Clive Evans IFA Your Plan

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>>> Financial planning in 6 straightforward steps

>>> Setting up your plan

Financial Planning

1. Arrange a fact finding meeting or conference call with Clive Evans IFA
2. Clive will write a personal report setting out his recommendations of how you can achieve your financial goals.
3. Arrange a second meeting so that you and Clive can discuss the report
4. Take away the report and read it thoroughly.
5. Arrange a further meeting, to discuss your decisions with Clive and complete the appropriate documentation.
6. Arrange an annual (or more frequent if required) review of your investments and strategy.

Setting up your plan

Making the most of your money

This introduction is designed to help yachtsmen understand the principles of financial planning and also to demystify some of the complex structures produced by the financial services industry, which will inevitably form part of such a plan!

The first question I am invariably asked is, do I really need to PLAN?

Let’s consider the financial life of a yachtsman:

Imagine a yachtsman aged around 25-30, earning around $30000 [or pounds] a year, who has decided that he is going to make the industry his career.

It's obvious that without any form of incremental pay rise [or inflation] that he will earn $ 600,000 [or pounds]over the next 20 years, if he is continually working.

But if we assume some sort of inflationary increase, say 3%p.a., the figure jumps to $ 830,2952.

If we assume 5%p.a. the total becomes $1,041,578!

It's worth noting that this doesn't allow for promotion, it assumes that in real terms he stays at the $ 30,000 p.a. level!

In my experience in dealing with yachtsmen, very few 30 year olds have realized that they are potential millionaires.

Of course the important thing is that, it's not just a question of how much you earn over the next 20 years but, how much you keep for yourself.

In reality, many yachtsmen have the ability to create financial independence for themselves at an early age.

Very few working expatriates (Yachtsmen) retire and do nothing.

A common desire is future financial independence, in other words an income (produced by a capital sum) that is not dependent on any outside influence, employer, or contract.

Ask yourself:

Naturally the amount of capital that you can create to provide your financial independence is dictated to a large degree by the amount of money that can be saved over a period of time.

Many [not all!] yachtsmen have an ability to be able to save large amounts of their income, even over a short period of time, due to their lack of taxation and daily living costs.

Because of this, savings of between $ 1000 and $ 5000 a month can be achieved, depending of course at what level of income you are at.

Consider that an individual paying taxes, mortgages/rent, housekeeping etc. would need earnings of around $500,000 to save $ 60,000 a year.

Correspondingly savings of $ 12,000 a year would require an income well in excess of $ 100,000 p.a. in outside industry.

Earning this level of real income dictates that you plan your finances very carefully!

Consider also, the responsibilities involved.

Yacht Captains and crew are responsible for highly complex pieces of engineering with a capital cost of many millions of dollars.

The degree of responsibility continues on down to every level.

Individuals with this level of responsibility generally plan their finances very carefully!

By setting meaningful goals that is possible to create plans which can really make your dreams come true and your current work seem worth while.

If you want a million dollars in your future, it CAN be achieved, but you must PLAN for it!

Planning your financial future

We now have some of the reasons for creating a long-term financial plan, especially in the volatile world of professional yachting.

I am now going to give you some building blocks towards the creation of a meaningful plan for yourself, later I will highlight some of the structures that you might wish to use in such a plan.

The media (and indeed most financial planners) approach to financial planning is from a product point of view, in other words promoting one structure, investment company or offshore location versus another.

For example "Zurich International in the Isle of Man provide the best pension plans for expatriates" possibly an accurate statement, but is this actually what you need?

Consequently, I am frequently asked "what should I do with this $10,000" or "where is the best place to invest my money", which is a little like calling a Doctor who knows nothing about your condition and asking what brand of tranquilliser to take!

The best thing you can do with your money is to use it to get to where you want to be: the most effective way of planning for your future is to identify your long term financial goals and then plan towards them.

Ask yourself:

The two most common goals that I encounter when working with professional yachtsmen are:

1. The ability to purchase a shore based property at some future date as a long-term residence / bolt hole.
    
2. The provision of a "Core Income" at a later date, which does not necessarily mean retirement.

[Yachtsmen, in common with most working expatriates don’t retire and do nothing, they just stop yachting full-time, and do something else!]

In financial terms, the first goal is the creation of a capital lump sum to enable this property to be purchased, at the right time in the future.

The second goal is also the creation of a further capital lump sum, the investment return from which will provide income, leaving the capital intact for the long term.

Most clients want to plan for ten to fifteen years or until around age 50, which suggests that nobody wants to envisage spending more than that time in professional yachting!

It is vital to insert an inflation factor [I usually use 5%] so that the end figures are in real terms.

A property costing $ 150,000 today will cost $ 244,334 in ten year’s time, if you require a "core income" of $ 30,000 today you are going to need $ 48,8666 in ten years time!

