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Has COVID-19 redefined personal financial planning for accountancy?

16 October 2020: Richard Bertin underlines how COVID-19 has reinforced the importance of focusing on the financial health of business owners and not just of their businesses.

The UK economy has close to six million businesses, the majority being SMEs or micro-entities. Since the outbreak of COVID-19, many of these businesses have leaned heavily on their accountants for support on funding solutions, furloughing, tax deferral and rewriting cashflow forecasts for the next 12 months.

Our profession has shown amazing agility in this crisis, with the majority upskilling overnight on issues as varied as the protocol of video conferencing, workplace safety or corporate borrowing options.

Perhaps COVID-19 has highlighted the role of the chartered accountant as the true trusted adviser. Many business relationships revolve around compliance tasks such as accounting and tax reporting alongside advisory planning on salary and dividend extraction for the business owner. However, on a sixpence, chartered accountants have raised the bar, going beyond their core service proposition, and have done so with confidence, and by now, a large degree of exhaustion.

The role of the accountant in practice - why is it different now?

Fundamentally, the financial health of an SME or microbusiness drives the financial health of the business owner. Some businesses will have prospered in COVID-19, but for many, they will neither expect to make a profit this financial year nor be cash positive.

At the same time, the business owner may well have kept themselves going with some personal savings, a mortgage holiday for three months and by deferring their July 2020 tax bill (to January 2021).

As previously mentioned, our profession has stepped up to the plate and dealt with the needs of the business (furloughing, tax deferral, etc.) but has not balanced this with the “financial health” of the business owner.

What will happen in January 2021? Many clients take a dividend in January to pay their personal tax bill. Without profit or reserves, there is no dividend cover. Furthermore, any coronavirus government-backed loan should have been taken out to support working capital or investment and not to replace dividends.

Personal financial planning and business planning go hand in glove. When salaries and dividends get cut, this impacts the owners’ pockets too. How many accountants have a real handle on their clients’ personal cashflow? This has nothing to do with ISAs and pensions – the perceived domain of personal financial planning – but about client survival, and not just the business as a legal entity.

What should accountants in practice do?

In some ways, we have had a temporary reprieve with the cancellation of the Autumn Budget. However, that is primarily because the Chancellor does not feel comfortable making policy decisions in the middle of a second COVID-19 wave.

This should not give the profession any reassurance.

The traditional levers of the accountancy profession have been about tax optimisation or tax reduction. The revised advisory proposition for the accountancy profession should be anchored around meeting business owners’ cashflow needs going forward – in other words, business and personal. Accountants must understand what their clients’ personal cash needs are so that they can help the business plan, or even survive, accordingly.

The FCA requires financial advisors to undertake a “Know Your Client” (KYC) fact-finding process. This COVID-19 crisis has highlighted that accountants need a holistic understanding of their clients’ finances to advise on the business, otherwise there is a risk that business advice is given in a vacuum.

Many accountants may wince about delving into their clients’ personal affairs, but this is counterintuitive. The profession has spent the last six months meeting their clients virtually – in their kitchens and dining rooms, talking about their personal lives.

As mentioned above, accountants are the trusted business adviser and now need to get to grips with being the personal financial adviser.

Maybe, the profession needs KYC mandated on them? Perhaps chartered accountants in practice should not give salary and dividend advice, without a “suitability check”. Put bluntly, you need to understand your clients’ personal finances more fully before giving advice, just as you would their business.

In the short term, it is a must for business survival mode. What is the point in keeping the liquidator at bay, if you let the trustee in bankruptcy through the back door?

The views expressed are the author’s and not ICAEW’s.

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Richard Bertin is an ICAEW Chartered Accountant, former chair of various committees and is currently an ICAEW Personal Financial Planning Advisory Group member. He established and built up a successful fee-based wealth planning business. Following its acquisition in 2016 by Stonehage Fleming, the largest independent family office in EMEA, he continued to further build the group’s private client financial planning arm before leaving last year to establish Tether, which is launching personal financial planning software to the accounting profession, combining his previous accountancy and business development experience and knowledge.