Craig Turner is an entrepreneur in the truest sense. His ability to spot a business opportunity and get the right people to run the show has seen him build up a property company that sources, buys and renovates properties on behalf of its investors. He has also jointly set up an international shipping company with his friend Raj Patel, an Indian by birth. Craig was referred to me by a friend who had noticed that the success of his business had had little effect on his lifestyle. Given his reluctance to offer such forthright opinions on these matters (a common sentiment), let alone solutions, my friend simply insisted that Craig would have much to gain by speaking to me.
This is a real life case study. Names and some other details have been changed to protect confidentiality.

As can be common with business owners in this high-paced field, the initial difficulty lay in the sense of urgency in all his undertakings: his lack of patience. The "I know what I'm doing, so quickly tell me I'm right..." could be sensed from the moment I shook Craig's hand. I then proceeded to ask him questions which were different from those he had experienced before. Why are you in business, what is the end game and purpose led to the familiar answer of "wanting to make money." What its purpose was and exactly how much is enough were the fundamental questions which changed the momentum in my favour. The subsequent values-based questions resulted in a more productive direction, where his needs and goals became clearer and more meaningful and he became more interested in the services I could provide on an ongoing basis.
After some time he revealed his details:
House: £600,000 (no mortgage)
Cash Isas: £24,000
Pension: £30,000 (only because the accountant said so, his business is his pension)
Credit cards: £18,000 (temporary)
Protection: £400,000 joint life level term assurance 14 years remaining
Plan: To be mortgage and debt free
There is little belief in pensions or the stock market hence why there was no mortgage or equity Isas.

Addressing key vulnerabilities and tax planning
To win him over I explained that while his plan had worked so far, there were many vulnerabilities in his business which needed to be addressed as a matter of urgency. Also he could reach the endgame of his objective more quickly by diversifying and being more tax efficient.
The primary weakness was that while the business had key employees, there were no contingency measures to ensure its continuation should one of them become ill or unable to work. In effect the business had become overly reliant on a few members. Replacing them would take considerable time due to the nature of the work and that would potentially derail the business model. Having dealt with a similar property company it became apparent to me that the income derived was primarily from margins to do with buying and renovating, or, in bank salesman talk, upfront commission. An important consideration to be incorporated into the final plan was the current low degree of recurring revenue. It was agreed that the recurring revenue, or a property management arm, ought to be created to reduce the time frame in which the endgame could be reached.
Given this initial advice he saw the sense in an ongoing service and agreed to become a client on a retainer basis. This earned me the valuable second Financial Planning meeting involving deeper discussions about goals and wealth creation.
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Insurance and shareholding issues
Cashflow modelling highlighted the fact that while his original plan was partly achieved, the vulnerabilities outweighed any sense of content. He was vastly underinsured. The joint life policy was tax inefficient. Should any of the key employees suffer an illness or disability the whole chain would be affected. His endgame relied on the sale of the business in order to reach what we termed his "number". We identified his "number" which is the amount he would need every year to enjoy his life the way he really wanted to. This is common where business owners feel secure in what they do only until someone highlights certain areas to improve. Sensing the vulnerability and seeking solutions Craig was quick to take my advice and split the business into several companies while making the key employees directors of that part they worked in with a 51 per cent shareholding while Craig owned the balance. This involved working with their solicitor to explain my thinking and structure the most appropriate shareholder agreements.
Five-year renewable term assurance policies were recommended for each of the directors which protected the company as well as themselves in the case of death or earlier critical illness. The employees soon began to feel additionally motivated for becoming part of the wider picture meaning that the chances of departure were significantly reduced.
Another suggestion was to make Raj a key decision maker in the property company. With Raj owning a significant number of properties within another company, it could be argued that CGT planning should become a priority for him. While the trading business is likely to be sold at some point in the future the properties may or may not be sold. (Asian families tend to have this dilemma where they plan to leave the UK once the children have grown up, only to realise the pain of leaving the children, especially grand children, is too much to bear). In this case, not only will there be a potential CGT issue on the tradable business, there could be a business property relief issue on the non-tradable element, the properties.
This brought me together with Raj's accountant who was predominantly transaction-based and was not too keen on tax planning ideas, at least when encouraged to do so by a third party. Subsequently I introduced Raj to a firm of proactive accountants who were delighted to make various suggestions as to how he could restructure his assets which gave flexibility and tax efficiency. This process encouraged Raj to reveal some of his financial details to me. It became apparent that he had a major concern about IHT (the majority of his assets are offshore) which was resolved by implementing a joint life second death whole of life policy. This was sold to him in the late 90s and after a recent premium review, costs over £400 a month. Raj was quite relieved when I informed him that due to the pre-'75 Double Taxation Treaties, he might not have to pay IHT on his non-UK assets. The need for income or saving was of little use to Raj so we looked at other avenues instead.
Both Craig and Raj agreed they would need to diversify and accepted two of our strategies each: Financial Foundations and Targeted Wealth Accumulation for Craig, and Wealth Preservation and Distribution together with Advanced Tax Mitigation for Raj.
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Financial Foundations and Targeted Wealth Accumulation for Craig
Financial Foundations for Craig involved implementing a tax-efficient relevant life policy and a death or earlier critical illness Family Income Benefit policy. Both of these were in line with what his cashflow model highlighted as vulnerabilities, meaning there was no need to "sell the concept" to him. Cashflow modelling indicated that he would receive a regular income should the business continue and in knowing that his family and business was in order should anything happen to him, Craig wanted to invest regularly.
Targeted Wealth Accumulation was again based around his cashflow model, assuming a worst case scenario (one of the many 'what ifs?') where his business was worth nothing once he eached R-day, otherwise the day he decided to "do something else". With him agreeing to the tax benefits of making pension contributions which also acted as a retirement fund, he was eager to save regular sums of money. This strategy highlighted the need to maximise Isas and CTFs (at the time) as well as making at least £30,000 gross pension contributions every year. Prior to investing, Craig completed a Psychometric Risk Profiler which surprisingly suggested his profile was less than medium risk. However, when we calculated what lump sum and/or income was needed at particular dates in the future, the targeted growth rate required to achieve those figures breached his tolerance limit. This engaged us in a further conversation about how valuable he found the entire Financial Planning process to be, concluding that his original reliance on business and no investments was slightly unfounded. He understood the term involved to attain certain goals meant that he could afford to take more risk. He became fully aware of the consequences as well as my continuing availability to him should things go wrong.

Wealth Preservation, Distribution and Advanced Tax Mitigation for Raj
Raj already had a six-figure pension pot with a Sipp provider. It is clear that he had not utilised its benefits and that the funds/shares had not been reviewed for at least five years. Having significant wealth elsewhere, namely in property, he saw the benefit of preserving what he had and agreed to move the pension money onto a low-cost platform which would allow him to participate predominantly in low-cost passive funds.
After several further meetings Craig clicked and came to realise that losses are paper losses and will only be realised if he pulls his money out of the investments. He understood the importance of both strategic asset allocation and rebalancing at least on an annual basis. This confirmed the value of our ongoing service.