Share Protection

  • |
  • 37 mins 31 secs

Tutors:

  • Stuart Halliwell, Market Development Manager, Legal & General
  • Richard Kateley, Head of Specialist Protection, Legal & General

Learning outcomes:

  1. The different types of business structure available in the UK
  2. How to set up different types of share protection arrangements
  3. The supporting agreements for share protection and how these differ
  4. Premium equalization and how this works
  5. The importance of regularly reviewing the cover in place against the changing value of the business
  6. The demographics of UK businesses and how share protection fit into their context
  7. The implications of not putting share protection in place

Channel

Protection
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PRESENTER: In this Akademia module, we’re looking at how to protect the ownership of a business. And running us through the content are our two tutors, both from Legal & General. They are Head of Specialist Protection Richard Kateley and Market Development Manager Stuart Halliwell. So let’s start by looking at the learning outcomes: firstly the different types of business structure available in the UK, then how to set up different types of share protection arrangements; the supporting agreements for share protection and how these differ from each other; premium equalisation and how this works; the importance of regularly reviewing cover in place against the changing value of the business; the demographics of UK businesses and how share protection fits into their context; and the implications of not putting share protection in place. Well, we begin in the Akademia Studio with Richard Kateley explaining what share protection is and why it’s so important.

Richard, what exactly is share protection and why is it so important?

RICHARD KATELEY: Well as you can imagine the loss of a business owner could be very destabilising to a business and can quickly lead to financial difficulties, not only for the business itself, but also for the family of the business owner. So putting in simple share protection allows the remaining partners, shareholders or members to remain in control of the business, and give the family the option to sell their shares for a fair value following the death of the business owner. Without share protection in place, the company may not have the resources to buy the share from the family. The owner’s shares of the business then may pass to their family and the surviving business owners could therefore lose control of a proportion or in some circumstances the majority of the business.

PRESENTER: But is that such a bad thing if the shares go to the family, it doesn’t immediately mean there’s going to be a loss of control?

RICHARD KATELEY: No, you’re right. It could depend on the ability and knowledge of the family. If it was to happen to a family where they’ve already been involved, it could be a good thing. But if they haven’t been involved in the business and they have no experience, it may not be what the remaining shareholders or owners want. Alternatively, the family could decide to sell their shares to a competitor, which again might not suit the remaining owners. It’s just a little bit uncertain for everybody. A share protection policy can help avoid these issues by providing the funds to purchase the shares and also provide a suitable mechanism for the existing shareholders to retain ownership of the business, if indeed that’s what they want.

PRESENTER: So let’s assume a business owner dies, a shareholder protection agreement’s in place, what happens next?

RICHARD KATELEY: So, in the event of a claim, the surviving business owners will have the funds available to purchase the affected individual’s share of the business through a pre-agreed fair value via life policy. Equally, the family have a ready buyer for their shares should they want to sell them. This means that the remaining business owners can retain full control of the business, while being comfortable that the deceased’s beneficiaries have been treated fairly financially. All we’re trying to do here is make sure that the company remains in the right hands. The way I like to think about it is we’re trying to create a guaranteed marketplace for the shares so that the company can buy the shares and retain control, and the beneficiaries can sell the shares and get fair value for them in an easy pre-agreed process with agreed buyers and agreed sellers. Remember in most circumstances these are not shares that you can go and trade on the stock market. So you can’t just go down the bank and say I want to sell these shares, like you could if they were say Legal & General or British Airways.

PRESENTER: Now you’ve just published I think your sixth edition of your state of the nation research into the SME market. When you’ve done that, have shareholders and partners in these firms really been aware of the need to protect the ownership of their businesses?

RICHARD KATELEY: In a word I’d probably have to say no. The research highlighted a level of uncertainty I guess when it comes to share protection, and what would happen if a shareholder died. There were some real concerns in the findings for me. To start with almost half the business owners either had no will or made no reference to their shares in their will. Now on the face of it you might say well that’s fine, the shares will go to their wives or husbands, which may be true. But consider what might happen if they weren’t married or they both died at the same time. The shares could get tied up in probate for months. What if this related to a controlling share of the business? This could lead to all sorts of issues for the business and of course the family. You could end up with the business being paralysed because no one person has control of the business, the majority, until probate is resolved.

