Planning for life
24 March 1998
24 June 2013
5 July 2013
25 March 2013
15 April 2013
3 March 2014
Tobin Roberts says planning early is the crucial step for a sound financial future. Tobin Roberts is head of private banking at Rea Brothers, which specialises in advising lawyers.
It is fair to say that most lawyers have neither the time nor the inclination to plan their financial affairs properly. If they did it might be reasonable for their partners or colleagues to wonder what was happening to their billing hours.
Fifteen to 20 years ago, the concept of financial planning was relatively vague and individuals relied on financial advice from a wide range of sources. Typically, this would mean an insurance broker for insurance matters; a stockbroker for equity investments; a building society or bank for a mortgage and deposits and an accountant for tax advice. Now there are a range of different financial planners from direct salespeople to insurance brokers to professional independent advisers.
Even trainee solicitors should be aware of their affairs. They should have an idea of the benefits being provided by their law firm, which may include life assurance cover, permanent health insurance and possibly a pension arrangement.
If an employer does not provide these benefits it is probably too soon to commit to funding an investment and/or a pension plan. However, contracting out of the State Earnings Related Pension Scheme will not involve additional cost and is worth considering.
At the newly-qualified stage, law firms tend to pay well but do not offer good pension provision. A thorough review of all the pension providers should be undertaken and a personal pension chosen taking into account the financial strength, flexibility, performance and charges of the provider.
Lawyers should also be aware of the severe future limitations of the earnings cap. This may be the time to consider other tax efficient investments such as personal equity plans (PEPs), qualifying plans (MIPS/endowments) and TESSAs.
Mortgages are another key financial issue requiring proper comparative analysis between fixed, capped and variable rates as well as determining the most appropriate repayment option. Newly-qualifieds should seek advice from an independent firm which can monitor their affairs throughout their career and is not limited in the advice that it gives.
Having a family is a watershed in anybody's life, and lawyers are no exception. Priorities include sufficient protection through life assurance cover and a properly drafted will. Inevitably, school fees planning will also become a major issue and awareness at this stage will make the whole thing seem more manageable later.
The possible benefits of separate taxation should also be considered. At this stage, financial planning should be reviewed so that dependants are safeguarded should anything happen to you.
Promotion to the ranks of seniority brings its own rewards but also some further financial considerations. It should now be possible to take full advantage of pension reliefs by making use of unused relief from previous years (up to seven).
Now may also be the time to consider the benefits of bespoke pension fund management via Self-Invested Personal Pension Plans (SIPPs) but, in all cases, an analysis of all charges must be made before such a move.
Tax efficient investments (PEPs, TESSAs, and timber) and tax relievable investments (enterprise investment schemes, venture capital trusts and enterprise zones) should all be
Retirement throws up a number of issues. In the past, when lawyers reached retirement and some level of income was needed, it would inevitably involve the purchase of an annuity. More recently the choice (and complexity) has increased to allow a far more flexible approach offering the bewildering option of conventional, unit linked or with profit annuities, staggered vesting or income drawdown or, of course, a combination of all five.
A full review of each of these options should be carried out. Additional areas of financial planning at retirement would include: structuring investments to provide an income supplement; establishing trusts and reconsidering testamentary strategy to mitigate future inheritance tax; and consideration of tax efficient investments. Lawyers should now consider their income and capital requirements and remember that they may have 30 or more years left.
There is considerable scepticism in the legal profession about what constitutes independent advice especially if the adviser works on a commission rather than a fee basis. This scepticism is understandable, as many advisers who call themselves independent are tied to recommending a specific product area generally pensions.
However, the issue of "fees versus commission" is easily covered if the adviser offers both options and the lawyer is prepared to accept that good financial advice, like good legal advice, is not cheap.