A model for the future
Innovation will be required to meet the growing demands for financial advice, information and education in the modern workplace says Dido Sandler
Few would argue with the contention that demand for financial advice and information in the workplace is set to surge. Those firms that find innovative ways of talking to employees will succeed in meeting that demand, said delegates at the Corporate Adviser Closing the Advice Gap industry forum last month.
Even without auto-enrolment, which will see between 7m and 10m people grappling with pensions for the first time, a combination of poor household finances, growth in acceptance of individual responsibility, less access to independent financial advice post-RDR and the emergence of a generation weaned on debt mean it is clear that demand for financial information is only going to increase.
For tuned in employers this creates an opportunity to forge bonds with valued employees, but cost pressures, again exacerbated by auto-enrolment and the RDR, mean new models will be needed.
Delegates were under no illusions as to the scale of the problem facing employers and employees alike.
“We are going to end up with some very, very disappointing retirement outcomes, as we all understand, but probably the member doesn’t understand,” said Iain Chadwick, senior consultant at Johnson Fleming, reflecting on the current low levels of contribution into DC schemes. “They think, ’I’m in a pension scheme, I can forget about that.’”
RDR will make advice expensive, and more the preserve of the very wealthy. But as Chadwick pointed out, information and education will remain essential. “The issues around defined contribution (DC) simply don’t work without good support for the member.” Most people in the UK population are ill-equipped without this support, to make fundamental decisions about funding a scheme, investing in it and drawing benefits at retirement, he says.
But with employers forced into massive extra pension costs as a result of auto-enrolment, many will be reluctant to spend even more money communicating those benefits to staff, said Jonathan Phillips, director of Bluefin. “It’s a tough ask, especially in the current economic environment,” he said.
But Chadwick argued asking companies to create a new budget is difficult but not impossible. “If there weren’t plenty of employers out there who took their benefits seriously and wanted to support engagement, then we wouldn’t be sat round this table today,” he said.
One reason why companies would feel the need to educate employees about pensions is the abolition of the default retirement age, said delegates. Glen Thomas, managing director of Jelf Group, said: “Does the employer want a workforce of under-pensioned individuals having to continue to work because they’ve got no other option?”
Roy Edie, senior consultant at Towers Watson, pointed out that it is in the employer’s interests to run communication exercises with staff, to impress on them the value of their benefits. “If an employer wants to get full value out of his contribution they are going to need to make sure that’s communicated,” he said.
Thomas pointed out that while one-to-ones are currently normally an enrolment exercise, in future they will no longer be necessary as auto-enrolment will do the job, although cheaper employee workshops will probably survive. A majority of delegates foresaw a 50-100 per cent drop in the numbers of employees receiving full face-to-face advice in a straw poll taken at the event.
Thomas added that for those wanting personal face-to-face advice, adviser charging would be suitable.
Technology is clearly part of the solution, with Phillips saying it had certainly helped it to nail down costs at Bluefin. Phillips said: “We use it for enrolment and we get a very high take-up rate. For people joining it’s a very cost-effective, efficient way of getting current valuations and information surrounding retirement decisions in a way you can deploy very easily. People have to pick their premium and there’s a default fund, and they’re in.”
“We are going to end up with some very, very disappointing retirement outcomes, as we all understand, but probably the member doesn’t understand, They think, ’I’m in a pension scheme, I can forget about that”
Panel members proposed some innovative ways of engaging members. Mark Pemberthy, projects director, DC consulting at JLT Benefit Solutions referred to his firm’s use of messaging to prompt savers to take actions. “It says ’your fund’s just reached X, you should be thinking about such-and-such an action’,” he said. JLT has an on-line client annuity programme, but as yet few get through it without picking up the phone at some point, highlighting the fact that for important decisions like those around retirement, or big investment calls, people do want some human contact for a bit of reassurance, guidance or advice. Advice, he thinks, needs to be much more concentrated at those pressure points.
