The UK Financial Services Authority have had concerns for some time that financial services products are too often recommended by unscrupulous financial advisers on the basis of the amount of commission they receive rather than being the best product for the client.

The majority of professional financial advisers in UK, and elsewhere, take pains to provide clients with the best advice they can but there has been a persistent band of rogue advisers who think only of themselves.

If your business is in financial services you will probably have seen this coming. But read on as I shall be coming back to you later…

If you are not in financial services then this doesn’t affect you, does it?

Well, yes it does! Especially if you have been used to getting your financial advice for free. Or apparently for free…

Most people in UK don’t pay an adviser for recommending life insurance, investments, pensions etc. because the adviser has been remunerated by the life, investment or pension company by way of commission on the sale. Obviously the companies paying this commission have to make it back in some way and that is by some form of management charge built into the product. This means that the client is actually paying this commission indirectly.

Under the new system, the client (you) will be expected to pay the adviser a fee for the financial advice given. This should mean that the product should be better value for money as there are no commission charges to account for and your adviser has no reason not to recommend the best product for your needs.

However, if you take financial advice but take no action on that advice you will still have to pay the adviser’s fee. Unlike in the commission situation where you can just walk away leaving the adviser with nothing.

Now, back to the financial advisers out there.

The good thing about this change is that you will always be able to get paid for financial advice you give regardless of whether the client takes that advice or not. You will be free to advise the client on any course of action you feel is appropriate to their financial circumstances without any concerns about likely remuneration.

Your only problems, if you have not been charging on a fees basis up until now, is one of educating the client in the new ways of financial services and setting up the appropriate contracts and procedures to handle the new regime.

I’ve been talking to a very senior financial adviser about this as he has operated a fees based financial service for over twenty years now. He certainly understands the problems facing commission based financial advisers over the next couple of years.

In fact he has been helping many financial advisers move over to a fees based system for the last ten years or so.

His name is Terence P O’Halloran, ‘ Terry’ to his friends, and he has been a major player in the industry for well over thirty years. Terry first unveiled his Fee-Pac product for financial advisers over ten years ago and has steadfastly kept it up to date, improved, evolved and expanded it over the years into a major package suitable for any fees based profession.

Fee-Pac now includes a full video training seminar on setting up a fees based business, complete client and adviser documentation as well as all the admin files needed to set up a successful fees based practice. This is an extremely professional piece of kit.

If you are a financial adviser or thinking of getting into that business then check out Fee-Pac here. I can’t believe how little he is charging for it considering its potential value to you in the coming months.

Interesting times ahead!

• Sales are not income unless you sell for immediate cash. If you sell on credit, you have to collect the money according to your credit terms. Even payment by cheque or credit card can take time to become available in your bank account.
• Income or Revenue is not profit. The costs of producing, marketing and delivering the product or service, the costs of running the business, paying staff and other ancilliary costs have to be taken out first.
• Profit is not yours to take out and spend! Some may be needed to repay loans, some will almost certainly be needed to pay taxes and some should be invested back into the business to help it grow.
• Money in the bank may not be yours to spend either! Goods and services you pay for on credit have to be paid for eventually, as does accrued taxes etc.
• Debtors are people who owe money to you, creditors are people who you owe money to. The two should roughly balance out. The difference will have an impact on how you use the money in the bank.
• Cashflow is the flow of real money into and out of your business bank account. It is not always the same as sales, revenue or costs which can often be purely paper transactions involving some form of credit or delayed/deferred payment.
• Assets are those things that have a tangible value to the business such as property, equipment or cash – as well as money owed to you from customers.
• Liabilities are those things that will ultimately drain money from the business, such as loans, money owed to suppliers, compensation to disatisfied customers, accumulated charges for utilities etc. or potential legal costs of not complying with business and trading laws.
• CASH is KING – especially in difficult times such as recession or other poor trading conditions. Other assets take time to turn into cash and may not materialise in time to deal with any unexpected crisis. Keep some spare cash on deposit for emergencies.
• Growth is good as long as you can finance it. Growing too fast can mean you run out of money at some point and come to a grinding halt, possibly even ending up with business debts that cannot be paid on time. This is known as OVERTRADING and will often be fatal to what appeasr to be a successful business.

An understanding of the above will ensure you run your business in a sensible manner and reduce the risk of failure. Make sure you keep full financial and trading records so that you can keep track of the important financial areas of the business.

We have a business saying here in England “You’ve got to make a margin”. This simply means that, the price you charge for your product has to cover the cost of producing and delivering it, the costs of running the business and paying taxes, the salaries of your staff and YOURSELF, enough to repay any business loans PLUS a bit left over to invest in growing the business.

You not only have to make sure that sales values exceed all costs above, but also be aware of timing. There always needs to be at least enough cash coming in to cover the amount of cash going out. YOU need to be paid on time to be sure that you can pay YOUR bills on time.