Expense Fulfillment and the Liquidation Order - In what order are expenses fulfilled and what funds are used to pay them? *AdviserGo UK*

Which assets will Voyant access to pay expenses?

AdviserGo will work out most of the future cash flow for you, if you let it. If annual income doesn’t fully meet planned expenses, the software will automatically top-up income from liquid assets in order to prevent potential shortfalls in the cash flow, provided you place no Liquidation Limits on these accounts.

You can see these assets being used rather than income in many cases by clicking the detailed view of the Cash Flow chart via the magnifying glass icon. The black need line represents your client’s total annual taxes, expenditure, and any planned savings and investments that are being met successfully in that year of the plan. By default Voyant withdrawals from liquid assets, such as Savings and Investments, to conveniently meet the top of the black need line.

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Liquid assets include:

- Cash accounts (savings and current accounts),

- Cash and Stock Market ISAs,

- Unwrapped investments,

- Offshore taxable accounts,

- Onshore and Offshore Life Funds.

Illiquid assets – those entered on the Property/Assets screen – are never liquidated automatically.

Other types of accounts have special rules or tax treatments are therefore never subject to ad hoc withdrawals. To draw funds from these accounts, you must set a Planned Withdrawal.


Expense Fulfilment – In what order are expenses fulfilled?

Expense fulfilment is a complex aspect of the software. In this section we will show you how the software works out the cash flow and how you might control it. The software does offer some high-level control over the order in which accounts are liquidated via the Liquidation Order (explained below). Beyond this, withdrawals can be controlled, if necessary, by setting Withdrawal Limits, Transfers and/or Planned Withdrawal strategies on individual accounts. We will show you how to do this in a moment. Otherwise, simply leave the software to work out the cash flow for you.  

Expenses are always met in the following order via four distinct stages:

  1. Expenses are first fulfilled from income / credits.
  2. If expenses remain, draws are made from ready cash accumulated in the default cash accounts (John's Cash and Julia's Cash).
  3. If expenses remain, draws are made from other cash accounts such as current and savings accounts (accounts entered into the plan under the Savings Type).
  4. If income and ready cash are not sufficient to meet expenses, funds will be drawn from available liquid assets (i.e. Taxable, Tax Deferred and Tax Free assets as explained below).
     

Note - Preferred payment sources for certain types expenses and goals and Withdrawal Limits on accounts can override these stages.

Within each of these five distinct stages, the software checks for ownership and attempts to fulfil the expense first according to the person (or persons) who own it. For example, if an expense is owned by Paul, Paul's funds will be used first before moving to jointly owned accounts and then to his wife Cathryn's accounts.

Once the software reaches stage 4 of expense fulfilment, the Liquidation Order setting comes into play. Located in Plan Settings, the Liquidation Order setting allows you to specify a category-based order in which the expense owner's liquid assets will be liquidated. These general categories of assets are Taxable, Tax Deferred and Tax-Free.


Plan Settings – Setting The Asset Liquidation Order

The order in which assets are liquidated can be set at a very general level, by investment category, in Plan Settings > Liquidation Order. The default liquidation order, which can be changed, is normally taxable assets first, then tax deferred assets, and ending with tax free assets.

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The available account types in the left column allow for product-specific account types to be added and positioned among the broader asset categories. For example, if the strategy is to liquidate Onshore bonds before Money Purchase Pensions, both of which are in the broad tax deferred category, these two types of accounts could be added to the liquidation order to the right and positioned accordingly.

More information on each liquid asset category

Cash accounts are a category of accounts not shown in the Liquidation Order. These accounts are intentionally excluded from the Liquidation Order because they are usually liquidated prior to the types of accounts shown in the liquidation order. Cash accounts include:  

  • The notional, default cash-on-hand accounts created by the software for each plan participant (e.g. John’s Cash, Julia’s Cash),
  • Current and Savings accounts,

Taxable accounts include: 

- Unwrapped Investments (e.g. OIECs, unit trusts, shares, investment portfolios) 
- Enterprise Investment Schemes
- Other Trusts
- Offshore Taxable 

Tax Deferred accounts include: 
- Money purchase pensions
- Onshore and Offshore bonds  

Tax Free accounts include: 
- ISAs 
- National Savings Certificates

Withdrawal Limits Can Be Used to Override the Expense Fulfilment Order

Withdrawal Limits can also trump the normal expense fulfilment order. If you limit or disallow the software from taking ad-hoc withdrawals from a savings account or investment, that account will be effectively removed from or limited in the expense fulfilment process.

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Where can I see what withdrawals are happening?

Further details about withdrawals can be viewed by double clicking any bar/year of the chart or by clicking the chart details button, top-right.

Choose the Investments tab to see withdrawals from Savings and Investments. Use the scroll bar to see different years.

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