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Ten commitments

Resolve this year to boost your business in 10 simple steps.

It is rather predictable, I know, but over the next two weeks I am going to give you 10 New Year resolutions for financial planners. I hope that one or two of them will strike a chord with you.

1: Help to close the £2.3trn protection gap

Even without pension term assurance as we thought it was to be, there is some fantastic peace of mind to deliver to those of your clients who have less life cover than they should have.

First, it will be necessary to create sufficient justifiable anxiety to get protection on the agenda. Thinking about the amount of life cover you have not got but should have is not something that is on the minds of most people when they wake up in the morning – unless maybe they have had a disturbing dream involving death or a near-death experience.

With the understandable concentration on the pension gap, it is hardly surprising that protection has secured comparatively little airtime. This means that you have a greater responsibility to create the necessary demand for this. The creation of justifiable anxiety and the availability of affordable solutions are important components for success in this market.

It would have helped if unconstrained access to PTA had been available, with the resulting reduction in cost for potential buyers. The tax relief might just have caused some positive change in behaviour. However, the fact that some probably significant constraints in the PTA offer now seem inevitable will not diminish the need for protection but will just increase the importance of highlighting the fundamental needs.

Advice on the right solution or combination will be essential, especially where trusts are appropriate.

2: Be an “open architecture” financial planner

Have an open mind about how effective long-term financial planning that meets the needs of your client can be achieved using a range of product wrappers. Retirement provision does not always have to be about registered pensions.

Of course, pensions are extremely tax-efficient but, especially given the latest limitations on alternatively secured pensions, it may be that potential investors may be open to other product wrappers to surround their portfolios, especially at the upper end of the market.

Isas are an obvious alternative but beyond these we have collectives and bonds, UK and offshore, each with their own tax attractions. All offer access to funds and flexible benefits in exchange for less but certainly not non-existent tax attraction.

There is always the opportunity to transfer into pensions at a later date when the investor’s needs may be a little clearer. At this point, the tax relief on input to the pension may well outweigh any tax on realised gains.

3: Carry out a liability audit on your key business clients

It is your responsibility to ensure that your business clients do not suffer unprotected financial loss due to death or critical illness. Even where death cover is in place, is it at the right level? Even if it is, has critical-illness cover been considered?

In our experience of working with our adviser clients, the liability audit has represented an excellent campaign idea. It gives a valuable air of structure to the keyperson debate. Where director or partner loans are discovered, this can represent an opportunity for protection and for refinancing with interest relief where there is also non-qualifying borrowing in place.

4: Ensure that your business clients are not denying themselves IHT business property relief

All you need to do here is to ensure that your clients do not have a binding buy/sell agreement in relation to their shares.

With inheritance tax relief at 100 per cent, it is worth having. Of course, it may appear irrelevant to those planning to leave business shares to a surviving spouse or civil partner. However, should this be what is done and what if the business owner is not survived by a spouse or civil partner?

5: Don’t let your clients’ investment returns be diminished unnecessarily

By picking the right product wrapper or wrappers for your clients’ portfolios, you can improve the net returns significantly.

The most important driver of returns is investment performance, of course. However, the importance of the product wrapper cannot be underestimated and it is not a simple matter.

Wrapper choice is dependent on the client’s portfolio, among other things. Personal tax rates, the investment period and the required form of benefits all have to be taken into account.

Where there is uncertainty, then there is a good case for wrapper allocation to minimise the risk of unnecessary tax loss.

The next five New Year resolutions will appear next week. Until then, work on the first five.


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