, to all
of a sudden having to live outyour life on this capsule that

(33:43):
you've received.
It's important to acknowledgethese biases ahead of time.
That behavioral risk side ofthings can impact long-term
financial outcomes and we see itin all the data and evidence.
Luke's example of two years satin cash and missing out on any
potential upside can bedetrimental.

(34:04):
Likewise, if people try andmarket time while all the data
shows us we can't do it.
It doesn't work.
It's not an efficient andappropriate approach for most
people.
Having a plan in place, it beatsany product you might look at
any fancy way to try and investthe portfolio powers of planning

(34:29):
.
That is such an importantconcept.
But having that clear plan inplace then then that helps us to
align that asset allocation andand be very precise with with
where we're going to move ourmoney to Now within that
portfolio.
It's important to remember thatthere are going to be

(34:52):
inevitable ups and downs withinthe market mix, so part of the
thing that we do is kick thetires on it.
Luke mentioned or Luke wentthrough the cash flow before,
and it's violent.
That financial planningsoftware is absolutely great.
You can go into incrediblygranular detail and create all

(35:15):
sorts of scenarios, what-ifs, goto town on the expenditure.
We like to use it with anotherbit of kit and I'll show you
this in a moment.
But this is really useful,especially for withdrawal
strategies, because we can makesure that the asset allocation

(35:36):
mix is appropriate and it'soptimal for your lifetime
consumption, essentially.
So let me just fire this up now.

Dr James (35:47):
Just while Anik is doing that, everyone I just
wanted to mention there will bethe opportunity for some Q&As 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 first-come,first-s, first serve basis and
I've got a few questions as well, actually, that I'm going to

(36:09):
throw out there which I thinkwill be valuable.
Should be coming up to thatvery soon.
And another thing to add,actually just for everyone who
is in the audience tonight youknow it's a real how can I say
this?
Uh, it's one of those decisions.

(36:31):
You know it's so pivotal to ourlife, but a lot of people just
seem to kind of meander into itor dreamwalk into it, like I had
.
I remember one guy that I wastalking to and we were talking
about the sales practice and hesaid to me james, you know what
they tell you about when yousold your dental practice, so

(36:51):
you know what they don't tellyou, sorry about.
When you sold your dentalpractice.
You have no cash flowafterwards.
And I was like he almost saidit with a sort of sort of semi-j
, but I could tell that he maybejust hadn't realized just quite
how impactful that lack of cashflow that he then subsequently
had after that event Well, itbecame clear only really

(37:15):
actually sold the business.
And that's the whole point ofall this stuff that Luke and
Annick 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 cashflow from it.
And then, obviously, what thatmeans is well, that's replaced
your business in the sense thatit provides you cashflow, which
is very difficult to do on yourown.

(37:37):
That's where all this softwarecomes in and the expertise of a
financial planner comes in.

Anick (37:42):
Yeah, exactly, james, using where it comes in and the
expertise of a financial plannercomes in.
Yeah, exactly, james, using a abit of kit, whether it's what
luke shared this before or whatI'm about to show you now.
It's a tool in our armory to totry and get the best possible
outcome and to get to a reasonedconclusion of what the most
optimal approach is.
So I'll walk you through thisexample.

(38:03):
But timeline works broadly on ahigher level perspective, so
it's not as granular or doesn'twork as well being as granular
as what Luke went through, withall the different assumptions,
expenditure and so on.
Where it does work is kickingthe tires to see what about if I
started my investment journeyin 1928, for example.

(38:24):
Now we can see it here.
It's showing the historicalanalysis.
I'll walk you through it.
Essentially it looks back overevery single data set.
We have, say, 110 years ofhistory across circa 700
scenarios.
So what this means is we canlook at the various events

(38:44):
through history.
Luke mentioned before aboutgeopolitical events and that
putting people off frominvesting.
One of the challenges I get, orclients sometimes say, is Anik,
but this time it's differentand it can often feel it is the
case.
The news is all doom and gloomand it's always this event or
that event.
Now, when you look at the data,markets continue to to rebound

(39:11):
and markets continue to rewardlong-term discipline.
So, as investors, for the mostpart, sitting tight and riding
those storms and it will be abit of a storm depending on how
we decide to allocate our money.
Well, if we can sit tight, thenour patients will be rewarded,

(39:33):
and we'll have a look at somecharts in a moment to have a
look at this.
So this is John and Jane.
So they've received theirproceeds, net of tax, of £2
million here.
We've allocated it into a 60%equity portfolio.

(39:54):
So the decision with whatportfolio to invest in it's
quite complicated.
So we at Vidae adopt athree-dimensional approach.
So the first is risk-need, andthat's very important.
That's, what rate of return?
Do you need to never announcemoney?

(40:14):
Now?
Luke mentioned some of theassumptions when he went through
the cash flow, but 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 we

(40:38):
need to have a try and go foran expected return that's not
achievable, then there's aconversation there.
But if the expected return todeliver our cash flow, our
future life, the holidays, thegifts, the spending it, the
living, your vision, then thatinforms us on that first factor.

