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ADVICE FROM A RISING STAR Ben Budge, director and financial adviser, My Wealth Solutions

Ben Budge is the Association of Financial Advisers (AFA) rising star for 2014. But above all, he is a trusted adviser. Building a trusting relationship with every single one of his clients is at the core of Budge’s philosophy. Through My Wealth Solutions, the boutique Brisbane firm that he co-founded three years ago, he works hard to constantly bring value to his clients’ financial lives.

To Budge, value is created through making sure that “the services products we provide are world class, they must stand up and compete against our competitors,” he tells Laura Millan. To compete effectively, “they must do everything our competitor’s service and products do and then uniquely differentiate themselves to the benefit of the client.”

But value is also “who we become and what our organisation becomes for our clients in the process.”

Budge was awarded AFA Rising Star of the Year in 2014 for his proved “strong commitment to personal development, to his clients and for constantly working to improve perceptions of financial advice throughout the community," the AFA chief executive Brad Fox said at the time.

The award recognises advisers with three years or less experience who provide quality advice, excellence in client engagement and are active contributors to the profession and the wider community.

Budge challenges all advisers out there to ask themselves: “Where will our advice take your clients? What’s the end game benefit or the outcome for the client?”

To him, the answer is delivering real value, which means that advisers need to step out of their comfort zone and always keep in mind why they get up in the morning: to give advice.

In Budge’s case, the reasons behind wanting to be a financial adviser go back to when he was a kid: “My father passed away from a heart attack when he was 44 years old. He didn’t have any life insurance, no financial plan… we were living month to month.”

Budge talks about his clients with enthusiasm and rebukes all reference to the tough moments that the profession is going through with a smile and an enthusiastic statement: “I wholeheartedly believe that what we do is great.”

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J ohn1 and Jill were searching for a financial adviser in Brisbane and found My Wealth Solutions’ website. The couple lives in rural

Queensland. When they sought Budge’s services, they were looking for someone who could take a holistic view at their situation.

“Because they were coming through a website inquiry, it took a lot of time to build the trust,” Budge says. He explains that this is com-mon among clients who find the practice on the internet, as opposed to those who come referred by a centre of influence, family or friends. “You really need to spend time building that trust,” Budge explains.

In John and Jill’s case, there was a period of educating them on is-sues such as debt structures and how to how to diversify their portfo-lio. They were seeking “clarity and confidence that they were on the right track.” According to Budge, they were doing well, but “there was still quite a lot of great strategy that initially came to mind that would add tremendous value to their current situation.”

Initial meeting goalsDuring the initial meeting, Budge discovered the goals they want-

ed to achieve in the near future. John and Jill told him that they want-ed to retire in 7 years (2021) with $130,000 per annum of spendable cashflow.

They wanted to review and maximise their superannuation and investment options, review their current investment loans, review salary sacrifice arrangements and review transition to retirement pension options.

In addition, the couple wanted to review their personal insurance requirements and their estate planning.

They were interested on minimising their taxes and were also con-sidering setting up a self-managed super fund (SMSF) in the future and were keen on purchasing property through their SMSF using a limited recourse borrowing arrangement (LRBA).

However, they both wanted to maintain some emergency funds and an investment portfolio outside of the superannuation environment.

Strategy and recommendationsAfter studying his clients’ situation and goals for the future, Budge recommended to set up an SMSF with a corporate trustee.

John and Jill’s superannuation benefits were rolled over to the SMSF. They transferred a total of $908,560 to their fund and left $5,000 of John’s superannuation to allow life and temporary or per-manent disability (TPD) benefits being paid by his employer. The rest of employer contributions and salary sacrifice are now directed to the SMSF.

In order to work towards the objective of retiring with $130,000 per annum of spendable cashflow, Budge recommended John to in-crease his salary sacrifice to $11,400 per annum, which in turn re-sulted into tax savings of $2,680 per annum.

He also started working on Jill’s transition to retirement, which allowed a reduction of the superannuation tax rate from 15% to zero and represented a total of $2,473 tax savings per annum.

At the same time, 85% of John’s concessional contributions were split and allocated to Jill to take advantage of the fact that splitting in favour of the older spouse allows earlier access to tax-free income payments and lump sum withdrawals.

John and Jill fulfilled their wish of purchasing a property through their SMSF using an LRBA. They did it with a 35% deposit from their SMSF funds and 65% from the LRBA. “Property diversifies the portfolio’s investments and the LRBA enables your fund to ac-quire a beneficial interest in an asset that your fund may not other-wise be able to afford,” Budge explains.

