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Fee protection - Marketing matters. By Dan Martin

26th Apr 2006
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With HM Revenue & Customs' ever increasing clampdown on tax evasion, taking out professional fees insurance (PFI) ' also known as fee protection - is fast becoming one of many firms' top priorities to ensure costs are covered should an enquiry occur. Professional bodies recommend accountants at least make clients aware that the service is available but just how do practices go about getting clients to sign up to a scheme and then ensure it is effectively administered? Dan Martin explains.

Selection success

Due to the variety of different fee protection schemes with varying degrees of inclusion and exclusion, it is vital that accountants ensure they select a scheme most appropriate to their particular clients. The suitability of the scheme will be dependent on the type of business concerned.

Diana Robertson, marketing development manager at Leicestershire based Qdos Consulting, says understanding the nature of individual clients is important. "Accountants should look at the type of client base and the nature of the enquiries or disputes experienced by them," she advises. "For instance, if there is a bias towards business clients they are more likely to receive significant aspect enquiries, therefore accountants should ensure the insurance covers them."

PFI promotion

Once an accountant has analysed their clients and selected a scheme, it is then time to get as many as possible on board. For most, this will be the hardest part of the process.

Convincing a client who is perfectly happy for their accountant to deal with tax returns that PFI is worth taking on can be a hard task. As Pat Mackereth, business partnerships manager at CCH Fee Protection, says: "Marketing is usually the single biggest reason a practice will shy away from fee protection."

Practices' first task should be to decide when is the best time to market a scheme. The months of July, August and December should be avoided due to holiday periods while marketing in January or April is likely to clash with taxation deadlines.

Mackereth explains that many practices, particularly smaller firms adopting fee protection for the first time, often feel they do not have sufficient resources to communicate effectively the benefits of the service.

Key to the initial stage in taking on PFI is to check with the insurer whether any help with marketing is offered. At the basic level, most providers offer a mailshot or suggested letters service to target clients with information but some will supply more extensive assistance as part of the deal.

Another important element is understanding clients. As a qualified marketer at CCH, Mackereth admits she has come across some pretty woeful examples of firms not fully knowledgeable their clients' make-up.

"How can you market something if you don't know your clients?," she comments. "Accountants need to have a well-structured and up-to-date client database. They will struggle otherwise."

Of course, when to talk about fee protection is important too. Successful marketing of a scheme is not just about sending a letter once a year but equally clients will not appreciate being bombarded with information at every opportunity. Accountants should remember to operate a continual awareness programme but only provide details during appropriate meetings and conversations.

Experts recommend that someone is made responsible for the smooth running of the marketing process. All employees involved, down from practice partners to administration staff should fully understand the fee protection service available and how it should be promoted to clients. Some providers will organise presentations within accountancy firms outlining the benefits and administration of the scheme.

"It is very easy for decision makers to understand the nuances of fee protection but to forget to ensure that admin staff do," says Roy Murray, general manager at Professional Fee Protection (pfp).

Admittedly, a practice's 'champion' of fee protection may have problems convincing others internally that a scheme is worth adopting. Insurer presentations can help with this.

David Moore, tax services director at London firm Goodman Jones, came to the business as a strong believer in PFI and took it on himself to persuade the company's other partners. They signed up to a scheme with CCH.

As well as outlining the benefits to clients, Moore was able to use the benefits the practice would gain to convince his colleagues.

"The scheme makes us take a more disciplined approach to budgeting for enquiry work, which I think is a good thing," Moore says. "When you're trying to do the best for your client, it's all too easy to get carried away and let the costs get out of control."

Convincing clients

It can be a double edge sword ' some clients put so much faith in their accountant's abilities they see no need to fork out for PFI. But when an investigation does happen and a client is hit with a bill for thousands of pounds it is often the accountant that gets it in the neck for not recommending fee protection in the first place.

Crucial to getting clients on board is communicating to them the random nature of HMRC enquiries. Nowadays, keeping good books and using a reputable accountant does not guarantee immunity from investigation.

Murray from pfp says: "Sooner or later everyone will be investigated. It's not a question of if but when." He claims accountants marketing PFI need to persuade clients that the HMRC is always interested in collecting more money - in other words make clients aware of the risk.

