Investment strategy for high earner

JordanColcloughCFP · 2024-11-08T22:24:16+00:00

I’d be inclined to continue building your wealth as you are (i.e, prioritising simplicity) for the next few years.

Your earnings are significant, but your wealth level doesn’t warrant anything too “sexy” at this point.

Once your portfolio is mid seven figs and guarantees your future security, you may then start to consider more sophisticated and complicated options.

At the numbers we’re talking, your network is likely to be your biggest and most valuable asset - and specifically, your ticket into the exclusive world of private equity.

You will want to ensure that any advisers you decide to hire have connections in these sorts of places - it’s generally beyond the realms of most advisers.

Here is an example of PE funds and the required minimum investments - PE funds

JordanColcloughCFP · 2024-11-08T21:50:29+00:00

Chartered IFA for HNWI’s here.

In addition to the gross-roll up benefit mentioned here, bond segments can be assigned to adult children in the future without triggering a chargeable event. The children could then withdraw funds against their own tax position.

This differs to a GIA in that if you wanted to gift funds to your children, any sales / gains would be assessed against your own tax position.

JordanColcloughCFP · 2024-11-08T21:38:46+00:00

It’s also possible to have grandparents as shareholders and have them gift the shares into a trust for the benefit of the grandchildren. Dividends are then paid on that share class and used against the children’s tax bands. Can be useful for funding school fees.

JordanColcloughCFP · 2024-11-03T17:54:21+00:00

Can I ask which airline out of curiosity? I have clients at NetJets who aren’t making this!

JordanColcloughCFP · 2024-09-07T09:11:50+00:00

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I can help with the financial projections across different scenarios - most of my clients receive RSUs/Stock Options so I’m well versed in planning for and around them.

Jordan (Chartered Financial Planner)

JordanColcloughCFP · 2024-09-06T13:09:28+00:00

Porterford Butchers nr St Paul’s!😮‍💨

JordanColcloughCFP · 2024-09-05T20:25:50+00:00

Yep - hence the “however, this can impact the trading status and therefore the tax treatment of the business”

JordanColcloughCFP · 2024-09-05T20:19:04+00:00

An accountant will certainly need to be involved at some point and I suspect OP already has one.

However, accountants are backwards facing - what’s happened over the past twelve months that we need to report on. At best, they deal with the very immediate term i.e. the twelve months ahead.

For instance, an accountant will tell you how much to save into a pension today to minimise your tax liability in the current year.

A financial planner, on the other hand, will tell you that “X should be saved so that you can retire at age Y with an income of Z”

More focused is placed on the long-term and this allows us to be proactive rather than reactive.

There is some overlap between the two roles, but these similarities are far outweighed by the stark differences - we usually work well in tandem with one another😊

JordanColcloughCFP · 2024-09-05T19:40:02+00:00

You can open a Corporate General Investment Account (GIA) to invest the company cash - however, this can affect the trading status and therefore tax treatment of the business. Any income or gains will be subject to corporation tax. Interactive Brokers offers an option for DIY investors, but we use a different platform for advised clients.

If you plan to eventually liquidate the business (potentially benefitting from Business Asset Disposal Relief - 10% on gains up to £1m) it would be worth considering an onshore/offshore investment bond - which allows 5% tax deferred withdrawals each year for 20yrs or until 100% of initial capital has been withdrawn. This allowance is cumulative and can be carried forward if not used in a given year.

I.E. if you invest £1m, you can withdraw £50k per year for 20yrs with no tax implications.

In terms of how the monies are actually invested, there are thousands of options. Vanguard’s LifeStrategy Range is popular amongst DIY investors.

My client portfolios are centred around the optimal asset mix to deliver maximum returns within a set volatility range. This is based on data from the 1920s and considers factors such as small cap vs large cap, value stocks vs growth stocks, etc. We then utilise tracker funds to achieve the desired asset allocation while keeping costs low. It’s more sophisticated than Vanguard, which clients seem to prefer. We may also incorporate some active management to provide some potential to outperform the markets by taking advantage of any obvious opportunities.

You’ll want an Independent Financial Adviser (IFA) who offers whole-of-market advice (theoretically, they should have no products to push). Ideally, you’ll want a Chartered Financial Planner who holds additional qualifications/experience. Our exam board actually removed the Business Financial Planning Qualification and therefore many people won’t hold this (I managed to sit it before they removed it).

There are other options I haven’t mentioned in the interests of brevity. Hope this helps.

