Houston, we have a problem
What do you do when your clients have a shared vision of their lifestyle, but want to remain financially independent? How does that work? Can it even work? I’m going to need Apollo 13 for this one.
Here’s the thing
With financial planning, you’re often working with couples. And that means, as a Lifestyle Financial Planner, you’re helping them to establish what this great vision looks like for their lives together and then helping them build a financial plan to support that life together. It’s sweet.
But then what happens when they say, “ah, but although we want this joint life together – (we have a shared vision of our life and lifestyle) – we want to remain financially independent.” How does that work from a financial planning point of view? Well, it kind of doesn’t! and that’s the problem.
There are 4 scenarios you can come across with this.
Scenario 1. The Apollo 13
Sometimes, someone turns up on their own, even though they’re in a partnership. They tell you that they are financially independent. That’s fine, and now we discuss what they want their life and lifestyle to look like and we write to all down on the board.
Then we start to see if they’ve got enough materials and assets to support that.
Suddenly, they’ll start saying things like, “well, holidays are paid for by my partner,” or “I drive around in my partner’s car,” or “my partner sometimes pays for this, that or the other.” All of a sudden you realise that they aren’t financially independent on paper at all! They think that they are, in their head, (or they’d like to be, in their head) but they’re actually not.
So, how do you deal with that? Because once you start putting their partner’s stuff on the board, it’s like building a house with somebody else’s building materials, and still wanting the house to stand if they want those materials back! It’s not going to work.
You need to do an Apollo 13.
Do you remember Apollo 13? Their third mission to the moon, goes a bit wrong, there’s a small explosion on the spaceship and it damages their oxygen creating machine. They have to slingshot around the moon to try and get back to Earth before their oxygen runs out. The problem is, they’ve got about one days-worth of oxygen and it’s a four day trip back to Earth. So, it’s all going a bit mad at NASA as they try to work out how they can build a machine on the ship that will produce some more oxygen. A few hours later, the team comes out and says “we’ve done it! We’ve built this machine and it will make them oxygen!”
And the Flight Director looks at it and says, “brilliant! And are all of the components that you’ve used, on the ship?” and the team reply, “no, we’d need this, and we’d need that…..” So, the team were sent back to rethink and were told they could only use materials that they knew the astronauts had on the ship…..
Basically, it’s the same with your client. If they want to be financially independent, you have to tell them that you can only build a plan for them, based on what’s in their bank.
Scenario 2. The two plans
You have a joint couple, sitting in front of you saying, “we have a joint vision of our lives together, but we don’t want to merge our assets. We want to keep our assets separate as part of this joint plan.”
Technically, that could work. But it just can’t. It’s a right mess. It’s like asking an architect to build one house, but build exactly one half with a great big pile of materials and the other half with a smaller pile of materials – because you don’t want to share between. You end up with a lovely house with a lean-to on the side. It just looks a mess! And it’s inefficient because you need to put a washing machine and a sink in both halves, because they both need to work independently of each other. It’s just a big mess. You’ve just made it more complicated (and worse) by trying to make it better.
Actually, it’s a bit like the Channel Tunnel.
When they built the Channel Tunnel (because it was a joint venture between Britain and France), politically they had to both dig their half. We dug halfway with our machines, and they dug halfway with theirs because we each had to be seen to be meeting in the middle.
Now, think about from an engineering perspective. It’s madness! Nobody digs like that. If you want to dig a tunnel, you start at one end and you dig through to the other end. And if you do that, guess what – you get to keep the tunnelling machine because it comes out the other end. If you meet in the middle, where do the machines go? I’ll tell you where they go, they had to bury them – they are still under there because they couldn’t get them out again, all because they’d built the tunnel to meet in the middle! And the worst thing is, the machines didn’t even meet in the middle, they were off by about 7 metres, so they then had to spend months chamfering the sides to sort it all out. It was so inefficient because, politically, they wanted this separation rather than just agreeing to dig from one side to the other.
It would have been more efficient to dig two tunnels. I’ve digressed, but I think you get the idea. In that instance, you’ve just got to do two plans. Don’t create two false plans, just do two plans.”
Scenario 3. Interconnecting doors
Occasionally, you’ll come across a genuine example of when two people can live entirely financially separate lives with a joint plan. I have some clients who lived next door to each other for many years and eventually got together. They were bored of going out of one door and in the other – being the talk of the village. So, what they did was knock a doorway through in the dining room (between the two houses) and they’ve lived happily ever after. But, they are entirely financially independent. And you know what? If they split up, they could simply lock that door. Nothing else needs to change.
Scenario 4: That’s awkward
This is where you have two people in a couple and they want to see what their plan would look like if their assets were no longer mixed. And what you have to do there, is create a false income. You might say to them, “your plan would only work if you’re getting subsidised by your partner, to the tune of £1000.”
Because what they really want to know is, if you remove that £1000 – if I’m not with my partner anymore – what would my life look like? And it’s fine to demonstrate that, because they’re probably needing to know that as part of some decision that they are going through in terms of their relationship with the other partner – who is sat opposite you.
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