"The Revenue doesn't only investigate the rule breakers. They also investigate very genuine business people," he says.

Financial costs are not the only negative results of an investigation. Emotions can be hit too. Investigations can last for many months or even a year or more. Mackereth at CCH admits that enquiries can place great strain on clients' personal lives leading to problems with health and relationships.

Administration achievements

For practices taking on PFI for the first time, it can be a daunting process. Some may be worried out the financial commitment involved so providers offer "client decide" or "opt in" schemes under which the accountant invites clients to join who then sign up directly with the insurer. With some providers although the contract is between the client and insurer, the scheme remains the control of the accountant. Other insurers offer schemes whereby no financial commitment from the practice is required and control of the scheme is with the insurer.

To ensure a scheme is administered effectively, accountants should research what additional services the insurance firm provides. Most offer telephone helplines staffed by external or internal experts which will prove useful for guidance with unclear issues.

Above all, research is key to ensure that accountants are content with the service they have picked. As Mackereth says: "Accountants should be happy that whoever they decide to opt for has covered all the bases."

It is also recommended accountants check whether marketing mailshot services are also provided when insurance policies need to be renewed. If this is the case, it is up to the insurer to worry out renewals, not the accountant.

Maintaining a good relationship with the insurer is important too. "Accountants should build up a rapport with the claims manager," Robertson proclaims, "They are human after all!"

If investigations do occur, all parties must act quickly to ensure fees are covered. Robertson warns that an early heads-up about investigations is key.

"It is imperative that the client informs the accountant as soon as he or she is aware of a written dispute with HMRC," she says. "The accountant must then inform the service provider as soon as possible to ensure acceptance of the claim and that all representation fees will be covered."

Related article

Fee protection - Consider your options


Replies (9)

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Dennis Howlett
By dahowlett
30th Apr 2006 02:09

There is a good argument
for insisting that HMRC investigations that trigger an insurance claim be passed to 3rd parties. Here's a few not in any particular order.

People like Simon Sweetman are far more experienced than the average practitioner. They know the wrinkles. the value they deliver far outweighs the cost, which the client is largely shielded from anyway.

If your client is selected for investigation and assuming it is on reasnable grounds, then you don't know your client as well as you think.

Passing on to a dispassionate 3rd party is no reflection on you and may well get the job done more effectively.

There need be little fear of losing the client (which is the real objection - isn't it?) if you've otherwise done a good job AND have an ongoing active relationship with the client. You can argue that an otherwise great relationship can be soured by an investigation you manage.

3rd parties will have to talk with you along the way - you might even learn something you can apply in other areas. That's how I looked at my relationships with the then Arthur Anderson and Baker Tilly.

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By dcunliffe
27th Apr 2006 17:02

What's right for clients
Nicola is correct that the FSB, and some trade associations, include a form of cover in their subscriptions. However, these schemes do not offer the extensive cover of an accountancy practice insured scheme. FSB-type schemes also often insist on an outside consultant being appointed to handle any tax enquiry that may arise, which means that the client's own accountant, who knows the client and his business best, cannot represent the client (and be paid for it) in an enquiry. This may not be in the client's best interests.

As for small print, it's easy to be cynical about insurance companies and small print but the proof of the pudding is in the eating. The best fee protection providers do not put unnecessary obstacles in the way of claims and, in my experience, most practices which have these schemes are perfectly happy with the way that claims are handled. It's also a fact that many clients are interested in having such insurance and they are glad to have paid the annual premiums when faced with the costs of an expensive tax enquiry.

I have to declare an interest in that I now work for one of the providers (Qdos) but, before that, I worked in practice for more than 15 years and have extensive experience of how these insurance schemes operate.

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By dcunliffe
28th Apr 2006 08:01

Not in HMRC's view...
James, in HMRC's view, fee protection insurance premiums are not allowable deductions - see HMRC Manuals paragraph BIM46452. However, as far as I am aware, this has not been tested and there are arguments against their view.

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28th Apr 2006 17:15

Fear of clients is unfounded
We've been running with IRPC (now CCH) for about 8 years. For the first couple of years we asked clients if they wanted to join and got about 50% take up. But the admin was horrendous.