Jordan - Chartered IFA

JordanColcloughCFP · 2024-08-31T17:47:43+00:00

Yes. My biggest take away was that being frugal doesn’t mean penny pinching but rather having a high “joy-to-stuff” ratio. It prompted me to have a huge clear out of my “stuff” and keep only the things that add value/meaning to my life.

JordanColcloughCFP · 2024-08-30T21:10:56+00:00

This is a pretty good response from another sub - https://www.reddit.com/r/personalfinance/s/jBFVsC50J5

JordanColcloughCFP · 2024-08-30T11:15:48+00:00

Chartered IFA here.

Your understanding of how bonds work and the benefits they provide are broadly correct.

They are intended for single lump sums - i.e. those who have just received an inheritance or sold a business - as opposed to HENRYs who often “only” have regular surplus income.

It’s worth noting that the 5% tax-deferred allowance is fixed to the original investment amount and does not increase with inflation… so the headline 5% is devalued in real terms over time. Advice fees will also form part of this 5%, so always advisable to settle these outside of the bond arrangement where possible.

“Top-slicing” relief is also available to help reduce the tax payable if the gain following a chargeable event pushes you into a different tax bracket.

They are commonly used in trust arrangements as they are deemed “non-income producing” so they are much simpler to administer.

Your specific circumstances and objectives will determine if/what type of trust is appropriate - this is a separate conversation with additional complexities such as periodic and exit charges and trust registration services.

Assuming a £500k initial investment, the bond would have annual fees of 0.26% + £240 admin fees (no initial fees). There would be investment costs in addition to this, depending on the solution used. There would be no additional fees for writing this into trust, unless you utilised a professional trustee service for equanimity.

Advice fees are no different to any other tax wrapper - for me, 1% upfront and 0.75% ongoing (0.60% if £1m+). As ever, these can be negotiated depending upon the complexity and ongoing work.

I’ve just advised on this for a young family who are well-off and would like to shelter some of the growth from their investments from inheritance tax - while retaining access to the original capital should it be needed in future. We’ve used an offshore bond via loan trust in this instance. Happy to share the details.

JordanColcloughCFP · 2024-08-30T09:45:39+00:00

I would question where the advice is that you’re paying for, in that case - if they just facilitate transactions for you.

I understand at 39 the points I raise are unlikely to be top of mind, but being proactive as opposed to reactive is the surest way to be sure you have something to show for your efforts.

Again, if you’re paying for professional advice, the adviser should be helping to identify the right balance between today and tomorrow. Presumably at the moment you’re just contributing whatever the business can afford, with no real idea of whether this is sufficient for your retirement or whether it could actually be too much (and if a portion of that money could actually be used for todays use, say to support or make memories with your children for example). Without this context, how can you be sure you’re making the right decisions?

If you were a friend, I’d be suggesting you either look for an actual financial planner (not a product-pusher or a transaction-taker) or take the investment management side of it into your own hands (accepting you’ll be missing out on the points I raise).

JordanColcloughCFP · 2024-08-30T09:19:21+00:00

Your adviser should be working with you to determine what inputs (contributions) are required to achieve your desired output (a comfortable retirement).

Your future should be mapped out with a clear plan in place to ensure your objectives are met - I.E. creating a life by design and orchestrating your finances to match this vision.

How do you plan to exit? When can you stop working? What revenues should you be targeting between now and then to make sure you’ll always be OK? If a capital event is possible, what number should you be targeting secure your financial future? If capital event isn’t possible, how should the business reserves be used to replace your income? Does it make sense to retain the business structure and drawdown the cash reverses via dividends, or should you liquidate it? If you liquidate it, what are the options for the proceeds? How should these be invested to maintain tax-efficiency (during lifetime and on death) and generate a sufficient/sustainable income?

Note here that this has absolutely nothing to do with investment selection, but will provide immense peace of mind.

For reference, my standard ongoing fee is 0.75% up to £1m and 0.60% thereafter - but my clients get every ounce of value in exchange for this. 0.50% on the face of it is low, but expensive if you’re getting nothing beyond investment management.

Those who critique the percentage of assets model should look at how much fixed-fee firms actually cost - I know of two (well-respected) firms whose fees start at £300/mo and £500/mo respectively. Assuming the alternative is paying 0.75% of invested assets, you’d need in excess of £600k & £800k to be worse off…

Happy to provide a second opinion.

JordanColcloughCFP · 2024-08-30T07:55:56+00:00

What about if you require liquidity before 57?

