The one sure thing about the future stakeholder scene is that it will be markedly different from today. At the moment, the major players are positioning themselves with product offerings designed to secure the much-needed market share to make a profit. Stakeholder has already had an effect on two IFA life offices. It has driven Scottish Life from Edinburgh's hallowed halls into the arms of Essex boys Royal London in Chelmsford. Pension specialist National Mutual, realising it is too small to play in the stakeholder game, has sensibly decided to remain a niche player.
So, looking back, say, three years on, what will we be seeing? Undoubtedly blood on the floor as the numbers, at present, do not add up. Twelve or so life offices all saying they need 10 per cent -15 per cent of the market means some will not survive stakeholder. Only the strongest with the most attractive offering on systems, price and investment will be there in the long-term and investment could be the issue that separates the survivors.
David Butcher from Invesco Life wrote a fascinating article in last week's Money Marketing on the US experience with their equivalent of stakeholder – the 401(k) plan. At launch, 401(k)s were dominated by life offices and banks – but they have now been usurped by the major US investment houses. This is hardly surprising given the high profile that these fund managers have achieved in the public's mind and the fact that they dominate the performance tables. Surely this must happen here? Let's face it, the UK life offices are not the first thing consumers say they love – they probably only rank a little higher than banks.
So what should the stakeholder IFA do? Think investment, investment, investment. By now, if you are in this market, you have already sorted out the basic structure of the stakeholder w
rapper you are happy to recommend to clients. You will have negotiated a base cost way below one per cent, satisfied yourself on the delivery of e-communications and the robustness of the IT platform, and are happy with all the pretty packaging.
But do remember this is only a wrapper – the aim is to deliver the investment performance to satisfy the members.
If the provider you select doesn't do that – they will lose the business. It is as simple as that. And the business will be lost to the investment house that manages to persuade the buying public they can deliver where others have failed. So we need to be sure we believe the investment story of the providers that we use. This story should encompass:
The mainstream fund choice: Usually a managed fund, although there will be some trackers for those who like the bearded virgin.
The default fund: Higher risk or lower risk? What is the relationship between this fund and the mainstream fund?
Life style option: Possibly the default, but one I believe to be essential in a stakeholder. Can your provider deliver one? If so, how will you structure it?
With-profits funds: At present, not an option but the DSS appears to be softening. Is it important? If so, only a few providers have the capability. (It is interesting that Equitable is still advertising its stakeholder-friendly plans).
External fund managers and multi-manager options: These should be there to add competitive edge.
Stakeholder is a simple, low-cost wrapper, which will provide the pension solution for millions. In the end, it will be investment performance that will determine success. It is time to take off the pensions anoraks and concentrate on the meat in the stakeholder sandwich.