AN IFA CAN HELP YOUR
BUSINESS MAKE THE RIGHT MOVES
Introduction
As all employers
know, the peace of mind and security provided by having
appropriate insurance to cover any eventuality can help ensure a
thriving business.
As every Human
Resource professional knows, an esteemed and protected employee
is likely to be more motivated and loyal and therefore a more
valuable member of the team. They appreciate the way they are
treated by their employer and welcome the benefits provided for
them.
For selecting
pensions through to insurance, seeking expert professional
advice will help to take the pain out of the process – and save
valuable time. But how can you ensure you receive impartial
advice that is most suitable to your business, based on all the
financial products on the market?
Why IFAs and
Employee Benefit Consultants are well placed to give impartial
advice.
Until recently there
were just two types of financial advice available, tied agents
who could offer recommendations from the product range of only
one provider, or Independent Financial Advisers (IFAs) and
Employee Benefit Consultants who were required to select the
most suitable products from all those on the market.
The Financial
Services Authority (FSA) has now introduced a third type of
adviser, or ‘multi-tied’ agent, who can advise on the products
of a restricted number of providers, based on commercial
arrangements.
Alongside the
introduction of multi-tied agents, the FSA now requires
financial advisers of all types to give a clear and up-front
explanation of their status. Answer the series of questions in
the decision tree at the back of this guide to help you decide
which type of advice you would prefer for your business.
Employers will, of
course, have to pay for the advice that they receive. The choice
is to allow your financial adviser to take commission from the
products they arrange or for a fee to be paid to cover the time
taken, similar to how you pay your accountant or lawyer. The
solution may be a combination of a reduced fee offset by a
commission payment from the product providers.
Financial advisers
will inform you in writing at your first meeting how they can be
paid and the likely amounts. It is becoming increasingly popular
for IFAs and Employee Benefit Consultants not to take commission
but to charge simply by a fee. The implications of each route -
fees, commission or a combination - will be explained to you
before you decide.
Remember that an IFA
can access the widest range of financial products and can
provide holistic advice on all areas of financial planning for a
business.
It may be that you
want an expert to look at your existing financial arrangements
and employee benefit package. An IFA can assess schemes such as
pensions, risk benefits and private medical insurance and
highlight any areas you may want to alter with recommendations
on possible modifications. Normally a comprehensive report will
be prepared by the IFA whilst he or she will provide a
professional opinion on your current position.
The ever-changing
government legislation means that companies cannot afford to
lose touch with their responsibilities. As well as bringing
companies up to date with regulatory changes, an IFA or Employee
Benefit Consultant will help to ensure that businesses and their
employees get the best deal out of any financial decisions they
make.
Your pension
responsibilities. Choosing the right package.
Stakeholder pension
legislation means that businesses with five or more employees
must, by law, provide their employees access to a pension plan
which falls within the regulations.
Stakeholder schemes
are designed as low-cost flexible plans – the charges must be no
higher than 1.5 per cent each year.
Members must be able
to transfer funds in and out of a scheme whenever they choose
without penalty. An array of pension providers offer stakeholder
products and employers can pick from a wide selection.
There is more to
complying with the stakeholder regulations than simply picking a
pension scheme and employers should make sure that they take all
the necessary steps. Under the stakeholder guidelines, employers
must consult staff before choosing a pension scheme. Once a
scheme is designated, employers must inform their employees of
the available pension options and provide information about the
scheme.
In addition,
employers are responsible for ensuring that their chosen pension
scheme meets the stakeholder rules and that the scheme provider
has registered the designation of the scheme with the Pensions
Regulator. Enlisting the help of an IFA can save time as he or
she can check these details on your behalf.
Stakeholder pension
schemes are not the only option available to businesses.
Instead, a more sophisticated personal pension scheme can be
offered to employees and/or directors. To avoid making an
important pension decision by yourself (which could prove not to
be the most appropriate) a discussion with an IFA can help you
choose from the hundreds of options available from all the
pension providers.
Under a group
personal pension plan, for example, employers will be exempt
from the requirements of stakeholder pensions if they offer to
contribute at least 3% of the employees’ salary. One of the best
incentives for employees to join a pension scheme is employer
contributions. There are other plus points for group personal
pensions as they offer more options than stakeholder pensions,
such as a larger choice of investment funds.
The pensions
landscape is further complicated by the nitty gritty of the
pension schemes on offer and the changing pension rules. For
example, employers may currently be providing a final salary
scheme, which provides a pension at retirement, based on a
proportion of an employee’s earnings at retirement linked to
their length of service. A decision may need to be taken as to
whether the final salary scheme continues being available to
employees who wish to join or a new money purchase scheme is
offered to employees which is based on contributions paid and
the performance of the fund(s) in which the contributions are
invested. Pensions simplification makes the provision of
independent advice more important then ever before as the eight
different pension regimes have been replaced by one set of
rules.
