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Dear Rob & Roderic…

Our resident agony uncles and The Ideas Lab directors Rob Reid and Roderic Rennison answer adviser questions

Q: I am becoming extremely confused on the whole subject of VAT and trail. I used to think that commission was not VATable but the more I read about VAT, the more I realise that things are not as clear-cut as I thought and the format of payment, whether it is commission, fees or indeed paid in potatoes, is rather irrelevant. It is more a case of what I am doing for the payment that seems to matter. I would be glad of any clarification on this topic, particularly whether ongoing trail or indeed new trail will be subject to VAT from the introduction of adviser charging

A: Rob

The introduction of adviser charging has to a large extent very little impact on whether VAT is chargeable or otherwise. As far as trail is concerned, any legacy trail will more than likely be regarded as commission, given that it is payable by a provider to you, as an intermediary. Although you may use it for servicing clients, we would argue that the Revenue would be ambivalent, given the fact that insurers will be treating it as commission and claiming the tax relief accordingly.

A: Roderic

As to future streams of income, the situation is far less clear-cut. There was some confusion emanating from the recent ABI document, which seemed to infer that if you had all your agreements in place at the time of the original intermediation, then VAT would be banished forever. This is not the case and in fact there are now meetings about to take place between the industry and HMRC inspectors to deter-mine all the various circumstances in which clarification is sought. This will ensure that no one trade body monopolises the discussion and skews, or attempts to skew, the eventual result.

Q: I have been watching recent legal cases with some interest and I do wonder whether client ownership is the real elephant in the room. I have six other RIs in addition to myself and my fellow director, all of whom are self-employed and all of whom consider the clients to be theirs. Perhaps you could give an indication as to whether you agree with their view or whether, being regulated through our company, they have in fact de facto transferred these clients to our ownership

A: Rob

If those kinds of clauses do not exist in your current appointed rep contracts, then I would suggest the contracts need to be revised. Put simply, client ownership (or ownership of the relationship as owning the client is not a particularly pleasant way of putting things, nor is it entirely accurate) gives an indication of the level of income which will emanate from a business over time but it does not guarantee anything and nor should it.

A: Roderic

Contractually, unless the contract specifically states the ownership position, I would suggest things are far from clearcut. You could argue by the way everybody behaves that in fact these are your clients because you have taken the responsibility for them but I think in reality in most cases there will be a very clear statement as to whose clients they are and what happens on a succession basis on either death or incapacity of a particular adviser.

Q: I have had no problem with presenting the new world to my new clients and indeed to my new prospects but I am absolutely full of trepidation in the area of presenting adviser charging to my existing client base and I would very much welcome your thoughts on how to proceed with this

A: Rob

There is no doubt there will be the odd client who is not prepared to change and it is very important that you make it clear that what you are trying to do is to enhance and improve your services and at the same time make sure your firm is in a stable financial position to enable you to provide the kind of help they need. After all, you need to be in a viable and stable position to offer them the best service.

A: Roderic

Our recommendation would be to proceed in a very structured format, starting off by determining what clients find particularly valuable, what services you deliver to them currently and perhaps at the same time asking them about other services that you deliver but they currently do not use. Once you get a good idea of what they think and what they are looking for, you are in a better position to have a dialogue with them about the RDR.

To ask a question, contact Rob Reid & Roderic Rennison


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