Will advisers refocus on workplace pensions?

Many advisers may regard the part they played in setting up workplace pensions prior to the Retail Distribution Review and the introduction of auto-enrolment as history.

Then the adviser engaged directly with the saver , completing the onboarding and getting paid for each application they facilitated.

This function  has indeed gone and gone for ever. But – after over ten barren years, workplace pensions may become exciting to the financial advice community. This article explains why.

The UK financial advisory capability has slowly increased over the past seven years and is probably nudging 30,000. The vast majority, as these FCA figures show, are advising on retail products and are regulated either directly or as appointed representatives of umbrella firms known as networks.

In my experience, knowledge of this capability amongst those operating workplace pensions is limited. With the except of the Lewis Master Trust, I know of no workplace pensions that are operated by and offer financial advice to members. Indeed the number of FCA regulated advisers providing advice to employers over decisions they are taking about their staff’s pensions is very small indeed.

Wealth management – a finite pool?

According to Heather Hopkins, an authoritative figure on these matters.  the UK financial adviser market is growing in number of advisers but shrinking in number of clients.

The number of new clients for financial advice firms dropped 10% in 2021. The only year in the past six in which financial advisers saw an increase in clients was in 2019 – the year Covid hit and we all had more time to sort our finances and we were all faced with our own mortality. Otherwise, the number of new clients to financial advice keeps dropping.

The boom area for wealth management was the influx of pension money from DB plans – where former members of occupational pensions swapped a ready income for wealth in a fund typically advised on or even managed by the financial adviser. This market has been stemmed as transfer values fall and regulation reduces the cost and ease of transfers .

Additional to this, advisers are facing rising insurance costs for “professional indemnity” and a new requirement to justify their business models using the framework of the consumer duty. Taken together , this suggests that there may be pressure on advisers to seek new markets.

One such market could be the repurposing of the financial adviser’s considerable expertise to help employers faced with understanding the value of their workplace pension to their staff. This could be one of the impacts of the proposed VFM Framework which is currently being considered by the DWP and the two principle regulators of workplace pension schemes, TPR and FCA.

The VFM framework is likely to take some explaining to employers. Every scheme employers participate in , whether their own occupation arrangement or a multi-employer plan established as a master trust or GPP, is likely to be tested for performance, the allocation of costs and its quality of service. The results of the test will be simple – red, orange or green signals; however the analysis behind these tests will need explaining – as will the options for employers not satisfied with the value their scheme is giving their members.

An opportunity?

The market for wealth management appears to have settled down. It remains lucrative but it is likely to be finite. However, the  need for advice from employers with workplace pensions they know little about, is fast growing. Most employers receive no advice about pensions as employers, but as individuals , they are prime candidates for wealth management.

The consumer duty crosses over with the value for money framework and presents advisers with an opportunity to gain new clients, broaden the range of services to existing clients and to demonstrate the consumer duty of their firms by broadening its advisory scope.

For the first time since the RDR and the introduction of auto-enrolment, I can see an opportunity for retail financial advisers stemming from workplace pensions.

It will be interesting, as IFAs roll out their consumer duty strategies over the summer, to see how many are considering this opportunity.

About henry tapper

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