FTAdviser.com

QUESTION: I’ve read that pay in financial services is really unequal between men and women. How can I conduct an exercise to ensure that my staff are paid equally, taking into account, experience, qualifications and working hours?

ANSWER: Pay inequality in financial services is a really hot topic, with a report last month suggesting that men receive five times more in bonus payments than women.

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QUESTION: What do I tell clients that come to me asking for a self-cert mortgage?

ANSWER: The world of self-cert mortgages has changed considerably over the last two years.

Many of the lenders have left the market, and those that remain have become a lot more risk-adverse.

As with anything that is in short supply it is more expensive and harder to find. Any competitive self cert deal these days, no matter where you go or who gives you advice.

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QUESTION: I am thinking of hiring some graduates and training them up to be fully qualified advisers. What are the cost implications and what are the dangers of them leaving once they get qualified?

ANSWER: There is no industry standard cost that can be applied to employing and training graduates, given that there are a number of contributing factors that can be applied.

These include if they are joining you on an employed or self-employed basis and if they will initially be undertaking administrative or paraplanning roles or joining you purely as a trainee adviser.

One of the key cost implications of taking on graduates is to ensure an affective development programme and supervisory structure, which in itself is often the most time consuming part and naturally increases the cost, especially if an advising principal undertakes the activity, taking them away from being in front of clients.

Being part of a larger organisation, such as a network or support service company can almost certainly assist in reducing the supervisory burden but nonetheless, this is still where the bulk of the initial cost is incurred.

As with any programme, it is important to have a good employment contract in place to avoid the later pain that an individual has used the firm as a convenient nursery to reach competent adviser status, as they will naturally be highly marketable given the shortage of good quality advisers in the marketplace.

In order to mitigate this risk, you can build in a contractual penalty, whereby the individual has to contribute to their development costs if they leave within a certain period for example.

On a more positive note, you can also create a long term incentive programme to help build loyalty and motivation.

Essentially, there is no substitute for having a clear strategy in place from the outset, to help ensure a full understanding of requirements and opportunities at each stage of development and to ask for a commitment to this strategy from both sides.

Keith Richards is distribution and development director of Tenet Group

QUESTION: I’ve been approached by a firm offering to buy my business out. I’m five years away from retirement, how do I go about making a decision, and what kind of circumstances would determine a good time to sell?

ANSWER: I would start by asking what offer has been made for the business, as this is could significantly influence the answer to this question.

Being five years away from retirement you have some time to get your business into the best shape for a sale and potentially improve its sale value.

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QUESTION: With all the recent talk about how much the Retail Distribution Review is going to cost advisers, I have begun to panic a little about whether I am not only doing enough to prepare for the changes.

I am also concerned whether as a sole trader, I will be able to bare the extra costs involved. Read More »

QUESTION: Like most advisers, my clients’ have seen the value of their investments drop over the past year. One is now threatening to file a complaint with the Financial Ombudsman Service (FOS).

Although I performed due diligence and made sure the investments fitted her risk profile at the time, I am worried because she is bad-mouthing me to my other clients.

How do I prevent a backlash of angry clients filing claims against me?

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QUESTION: I run a small IFA firm that works largely on a commission basis. After the newest RDR paper came out, I floated the idea of fee-based advice to a few of our long-term clients, and the reaction was strongly negative. How can I prevent clients accustomed to getting free advice from balking at the idea of paying an up-front fee?

ANSWER: The fact that your clients think they have been receiving free advice suggests that not only do they not fully understand the charging structures of any products you may have sold them in the past, but more importantly they do not appear to place any value on the advice and support that you give them. Read More »

QUESTION: I have been an adviser for 20 years, and had planned to retire in six years time. Now the FSA is saying I need to increase my qualifications by 2012 if I’m to continue advising - would it be easier to retire early than upgrade my qualifications for two more years’ advising?

ANSWER: I don’t know how old you are but presuming you wish to retire at 65 and are therefore 59 now I would make the following comments.

Easy? Life isn’t easy. Well it may not be easy but it shouldn’t be insurmountable.

You sound as if you have a bit of a defeatist attitude. Just look at the upside.

If there are lots like you who are unwilling or incapable of making the grade look how much work will be left for those of us you are prepared t make the effort.

That should be a great incentive. Rarity brings it’s rewards in higher fees.

1. In general most people really don’t have enough provision to stop work entirely. (That includes people with £1m funds, as everyone lives up to their income), so stopping entirely at age 65 shouldn’t necessarily be a given.

