We have acted as financial planners for a married couple, let’s call them John and Mary, for the last six years. They are pretty well off with a net worth of about £8 million. John runs his own business whereas Mary is retired. John is 63 and Mary is 61.

Over the last six years, they have invested £3 million with us in three instalments in 2015, 2018 and this year. Their investments and pensions have grown to £5 million.

We referred Mary to a final salary pensions specialist in Spring 2021 who recommended a transfer of her defined benefits pension scheme into a Self Invested Personal Pension (SIPP). The transfer value was £525,000.

John and Mary decided to move house in Autumn 2021. They initially considered cashing in £750,000 of their investments as well as selling their holiday home in Italy and their current home to fund the purchase of their new property.

I suggested they may like to consider taking out a mortgage for £750,000 instead on the basis that they could secure a 5 year fixed rate mortgage for less than 2% and that the investment returns they could make were likely to exceed this amount comfortably over a 5 year period barring another Black Swan event like the Coronavirus pandemic. They agreed. I referred them to a mortgage broker and he secured the mortgage offer for them. It was a difficult mortgage for them to obtain because neither of them have earned income which mortgage lenders usually require in order to offer terms. Instead, their only income was their investment income. John was living off of his monthly director’s loan repayments from his business of £12,500 a month. When he initially bought the company he lent it £500,000 too. Mortgage lenders do not usually count directors’ loan repayments as income.

Fortunately, my recommended mortgage broker was aware of a few lenders who will lend by taking into account the profits of your business as well as your personal income. In this way, the bank was able to lend them the money.

This is how I calculated the value-added.

The current valuation of the portfolio managed by us, £5m.

Investment cost £3m

Gain £2m

Extra gain, say, £750K (estimated value-added portfolio gain from advice, compared to if the clients had just invested by themselves – within the £2m gain above)

Borrowing instead of encashing £750K from the portfolio, gain of say £250K over 5 years (estimated investment returns net of mortgage repayments)

Total extra gains £1m

Cost £2.5m (average portfolio valuation over 6 years) x 0.85% x 6 years = £127,500 recurring fees

Initial fees £60,000

Total fees £187,500

Value added £1m/£187,500 = 5.33, say five times.

As you can see the value we have added is five times the fees we have charged over the last six years.

So if you are interested in value-added advice from a professional financial planner why not appoint one? You know it makes sense.*

*The value of your investments can fall as well as rise and are not guaranteed. Past performance is not a guide to future performance.

The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. All information is based on our current understanding of taxation, legislation and regulations in the current tax year. Any levels and bases of and relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.

The information in this blog is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of lenders.

Your home may be repossessed if you do not keep up repayments on your mortgage.

If you transfer from a Defined Benefit (DB) scheme (final salary) to a (DC) Defined contribution scheme, you may lose the guaranteed lifetime income from your DB scheme, for you and your dependants and may have less income in retirement, particularly if the value of your pension pot falls, as you may run out of money in your lifetime and a transfer may not suitable for you. Please refer to a pension transfer specialist for this type of advice.