IFAs need to reconnect with workplace pensions in 2014


I have been reading a depressing survey by IFA @panacea which suggests that the Retail Distribution Review has been catastrophic for IFAs and that 2014 holds out little hope for them.

I reckon the demand for a service such as wealth management, life insurance or personal financial planning does not diminish or increase greatly from year to year. The Regulator can affect the way in which you go about your job- but demand the job is not influenced by the Regulator.

This is very much on my mind as I travel up to Waterloo on a cold and wet pre-Christmas Monday. I’m off to talk with IFAs and their representatives about their part in the ongoing staging of Britain’s employers into auto-enrolment.

So far, the workplace pensions into which people will save, have been little discussed by the IFA community. Instead there has been intense debate about NEST (market distortions), administrative software (middleware) and the impact of the DWP’s proposed abolition of AMDs and trail commission from Qualifying Workplace Pension Schemes.

But in terms of the pensions themselves – the investments – it’s as if nothing was going on!

This has to be seen as odd. The auto-enrolment regime not only introduces 11m new employees into workplace saving but 1m new employers. The demand for pension savings products both at a corporate and personal level has actually been increased by Regulation (something not acknowledged in any IFA poll) and with increased demand has come new product. The advent of the passive MSF, the introduction of target dated funds and opportunities to use new investment systems such as Dimensional have largely been ignored.

As one senior insurance executive put it to me “advisers are not interested in the quality of the product”.

If the Financial Advisory community has any sense, it will reconnect with the quality of the pension product. It is a matter of credibility. Credibility with the clients they have who own or are senior managers in the organisations staging auto-enrolment.

How can you have credibility with an executive when you express no interest in helping him or her with the investments of their workplace savings plan while holding yourself out as the potential manager of his or her SIPP?

I know “niche marketing” suggests we should not all be generalists, but surely it is not a great leap from helping the boss to helping the staff? Frankly, I find it incredible to hear that financial advisers cannot find a way to extend their services in this way.

The problem is not about the product or the marketing strategy. The problem is about an artificial and pernicious division in the business models of financial advisers and other professional advisers. For the most part, professional advisers establish retainers with their clients that form the basis of ongoing remuneration. Basic income is supplemented by project work at times when clients have special needs (mergers, acquisitions, changes to benefit structures etc.).

But the IFA model is now based not on the demands of the client, but on the growth of assets under advice. The assets are the savings of the wealthy and the advice is investment and tax driven. The more the assets, the bigger the income. There is no direct correlation between work done and money earned though clearly those who are most skilled should see positive asset flows relative to advisers who are rubbish.

This asymmetry is at the heart of the problem. For the owner of a company, the management of the company’s workplace pension scheme may be of great importance. But it has zero value to a wealth manager for whom the pitiful contributions cannot add to the value of his “wealth model” even if he could charge the funds with an increased AMC (which he can’t since RDR). Consequently the IFA is not interested in the problems of the many.

There will come a time when IFAs will lose the support of these business owners who will spot the silliness of this approach and will go to their accountants for help on their workplace pension.

IFAs are being short-sighted in what they do. Some IFAs see the income stream from setting up middleware as a replacement to the income stream lost from trail commission but the problem is the same. The employer wants a pension solution for the staff, auto-enrolment compliance is a part of that but it is not the solution.

IFAs cannot continue to be ‘pensions agnostic’. They have to demonstrate to small employers that the needs of the employers staff matter to them as they matter to the employer.

The sooner that IFAs connect with this problem and look for solutions, the better for their business. As you would expect, my meetings this morning and afternoon are about helping IFAs  present sensible solutions to these problems without wrecking their existing models.

The answer is very simple, it’s in technology, in the application of actuarial science and – (surprise, surprise) in http://www.pensionplaypen.com !

About henry tapper

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