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Austerity is opportunity
The corporate world can learn a lot from austerity Britain. The government is seeking and making economies in every corner of its activities. Hardly a single element of its running costs is not under the microscope in an efficiency drive that Britain hasn’t witnessed in half a century or more.
Austerity teams are working through purchasing programmes, departmental staffing levels, welfare budgets, property estates, sovereign borrowing costs and a vast range of government services, to name a few areas. It’s no exaggeration to say that the nation’s bottom line is being transformed by this relentless attention.
And it’s long overdue. When Britain emerges from its austerity phase -- and probably earlier than was originally thought.
As Pacific IFA’s discussions with companies all over Britain tell us, much of the private sector wants to follow suit. Everywhere we go, we talk with owners, chief executives and financial officers who are determined – and in some cases desperate – to achieve not temporary but permanent economies.
There’s never been a more important time to make a rational response, and yet that’s not always the case. “Many chief executives are needlessly terrified,” explains Pacific IFA’s founder and senior partner Mark Pentelow. “I divide businesses into three categories. There’s those that need help now, those that will need help in 18 months unless they take measures now, and those that are doing well but are still worried.”
And Pacific IFA can do much to alleviate that worry.
Nearly all businesses are tightening the shoestrings but the best ones – the firms that will emerge stronger from the recession -- are doing more than that. They are using the opportunities presented by austerity Britain to embed structural efficiencies into their businesses that will last long after the end of the recession.
While many of the firms we are privileged to deal with are doing well and even thriving, there’s no doubt that some are in urgent need of a dose of corporate-doctoring. Indeed it may make the difference between survival and failure.
Yet regardless of the condition of the business, what is common to the management of UK Ltd is a desire to convert the challenges of the recession into opportunities and to emerge better as a result. That is, more robust, more profitable and more enduring.
These businesses, you might say, are leveraging austerity. And this is where Pacific IFA can help.
At Pacific IFA we believe a firm’s capital is precious, like a river of gold. And it should be deployed to the greatest possible advantage of the firm and all its stakeholders. In fact we often find that efficient use of capital makes all the difference, but it’s always important to use capital well. Indeed it’s one of our guiding principles that capital should be made to work to the bone, although it generally isn’t.
But what is capital? In our book it’s a big concept embodying the sum of a firm’s revenues and profits, its surplus and savings, its tax obligations, its borrowings and its investments.
Unfortunately, capital is routinely misused. It’s buried in buildings that don’t earn revenues, lost in unnecessarily excessive corporate taxes, poured into inefficient pension schemes, dribbled away in ill-considered remuneration structures, wasted in sloppily conceived commercial and personal insurances.
After sitting down with business-owners, chief executives and financial officers, Pacific IFA field staff almost invariably find excess, dormant or ill-used capital that can be released, and always to the huge relief of the stakeholders.
We do so by tapping the respected legal, accounting and investment talent in Britain. In this way we are in a position to maximise firms’ use of capital and boost their bottom line in numerous ways. Most managers, preoccupied as they necessarily are by the day-to-day operational obligations of running the business, are often astonished at the gains that can be delivered.
Needless to say, all of these efficiencies are achieved with total legitimacy through complex but robust instruments that meet regulatory standards. “Quite understandably, many firms just don’t understand the rules about capital allowances schemes,” explains Mark Pentelow. “But the commercial return from them can be substantial.”
All it requires is expertise, planning and execution. After that, our aim is to hopefully let the river of gold flow.
Pacific IFA saw the need, met it
The new Business division Pacific IFA all started when senior partners Mark Pentelow and Stephen Davis talked to companies about financial planning and found the conversation often turned to corporate financial issues rather than individual investment matters.
“We often run seminars about individual investment opportunities but lately we found that businesses got much more excited about capital, tax savings and other corporate-type issues,” explains Davis.
In fact, they ended up fielding so many questions about capital management, tax liabilities, design of remuneration packages, accountancy and pension issues among others that they decided to launch a dedicated firm. And Pacific Corporate is the result.
Its purpose? The business division of Pacific IFA starts where Pacific IFA leaves off. The financial planning function is chiefly for individuals, although we often find it has a corporate application too, for instance in such instruments as remuneration trusts. (And if you haven’t talked to us about remuneration trusts, now might be a good time.)
A UK-wide pool of talent
Pacific IFA has its own dedicated and highly-qualified team but, as good as they are, its members don’t profess to be able to handle all the many and complicated issues that companies face. No one person can possibly claim to be an authority on national and international tax liabilities, capital management, pensions, insurance, offshore remuneration schemes and other heavyweight financial issues.
