Workplace pensions should be a phenomenal opportunity for independent advisers. I spend a huge amount of time talking to the bosses of small- to medium-sized enterprises (SMEs) and two distinct messages come through loud and clear. The first is they know auto-enrolment is coming but they are not sure what to do about it - and are even less enthusiastic about the idea of getting involved with their employees' pension planning.
Yet that general disinterest pales in comparison with their ingrained hatred for the large banks AND financial institutions. In fact, I get the general impression most employers would rather sell their souls into perpetual damnation than give their high street banking partner a look-in.
The problem is, that opportunity is not translating into actual business for many adviser networks. A recent report by The Platforum on workplace savings platforms was full of optimistic assessments about the future – with assets potentially doubling by the end of 2012. But the stats told us all we really need to know, which is volumes on the platforms are still incredibly low.
The Platforum, in association with The Lang Cat, claims total assets at mid-2012 “stood at around £300m through a total of 110,000 employees and 130 employer-based schemes” with nine corporate platforms on the market.
Taking advantage of workplace advice gap
The challenges are obvious. The first and most important is employee disinterest. An earlier autumn report from The Platforum and The Lang Cat (Workplace Savings Platform Guide from September 2012) found less than 10% of survey respondents had signed up for existing ISA schemes. As Mark Polson of The Lang Cat observed at the time: “Employees are absolutely saying ‘speak to the hand, we’re really, really not into this’”. Absolutely, and for a good reason!
The whole arena of workplace pensions and savings schemes is littered with good intentions and broken promises. Whichever financial architecture emerges post-RDR, one simple idea must sit at its core which is employers should and can help facilitate their employees’ savings plans but they cannot be the ones carrying the lion’s share of managing and funding the schemes.
In the US, employers are now desperately trying to back out of gilt-edged health and pensions schemes that have helped ruin the financial integrity of many core industrial sectors. Over here in the UK, employer-managed defined benefit plans are – probably sensibly – going the way of fax machines, with more and more switching to (underperforming) DC schemes.
My suspicion is employee share schemes may be next for the chop as employees wake up to the huge risk implicit within these schemes.
On paper it sounds great that your boss will help you accumulate an investment in shares in your company but whatever happened to the idea of investment diversification? Luckily, the Platforum research reminds us most employees share this concern, which is presumably why take up rates are so low for ISAs – and will presumably be the same with pensions in the near term.
State-backed NEST will obviously pick up more business as a result, which will be a good thing once they have done away with that utterly laughable 2% contribution charge. But there is a gaping hole left in the middle – where is the independent advice to the employer AND employee?
This could be the start of something really quite exciting, as employers sponsor advisory firms to help their employees to plan their financial futures. A progressive employer might, for instance, negotiate a special rate with a small handful of local, reputable firms and then throw in some vouchers giving the employee some money off the cost of advice.
Along the way, the employee makes very clear this ‘assistance’ is not about telling the employee what to do but about helping them get independent advice to build a diversified set of savings plans.
Maybe some employers might even ditch expensive healthcare plans in favour of contributions towards the cost of financial advice.
But advisers will have to be ready with two essential requirements. The first is a series of cost-effective solutions which show they can access diversified outcomes at a genuinely low cost.
The second is they need to prove to the employer AND the employee they are really adding value. They need to show they understand the full breadth of the market and do not have sweetheart deals with a cosy club of leviathans no-one trusts anymore.
David Stevenson is a Financial Times columnist, editor at Portfolio Review and consultant. Follow him on Twitter @advinvestor
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