Advisers need to think carefully before recommending a master trust because only half of them are likely to survive, according to Steve Goddard.
The managing director of Goddard Perry said he did not expect all of the 50 to 60 master trusts currently in existence in the UK to generate sufficient funds under management to survive.
He said many master trusts have yet to go through the “pain barrier” of paying trustees and fund managers – and some will not do so until 2016/17.
Mr Goddard said: “That’s when those financial constraints are really going to hit. An AMC of 0.5 per cent is not a lot when you have got so many expenses.
“Advisers will not want to deal with a master trust if it is going to go out of business in a few months’ time. They should have a look at the independent ratings and look at the funds under management.
“I think a lot of advisers will use master trusts because the provider’s commission is switching off, but they have got to look at their financial stability.
“With a fair wind I imagine only half of them will survive.”
From January Mr Goddard’s company will merge the Spinnaker Master Trust and Salvus Master Trust to create a 10,000-member, £40m master trust.
William Annison, employee benefits consultant with Derbyshire-based HWWA Consulting, said: “The financial strength of the master trust is something you definitely need to take into account because some may have a good story to tell but unless the financial strength is there or they have got a large number of people enrolled I would not comfortable recommending them. With some of these companies there is no track record.”