View more on these topics

Roderic Rennison: Five challenges to adviser remuneration arrangements

Roderic Rennison of The Ideas LabSuccessfully implementing change is often the biggest issue for advice firms

Adviser remuneration – in particular, how to successfully implement change – continues to be a challenge for intermediary firms. This article highlights some of the current issues and suggests approaches to address them.

1. Will IR35 affect firms with self-employed advisers?

IR35 is designed to assess whether a contractor is a genuine contractor, rather than a “disguised” employee, for the purposes of paying tax.

There have been whispers about whether HM Revenue & Customs will look at the status of self-employed advisers to argue they are not in fact self-employed and seek to tax them as if they were employees instead.

How to give advice that clients will actually follow

A few advice firms have amended their contracts to shift the cost of any IR35 liability they may face under the off-payroll rules away from them and on to their self-employed advisers. Others are giving this change consideration.

There are three important points to make here for firms considering this course of action:

  • It is vital to take professional advice. This may be a firm’s auditors or a specialist tax consultancy;
  • The self-employed adviser contracts should be re-drafted by a specialist employment lawyer;
  • How the changes are negotiated and implemented with the affected advisers should be carefully planned and executed. Amending the contracts without explanation is likely to lead to issues around trust. One result is that the adviser leaves with the consequences and costs this can entail.

2. Moving advisers from self-employed to employed status

There is a perception that firms with employed advisers are more valuable than ones with self-employed advisers, and that employed advisers are easier to manage and direct than their self-employed counterparts.

Some acquirers have a declared preference for employed advisers, and employed status does provide for more direction to be given under employment legislation.

That, however, is to ignore the issue that self-employed advisers need to agree to a change in status. This must be carefully negotiated. A change in status is unlikely to succeed if it is unilaterally imposed.

Instead, careful preparation and implementation is required, and self-employed advisers will naturally be interested in what is in it for them. Some financial incentives may need to be offered.

Paul Armson: Why you should never charge for managing money

Again, as in the case of IR35 arrangements, specialist advice is an important pre-requisite. Internally-produced contracts may not stand up to scrutiny in court.

It is also worth pointing out the perhaps obvious point that client ownership needs to be clear; the move from self-employed to employed status does not change that. Existing “red-lined” clients that have been previously agreed will need to be carried across unless there is an agreement to buy them.

3. Cutting back on overly-generous remuneration

From time to time, some firms find themselves in a position where they are contracted to pay advisers more than they anticipated or intended. This can be for a variety of reasons, but any changes need to be negotiated rather than imposed if the changes have a chance to work.

What usually works best is to be open and honest with the advisers concerned and to agree a revised payment structure that still provides incentives to focus on business production and behaviours (qualitative measures are important alongside quantitative ones).

Providing worked examples on a before and after basis is also likely to assist with buy-in by advisers.

4. Seeking external advice where needed

I have alluded to the need for specialist advice to ensure changes have the best chance to succeed.

Professional connections: Playing the long game to build law firm links

It may be tempting to save on professional fees by adapting an existing contract and hoping it will be effective or to borrow the wording from other firms’ contracts. However, there is an obvious danger the wordings do not reflect the specific circumstances of your firm.

If there are subsequent issues, then there will be no recourse to the lawyer if none has been used.

5. Too much change too quickly with too much complexity

A continuing issue is that changes are railroaded through with inadequate preparation and implementation along with support. Unless those advisers affected understand the rationale for the change(s), and how any revised schemes will work, there is a strong likelihood they will not motivate them. This unnecessary outcome is to be avoided as far as possible.

In summary, more successful outcomes are likely where there is thought-through planning and implementation that recognises what external as well as internal support is needed.

Roderic Rennison is director of Rennison Consulting

Recommended

6

Malcolm McLean: Simpler pension tax relief is only fair

Pension tax allowances have created a complicated system that is not working in the interests of consumers Being able to get tax relief on contributions to a pension scheme is probably something that we tend to take for granted and don’t value enough. The relief provides an incentive to join a pension scheme in preference […]

Appeal-Court-High-Court-Building--700x450.jpg

State pension court showdown set for summer

A judicial review about changes to the state pension age for millions of women born in the 1950s will take place from 5 to 6 June. The Department for Work and Pensions has confirmed that last November’s decision by the High Court to grant permission for a judicial review will go ahead in the summer. […]

2

FCA warns of copycat site offering investments

The FCA has issued a warning over an unauthorised firm moonlighting as an investments branch of the regulator. The firm is using the name FCA Investments and has used the FCA’s logo on its website, along with that of the Financial Services Compensation Scheme which it says covers its investors. The website associated with the […]

Customer trust is key for water companies

Ofwat, the regulator for the water sector in England and Wales has sent a clear message to water companies that they need to put the customer at the heart of their business, setting out a new list of requirements around customer outcomes, executive pay and profit distribution. Ashley Hamilton Claxton, Head of Responsible Investment at […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com