Are advisers better off self-employed? Rebecca Jones takes a look at the pros and cons
Self-employment is often seen as the Holy Grail for those in professions, like financial advice, where generating and closing your own business is par for the course. The general consensus seems to be that self-employed workers not only have more autonomy but are better paid - a combination that is hard to resist.
Yet, despite the benefits, self-employment is not necessarily easy, not least because the responsibility for generating your income becomes entirely your own. Thus, many advisers find themselves torn between the comfort of a steady paycheck and the opportunity to be their own boss.
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According to former self-employed adviser and current self-employed compliance director Tony Catt, the rationale for becoming self-employed, which he did in 2000, was simple.
Are advisers better off self-employed?
"I took into account the fact that my employer was earning a lot of money and I wasn't. The idea was that I could earn more by doing the same things," he explains.
This is a common assumption among advisers and other professionals, yet by Catt's own admission it is notoriously difficult to confirm.
This, in part, is because there are a number of ways a self-employed adviser can earn their income: as a fully autonomous business owner, as part of a network or as a self-employed member of another advisory firm. Which is preferable in terms of remuneration is debatable.
Simon Webster, managing director of Facts & Figures, claims that once generating leads and dealing with compliance is taken into account, a self-employed adviser running his own practice will typically earn the same as a self-employed adviser working within another firm; around 60% of the value of the business they write.
While Webster's estimates may not be universal, with employed advisers earning around 40% of the value of the business they write, it would seem reasonable to assume a self-employed adviser will earn more.
However, a recent survey conducted by financial services recruitment firm BWD revealed that, on average, self-employed advisers earned 3.7% less than employed advisers in 2012. The survey of 500 advisers found those that were self-employed earned an average of £60,533 in 2012, compared to £62,838 for their employed counterparts.
However, as Catt observes, the tax benefits that come with being self-employed can often make all the difference to an adviser's income.
"When you are employed, all of your income is declared taxable. If you are self-employed, you declare your gross income but then you can deduct various things from it, so you're actually only taxed on a net amount. That invariably means you pay considerably less tax," he says.
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