So, after a couple of years we bit the bullet and told clients we were making it compulsory - although we did it very nicely of course. Hardly a squeak. It allowed us to reduce the amount charged per client and made the admin really simple - one mailing a year.

We add the charge to the WIP ledger and just bill with other stuff when we would otherwise normally bill.

Our experience has been that having the cover is a useful marketing tool - we have picked up clients in competitive situations because of it, although that would never be a reason to take it on.

Yes there are some gaps in the cover. You just need to be savvy about that when dividing the block premium up between the clients.

Up front investment of time and resource is required to initiate fee cover - but I heartily recommend it to my fellow professionals.

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Dennis Howlett
By dahowlett
26th Apr 2006 15:53

What lessons?
Apart from the insights provided by GJ about budgeting and the internal discussion issue, where's the advice about approaching clients? Why do I 'need' a database? What am I getting from that? Numbers without context are meaningless.

There's a lot of FUD here. Given the number of business and HMRC resources, mathemtically, you cannot say "It's not a case of 'if' but 'when.'" Tell it as it is - insurance is something you pay for in the expectation that disaster won't strike, but which provides comfort *if* it does. It's part of the cost of doing business.

How about considering the quality of work undertaken as a factor in driving premium levels? How about reviewing policies around client responsibility? How about using the firm's website as a communications mechanism around the issues?

I'd argue that small firms are very well placed to demonstrate benefit in ways larger firms might easily find difficult to articulate beyond re-affirming the brand.

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By AnonymousUser
26th Apr 2006 19:35

Small Print
Read the small print in these insurance policies and you will get to know exactly what you are covered for. Then you will know why clients aren't interested.

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By ancpaddy
27th Apr 2006 06:34

Other Cover
If your clients are members of the FSB then they are already have this cover through them.

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By User deleted
02nd May 2006 09:02

Part 2: FPI - can we reasonably recommend this?
Crucially, this role of insurance as a bastion of fair play is possible only where the insurance company can and will meet reasonable claims made. If, for whatever reason, the cost : benefit equation falls away, for either party, the system will wither and leave a dangerous vacuum. Insurers seem to be straining to contain costs and fees paid. Using their in-house consultants may appear to help them, but is not always the answer for practitioner and client. Indeed it may be quite inappropriate in some cases, and does not come without complications and cost to the practitioner. Even though a insurance company consultant may be working an Enquiry case, the practitioner as long term adviser, must remain closely involved for the client and will inevitably spend substantial time (outside insurance cover) to guide and support the Enquiry. Preparing and submitting claims is time-consuming and exacting – and frequently irrecoverable. Having then to struggle for settlement of fair claims submitted, is a shocking further waste of professional time and does little to help establish an essential atmosphere of trust.

In summary, I question whether professional advisers and their professional institutes can so readily recommend or so ardently market FPI? Before we go further along the road of promoting this "support", should we not see some independent research into claims records and on-costs related to this aspect of FPI? Has any survey been done of those who held – but no longer hold FPI? With rising incidence of Enquiry, the role of FPI could prove either the foundation of a fair process - or its undoing! As taxpayers, we must all hope fervently for the former.

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By User deleted
02nd May 2006 09:01

Part 1: FPI - can we reasonably recommend this?
I have for many years held Fee Protection Insurance (FPI) as one of a tiny percentage of practices. I have been a staunch supporter and promoter of FPI but am becoming deeply concerned recently to find that some FPI cover is questionably serving our clients - and taxpayers in general - as effectively as it was intended to do. As more claims come on stream in our smaller practice, some providers seem either to be imposing increasing use of their own in-house consultants and / or otherwise finding reason for severely cutting back or regularly contesting claims – so often, and to such an extent that it is making FPI cover questionably cost effective.

Above all else, for many practitioners, FPI should be the single most important means of allowing us to help our clients to stand their ground and to ensure that we can see a case through to a fair conclusion where otherwise professional costs might militate against such action. Many a case has been settled reluctantly on the grounds that the professional fee costs of continuing to contest the position (however valid) would exceed the tax claimed. For many practitioners such settlement is unpalatable and is arguably unfair extraction of money (?extortion?)rather than fair and correct tax payment. FPI should be the answer. FPI should allow us as agents to defend and maintain equity and high standards.

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