You are probably recommending Isas to your clients in the run-up to the end of the tax year but what about tax-exempt friendly society savings plans? It could be a case of £7,300 of tax-advantaged investment instead of £7,000. Your clients – and your business – could be missing out.
The weeks leading up to midnight on April 5 are usually the peak period of the year for generating new business. It is a case of use it or lose it for products such as Isas and personal pensions in which clients can invest only a limited amount each year.
The combination of a tax-advantaged investment ration and a looming deadline can concentrate clients' minds wonderfully as each year's sales peak will confirm. This year, there is the special case for making use of the carry-forward facility for personal pensions before it disappears.
You can also take the opportunity to prove the value of your professional expertise by pointing out a range of other ways of keeping the tax bill down, such as driving those extra few miles in the company car or using the annual exemption from inheritance tax.
Reducing the tax burden is certainly the key theme for this time of year and this means your clients should be in the right frame of mind to consider another fiscally advantaged type of product.
The advantages of a tax-free friendly society savings plan are very similar to those of a stocks and shares Isa. As with all tax-advantaged savings and investments, the Inland Revenue sets a maximum limit on the amount that can be paid in. Clients can invest up to £25 a month, which works out at £300 a year, or £270 as an annual lump sum.
Unlike other tax-privileged products, these limits refer to the calendar year rather than the tax year. Another key difference between the tax-exempt savings plan and a stocks and shares Isa is that certain friendly societies offer access to a with-profits fund as an alternative to unit-linked investment. The smoothing effect of the traditional reversionary bonus system avoids the ups and downs of direct stockmarket investment. There may also be the prospect of a terminal bonus when the plan matures.
The components of fiscal advantages, excellent past performance achieved at low risk and modest regular outlay can add up to good advice and an easy sale. The maximum contributions allowed by the Inland Revenue for the full tax benefits may be small compared with those for other products but, depending on premium, policy term and the friendly society's commission structure, each plan sale could generate, say, more than £200 commission for an IFA firm.
What is more, unlike Isas and most life insurance company endowments, children can hold tax-free friendly savings plans in their own names although, in practice, their parents or grandparents will usually apply and pay the premiums for them. So, a typical household of two adults and two children could generate four sales and a total of perhaps around £1,000 in commission.
A package of this kind would almost certainly justify a focused campaign all to itself but at this time of the year there is probably no need. Instead, your firm could piggyback the tax-exempt friendly society savings plan message on to its main end-of-tax-year promotional activities.
The friendly society may be able to provide a professionally written draft from its marketing department shelf for use in the newsletters you mail out to your client base. Whenever you write to an existing or potential client, you could include a relevant paragraph or add a postscript that makes out the strong case for the friendly society savings plan.
There are at least two ways of making the sale. You could broach the subject at a face-to-face review meeting when the mention of other tax-efficient savings ideas and fiscally advantaged products will provide the cue. Alternatively, you will find the product lends itself readily to the direct-response approach to end-of-tax-year selling.
If you are mailing out a particular stocks and shares Isa proposition, it would be easy to promote a tax-exempt savings plan alongside it to generate at least one additional sale. The two products are not in competition with each other. Instead, they are complementary – it is a case of £7,300 rather than £7,000 of tax-advantaged investment per client in the tax year.
I used the words “at least one additional sale” deliberately. Remember that every member of the family – even a young child – can have tax-free friendly society savings plans up to the permitted savings limit so a typical family of four could generate four sales at, perhaps, £1,000 in commission.
Even if you make only one family sale in each of the six weeks of the typical end-of-tax-year campaign, that could be worth around an extra £6,000 in commission income for your firm. Make it a friendly end to this tax year.