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Money in the bank

Mark Moran

Senior relationship manager,

Cater Allen Bank

Money Marketing&#39s series on Surviving Stakeholder has, in the past 12

months or so, given IFAs many good ideas on marketing techniques and ways

of diversifying their business. Here is another – using banking services as

a financial planning tool.

The number of IFAs recommending bank accounts proactively to their clients

has increased substantially in the past few years and many have integrated

banking into their fact-finding process. However, for many IFAs,

recommending banking services is still not accepted as general practice.

There are a number of compelling arguments for IFAs getting more closely

involved in analysing their clients&#39 banking arrangements. Among these are:

Income generation.

Protecting your client base from cross-selling -ringfencing.

Enhanced range of client services.

Identification of further sales opportunities.

Added value.

Income generation.

As we move into the 1 per cent commission environment, the income

generated from banking services becomes invaluable and, for most IFAs,

maximising available income streams is essentialto their long-term future.

Certain banks and building societies will pay monthly or quarterly

commission on balances introduced at rates of between 0.0625 per cent and

0.5 per cent a year.

Ongoing commission from clients&#39 banking balances can be a tremendous

source of added income to cover regular overheads and to even out months

where commission on investment or insurance products could be down.


For many IFAs, the bancassurers represent an increasingly competitive

threat to their relationships with clients. At a time when retaining

existing clients is vital, bancassurers work hard to offer as many services

as they can through branch networks, internet and mailshot programmes, so

it is important that IFAs explore the options available in protecting

clients from being poached by competitors.

It must be to the advantage of every IFA to know their clients bank with

an institution which respects the relationship between adviser and client

and one which gives an undertaking not to sell insurance and investment

products to IFA clients.

There are a small number of banks which will give such a “no cross-selling

guarantee” and every adviser should make it their business to know who

these are, since it gives them the opportunity to take positive steps

towards protecting their business from the competition.

Enhanced range of services

Recommending clients to deposit their cash with an IFA-friendly bank

pending their investment recommendations has many advantages.

It generates commission for IFAs, reduces the risk of crossselling from

bancassurers and gives peace of mind during the recommendation process.

It also increases IFA control of clients cash deposits, enhances client

loyalty and provides an opportunity for corporate branded literature from

some banks.

Identifying further sales opportunities

During the last few months, many IFAs will have been working closely with

new and existing corporate clients. These discussions have no doubt

involved the subject of stakeholder and the implications for the company.

Although currently there is no obligation for employer contributions to a

stakeholder scheme, it may be that some businesses would like to contribute

if they could afford it. But how often does a client say they cannot

afford to fund this pension or pay for this life cover? Would it help by

asking: If I could show you a way of generating income to pay for your

pension (or stakeholder) contribution, would you be interested? I am sure

many business clients would say yes and I am sure many IFAs already ask

questions in a similar manner. But how do IFAs generate this income? Let us

look at a case study involving an IFA who provided a banking audit service

to his business clients.

Company X, an air conditioning company, has a debit turnover of £8.3m

a year. It has a current bank account with a high-street bank which charges

0.2 per cent a year on turnover and the company also has a business reserve

account with a balance of £300,000 paying 4.3 per cent a year.

The net position of the business comprises bank charges on turnover of

£16,600, interest on the reserve account of £12,900 and a net

charge of £3,700.

It opens an account such as a Cater Allen cash management account and

transfers its business reserve balance of £300,000 and, as a result,

is able to take advantage of free banking and redirect all high-value

transactions, reducing its high-street bank turnover to £1.9m and

swelling the average balance on its reserve account to £500,000. At

the time, the rate on the cash management account was 7 per cent.

So, the company&#39s new position means its bank charges are £3,800, the

interest on the cash management account is £35,000 and the net gain to

business is £31,200.

Immediately, there is a saving from a reduction in bank charges

added to significant additional earned interest for this client.

Notice how it has not been necessary to remove the cli-ent&#39s existing bank

connection completely. The use of alternative banking services has complemented their existing arrangement and presented a sizeable injection of capi

tal into the business.

Of course, this is not the end of the matter. From an IFA&#39s perspective,

an additional £34,900 has become available for pension provision,

investment, protection, etc.

If we now take this example a little further, let us assume that the

business is happy for £17,500 to be used for financial planning while

the remainder is ploughed back into the firm. What uses could you suggest

for this £17,500 of capital? Remember that this £17,500 will be

an annual saving, not just a one-off.

An interesting exercise would be for IFAs to look at the commission

generated from some typical portfolio planning based around this

£17,500 of capital generated.

Assume the owner of the business has 15 years to retirement and it is

recommended that he invests part of this capital in a pension.

In this case, £10,000 invested in a pension is equal to a

contribution of £16,667 for a higher-rate taxpayer. Over 15 years,

this translates into a pension fund of £412,000 at 7 per cent return,

equivalent to £34,000 of level pension.

Initial and renewal commission for the adviser over the 15-year period

totalled £4,419.59.

Do not forget the commission payable for recommending alternative banking

services in the first place. On an average balance of £500,000,

commission of up to £2,500 a year would be due to the IFA.

This commission is ongoing for the life of the bank account and

illustrates the huge benefits available from adopting the discipline of

providing banking audits and recommending banking services to your clients.

Over this same 15-year period, the bank account would generate £37,500

in commission based on an average balance of £500,000.

If I had asked readers at the start which of these products would generate

most commission, the pension, the protection or the bank account, which

would they have chosen? It is surprising to many IFAs that banking can play

such an important part in building income streams.

Banking can also be particularly powerful for advisers who operate on a

fee basis or who would like to move more clients over to fees. The added

value provided by offering a banking audit and recommending banking

services adds to the product offering and the fee charged to clients.


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