PRESENTER: So what do they think will happen to their shares on death? They must have a view.

RICHARD KATELEY: Well just over a third of the respondents assumed that the remaining shareholders would buy their shares in the business, which in most cases is the preferable situation. This does however raise some interesting questions. To start with will they be able to fund the purchase and what will the shares be worth at that time, 15% said that their partner or beneficiaries would inherit the shares and take an active role in the business. But actually can they? You only have the right to do this if you are either a majority shareholder, because you’re effectively now the boss, or if you’re invited to do so by the remaining owners. And I would have thought that you’re only going to have that if you have the skills and in some circumstances the qualifications to do the job.

PRESENTER: So both these sounds like they’ve got their own issues.

RICHARD KATELEY: Yes, you’re right. Both could be worse, it could get worse for the beneficiaries, as other respondents included, 16% said they would close their business altogether, so nobody gets anything; 10% said their shares would automatically pass to the other shareholders and their beneficiaries would end up with nothing. So in over a quarter of the cases the shareholder’s beneficiaries would end up with nothing, which I’m sure is not what they really wanted.

PRESENTER: No, I can take that you wouldn’t want to have built up a business and then have your family get nothing on the back of it. So what’s the solution?

RICHARD KATELEY: The real question for me, have they actually had these discussions themselves? And with a few probing questions we can usually see if they’ve actually got a clear idea or not. In most, well the vast majority of cases I would suggest you’ll probably be the first person to have actually asked the question. You will usually find that they have never really considered it in any detail. Sometimes it works if you ask them, have you a disaster recovery plan, to see what’s on it. If not ask them, is losing a shareholder, would that be a disaster for the company, is it more so than the office burning down or machinery breaking down.

PRESENTER: Now you said I think in your research that just over a third of business owners think their fellow business owners will purchase their shares from them, but in reality can they do that?

RICHARD KATELEY: Well there’s nothing to stop them, so I guess the answer is yes they can. I would suggest a better question might be how are they going to buy them? This then leads to some interesting questions which can be revealing. If they want to retain control of the business and buy the shares, where would they find the money, where would that come from; then how much will the shares be worth following the death of a shareholder at some date in the future; and finally would this lead to their estate, most likely their families receiving a fair value for the shares that they have worked so hard for over the years. It all gets a bit confusing and could the future owners afford it at that time?

PRESENTER: Didn’t I read in the report that many of them thought that this would come out of the remaining shareholders’ disposable wealth?

RICHARD KATELEY: Yes, just over a half said that they would fund it from their own personal wealth, which is a nice situation to be in. But could they really? What savings do they have, how much will they need, could they raise the funds against their own assets – the list goes on. Only 22% seemed to have thought about it, and they said they would use the proceeds from a life policy, which implies that 78% haven’t got a life policy in place – all great opportunities for an adviser to discuss with their clients about the opportunities. One caveat I would add here is that we should always check there articles of association, as if there are any blocking clauses to buying or selling of the shares, this is where you’ll find them.

PRESENTER: But if a remaining shareholder hasn’t got the cash to hand, surely they could go to a bank and borrow the funds, raise them that way.

RICHARD KATELEY: Possibly. And indeed 19% said that’s exactly what they would do. But you have to consider, will the bank want to lend to the company who’s just lost a major shareholder, who could have been key to the business; they’re more likely to ask can they service the loans they already have? Interestingly one in 10 said that they would have considered using their pensions to buy the shares. Now I’m no expert in pensions and purchasing the shares, but again a great opportunity for advisers to get involved and give advice. In the vast majority of cases there is no doubt that the fellow shareholders buying the shares is the best option for both the business and the family. But without firm plans this might not be an option. As a financial adviser our job is to help them make these plans and put them in place.

PRESENTER: So what kind of problems could be faced by remaining shareholders if there’s not a shareholder protection agreement in place and a shareholder were to die?

