Somewhere around the age of 45 to 55, many people will have a change in career. This used to be called a mid-life crisis, now it is called a mid-life transition. At this mid-life point, there are typically two triggers for career transition for executives and professionals: the company may trigger it through restructuring/retrenchment or the individual may trigger it.
For executives and professionals, pursuing a career as a professional non executive director at this stage can be a professionally and personally rewarding career choice. However, those planning such a transition need to review their financial strategy and put in place the appropriate financial structures to protect their family finances.
Most peoples’ wealth comes in the last 10 years of their working life – they have finished paying school fees, the mortgage is manageable and they have peaked in their salary earnings. Whatever you do at this point will have a 5 – 10 year horizon out of the 20 years remaining of your working life. If you don’t put the appropriate structures in place, you can lose up to half of the productive time to build assets, wealth and retirement funds.
Typically people have two areas to address in preparing themselves financially for a career as a professional non executive director (NED). The first one is financial, which includes asset protection and asset structuring for cashflow. The second is building their skills and relationships so they can build a portfolio of interesting and rewarding board positions.
Ideally the financial restructuring should happen years in advance of transitioning from a full time profession to a professional board career. There is no point in transferring your house to your spouse’s name the day before a board crisis occurs.
It is prudent to seek professional advice about how to make this change and manage the risks to career, income, family and lifestyle.
Start While In Your Current Role
Reviewing your financial strategy and making any changes while you are still in your current full time role and building your portfolio of directorships is the best approach.
5 Things You Need To Do
- Seek professional advice, such as from a financial advisor, selecting an advisor who understands the needs of a company director. You need to have an open discussion and let your advisor know that this is your career objective.
- With your advisor, work through the timing and options for your redundancy package or golden handshake – consider what is negotiable remembering that building your board career is a long cycle (you may decide to “hang on” in your current role while you actively build your NED portfolio) and how to structure your payout to provide cashflow while you are building your portfolio of directorships.
- Protect and maintain your professional relationships, invest time in your professional networks, raise your profile and learn to network.
- Care for and make your family a priority – they are a part of this as well – with the appropriate insurances and estate plans.
- Invest in your professional development. The Company Directors Course run by the Australian Institute of Company provides a sound understanding of your personal liabilities as a company director.
In summary, professionals, executives and senior managers need to appreciate that a career as a non executive director requires a different approach to structuring and managing their finances. For most people it will take 12 – 18 months to secure their first NED position and several years to build an interesting and financially rewarding portfolio of directorships. Planning early will ensure you have an income stream while building your directorship portfolio and the appropriate wealth protection in place when your directorship career takes off.
View my comments on Managing Your Personal and Financial Risks when transitioning from exec to company director in this short video presentation.
Case Study – Preparing Financially for a Board Career
George is a 57 year old male, married with 3 children, he no longer pays private school fees, has a very modest mortgage on the house and his living expenses are much lower now than they were 15 years ago. He is the Chief Operating Officer of a well-known professional services business based in Sydney. Defined benefit super and insurance are tied to the company and as an Officer he carries commercial risk associated with the company. He has no other insurances. He sits on the board of the company as an Executive Director. He is also Chair of the industry association and sits on two Arts boards (unpaid). George has been offered the option of taking a voluntary redundancy as part of an ongoing period of “right sizing” across the Asia Pacific regional head office.
With the advice from Equitas Partners, George set about putting in place a financial strategy which would provide him with sufficient time and breathing space to build his portfolio of directorships.
- Established a personal super fund, with all key insurances funded by the super fund.Created an offset account on the mortgage so that if a redundancy occurred the funds could be put into the offset account.
- Established an equity access loan of $100k for any future capital needs, and left it undrawn.
- Put plans in place to draw a pension from the super fund to provide income until the board career pays a salary.
- Put a number of assets in his wife’s name.
The benefits of this strategy
- The super is established and invested so if George changes job this strategy does not change. This is done while George is still employed to better the chances of getting his insurance underwritten.
- Interest only mortgage means the principal is not being paid off therefore reducing the actual cashflow needed to meet the repayments.
- Drawing an income from superannuation provides an alternative cashflow source during the establishment phase of his board career.
- Key assets are protected as part of an overall risk mitigation strategy.
Over the following six months George invested in skills by undertaking a number of AICD short courses, attending networking functions and industry briefings and updated his profile on LinkedIn. He cheerfully accepted a redundancy package and now has a growing board career. In essence, George took control prior to the event and therefore had no disruption to his long term wealth creation strategy.
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation and needs.
Find Out More
To request a confidential discussion, click here or call Equitas Partners on 02 9492 0444.