What is meant by Accountants Financial Services

by | Oct 25, 2020 | Accounting Firm Services

Financial Services describes extensive and diverse portfolio or services offered by financial institutions and accountants. Some grow your money, and some protect your money. Some do both. They do this through comprehensive and targeted insurance policies, along with asset ownership structuring and investment management. They provide protection against the inevitable, the probable, and the possible, as well as the unknown and circumstances beyond your control.

Sometimes overlooked when people think of what they need to source through their accountants, the financial services that can make or break financial health and the future of your estate or business are the ones that provide this. Life assurance, buy and sell agreements, investment structuring and short-term insurance policies are essential to keep your money and assets safe. These accountants financial services are aimed at maximising your personal, family and business financial health and future, and providing peace of mind.

However, everyone’s circumstances are different, as are the risks they face. Financial services and products that protect your wealth and assets must be the right policies and investment structures for you. As such, they are best arranged through your accountants – your front-line in your business’s (and your) financial health, well-being and growth – now and in the future.

Life Assurance: Accountants Financial Services

Life assurance is a contract between an insurance policy holder, normally the life assured and an insurer or assurer. The Insurer promises to pay a designated beneficiary or beneficiaries the sum assured in exchange for a premium, upon the death of an insured person.

Most of us are familiar with the ‘protection’ kind of life policy – to the extent that when choosing a life assurance policy, it’s simply a matter of shopping around for the best life assurance provider.

There are a two main types of life assurance policies to choose from:

  • Life Assurance: pays out to a nominated beneficiary on the death of the insured person).
  • Life Assurance with disability or incapacitation provision: pays out to a nominated beneficiary (or beneficiaries) on the death or incapacitation of the insured person. The incapacitation pay-out can cover the insured person or a nominated beneficiary – including the co-owner of a business, or even the business entity itself (see buy and sell policies).

Why arrange for life assurance through your accountants instead of just going through an insurance broker? Whys is life assurance offered as a ‘financial service’ by accountants?

The answer is quite simple: Life Assurance is an asset. A considerable one. Not the contract itself, but the pay-out. The amount it pays, and how, to whom, and when it pays out, is taxable.

This fact is of paramount importance for future financial security and financial health of those you leave behind – your family, and your business partners or shareholders.

When this asset is figured into a total value of your Estate or business assets, it has consequences with regards to tax and duties – depending on how your Estate is structured and bequeathed to your beneficiaries.

You can simply ‘add’ your life assurance (obtained through an insurance broker) to your assets. However, having your accountants advise you on the best life assurance policy and policy terms, and having the contract with the insurer drawn up through them, is often far better. It will maximise the benefits of your life assurance and minimise any ‘unintended’ consequences.

Add to that that the diversity of life assurance policies, the way they can be tailored, and the fact that many come with different pay out options, means that your life assurance can influence you and your family’s financial health considerably, and in different ways. It’s advisable for anyone adding life assurance to their asset portfolio to do it through a chartered accountant of firm of accountants.

Life assurance is one of the most important financial services offered by accountants. It also serves you and/or your business when considered with buy and sell agreements (as a ‘buy and sell’ policy), investment structuring and other insurance (short-term insurances).

Buy and Sell Policies – ESSENTIAL Life Assurance for Business Partners – and their beneficiaries:

Buy and Sell Policies are life assurance policies specifically designed to pay out in relation to your business – to protect your business, business partner(s) and you and/or their beneficiaries. Buy and sell policies are essential cover for any type and size of organisation with more than one owner/shareholder.

Buy and sell life assurance policies can be tailored to your business’ needs under the umbrella of 3 main types of policy. However, they are all intended for one purpose: to work with buy and sell agreements. The agreement, and the policy that goes with it, will ensure that your business can survive your death of disability.

  • Primarily, Buy and Sell policies provide the financial wherewithal for your business partner or partners to purchase your share of the business you co-own – before it gets tied up in the red tape of Estate distribution to your beneficiaries (and so effectively scuttling the business if you are major shareholder).
  • Buy and Sell policies also ensure that your business partners retain crucial control over the running of a business, where your business interest would otherwise pass to a beneficiary. This could be very dangerous for the future of a business if that beneficiary decided to sell their shares to a competitor, or any ‘outside person’ whose subsequent share in the business would not be in the best interests of you’re the business or the current shareholders.

Buy and Sell policies ensure the survival of co-owned businesses in the event of your death or incapacity. The ‘point of a Buy and Sell Policy’ being to fund the processes outlined in the accompanying buy and sell agreement, the purpose often specific to the business’s shareholder structure, market position, and related risk profile.

