There are a range of reasons that, at various stages in their lives, clients face the prospect of transitioning from two incomes to one. A couple preparing to have a baby, one facing retirement, or even clients facing involuntary job loss will all need advice specific to a significant change in cash flow, whether temporary or permanent.
Where to start
As an adviser, identifying the reasons behind the shift from one income to two will be the main driving factor in how you tailor your advice. Anne Graham, Principal and Financial Planner, says that a lot of factors can be at play, so getting a good view of your clients’ situation is crucial. “It depends a lot on whether the transition is by choice or not,” she explains. “For example, is it part of retirement planning, or forced redundancy?”
David Simon, Partner at Westpac, agrees that having the full picture is the most important first step for an adviser. “It’s not only important to ensure that your clients have a good, comprehensive view of their budget and financial situation,” he says “but also that as an adviser, you take a long, hard look at all the factors at play”. It’s not a case of licking your finger and sticking it into the wind – to really help your clients you need to get a warts-and-all look at how things stand.
Help clients feel empowered
Anne Graham believes that the more advisers allow clients to feel as though they are in the driver seat when it comes to their finances, the more successful the outcome. “Helping the client identify and recognise their spending habits is the first step and that can be done by using a budget or a spending plan. The budget will help clients identify expenses that may need to be cut. If the adviser is the facilitator and the client is making the decisions, there is more ownership by the client, giving them a sense of control and therefore more likelihood of success.”
Talking tax
Helping clients understand their changing tax obligations is one way in which advisers can really add value to those seeking to transition from two incomes to one. “Ensuring that any existing assets that are generating passive income can now take advantage of a tax-free threshold is important,” explains David Simon. “It would be ideal to have assets in the non-income-bearer’s name due to benefits around marginal tax rates.”
Insurance
Finally, insurance becomes even more important for a couple solely dependent on one partner’s income and advising clients on which product best suits their needs is crucial. “When there’s a dependency on one income, income protection is probably the most vital consideration,” David argues. “There needs to be a good level of self insurance in place at all times.”
The information provided is factual only and does not constitute financial product advice. Before acting on it, you should seek independent financial and tax advice about its appropriateness to your objectives, financial situation and needs.
Information in this article that has been provided by third parties has not been independently verified and BT Financial Group is not in any way responsible for such information.