When did you last check in with your financial plan?

6 January 2020

BY OUR PARTNER YOUR FINANCIALS

Not all financial plans stand the test of time. Getting it tuned up regularly is a good way to relieve some financial stress!

It happens to many. There was a good reason to look into your personal finances at some point. You did or did not approach an adviser, made the best possible decisions and went on with your life. But situations change and several financial plans simply do not keep up with you, your family or with a changed tax or legal environment. In 2019 our practice for international clients really took off and we ran into all sorts of financial challenges for clients; some had been dormant or ignored for years, some came out of nowhere. Let me give you a few examples of situations needing action.

  • A senior specialist of UK origin, immigrated 20 years ago, lost his job unexpectedly. This impacted retirement plans several years down the road for him and his wife and raised serious questions about making continued mortgage payments. To support the legal fight of the specialist’s attorney it made sense to include pension damage in the negotiations and when the question was raised “Can we emigrate to the UK?” an analysis was needed. The mortgage was more than the value of the house, the interest on the mortgage more than double the current market rate and pension capital gathered before immigrating in the Netherlands was transferred into the Dutch pension scheme. The (increased!) severance payment and existing savings bridged the financial needs until the house in the Netherlands was sold, and pension capital of the couple will now be paid into the Euro denominated bank account in the UK, providing a comfortable base income. You can imagine the emotional rollercoaster!
  • A Italian origin couple in their thirties wanted to discuss an investment strategy for them and their children. I knew they had investments connected to their Italian relatives. During the process we found out that one of the couple had been receiving a small salary income from a co-owned company in Italy on which Italian income tax had been paid. But as Dutch tax payers you need to disclose your world income. Dutch taxation is then partly reduced given Italian tax paid. So they are now in the process of settling matters with the Dutch Tax Authorities before we start planning the financial future in more detail.
  • Another couple in their late thirties with busy professional lives had been putting income excess into their now finished home improvement for the past years and mortgage payments will be low for a long time. Because of bleak pension return expectations they wanted to find out what commitment would suit them so they have a more positive expectation of pension capital. Two roads explored: a home in France to be rented out for 10 years and then after a couple of years of renovation ready for future family use or participate in an investment fund strategy with enough upside potential. Main questions are what can we afford to miss as starting amount and what can we spare from income going forward. Of course a comfortable cushion for living now and having sufficient buffer for unexpected reasons. So it was a process of education, discussing, checking, testing, ensuring after-sales and portfolio management.
  • Another client had, because of his expat life, participated in a global investment insurance policy and had contributed serious amounts over a 12 year timespan. The problem was the disappointing return. Worse still: the policy was like the Eagles’ Hotel California: you can check out any time you want, but you can never leave. A complex penalty structure applied. This prevented the client deciding to stop or not. We discussed the client’s intentions with the client’s adviser in Kuala Lumpur, made a plan how to best time the exit so break costs were minimized, and made sure the formalities were duly met. Because of a good year on stock markets the actual damage was less than anticipated and the strategy saves throwing €40,000 good money after bad.

One of the most significant financial decisions is your mortgage. Anyone with a date your interest rate expires within the next 3 years should have examined if it makes sense to change the rate. We still meet people paying over 4.5%. We recently reduced a couple’s monthly bill from €2.200 to €700. If that is not serious money I do not know what is.

And some young couples want to buy but have different wealth histories and may not yet want to tie the knot legally. There are legal solutions to deal with that. It does not need to restrain you or your child.

One of the most rewarding subjects we deal with is estate planning. Making sure the expected inheritance actually lands where it is supposed to. And if you start timely, a lot can get there while you are alive. The Dutch tax regime has several interesting features in this respect.

A financial planner is your financial G.P. We master a lot of taxation, family law, business law and investments. A Certified Financial Planner is being monitored and must put significant effort in staying up to date in various fields. That way anyone needing a financial plan actually gets something useful. But it is not set in stone. It needs updating every now and then!