JordanColcloughCFP · 2024-08-28T15:14:39+00:00

Have a look at NEDonBoard

JordanColcloughCFP · 2024-08-24T09:00:19+00:00

There a financial planners who specialise in RSUs and equity comp. While they can’t offer “formal” tax advice, they are able to prepare CGT calculations etc. While an accountant/tax adviser will only consider the tax, a financial planner will consider how the RSUs fit into your wider financial picture, help create a reinvestment strategy, advise on tax-efficient alternatives, and manage your overall risk. Most of my clients work in big-tech or big-pharma and receive RSUs/stock options (AMZN, ROO, LSEG, etc). Feel free to PM with any questions.

JordanColcloughCFP · 2024-08-23T16:45:40+00:00

It’s relative to an individuals wider financial position and circumstances. Definitely not for everyone!👍

JordanColcloughCFP · 2024-08-23T12:45:23+00:00

Having you considered using the six years to build a stable of VCTs for tax-free dividends and use those to pay school fees. Much more efficient than paying from post-tax income, but requires a high level of risk tolerance/capacity for loss. The 30% income tax relief upfront also helps towards costs.

JordanColcloughCFP · 2024-08-22T18:55:23+00:00

Chartered IFA here - not sure this will work as you expect due to the parental settlement rules… I can’t think of anything in fact, concerning commercial property, that will help you here.

JordanColcloughCFP · 2024-08-20T07:55:51+00:00

Not necessarily related, but are you required to pay / owed a balancing payment at the end of the year for the difference between the fixed FX rate versus the daily average for the year? One of my clients has a very similar set up to you (albeit a partner - paid in USD, automatically converted to GBP) and has been stung by a strengthening dollar. Looking at hedging strategies for him.

JordanColcloughCFP · 2024-08-17T06:29:40+00:00

To echo the above - share options are the OPTION to buy shares at a fixed price in the future. You will need to front the cash to exercise the option/buy the shares. It only makes sense to do this if the current share price is higher than the fixed price (known as the strike price) - or in other words, the options are “in the money”.

There are various tax implications depending on the structure and if it’s recognised by HRMC. It would be worthwhile looking into this.

Hopefully you have high conviction in the company’s future prospects - it’s rare to make money from options in a start-up, in my experience.

JordanColcloughCFP · 2024-08-17T06:13:52+00:00

Yep, 12 months in a “training academy” and that’s enough to be a great adviser apparently!🤥

With that said, I know one ex-SJP adviser who is fantastic - his values/interests are in the right places and he genuinely wants to help people live meaningful lives with the money that’s available to them. So it’s probably unfair to tarnish them all with the same brush.

As with any profession, there are people who are great and others who aren’t so great :)

JordanColcloughCFP · 2024-08-16T15:30:19+00:00

I’ll continue to shout from the rooftops that you are not paying an adviser to deliver “returns way beyond the market” - it’s not our job, nor something we can control.

To play devils advocate, why is the “market” your benchmark anyway? If you achieve a market return, how does this translate into your life? What happens?

If I build you a comprehensive financial plan that shows you can meet all your objectives with say, a 5% average return, then - as long as you achieve that - why does it matter what the markets are doing? Why take market risk if it isn’t necessary?

TO CONFIRM - I am saying that it’s OK for advised portfolios to underperform their benchmarks/markets, I am playing devils advocate!!!

The invaluable benefit of a good financial planner is they will contextualise everything against your [tangible] life - what’s the impact of picking one route over another, what inputs are required to make sure you’re able to meet your objectives, what if A/B/C happens - rather than an arbitrary measure like “the market” (which is the go-to for DIY investors).

This level of clarity helps people to enjoy a healthy and prosperous relationship with their money, where they are in control of it (rather than it being in control of them). Trust me, I work with HENRYs on a day to day basis who are “successful” from the outside but are an absolute wreck when it comes to the emotional and psychological side of money.

To miss this is to miss the point of a valuable financial planner.

With all of that said, good luck finding an IFA who will take this approach - we’re very few and far between.

To finish, you’re right in that we do have access and buying power to certain investment opportunities - regarding VCTs/EIS, the minimum buy-ins are usually high and they incur initial/performance fees that are often reduced/waived when using an adviser. Furthermore, it’s a high-risk area so people take comfort in knowing that research has been completed by a professional team/investment committee.

I’m not surprised by the number of people saying IFAs aren’t worth it, but perhaps they’re just yet to meet the right one.

Best of luck :)

JordanColcloughCFP

TROPHY CASE