Posted On: 26th July 2012
We asked David Prior, Managing Director of Crombies Financial Services, whether there is such a thing as free advice and whether anything which apparently costs nothing is worthwhile?
David commented “It is possible for owners of Limited Companies to reward their key staff, the MD, the FD and any senior managers, without it actually costing the Company any money at all. In fact, they can even save money. There are some useful rules which were introduced in the last few years, which are greatly under-utilised, which will allow businesses to reward their key staff with life cover benefits AND save money for the business at the same time!”
“This is one of the few instances I can think of where something which is effectively free is definitely worthwhile. In the Financial Services Industry, there has been a lot of confusion amongst clients as to what they pay for and what is free.
The Banks certainly haven’t helped. The Banks have customers whereas we, as Financial Advisers, have clients and the difference in the long-term outcome is substantial.
I often see potential clients and when we talk about investments, they tell me the Bank have offered to set up the investments for them free of charge. What actually happens is that the Bank take a substantial upfront commission on their investment, but because they do not pay a fee to the Bank for any advice, the customer perceives it to be free. Thereafter, the Bank have no further interest in that customer or their investment, as they are not earning any income from it. Therefore, unless the customer arrives with more money to invest, they have had no interest in them.
As IFAs, we have structured our business differently. We earn less up front as an initial payment, but we are then paid from the investment on an ongoing basis, meaning that our income is directly affected by the success of the investment over the long-term and we are happy to meet with clients and review their affairs.
This is why we refer to our “customers” as clients – they are not just a number or another notch towards a sales target, they are with us for many years and we often look after several generations of the same family.
Our industry is changing significantly and new rules coming into force in January next year will change the face of Financial Services in this country.
We have been working hard to create a new business proposition which will fit in with the new rules and our business is constantly evolving.
Over the years I have written in this column quite regularly about the merits of buying commercial premises through pension schemes, as this method of purchase can have considerable tax advantages over the long-term.
We have moved to new premises in Stafford town centre and we have taken an option to buy the property within the next 3 years. The property is multi-tenanted and as soon as we are sure that the other tenants are going to renew their leases and stay for the medium term, we can exercise our option to buy the property – through the pension schemes of the Directors.
This means that monies already within our pensions can buy the premises. Thereafter, the rent from all 4 tenants will be accumulating within our pensions – free of any income tax liabilities – to build a much more substantial retirement pot for our long-term financial security.
With commercial property prices currently depressed, if the property value grows, any profit will also be free of Capital Gains Tax when sold, as pensions do not pay CGT.
So, our outgoings won’t alter as we will still pay the same rent, but rather than it going into the pockets of a 3rd party landlord, it will go into our own pensions. At the same time, as the property is multi-tenanted, we will have the rents of 3 other businesses coming in – it all makes great commercial sense.
If you haven’t dusted off your pension papers for some time and would like to know whether you can take advantage of these rules, please do make contact.
We have even made our telephone number free to call – from both landlines and mobiles – another example of where something free could lead to great benefits.
For a free, no obligation initial review on any financial planning subject, please call David on either 0333 800 1808 or 07734 550825.