Partnership. Ready with money for a master plan
28 May 1996
5 November 2013
4 March 2014
3 June 2014
23 June 2014
21 November 2013
In career terms, appointment as a partner represents both an end and a beginning. It ends the period of ambition to achieve the goal of partnership as it begins a new era when motivation is based on a new set of personal and professional goals.
Instead of satisfying internal judges, in the form of partners, the new partner must satisfy external judges, the firm's clients themselves. The transition necessitates changed relationships inside and outside the firm.
And this important stage presents an ideal time for new partners to evaluate and plan their financial situation. Partnership provides benefits, and, if it is an equity partnership, potential liabilities. A personal financial plan must take both scenarios into account.
The benefits of partnership should include long-term job security and the prospect of enhanced earnings which, together, provide an ideal opportunity to start serious financial planning. The younger you are, the cheaper many of the plans will be. Do not make the mistake, in these uncertain times, of persuading yourself that you will enjoy your extra money for a few years and put off the day when you start to set aside money to provide protection for yourself and your family. Unless you start when you first have the chance, you will probably never get around to it.
Partners are sometimes required to inject working capital into the firm. If you do not possess private wealth to enable you to do this, you will probably have to borrow money. Most banks will lend for this purpose on the security of a life assurance policy. Do not agree to a request from the bank for a second mortgage in their favour.
An alternative is to take out a term assurance over, say, 10 years, on a with-profits basis, to provide the means of repaying the bank in case you are not able to do so out of earnings. If you do not need it to repay the bank, this kind of policy will provide a welcome nest egg when it matures. Bear in mind that this type of borrowing qualifies for tax relief, and you may be able to arrange with your firm to inject more than the required capital sum and withdraw the excess to use for some other purpose, for example to carry out refurbishment on a house.
If you are not wealthy in your own right you should consider beginning a portfolio of with-profits endowment assurance policies timed to mature at intervals beginning, say, in 20 years' time. These schemes are a good way of forcing yourself to put money aside and they can still give good returns if you begin them while you are relatively young.
You would also be well advised to start providing for your pension straight away. In the light of the lowering of the typical retirement age, you should gear at least part of your retirement benefits to commence at age 55. You may also be well advised to consider a mixture of annual premiums and single premium pension policies to build up over the years.
If you have started, or intend to start a family, you should consider establishing a family protection scheme on the life of your partner. If they die prematurely, you will then be able to afford appropriate care for your children during years when you are likely to be consumed with heavy professional commitments, possibly involving periods of absence from home.
Do not forget to make provision, again at the earliest possible opportunity, for school fees, should you wish to educate your children privately. There are also attractive family bond schemes available which can be set up on a trust basis to provide your children with a capital sum at a given age.
If you can possibly afford to do so, you should try to take advantage of all tax advantageous savings and investments schemes, such as PEPs. These become particularly attractive if tax rates increase, as they are quite likely to do. It is highly unlikely that any government would legislate to deprive people of benefits that are already established.
The possibility of liabilities arising for partners is becoming less remote in today's economic climate. If you wish to protect yourself against the worst possible situation, you should perhaps consider placing some of your main assets, such as your house, in the name of your spouse.
Finally, do not lose sight of the fact that you may choose, or be forced, to make a career change. People are less inclined to view even something like partnership as a lifetime commitment these days.
If there is any likelihood of a mid-career change for you, take this into account when setting up your private financial plans. It is possible that you may earn less in your second career than you will earn during your years as a partner in your chosen law firm.