The Accumulator: Client ownership of target savings is Edgar’s key
Head of private clients at John Lamb
Our clients seek to attain or maintain financial independence, loosely defined as that moment in time when they have enough capital and other resources available to them for work to be optional and their desired lifestyle affordable.
Everyone’s definition is unique but we can build out a financial plan that helps clients identify how much they need (in real terms) and then, using realistic assumptions, estimate how much they need to put aside to arrive at they want to have at retirement; what we call their ‘number’.
As they own the number, they own the responsibility of allocating resources and only require us to facilitate the delivery of appropriate investment vehicles into which to build the fund. For some clients, it’s a long way off and they don’t need to do much. For others it’s a matter of months and the gap is sometimes unbridgeable, but generally not.
What’s in your wrapper?
We run a centralised investment proposition for most of our clients in a wrap that includes a Sipp and ISA plus a general investment account, so all of their funds are available to provide cash flow when the time comes. We provide a range of risk-rated portfolios that target the appropriate volatility ceiling for the client and optimised to lie on the efficient frontier. As the funds are selected from the best of breed of actively managed funds on a global basis together with absolute and manager of manager funds, so little rebalancing is necessary.
Retirement planning tips
1. Don’t let the tax tail wag the investment dog; pensions are not necessarily the best retirement vehicle.
2. Cashflow planning is more relevant than income planning.
3. Use spouses’ allowances where possible.
4. Involve clients in deciding the target number.
My favourite client case
A client sold a business for £2 million and earned £250,000 that year. He wanted to optimise his pension benefits and apply for fixed protection at £1.8 million. The planning required a detailed analysis of amounts contributing to his lifetime allowance and establishing what his annual allowances were going back over four years. This only amounted to £125,000 gross, so he applied this, then changed his input period so the 2012-13 annual allowance could be used by making further £50,000 contribution. He ended up with £1.6 million in pensions with three years to drawdown, and it was protected.
Many of our clients have small defined benefit pension pots that, when added to state benefits, aggregate to more than £20,000. At this level of income, they can convert their defined contribution pension arrangements to flexible drawdown and have total freedom over how and when to take cash from pensions.