National IFAs looking for strategies to survive in the post-stakeholder era are targeting the corporate market.
With margins cut to the bone under the stakeholder regime, small monthly premiums from individual clients do not represent good business for many IFAs.
So, while many bigger firms are seeking to change their business focus, it has come as a surprise that Aon Consulting Financial Services, the UK arm of the world's second-biggest brokerage, has agreed to a management buyout.
Many national IFAs question why is Aon bailing out when it has a good share of the corporate market which it could have exploited further?
The MBO is expected to be completed by August, after when the new firm will trade under the name Momentum. Aon Consultants is refusing to comment on why it sold what is widely believed to be a profitable business which has a strong foothold in the market.
ACFS employs about 100 registered consultants in 11 offices and provides financial advice to workers at big British companies such as BAE Systems, Tesco and British Telecommunications.
National IFAs are surprised at the move, saying the corporate market is the way forward for advisers looking to make stakeholder a profitable part of their business.
Holden Meehan director Mark Beer believes corporate clients are a better proposition for national IFAs than individuals. He says stakeholder offers IFAs a great opportunity to talk to companies.
In the past five years, Holden Meehan has been actively looking for corporate pension business, says Beer.
“National IFAs will have to address the corporate market in terms of stakeholder business. Stakeholder has brought about enforced changes and national IFAs will now have to adapt,” he says.
How can national IFAs get a strong foothold in the corporate market and attract profitable clients?
Bradford & Bingley is taking this issue seriously. But a move into the corporate market could see it working with a very different client base.
Investment marketing manager Ken Rayner says B&B's traditional client base is made up of people who come into the society's branches for advice. But branch-based clients paying between £10-£20 a month into stakeholder schemes do not represent good value for B&B.
Rayner says: “For clients paying small contributions into stakeholder schemes, the margins are so tight. We have to look at other ways for customers to access stakeholder pension information and facilitate a stakeholder transaction.”
B&B is considering ways to use the internet to communicate with clients who might otherwise expect to receive advice on a face-to-face basis in their local branch.
But recognising that its traditional customers may not be the sort of people who use the internet, the society is also investigating how to make stakeholder work with other clients. Rayner says: “It would be cheaper for us to channel some of the information about stakeholder and reach cli-ents through the net. But the people who will be paying£10 to £20 into their schemes are not the average people who use the net.”
B&B is seeking to enter the corporate market and build relationships through the workplace.
IFA Towry Law also believes the corporate market may be the most profitable path into stakeholder for many advisers. Managing director of UK life & pensions Mike Standish says: “The margins for stakeholder business may be very low. We have to look at the other business opportunities for selling other products or offering other services which may come off the back of stakeholder.”
Towry Law says the internet will be an important tool in accessing the corporate stakeholder market and offers a sound way for national IFAs to cut administration costs.
But it says IFAs must also address other issues such as what level of service to offer and how stakeholder can lead to other business.
Standish says: “Firms have to address what level of service they could offer to clients. Some may offer just the product transaction and minimal advice. Others might offer advice but at what cost?”
Rayner says: “Stakeholder is offering people like us the opportunity to break into the corporate market. We will have to change the way we operate but it is the corporate market which offers the best opportunities under stakeholder.”
Scottish Equitable says the success of its Euro smaller companies fund, ranked third in the top 10 table for unit trusts, has been achieved through a strategy of investing in niche growth areas. Fund manager Alastair Duffy says: “Our investments have been in areas such as biotechnology, medical devices and highly specialised companies.
“We also looked at growth market areas and smaller companies such as electronics firms which make parts for the big market leaders.”