One of the oddest aspects of auto-enrolment is the disappearance of the IFA. There are exceptions of course but when it comes to the core enterprise of the IFA, advising , implementing and nurturing workplace pensions, the IFA is nowhere to be seen.
The much heralded army of small employers have arrived but most financial advisers are most inconspicuous. This has prompted one of my journalist friends to ask me in public
Behind this simple question were further questions
1) Advisers are concerned about the margin crunch (and commission loss) on workplace pensions. So how can they deliver corporate advice on pensions and make it cost-effective?
2) What are the long-term benefits for advisers in engaging more with workplace pensions – and with younger workers in particular?
These are questions for the 2017 auto-enrolment review and they do not have simple answers. There is no switch that can turn commission back on, and as I’ve written on this blog before, it is counter intuitive to spend money to get your staff to save money. Given the choice, most employers would sooner pay more into their employee’s pension pot.
How is the FCA answering these questions?
The Financial Advice Market Review is currently asking what help is needed from financial advisers and I do not hear concern about the lack of financial advice for small employers on workplace pensions as a major theme,
The average age of financial advisers is generally accepted as around 55, there are very few young advisers and a large proportion of those advising could better be called wealth managers than financial planners.
Indeed the idea of advising young savers how to build the pensions wealth that the next generation of financial advisers can manage is pretty well bottom of the agenda for most of the advisers I speak to. The customer , like the adviser, is advancing in years and is more interested in how to retain wealth than save more.
How is the Pension Regulator answering these questions?
The Pension Regulator issues an information pack to employers preparing to stage auto-enrolment, it includes this advice on choosing workplace pensions
If you press the link you will find this rather vague help when you click on “find an adviser”.
If you have an accountant, they may be able to help you find a scheme or a financial adviser that can help.
You can also use the Money Advice Service retirement adviser directory, which contains advisers who can help you choose a pension scheme for automatic enrolment.
To check if an adviser is authorised by the Financial Conduct Authority, search the FCA register.
Financial advisers are an afterthought for the Regulator.
Does this matter?
IFA’s off chasing the mass affluent’s wealth,
employers being nudged into NEST
and no questions being asked.
This is the shocking state of the market. The 1.5m employers currently considering their options are being given next to no help at all.
The Government has set up NEST which must accept all employers that ask to join it- other pension schemes are also available.
Does it matter- of course it matters. As Simony points out – there is virtually no engagement with NEST , nor with saving more than the minimum , nor with the outcomes of the choice which the employer has.
If we are to build a platform for future saving where employees and employers are happy to have substantial proportions of their earnings diverted into workplace pensions, then we need to get employers and employees engaged with where the money is going.
Where can this engagement come from?
I see no reason why IFAs will want to get involved in helping employers with choosing pensions or employees in saving into them, they are better off managing wealth.
Where I see interest in workplace pensions and in the business of pension planning is among those who pay us our salaries, whether in-house or through bureaux. Typically these people are not financial advisers though they are trusted by those who get paid by them over their money.
These people need to be empowered to talk with staff about how pensions work, what staff need to do to get proper pensions and how to go about doing this as efficiently as possible.
In trying to answer Simone’s questions , I realised that the next generation of financial advisors are not already in the workplace- and nobody knows it!
Employers pay for their staff to get paid, if pensions is deferred pay, they are already paying payroll for pensions. If an employer wants to engage with pensions it will be through payroll not through IFAs. Payroll are the new IFAs.
What needs to be done.
I firmly believe that the answer to the problems of engagement rests with payroll. At present payroll people are being given dismal messages by Government about pensions
The Government has set up NEST which must accept all employers that ask to join it- other pension schemes are also available.
It is time this message changed. It is time the Government started encouraging payroll to take the choice of pensions seriously and start selling the benefits of pension savings to their staff.
In my opinion, payroll is ready for this challenge.
robo advice and artificial intelligence software may help those who wish to engage understand their options more but ifa s (and restricted advisers) are the human beings able to inspire people to save more as well as impart information. much as they are lovely people and I don’t want to upset them as they pay my wages, I have not met many inspiring payroll managers. choosing a good pension is important but given the homogeneity of most default funds the real difference is how MUCH you save not where you save it. the government and actuaries do not understand that this human interaction cannot be replaced by computers. not yet anyway. artificialintelligence can maybe answer the questions an uninformed person asks. ifa s don’t have to rely on the person asking the right questions in order to inspire them to save more. so it is a shame that employees have lost this vital interactive learning tool. I realise I have just described myself as a tool but hey how!
I believe it is possible to make it pay as an IFA, you just have to know your proposition and have a solution for all, rather than one size fits all. I think there has been enough investment from networks, start ups and pension providers to streamline a process for the mass market and still make it pay.
From there, if you can harness the power of the employee data provided and scale that up, there is mass market advice opportunities available for sure. Some of the wealthier SMEs will also want advice around all other aspects of corporate planning as well as other employee benefits… Many of which are still commission paying.
Henry it is a matter of liability The compensation culture makes the risk/reward business decision untenable for any IFA, trivial fees and unlimited liability ? Why would any thinking business do this.
Advising on pensions for the individiual requires looking at historic accumulation of funds and transfers and PI are unhappy areas to consider. At the same time the employer’s ability to participate has been reduced to petty cash.
Let’s face it most of our population has been taught to borrow to consume with the house as their pension. There will be trouble ahead
Thanks for a stimulating article. I’ve chosen to recommend Enrolment4u to businesses with 1-50 employees. E4u was set up by pensions specialists purely to get employers through auto enrolment. We take referrals from accountants, IFAa and others for which we pay a referral fee. For the employer we offer a fixed-fee full solution that takes the employer through every stage of compliance and enrols employees in a state-of-the-art award winning pension scheme. I cover Cambs and Suffolk but E4u is nationwide.
Henry, I candidly cannot see any commercial, practical or common sense in your piece, sorry but on this occasion I just don’t see any rhyme or reason in your output.
Say it as you find it Jon! That’s what the comments are for – we’ll have to disagree but there’s no harm in that