Industry sector: Business services

IFA: Cash sales


'Cash sales' means all income from your main business activity which is received at the time of sale, or very shortly afterwards. Many IFAs are not authorised to handle clients' money - when a life policy or investment product is sold, the client makes the cheque or direct debit mandate out to the appropriate product provider.

For retail investment products like pensions and investment funds, advisers must agree an upfront fee with their client for the advice they give. This could be an hourly charge, a percentage of the amount invested or a flat fee. They can't receive commission from the provider of these types of product (they used to be able to, but the rules changed at the start of 2013). However, the client can ask the product provider to deduct this fee from the amount they're investing and to pay it over to the IFA.

You will have to give careful thought as to what your charges will be, bearing in mind what other IFAs in the area charge and what your clients will be prepared to pay.

Depending on the range of services you offer, you may still get commission on the sale of some insurance products - like income protection, critical illness and life cover - and also mortgages. 'Trail' commission can also keep being paid in respect of any products sold before the end of 2012, so if you're buying an existing business then your income may include this.

Although you might actually receive some payments in cash, remember that Cash sales can also include:

  • debit and credit card payments
  • cheques
  • payments made direct to your bank account

To prepare your cash flow, you will need to estimate how much income from financial services you will receive over the next 12 months. To do this you will need to work out how many new policies and investment products you will sell, how much you will receive on each sale and when you will receive the payment. If you're taking over an existing business you'll also need to think about how much trail (or renewal) commission you'll receive - and when it will be paid. Remember, you must provide an ongoing service in order to be able to receive the commission. You will also need to consider the range of products you will offer.

There are a number of other things to consider when you make your estimates:

Type of business

  • who will your customers be - members of the public, businesses, or both
  • where will your premises be - many IFAs take offices near other professionals such as accountants and solicitors. Others are able to work from home, often travelling to visit their clients
  • will you have an internet presence
  • how many staff will you employ (if any)
  • will you join an IFA network
  • what will your working hours be - will you be prepared to see clients at weekends and in the evening
  • how far are you prepared to travel to see clients

Your products

You will need to consider the nature of the financial services you will offer, whether you will target a particular category of client, for example, high net worth individuals, or specialise in a particular area such as post-retirement planning and long term care.

Regulation

Individuals who work in the financial services sector must be authorised by the Financial Conduct Authority (FCA) and comply with certain regulations. These will affect the way in which you will be able to operate. If you also want to sell mortgage and general insurance products then you should be aware that the FCA is responsible for regulating these sectors too.

To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast.

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