David Lunn, founder of Foundation Stone Financial Planning chatted with the straight-talking presenters of Kilkenny Today Business, Fran Grincell and Pat Treacy, on Community Radio Kilkenny City.
[The interview kicks off at 3 mins and runs until 26 mins.]
Fran (on financial planning): It’s something that most of us dread and don’t understand. Would that be fair to say?
David: Yeah, I think for a lot of people, they’re frightened of looking at it in any great detail, because they’re nervous that they’re not going to have enough money or that they’re not doing things that people would view as being the right things to do with their money.
And they get themselves in knots. They say I can’t do the math or this and that.
And they tend to let money control their lives as opposed to having control over their money. And that’s a really subtle, but very important difference.
Fran: You come from a very normal background. Your father was a policeman and your mom was a nurse. You happen to be raised in Bermuda. When you look at money and how it changes people, you must have a different opinion of money then.
David: Money is a tool. You see money allows you to live the sort of life that you necessarily want.
It’s not the pursuit of money. That’s important. It’s about using your money to live your best life possible.
Money is not the objective. Living your best life possible with the money that you have is and there are lots of things that you can do simple things that can make that work for you.
Fran: I was talking to Pat the other day – he’s a funeral undertaker in Callan and I was just saying you not put a hitch on the back of that hearse – a lovely chrome hitch to give people something to talk about. My point to you is that we can’t bring it with us. Should we be spending it…and every generation makes their own and don’t worry about anybody.
David: Everybody has a different approach. And there’s no right or wrong answer to any of those approaches. Some people want to make it and pass it on to the next generation. Other people with their last cheque – they expect it to bounce…is to the undertaker. There is a whole gamut in between.
The secret to this is to create an understanding of your own relationship with money. What is your relationship with your money? Is it as I said before controlling you? Are you controlling it? Do you spend freely? Are you happy to take risks? Do you want to live for today? Or are you the type of person that’s a saver and do you want to save all your money?
Fran: Most people struggle week to week…and there are different levels of wealth…Should we all be in a position to save or has society forgotten how to save?
David: There are ordinary people that are very good at saving, and we see them all the time.
One of the things I suggest to people when they come to me is that they bring with them their last three bank statements. And we sit down, we add up all their expenditure. We look at all their income, and we subtract the expenditure from the income.
If it’s positive, great. They’re in a position that they should be in.
If it’s negative, it probably means that they’re making ends meet through dangerous means by overdrafts which are very expensive and credit cards which are very expensive.
Fran: Your own opinion of life as you’ve seen come up along and the industry you’re in – are we constantly sold dreams of what success really is and are there fraudulent?
David: You have to remember that we live in a consumer society and consumerism is very high up on people’s agenda, especially people that are selling you that dream. I think you need to make your own dreams and your own plans. And what we do in our financial planning space is we look at what it is that you really want to do. Let me ask you a question.
If you were to sit down tomorrow with your doctor and he was to tell you have a year to live, what are all the things that you would like to do and are they important in your life?
Because those are the things that are really important. And not a new car every three years necessarily, not the big house that costs a fortune to heat. Do you see what I mean?
And I’ll bet you any money. If you were to list those things out – there will be more time with your family. Enjoy a couple of good meals, maybe enjoy a pint go out.
Do a bit of walking, enjoy the air, the atmosphere, your next breath would be different.
It would be different because you’d realize that it was now and the real thing. When you come down to this is that we don’t know when that moment is. We’re not given the privilege of knowing
Fran: Why do we behave the way we do? Why do we get caught in that race?
David: I can’t answer that question, I’m not a psychologist. I just think that we’re told so many things are good and they’re marketed in such a way that they appeal to us.
But I do think that we need to have some realism in our lives.
Fran: Just something that I like talking about is life cover and income protection. How naive are we on all of that?
David: The two things do very different things. Life cover pays out a lump sum if you die to your loved ones in your beneficiaries. That has a purpose if you have young children that need to be supported, etc.
Income Protection pays out a percentage up to 75% of your salary if you’re out through illness or disability for an extended period of time. The thing that we don’t understand is that you’re 50 times more likely to be out of work through disability or illness, then you are to pass away.
Fran: How expensive is that income protection?
David: It can be up to five times life cover. It depends on your age, your type of employment. There are lots of factors. All insurance is linked to age. The older you are, the more likely you are to be ill.
The thing about income protection is that a lot of your financial future disappears if you don’t get any income.
I had a case recently with a teacher who’d been teaching for 20 years. She was in a very bad car accident, couldn’t go back to work – and her income protection, which she had purchased a number of years before, is now paying her 75% of her full teacher’s salary until she reaches age 65.
That’s a huge financial benefit for 20 years. If you think of that, and you add it up over 20 years, it works out in the millions.
Fran: How many people talk to you about income protection?
We try and include it in all our discussions with our clients, where appropriate. Obviously, if you’re retired, income protection isn’t appropriate – but for people that come to us looking at their financial futures.
I had another case where there was a client with a lot of life cover. But his risk was he had 10 years to go to retirement.
If he couldn’t earn a living, all his financial plans – his pension and everything – goes out the window. There would be no income. So we diverted some of his life premium into income protection premium because that was the right thing for him to do.
