Case Study: Jack (37) and Katie (36)
*Please Note: The below case study is hypothetical and does not involve an actual Axiom Private Wealth client.
The Background
Work: Last year was a big one for Jack. He was promoted to Principal and also received his first meaningful carry distribution. Up until this point, he knew that he was doing well, but occasionally felt squeezed on the liquidity front as he juggled co-investments and an expensive lifestyle. This is the second private equity firm that Jack has worked at, and is hoping to stay here for the long haul. While he has been able to gain more control of his life, the pressure of work has increased as he is responsible for junior employees and appropriately managing the expectations of the partners.
Katie has had a few different jobs over the years and still really enjoys working. She has consistently made over six figures and they have used Katie’s income to both fund retirement accounts and support their lifestyle. Her retirement plans are scattered at the respective companies that she has worked at.
Personal and Family: Jack, 37, is married. He and his wife Katie still live in the city. If he is not slammed at work, his 3 year old boy and 4 month old girl are keeping him busy. Jack and Katie still love to get a babysitter which allows them to enjoy the city while they still can. They are looking at different suburbs, but are not quite sure what a prudent amount is to spend on a home. Each summer, they rent a place on the Jersey shore for a few weeks where Jack can bounce back to the city if needed.
The Challenges
After the recent distribution, Jack has more liquid cash than he has ever had before. He has never had to deploy this amount of capital into the market so he is trying to figure out the best way to do this. He also has a large tax liability due in a few months.
Jack has felt comfortable managing his money up until this point, but understands he doesn’t have the appropriate amount of time to devote to it at this point. As the dollars are now bigger, he sees the value in professional financial advice.
Jack thinks he has life insurance through work, but has never conducted a full review of his life and disability policies.
Jack and Katie have never sat down with an estate attorney to put together an estate plan. There is no current plan for what is to happen to the kids if something were to happen to them.
Jack and Katie have a few accounts scattered at different institutions. The majority is in cash held within their joint checking account.
They are interested in purchasing a home soon and are unsure of how much to spend. They are not sure if they should be holding cash for the down payment or if there are other financing options.
The Aspiration
Jack has yet to allocate the proper amount of time to his own personal finances. He gives himself a C+ when it comes to organization and knows that he has too much cash in his checking account. Katie has a vague sense of their finances, but they would both like her to have a better understanding. They would prefer to make financial decisions as a team now that their assets are becoming more substantial. Jack is looking for a CERTIFIED FINANCIAL PLANNER™ with experience working with other private equity professionals. They need a dependable partner to manage their finances so that they can remain focused on their careers.
The Result
After a thorough review of their finances and our financial planning modeling capabilities, the results are as follows.
Using the summary documents Axiom produced, Jack and Katie were able to clearly see their current financial situation and better clarify the pressing financial needs to concentrate on over the next few years.
We recommend a tax-efficient, diversified, investment proposal for their current assets. We also implemented a 6-month phase in schedule to invest their carry proceeds as they are distributed.
We generate a personal cash flow statement and made projections for 5 years out. Using this information, we were able to determine Jack and Katie’s annual savings rate vs. their income. In addition, this information provided us with a recommendation of how much cash they should keep in their checking account in order to meet living expenses, capital calls, and tax liabilities.
We opened 529 plans for his kids to begin saving tax efficiently for their college educations.
As they are looking to purchase home, we also established a credit line against their assets in order to have a liquidity line for a potential house down payment or tax liability when appropriate.
Disclosure: The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. All scenarios and names mentioned herein are purely fictional and have been created solely for training purposes. Any resemblance to existing situations, persons or fictional characters is coincidental. The information presented should not be used as the basis for any specific investment advice.
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