At the Helm: Reflections from a retired adviser

A retired adviser can be a great resource for those who are following in their footsteps.

Harry Katz, former principal of Norwest Consultants, announced his retirement in 2015 but has stayed connected to the profession through mentoring and occasional consultancy work.

Money Marketing asked him what advisers should be aware of if they want to start a business today.

Paying your way

When Katz hears that someone wants to start their own advice business, his first response is to ask how much capital they have.

“What people don’t realise is that when you start a business you get hit with bills, left, right and centre. And you’ve got to work on the basis that at the very minimum you’re not going to earn anything for nine months,” he says.

You haven’t got time to do your own accounts and there are lots of ways you can mitigate your tax by using an accountant

There is the basic cost of office space and everything in it, from computers and furniture to “stationery and all the little stupid things”, observes Katz.

“But the most expensive stuff is your professional indemnity insurance, your fees for the regulator and the compensation scheme. You’ve got to pay for all that before you even open the door – and you’ve got to apply for authorisation before you begin.”

Borrowing money to start a business does not sit well with Katz as the interest on loans will only add to your costs.

“If you go to the bank and put your house up as collateral, what would your husband or wife think of that?” he asks. “You are risking the roof over your head. Would you want to do that?”

Recruiting staff and attracting clients

Employing staff is another consideration. When running his firm, Katz was a sole trader who hired administrative and IT staff as labour-only subcontractors, paying them by the hour whenever needed.

But this did not mean he had a revolving door of temporary staff.

“The lady who did my typing was with me all the way through and the IT guy is still with me now, when I need him,” says Katz. “He’s been with me for well over 35 years.”

You don’t cut corners with client services; you do the very best you can for clients

Katz did not want the “headache” of taking on permanent staff, particularly in adviser roles, which would have meant assuming a more supervisory role himself.

“If you take on other advisers, you’ve got to watch them like hawks to make sure they don’t drop you in it,” he says.

“I wanted to avoid that, but that’s just me. Other people want different things in life. Just because I did things in a certain way, it doesn’t mean other people have to do it the same way.”

However, one thing Katz recommends to every new business founder is employing an accountant.

“That’s another cost, but you haven’t got time to do your own accounts and there are lots of ways you can mitigate your tax by using an accountant,” he says.

You’ve got to work on the basis that at the very minimum you’re not going to earn anything for the first nine months

Katz points out that it is not only the money you make that is important for staying in business but also how little you spend and maximising efficiencies.

“That doesn’t mean cutting corners to client services,” he says. “You don’t cut those corners; you do the very best you can for clients.”

At the Helm: Are career changers creating recruitment challenges for advice firms?

According to Katz, the best way to gain new clients is through professional connections with solicitors and accountants.

“One of the most lucrative connections I had was a forensic accountant. I’d dealt with his client and there was something I’d mentioned in a client report that the accountant had seen,” he says.

The most expensive stuff is your professional indemnity insurance, your fees for the regulator and the compensation scheme

The accountant specialised in high-end divorce cases and passed his clients to Katz for help with investing divorce settlements. He also consulted Katz whenever he needed a financial planner’s perspective – there was never a fee-splitting arrangement between them.

“It was my duty to make sure that I did well and that reflected well on the introducer. Fee splitting – that’s a nonsense,” he says.

Saying no

Even if a prospective client is referred to your business by an existing client or a professional connection, you are not obligated to work with them, Katz points out.

He recalls meeting a woman who had a “very handsome divorce settlement” to invest.

“I said, ‘I reckon, with the money you’ve got, it would generate this amount of income after tax and I think that should be fine,’” says Katz. “But she said, ‘I don’t think I could manage on that.’”

If you take on other advisers, you’ve got to watch them like hawks to make sure they don’t drop you in it

When asked why not, the woman explained she owned 10 horses.

“I said, ‘That’s no problem. You could open a riding stable,’” says Katz. “But she said, ‘No, I couldn’t do that. They’re pedigrees.’”

Katz then suggested sending the horses to stud to generate income but the response was again a no.

“She said, ‘I couldn’t possibly. They’re pets.’ So I said, ‘I’ve got a solution: eat the horses!’ In other words, go away.”

In Katz’s experience, few advisers – whether running their own business or working for someone else – are prepared to say, ‘No, I will not deal with you,’ or, ‘I won’t do that.’