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New model army

Last week, I considered the choices that advisers need to make regarding regulatory status approaching D-Day. This week, I will continue to explore the two key components in the overall financial plan – investment management and tax planning.

The initial choice of multi-manager structure and the monitoring of its appropriateness will be an issue for an adviser but fund selection and asset allocation/diversification within the structure will be the responsibility of the multi-manager.

The multi-manager concept can be accessed through collectives or insurance outer wrappers and can be on the basis of a fund of funds or manager of managers. Either way, in a collective structure, a change of managers or change of funds within the outer shell will not constitute a chargeable disposal for capital gains tax purposes, so completely investment-focused management can be carried out with no tax constraints.

Taper relief (as I have said many times before) offers the opportunity for a reduction of the capital gain by up to 40 per cent after 10 years. Such a structure may well look attractive for long-term growth-seeking investors. Of course, taper relief operates before the application of the annual CGT exemption.

Where the outer shell is an investment bond, then while disposals by the life fund will not give rise to a personal tax liability, tax at life company rates will be payable on realised gains after any indexation allowance – still available to companies. A disposal of the policy (assuming it is non-qualifying) will give rise to a chargeable event and this could give rise to an income tax charge of 20 per cent, that is, higher rate tax less the 20 per cent tax credit, if it is a UK policy.

Choosing the most appropriate outer shell for a multi-manager structure, taking full account of the tax implications for the particular investor, will be another key role for the financial adviser to play.

This leads us neatly to tax planning. While many financial advisers will not profess to be the right people to implement overall tax planning where financial products are not involved, they certainly are the right people to understand the tax consequences and benefits of financial services products.

So even if implementation of non-product-related tax plans – for example, wills, trusts or other than financial services products and tax administration such as completing the tax return – are carried out by other professionals, the financial adviser may well be the most appropriate person to create and articulate the overall tax planning strategy, particularly around financial products.

In order to give good tax planning advice (even where it is implemented by others), it is essential to be up to date. Here the financial adviser needs to make another in-house or outsource decision. Carrying out one’s own research and analysis and even the creation of detailed tax plans (even without the implementation) can be very time-consuming and will usually require the recruitment of a specialist or specialist team. The alternative is to contract out this competence.

Services such as Technical Connection’s own Techlink offering, which gives online knowledge management, research, bulletins, email alerts and technical support, is one such example.

If you add in the proactivity capability delivered by the provision of the means of communicating effectively with clients and other professionals, for example, via bulletins, then even more of the financial adviser’s time can be spent on creating the overall financial plan and arranging for its implementation.

In summary, then, it is my view that depolarisation offers the adviser the opportunity to clearly set out what his ideal business would look like post D-Day. Careful attention must be given to a business’s value proposition, which should simply articulate what the IFA will do for its clients. Remember, the proposition does not have to be one-size-fits-all.

With this new business model as the benchmark, then the existing business should be audited and measured against this benchmark and any gaps exposed. To the extent that there are any gaps, plans should be designed and implemented to close them. Obvious areas of benchmarking are investment competence, technical competence, staff, other resources and terms of business.

Although it is a time of great change, financial advisers looking to thrive in the new environment should embrace the change and use it as an opportunity to review and, if necessary, restate what their business proposition really is.


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