Investment Structures: Accountants Financial Services

Investment structures allow you to choose the best ways to legally own your assets – whether as an individual or jointly. This legal ownership structure is crucial for the protection of those assets – as important for long term financial health as the growth in the value of those assets.

There are several ways in which you can own assets.

  • As an individual – assets in your name only
  • Jointly / in a partnership made up of two or more individuals
  • By a Company
  • In Trusts

There’s no one investment structure that is fundamentally better than another. They are all legal, and each has its benefits. The value of these benefits against risk varies across circumstances. However, how you own, or co-own, your assets, can have considerable tax and other risk implications – depending on the size, scope and type of investments in your portfolio. Assets may also need to be protected from other risks the owners, or co-owners of a assets, might face.

This is why the various options should be considered with the right professional guidance and, in the case of larger portfolios, management. Ownership structure can be reviewed and changed, as your investment portfolio grows. However, it’s better to start with the best ownership structure that is in line with your financial vision, to protect assets in the long term – taking into account growth and additions to your portfolio. Mistakes at the beginning can have considerable financial implications down the line.

1. Personal considerations include (but re certainly not limited to):

  • ‘Who will get the income from my investment now? Who should get it in the future?’
  • ‘Does it need to be protected from debt liabilities if I die?’
  • ‘What will happen when I die, and my spouse has rights to my co-owned assets? Or my partners spouse or beneficiaries has rights to his assets co-owned with me, if he dies?’

2. Tax considerations are varied, often complex, and never set in stone – as recent changes to SA tax legislation on foreign-owned assets and income from outside SA have made clear.

3. Other considerations include the cost of the setting up an investment structure, and the ongoing costs of managing it. Some investment structures need extensive management and expertise. This must be factored in.

Investment Structuring and ongoing Investment Management:

Investment portfolios are managed by different kinds of investment managers depending on the size of the investment portfolio. Investment management can be complex. Certain investment structures are complex in themselves (Trusts). The potential complexity of managing a growing asset portfolio depends on almost infinite portfolio of opportunities, circumstances and individual considerations and needs.

How your investment portfolio is structured and managed, and ultimately who manages it may change along with the original investment structure. This can occur as your asset portfolio grows and diversifies, as new risks and tax implications come into play, and as your needs and circumstances change. Therefore, setting up your investment structures through a financial services firm that has the capacity to manage that investment over time, ensures that your assets are protected in the long term.

The correct investment structures along with aligned investment management will protect your assets, minimise risk and maximise opportunity, growth and long-term financial health – whether for your business, or for you and your family. In a sense, investment structuring is the arm of a long-term umbrella insurance for your assets.

However, while you protect your assets from the taxman and other financial and legal risks, don’t forget about ‘fire, flood, thieves in the night and bad drivers.’ You also need to insure your personal and business assets with individualised short-term insurance policies

Short Term Insurance:

Choosing the right short-term insurance policies, and having the reviewed, is essential to maximise risk protection and minimise premiums.

You can insure just about anything – from your home, business, property, car and valuables, right through to protecting your employees in the case of injury, to protecting yourself with travel insurance and personal liability insurance.

There is an almost endless array of short-term insurance policies that are customised according to the value of what is being insured and the potential payout, risk profiles and period of cover. That’s putting it in very simplified terms. Everyone knows what ‘read the fine print’ means…

  • Short-term insurance is sensible in many cases. However, in some cases it is essential. In many instances it is legally, or officially, required. For example: you may not a visa for a visit to another country without travel insurance. You may not get a loan without insurance on the assets that underpin the loan.
  • You can’t start some businesses without liability insurance.
  • You may want to consider combined insurances (e.g. household insurance rather than insurance on individual items)
  • You shouldn’t skimp on insuring high value assets – from cars to equipment to property. You may need to weigh up less expensive policies that cover the most likely threats only, against the more expensive policies that cover everything. (In such a case, taking into account what you’d lose financially in the event that the ‘highly unlikely’ happens and wipes the value of your asset off the map).

Short-term insurance can be simple and easy. For longer short-term cover on high value assets, it can also be a gamble if you decide to save on the cost of the premiums. However, the premiums could be an unnecessarily high overhead.

Insurance brokers will sell you the most expensive insurance policies they can get with selling you. It’s how they make their living. However, your financial advisors are best positioned act as your ‘personal actuaries’. This is especially true when they are managing your investment portfolio and structuring.

They will help you choose and manage the short-term insurances you need – to protect your assets as well as your financial well-being in the short, medium and long term.

Financial services that protect what you have and what you will or may have in the future, are as essential as those that help you manage your finances and cashflow, profit and grow your money. They walk hand in hand, and if you can get them all from one place – all the better. 

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Erasmus Pretorius

With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I’ve navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.