Demystifying Financial Planning: What Does a Financial Planner Do?

Inspired by a trip to the website answerthepublic.com (which is always an interesting visit, try it if you haven't yet), I have been thinking about how this blog can be as useful as possible to readers.

Sometimes the content is technical, like with our recent explainers about Child Benefit and Tax Year End Tips. 

But now, we're diving into something less technical yet equally useful: understanding the role of a financial planner.

---

This blog series is about all of those things you wanted to know about Financial Planners and Financial Planning, but never got the chance, or didn’t feel comfortable asking.

Before we delve into it, let's clarify something. In the world of finance, there are various labels used to describe roles : Financial Planner, Financial Adviser, IFA, Financial Coach, Wealth Manager, and more besides.

For the sake of clarity, we'll focus on the role of a Financial Planner in this piece, with plans to unravel the differences between the other roles in a future post.

I introduce myself as a Financial Planner. So, let's kick things off with the fundamental question: What exactly does a Financial Planner do?

---

As You Become a Client

The journey begins with your Financial Planner getting to know you—your hopes, fears, aspirations, values, and financial goals.

A skilled Financial Planner will not necessarily always take what you say at face value. If relevant, and you are comfortable, a Planner may gently challenge your assumptions and thinking. This is designed to help you uncover possibilities you may not have realised existed.

This deep understanding of you forms the foundation upon which your personalised financial plan is built. This is where things move from conversation to becoming visual.

A financial plan is not just a document; it's a visual roadmap tailored to your unique financial situation. Using sophisticated software and sensible assumptions, your Financial Planner crafts a holistic view of your finances via a cashflow forecast, projecting your financial future based on current data and long-term goals. You and your Planner go through this forecast together in a meeting and can look at 'what if' scenarios, to see the possibilities that lay before you.

This forecasting helps in lots of ways. It identifies where you are on track and where you may need to change course to be able to do the things you want, without fear of running out of money later on. 

This helps with that age-old issue of 'living today vs. saving for tomorrow'. Without this longer-term picture, you can otherwise only go with a gut feel of whether spending is affordable or not.

Typically a planner will then send you your financial plan as a document, containing key highlights and commentary related to the forecast you went through together, and outline recommendations for how you can improve your position both now and in future.

---

After Planning comes Advice and Implementation

Once the plan is in place, it's time to put it into action. This may involve adjustments to your savings, investments, insurances or retirement plans. Whether it's a minor tweak or a life-changing revelation, your Financial Planner guides you through the process, recommending specific actions and products (think ISAs, Pensions etc) to help get you closer to your goals.

Implementing the plan and advice can be daunting, but with your Planner's expertise, it should become seamless. From choosing the right investment platform to optimising tax efficiency, they handle the details, ensuring your money is in the right place.

---

What Comes After?

Financial planning provides the most value to you when it is an ongoing process, not a one-time transactional effort.

Your planner schedules regular check-ins to review your progress, reassess goals, and make necessary adjustments. These meetings provide the time and space for you to think big picture about what you truly want, something rarely afforded in our busy lives.

This ongoing relationship is where the true value lies—built on trust, expertise, and a deep understanding of your life and how your money plays its part in that.

---

What Else?

Whilst the process above is the same for every client, no two people are ever the same.

There is nearly always other things for a Financial Planner to help with. It could be ensuring you've got your Will and Power of Attorney up to date. It could be working with your accountant if you're a business owner to ensure your business and personal finances are aligned, or it could be to introduce you to a fellow professional to help put in place private medical insurance.

If it's to do with your money, your Financial Planner should be able to help, or introduce you to someone who can.

---

The Greatest Value-add

While the tangible benefits of financial planning are evident, the intangible value lies in the relationship between you and your planner.

Beyond numbers and spreadsheets, they're there to support you through life's ups and downs, offering guidance, empathy, and sometimes, a friendly nudge in the right direction.

From a personal perspective, I genuinely believe it is one the greatest careers out there. I'm privileged to know the clients that I serve on a personal level, far more than other professionals get to with their clients.

At times I get to share in a client's happiness at how life is going, and at other times help pick them up if they need it.

I've been to client funerals, and likewise been there to help celebrate the births of children and grandchildren (not literally 'there' I should say!).

Credit: Kevin Nicolson, Financial Planner based in USA

---

A Financial Planner's role goes beyond crunching numbers; it's about empowering you to live the life you envision.

Whether it's achieving financial security, planning for retirement, or navigating life's milestones, your planner is there every step of the way, as much as you want them to be.

That is why if you scroll to the top-left of this web page, you will see the the words 'The financial guide by your side' as part of the Lab logo.

---

If you'd like to talk to us about your situation to see if Financial Planning can help, you can book in an initial consultation here:

https://calendly.com/labfp/intromeeting

Otherwise, see you next time.

---

The information contained within this blog post should not be taken as financial advice, as it does not take account of personal circumstances, which would affect advice given. Should you wish to talk to us about personalised advice for you, we'd be happy to do so.

What are the Child Benefit changes?

You can now earn up to £60,000 a year without losing any of the benefit.

