There must be well over a thousand pages of consultation in the documents which will collectively be known as the Mansion House Reforms. They cover consolidation of workplace pensions, at retirement decision making, CDC, the authorisation of pension superfunds, the Compact to create a £50bn DC allocation to private equity and reforms to the Local Government Pension Scheme.
But in 1000 pages, “advice” scarcely gets a mention. Britain’s wealth management industry . driven by entrepreneurial financial advisers has been largely by-passed . The reforms speak to advisers , but they control the levers on large corporate decisions. Retail decision making is considered but thought of in behavioural ways, The consolidation of pots through “default consolidators”, the dismantling of GPPs to add scale to master trusts, the shift from investment pathways to default decumulation options and the creation of CDC as a default decumulator;- none of these initiatives touch the financial adviser.
Even the flagship policy, the Value for Money framework, is considered as a means for trustees and employers who have limited engagement with their workplace pensions to assess whether their scheme is fit for purpose or ready for transfer. Why has the world of non-workplace pensions , of SIPPs, SSAS, QROPS and wealth platforms been excluded from the VFM Framework?
I can give two reasons;
- The FCA has the wealth sector fully regulated through the consumer duty
- This Conservative Government does not wish to further intervene in a flourishing market.
Increasingly, wealth management is owned by private equity and could ultimately be owned by workplace pensions, through PE funds. The RDR has reshaped advice from a transactional to an annuity model. IFAs are no longer valued on their capacity to do business deals (as estate agents are) but on the long-term annuity income arising from funds under management and advice.
No better example of this shift has been the recent initiative from Just (inspired by Adrian Boulding’s Spire) to include annuities as assets under advice on wealth management platforms. The annuity, long thought of as a “one and done” source of revenue, can – using Just’s product- provide IFAs with an ongoing revenue stream which can be included as annuity income to the IFA.
My point is that the commercial interests of workplace pensions and financial advisors are aligned, as are their means of generating revenues.
Could workplace pensions end up owning financial advisers?
The demand side for private equity looks insatiable. Not only will DC pensions (via the Compact) be hunting for private assets to include in the Superfund – proposed by Lord Mayor Nicholas Lyons, but LGPS has been nudged to commit a further £25bn to private equity. It already employs firms such as Frontier to source money committed through IFAs and it looks inevitable that it will in future provide funds to IFAs to exit their businesses as the entrepreneurs who own them look to retire or move on.
The prospect is intriguing. How would the employees and clients of an advisory firm or network react to being owned by Nest or the Aviva Master Trust or a Local Government Pension Scheme?
Would such ownership change the dynamic of the business as such funds looked to directly invest or would a fund provide an arms length relationship between asset owner and asset?.
Even more intriguingly, would IFAs look to reach out to their ultimate owners to create vertically integrated advice where the financial adviser provided support to members of the schemes that owned them?
Not so fanciful.
Private Equity is already looking to incest in workplace pensions, Cushon and Smart grew through tapping this market and it now looks likely that Options, formerly the Carey Master Trust will be bought by Disruptive Capital- owners of Pension Superfund Capital.
Private equity is a rampant purchaser of financial advisory businesses whenever they come to market, valuing their reliable annuity income streams (see above). The secondary market for Private Equity assets , looks the obvious market for workplace pensions to trust and many of these advisory businesses are now ready to be sold on by venture capital firms keen to exit investments and realise profits.
Whether financial advisory businesses are quite what Sir Nicholas Lyons , Jeremy Hunt and the Compact had in mind for productive finance , it may be what they get!