Case study: Planning for multiple inheritances and early retirement

CEO of Addidi Wealth Anna Sofat outlines a holistic approach to financial planning for complex financial affairs

Case study briefAnna Sofat biography

Anna is the founder and CEO of financial services boutique Addidi Wealth. Until 2006 she was Managing Director at independent financial advisers Fiona Price & Partners, prior to which she was Business Development Director at Jackson Batten Financial Group.

Anna is a wealth manager and financial planner.

Addidi Wealth

Luciana contacted AddidiWealth after researching online for an independent financial advisory firm. Having seen our client testimonials she called us.

Born in Italy some 39 years ago, Luciana has lived in London for the past 15 years. She received a gift of £150,000 from her mother who lives in Italy. The funds were invested in accordance with advice from a high street bank. However, the bank ceased giving advice, despite taking 3% initial charge and 1% ongoing.

Luciana sees these funds as ring- fenced for her mother’s needs, and the funds were originally invested for the long term to provide ad hoc income for her mother. As she no longer has an adviser, Luciana is concerned that the value of the portfolio has fallen and that this might cause the income payments to be eroded.

Initial financial planWhen Luciana first contacted Addidi Wealth, her main focus was a portfolio she had set up a few years ago with the help of her bank. The bank was no longer providing advice, and, having tried to self-invest, Luciana was worried that the portfolio would not be able to meet her needs. She was not able to think more holistically about her wider finances. So we agreed to review the portfolio and take on its management with a view to constructing a financial plan over the coming months.

Luciana’s main need for the portfolio was to ring-fence it from the rest of her finances and ensure that the funds could provide for the ad hoc income her mother might require. Her Italian mother had gifted her the funds some years ago, but Luciana was finding that her mother needed help with expenses above her day-to-day needs. The timing and amount of withdrawals vary and when her mother passes away the fund will be left to Luciana.

Luciana completed a FinaMetrica questionnaire that showed her to be a cautious investor, but cash flow analysis showed that the returns required would not be met by a cautious asset allocation. After further discussions, we concluded that Luciana would be prepared to take a slightly higher level of risk for potential reward. This was to sustain and potentially increase the value of the fund, particularly as it was likely to be eroded over time by income payments to her mother.

Analysis of the funds in which Luciana was invested revealed that the current investment risk was high – much higher than Luciana is prepared to take. The majority of the funds were managed funds with high charges, but did include some passive index tracking funds. Overall the fund was spread over many assets in different global areas, which is what Luciana wanted.
A robust solutionWe advised Luciana to use a platform that would be denominated in euros, since payments would be made to her mother in this currency. We also recommended investing in an Addidi core portfolio that reduced overall cost, provided access to euro-denominated funds and a robust solution for her needs.

Luciana now is more comfortable in the knowledge that the fund is being managed, it reflects her attitude to risk, is denominated in euros and costs have been reduced. Any payments to her mother will be made efficiently with a minimum of administration.

Following the initial work, Luciana introduced her husband Stefan to Addidi. Although we treat their finances on an individual basis, we felt strongly that we should have at least one joint meeting so we could ensure a holistic approach. Their financial affairs are complex – she is Italian by birth and will inherit assets in Italy; Stefan is from Portugal and will inherit significant assets from his parents. They have made London their home and also own a small property on the Welsh coast. While Luciana works for a regional university and has relatively straightforward finances, Stefan works for a UK-based subsidiary of an Italian company. He had obtained shares in the UK company without being aware that he would be taxed on these! This was being sorted out by the company accountant, but he was becoming aware that he needed to plan ahead.

Stefan wants to be able to retire from the age of 50. His income from his stressful job (which he nevertheless enjoys) vastly exceeds his expenses. However, he wants to plan to do something else with his life, perhaps ethical, by the time he is 50. He is 40 now.

We constructed a financial plan for both of them and reviewed their other arrangements. In the process, it became clear that Stefan was not making sufficient provision for his goal of retiring early, and both were aware that despite their high level of income, they appeared to be spending what they earned.

It was obvious that they did not have a strategy for what they should be saving

We agreed a plan with both of them which incorporated further funding into Stefan’s pension through salary and bonus sacrifice. Stefan was about to get his bonus for 2015, so using carry forward, we were able to shelter much of it in his pension. This enabled both Stefan and the company to make significant National Insurance savings, much of which was reinvested into his pension.

We also took a hard look at their income and expenditure – it was obvious that apart from not going into overdraft, they did not have a strategy for what they should be saving. So using cashflow modelling and different ‘what if’ scenarios, we were able to demonstrate to Stefan how he may achieve his ambitions of not having to earn beyond age 50. This involved him saving his bonus each year (since this is surplus to their needs) and making further savings of at least £1,000– 1,500 per month from his earnings. Savings are split between his pension, individual savings account and a general account which will maximise the tax allowances available to him and overall tax efficiency.
Forward thinking We also looked at his company. By this time he owned 40% of the UK subsidiary and was due to receive a further shareholding. The UK business also owned a subsidiary on the continent, and Stefan was beginning to think through the implications for himself if the UK voted to leave the EU. We were able to bring in our in-house accountant/business adviser to liaise with Stefan and his company accountant. They obtained a picture of company ownership structures, the numbers and the plans for the business going forward. Following extensive discussions and meetings (and the Brexit vote), it was agreed that at this stage, Stefan would not receive any further shareholding in the UK subsidiary (and pay a big income tax liability on the shares) as it was likely that the European company would need to become their main trading company and further work needed to be done.

What happened next

Both Luciana and Stefan now have clarity of their short and medium-term goals, a plan and some discipline for achieving these. Further work is pending on the business structures and also the longer-term planning around potential inheritance from Stefan’s parents in Portugal and from Luciana’s mother in Italy.


 Luciana had an immediate need and we addressed that before commencing the financial plan. Do not delay advising clients on their immediate issues.
2. Bringing in other expertise adds value and helps to keep an overview of what is going on.
3. The clients have a goal (to retire by age 50) but no discipline to achieve it. Our objectivity has helped them on the path to achieve their ambitions.
4. Cashflow modelling helps simplify matters by providing an illustration of their journey.

This article was originally published in the September print edition of The Review. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'.

Published: 27 Oct 2016
  • Financial Planning
  • The Review
  • retirement
  • Pension
  • Inheritance
  • Anna Sofat
  • Addidi Wealth
  • Case study
  • Financial Planning & Advice

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