That’s why we routinely engage the services of Probiz, the firm founded in 2002 by Feisal Nahaboo. Thus Pacific Corporate is able to call on the deep knowledge of leading QCs and specialist solicitors, accountancy firms and chartered tax planners among others. By using this deep pool of experience, we have been able to delight, surprise and even shock companies with the results. The solutions we have been able to provide for such issues as tax liabilities – an area of confusion to all but the most capable of specialists – are founded on robust instruments and schemes that have withstood forensic examination by HMRC.
Pacific IFA can call on specialists for just about every contingency – legal, accounting, banking, investment and asset management. For instance, remuneration experts have designed HRMC-compliant offshore umbrella trusts where salaries can be more profitably invested than at home. (Tax havens may be dead, but tax-efficient jurisdictions continue to thrive.)
Expert negotiators often act as third parties between businesses and banks. They work to significantly reduce debt and interest-payment burdens. Our consultants can fold commercial premises into company or group pension funds for substantial savings on capital employed. They achieve hefty savings on commercial and key man insurance.
Through Probiz, in short, we can open even more capital-saving doors for the corporate world.
Payment for high performance
When Pacific IFA delivers its services, the fees are agreed, known and transparent. Indeed transparency is our starting point, absolutely fundamental to our relationships with clients. “Everybody should know where they stand”, insists Mark Pentelow.
Perhaps even better, we can often define with considerable accuracy the capital savings a firm will be able to generate as a result of engaging our intellectual property. Most often, those savings are rapid and sometimes almost immediate. Furthermore, our charges are directly related to your returns.
Indeed, in most cases our services won’t cost a penny upfront. Pacific IFA is rewarded through an agreed percentage of the savings we achieve for your business. For instance, it is by no means uncommon for a firm with its own building to book a £150,000 saving merely by placing, say, half the value of the real estate in a pension fund.
And speaking of pension funds, whether group or company-wide. Our charge for taking over the management of a fund can be as low as 0.5 per cent per annum. Biased we may be, but we don’t believe any firm should run its pension fund, which can be minefields for managers. These may be onerous, time-consuming and legally dangerous. It’s just not what firms are meant to do.
In all this, Pacific IFA doesn’t seek to replace a firm’s existing advisers. On the contrary, we work with them. We do so by adding layers of specialist expertise that serves to enhance existing in-house and in-sourced intellectual property. “We don’t cut anybody out,” confirms Davis. “We just provide an extra and much-needed service. It’s really a form of education.”
A financial advisory firm for today and tomorrow
Pacific IFA, is a little more than two years old. But what a two years!
It was created to provide, in our view, a much-needed model in wealth-creation management. It’s been a runaway success and we expect the firm to grow and prosper in the new era, and with some justification.
The partners and staff of Pacific IFA wholeheartedly embrace the FSA’s sweeping review of the entire financial advisory universe. In this, among other revolutionary developments, the historic commission-based model will be replaced by a fee-based one. In short, it will be from 2013 a system based on performance. After all, between them Mark and Stephen have worked in the financial advisory sector for nearly 40 years.
We back these ground-breaking reforms for two main reasons.
First, we have always believed that products and services, whether for individuals or corporates, should be recommended only on the basis of rigorous analysis of their suitability for the client rather than on the size of commissions or undisclosed ties with providers.
Hence, our performance-based fee structure. We were founded on the conviction that bespoke products and instruments are right for clients, not off-the-shelf ones. Our clients may have requirements and characteristics in common, but they’re all different. Thus we measure our performance purely on how much we contribute to clients’ wealth.
The most successful products are, as you may expect, instruments that deliver that kind of exclusivity such as self-invested pension plans, or Sipps, that can be almost infinitely configured for individual purposes. And as we’ve said, we source those products across the whole market, not from a handful of providers.
Think of Pacific IFA -- as an advocate on your behalf, a highly dynamic advocate. We don’t sit in our office, trying to do it all over the phone. We much prefer to come and see you and understand what you need through conversations that help us get inside your business.
Having done so, we then go back to the office and search the whole of the market for the answer. This way, we often find solutions to problems that business-owners didn’t think they had.
It’s the right time
I feel that Austerity Britain won’t last long. Already our prospects are looking better than they did when the coalition government took office.
Although here at Pacific IFA we acknowledge that many companies still face considerable challenges in the industrial estates and office parks of the nation, we also believe UK Ltd is definitely on the way back. Those businesses that climb most rapidly out of the trough will however be the ones that are streamlining their operations and capital deployment right now.
At Pacific IFA we believe it’s vital to free up capital to deploy in the coming recovery. Firms that leverage austerity will find themselves riding the rebound.
Selwyn Parker’s latest book, The Great Crash on the Depression of the thirties, was published in October.
• The views and opinions expressed in this article and those of the author Selwyn Parker
• The Financial Services Authority does not regulate taxation advice