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Three ways to encourage your clients to plan early

Paul Latham

This article first appeared in Professional Adviser.

If something’s important, you put it at the top of your to do list, right? Well, not necessarily. As you’ve probably experienced yourself, some clients put off important planning for months, years, or even decades. In doing so, they run the risk of leaving themselves underprepared. What’s more, it’s a risk that, in many cases, offers no obvious reward.

Take estate planning. There are clear advantages to timely planning, especially for strategies like gifting, where it takes seven years for assets to become fully exempt from inheritance tax.

Or consider those clients who wait until the last few weeks of the tax year to make a tax efficient investment, only to find there are fewer options available.

A simple way to add value for clients is by nudging them towards earlier planning. Here are three straightforward tips you can use to do that, depending on the type of planning you’re doing with your client.

Estate planning: Show clients how they could retain control of their assets

One reason clients delay their estate planning is they don’t want to give up control of their assets. After all, they may need them later on, for example to cover care home fees.

What clients may not know is there are solutions that can reduce their inheritance tax liability while letting them retain access to their capital. Shares in companies that qualify for Business Property Relief (BPR) stay in your client’s name. That means your client can sell them later on if need be.

If your client holds BPR-qualifying shares for at least two years, and is still holding them when they die, they should be able to pass them on free from inheritance tax.

Clients should be aware that BPR-qualifying investments put capital at risk, and they may not get back the full amount they invest. Also note that tax treatment depends on personal circumstances and could change in future, while inheritance tax relief depends on the portfolio companies maintaining their BPR-qualifying status. Investments in smaller and unquoted companies may also be more volatile in price and harder to sell than shares listed on the main market of the London Stock Exchange.

For some clients, a discussion about BPR can be a great way to start a broader conversation about different estate planning strategies.

Tax planning: Help your clients save money by acting early

When it comes to tax planning, the advantages of waiting until later in the tax year are increasingly outweighed by the disadvantages. While it’s true that some clients will have a better idea of their income for the year the later they leave it, it seems this is becoming less important as time goes on.

At Octopus we’ve noticed more inflows into venture capital trusts (VCTs) are happening towards the start of the year than used to be the case. The notion of a ‘planning season’ is rapidly becoming a thing of the past.

With VCTs in particular there are strong reasons to start planning early. Clients who leave it until later in the year risk missing out on early bird discounts, which would mean paying more for the same VCT.

Leave it too late, and they may miss out on their first-choice VCT if it reaches capacity. They could even miss out on making a VCT investment altogether for that year, foregoing any income tax relief they might have claimed.

ISAs: Introduce clients to a whole new asset class

Here’s some more evidence that planning has become a year-round affair. We recently surveyed advisers and asked them when they tend to do the bulk of their ISA planning with clients. Nearly half said they do it early in the year. Only 24% said they do their ISA planning towards the end of the year, with the rest tending to do it in the middle of the year.

What this tells us is that clients are ready for a planning conversation right now. The trick is to find something that will engage them.

When it comes to ISAs, this can be something of a challenge. Despite the lousy rates on offer, many clients just stick their annual allowance in a Cash ISA, leaving little scope for advice. But the reality is investors actually have more choice than ever before when it comes to ISA planning. And there is scope for advisers to help them make the most of these opportunities.

Since 2016 the Innovative Finance ISA (IFISA), for example, has made it possible for clients to hold property-backed debt in an ISA wrapper. This gives them access to an asset class that targets better returns than cash without putting more money into the stock market.

Like a Stocks and Shares ISA, IFISAs put capital at risk. Clients should also be aware that assets in an IFISA are not covered by the Financial Services Compensation Scheme.

A win-win for you and your client

Early planning can save your clients money, help them target higher returns and give them peace of mind by getting their affairs in order. It’s a simple way to make a huge difference.

For journalists in their professional capacity only. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest. Tax treatment depends on individual circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their qualifying status. The shares of smaller companies and VCT shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell. Personal opinions may change and should not be seen as advice or a recommendation. We do not offer investment or tax advice. We recommend investors seek professional advice before deciding to invest. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone. Issued: April 2018