John Taylor, market director, corporate pensions at Scottish Widows said only a small minority going all the way through to fulfilment on-line reflected his company’s experience. “Individuals are more likely to use tech systems for parts of the process, like figuring out costs, before looking for a bit of focussed help,” he said.
Chadwick agreed the industry needs to be cleverer about providing support in different ways and at different times. “Until now advice has been available upfront, when people have nothing to invest, and this explains why they can be less than motivated,” he said.
Taylor said another key decision point the industry will have to come to terms with is after three months, when members have the opportunity to opt out of a scheme. “I wouldn’t be at all surprised if some corporates are still interested in having the communication exercise around that point. For a lot of employees the simplest decision is the most important - whether you stay in and how much you contribute.”
But some are sceptical about technology. Neil Fallon, employee benefits manager at In2Matrix argued tech won’t solve the whole problem. “Yes, tech can help educate and engage, but first you need to train people to use the technology itself,” he said.
Stuart Gray, founder and chief executive of Portus Consulting, pointed out that as things stand, fewer than 10 per cent of employees are motivated to engage on-line and read brochures, where feedback from one-to-ones goes off the scale. Tech itself isn’t the problem - most of the UK population uses tech across a range of tools - it is the subject matter, he said. “Are you interested in looking at your pension or is there something far more interesting you’d rather be doing?”
Panellists debated how far employers should involve themselves in helping more broadly with employee personal financial education, following the Thoresen Review pronouncement on the workplace being the most effective medium for conveying financial advice. Pemberthy says there is a certain amount of political pressure on employers to “facilitate that sort of access.”
Certainly the trust is there amongst workers, presumably a requisite for delivering broad financial advice. Taylor pointed to Scottish Widows research that shows 95 per cent of employees look to their employer first of all for advice on the workplace pension, partly because they don’t trust insurance companies, banks or indeed financial advisers. Chadwick agreed that endorsement by one’s employer gives advice a quality mark, but he pointed out that firms would probably not want to get involved in broad financial education, particularly in debt counselling.
So in this decade of debt, with people labouring under considerable financial strain, do advisers think there’s a plausible marketing angle that a happier, better informed workforce is a more efficient workforce?
Pemberthy argued any additional expenditure on consultancy services would depend on the adviser being able to demonstrate relevance and value to a business. Employers ask whether items bring them a return somewhere, or meet a headline objective. There’s no doubt that debt is a relevant issue in the workplace, but Pemberthy said it created complexities for advisers. He said: “You can’t talk about savings without referring to debt in one way or another. But it’s not an area where our industry, particularly the corporate space, is geared up for at all.”
Phillips said: “Employers enlist advisers to provide competitive benefits that help them when hiring. They don’t see their role in life as dealing with employees’ personal financial problems.”
The forum discussed corporate wrap as an efficient alternative, to help employers engage employers in post RDR. A massive 75 per cent of participants said corporate wrap would form a significant part of the solution to the advice gap in five years’ time.
Taylor said corporate wrap allowed employees to have a product more relevant to their life stage, making them better engaged. “It’s a great way of improving the perceived value of the benefits package,” he said.
But wrap does have some limitations, said delegates. Employees may be able to get better deals on some financial products outside the employee benefit package outside. Phillips said: “Pension is effectively subsidised, but that is not the case for other products. Employees can lob details into Google and find information on what the best Isa rates are instantly.”
But corporate wrap should, said Taylor, act as an additional tool to differentiate the private sector from the very functional Nest proposition.
And corporate wrap could help advisers generate extra business too, said Chadwick, who pointed out that if punters struggle without assistance with a relatively straightforward DC pension and a couple of investment and funding decisions, they will be at sea with the huge range of choices within wrap.
This isn’t so much closing the advice gap, as opening it up even wider, as the public find out what is out there. “The general population’s ability to self-serve in that area is very very limited.” He says corporate wrap has to drive much more demand from adviser communication and engagement services, not less. “That is a very good thing for our part of the community, because we’ll be very, very needed.”