RICHARD KATELEY: In many cases both parties, the surviving business owners and the family of the deceased, can be disadvantaged, losing out either financially or by losing control, which nobody wants. From the perspective of the business, the remaining shareholders may feel a moral obligation to look after the dependents, but this could put significant strain on the business at a time when their finances are already being stretched. And let’s not forget that there’s likely to be an additional pressure, and from a practical perspective for the business it’s highly likely that the lost owner has been a key person. The tasks that they were doing and responsibilities may not get done or have to be taken over by somebody else, all extra workloads. Or maybe those things won’t get done at all. The dependents may, not unreasonably I would suggest, want the business to pay the highest dividends possible to maximise their income. However, this may be impractical or undesirable for the remaining shareholders, who may prefer profits to be distributed via salary or keep it within the business, or even to pay through pension contributions.

PRESENTER: And if the business can’t find the funds it needs, what happens then?

RICHARD KATELEY: Well, in the case of the estate, they may look elsewhere for a buyer. The shares could end up in the hands of someone who does not have the same objectives or business interests as the other owners. In the worst case scenario, if it was a majority shareholder who’d died, the shares and the control could end up in the hands of a competitor.

PRESENTER: And I guess the problems for families are perhaps more financial.

RICHARD KATELEY: Yes, I think that’s a fair assessment. The problems caused by not having an arrangement in place for the family can lead to financial problems and also a question mark over their future involvement. This involvement also highlights an issue for both sides. If the family have no interest or no aptitude to work in the business, it makes it difficult to replace the deceased, even if they wanted to or indeed could. If they’re unable to join the business, it then becomes difficult to insist on a regular income from the business. This is especially true if the deceased had a minority share. As we have just said, if the surviving business owners are unable to fund the purchase of the shares, then the only course of action for the estate would be to try and sell the shares to a third party; however in most cases there will be no ready market for these shares and therefore little chance of getting a fair value. A minority shareholding in a private limited company is generally worth very little to anybody except the other shareholders. A partnership or an LLP would have exactly the same problems.

PRESENTER: So it’s not really great for either side from what you’re describing.

RICHARD KATELEY: Not really, and of course all this uncertainty would be going on while the dependents, the family are trying to get over the loss of a loved one, and the business is trying to deal with the loss of an owner who in all likelihood is also going to be key to the business. This is magnified of course if you’re talking about a family business, where the dead shareholder could be mum, dad or even Uncle John. A simple bit of financial planning and having the correct protection in place can remove all this uncertainty.

PRESENTER: So having shareholder protection is really a way of creating a guaranteed marketplace.

RICHARD KATELEY: Exactly, creating a guaranteed marketplace for the sale of the shares. So the remaining owners can buy them and the beneficiaries can get fair value for the shares in the company in an easy pre-agreed process, with an agreed buyer and seller.

PRESENTER: Because I guess most shareholders would assume their family could just go and work for the business, or keep taking the dividends.

RICHARD KATELEY: Yes, I think you’re right. But this could all depend on the shareholding and what if anything is in the articles of association, or if they have one their shareholders’ agreement or partnership agreement in the case of a partnership. A majority shareholder can appoint themselves directors as effectively they now have control of the business and so can work there. But is that really what they want and have they got the ability to do the role? Would they actually want to do this and if they do are the other shareholders happy for them to do that? Of course as a majority shareholder the other shareholders may not have a choice. They could just take the dividend income and add nothing to the business, but as a majority shareholder they would have to have some involvement.

PRESENTER: So what’s the situation when it comes to minority shareholders?

RICHARD KATELEY: Well a minority shareholder would be in a much weaker position, as they would be unlikely to have an automatic right to a role within the business. They could just draw any dividend income due to them, but it would only get paid if the other shareholders declared a dividend. As I said before many small businesses, they’re reliant on individuals involved being active in the business, and so this could just become an unwelcome drain on their resources.

PRESENTER: And so they might stop paying out dividends altogether.

RICHARD KATELEY: Exactly, in which case they could end up with share with very little value because they can’t sell them, and now they have no income from them either – not a great situation!

PRESENTER: If the remaining shareholders did want to buy out that stake, they could go to the bank and raise the funds. But you said earlier you didn’t think that was necessarily a good idea.

