ITL Financial Planning prescribes super medicine for two GPs

At ITL Financial Planning, we meet a lot of very successful business owners. People like Alan and Mary Brownell, who have a busy medical practice on Sydney’s north shore.

Over the past 20 years, the couple, who are both GPs, worked incredibly hard to build their practice. Like most successful business owners, they were passionate about their work, committed to their patients, and determined to ride out the bad times and celebrate the good.

And like most medical professionals, they had invested heavily in their practice – by buying the premises in addition to all the costs of running the business – and in their family home.

Getting the investment mix right
When the Brownells came to see financial planner Nick Lloyd, he immediately saw that the couple had a very low superannuation balance, and almost no insurance. The couple’s investments were almost entirely in property.

‘Like most self-employed people, they’d focused on growing the business and paying down their mortgage,’ Nick said.

At first, Alan and Mary weren’t too excited about addressing their super. But Nick helped them to understand that contributing money to super was a better long-term strategy than just paying off their home loan.

’For people like the Brownwells on high incomes with surplus cashflow, the tax savings on making concessional contributions to super means that they were better off in the long run making use of their concessional caps. They were always going to be able to pay off their home loan before retirement, but gone are the days where you can make large, tax-effective contributions in the final years before retirement. You now need to plan ahead’ Nick explains.

High financial rewards come with high financial risks
Following Nick’s recommendations, the couple took out a modest level of life insurance cover, including income protection for Alan. At the time, Alan was earning two-thirds of the family’s income, so they didn’t want to pay for an income-protection policy for Mary. As their mortgage was small, Nick was comfortable that they could still meet their goals if Mary was unable to work.

Establishing a self-managed super fund
Alan and Mary wanted to buy a bigger home, closer to their work and public transport as their kids approached high school. To help plan ahead, Alan and Mary wanted to reduce the mortgage in their personal name by transferring their business premises into a SMSF as well as take advantage of the tax benefits of holding their commercial property inside super.

Nick and Shereen helped them to implement a diversified investment strategy. ‘We transferred their business premisesinto the SMSF, and made sure the SMSF was diversified away from just direct property by adding a direct share portfolio,’ Nick said.

‘Diversification is an essential part of any successful investment strategy. By diversifying, you maximise return while offsetting risk by spreading investments among different asset classes.’

Doctors, insure your financial health
Alan and Mary then bought a beautiful home in Roseville, on Sydney’s north shore. As a result, they suddenly had a much bigger mortgage that depended on both incomes.

When discussing their new home, Nick and Shereen immediately advised them to take out more life insurance, and to add income protection for Mary.

The new insurance policy came into effect in July 2016. In August, Mary started experiencing a health problem that meant she could not work.

‘The insurer paid every single cent of Mary’s claim even though she’d only had the policy for one month,’ said Shereen, who managed the claim on Mary’s behalf.

Receiving the income protection insurance payments made a huge difference to Alan and Mary. Under the policy we recommended, Mary could still work up to 10 hours a week doing the books (if not seeing patients) without affecting her claim.

‘We followed up with them about insurance because we genuinely felt it was in their best interests, as their objectives would be compromised if Mary couldn’t work’ Nick said. ’It took a little convincing, but they are glad they followed our advice as the insurance payments have made it possible to continue paying their mortgage, allowed Mary to focus on getting better and it took the stress out of Mary’s need to return to work.’

Financial planning for the future
Despite Mary’s health scare, the two GPs are well positioned to take advantage of the long-term financial benefits of their business. Now in their mid-40s, they have a thriving practice, an investment strategy in place, and a plan to transition to retirement.

By working with financial planners Nick Lloyd and Shereen Churchill, Mary and Alan Brownell now have an investment portfolio that reflects their circumstances and their level of comfort with risk; they have a plan that grows their wealth while protecting their assets; and, most importantly, they have the peace of mind that comes with knowing that they will enjoy a comfortable retirement.