Your IndustryFeb 16 2021

Pension consolidators - a threat to the advice industry

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Pension consolidators - a threat to the advice industry

Customers approaching retirement are being pushed towards consolidators to sort out their scattered pension assets — a step which otherwise might trigger the start of a consumer’s advice journey.

Dan Mahoney, director at consultancy Alpha FMC, said: “The battle is going to be fought over clients who are around 40 to 50 years old. A lot of advisers due to capacity constraints have focused on ‘peak accumulators’ who are further on in the pathway to retirement.

“But pension consolidators are aggressively advertising to these future clients. And if they have done that job for someone who is 40 to 50 years, then the assets are in the same place and that consolidator can nurture the clients or partner with providers for retirement options.”

Peter Chadborn, director at Plan Money, agreed. He said many people in this age group were prompted to seek financial advice for the first time because they had amassed a number of different pension plans and needed to make sense of them all.

If there were a number of pension consolidators appearing on their radar, seemingly making the process easy, then there was “certainly a risk” that the traditional advice route would be overlooked, he added.

Mahoney said to stay in the game, advisers needed to challenge themselves about the “faff” they created for people in the onboarding process, particularly in comparison to more digitally-focused challenger firms.

He added: “This is not expensive to apply to a business. Advisers need to offer a friction free experience.”

Pension consolidators have been a growing part of the market in recent years as consumers look to bring all their pension schemes together.

Among the most successful is PensionBee — an online consolidator currently preparing to float on the stock exchange later this year after a “strong performance” in 2020.

The firm is aiming to qualify for the London Stock Exchange’s high-growth segment of listed companies, meaning it has an expected market capitalisation of £300m or more.

It also joined the Association of British Insurers as the trade body looked to reflect the “changing nature of the long-term savings market” and welcome businesses that are helping customers consolidate pots.

Heather Hopkins, managing director at NextWealth, said advisers needed to “continue to beat the drum about the value of financial planning” in order to maintain a hold on their future client bank.

She added: “Most consumers think financial advisers are a route to access financial products, and there are many cheaper and faster ways to access products. Financial planning is about helping people realise their goals.”

But a more significant shake up of advisers’ propositions is necessary to tackle the changing marketplace, according to Martin Bamford, head of client education at Informed Choice.

Bamford said advisers would need to position their services to either appeal to the “oldest old in society, with later life and care fees planning on the menu” or develop a proposition better suited to wealthy accumulators.

Others were quick to point out different, but similar, threats to the future adviser client bank.

Mike Barrett, consultant at the Lang Cat, pointed to Hargreaves Lansdown’s recent interim results, which showed the average age of clients had dropped from 45 to 37 and that the platform had attracted 40,000 new clients in the 30 to 54 age range in the last six months.

He said: “That is an extraordinary number. It remains to be seen whether these clients will move to the advised channel if their needs become more complex, but with Hargreaves reporting a client retention rate of above 90 per cent, these clients might need a lot of convincing to move.”

But for Scott Gallacher, director at Rowley Turton, this was simply another case of “predicting the death of the IFA” when the simple fact was, consumers like face-to-face.

Gallacher said: “We’ve been here before. Every man and his dog has tried to capture the main market, but they don’t necessarily build up long-term client loyalty and then, as people’s pensions grow, people start to worry if they are doing everything they should.

“I’ve yet to see a replacement for being able to talk to someone and go through finances, dreams, aspirations and give one-to-one advice. People ultimately still trust people.”

He added that consolidators actually made it easier for advisers who were able to start working with clients with already consolidated pension pots. It was also a good thing for advice if people started to save more and build bigger pensions.

Gallacher added: “From our perspective, I’m not too concerned. The death of the IFA has been touted for as long as I’ve been around — whatever it is, there is always a reason we won’t exist.”

Bamford agreed. He said that while technology would undoubtedly play a big role in serving the market, he was confident consumers would turn to human advisers when the time is right.

imogen.tew@ft.com

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