RICHARD KATELEY: Indeed they could; however, I would suggest that the last person the business might want to approach in this situation is their bank. They may have a great relationship with the bank now, but if the shareholder has just died, how would they view that business in the future? It’s also worth mentioning that if the business was to go to the bank to look for investment for funding the share purchase following the death of a business owner, the bank may have some justifiable concerns. Firstly, they’ll understand that it’s highly likely that the deceased owner was probably a key person within the business and the performance of that business may suffer as a consequence of their death. They may then actually be more concerned with the business’ ability to meet their existing commitments, rather than looking to support them with additional investment. We often hear business owners say that they have a great relationship with their bank. Well they may have today, but the bank is a commercial concern, like any other, and they can’t or won’t allow sentiment to get in the way of commerciality.

PRESENTER: So the research has uncovered lots of risks and opportunities when it comes to business protection and reasons for advisers to be talking with their clients. Well a little earlier I caught up with your colleague Stuart Halliwell to run through what some of those opportunities are.

STUART HALLIWELL: When we’re looking at how we structure share and partnership protection arrangements, we are obviously only concerned with partnerships, limited liability partnerships and of course limited companies. So it’s worth reminding ourselves how these businesses are structured.

A partnership is the relationship existing between persons carrying on a business in common. Partnerships are considered separate entities for accounting purposes, but not separate legal entities, unless they are Scottish partnerships. This means that like sole traders, partners can be held personally accountable for any legal or financial commitments the business has. Joint and several liability means that one partner could also be held accountable for the relevant misdeeds of another.

Limited liability partnerships, known as LLPs, have existed in the UK since April 2001. They provide owners with a trading vehicle which has a distinct legal identity. The other main difference between an LLP and a partnership is that LLPs have no joint and several liability. This means that an individual member cannot be held responsible for misdeeds carried out by other members in the course of the business of the LLP. As the LLP has a distinct legal identity to that of its members, it can own insurance policies in its own right.

Finally a limited company is a type of business that has a separate legal identity to its owners, who are known as shareholders. It is responsible in its own right for everything it does, and its finances are separate to the shareholders’ personal finances. Any profit it makes is owned by the company after it has paid corporation tax, and the company can then distribute its profits. In common with LLPs a limited company can own insurance policies in its own right. There are a number of different ways that the ownership of a business can be protected, and depending on how this is structured it will affect how the policies are written, so let’s have a look at the most common situations.

Automatic accrual is a form of ownership protection that is most often used by partnerships. Under this method shareholders or partners would simply leave their share or the business to the other business owners. This could be done via their personal wills or through the completion of an automatic accrual agreement. This agreement could also be included in their partnership agreement, or shareholders agreement, and articles of association in the case of a limited company. This method means that the control of the company remains with the surviving owners; however, there is no obvious compensation for the family of the deceased, as they will no longer inherit the deceased’s share. To protect the family and dependents we simply need to ensure that each of the shareholders or partners takes out an own life policy to the value of their shares in the business for the benefit of their family or dependents. This simple method of protection is sometimes used by vocational firms, such as accountants or dentists, where only someone suitably qualified should hold an interest in the business, and therefore leaving it to a member of the family may not be appropriate.

Next we have company share buyback. This method of protection may be suitable for limited companies. On the face of it this method looks quite simple, but actually it’s quite complicated when you get into the details. It allows the company to purchase its own shares upon the death of a shareholder. So the estate receives the value of the shares and the other shareholders retain the business. To fund this arrangement the company takes out a policy on a life of another basis on the life of each shareholder, and they also put in place a share purchase agreement. Should a shareholder then die the company, through the agreement, would purchase the shares. Once they have been purchased they will normally be cancelled. The effect of this is to increase the shareholding of the remaining shareholders in proportion to their previous shareholdings. As I said this method seems a very straightforward solution; however, there are a number of issues that advisors and business owners need to be aware of in respect of this arrangement. Here are just a few of the more important ones.

