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Independent minded

The decision by a number of financial services companies to cut their direct salesforces and the apparent general move towards downsizing in the industry could leave many sales employees with reduced options for employment.

Being an employee used to mean that you were prepared to trade off security of employment for perhaps lower earnings or having to conform to the organisation&#39s processes and procedures. That was the implicit contract but, since the advent of downsizing, such understandings have gone out of fashion.

As a result, many employees will see that starting up their own business as a viable alternative to an increasingly uncertain employment environment. There are very real advantages in having your own business, not least the opportunity to increase earnings. Equally, there are difficulties in creating a successful business and the decision is not to be undertaken without first looking into it properly.

Remember, being self-employed does not suit everyone. Setting up your own business is not without its upsets. It will transform you from being an employee and doing a narrow range of jobs to being a jack of all trades, at least in the early days.

Think about all the functions in a normal business – accounting, sales, personnel, marketing, etc – and then remember that they will all be down to you at the start. One thing you will not know at the start is just how much you do not know. It will be a lot.

There are several main areas to take into account. The two common factors to all businesses are how to establish a viable enterprise and the business and economic environment. In the first case, the development we are considering has to include the special factors of regulation and product/market development. In the second case, the environment is generally benign, except for the legislation on employment brought in recently the Government.

Many new businesses fail but that is usually because they have not been set up adequately. Careful planning is essential. Given a sensible approach, there is no reason why your new venture should not succeed.

So, read as much as you can, take your time, get good advice and plan very carefully. The high-street banks all publish new business guides and there are books, which can be useful in telling the reader what to do but short on explaining why and how.

Once you have decided to go ahead, there are certain legal obligations you must comply with depending on the structure of your business. Many people will advise becoming a limited company. Others might feel a partnership is more suited to their style and needs. Whatever you choose, make sure you understand your commitment.

Regulatory requirements will limit the options of those transferring from emp-loyee to self-employed status. Apart from professional qualifications, there is also the question of professional experience to be taken into account.

Not all former employees will be able to operate as an independent adviser at once. To apply for direct authorisation requires some three years as an employee and an additional one year&#39s industry experience under supervision.

The most likely entry route is as a registered individual under the supervision of an IFA, who could be regulated either directly or via a network, so making a twoor three-level hierarchy.

Which ever option is chosen, there will obviously be a delay from making the application to acceptance. It should all be built into your business plan. Product and marketing development will be an important part of the new business. You have to have something to sell and someone to sell it to. An independent business can sell all products as opposed to only those offered by the employer, as you used to do.

This is what giving independent advice is all about but it does mean learning about the products on the market. The next question concerns where your clients will be found. Marketing is a skill that employees never have to use as their employers find the work for them. All that chan ges when you go independent. So, while you are still in employment, think very carefully about finding clients. Keeping them is quite another matter, but providing a good service always helps.

Then there is the issue of earning money. Will you have the option to decide whether to operate on commission or fees? How and when will you get paid? That is a vital question for all businesses as poor cash flow is a main cause of failure.

The Government has an unusual view on economic activity. It yearns for full employment and seems to view employees as more desirable citizens but it is suspicious of the self-employed.

A number of the changes it has introduced into employment and related legislation make the status of those operating via networks uncertain. It can affect appointed representatives as much as a registered individual. Both of them could very easily fall into the trap of becoming a de facto employee. That is the last thing you want. The only difference is who would be seen as the employer. For the AR, it would bethe network. For the RI, it would be the IFA/AR. Networks need to look closely at their co tracts and so do you. Do not get carried away and sign the first contract offered.

You need to understand the implications and be able to negotiate to get the arrangement you want.

The implications are potentially serious. You will have heard about IR35. It is not confined to IT contractors but potentially affects all those selling professional services, including financial advisers. The legislation makes almost a lottery of who is seen as self-employed and who is an employee, as seen by the Revenue, that is. If their judgement goes against you or the IFA or the network, all of you will have problems.

None of this is inevitable and the wise will take steps to ensure they avoid it. The way to do that is to get the right set-up from the start.


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Guide cover

Guide: how to… communicate with your pension members

Effective communication of your pension scheme is a large part of getting auto-enrolment right. Delivering the same message to all employees is not necessarily the way to go. To assist you with the communication of your pension scheme, we have provided some key areas to think about, such as:

  • What to consider when segmenting your workforce
  • How to communicate to pension scheme members at the right time in their member lifecycle
  • What topics you should be discussing with your pension members
  • The new pension freedoms and the importance of communicating them


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