CONSUMERS FIND IT HARD TO GET ADVICE ON STAKEHOLDER SCHEMES BECAUSE of the LACK OF PROVISION
Research from market analysts Datamonitor shows stakeholder is creating a consumer advice vacuum due to the lack of incentives available to fund it.
Suzie Stokes, financial services analyst at Datamonitor, said: 'Financial advice on stakeholder pensions is becoming hard for some consumers to access as providers struggle to reconcile advice and profits in the 1% pension management charge.'
The group estimates that the 1% stakeholder environment leaves no room for the cost of advice, as distribution costs make up 55bp of this, administration a further 35bp and investment management the remaining 10.
The only easy way most people can get advice is through their employers, said Stokes.
However, she said, most companies view stakeholder as another level of red tape and had no incentive to actively promote the product. This problem is exacerbated by the fact that many intermediaries are reluctant to provide advice to small and medium enterprises where take-up is likely to be low.
Datamonitor predicts that flexibility is going to be the key to distributing the product because i1r of customers.
Stokes added that because of its flexibility, it was also the model which was best suited to regulatory and legislative change and shifts in consumer behaviour.
While Datamonitor sees the advice channel as significant for the stakeholder market, because of intermediaries' traditional dominance in the UK pensions market, it predicts market share will decline as the bias in stakeholder is towards other distribution channels.
A further distribution strategy it believes will be successful is niche marketing.
Stokes pointed out that the specialist construction industry provider, B&CE generated more stakeholder sales than any other in the three months after the product was launched. The reason that this type of provider has the potential to remain relatively successful in the market is that it has a non-profit making structure and the fact that it targets a specific target group.
The distribution Datamonitor thinks is least likely to succeed is what it terms the 'brandassurance model', where stakeholder is sold direct to the consumer via firms with household names. Marks & Spencer Financial Services and Virgin Direct are the only two such providers at present, she said. She added that despite their high profile names, it was debatable whether they would be able to attract sufficient customers.
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