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Go with the low

The influence of RDR appears to pervade all areas of the investment arena and, based on the workshops conducted with advisers around our 2010 Growing Pensions research, pension products are no exception. It is perhaps ironic that the activity designed to reorganise distribution appears in many ways to be having a far greater effect than the Government’s primary legislation to achieve pension simplification.

From our discussions, we are seeing clear evidence of the emergence of very distinct economy and premium pension products and advisers segmenting their customers to identify which are appro-priate for which. To be fair, other areas of the FSA would appear to be due some credit in this respect as the effect of the pension switching review is also clearly influencing market practices.

If, as our research suggests, advisers are increasingly identifying which customers are appropriate for low-cost pension products with very low product and fund management charges, making use of passive funds and ETF-driven investments, there may be scope for the emergence of an entirely new breed of ultra low-cost pension products.

Sales would, by definition, need to be a highly automated process, with very little if any manual intervention on the part of the adviser. As such, a truly end to end e-commerce process would be essential. This would mean that the application process would necessitate all application data being seamlessly extracted from the adviser’s client management system and any quotations created. In practice, the technology to achieve this has existed for some time.

There is, in practice, no reason why providers cannot embed within electronic key features documents all the data necessary to create an online pension application so that a proceed icon could be embedded within the electronic file which, when clicked by the adviser or the client, could connect to the life office’s extranet and fully populate the application.

In just a few clicks more, the contract could be established, policy documents generated electronically and emailed to the client instantly. Let me be clear – all the above is possible but not a single provider is offering it today. I am aware of one office in the group pension market that has the ability to deliver policy documents electronically to the member but such improvements have yet to permeate to the individual pension market.

The need to achieve such significant improvements may, however, now be pressing. Relieved in less than three years time of the need to factor in upfront commission, will it now be possible for providers to offer ultra low-cost pension contracts? These will be necessary presumably to justify an individual pension as an alternative to the taxpayer contributing to Nest? Such products would, by their very nature, be substan-tially homogeneous so the ability for providers to differentiate their offerings at a product level may be very limited. Consequently, ease of business process could be particularly important in deciding whose products an adviser will advocate. After all, if the customer is paying for the entire cost of the adviser’s activity, it is in that customers interests to recommend those providers that are operating most efficiently.

Although it will apply in the whole of market arena, it is likely to be especially influential in the restricted advice market. It appears to be noticeable that there is considerably less resistance among some of the bigger adviser firms to the possibility of offering restricted advice, especially where client margins are so thin. This is not to say that such organisations will not maintain a whole of market presence but that they will give advisers the option of providing restricted or independent advice under different parts of their proposition.

Over the last year, I have come across increasing numbers of adviser firms which no longer see independence as an important differentiator. To them, the role of financial planner is far more important. Against this background, if advisers are increasingly doing what the regulator is encouraging them to do and segmenting their customer bases, is there any reason why for customers with relatively modest amounts to invest, a restricted advice proposition backed by very streamlined processes and a high quality service should not fit the bill. The opportunity exists for one or a handful of providers to seriously raise their game and start to deliver products that can truly be described as 21st Century.

Although we may not recognise it yet, the shape of financial product distribution is rapidly changing. This is being driven not just by the RDR changes but the different behaviour and buying patterns of new generations of consumers. Very few individuals currently giving financial advice will still be looking after clients in 20 years time. Most of them will have retired by then.

For those companies, both advisers and product providers that want their lifespan to exceed that of the current advice workforce, there is a need to start building products that will still represent good value towards the middle of the century when workers beginning to enter the workforce now are approaching their retirement. Alternatively, they should see their life and pension products as only a short-term contract with a longevity of 10 to 15 years but that would require a fundamental change in the way life offices account for their profits. Beginning to deliver the sort of ultra low-cost econ-omy pensions our research suggests some advisers are now seeking could be an important step for any provider that still wants to be around in 2050. How many will be brave enough to do so once they no longer have commission to pay?

Growing pensions: how they scored

Standard Life
Standard Life get our 2010 Growing Pensions results off to a flying start, retaining their clean sweep of eee ratings for the third year running. Their propositions performed particularly strongly in numerous areas of our survey, including e-New Business, Tracking Facilities and CMS Integ-rations, but it was noted that there was room for improvement in the provision of Fund Information, where they finished in the bottom three across all categories.

Aegon once again show their consistency by also retaining their eee ratings across all categories and they should be commended as they are the only company to have achieved the top rating for Sipps and individual pensions for the six years that we have been conducting our e-Excellence research. Their propositions recorded firstplace finishes for Valuations Error Messages, Client Access and Remuneration & Charges information, but we noted that additional enhancements to their Extranet Service Availability and extending their Extranet Audit Trail functionality to their individual pension proposition would be worthwhile investments.

