The Department for Work and Pensions figures have showed that more than 10m people in the UK today can expect to see their 100th birthday – that’s equivalent to 17 percent of the population. This is a staggering figure and really brings home the importance of planning ahead for our later lives. The chances are therefore, that in the future, many dentists will spend more than a third of their lives in retirement, so what they do with the money they earn during their career is crucial.
So it’s clear that Financial Planning is important, I’d now like to explain exactly what it is and how it’s different to advice you may have previously received.
In the past most financial advisers have typically been paid through commission which is a model that has worked well for both clients and advisers. However the crux of this arrangement is that for the adviser to get paid, they have to “sell” a product and some clients are looking for financial advice without a product.
In additional to this there are different types of adviser ranging from tied (advising on one company’s products), multi-tied (advising on just several companies’ products) to Independent Financial Advisers (IFAs). My experience having worked as a tied adviser for Friends Provident soon after I left university is that if I hadn’t made the switch to being an Independent Financial Adviser I would not have remained a financial adviser for much longer. As a tied adviser I was just an agent for the company selling their products and although they were on the whole very good products I knew I wasn’t able to offer unbiased independent financial advice.
Financial advice can involve advice on debt management, investment, tax planning and retirement planning advice. When it’s appropriate, for example if you need some life cover to provide for your family in the event of your premature death, most specialist IFAs will help you to buy the plan specifically appropriate for a dentist. IFAs can also provide advice on specific areas such as inheritance tax, or investment planning as and when required.
Financial Planning is more than just financial advice and involves taking a step back and looking at what’s really important in a client’s life and then helping them use their capital and income to achieve their goals. Of course as financial advisers, we’re also able to maximise on the tax reliefs available and use investment vehicles and plans to achieve those goals where appropriate.
Financial Planners tend to be the most qualified with typically either Certified or Chartered status and they help clients to develop a comprehensive financial strategy by bringing together all of their financial goals. We find that younger dentists are less interested in the financial planning side of what we do, but typically by their late 30s or early 40s, financial independence becomes an increasing priority and advice rather than products becomes the focus.
We’ve also found that although it’s important to find out whether Aviva, for example, is better for your finances than Scottish Equitable, or whether Passive funds are superior to Active funds, that’s not what clients want to discuss with us.
What our clients want to hear is how best to take control of their finances and their lives. What they really want is practical and proven answers to questions like:
"How much do I need to earn, save or sell my practice for, to give me the lifestyle I want?"
"When, precisely, can I afford to start focusing on the things that I enjoy?"
"What do I need to do to ensure that I never run out of money?"
"Exactly what level of investment return do I require in order to achieve my goals?"
In fact a client said to me last year, "I don't want to have to spend my retirement shopping in Aldi, when I've spent my life shopping in Waitrose and never had to even look at the bill."
So, financial planning is about helping clients have the lifestyle they want now whilst maintaining enough to ensure they won’t run out of money before they die. Other than having the comfort of knowing you can afford to shop in Waitrose for the rest of your life, some other examples that this type of process has had for our clients include the following:
• A client realising they could afford to donate £75,000 to a church building project
• Clients understanding they continued to run their practice because they enjoy it not because they need the money
• Clients’ deciding to retire early once they were assured that based on reasonable assumptions, they were able to maintain their standard of living.
• Clients’ moving all pension assets to cash as they didn’t need much growth in the fund to provide the income necessary and security was more important than a higher income (co-incidentally benefiting when the stock market crashed)
• Clients giving £100,000 to their children, safe in the knowledge this wasn’t going to affect their retirement plans.
Investment & Risk
A key part of Financial Planning for most dentists will involve some form of investment. If you’re planning on investing significant amounts, I would check your IFA has a suitable investment qualification and ask to see their written investment philosophy. They should also have a robust procedure for determining your attitude towards investment risk.
We’ve invested in an independent psychometric testing system that allows our clients to answer 25 carefully selected questions. This then helps us to create portfolios that match our clients’ investment risk tolerance and not only avoids any nasty shocks but, long term, provides them with a good investment experience.
The regulated environment in which advisers work means that the majority of financial advisers will be suitably qualified to advise. However much like any profession, the quality of planners can vary widely. Relevant experience advising and working with dentists for many years can make a huge difference to the advice you receive.
In the same way that you would be advised to find a specialist dental accountant or solicitor, it’s advisable to find a specialist Financial Planner that works primarily with dentists. You can then be assured your adviser is aware of the NHS Superannuation Pension scheme and issues such as incorporation that can affect their entitlement to it.
There are also specific clauses in insurance contracts that are relevant to the dentistry profession. I met a client earlier this year that had a critical illness contract that was not based on her ability to work as a dentist. The previous adviser had assured her it was a suitable contract but their lack of experience working with dentists meant the client wasn’t fully covered. We found an alternative plan with “own occupation” and the client has the peace of mind knowing she’s covered as a dentist for very little difference in monthly premiums.
So if you want your money to work harder for you, you’re keen for some financial security or you want to know how you’re going to achieve it, start by organising your finances now with some Financial Planning.