Self-employed vs salaried planners

Senior self-employed planners typically earn more than their salaried counterparts, according toMoney Management’ssalary survey conducted byFinancial Recruitment Group(FRG).

The survey found that the self-employed earn between $95,000 and $125,000, from Adelaide to Sydney, compared to $85,000 and $100,000 for other senior planners.

Bonuses are also bigger for the self-employed, at $80,000 to $200,000, as opposed to the general level of $60,000 to $110,000.

However, this is not the case for the entire self-employed market, and making the jump from a guaranteed salary is a risk not all want to take.

Macarthur Financial Planning certified planner Peter Nonnenmacher decided to go it alone four years ago. While working for a bank, he earned a six-digit salary, plus a performance-based bonus every three months.

“To leave that is a particular risk. You go from a steady, guaranteed wage, to the uncertainty of having no clients and no salary. This is why many stay with the banks,” he says.

Self-employedGarrisonauthorised representative John Carey says his current earnings are similar to that of a salaried planner, but he expects this to increase as improved markets bring business growth and new clients come on board.

FRG’s Peter Dawson, author of the survey, says despite weak markets threatening earnings of self-run practices, those with sound businesses can still earn more than salaried planners.

“Those who have their own licence or good terms with dealers still make significant earnings, building on a solid client base for new business,” he says.

Dawson says he knows of one individual who has been self-employed for 10 years, has two staff, and takes home a salary of over $300,000.

Over five years, with $70 million in funds under management, Dawson says planners could make as much as $500,000 to $600,000 per annum in ongoing fees, commissions and trails.

However, from this amount, planners have to deduct the costs of running a business, with potentially huge costs for initial set up. There are also the costs of licensing, association fees and office rental space.

If the practice does not have its own licence, outgoings will include dealer cuts of 10 to 15 per cent. The practice will also have to cover the costs of professional indemnity (PI) insurance, staff salaries, car leases, and technology.

Then there are the day-to-day costs. These include stationary, telephone bills of around $500 to $600 per month, and electricity. Outgoings could total around $30,000 to $35,000 a month.

Dawson says self-employed planners put significant time and money into practice management, compliance and systems, which take an element of business skill.

“There are undoubtedly unexpected costs, which planners need a good client base to sustain,” he says.

In addition to these deterrents, reluctance could come from industry pressures such as poor investment markets, Nonnenmacher says.

“In the last 12 months, particularly the last three, markets have been tarnished, with equity markets and the critical ACA/ASICreport. Not many leave a salaried bank position.”

There is also the risk of making mistakes along the way. Since setting up, Nonnenmacher has spent $60,000 to $70,000 on employing the wrong staff, such as planners who generate no return.

So much for the outgoings — what about the money you can make?

Budding entrepreneurs should consider what level of ongoing charges and trail commissions can be expected.

Nonnenmacher says you need to build a situation where you are not as reliant on upfront income. He says ongoing fees represent 50 per cent of his income at present, but that 80 per cent would mean less pressure.

“The trouble is, it’s a vicious circle. You want to offer a better service, so need to spend more on resources,” he says.

But being self-employed does have its advantages. Not all planners are willing to live with the bureaucracy of working for a bank or an institution, and so decide to get out.

“Planners leave if they think they can make better decisions alone and in order to have no real restrictions on how much money they invest where,” Nonnenmacher says.

Though young businesses seem to offer little by way of profit and financial security, Nonnenmacher says his business is currently valued at $600,000 to $700,000 and represents a growing asset. Most who take the self-employed route do not regret the decision.

Carey says: “I look on this as a long-term investment and lifestyle business, though a lot of profits are being pumped back into the business at this stage.”

He adds that he will have an asset to sell in 10 to 15 years, which he says is rarely an opportunity for salaried employees. He also values the “peace of mind in not having to charge clients fixed commissions, as is often required by employers to make that last minute sale to reach targets”.

In terms of tips for planners considering striking out on their own, Carey says: “I suggest they build up a large number of contacts beforehand and try to work for an employer, but also be able to start their own thing on the side.

“Prepare a business plan, consider all costs beforehand, have funds to fall back on and not too many outside commitments. There are times when you may not make much for a few weeks or months.”

Planners need to offer both good advice and service to differentiate themselves from others, Carey says, particularly as the markets continue to underperform, and clients look to blame their adviser.

Dawson says there is a growing trend for planners to leave dealer groups, and though some have returned, the self-employed route tends to be far more lucrative.