Back when I was active as a financial planner, I met someone who presented me with a conundrum. In fact, it’s one I am still struggling to answer. I wonder what your solution would be?
Meet Ted. Ted had founded his business some 20 years earlier. When I met him, he had recently sold his business to a large corporate for a lot of money.
There was an initial payment of £9m. A further payment of £3m would follow after two years, during which he needed to work for the business. A typical ‘earn out’.
Along with pension investments that Ted had already built up, the initial payment meant that he and his family had financial security.
Indeed, he estimated that they had around twice as much as they needed to do all the things they wanted to do in life and still leave a large inheritance for his two children.
This all sounds pretty healthy, right? What could be wrong with that scenario? Well, there was one significant fly in the ointment: Ted was not happy.
He had sold his business because he wanted to do something different. He had plans and ideas.
How to plan your business exit strategy
He wanted to open a bicycle shop; he wanted to get involved with a charity that had been of great help to his mother in her last years; and he wanted to travel with his family before the children went off to university.
Ted was, however, unable to do any of these things because the terms of the earn out meant that he was required to work for a further two years. His job continued to be stressful, with high demands on his time and ambitious growth targets.
Ted was having to wait two years before he would be able to enjoy the money that he could see in his bank account.
Ted had spoken to his advisers. His wealth manager, his solicitor and his accountant had all told him that if he left before the end of the two years, he would not get the final £3m payment and therefore he must continue to work.
I met Ted at the party of a mutual friend. I had recently published The Financial Wellbeing Book, and the host had suggested to Ted that he talk to me about his situation.
Ted was resigned to being unhappy for the next two years. He wasn’t really expecting any bright answers, just interested in my view. I asked what he would do with the additional £3m.
Ted was going to work for two years being unhappy doing a job he didn’t like to gain money he didn’t need and that he would probably give away
He was rather vague, but knew that he did not need it for himself or his family. He would probably give it to family members and was thinking of establishing a charitable trust.
I repeated what I had heard to ensure my understanding was correct: Ted was going to work for two years being unhappy doing a job he didn’t like to gain money he didn’t need and that he would probably give away.
Ted looked at me for a moment. We chatted for a bit more, clarifying that there was very little flexibility with his work, that he really didn’t enjoy it any more, and that he really did seem to have only two options.
Are you suggesting that I should stop work now to do things I want to do, and lose the £3m?
Eventually, Ted asked me the crucial question: “Are you suggesting that I should stop work now to do things I want to do, and lose the £3m?”
How would you have answered this question? Ted was not, at that time, a paying client, so we were just having a chat at a party. But what if you were his financial adviser? What would your advice have been to Ted?
On the one hand, the answer seems easy. Surely happiness comes first? Ted didn’t need the money, so why work? Imagine Ted worked those two years and got out just as the kids left home; even worse, he got an unpleasant health scare.
If it were me, I’d get out now and have some fun. But that means advising someone to let go of £3m. That is a mighty big call! This was certainly more than Ted’s other advisers felt able to do.
This conundrum, then, gets to the heart of what financial planning is actually for. Is the primary objective of advice like those other professional advisers, to maximise wealth? Or is it to maximise wellbeing?
How would you have advised Ted?
Chris Budd is author of The Four Cornerstones of Financial Wellbeing
His new Financial Wellbeing Pulse is a way of measuring the relationship with money and demonstrating the impact of your advice
