An Introduction : Financial Planning Process and Plan
It is common to think of financial planning as largely being concerned with investment selection and management, but that is just one part of the process. Generally, a planner will follow something like the following process and it continues to apply in the case of expatriates, although most planning in an expat context often deals with circumstances well outside the norm and the "exception tends to be rule":
- Collect your financial information
- Identify your long term aspirations and lifestyle goals
- Pinpoint where you are now in relation to those goals and where you want to be
- Agree a financial plan
- Implement your financial plan, and
- Undertake a periodic review of your financial plan to ensure it stays up-to-date and relevant to the current economic climate and your changing lifestyle.
A Financial Plan should normally include/consider the following, with expatriation having a major impact on most of the planning elements:
Long term Aspirations and Lifestyle goals
These are intrinsic to a successful plan and need to be clearly identified by the planner and client in concert. These are often more complicated with expatriates who often contemplate living in more than one country on retirement, perhaps have acquired dual citizenship or because they have family members based, or perhaps being educated, in different parts of the world.
There is also often a desire to keep "options open" in terms of where an individual might eventually retire, or indeed work, and that is understandable - but it can detract from how efficiently you can optimise your financial affairs.
Alternatively, we are often involved in planning the return to Australia of expatriates who have spent significant periods of their life overseas, either in one locale or internationally mobile. There can be quite some complexity attaching to ensuring that substantial moves occur in a tax and financially effective manner, with programs often playing out over a number of years.
The plan will be driven by "assumptions" such as rates of return, inflation, taxation rates, retirement age(s) and life expectancy. When you begin to deal with retirement and taxation regimes in more than one country, and try to optimise opportunities and defer costs, then the exercise often becomes appreciably more complicated than those applicable to purely domestic clients.
Tax issues will normally form an intrinsic part of any plan - both from the perspective of tax minimisation and as a driver for the type of investment product that might be chosen. Planning on the basis of multiple, often overlapping, tax and fiscal regimes is the norm with expatriates - even for those returning to Australia.
Indeed, in many circumstances, such as where Australian expatriates are based in the US, a financial planner should have a clear understanding of an expatriate's tax position prior to providing financial planning advice because it can it can introduce constraints.
Superannuation and Retirement Planning
Lifestyle targets need a certain level of income to support them - superannuation and retirement planning considers how that income can be generated with savings and investments put in place to achieve those goals. These need to be integrated with the social security and tax regimes of the eventual country(ies) of retirement or, if the retirement destination is unclear, designed on a basis that maintains flexibility whilst impacting to the smallest possible degree on tax optimisation.
An expatriate lifestyle introduces a greater level of uncertainty and complexity into financial planning than is often appreciated. That is not an excuse however for expatriates "not" to be proactive about financial planning, indeed it is the reason why expatriates perhaps more than any other section of the wider community need to actively embrace financial planning if they are to extract full value from the opportunities expatriation can provide.
It will probably not be surprising to understand that an important part of our services to both Australian expatriates and migrants involves providing advice with respect to international pensions, and particularly their transfer to Australia, where appropriate and tax efficient.
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