Your IndustryApr 13 2016

AE: A stepping stone to the masses?

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Many advisers have entered the corporate advice arena to facilitate the perceived loss of business in the fallout from the switch from commission to a fee-based model.

Now The SimplyBiz Group, which provides compliance and business support services to adviser firms, aims to support advisers already active or moving into the space with the launch of what it claims to be the UK’s first workplace academy.

Speaking to Financial Adviser, Tom Nall, workplace solutions director of the SimplyBiz Group, said the sector is brimming with income opportunities – further augmented by the advent of auto-enrolment (AE).

He said: “Something like AE is a great opportunity for advisers to acquire new clients but it is not going to last forever. Advisers have had to respond to auto-enrolment because it has probably had a significant impact on their existing corporate clients. If advisers are not in a position to assist their clients through the legislative change, clients are likely to go to another who can.”

According to The Pensions Regulator, as many as 1.3m small and medium-sized businesses, micro businesses and new employers are expected to reach their staging date over the next two years.

This means that a plethora of these businesses will require financial advice on a scale they have not needed before.

A 2015 survey conducted by Jigsaw on behalf of the pensions watchdog, which took the views of 585 small employers (with between 5 and 49 employees) and micro employers (with between 1 and 4 employees) with a staging date from August 2015 onwards, supports this sentiment.

Of the small employers interviewed, 85 per cent said they will rely on an adviser to some extent to help them through the AE process, while only 10 per cent said they would be completely self-reliant.

There is a wide selection of workplace pension schemes offered by leading insurers to choose from, and there is also the taxpayer-backed Nest. Therefore, AE presents financial advisers with the opportunity to show their mettle and proficiency in their trade to find a satisfactory solution for employers and their staff, according to William Annison, employee benefits consultant at Derbyshire-based HWWA Consulting.

However, the transition from advising individuals to advising scalable firms is not necessarily a smooth one. The latter is a different kettle of fish that requires different skills, experience and charging models.

Some adviser firms have repositioned their practices and have forged alliances with accountancy firms to deliver the best possible outcome for staging businesses.

Mr Annison said: “Unlike accountants, financial advisers are not involved in providing payroll services, but an accountant would be crossing the line if he or she were to offer advice on pensions. That is where financial advisers come in.”

Meanwhile, some of the larger IFA practices have established an entire corporate advice arm to reap the benefits of AE.

Chase de Vere is one of these. The national IFA firm renowned for its wealth management proposition, recently launched its revamped corporate advice arm which also incorporates the full range of employee benefits.

The company still partners with accountancy firms to deliver solutions for small corporate clients, according to Sean McSweeney, the firm’s corporate advice manager.

However, it is not all plain-sailing for intermediaries advising on AE. Commission on workplace pensions has ceased as of this month and is likely to trigger some big upheaval.

Mr McSweeney said: “It will drive lots of corporate advisers out of the market. Even with us, we are an experienced team but we have had to adapt to the end of commission payments, and some of our advisers have decided to retire because of it. There are many advisers who made a comfortable living acting as a broker, but there is very little value in that for the client.”

He added: “I think clients will be willing to pay a fee to their corporate adviser because they are happy to do so with their solicitors and auditors. However, a lot of corporate advisers would not know what to deliver to clients because they have sold products rather than selling their expertise and experience.”

The ban on commission means adviser firms are now forced to formulate a clear strategy for pension revenue replacement and alternative remuneration growth, according to Mr McSweeney.

He said: “This is why we have expanded our corporate advice proposition to focus more on other areas such as benchmark and group risk. We calculated that the end of commission would represent a seven figure loss in revenue per annum.”

The work of a corporate adviser does not cease once a client is on board with AE. There is scope to expand the advice given to other facets of retirement planning, including salary sacrifice and traditional employee benefits such as health insurance and life insurance.

However, the extra work is not for the faint-hearted and could prove to be a time-consuming exercise that puts additional strain on an adviser firm’s business model, Mr Nall said.

He added: “Advisers have had to respond to AE because it might prove problematic to some of their clients. If they do not solve it, then they would seek the services of another adviser who would.”

“Many of the advisers I deal with are happy with their current pool of clients and do not want any more. It would be difficult to maintain a high contact business model if you are going to increase the number of clients.”

The question is whether it is worth investing time and resources to manage a corporate client relationship, rather than pass on the somewhat laborious business to another adviser company which has the capacity to handle the query.

For Mr Nall, advisers could offset the additional burden through the effective implementation of technology which would help to streamline the advice process.

Advisers could offset the additional burden through the effective implementation of technology which would help to streamline the advice process.

“With the right collaboration and an advice process powered by technology, advisers would have the ability to provide the relevant support to their corporate clients,” he said.

It is no secret that the nation’s financial capacity has waned in recent history and has been replaced by a more ‘carpe diem’ mentality.

The recently published Financial Advice Market Review report reinforces the idea that the workplace plays an important role in helping more people to access financial guidance and increasing take-up of financial advice.

It adds, however, that some employers are wary of offering employees help with their financial matters due to regulatory liability concerns and a lack of incentive to do so.

Advisers will need to work hard to engage with their clients – as engaged people feel more empowered and ready to take a more proactive approach towards their financial future.

Roger Brosch, chief executive of Foster Denovo, said: “Workplace financial education will be a significant area of growth in the coming years. For many this will be light-touch education only, and for others this will move through into advice. And, as I have said before, I also believe robo-advice will really begin to impact in the next two to five years.”

Myron Jobson is a features writer of Financial Adviser

Key points

AE is a great opportunity for advisers to acquire new clients, but it is not going to last forever.

The ban on commission means adviser firms are now forced to formulate a clear strategy for pension revenue replacement.

Advisers could offset the additional burden through the effective implementation of technology which would help to streamline the advice process.