Actuarial firm finance for independent consultancies

A pensions practice lives on the three-yearly valuation cycle. Each defined benefit scheme it advises needs a funding valuation, a recovery plan conversation with the sponsoring employer and ongoing Scheme Actuary work in between, so a firm with many schemes on similar valuation dates sees workload, overtime and billing bunch together. Much of the regular work is billed on quarterly retainers or agreed fee budgets set with trustees, which makes income predictable but slow to rise when costs do.

Project work is lumpier. Buy-in and buy-out preparation, data cleansing, GMP equalisation, benefit audits, IFRS 17 and Solvency UK projects for insurers are often quoted as fixed fees billed at milestones. Senior time is spent months before the milestone invoice goes out, and a delayed insurer quotation or a slow trustee decision pushes the invoice back without reducing the cost.

The cost base is heavy and inflexible: qualified actuaries and analysts, valuation and modelling software licences, data security, IFoA subscriptions and practising certificate costs, and a professional indemnity premium sized for advice that can affect schemes and balance sheets worth far more than the firm itself.

• Hiring ahead of appointments: a new Scheme Actuary appointment or insurer mandate usually needs analysts and a qualified actuary in place before the first fee is billed.
• Team moves: taking on a team leaving a larger consultancy brings salaries from day one, while client appointments follow only as trustees and boards agree to move.
• Founder succession: senior actuaries buying out a retiring founder, or a management team buying the practice from a larger group.
• Valuation peaks: covering payroll and contractor costs in a heavy valuation year before fee budgets are billed.
• Software and data: moving to a new valuation or modelling platform, often with a period of running old and new systems side by side.
• PII renewal and tax: the premium, corporation tax and VAT quarters landing close together.

The main risk in actuarial borrowing is building fixed repayments on income that is less secure than it looks. A team hire financed over five years can outlast the appointments it was hired to serve if two schemes buy out in the same year. Restrictive covenants in the departing team's old contracts can also delay clients moving, so plan repayments on realistic transfer timing rather than the best case.

Personal guarantees are common on unsecured lending to consultancies with few tangible assets; our guide to personal guarantees explains what signing one means. Alternatives worth weighing include agreeing interim billing with trustees on long projects, asking HMRC for a Time to Pay arrangement on a one-off tax spike, or bringing in a senior actuary as an equity partner rather than borrowing to hire.