Proud to be an Adviser – Part four – Adam McCarthy

From

Adam McCarthy

While it may sound clichéd, one of the most rewarding aspects of my job as a financial adviser is getting to hear and see, first-hand, the positive difference financial advice has made on my clients’ lives. Successful financial planning is about forming relationships built on trust. I genuinely care about helping my clients achieve both financial and emotional rewards, and helping them navigate their way is what drives me each day.

Financial planning is one of the few professions where a client bares all. While we predominantly focus on the financial aspects of a client’s welfare, as an adviser, we also get to appreciate a client’s future aspirations and goals in life. Our job is to help our clients create a brighter future for themselves and their families.

When people think about the role of a financial adviser, most people probably assume we help clients plan for their short or long-term financial goals, to help them achieve the best possible financial outcomes – and they would be right in thinking that. But sometimes, we are faced with far more challenging and delicate situations, like dealing with a client whose life has taken a completely unexpected and devastating turn…

I first met Stuart* in July 2016 when he was 58 years old and working full time. He intended to work until his mid-60s but never planned to fully retire; instead he would embark on completing a PhD and establishing his own consultancy business. It was clear from our first meeting that Stuart never planned to slow down. While many people in their late 50s probably couldn’t think of anything worse than completing a rigorous and demanding academic qualification later in life, this had always been Stuart’s dream..

When Stuart first came to see me, he was more than $600,000 in debt.  Unsurprisingly, it weighed heavily on his mind and he was desperately seeking ways to get gain back control over his finances for his and his family’s sake – Stuart has a wife and teenage son.

Most of Stuart’s debt was personal in nature, largely relating to his family home. He had also racked up a nasty $20,000 credit card debt. With this in mind, we looked at strategies to help Stuart get on top of his debt and established personal risk insurance as a safety net.

Upon reviewing the details of his existing super fund arrangement, we identified that he held more than $110,000 in the Unrestricted Non-Preserved component. We immediately withdrew this amount tax free and cleared his credit card debt. Next, our attention turned to his home loan.

After reviewing his family budget, we identified a number of savings opportunities. Stuart admitted he would often try and ‘keep up with the Joneses’ and so by addressing this issue, we were able to make substantial changes and improvements to the budget.

Given that most of Stuart’s debt related to his mortgage, we worked closely with his mortgage broker who reviewed his overall lending situation. In doing this, we were able to reduce his interest rate, switch loan repayments to the minimum, and we changed some of his loans to interest only in a bid to improve Stuart’s net cash flow position.

Upon turning 60, Stuart commenced a transition-to-retirement (TTR) strategy, by drawing the maximum 10% annual pension payment tax free, to make further reduce his debt. Fast forward to January 2019 and Stuart has halved his home loan debt and has no credit card debt, instead he has a healthy $1.1 million in super.

The sense of elation was overwhelming for Stuart – halving his debt in just over two and a half years was something he never thought possible. According to him, we were miracle workers!

Whilst Stuart was feeling more in control over his financial destiny, life continued to play out in a way he never imagined.

Towards the end of 2018, Stuart lost his job. And, within a few months he fell ill and was hospitalised with a tumour. The cancer was picked up too late and it had spread throughout his body. His doctor indicated that he has less than 12 months to live.

No one expects to hear their client is dying. I found his announcement very confronting to say the least. No amount of training can help prepare you for this. The range of emotions an adviser deals with can be as volatile as the share market itself. When faced with significant client events, I always go back to basics – keep it objective.

While it’s important we remain empathetic, allowing one’s emotions to rule a consultation won’t do either party justice. The subject of death is largely taboo; nobody wants to talk about death or to be posed with the question: “if you or your spouse died tomorrow, how would you financially cope?”. Many people simply don’t understand what’s involved in preparing a final financial plan however it is something that all clients eventually need.

After getting past the initial shock of Stuart’s situation, I started reviewing his previous Statement of Advice to re-examine the key recommendations. Our focus turned to simplifying his financial situation to ensure his family would be provided for after his passing.

During Stuart’s last review in April 2018, he and his wife Belinda* fortuitously agreed to meet with one of our estate planning referral partners. I explained that neither I nor UniSuper receive referral fees with respect to this professional arrangement.

The couple hadn’t reviewed their estate plans for some time. Complex issues such as guardianship over their son, the establishment of Enduring Powers of Attorney and Advanced Health Directives, and a possible Testamentary Trust (for the benefit of their only child) were to be addressed. Pleasingly, the couple proceeded and had a proper estate plan drafted.

From an estate planning perspective, the family home and the couple’s rental property is jointly held. Upon death, this will simply transfer over to Belinda. In respect to Stuart’s super fund, we have already placed a non-lapsing binding death benefit nomination, and a reversionary pension nomination, electing Belinda on the account. Excluding a very small amount of cash held in Stuart’s savings account, all property and financial assets will bypass the estate upon Stuart’s passing. This will eliminate any potential claim under the Queensland Succession Act 1981. Stuart now has confidence his immediate family will be taken care of.

As part of Stuart’s 2019 review, we revisited his personal risk insurance situation and lodge a claim through UniSuper. The fund’s insurer has agreed to pay out and as a result, Stuart will be able to clear the remaining part of his mortgage, thus leaving his family unencumbered.

After paying off the mortgage, the family’s cost of living will reduce down to $86,000 annually (inclusive of school fees). Assuming Stuart achieves his targeted return of 6.35% per annum, Belinda will earn $69,850 per annum once the account based pension reverts to her. Additionally, the net rental income of $11,500 per annum will bring the total family income to $81,350 per annum.

Clearly the family’s cost of living is largely met via investment returns – this provides Belinda with tremendous flexibility moving forward. Belinda can chose to work full-time earning $71,000 pa (gross), work part-time, or, she could cease working altogether and draw on some of the capital from Stuart’s super fund to care for her son. In the future, at the appropriate time, we may consider a re-contribution strategy for Belinda to improve her tax free component for non-tax dependent beneficiaries. In addition, we will need to review her super death benefit nomination upon Stuart’s passing.

Although this client engagement may seem uncomfortable to most, we were able to assist Stuart by eliminating a number of pressure points.  Stuart can enjoy quality time with his family knowing he is leaving them debt free and well provided for.  Some may consider this type of advice document ‘final’, no plan is ever truly final in the strictest sense. Our client’s legacy will live on through his family to which we will continue to provide the highest standard of professional advice.

Planning for a better tomorrow is a huge responsibility for a financial adviser and there are a myriad of challenges that often come with it. But it’s our responsibility as advisers to overcome these challenges and to never lose sight of why we do what we do. It’s a truly rewarding career and I’m incredibly proud of the positive impact I’ve had on my clients’ lives to ensure they have exceptional retirement outcomes.

By Adam McCarthy, State Manager – Advice (QLD), UniSuper

*Not his/her real name

 

Read more in the series:

 


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UniSuper Advice is operated by UniSuper Management Pty Ltd (ABN 91 006 961 799 AFSL 235 907) which administers UniSuper (ABN 91 385 943 850) on behalf of the trustee, UniSuper Ltd (ABN 54 006 027 121 AFSL 492 806).

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