2. If you have been advising for 20 years why do you think exams would pose such a problem? Indeed there may be other routes other than exams.

However, to be perfectly candid, I’m probably older that you. I have been in financial services just a little longer (since 1985).

It has always been obvious (since Gower) that qualifications were going to have to be attained.

OK - so no use crying over spilt milk, but with your experience you should be able to attain level 4, if you can’t you may as well retire.

So I would say try to attain the level first before just ‘throwing in the towel’.

- Harry Katz, principal at Norwest Consultants

QUESTION: I’m worried about rising claims in the financial advice sector, and a knock-on effect on PI premiums. Do I need to worry, and how should I prepare for rising premiums?

ANSWER ONE: PI premiums are a business overhead and as a small business it is never easy to predict future rises in overheads.

Of course claims are an important factor when insurers are calculating premiums.

Unfortunately we cannot know what we are doing today that will be the basis for future claims. The best way to reduce potential claims is to make sure our compliance is good and our clients are aware of the potential risks involved when buying any financial product.

- Diane Saunders is principal of Leeds-nased IFA Diane Saunders

ANSWER TWO: A trend of rising claims may well have a knock on effect on PI costs. In any sales process the biggest exposure to a potential claim will be the investment risk.

At Perspective, we have minimized our exposure to this risk by putting in place a core investment process that is directly aligned to the clients’ tolerance of risk, and that actively rebases regularly to match this.

The knock on effect of this is that the adviser can concentrate on the traditional role of addressing the clients’ lifetime needs and aspirations without having to act as a quasi fund manager. Integral to the process is the use of a open architecture platform with a transparent charging structure.

This means that any client will receive clear advice on their entire portfolio rather than on a transactional basis, as a result claims should be minimized as the adviser/client relationship becomes holistic.”

- Simon Gallimore is group practice development manager at Perspective Financial Group

QUESTION: I need to upgrade my qualifications, following the RDR report that came out last week, what’s the best way of making sure I’m up to speed? Should I wait for the new qualifications to come out first?

ANSWER: You are right to be thinking about starting to upgrade your qualifications now.

Those who delay should be warned that they will be putting themselves under even greater pressure to get through the exams before the 2012 deadline.

Aware that many advisors will already be studying towards Level 4 qualifications, and that many more will seek to update their qualifications over the coming years, the FSA has committed to a ‘no regrets’ policy.

This means that anyone holding or studying for a Level 4 qualification before the new standards are available next year will be able to fill any gaps in content between the existing Level 4 and the new exams with continuing professional development (CPD).

This means that any advisers who wish to start updating their skills now can do so.

- Anne Kiem is director of further education at the ifs School of Finance

QUESTION: I have started to see business pick up, particularly on the mortgage side. How do I know if this is a real recovery, or is it just a blip?

ANSWER: Unfortunately the answer is we don’t know if it is a full recovery or not, but I would doubt it.

Recent reports and statistics suggest there has been a turn around in the mortgage market with more loans being agreed and estate agents getting busier with enquiries.

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QUESTION: I’m thinking of selling my business. How should I go about valuing it, and finding a suitable buyer?

ANSWER: Any business, particularly an IFA practice, is ultimately worth what someone will pay for it.

It is also an absolute truth that the key to realising the full value of your business is to gain exposure to a good number of qualified buyers who posses both affordability and a tangible need or benefit to be gained from acquiring your business.

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QUESTION: My managing director is putting pressure on me to keep up sales, particularly on pension transfers, but my compliance director is not letting them through.

What are the implications of not obeying the compliance director?

ANSWER: Yours is a classic situation found in many firms where sales and compliance do not always operate on the same wavelength.

The answer, given that I don’t know why your compliance director is apparently blocking your business flow, is to ask why.

Is the quality of the advice and information recommending the pension transfer insufficient to satisfy your compliance director? Or is there a more far reaching reason?

The cost and risk implications on you and your firm are sizable if your actions and advice do not meet the requirements.

The pressure from your managing director may seem strongest, but does he really want to be paying out large funds in compensation.

So better to upset him than your compliance director who is most likely protecting the firm and its advisers.

- Bill Warren, managing director, Bill Warren Compliance

QUESTION: I belong to a network, and my commission payments have been taking a long time to come through recently. Should I be worried, and how can I convince the network to speed up their payments?

ANSWER: In the current climate you are right to be extra vigilant when it comes to the speed of commission payments, as this could suggest possible cash flow issues at your network.

On the other hand, it might simply be a case of volumes slowing down payment processing or a one off glitch.