(41:01):
The second dimension is riskcapacity and that's our ability
to withstand short-term losses.
So let's say for a moment,retirement selling a practice.
We're going to take it all outas a lump sum and spend it in
one hit for argument's sake.
Now, if we had invested thatmoney and markets had dropped by

(41:26):
20%, let's say that's a bit ofan issue if we're going to
withdraw it in one hit now,having the ability to withstand
those short-term losses.
It's important because whatpeople fail to remember is that
retirement's not a one-off event, it's an ongoing journey.

(41:46):
So while someone might look atselling a practice in their 50s,
like Luke said, we financialplan for people until age 100.
So in that situation, whatabout the next 50 years of
living?
What about the next 50 years ofliving when we put it or frame

(42:07):
it in that context?
Quite frankly, it doesn'tmatter how much markets go down
over a week, a month, a year,five years, 10 years, when we'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 tocall it risk comfort because we
view is how comfortable youmight feel with volatility,

(42:27):
essentially so we could createthe most optimized portfolio on
a spreadsheet.
Great, the risk need is isappropriate.
The risk capacity is suitabletoo.
If it keeps you worrying everynight and you're not able to
sleep and the portfolio everymovement you're scared, then

(42:50):
that's not really a great oroptimized portfolio.
So having something that you'recomfortable with, that meets
the risk need and risk capacityis where we come at.
So, coming back into thisexample here, the 60% equity
portfolio we have for this £2million investment, this is in

(43:11):
line with the client's riskcomfort alone.
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 moderately balanced, orwhatever that means.

(43:32):
And portfolio decisions canoften be based on these
descriptors, which, in our view,it's not enough.
Psychometric questionnaires andthat subjective nature,
depending on what's happening 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

(43:54):
failure.
So, coming back into thissituation, two million pounds
has been invested according totheir risk comfort, 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

(44:19):
the money has just been investedthey're going to be spending
120120,000, inflation adjusteduntil 2035.
From 2035 onwards until 2050,sorry it drops to £80,000.
As they approach that laterretirement, things start to slow
down a little bit, but notcompletely.
And then from 2050 onwards, itdrops to £55,000.

(44:44):
It becomes harder to get downthe stairs, never mind flying
long haul across the world.
As Luke mentioned, this istypical.
We see expenditure trail off inlater life.
There's also a gift.
So £60,000 they want to give tothe kids at 2031.
£50,000 they want to give tothe kids at 2031.

(45:04):
So, coming back up here, we cansee it's saying that the plan
is not very sustainable.
So when we look at the furtherdetail, we can see out of those
circa 700 scenarios, in 437 ofthese scenarios so 63% no
problem at all the clients getto age 100 without running out

(45:28):
of money.
However, in 260 of thesescenarios, or 37%, they actually
run out of money.
We'll have a look at somecharts in a moment.
This is insightful,particularly as people give
those concerns.
This time is different.
Or what about insert newgeopolitical events?

(45:50):
Now, throughout all thesescenarios we can see a bit of
commentary here.
So the worst case scenario soif these clients had started
their investment journey in 1915, by age 59 they would have run
out of money.
Now the median scenario, so the50th percentile, some would say

(46:11):
the most likely then they wouldactually be in all right at 1.7
million by age 100.
Then we can see at the farright here the best scenario if
they had started theirinvestment journey between
January 21 and January 72, theywould have ended with 25 million

(46:32):
adjusted for inflation.
So we're getting a feel of whatthe different range of outcomes
are within this scenario.
But just to give you a bit morecontext here, this is across
world wars, pandemics, covid,hyperinflation and various other
geopolitical events.
So we can we can actually lookat every single year, um, and

(46:57):
how this looks.
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 49with that two million pounds
invested across their lifetimeat the bottom, and we can see

(47:19):
how different investmentjourneys result in 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.
The line goes off into thechart, but they end at age 100

(47:43):
with circa 10 million pounds.
So when we overlay all of thistogether, we can start to see
okay, what's the median, the50th percentile?
Well, looking at all 110 yearsof data, things actually look
pretty good.
Yes, it's not as sustainable asit can be be, and we'll come on

(48:03):
to that in a moment but this is.
It's very useful to see whatthe 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 started theirinvestment journey in 1915.

(48:24):
That £2 million was invested inthat 60% equity portfolio as
per their risk comfort.
They're running out of money by5960.
This assumes it's inflationlinked to no ongoing reviews and
so forth.
So in reality, it wouldn't havehappened that way.
But we can layer in the bestcase scenario and then the, the

(48:45):
likely range of returns.
So this helps to narrow down onwhat those, those range of
outcomes are and the likelihoodof of the, the financial success
, living, living out your vision, doing the things that you want
to do.
Again, the portfolio powers theplan, but having that in place
it's important to to to make themost out of life.

