Client Stories

He was most concerned about:

• Wasting hard-earned income due to poor investment decisions and excessive spending
• Not having a plan to be independent when he “gets constructively moved to greener pastures”
• Having his financial affairs in a disorganised state due to a lack of time
• The high level of debt – mortgage $1.25m
• Whether he should be using gearing as a strategy
• Whether he had provided sufficiently for his young children

His Feelings:

• Being trapped in a career he wasn’t really enjoying but was earning too well to give it up and unsure what he could do outside of this profession anyway
• Not being the father and husband he wanted to be and feeling a real fear that he would have regrets
• Concern for his health – ‘am I going to literally kill myself or fall into some form of mental illness’
• “There’s no light at the end of the tunnel and I feel like something will implode one of these days”

His Deep Motivators:

• “To be the person his children would be proud to call their father”
• “To have a relationship with my wife where we are each other’s soul mates”
• “To be the best guitar player I can be”
• “To feel like life has a fair degree of fun and is not a burden”

His Goals:

• To have a ‘track to run on’ which shows the light within 2 months
• To spend 1 hour per week in one-on-one conversation which each child
• To spend 2 hours per week in meaningful conversation with my wife
• To provide a private education for my children
• To be financially independent of the firm at age 52
• To be debt free by age 50

1. “Flight to Freedom” – this scenario was targeted at what would be required to be financially free at age 52.
All major assumptions were kept constant with the emphasis on maximising investment returns through gearing, superannuation, and reduced spending.
The conclusions were that independence was achievable if they optimised investment returns, extracted some equity from the home and reduced planned spending by 10% before retirement and 20% after.

2. “Landing Short” – this scenario was designed to evaluate the family and financial situation in the event of his death or disability.
He was adamant that he didn’t want any of their plans to change. We found that in the event of his death, assuming the returns from a balanced portfolio he was in all likelihood, over insured. The same was not the case in the event of his disablement.

3. “Divert” – this scenario was designed to simulate an unplanned early exit from the firm. Our client believed that he had a 100% probability of getting another job if we assume an income of 30% below his current. We found that although it would necessitate some immediate change, and that he would either have to work longer or downsize the home (or both), it would not be a disaster as his children would still be able to have the education he wanted for them. In fact this scenario probably provided most value to him as it released the pressure of retaining his current earnings.

The strategies finally implemented included:

• The drafting of an Investment Policy Statement and restructuring the portfolio
• Conservatively gearing his portfolio to not only increase expected returns but also be more tax efficient
• Reducing life cover outside of superannuation and increasing it within, thereby eliminating the commission (reducing the premium by 25%)
• Increasing disability insurance
• Redrafting their wills to include the potential benefits of testamentary trusts
• Implementing a cash management solution to eliminate wastage and become more conscious of spending
• Renegotiating current mortgage arrangements so that commissions being paid to the broker would be eliminated

The concerns Ben raised were:

1. Is the offer enough for him to retire?
2. How would he invest the capital to make sure it didn’t run out?

The issues we identified included:

• Was this the most appropriate decision for ben when matched against his life plan?
• If so, tax planning would be essential
• The need to clarify bens wishes in the event of his death, and update his estate planning
• A financial analysis under the catastrophe scenarios of death or disability

During the Seantos Process we uncovered the following:

Deep motivators:

• Ben was most disappointed in his marriage break-ups and what he thought “I have done to my children”. He initially blamed his partners.
• His greatest motivator was to be the father he always wanted. He said that the people whose opinion he most valued were his children and he wanted to be there for them as they grew older
• He also wanted to make the second marriage work not only to stay together but to be a fun loving, happy, devoted husband
• He wanted to look forward to going home every day and not have his work dominate his life
• He loves having fun and exploring and believes that both are critical part of his life
• His other deep motivator was to create a business of value that operates at a highly ethical basis and is sustainable beyond his working life

Money Beliefs:

Ben’s father had been retrenched after working for the same company for 32 years. At the time, Ben was a teenager and he remembers the impact it had on his father, his parent’s relationship and the family as a whole. The family were forced to downsize and move to another suburb and at the time Ben remembered feeling annoyed at his father for being so “naive and trusting”. He still thinks that his father never recovered from this experience.
At the time he vowed it would never happen to him and the he would always be in control of his debt.

We uncovered the following money beliefs:

• Debt is dangerous
• You have to work hard for money
• Money gives you freedom and independence

We mapped out the following scenarios:

1. “Sell and move on” – we assumed that Ben would have some form of earn-out for 3 years and thereafter would be dependent on his investment portfolio.
The conclusion was that it could work if we assumed they downsized their home and reduced their lifestyle expenses when they were 75.
Ben wasn’t overly enthusiastic about this as he felt both financially vulnerable, would have to work for a big company (who he didn’t trust) and would not have completed his life plan to build a sustainable, ethical business.

2. “Status Quo” – this scenario assumed the business would be sold in 10 years for the same multiple but of an increased profit.
Ben saw problems in this because he felt that he would continue to be the one working harder than the others and the relationships would deteriorate over this time.

3. “Buying him out” – we assumed he bought out the one shareholder who he saw as the biggest problem.
Financing this purchase was assumed to be 50% vendor finance, with the vendor finance dependent on profit i.e. the period was extended and price reduced if profit advanced.
We did some stress testing in this scenario because Ben quite quickly saw congruence with his life plan but needed to be absolutely sure that the debt was controllable.

4. Catastrophe– we built three scenarios to simulate his families financial situation in the event of his death, disability or insolvency, this gave him enormous comfort that once he had implemented the recommendations they would be fine in the event of one of these catastrophes.

• Purchase of one-third of the company’s equity
• The use of debt
• Amendments to the shareholders agreement to include specific terms to deal with the death or permanent disability of a shareholder
• Restructuring the portfolio in his super to a more conservative asset allocation
• Redrafting of his, and his ex-wife’s wills to incorporate the use of testamentary trusts to provide specifically for his teenage children
• He changed his work habits to focus more on his role as father and husband and felt he could do this as he was now in complete control