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QUESTION: We are keen to look into training and development schemes for our employees - helping them to really make the most of the technology we use. Ideally, we want to both improve staff confidence and ensure we obtain the best possible results from our systems to enhance efficiency and service. What is the best way for us to proceed?

ANSWER: There have been a growing number of nationals and networks who have launched support plans and services aimed at professional development; paying for, incentivising and providing in house support for members to further their skills and qualifications. For many smaller, directly regulated firms however, there is still one area that often gets overlooked when it comes to training and that is technology. Read More »

QUESTION: The recession has led to a downturn in business for my company. I employ a small number of staff and do not want to have to let anyone go. Are there any alternatives that I can consider before looking at redundancy?

ANSWER: There are indeed a few alternatives to look at before redundancy and many employers are now turning towards these options as a way of retaining key members of staff while at the same time keeping their business afloat.

Staff wages represent the highest cost to a business so looking at this area is a good place to start cutting costs. Implementing pay freezes or even pay cuts where necessary will save your company a significant amount of money and still allow you to keep your existing workforce.

As well as looking at your employees’ base pay, you should also re-assess any bonus schemes that you have within your business. Bonuses are not generally a statutory contractual right and therefore you should look at either decreasing bonuses or removing them altogether.

As well as looking into the possibility of cutting bonuses, you should also remove any overtime. If you have to look at the redundancy then this would suggest you do not have enough work to justify this additional expense.

Depending on how dire the financial situation is, there is the possibility of turning towards a pay deferral scheme. These schemes are an agreement between yourself and your employee whereby there is a temporary deferral in pay that is paid to an employee at a later date. This is quite a complex option, however, and you should seek professional advice before deciding to use it.

Implementing a flexible working system in your business may be an ideal choice for both you and your employees. While the employee can enjoy a better work/life balance and feel a little more in control of their working pattern, as an employer you can benefit from the new working patterns.

For example, many businesses would like to be able to operate a little later into the night or even open on a day where they would otherwise be closed. Having a flexible working system in place would allow this to happen while at the same time adding no additional cost to the business.

Is the downturn in business only affecting one area of your business? If so, you may want to assess the possibility of redeploying your resources from one area to another in order to keep business running smoothly.

The day-to-day running of your business will also involve a lot of controllable costs that you may not have thought about. Assess the way in which you perform different processes in your business and look for a more cost-efficient way of doing it.

There are other alternatives available to a business and these should be looked at before you decide to make redundancies to your workforce. You should look carefully at any alternative option you decide to use to ensure that it is genuinely beneficial to your business.

Peter Done is managing director of Peninsula

QUESTION: Like many other companies, my business has suffered a downturn in the current recession and I want to change my working week to four days as opposed to five in order to keep my business afloat.

The working day will still remain the same length, I just wish to cease opening on a Friday. Can I force these changes on my employees? Is there some kind of process that I need to follow?

ANSWER: Unfortunately, although you have a legitimate business concern, you cannot just change your employees’ contracts irrespective of the change you wish to bring or the reasons for doing so.

The only way in which you can forcibly impose a change would be if you have a contractual clause in your employees’ contracts allowing you to do so and it is unlikely that you will have a clause allowing such a fundamental change.

You need to make sure that you explore alternative options to reducing the hours of your workforce and if you still want to make this change, you first need to discuss the proposed changes with your workforce.

Explain to them what problems have led you to consider this option and discuss the different ways in which you can bring it about and let them know if the proposed change will be a temporary or more permanent one.

Some people may be willing to reduce their hours and agree a change to their contracts. Others may not be able to do that due to financial commitments.

If your employees do agree to the changes, then arrange a date on which they will come into effect and confirm this in writing.

Make sure you think about what the reduction of hours intends to achieve. Is it that you need the same number of people but not over the same number of days or is it that you have less work across in total?

In the first instance, you would seem to have some initial basis for arguing that you can no longer maintain the existing contracts and need to look at replacing them with new contracts for fewer days.

In the second instance, you would not really be looking to change the contracts of employees but instead would have to seriously consider redundancy.

You are likely to find that it will be harder for your staff to agree a change to four days a week than to continue on five days a week with fewer staff, so you are going to need to justify why you have to close one day a week.

Given that you will be looking at dismissing those staff who will not agree this change you will need to be able to clearly demonstrate why the savings of closing one day a week significantly outweigh the savings of spreading the reduction in work across the entire week.

Peter Done is the managing director of Peninsula

QUESTION: How can I best secure my business against fraudulent customers, given the potential for the recession to increase issues in this area?

