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Five challenges to adviser remuneration arrangements

Successfully 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.

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:

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.

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.

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.

This article was originally published on Money Marketing

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