Fran: Why do insurance companies on ads seem to dwell on life cover? Is that mean there’s more money in it for them than on income protection – there seems to be a harder sell.
I don’t know why – I can’t answer that questions but you need to consider both and what’s appropriate for you.
Fran: When I met you in the street the other day, you said to me “Any plans to retire?” – which isn’t going to happen…but you were telling me that people struggle after they retire with that sense of purpose.
David: There have been a lot of studies now done…that clearly demonstrate that one of the biggest risks to people at retirement is that suddenly they have 40 to 50 hours a week to fill.
The second thing is they were an important person in their job. Now, they’re out of the job, they lose that sense of importance and influence and who they are.
So it’s very important that when you’re planning your retirement, you don’t think about what you’re leaving. You think about what you’re going to do because it’s going to that needs the planning. The leaving is done.
You have your party and wave goodbye and away you go.
It requires thinking about before the event because after the event, you’re probably you’re suddenly in a position where you don’t have a schedule to meet, you don’t have anybody to go and see. You have all this time to fill.
So the whole objective really is for you to think about what it is you want to do, and maybe do some practice or some training, but it’s to bring purpose into your life when you’re retired so that you have a reason to get up in the morning.
It also stops you from taking on an unhealthy lifestyle. Because if you have nothing to go to, you find something, and it may be that it’s going for a pint at 12 o’clock or it may be that it’s sitting in front of the television and eating bad food all day and those are all unhealthy lifestyles.
Fran: You don’t come across as a salesman. There’s no hard sell. You don’t do that – there’s obviously a part of you that likes people and wants to get results.
David: Let’s go back to retirement. The reason I actually started foundation stone financial planning was because I don’t expect to retire. I’m 62 this year, and I started my business when I was age 60. And the idea is that if I had gone to work for somebody else at age 65 somebody would have turned around to me and said we need your seat, you know. So the whole idea behind this business for me is it’s going to keep me going until I’m ready to leave at 75 or, you know, whatever, whenever exactly.
Fran: You like people…I have met you in loads of different scenarios….life is much easier when you like people.
Yeah, I get on well with people. I enjoy the conversation.
The other really exciting thing for me is providing people with good, useful advice.
That’s based on years of experience. The advice is much more valuable than the product at the end of the day. Because if you get the advice piece right, it makes the product piece very straightforward and very simple.
If you sit down and do your meeting somebody and they’re 45 and they’ve suddenly realised, I’m going to need money to meet my lifestyle in retirement. You show them what that looks like. And you advise them what’s the best way to do it and what sort of returns.
Fran: I never hide the fact that I don’t like banking institutions. I have no time for the way they sell and you’ve come to that but you seem to have come out unscathed by that.
As regards you haven’t been damaged by the process…people’s mindsets are damaged by what happened in 2008 with selling shares…do you find it hard to overcome that as an ordinary lad – do they feel that they’re something in it for you like the banks?
David: Our primary business is financial planning with the production of a financial plan, which is tailored to each individual. You would become my customer you would pay me a fee for my time in producing the financial plan. So, I don’t need to sell you a life policy or a pension or an income protection policy to make a living…and the other thing that it does is it makes that advice objective.
Fran: Do you find that the personality you have then suits you well, in the care you’re giving to clients?
David: Yes – always has!
Fran: Might I ask what’s the best age to go at something like this?
David: It depends very much. I mean, the earlier you start planning for your retirement the better, there is no doubt about it. Time is the one thing that you cannot replace and you cannot buy. Time makes a massive difference.
If you start saving small amounts of money very early in your life, you will end up with a big sum of money in the end. That’s empirically proven time and time and time and time again.
The people that come to me most often are those who are in, what I call “the second week of the holiday”.
They’ve gone away on their holiday. They’ve had a good first week and they’ve had a great time. They’ve done a lot of the activities and things.
They look up and they see “Oh, next Saturday, I’m flying home. I’ve got to do a lot more activities.”
And it’s the lad who’s looked up and he said, “Okay, I’ve raised my children. I paid off the mortgage. The business is going well. What happens to me in 15/20 years’ time? How do I make sure that I can get to that point with all the things that I need and I want?
That’s the lad who generally comes in – he’s under a bit of pressure now because time is against them.
Fran: How do you avoid some of the bad packages that were sold previously by banks as regards to safe investments?
David: There are two things that drive investment decisions, fear and greed. There’s fear of loss, and desire for gain. Those are the two primary drivers in all investment decisions.
We try and remove those by looking at what is it that you want to do with your money in the future and how much is it going to cost? So if you want to work for the next 15 years, and then you want to put a nice workshop into your garage and do woodworking.
What’s that all going to cost you to keep yourself going etc?
We can then work back from that and determine based on what you can afford today, what sort of return you need. And that return is then related to the risks that you need to take. As opposed to the other way around.
I’m not going to come and sit down with you and say oh, by the way, I have this investment over here that’s going to generate 12% per annum because that’s nonsense. But what does 12% per annum mean? And if to get the 12% per annum you could lose 45/50/60% of your money. Is that appropriate?
So that the real thing is to identify what is your goal, your objective and what you really need, what you can afford, and then we fill the gap with investment return if needed. And sometimes, it’s not. Sometimes the lowest possible return is just to avoid inflation risk.