News reaches me from up north of an abrasive public meeting in which a major payroll disputed the value of financial advice in staging auto-enrolment. I need not name names, sadly it comes as no surprise to hear a payroll software providers feel it can go it alone, nor financial advisers feel they are being cut out of the action.
It is only a surprise to hear the problem being so clearly articulated
Advisers were disrespected and the conclusion of two independent people who attended and passed feedback to me was this meeting was totally hijacked by (x-payroll) – who implied that (x-payroll) could fix everything and Advisers were unnecessary
The reality is that payroll processing is about as far removed from financial advice as the sea is from the mountain. Payroll processing is about the elimination of manual processes, financial advice is about preserving human interactions. Payroll looks to straight-through processes, advisers look for deliberation, consideration and reflection.
The problem is this..
The numbers of staging employers from the end of this year, so dwarfs the numbers we have seen so far, that a wholesale change in the delivery mechanism for advice is needed.
Not only are the new employers smaller, they have (by and large) no experience with pensions. The problem with the straight-through payroll process is that it commoditises retirement savings into a step in the workflow. the problem with the advisory process (as we have known it these fifty years) is that it destroys the workflow.
The frustrated IFA wrote me
The meeting was only about (x-payroll), Advisers were disrespected and the conclusion of two independent people who attended and passed feedback to me was this meeting was totally hijacked by (x payroll) – who implied that (it) could fix everything and Advisers were unnecessary
I’ve had dealings with “x-payroll” of late and I can sympathise. It appears to me that x-payroll is making a big mistake!
It cannot establish auto-enrolment for employers by disengaging them from “consideration, reflection and deliberation” on the pension decision. This is where employers will send their and their staff’s money for the next 30 years, the pension decision is of enormous consequence to staff.
This cavalier approach, which I am seeing a lot of among payroll software providers is part the problem of advisers. They have short-sightedly argued that auto-enrolment is all about payroll for the past three years. They should have been more careful what they wished for!
There is only one way of squaring the circle and that is to make the choice of pension contribution (including decisions on salary sacrifice, postponement and phasing), the choice of pension provider and the delivery of personnel data from payroll to provider – a straight through process.
So the adviser must be – at least in the staging process – virtual.
If telephone or face to face advice is called for- it must be available – but it needs to be priced at realistic levels. Whereas the virtual process may cost no more than £100, it is hard to see how the equivalent process could be delivered through the standard advisory process for ten times that.
Even telephone support will be beyond the pockets of many small companies who really will need to engage with pensions using online tools.
The paucity of what we call “applied research” available on-line that delivers employer specific advice on pension choices without advisor intervention is conspicuous.
I cannot say it is absent – it is not – and readers of this column know where to get it- but it is not generally available and that is to the detriment of auto-enrolment and to financial advice.
Without it, payroll will properly point to advisers being too expensive, too disruptive and too scarce to meet the demands of 2016 and 2017.
Advisers have had five years to prepare for the problems we are now facing and the majority have done nothing to automate their services to meet the challenge. They must change.
Payroll should not overplay its hand, it cannot advise employers (even by offering a default) without skill and knowledge on pensions. It needs to facilitate advice.
Advisers need to step up to the plate and deliver advice in a way and at a price that befits the budgets of the smaller employer.
Most of all, payroll and advisers need to be talking and not squabbling. The last thing that auto-enrolment needs is staging without advice; nor does it need advice without staging.
In a recent conversation , the boss of “x-payroll”cited the decision of the Pension Regulator to scrap its plan for a Directory of providers as evidence that provider choice was not part of the employer’s duties. Unfortunately, he is not alone in inferring this. I know this inference was not the intention of the Regulator, but it is an unintended consequence.
It is important that the Pension Regulator restates to payroll software providers and those who use it, that it continues to support measures that encourage employers to make informed choices on workplace pensions.
Otherwise auto-enrolment will become nothing more than an exercise in payroll compliance.