ANSWER: To be honest there’s very little you can do.

The vast majority of our client bank are long-standing clients and new ones tend to be introduced by way of referral, so that in itself cuts down the potential for fraudulent acts.

In addition, you can generally get an idea when a client isn’t being truthful about something. If you complete a fact find and ensure you question them fully then you can generally spot any problems that may indicate something a little unusual. Read More »

QUESTION: With some industry experts forecasting a rapid decline in IFA numbers and a whole host of mergers, acquisitions and receiverships already having been announced this year, how can technology help protect my firm and ensure I build a greater company valuation?

ANSWER: It’s fair to say that you cannot pick up a newspaper at the moment without reading about some form of consolidation, merger or integration in the industry.

But the good news is that while Ernst & Young’s 2009 life and pensions report does indeed forecast a dramatic fall in overall adviser numbers, it also hails technology as a key differentiator for those firms which it sees riding out the storm.

With increased FSA fees, capital adequacy pressures and general overheads likely to hit smaller, directly regulated advisers harder, the report suggests many will be considering transitioning into larger national IFA groups or networks – which can offer enhanced technology support as well as providing the necessary regulatory security.

Of course, those firms considering a change of status or even selling their business on will have valuation very much front of mind. And, quite obviously, those who have already invested in the appropriate training and technology systems, with robust client databases and structured systems will undoubtedly prove the most attractive option for any potential buyer.

Whether selling, moving into a new ‘home’ or even considering a merger with another firm, It is important to remember that with any ‘partnership’ the flexibility and breadth of the core technology behind the firm is vital.

Having a back-office system which already integrates and shares data across multiple platforms, bringing cost and admin efficiency, is a real bonus. Similarly, having a good cross section of all the main providers supporting your chosen industry portal makes sense.

From the prospective partner or purchaser’s viewpoint, there is no doubt that a firm which uses one of the industry’s more popular back-office systems, ideally one which is fully integrated with provider extranets and portals, represents a much better prospect and a much lower risk - with a potentially higher valuation price to match.

A good back-office solution should also offer integration with the leading fund platforms and sourcing systems, enabling client data to be pre-populated with the resulting efficiency savings and reduction in error rates.

As well as company and platform integrations, there have also been some more innovative solutions brought to the market recently. Electronic identity checking is a good example of this - allowing advisers to cross check personal client details against a range of external data sources.

There are challenges to be faced for firms on the acquisition trail when each company uses a different system or structure and data needs to be managed accordingly. Similarly, out of date or inaccurate information will prevent the implementation of solid and reputable e-business integrations.

Fortunately some of the leading technology suppliers offer data management and auditing services that can review and cleanse data ensuring the migration of any information is conducted seamlessly, thereby causing minimum disruption to the business process.

The benefits of a truly joined-up way of working should be obvious. Any adviser firm, large or small, can use technology not only to improve business efficiency but vitally, in the current climate, to differentiate their business and stay ahead of the competition.

With further adviser consolidation increasingly likely, the most important point to take on board is the need to take action rapidly if your business is not yet prepared.

Jon Finn is chief technology officer of 1st - The Exchange

QUESTION: Having experienced a serious downturn in work, we recently issued notice of redundancy to several employees, one of whom is currently on maternity leave.

A vacancy has now arisen which each of these individuals would be suitable for. How do we choose?

We think it would be fairest to offer the job to the person who scored highest under the redundancy selection criteria.

ANSWER: In these circumstances, legislation may have made the choice for you.

The Maternity and Parental Leave Regulations contain special provisions which apply where a woman on maternity leave is to be made redundant from her current job.

The legislation provides that, where a suitable available vacancy exists with the employer or any associated employer, the employer has an absolute duty to offer it to the employee who is on maternity leave in preference to any other employee, even if other employees may be better qualified or more experienced.

Failure to offer a suitable available vacancy, where one exists, to an employee on maternity leave would render her redundancy dismissal automatically unfair, regardless of her length of service. She can refuse this offer and if she does so unreasonably then she may lose her right to a redundancy payment.

In situations where you do not have any employees on maternity leave it is still not advisable to appoint based on who scored highest on the redundancy selection criteria.

Do remember that this was designed to assess who should keep their current position rather than who is best for the new role and this will always be best resolved through a proper interview process, although this can be ring-fenced for staff on notice of redundancy.

For the purpose of calculating “a week’s pay” in respect of statutory redundancy payments, where the amount of a week’s pay is calculated by reference to the average amount of remuneration paid over a 12-week period, any week during which the employee was absent on maternity leave and, consequently, received less remuneration than would have been payable had she been working, must be disregarded.

