Pensions for nothing and advice for free


Somewhere on this interwebby thing this weekend, someone asked

“will the end of consultancy charging lead to the return of the insurance company direct sales force?”

I can say , with a degree of certainty

“yes it will”

it’ll be a sales force , but not as we know it. The new salesforce will have more in common with the old “life inspectors” than the sharp-suited financial adviser.

I’ve written recently that when you lose IFAs  from pensions, you lose the grafters who go on site and get the forms filled, show payroll how to work the contribution process, teach HR where to find the member forms and with automatic-enrolment, hand hold employers through the staging process (“on-boarding” as it’s now called).

I was talking with an insurance chap yesterday who estimates there is a minimum of 30 hours work in “on boarding”. At a consultancy rate of £120 per hour that gives  “on boarding” a £3,600 price tag. Even if you charge out a junior  paraplanner  at rates of £60 per hour you’re looking at the thick end of two grand and that’s before you find your VAT which may or may not be recoverable (not for charities and most micros).

So if you’ve recently set up a pension at your company and got an insurance team hand-holding you through the process – at zero cost, then you got a bargain. Those bargains are still on offer by going direct today – but don’t expect this market anomaly to last for long.

Insurance companies have got used to giving things away, mainly because the other people get paid by the member through commission and consultancy charging. Or at least they did until the RDR and consultancy charge ban came along.

But now is now and insurance companies find they are going to have to look after these companies themselves. The insurer I was talking to has some 6,500 orphan corporate clients, clients who bought a workplace pension through an adviser but now relies directly on the provider for the servicing of the plan.

Increasingly , the insurer is being approached directly by companies who cannot find an adviser who will manage the arrangement of a workplace pension for them. I sense that there is an “at an acceptable price” to be added to that sentence and that employers have got used to that price being “free” – but that’s me guessing.

So guess what, said insurer is considering setting up a task force of experienced individuals which it is going to pay to onboard pensions. And guess what, this insurer is going to charge employers for this service. Whether this service will be charged to make a profit I do not know, but I do know that it will cover costs.

And once the insurers break ranks, the mastertrusts will have to do some thinking. The logical conclusion is that the pension providers will move as one. Even NEST will be forced to consider its option, though it is constrained by such a raft of public service obligations it may remain “free to join” (albeit tough to join).

Should we object to this? I don’t think so. Do we want any more companies withdrawing from workplace pensions claiming the payback to shareholders is too low and too slow?

Do we want employers believing they can get pensions for nothing and advice for free?

The days of hiding these on boarding costs in the member charge are nearly gone (we still have the 2012 commission issues to work out in the autumn); we want transparency but we don’t want a system that requires the manufacturers to incur costs they cannot recover.

The mooted charges cap hangs a 0.5% AMC pall over scheme default pricing; the only way for providers to go is to directly bill employers for services offered. The impact of direct billing for on boarding will be felt by fee-charging consultants who will find themselves competing with providers for the employer’s implementation budget. This is (for consumers) a desirable outcome.

Power, which for so long has rested with consultants, may at last be swinging back to the providers – and hopefully the employers who pick up the bills. Those thousands of orphaned corporate clients may find their workplace schemes need to be stripped of their commissions to qualify for auto-enrolment with an AMC that fits the charges cap, but they shouldn’t expect this for free. The price will be paid in fees and those fees are as likely to be charged by the providers as the consultants.

Right now there are a lot of consultancies whose accounts show they’ve just had a record 12 months of corporate pension sales. The future revenues from those sales (trail commission) have been advanced as bonuses but most of the work has yet to be done. Tomorrow’s hangover is not far away.

Insurers will reconsider their options on schemes where commission is paid but no advice is delivered.

Don’t be surprised to see some tough talking in the next 12 months.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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