Scottish Widows
A solid third-place finish from the Scottish Widows’ Sipp proposition saw them retain their ee+ rating for the third year in a row while their individual pensions offering has improved on its 2009 result. Strongest scoring areas across both services were seen in the Extranet Service Availability, Extranet Access, Online Products and Fund Information sections of our survey. However, improvements to the integration functionality in the individual pensions proposition would be beneficial.

AXA Winterthur
AXA have retained their 2009 ratings across all categories, recording first-place finishes in the sections of our survey covering Standards and Online Facilities and also achieving strong marks for Online Products, Online Amend-ments, Valuations Error Messages and Management Information. Areas which would benefit from additional enhancements were noted as Tracking Facilities and Online Support Services, where they found themselves in the bottom three.

Continuing the trend, Prudential also retain their 2009 ratings. Their propositions finished in the top half of the table across the majority of our survey sections and performed particularly well in respect of Fund Information, Tracking Facilities and CMS Integrations. On the flip side, we detected a handful of areas where they are falling behind their peers, including Online Fund Coverage, Online Facilities and Valuation Data & Statements, all areas where further development would be beneficial to ensure they are meeting adviser requirements.

Fidelity Funds Network
Fidelity Funds Network also hold on to their ee ratings with propositions that achieved strong results in the areas covering Extranet Audit Trail, Fund Information, Integration Functionality and Remun-eration & Charges information. Improvements to their Quotes & Key Features, Online Amend-ments and Valuation Data & Statements should be earmarked for inclusion in future development plans.

Aviva’s e-commerce continues to thrive, earning the company “most improved” ratings for both categories, where they have climbed from their 2009 ratings of eefor Sipp and ee for individual pensions. The strongest scoring areas for the Sipp proposition were noted as being Extranet Access, Online Facilities and e-New Business while the individual pensions offering outperformed its competitors in the areas covering Integration Functionality, CMS Integrations, Man-agement Information and Valuation Data & Statements. There is still some room for improvement to the Sipp proposition, where the inclusion of Valuation Error Messages and CMS Integrations would ensure that the company are providing the functionality expected by advisers while bolstering the Online Products, Fund Information and Client Access functionality on the individual pensions offering would be of benefit.

Scottish Life
Scottish Life have also retained their ratings for the third year in a row with propositions which performed strongly in the survey areas covering Valuations Error Messages, Support Services, Client Access and Online Amendments. Focus for future developments should include Extranet Audit Trail, Quotes & Key Features, Valuations and Management Information, where they are slipping some way behind their peers.

Ascentric have participated in our e-Excellence process for the first time this year, picking up the “best newcomer” award for their Sipp proposition.  Mid-table marks were recorded across the majority of sections in our survey, with the stand-out areas being Management Information and Valuation Data & Statement functionality, where they finished in the top four. Areas which would benefit from additional enhancements were Extranet Access, Online Amendments, Remuneration & Charges information and CMS Integrations, all of which would assist Ascentric in improving their rating in future surveys.

James Hay
James Hay have retained their ee rating from last year for Sipp but have lost ground to their competitors in the Sipp Specialist category, where they have slipped from the ee+ rating achieved in 2009. Toptwo finishes were noted for both propositions in respect of Support Services and Client Access functionality while the SIPP Specialist offering also provided second-place results for Extranet Service Availability, Extranet Access, e-New Business and Online Amend-ments. Future development plans, once the dust has settled from the IFG purchase, should be concentrated on introducing Valuations Error Messages functionality and integrations with portals and CM systems as well as bolstering their Online Fund Coverage.

A praiseworthy set of results for LV=, who bettered their 2009 ratings in all categories and also picked up our “most improved” award for Sipp Specialist. Top three placings were achieved in the Online Facilities and Valuations information sections of our survey but there is the opportunity to further enhance the propositions in a number of areas, including Remun-eration & Charges inform-ation, Extranet Access, Client Access and the provision of Management Information, to ensure that they keep pace with adviser requirements and their competitors.

Zurich have unfortunately lost ground with their Sipp proposition, slipping down the ratings compared with last year, but they can be heartened that their maiden entry for individual pensions has seen them take the “best newcomer” award. Both offerings can be further developed to help them catch up with their peers, with particular attention being paid to Extranet Service Availability, Management Information, Tracking Facilities, Client Access, Integration Functionality and Valuation Data & Statements, all of which would be quick wins in terms of delivering services which advisers need.

Friends Provident
Given that Friends Provident are not seeking new individual pension business, it is a testament to their proposition that they still achieve a ee+ rating for individual pension. That they have dropped from their previously consistent eee standard does show that, should they choose to re-enter this market sector, there would be important work to do were they to want to be seen as a market leader.

Sun Life Financial of Canada
Sun Life Financial of Canada will clearly have been spending time addressing acquisition issues but it is perhaps disappointing that they have slipped from the previous eeachieved last year by Lincoln Financial Group. Hopefully, with the change of ownership, they can continue the progress they had previously been making.

Declined to be rated:
A J Bell
Hornbuckle Mitchell
Legal & General
Merchant Investors
Met Life
SIPP Solutions
Suffolk Life



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