Once these figures are agreed, using an average rate of investment return that has been achieved in the past, it’s easy to work out how much has to be saved on a regular basis to get there.

Of course if there is some capital available to give you a head start, then so much the better!

Naturally, offshore investment structures will then be used to maximise confidentiality and tax benefits.

As offshore financial institutions specialise in dealing with working expatriates, the products used are also much more flexible than their correspondent onshore counterparts, with ability to suspend payments, increase payments, decrease payments, make withdrawals etc. at any rime. So there should be no concerns about "long term commitment"

More about structures later on.

So there you have it, the start of your financial plan.

If it all sounds very familiar to most of you, it should, it’s a journey plan!

Life is a journey, money is just the fuel in the tank that enables you to get to where you want to be!

Financial planning = Life planning!

The Building Blocks

The most effective way of planning for your future is to identify your long-term financial goals and then plan towards them.

In particular: Where am I going to live when I stop yachting, and What am I going to live on?

By using this process, and quantifying the answers in money terms, it’s a simple step to calculate just what you have to do to achieve your goals (assuming an average rate of return.)

It’s really just like planning a voyage!

Now it’s a question of deciding which vehicles to use to get there.

If you look quickly at the financial pages of most Sunday newspapers, you will find a bewildering array of financial products on the market, enough to confuse even the most technically minded.

Of course, the vast majority of these are designed for the domestic market, and therefore can be discounted by the yachtsman who normally will elect for the tax-free growth and confidentiality incorporated in offshore products designed specifically for working expatriates.

Turning to this area, most offshore structures are in reality, very similar, whatever the marketing hype would have you believe!

It’s mostly a question of choosing the right type of structure (and there really aren’t that many) and then most importantly choosing a reputable company with a proven investment track record that can provide you with long term service.

Very often, however, a combination of different companies and structures will provide the best results, by using the strengths of each to your advantage.

This is where the expertise of an independent advisor comes into play, [well you would expect me to say this wouldn’t you?] who will naturally have access to a much larger range of companies and structures than any one bank or "tied institution".

In most cases when structuring a longer term plan for yachtsmen I find myself using just three different types of vehicles, although I may use several different companies [spreading investment risk/reward] in different offshore locations, [always using the principle that no one thing can be the best!]

Firstly any existing capital will be kept in a separate framework, often split between offshore locations, as both EU [Luxembourg and Eire] and non-EU [Isle of Man] centres, can have advantages and disadvantages, depending on your circumstances.

The underlying investment will usually be a well spread selection of international mutual funds, but often, for existing capital, a proportion will often be in capital –guaranteed funds [meaning that they can’t go down in value!]

More about underlying investments below.

For regular savings we will usually use two back to back regular saving plans.

These must have inherent flexibility to stop, start, increase and decrease contributions at will, as well as flexibility to accept different currencies. These features are common to most offshore structures geared to the needs of working expatriates.

One, not geared to any specific term, can be freely accessed for future property purchase or any other non-specific goal. This vehicle will also be used for irregular lump sum investments [ideal for charter tips!]

The other will be geared to whatever point in time you, the yachtsman, perceive as when you will stop yachting, often in ten or fifteen year’s time. This is the structure, which I will encourage you to regard as a core commitment to your future.

It is vital, that once these plans are in motion, that they are reviewed at least annually, to ensure that you reach your goals. Conversely, the plan may need to be adapted should the goals change!

Flexibility and choice to adapt to changing needs are the watchwords here!

For example, other factors, which we have so far not addressed, may need to be considered in the evolution of your financial plan:

What could go wrong? Have you made some form of contingency plan in the case of sickness, disability or death?

Are you about to reach the end of stage one of your plan, and now need to plan embarkation on stage two? [E.g. you’ve created your capital sum but now need to ensure that your core income is adequate and not crippled by taxation]

Putting it all together

The key to the whole process is for you and your financial advisor to review your investments progress, in conjunction with your own evolving goals at least annually, ensuring that you arrive at your chosen destination.

As ever:

Of course any sensible journey plan should also take into account that the best, laid plans can run into trouble, so the question we are going to address this time is:

Of course not every contingency can be covered, however, it is clear that three vital areas will scupper the best laid financial plan.

They are:

• Death
   
• Critical Illness
   
• Permanent Disability.

For these issues, take a look at the Life Assurance and Health Insurance Pages.

Both investment planning and contingency planning are necessary to construct a secure long- term financial plan.

You can of course attempt to construct your own, but as ever, I recommend that you seek professional advice, just as you would expect your owner to seek your professional advice before taking any action connected with his boat!

Remember:

Life is a journey; money is just the fuel in the tank that enables you to get to where you want to be!

What is a journey, but a series of destinations?

No-one plans to fail….most simply fail to plan!

Clive Evans is a member of the PYA.

Call or email Clive Evans IFA : Tel no:+33 4 93 34 36 00 or email: contact@clive-evans-ifa.com

 
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