The point at which you lose it entirely is when your income is over £80,000 a year.

These Child Benefit changes were announced in the Budget in March 2024, and will replace the current allowances and limits on 6 April 2024.

Previous Rules

Previously these amounts were £50,000 for when you started losing the benefit, and £60,000 for when you lost it completely. So, from April it will be at a higher starting point, and it is a more generous taper, as the taper earnings amount is now £20,000, rather than £10,000 as before.

Those are the headlines, but as ever with these types of things, the detail is important to understand.

Individual Basis Testing

For now, Child Benefit entitlement is still tested on an individual basis. That is, if you are a single parent, then it is simple; the amount you earn determines how much benefit you get.

When you are in a couple, be it married or unmarried, and bringing up a child or children together, it is assessed on the highest earner of the two of you.

Let's look at an example.

Mr Stevens earns £55,000 and Mrs Stevens earns £70,000 from their respective jobs. They have a 2-year old girl called Layla.

In this scenario, the benefit level is assessed on Mrs Stevens, as she's the higher earner.

On her income level, they will now get half the benefit available, as her income falls exactly halfway between the start of the taper (£60,000) and the end of it (£80,000).

The 2024/25 allowance for a single child is £25.60 a week. This means they will get £12.80 a week. Before these changes, they would have received nothing.

The full amounts for 2024/25 tax year are as follows:

• £25.60 for eldest or only child

• £16.95 for each subsequent child

The taper works by reducing the amount of benefit you get by 1% for every £200 of income you receive over £60,000.

Remember, you need to claim Child Benefit, as you don't get it automatically.

Action - check to see if it is worthwhile claiming Child Benefit from April due to the changes. If so, claim here: https://www.gov.uk/child-benefit/how-to-claim

Adjusted Net Income Rules

As outlined in the last blog post, which was all about pensions, it is important to remember that it is your 'adjusted net income' that is assessed as your earnings level when it comes to Child Benefit entitlement.

This means that if you make a pension contribution and would otherwise be over the allowance thresholds, your total income gets 'reduced' by the amount of pension contribution you make, and could mean you are entitled to more Child Benefit allowance.

For more information on how this 'net adjusted income' mechanism works, read here:

https://www.labfp.co.uk/post/tax-year-end-planning-top-tips-part-two-pensions

New Proposed 'per household' System from 2026

From April 2026, it is proposed that your entitlement will instead be assessed on a 'per household' basis. It hasn't been confirmed how this will work yet, but it is required to stop unfair situations arising.

Let's go back to Mr and Mrs Stevens. Currently, they have £125,000 income as a household and receive half the child benefit available for their daughter Layla, amounting to £665.60 a year.

However, let's say Mr Stevens reduces his hours down to part-time, and earns £35,000. Mrs Stevens gets a promotion at work, and she now earns £90,000 a year.

They have the same level of household income, but will now receive no child benefit because her income is well in excess of the end of the taper (£80,000).

The 'per household' change is designed to avoid such situations, but we will need to wait and see how this will be implemented.

---

They say comedy is all about timing. It is typical that I uploaded a post about how you can use pensions to get back lost Child Benefit allowance last week, and on the very same day it is released, the rules are changed in the Budget!

If you'd like help with understanding the implications of Child Benefit changes for you, ensuring your income is tax-efficient and working hard for you, come and book in a chat here: https://calendly.com/labfp/intromeeting

Otherwise, see you next time.

---

The information contained within this blog post should not be taken as financial advice, as it does not take account of personal circumstances, which would affect advice given. Should you wish to talk to us about personalised advice for you, we'd be happy to do so.

Tax rates are correct as at time of writing - 11/03/2024.

Tax Year End Planning 2024/25 - Top Tips Part Two - Pensions

Pensions needs its own blog topic, and there are two reasons why.

Firstly, because pensions have been messed about with so much that allowances and rules are different for different people, so we need to cover a few different examples.

And second, because pensions can be an incredibly good way of saving for retirement and making your income more tax-efficient now, so it needs the time and space to properly explain the tips to achieve that.

This is a more technical post, which is unavoidable, as there is a fair amount of tax to cover. But, as ever, we will try to speak in plain English and not lose you along the way!

Why put money into pensions?

Let's start with the obvious - pensions are designed to build funds ahead of retirement. Most of us aren't saving enough for retirement, so as the most basic of reasons, pensions do this well.

Over and above this, they can also can be incredibly valuable as a tax-planning tool for you now.

That mind sound a little odd, given that pensions are designed as a savings tool for later on.

They do this, however, through two key tax-efficiency features:

1. Tax relief at your highest tax rate
   

2. They reduce your income for the year to provide your 'adjusted net income'.

Tax Relief

If you make personal contributions to a pension, you'll get basic rate tax-relief automatically applied.

Let's take an example of contributing £8,000 in to your pension. It'll look like this:

Hey presto, £10,000 goes into your pension.

Hopefully to grow in the years ahead before retirement. Growth on the money you put in, and growth on the tax relief part.

Higher Rate tax-payers

If you're a Higher Rate tax-payer, you can also claim back a further £2,000 in tax relief in your tax return.