Every business has
specific individual circumstances and an Independent Financial
Adviser will provide advice to suit your company’s
circumstances.
Insurance. Picking
the right policy should things come unstuck.
Businesses need to
ensure that they have a comprehensive insurance policy in place
which will put them back on a sound financial footing should the
worst happen. If the business owns its premises, a comprehensive
building insurance policy will be needed. The contents of the
work place cannot be ignored in case cash or cheques are stolen
or equipment damaged. Picking through the policies on the market
can be time intensive, particularly as the small print must be
read to determine exactly what is covered, and, more
importantly, what is not. A decision needs to be taken about the
level of cover needed. The hard work can be avoided by getting
an IFA to pick the bones out of insurance policies on your
behalf.
Alongside insuring
buildings and contents, employers must take into account their
legal liability towards employees, the public and customers.
Employers’ responsibilities are outlined in the Health and
Safety At Work Act. Insurance will protect businesses in the
event that they are sued for damages, covering costs such as
court awards or claimants expenses.
Apart from a
company’s physical assets such as a factory, computers, offices,
machinery and cars which are generally insured, it also has its
employees which for most businesses drive the success, or
failure, of the business. Therefore it could also pay to assess
whether or not other forms of insurance should be taken out. For
example, many companies rely heavily on a handful of key staff
members. If one of these individuals should die, the company may
lose profitable key accounts, be unable to continue with a large
project or in the worst scenario, the business may be forced to
close. Key man insurance (life assurance taken out by the
company on the life of a key employee) can protect against this
business threat. The level of cover should be based on an
estimate of the losses a business would incur should it lose a
key employee in this way. Similarly, share protection insurance
can provide cash at the right time to ensure the shares of a
company remain with the company and do not pass to the deceased
share holder’s family.
Employers can also
arrange group life assurance, critical illness, income
protection or private medical schemes for employees. These
policies pay out to employees or their dependents in the event
of death, critical illness, loss of income due to long term
illness or accident and can pay for private medical treatment.
Employers who set up insurance for their staff will usually
benefit from tax breaks for doing so and an IFA will be able to
advise on the tax position.
Other types of cover
include business interruption insurance, credit insurance and,
in an increasingly litigious era, legal expenses insurance.
Commercial
mortgages.
Occupying your own
business property, rather than merely using a copy of the
landlord’s keys, can be a source of great satisfaction and can
prove to be very cost effective. In order to own your business
premises, it is likely that a commercial mortgage is required.
Businesses need to
be on a relatively secure financial footing before applying for
a commercial mortgage. Commercial borrowers are considered to be
a higher risk in terms of loan repayment default than for
example an employee with a residential mortgage. The repayment
terms as a result are not as cheap as residential mortgages and
a sizeable deposit will be required. The majority of commercial
lenders are likely to lend between 70 and 80 per cent of a
property’s value. In addition, interest rates will be higher
than those attached to residential loans – typically between 2
per cent and 4 per cent above the Bank of England base rate.
Arrangement fees on
some products are negotiated on a case by case basis. Where
charges are stipulated, they tend to range between 0.25 per cent
and 1.25 per cent. Most lenders set a minimum level for the
advance they are prepared to make, ranging between £15,000 and
£100,000. Some also specify the maximum amount available to
borrowers.
Businesses can also
take advantage of tax allowances, by claiming back some of the
costs of a commercial mortgage.
Employee perks
Employers might also
want to consider providing incentives to help attract and retain
staff. Employee perks can range from private health cover to
company cars to gym membership.
An increasing number
of small businesses are thinking about offering Enterprise
Management Incentives which are tax advantaged share options
designed to help small higher risk companies recruit and retain
employees with the skills that will help them grow and succeed.
They are also designed to reward employees for taking a risk by
investing their time and skills in helping small companies
achieve their potential.
An IFA can help
employers find an incentive scheme that is suitable to their
needs and fits within their budget. They will also do the maths
to calculate the most cost efficient means of providing such
incentives, as well as advising businesses of any relevant tax
breaks.
What advice do I
need?
Use the flowchart
overleaf.
For further
information on the subject contained in this guide, please
contact your IFA.
If you do not
already have an IFA, our ‘Find an IFA’ hotlines and website
enable you to confidentially search for a list of IFAs in your
local area. You can search for an IFA based on a whole host of
criteria (including product, qualifications, gender and payment
options) so you can be sure you’ll find an IFA that meets your
precise requirements.