Firstly, the company may not currently be permitted to purchase its own shares, therefore the company may need to review their articles of association and make the appropriate changes before the policies are affected and the agreement entered into. Secondly, under current tax rules, the company would not receive corporation tax relief on the payment of the policy premiums. And any payment of any proceeds would be treated as a trading receipt by the company for corporation tax purposes. Then the actual purchase of the shares must be funded firstly from distributable profits or proceeds of a fresh issue of shares made for the purpose of financing the purchase, but once exhausted may come from capital. The proceeds of the policy would then replace the distributable profits or capital. There must be a contract to buy back the shares, the terms of which must be approved in advance of the purchase, either by an ordinary resolution or if the purchase is to be funded by capital by a special resolution. Finally it is also worth noting that where shares are repurchased by a company, there is a distribution by the company to the extent that the purchase price exceeding the amount originally subscribed for the shares. This distribution will usually be subject to income tax.

So as you can see there are certain issues that need to be considered when putting a company share buyback arrangement in place. These may make the process more complicated than it first appears and thus not as suitable for the business. Let’s look at a more common share protection arrangement. The most common form of share protection that we come across involves the use of an own life policy written under trust for the other business owners and a cross option agreement. This method can be used by limited companies and all forms of partnerships. The majority of business ownership protection is arranged in this way.

Share protection has two objectives. Firstly, it provides money that should one of the business owners die, the surviving business owners will be able to afford to exercise an option to buy the deceased’s interest from his or her estate. As with other forms of business protection, provision can also be made if a shareholder suffers a specified critical illness. The second objective of the arrangement is to ensure that the deceased’s estate gets a pre-agreed fair value for their shares in the business in a tax efficient manner. The first step is to arrange for each business owner to take out an own life policy written under trust for the benefit of the other business owners. Where there are a small number of owners, ideally just two, it is possible to set up the policies under a life of another arrangement, which can be simpler to do as there is no requirement for a trust; however, it lacks the flexibility to deal with changes in business ownership at a later date.

The life assurance policy provides the funds to purchase any shares; however, we then need a legal framework to enable the sale and purchase of those shares. The most common is a cross option agreement, or also referred to as a double option agreement. This provides a mechanism for using the proceeds from the life assurance policy to purchase the deceased’s share of the business from his or her estate. The cross option agreement provides the surviving owners of the business with the option to purchase the deceased’s share from the estate; it also provides the estate with the option to sell their shares. If either party chooses to exercise their option, then the other must comply. The agreement should also specify a timescale for the option to be exercised, normally within three to six months.

Where critical illness has been included a single option agreement is also included, giving the business owner who has suffered the illness the option to sell their share of the business. The other business owners have no option to force the sale. The wording of the single option is usually included within the double option agreement. A cross option agreement should also include an undertaking to keep sufficient cover in place, unless all shareholders agree otherwise, details of how often this cover will be reviewed and details of what method will be used to value the business. It should also include guidance to deal with a shortfall or a surplus in policy proceeds, as compared to the value of the shares.

In the past as an alternative to a cross option agreement we have seen buy and sell agreements. This agreement provides that the deceased’s beneficiaries must sell their share in the business to the surviving shareholders and the latter must purchase them. The disadvantage however is that the HMRC considers this sort of agreement a binding contract for sale and business property tax relief is lost, creating a potential inheritance tax liability. Thus the advantage of using a cross option agreement over a buy and sell agreement is that IHT business property tax relief is retained, making the transaction more tax efficient. It’s also worth noting that although most insurance companies provide specimen cross option agreements, it is a legal document, and business owners would be well advised to consult a solicitor to have one completed during the process of putting cover in place.

So as we can see the purpose of having each business owner take out a life policy on his or her own life under trust for the benefit of the other business owners is to ensure that the policy proceeds pass to the appropriate people. No other party can have access to the funds. The proceeds are available in a timely manner, the proceeds are received tax free, and the cross option agreement then ensures that these two properties, the shares and the proceeds of the policy, are exchanged in an efficient manner. The major disadvantage with this method of arranging the protection in this manner is that one director could pay much higher premiums than his or her colleagues.

For instance if he or she is older or has health problems that cause a premium loading, or if they own different proportions of the business. This can lead to the business owners having to pay unfair levels of premium. However the principle behind premium equalisation is that each individual should pay a commercial amount relative to the benefit that they or their family is likely to receive. Failure to equalise the premiums, where plans have been set up as an own life under a business trust, can mean that inheritance tax becomes a factor. If the arrangement is not commercial, any individuals paying more than their fair share of the premiums can be seen as making gifts. Consequently any difference in premiums paid caused by the difference in age or the size of stakes in the business could be deemed to be gifts leading to the creation of an inheritance tax liability.

