The brief Julius Lipner biography
Julius is a financial planner at Consilia Wealth Management. He left Oxford with a Master's degree in Economics, gained the Chartered Financial Analyst credential and spent 15 years in the City. This gave him a wealth of experience in understanding people, businesses and investing money over several economic cycles.
As a financial planner and adviser, Julius brings his knowledge and far-reaching experience of the financial world to a deeply fulfilling role, helping and empowering people to take control of their personal finances. He champions spreading financial literacy in general and enjoys giving talks on the subject to audiences of all types.
Thomas had been referred to me by an existing client. He is a serial entrepreneur and (reluctantly) thought he should have a financial health check in anticipation of becoming a father for the first time. He walked in to see us dreading it and aiming to leave after 30 minutes. He did not know exactly what he wanted, but after we listened carefully to him we were able to help him establish and meet several of his financial planning goals.
The planThomas is an amazing client, in that his view of financial planning was revolutionised following our meeting to discuss what he perceived to be a boring topic: pensions. The buzz of bringing about this realisation in people is very rewarding – it’s what keeps me in the game.
Thomas is a young, dynamic, highly entrepreneurial software developer who runs his own business. He left school at 18, tried university, decided it wasn’t for him, so left to pursue his passion for computer programming instead – before Facebook and Twitter had shown how lucrative this could be. A classic serial entrepreneur, Thomas put his knack for programming to good use by setting up and selling several small programming and app-related businesses. By the time he came to see us, he was newly married with his first child on the way. On the recommendation of a mutual friend (and insistence of his wife), he thought he should see us for a “quick financial health check but nothing else” as long as the meeting “didn’t last more than half an hour”. Challenge accepted.
It transpired that Thomas was looking for new office premises as he was fed up renting and living with the constant pressure of a landlord who could evict him at any moment if he didn’t agree to an onerous rent rise. This led us to talk about pensions – a tricky segue, given that Thomas (in his own words) was “too cool for school, so discussing pensions is going to be a big ask”. However, once we showed him how he could use a small self-administered scheme (SSAS) to buy his own office, he became enthusiastic. Owning an office was huge for him – he saw it giving him more peace of mind, stability for his business and freedom to plan properly for its future.
Owning your own offices through your pension is a great way for a business owner to save for their future
An SSAS is an occupational pension scheme that gives its members considerable flexibility and control over the investment policy and underlying assets. For example, you can own a commercial property through it and can have other members join, who are likely to be directors or key employees of a company (known as the ‘sponsoring employer’), and can club together to invest. As a pension it enjoys considerable tax benefits and it can even make a loan back to the directors of the sponsoring employer. This access to liquidity is important for company directors as they often fear putting money into a pension that locks it away forever.
Owning your own offices through your pension is a great way for a business owner to save for their future, as when they eventually come to retire and sell up, the pension will continue to receive rent from the buyer of the business. Indeed, shortly before sale they can even rewrite the lease agreements between their firm and the office building to include upward only rent reviews – ongoing rental income provides a great source of inflation-linked income for old age. Also, rent payments (a corporate expense), running fees or additional contributions into a pension by the company reduces its overall corporate tax rate, meaning more money can be saved by the business owner in the long run. Finally, as the pension is outside the entrepreneur’s estate, assets inside it are sheltered from inheritance tax. All of this was music to Thomas’s ears.
This would also give Thomas a ring-fenced asset separate from his business. Many business owners think that their business is going to be their pension – but this isn’t always the case. For one reason or another (often outside of their control), businesses fail. Having an asset such as an office building ring fenced inside a pension is invaluable if the business ever goes bust as it’s protected from creditors.
Preparing earlyAs the Autumn Statement 2016 was coming up, we started planning with a sense of urgency. With the Treasury seemingly unable to stop itself from tinkering with pension regulation, we had to act quickly to make sure we used all of Thomas’s annual allowances, carry forward allowances and higher rate tax relief before anything changed. Being a high margin software business, his company had amassed a large cash pile that we were able to move into an already existing pension. The beauty of an SSAS is that it can also gear up by 50%, so all this meant that Thomas could go and start looking for new premises right away.
Boring old pensions had now become a fantastic vehicle for Thomas to achieve several of his financial goals in one fell swoop – new offices, decent retirement income, accelerated savings, reduction in corporation tax, inheritance tax and the provision of a contingency plan in case his business ever failed. He was fascinated.
What was pleasing about this case was how one issue in a client’s financial life opened up a whole nexus of other avenues to explore. The pension was simply the key to open Thomas's mind to what careful financial planning could do for him. Products are just a means to an end, and as a financial planner, if you focus on helping clients achieve their goals, everything else then falls into place. Our initial meeting blossomed into a series of other meetings focusing on his personal financial plan. This in turn helped him set definite financial goals for his firm as he now knew what he wanted to achieve and by when in his personal finances. Our initial meeting, which “definitely couldn’t last more than 30 minutes”, was still in full flow two hours later.
What happened next
We built a thorough financial plan for Thomas, working out goals and cashflow targets his business would need to achieve so that his personal financial planning goals could be met. We used his pension to buy offices, maximised his tax opportunities, set up savings vehicles and specific contributions to help him achieve his goal of financial independence.
We used the business to pay for protection policies for cross-shareholder agreements to secure the business in case anything happened to him. We also introduced him to an accountant who showed him how he could employ his wife and give her shares in the business to enhance their income. All this gave him significant peace of mind so that he could get on and do what he does best – build a business.
Takeaways
1. Clients hate talking about products – they like talking about their goals. Products are there just to help them achieve these. Entrepreneurs (especially young ones) are usually focused on excitement, fast pace and opportunity – talking about financial planning or pensions is usually diametrically opposed to this unless you can directly link these to solving their problems.
2. Timing is important – for example, be on the ball regarding pension legislation changes (which are currently moving quickly). Clients appreciate you calling them up if they can take advantage of something and this can be one of your useful touch points with them.
3. Business owners have a wide array of levers to pull to save efficiently. Make sure you know them all and incorporate these into a comprehensive financial plan. it will deepen your relationship no end.
This article was originally published in the January 2017 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'.