You'd therefore get £10,000 in your pension, plus £2,000 back, meaning it has cost you £6,000 to put £10,000 into pension.

Additional Rate tax-payers

If you're in the 45% tax bracket, you'll get the £2,000 immediate tax relief, just like basic rate and higher rate tax-payers, but you'll get £2,500 in your tax return.

But remember, you do need to claim it, it won't happen otherwise!

Some warnings on limits and allowances

Just be careful that you are limited to £60,000 annual allowance of contributions. This limit includes personal contributions, tax relief automatically applied and any employer pension contributions.

You also need to be careful that you do not contribute more than your earnings to pensions in any given year. If you do, you won't receive tax relief on the amount over your total earnings.

For those with total income over £200,000 your annual allowance of £60,000 may be tapered down, so you need to be really careful working out how much you can put into pension. This is something we can help you work out.

Reducing your 'net adjusted income'

Another reason pension contributions can be valuable, is that some types of contributions have the effect of reducing your income in the year contribute.

Making pension contributions means you end up with a lower 'adjusted net income'.

In plain English, this simply means reducing how much of your income is taxable. This is one of those pension tips that not a lot of people know about.

Our tax system is a little odd, so don't worry about the terminology, just know that bringing down your total income through pension contributions can be a big help.

So, which are the situations it can be valuable?

60% Tax Trap

For those people earning above £100,000, there could be a significant benefit to putting money into pension, as otherwise you'll be paying tax at an effective 60% rate on a chunk of your income.

This occurs because of the tapering of the Personal Allowance. The Personal Allowance is the amount of income you can earn before paying income tax, and is gradually reduced once your income exceeds £100,000.

For every £2 of income above this threshold, your Personal Allowance is reduced by £1. This effectively results in an additional 20% tax on income between £100,000 and £125,140 (for the 2023/24 tax year), on top of the usual income tax rates.

As described in the 'child benefit' and 'higher and additional rate taxpayer' sections above, if you can reduce your adjusted net income down below £125,140, you will start making some serious tax savings.

Meet Jenny

Jenny earns £130,000 from her job working as a programmer. She doesn't need all of her income, and is happy saving some for retirement.

On current (2023/24) tax rates, she'll take home £79,932.40 over the course of the year.

For ease, let's call it £80,000. This works out to be £6,666 a month.

That means she's paying £50,000 in Tax and NI, or an effective tax rate of 38%. Ouch.

If Jenny instead puts £30,000 into her pension, it gets topped up automatically by tax relief to £37,500. She can then claim a further £7,500 back in her self-assessment tax return.

The effect is that her 'adjusted net income' for the year is £100,000, and because of this, she regains her Personal Allowance.

She'll take home £67,803 instead of £80,000. Meaning take-home pay of £5,650 a month, around £1,000 less than when not making pension contributions.

Looking at it visually may help.

Look how much of the picture is red (tax) in the top line, with no pension contribution being made.

The red section is a lot smaller in the second line, with other benefits compensating for the loss of some take-home pay, such as tax back from her self-assessment return and money going into pension to save for retirement.

Child Benefit

If you've got children under 16 and you (if you're on your own), or you and your partner/spouse, have income of £50,000 a year or less, you should get full child benefit.

If one of you, or both of you earn over this, the benefit tapers down, until one or both of you earn over £60,000, and then you effectively get nothing, as it all gets paid back in tax if you claim it.

The rules actually state that the benefit payment is assessed on your 'adjusted net income'.

Lets say you earn £55,000 salary and have a child. As is stands, you'll lose half your child benefit allowance, meaning you'll miss out on £624 a year.

If you were to put £5,000 into pension as a personal contribution (not via work payroll), the government would add £1,250 as tax relief, so £6,250 would go into pension.

Your adjusted net income would reduce to £50,000 and you would get back all of your child benefit allowance. So you would get:

• £624 back in child benefit

• £1,250 tax relief into your pension

• An extra £946 tax relief to claim back via your tax return as higher rate tax relief.

Total of £6,250 saved for retirement, with an extra £1,570 back in child benefit and higher rate tax relief.

That's £7,820 total benefit from £5,000 of your money.

Action - see if making a lump sum pension contribution would make a difference to your tax position, but only if you can afford to do it!

Some things to be aware of:

• When making contributions, you need to be aware of the annual allowance rules

• If you have income of over £200,000 you may be subject to the tapered annual allowance

• All of the examples above are based on making personal contributions, that is contributions not through an employer pension or through a business.

• If making contributions through your workplace pension or as an employer contribution through a business, the calculations change and we'd be happy to discuss these with you.

---

See! pensions can be a lot more interesting than on the face of it.

No? just me? well, you can't say I didn't try!

If you'd like to help with pensions and making your income more tax-efficient and work harder for you, come and book in a chat here:

https://calendly.com/labfp/intromeeting

Otherwise, see you next time.

---

The information contained within this blog post should not be taken as financial advice, as it does not take account of personal circumstances, which would affect advice given. Should you wish to talk to us about personalised advice for you, we'd be happy to do so.

Tax rates are based on the tax year 2023/24.