If the business owners are paying the premiums out of net income, then their accountant would normally arrange for an annual equalisation payment to be made. Alternatively, if the premiums have been paid by the business, then they will be considered part of the individual’s remuneration and taxed as a P11d benefit in kind. In this circumstance the company accountant will simply equalise the P11d benefits. Most providers, including Legal & General, have a calculator that advisers can use to provide their clients or their accountants with a breakdown of the equalised premiums. You can find our premium equalisation calculator on our dedicated business protection website.

One of the most important aspects of putting share or partnership protection in place is calculating the right level of cover. As we have already mentioned the main purpose of this whole process is to help ensure that on the death of a shareholder, partner or member, the surviving owners of the business will have sufficient money to purchase their deceased colleague’s share of the business and that the family is adequately compensated. To ensure that the right level of cover is taken, we need to estimate the value of the business. The business owners may have that level of detail, or may need to rely on their company’s accountant for an estimate of the company’s value. It goes without saying that the policies should be reviewed on a regular basis to take account of any changes in the value of the business, or changes to the levels of the individual shareholdings.

If for any reason you cannot get a value from the business or their accountant, then Legal & General provide a simple calculator that you can use. The valuation of the business for sum assured purposes based on a multiple of their net profits after tax, plus their overall net assets. In addition this calculator is designed for use with share protection arrangements, and you can input the individuals, their shareholdings, and it will then calculate the split of the sums assured. As with our other calculators, you can find this on our business protection website.

PRESENTER: Well from that explanation there from Stuart, a cross option agreement seems a simple and effective way of dealing with this issue, but are there other things that advisers need to be aware of when putting this sort of legal agreement in place?

RICHARD KATELEY: Yes, as Stuart said there, a cross option agreement is a legal agreement enabling the buying and selling of shareholdings. And as such we should ensure that it works in tandem with any existing legal agreements they have in their articles, or if they have one their shareholder or partnership agreement. However companies don’t review their articles on a regular basis, let alone know where they are sometimes. And equally partnerships are the same. They’re just as bad with their partnership agreement, if one even exists. From our research about 43% of limited companies have never reviewed their articles of association since the business started, and partnerships are not much better with just over a third having never reviewed their partnership agreement. So we would need to know what’s covered in them.

These agreements to be fair tend to be fairly benign, but some can have some interesting clauses in them. Going from not mentioning what would happen on the death of a shareholder at all, to cancelling them altogether. And let’s not forget these are legal documents as I said earlier.

PRESENTER: So working with a solicitor would be a really good idea.

RICHARD KATELEY: Without a doubt. It’s really beneficial, if not vital for advisers to have this relationship in this marketplace, a relationship with a good solicitor who can help them with these legal agreements. Let’s face it, we’re not qualified to give legal advice, and they’re not qualified to give financial advice in many cases, so the two can really work hand in glove.

PRESENTER: Could you use the company’s own solicitor?

RICHARD KATELEY: You could if they had one. But there’s no guarantee that they’ll either have one or will actually get round to it. Some advisers we talk to have actually negotiated a price with a local firm of solicitors, where they can include a simple review of a company’s legal agreements, articles of association, cross options, to ensure that the business owners have peace of mind that all these areas will work together as intended. Not only can it be an added value to your own service offering, it’s also a great way to develop a mutual beneficial relationship, where not only the solicitors are able to provide assistance and potentially new work for themselves, they will also have, or help the adviser and refer business to them. Of course the ultimate winner here is the client, who will have the peace of mind to know that the agreement is set up correctly and will do exactly what it’s supposed to do.

PRESENTER: So I can see there’s a big opportunity set here, but within that are there particular types of business that an adviser should really concentrate on to have the maximum chance of success?

RICHARD KATELEY: That’s a great question Mark, because on the face of it all limited companies and partnerships could benefit from this sort of agreement, but some probably more than others. As part of the research we also looked at the different needs of a company as the company grows. In various stages of its development, the needs for different types of protection will change. And this can give advisers some useful insight into which companies may need share protection rather than other things like key person or debt protection. You can then make some assumptions depending on the age of the business that you’re going to go and see. So a newish company for example may not have built up much of a value in the shares. So share protection may not be very relevant to them.

