The route many advisers are taking is to set up a strategic partnership with a provider, where intermediary clients are guaranteed a place on a scheme as long as they comply with the pre-arranged criteria. However, sceptics have suggested this may cause clients to be shoehorned into funds irrespective of value.
One of the most reported partnerships so far is that between the national IFA firm LEBC and Standard Life. According to the initial statement on this deal, an agreement was reached that “allowed LEBC to offer its SME clients Standard Life’s Group Flexible Retirement plan as a package”, including access to online resources, member communications and the Scottish-based provider’s full fund range.
Keith Allnutt, head of LEBC’s Bristol branch, confirmed that Standard Life had guaranteed to accept any of LEBC’s business, provided that at least five people sign up from each employer and pay in at least £100 a month by 2018. He said his firm had negotiated with several providers to avoid getting caught out by a capacity crunch and stuck with Nest as an alternative, which he claimed was not a viable option for clients who “took comfort” in established brand names.
When negotiating, Mr Allnutt said many providers “didn’t want anything to do with it”, but that Standard Life saw the benefits. He explained that this meant clients would be guaranteed a scheme with a big name and not have “to share with thousands of other employers”, as was the case with Nest.
He said: “We have been ahead of the game. We have guaranteed pension schemes for our clients by negotiating with a life office to be on a small panel of IFAs with the guarantee of a scheme, which is a great message for us as lots are backing out and wanting six months’ notice.
“That does not mean all our business goes to Standard Life, but we have a backstop for companies that leave it too late. This is a commitment from Standard Life to us and with a very competitive price arrangement.”
Mark Cardy, director at East Sussex-based financial advice firm Skerritts, also claimed to have been approached by providers looking for partnerships, but opted not to accept, because it would have contradicted his company’s independent tag. With the capacity crunch looming, he said these types of deals were “inevitable” and offered plenty of benefits, even if they undermined the nature of whole-of-market advice. Most advisers, he added, tended to avoid Nest, due to its negative perception, and dealt with small panels anyway, because providers were exiting the market.
Mr Cardy, once worked as head of sales for Aegon UK, understood why providers wanted to make deals, given that they are “profit-making organisations” struggling to make money from smaller firm auto enrolment schemes. This, he added, left advisers with a dilemma, as it was clear that a capacity crunch could happen, yet no one knew how Nest would react if forced to accept massive volumes.
He said: “There are benefits in terms of efficiency of the process, which means more companies can receive help at a lower cost, and this is good for the financial advice and planning industry. With the number of SME companies coming into auto-enrolment, there will be a resource strain in financial advice if efficiencies are not sought.
Expensive
Tom Binstead, director of employee benefits at Bank House Corporate, also had no interest in pursuing strategic partnerships, first because of his firm’s independent status, and second because most traditional providers, he claimed, were too expensive. Whereas many of his peers felt pressured to avoid Nest, he confirmed that he had no issue enrolling clients in the government’s pension scheme, provided the price was right.
He said: “Every provider offers something different, and the idea of sticking with the traditional, who are often expensive, does not make sense. Nest is certainly an option. I will not take a scheme that charges more than 0.75 per cent. If it is a small company, we struggle, as mainstream providers usually charge these companies 1 per cent. We refuse to pay this, so those companies will end up with Nest. Why spend more just for a brand?”
Some providers were also keen to distance themselves from this emerging trend. When Aviva was asked if it offered guaranteed schemes to companies, a spokesperson responded: “We price our GPP pensions on a scheme-by-scheme basis with our adviser community. We do not have specific partnerships in place. But we do have some agreements with advisers around the use of our auto-enrolment compliance tool.”
Of all mainstream providers, Standard Life has been at the forefront of auto-enrolment deals, and its head of SME workplace proposition, Alan Ritchie, confirmed “a number of partnerships” had been secured.
He said Barnett Waddingham, Punter Southall and LEBC were on board, along with several others he could not name, as they preferred not to make it public for fear of being “misrepresented”.
According to Mr Ritchie, the benefits of strategic partnerships are massive and give advisers peace of mind that they would not be affected should the anticipated capacity crunch hit UK pensions. He said: “We are planning and preparing to avoid a capacity crunch, but we do not know what will happen. There will be huge volumes so we are trying to explain our solutions to advisers to explain its benefits.”
Daniel Liberto is a feature writer at Financial Adviser
Auto-enrolment numbers
55% of IFAs who are either currently advising or intend to advise on auto-enrolment are concerned about their ability to service the increasing volume of SMEs that will be seeking guidance in 2014.
86% of IFAs anticipate that growing numbers of pension providers will not offer their AE schemes to SMEs.
47% are currently advising SMEs on AE while 32% intend to advise or are considering advising and 17% do not intend to advise.
42% said auto-enrolment is not profitable while 27% considered the administrative burden too heavy.
Source: Defaqto on behalf of NOW: Pensions (264 advisers were questioned in the poll). Research conducted online by Defaqto between 25 November and 5 December 2013.