The investment also has significant tax benefits: rental income and capital gains are taxed at 15% in John’s case, and are reduced to zero during the pension phase in Jill’s case.

The couple also undertook a refinance and a restructure of a prior investment property loan. Cashflow savings from this transaction were of $15,946 per annum.

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John and Jill were looking for someone who could take a holistic view at their situation.

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THE AUSTRALIAN JOURNAL OF FINANCIAL PLANNING• FS Advice

John and Jill did not want to hold all of their savings and invest-ments inside of their SMSF. Their $319,000 cash savings were transferred into the reserves portfolio into a managed discretionary account (MDA) which holds an actively managed cash and fixed in-terest portfolio. The MDA current running yielding is 6.5%: “We are being conservative to preserve this capital for the possible pur-chase of a family home in a few years’ time,” Budge explains. Their existing share portfolio was also transferred to the new one with the mandate that all earnings should be reinvested.

Budge manages the MDA following the Core Active Reserves En-hanced (CARE) investment philosophy. This strategy, developed by

its dealer group GPS Wealth is designed to meet each client’s indi-vidual goals and objectives.

In this philosophy, 40 to 100% of the portfolio is invested in “Core” or ETFs across several asset classes. It follows a strategy of long term buy and hold, in long with a long term risk profile.

The “Active” part of the portfolio aims to smooth out the volatility of each sector in the portfolio and includes five single sector ETFs holding Australian shares, global shares, emerging markets, global small companies and gold. It can represent from 0 to 20% of the portfolio, depending on the client’s risk profile.

The “Reserves” aim to cover four years’ worth of retirees’ spend-ing needs. For clients in retirement, this section of the portfolio is invested in cash, term deposits and low risk funds. For those who are still working it is allocated in income protection insurance and one year spending in cash reserve or in access to an unused line of credit. This section also adds liquidity to the portfolio.

Investors can hold from 0 to 35% in “Enhanced returns,” which are higher risk Australian shares or international shares aimed at achieving higher returns. The strategy allows for franking credits, which also have tax benefits.

Estate planningOne of the most challenging issues was the fact that they both had children from previous marriages and were paying approximately $30,000 a year in child support payments. “It is something that’s al-ways going to be there,” Budge said. An additional complication was the fact that child support payments were not equally split between all children.

“One of the marriages was not a nice separation and one of the things they wanted to clear up was the estate planning,” Budge says. John, Jill and him sat down with an estate planning specialist and a lawyer and talked about the issues that could rise from that situation. They came up with a full estate plan, including a will, a testamentary trusts and an enduring power of attorney.

InsuranceBudge also recommended them to review their insurance strategy. “With all clients we do the exercise of showing them the gap be-tween where they are and where they wanted to be, as well as having a discussion around them self-insuring or transferring the risk to an insurance company,” the adviser says, and adds that in Jill and John’s case, it was a $600,000 gap if one of them passed away.

In addition to that, Jill hold two $200,000 life policies outside of super for her two non-dependent children which provided tax sav-ings on death benefit payments of minimum $60,000. John hold two $200,000 life policies inside of super for his two dependent children, to be paid as a child allocated pension.

An ongoing relationshipJohn and Jill now have quarterly reviews with Budge. “We do on-line meetings because they’re in rural Queensland, but they come to Brisbane every six months,” he says. The relationship that started with a general search on the internet has evolved into a relationship of trust between the adviser and his clients. “They have referred me to some of John’s colleagues and six of them are my clients now,” Budge says. fs

1. The name of the clients have been changed to protect their identity.

Table 1: Initial position

Assets and liabilities Initial value

Motor vehicles $70,800

Boat $40,000

Investment properties $800,000

Investment loan ($565,000)

Total superannuation - Jill $336,460

Total superannuation - John $577,100

Shares + Cash $399,400

Line of credit - Shares -

Life/TPD insurance - Jill $126,130

Life/TPD insurance - John $48,600

Table 2: Initial position - Key goals

Initial value

Lifestyle $110,800

Nest egg 1,312,960

Active $235,000

Estate and Insurance $1,833,490

Table 3: Asset allocation using CARE strategy

Initial value

Core Listed ETFs 488,136

53.40%

Active Single sector funds / Listed ETFs 122,034

13.40%

Reserves Cash/ Term deposits 100,000

10.90%

Enhanced Share portfolio 203,390

22.30%

Total 913,560

100%