While no new trail commission-based products have been allowed to be sold on a commission basis since 2012, existing products continued to pay commission until now. It is the final stroke in the long hand of the RDR. For the largest employee benefit consulting firms, which have always operated on a fee-only basis, April may prove uneventful.
But even the mid-tier consultants will find a significant chunk of their recurring income evaporating overnight, and all firms that had sold pre-2012 personal pensions will be hit. So what can pension advisers do to retain income streams on legacy pension products?
First, there is no doubt that maintaining ongoing income for personal pensions, group personal pension or group Sipp business will become more challenging going forward. The providers have widely used the new rules as an opportunity to strengthen their relationship with clients, reassuring them that they will continue to be serviced directly whatever happens to their relationship with their adviser.
Here comes the first objection from the client, “Why do I still need my adviser at all, particularly when I now have to pay them directly?”
The answer has to be service. If the client values service they will acknowledge the need to pay for it.
The trouble is, if they haven’t been receiving much in the way of service recently, they will struggle to recognise the benefit.
Firms who have been demonstrating high service standards already are much better placed to retain existing clients and, perhaps, pick up new ones for an ongoing governance role on the pension arrangements. So what ongoing governance services are clients looking for, particularly for group corporate pensions?
Member communications
Yes, providers will automatically communicate. But default communications are basic. Advisers can help a company get the most out of workplace pension arrangements – not just tick a box.
If staff appreciate the value of their package they will appreciate their employer more. Good communication to existing and new members is vital in this process.
Online information access is a must-have too – a good adviser can help in getting this right.
Default funds and ranges
Forward-thinking firms will have set up governance committees to review fund options, but for most, this vital ongoing monitoring task is left to drift. Yes, providers will claim to offer some form of in-house fund selection governance, but that is no replacement for truly independent fund analysis to ensure ranges remain fit for purpose. Default funds are critical. Ensuring they are performing the required job needs expert, specialist support – including formal recommendations.
Value for money
Advisers can carry out regular market reviews to ensure the product continues to provide an all-round service that offers value for money as the market evolves.
Tax and pension changes
Barely a month goes by without some change to the pension system being mooted or put into force. The pension freedom revolution introduced much greater choice for the consumer, who invariably needs more support to help make those choices.
That means anyone dealing with a workplace pension has to be more communicative about the options available to members – including the choices at or near to retirement.
While that leads into the importance of having good communications, it also feeds into the key add-on service that many advisers offer, which is to provide set-rate or discounted individual advice to members.
With all the options to consider – tax-free lump sums, drawdown or annuities and which products to select, calculating income from various savings products, how to work out when to retire, the shifting date of state pensions – individual advice is more important than ever before. Of all the extra services an adviser can provide, this is arguably the most significant.
Finally, saving for retirement is no longer just about pensions. Most employers, recognising this, offer a range of employee benefit options including share incentive schemes, medical cover, life cover, car leasing, save as you earn.
Maintaining all these added benefits, ensuring they continue to work well, and evolving the range of services on offer as the market evolves, must be part of any adviser’s all-round corporate package.
Investment Themes: Lower for longer |
One of the main themes for our investment team this year has been ‘lower for longer’. What this means is that we expect interest rates to remain nailed to the floor for the foreseeable future. Yes, central banks may make tentative steps to increase base rates – as the US did in December for the first time in a decade when the base rate was increased to 0.5 per cent. At some point the UK will follow suit, but in the meantime Japan has moved to negative interest rates and the EU took further steps in March by cutting bank rates and including a wider range of bond assets in its asset purchase scheme. The overall tone of these moves is that the global economy is not yet ready for higher interest rates, and the central banks – urged on by politicians concerned at public perception – are in no mood to cause turmoil by raising rates too fast. Equity markets have taken a dim view of rumours of rate rises of late, selling off quickly if they spy a rise coming. It could be years, decades perhaps, before interest rates are at anything like pre-financial crisis levels. Why is this relevant? For pension savers it means that bank interest rates are likely to remain hopelessly low for some time. It also means that annuity rates are unlikely to return to the levels they were before 2011 any time soon, and that means drawdown will continue to be in vogue. That is, of course, part of the central bankers’ plan. They are trying to get all investors to increase the amount of risk they are taking and stop sitting on cash or low-risk bonds. In order to achieve the income levels most require, drawdown is the only realistic option and there is no sign this year that the story is likely to change. The global economy is still in a tentative recovery state. China’s growth is slowing and its demand for commodities such as oil and other imports is easing. That is part of the reason why the oil price has hit lows this year (there is far too much supply for a slowing demand), while in the UK, Europe and US, economic growth is fragile at best. The only good news is that there is practically no inflation anywhere, so pensioners’ investments do not need to keep pace with rising prices. There could be a case, in fact, for reducing the standard 2 per cent inflation assumption on long-term cashflow modelling in line with the view that interest rates cannot rise until global growth – and inflation – pick up. |
Bob Campion is head of institutional business at Charles Stanley Pan Asset
