The pressure's back, the risk unchanged
The last days of commission present traps for advisers warns Robert Reid, director of Syndaxi Financial Planning
In 1984 it was close to the budget and a particular Tory minister blabbed to the board of the provider of which he was a non-exec director that life assurance premium relief was under threat.
The month prior to the budget everyone put on risk pipelines of business that would normally have taken four to five months to flow through. I am sure that the younger ones amongst you are wondering why that minister told other providers. In those days not to have told others would have been bad form.
The night of the budget I was in the office till midnight working through the queue outside the branch of the provider I worked for processing Maximum Income Plans for in excess of 20 tax inspectors from the HMRC offices nearby. I had to be very careful and my underwriting well documented.
2012 has that déjà vu feeling of “buy now”, with the number of group schemes being written on as full commission as possible with little if any trail to fund ongoing servicing.
Now some reading this will be screaming employers won’t pay fees, or more accurately I don’t think they will. Around four years ago we moved our GPP book onto fees and lost all of the unprofitable ones and some borderline ones.
In essence we tracked our time and costs and then produced a simple profit and loss statement; every financial director made the same comment “this can’t continue” when faced by costs well in excess of commission received. With one of the schemes that left us we were relieved of our role by letter - on it in pencil the client had indicated that it would doubtless be back in 2013.
It’s clear that for those rare things known as new schemes consultancy charging needs to conform to a level of decency, but who will set it and will it not vary scheme to scheme?
If you set up a scheme for 50 people from a population of 100, who pays for the group meetings and any other interactions? It can’t be fair for the joiners to pay, so will the employer pay?
Autoenrolment will cause an upturn in activity but will it be profitable? Nest continues to gear up and will sweep up the smaller employers but will lose out in the mid and upper range to the benefit consultants
In my experience employers have a budget and this can be enlarged by use of salary sacrifice, where the amount of National Insurance Contributions rebated to the employee by the employer could be less in year one to cover the cost of setup and a lesser amount ongoing to cover the cost of servicing.
Auto enrolment will cause an upturn in activity but will it be profitable? Nest continues to gear up and will sweep up the smaller employers but will lose out in the mid and upper range to the benefit consultants. Of course there is the opportunity to embrace Nest to integrate it into your offering and that’s no bad thing.
I don’t think we truly know enough about Nest but we need to if we are to advise in the GPP space - we need to know it backwards. The material is available and in the meetings I have had with Nest personnel have demonstrated that they are committed to working with and not against the sector. My nagging worry about Nest is the payment to the estate on death - great until someone dies intestate and their long-term partner sees the money go to their parents or another relative.
The reason nomination forms have not been made available is that the costs of trustee meetings was not in the budget. In my opinion when the first law suit is launched by a long term partner Nest will see the trustee approach as the truly easier route.
So as 2012 comes to a close just what will the group pensions adviser do, or the provider sales team or the processing teams for that matter, as the level of activity falls off a cliff? Once you get to the highest level on Angry Birds there is not a lot left for you to do.
The sleeper schemes - 5 members so just into Group - set up on indemnity terms will enable tens, hundreds, or even thousands being added to the scheme on the same terms, that is, indemnity. Was this really what the FSA intended?
The lack of service post sale will as usual be palpable but then that will suit those providers so keen to sell direct. One wonders how much of their scheme profitability evaluations relied on the IFAs melting away like snow on a roof.
In 1985 our targets tripped on the back of what should have been an unrepeatable year, but the bar was raised and the pressure was on. Well the pressure is back and the risk is unchanged.