Investment Review

A client introduced us to a friend who was a retired gentleman that was concerned with the level of income he was taking from his investments. His portfolio included building society accounts, shares and investment bonds. He had sufficient income to live on and did not need a portfolio from his investment portfolio, but may need irregular payments in the future to support gifts and other annual capital requirements.

We had an initial consultation and listened to what the client wanted to ensure we understood. We then created a cash flow plan to understand the long term objectives and strategy and as part of conducting an investment and financial planning reviewed, we reviewed the building society accounts and found that the existing society offered an account with a higher interest rate, which would increase that part of his income, and he wished to retain that as an emergency fund.

With regards to the share portfolio, he felt her stockbroker had not taken a pro active role in the management. He wanted to maintain his shares as he did not want to pay the capital gains tax that would have to be paid if he disposed of them.

He also felt an obligation to keep them as some of the shares had been held by previous generations of his family and owned by his late wife. As he was happy to continue investing traditionally and accepted the high level of volatility associated with investing in shares we moved the portfolio to OCM and managed it under our stockbroking service.

As we had conducted a through review having listened to the client, we noticed that one of the client’s investment bonds was invested in a distribution fund. This fund was with a company that had performed well and had generated a good level of income. Our client was happy with the returns and we recommended she took no action with this bond.

There was though a larger investment bond that was a ‘with profit’ bond. This bond had not been a success story. No bonus rates had been added to the bond for the last couple of years. As a result, the capital value was being reduced to provide the income needed. We reviewed this policy and there was no penalty for encashing the bond, and due to the amount of years it had been held there was no tax issue either and we recommended a full surrender.

The surrender proceeds from the with profit bond were invested in our model portfolio to deliver 7% per annum and to operate the portfolio within an annual indicative psychological capital loss of 12.5% to provide diversification of both investment risk and tax planning. We recommended a further CGT portfolio to ensure this valuable allowance was used on an annual basis, in addition to the share portfolio. The remaining money placed into a bond to provide an income on a flexile basis. The investment bond was structured within a trust, to make sure it was inheritance tax efficient.

The result of taking our advice was that the client increased his overall income, reduced his tax liability and understood exactly what was happening, covering off all eventualities even the cost of long term care if needed. He also had a structure in place that met his current and future financial objectives, incorporating inheritance tax planning  and different investment strategies.

The above case study is for information and illustration only. It is not intended to be individual advice and it should not be taken as such. If you have any questions relating to your own circumstances, please contact us.