(49:07):
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.
If we were to invest as pertheir risk need say 80%

(49:29):
portfolio, and we tail this withVoyant, the software Luke used
before, we can calculate thatrisk need exactly, but assuming
that we increase the exposure tomatch their risk need, which we
can do here.
And then the other thing iswe've assumed the life has been

(49:54):
inflation adjusted.
So every year, no matter what,the withdrawals will increase by
inflation to keep up in realterms.
Now, realisticallyrealistically, when markets are
falling, people don't tend tohave an inflation adjustment.
At the very least it stays thesame and when markets pick up

(50:15):
then we might look to catch upthat inflationary increase.
We call that mechanism aguidance inflation adjustment.
Sounds slightly jargony, I know, but by applying it we can
quickly see the impact of how itmight make things look.
So if we go back to theoverview now, we can see that

(50:36):
we've gone from about 61% of 61%of scenarios and things were
looking okay so now 82%.
Now things look quite a lotdifferent, so this represents a
great outcome.
Now most people will needongoing financial planning.
I describe it to my clients.

(50:57):
It's a bit like saying you'redriving from London to Edinburgh
, you've set that financial plan, you've set your sat nav, but
your phone dies.
Um, your your, there's a roadclosed sign happens as life
throws its inevitable curveballs.
Essentially, it's easy tobecome lost on your journey on
the route if you don't check inregularly.

(51:18):
And this is what the ongoingvalue financial planning does
having that objective soundingboard here to make sure you're
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,

(51:38):
ensuring things are optimized.

Dr James (51:40):
Essentially, I feel like that was my monologue there
now.

Luke (51:51):
Yeah, no, it's great.
Thank you so much, annick.
Just sorry, can I, if you justhop into charts and tools for
two seconds, um, and then go tothe longevity chart?
Um, it's just.
That's also interesting contextbecause, although we ended
there with, it was at 81 percentuh probability of success,

(52:11):
using historical data, um,that's on the assumption that
the person's going to live avery long time in retirement, um
, and so actually there's alsoalways worth uh remembering that
you might not live to age 100,um, and uh, this is just an
extra that overlays, kind of thelife expectancy, so the

(52:33):
probability of you surviving andthe portfolio being sustainable
, and I just always think that'san extra um kind of way of
looking at it yeah, 100%interesting.

Dr James (52:47):
Thank you so much, guys.
Uh, great presentation and alot of learning points.
I actually had a quick questionwhich we should just about have
time for, because we've gotnine minutes until half eight,
which would take this webinar toan hour overall, which is what
we usually aim for, and it wason trusts, because I feel like a
big question that a lot ofpeople ask whenever it comes to

(53:10):
retirement planning is thatthey've heard of a trust.
They feel like it's somethinguseful that will be able to
safeguard passage of theirwealth from themselves to their
kids and by way of taxmitigation.
Is that correct?
Have people got the right endof the stick?
And, if so, maybe if you couldshare some of the different
types of trusts or just a littlebit of info on that front,

(53:32):
that'd be really useful.
Either luke or annick a.

Anick (53:36):
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 the trust.
I must put my money into atrust, but a trust is a solution
to a problem and it's one ofmany solutions.

(53:56):
So the starting point is towork out what the problem is,
what the inheritance tax issue,or potential inheritance tax
issue, is likely to be.
Now, if there's a surplus,which will be identified using
the cash flow model, then we canlook at the most appropriate
way of dealing with it.
Now that might be directgifting, but people might not

(54:17):
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

(54:37):
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
treatment.
So if that is something you'reinterested in, absolutely take

(55:00):
professional help, because ifyou get it wrong, it's going to
be incredibly expensive and it'sgoing to be a pain um for your,
for your estate to administer.
Now, depending on how you wantthat structure and what you want
to do, that money and yourwishes for it might lend itself
to the sort of trust you'll use.

Dr James (55:20):
Essentially, but, summarizing it, it's just a tool
to to cascade money efficientlyif it's used within the right
context yeah, because I feel alot 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

(55:42):
the best way to achieve whatthey'd like to achieve.
But it's not necessarily thecase and actually, whilst that
is the conversation initiator,what it can be helpful to
remember is that there are otheroptions out there, which is
really cool.
So, yeah, I'm sure we can makea whole webinar about that in
and of itself.
Oh, great question just beforethe final whistle about that.

(56:05):
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?

Anick (56:12):
So for a family investment company, that's a
series of webinars we're notgoing to get this in in five
minutes now but essentiallyteresa, exactly the same
principles.
So what's the issue we'retrying to solve?
For most people, that isinheritance tax.
As business owners, companyowners and individuals might be

(56:36):
more familiar with the, thecorporate structure of a family
investment company, but is istrying to do the same, the same
sort of thing, but within adifferent structure, and family
members can have share classesand you can bring people on when
it when they're ready to.
The thing to remember here isthat it will operate as any

(56:58):
company, so you need directors,need people, people managing it
and the costs are high.
Typically you wouldn't look todo it for money less than 3 to 4
million, given the initialcosts up front and ongoing.
But yeah, absolutely, a familyinvestment company can be a

(57:19):
great solution within the rightcircumstances and if the
situation lends itself to thatsolution.

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