Wrapped up and ready
Advisers and employers face a dilemma between early adoption of the benefits of corporate wrap and waiting for more choice to come on stream. Jenny Keefe reports
Most employers will be slow to adopt new wrap platforms, despite the race between industry providers to get their offerings out to market, according to delegates at the Corporate Wrap Forum hosted by Corporate Adviser in London last month.
A poll at the event found delegates expecting between 0 and 25 per cent of their corporate clients to introduce corporate wrap accounts within the next 18 months.
Delegates said a few employers will want to be first out of the traps, as there are always some companies that want to differentiate themselves from the opposition, but these are a minority. There was also a consensus that it is risky for advisers to recommend the first wrap on the market.
Jonathan Phillips, head of consultancy solutions at Bluefin, said: “HR is inherently conservative and corporate wrap is quite a step for it to take.
If three more providers come to the market in the next 14 months, should an adviser say ’pile in now and be the first in’, or ’hang around and see what comes out’? This is an emerging market and that’s going to affect adoption. First out of the trenches is always an interesting place to be.”
Hewitt Associates consultant Andy Cheseldine said advisers and employers would need more than one offering to compare their selection against, likening the roll-out of corporate wrap to the early marketing of bread-making machines. He said: “The retailer put the first bread-making machine on the market for $150 and he couldn’t sell any of them. So they went to a marketing guy, who said they needed to build the same bread-maker, but paint it gold and sell it for $250. Then they sold shed loads of the $150 one. You need to have a comparator. It’s just as true of employers with big budgets; they are uncomfortable going to the only provider with a new product.”
“What advisers can’t afford to do is wait until everything is available. And they wouldn’t want to anyway”
Panellists also examined the issue of how new corporate wrap offerings will relate to existing schemes, and whether corporate wrap alone is sufficient reason to switch provider.
Damian Stancombe, head of corporate DC at Punter Southall, said: “If employers have a pension scheme, they may ask what their provider plans to do and wait for it to come to market before they act.”
Phillips added: “Say an employer has a Standard Life pension that they are very happy with, and asks if it is bringing out a corporate wrap. If the provider is waiting until the end of this year, what would you say? Go, or wait and see what happens?”
But Cheseldine pointed out that intermediaries cannot afford to drag their feet. “There are probably three or four providers out there with most of the functionality needed to introduce a corporate wrap. But what advisers can’t afford to do is wait until everything is available. And they wouldn’t want to anyway.”
He also said that introducing corporate wrap in stages is a sensible strategy. “Happiness economics shows that employees would prefer to get a wrap with three benefits on it this year and three more next year, than they would be to get six things all at once and nothing in the second year. Organisations need to improve their offering on a regular basis.”
John Taylor, market director of corporate pensions at Scottish Widows, argued that the first providers to launch corporate wraps would keep a competitive advantage. “There are counters to the wait-and-see argument. Certainly from a provider’s perspective, you get the chance to set the direction. If you get it right and it’s a good proposition, it could be like the iPhone.”
Widows’ corporate wrap is set to go live with an employer with a substantial workforce imminently, and is planning to roll out its corporate wrap proposition to a wider audience at some point this summer.
“HR is inherently conservative and corporate wrap is quite a step for it to take”
Taylor also said that many features of corporate wraps are well established. “Corporate wraps are not so different from corporate pensions with flexible benefits. Things are always going to develop and, yes, if employers wait 12 months, something better will always come along. But if you took that attitude, you could wait forever.”
Steve Herbert, head of benefits strategy at Origen, pointed out that the last big benefits phenomenon, flexible benefits, is still quite rare. He said: “Corporate wrap is going to be like flex. If you don’t talk about flex, you’re in trouble. But actually the number of companies that do flex is relatively small. But you still want to have the option of doing flex. That is true of both providers and advisers.”
The advisers at the Forum said that so far, providers have been slower to unveil corporate wrap functionality than had been expected. Johnson Fleming co-founder Simon Fletcher said: “We’ve seen the market develop more slowly than we thought. We’ve seen insurers talking about corporate wrap for a couple of years and, in reality, they should have had it a year ago but none of them did. They’re only just coming to market now.”
Overall, delegates thought that the long term demand for corporate wrap would be strong. Phillips said: “It depends on your time frame. If you’re thinking this is going to fly off the shelf and will have massive penetration within the next three years, you are kidding yourself. This is a long term game.”
A significant minority of advisers argued that having a corporate wrap offering would become an essential part of a provider’s offering. A poll of delegates found 43 per believe that in future a group pension provider will not be able to get new business if it does not have a corporate wrap.
Corporate wrap may not transform the pension and wider benefits market overnight, but it looks set to become an integral part of the employer, adviser and provider’s suite of workplace products.