At this stage it may be reliant on just a few key people, so the needs to consider personal, key person protection. However as it becomes more established, then the use of loans will become a bigger part, and of course they now have started to create some value in that business, which both may need protection. Finally as it moves to an established position or toward maturity then continued ownership of the business and its value will become much more relevant. The owners will quite rightly be more concerned with protecting its value. So the short answer to share protection is the age of the company might be a better indicator rather than the type of the business.

PRESENTER: So if you know where an individual company is within its lifecycle as an adviser, even if you know nothing else about it, you can really hone with a high degree of certainty what you should be talking to them about.

RICHARD KATELEY: Exactly, I mean it’s a general rule of thumb, but seems to work in many cases. You want to talk to them about the most relevant area of risk to them at that time.

PRESENTER: So if I were an adviser, why should I consider working in this market?

RICHARD KATELEY: For me the great thing when we’re talking about protecting businesses is that we’re not just protecting the lives assured and their family, like we would with our domestic protection. But we’re also protecting staff, the investors, customers, suppliers, anyone really that has a financial stake in that business. Business owners of small companies quite often feel that they have a parental care towards their, and responsibility towards their staff. By protecting the business they’re also protecting their staff, their mortgages and their families.

PRESENTER: But what would you say to an adviser who says yes but it’s a new market, you have to learn about it, you have to learn about the products, that might not make it quite as attractive as first it seems?

RICHARD KATELEY: Not really, I mean for me fundamentally business protection is no different to domestic protection: we use the same products as term assurance and critical illness. But business owners are no different to our domestic clients in reality. They simply have different needs and objectives that need to be considered. At the end of the day with domestic protection we’re trying to protect our client’s debts and income so they can keep ownership of their homes, pay their bills and keep their lifestyles. With businesses, we’re trying to protect their debts, their cashflow and the ownership of the business so that they can keep trading and supporting their staff and their customers. We’re all protecting the same things and so our sales process doesn’t need to dramatically change, making it a relatively easy move from one market to another.

PRESENTER: So an adviser watching this who wants to get into the market, how can L&G help?

RICHARD KATELEY: Well I would first urge them to get a copy of our new state of the nation report, as it highlights the misconceptions and areas of risk that business owners are unaware of. It also clearly exposes the fact that business owners are not going to come and beat down their doors for this sort of protection, mainly because they simply don’t know it exists and they don’t realise about the risks. One of the amazing facts in the latest report was that most firms with any business protection, about 73% of them only took it out following advice. So the need for proactive activity and going out there talking to businesses is vital. We also have published a client’s guide to business protection in partnership with the people from the Rough Guides, which is designed to highlight both the risks and the solutions to a business owner, but in client facing language. Advisers can download this, forward it onto their clients, to aid their client meetings.

PRESENTER: And what about webinars and workshops, which is an area I think you spend quite a lot of time on?

RICHARD KATELEY: I believe this is where we can really offer plenty of support to advisers looking to explore this subject in more depth and develop their own knowledge. From learning to read company accounts, to business development sessions, we have workshops available to cover every aspect of business protection. And all the sessions are CII approved for CPD purposes. Advisers can get in touch with our dedicated business protection team through their usual Legal & General contact or via our business protection website. Our website features all the calculators we mentioned earlier, as well as case studies, technical information, sales support material, educational videos, and video interviews with business owners who have interesting and relevant stories, and of course this video and others in the series, which are all aimed at increasing advisers’ knowledge and awareness, and allowing them I hope to have the confidence to go back and talk to their business owners.

PRESENTER: Richard Kateley, thank you.

RICHARD KATELEY: Pleasure, thank you very much.

PRESENTER: In order to consider the viewing of this video as structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you should be able to understand and to describe the different types of business structure available in the UK; how to set up different types of share protection arrangements; the supporting agreements for share protection and how these differ from each other; premium equalisation and how it works; the importance of regularly reviewing the cover in place against the changing value of the business; the demographics of UK businesses and how share protection fits into that context; and the implications of not putting share protection in place. Please complete the reflective statement to validate your CPD.

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