Account should be taken instead of remuneration in earlier weeks, so as to bring up to 12 the number of weeks of which account is taken.

The Paternity and Adoption Leave Regulation contains similar provisions in respect of employees who are absent on adoption leave.

Peter Done is managing director of Peninsula

QUESTION: We have outgrown our office space and as a consequence we have decided to let some of our employees work from home. I have asked for volunteers to trial home working. How does one handle such requests and can I abolish the scheme if it is not working out?

ANSWER: When considering home working the first thing you need to consider is how you are going to integrate any virtual workstation into the general work environment and how you will monitor that.

There are some initial considerations such as does the work require access to any equipment or programs that are only available in the office. If you cannot resolve fundamental aspects then this is simply not a workable proposition.

Once you have the basics sorted you will then need to set up all the relevant equipment, such as a computer, dedicated phone line and internet access and work out the rules regarding using your employee’s own equipment and facilities, including contributing towards any electricity bills.

Do not forget to work out how you will provide technical support if there is a failure with any IT systems.

You will then have to consider how you will monitor and manage the work of someone who is not physically in the office. Working from home requires a strict discipline to ensure that the working hours are maintained.

It can also be very isolating as remote workers do not feel the support of their team and may not have recognised the level to which they relied on that support while in the office.

Peter Done is managing director of Peninsula

QUESTION: I am considering joining a network as a way of dealing with some of the changes proposed in the Retail Distribution Review, but have been warned that maybe this isn’t really the answer to all my problems. What should I do?

ANSWER ONE: The network model suits many, but I think the major objection that would be raised by non believers (and correctly) relates to client ownership.

Otherwise, if you get your compliance sorted by them, get mind numbing issues like TCF dealt with by them, and get paid on time, it works well, and you just need to make sure they don’t abscond with your money.

- Glyn Jones, Vale Financial Services

ANSWER TWO: The network is the authorised firm, this means it is responsible for the advice provided, the training of the introducing agent and all other regulatory hoops. Ask the FSA.

Unfortunately I haven’t seen much ‘training’ going on and when client compensation is required all of the above is conveniently forgotten.

As such, I can only really answer this with more questions:
- We don’t know what the final outcome, if any, will be, so why make a decision now?
- Are networks any more viable than a small firm?
- What protection will a network afford?
- Why accept what the FSA proposes as being inevitable?

- Evan Owen, IFA Defence Union

QUESTION: Should advisers forewarn clients about the possibility of a fund being suspended as standard practice, or is this warning only necessary in troubled times like these?

ANSWER: If an IFA has clients with investments in a fund that is being suspended, then yes, they should advise relevant clients as standard practice.

In the current environment, I think that IFAs should be upping-the-pace on their client communications. A quarterly newsletter is simply not frequent enough in this day and age given the amount of financial information that is available in the press and online.

Even long term investment clients want reassurance that their IFA is on the ball, and more regular communications will be welcomed - even if it is potential bad news.

If IFAs don’t communicate with their clients - someone else will and that means risking losing clients.

Also, it is interesting that this question should be asked, because we have a thread running on IFA Life about how often IFAs should communicate with clients.

I also had a personal friend tell me today that their IFA had not told them about a fund which was suspending withdrawals, switches etc for six months.

Philip Calvert, IFA Life

QUESTION: What is the best way of handling clients who are anxious about their investment portfolios?

ANSWER: Clients who have investments in the equity markets and have had to suffer through the past year may well feel disillusioned by the performance of their investments. How they react will very much depend on how the original investment was explained to them and how well they understood the degree of risk they were taking.

As long as a complete risk profiling exercise was carried out and explained, clients should have understood what the best and worse case scenarios were and the fact that any equity investment should be viewed as a medium to long term holding.

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QUESTION: Some one has created a similar website to mine and their website has derogatory comments which has lost me business. What can I do to remove the offending details/site?

- posted by Chris Singer

ANSWER: It’s hard to tell from his email what ahs actually happened. If the other person has copied his design, he may have a copyright claim.

If he has trademarked his log this will give him a stronger case. If they are making derogatory comments about his firm then he may be able to threaten them with legal action unless they remove the comments.

A strongly worded email might just do the trick. If the comments cannot be backed up then they would have avery weak case.

I’m not totally clear if he has one or two issues here - but those would be the high level solutions.

Julian Wells, co-founder and director, Markerting Innovation Forum