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Independent View

A national newspaper claimed recently that Friends Provident is likely to

use its proposed flotation to raise about £1bn to help fund its

participation in the fiercely competitive stakeholder pension market.

This should, quite rightly, strike fear into the hearts of some of the

smaller product providers which intend to be players in the pension market

in 2001 and beyond. It should also ring warning bells for IFAs.

Now that we have been issued with the draft regulations, we can start to

see the real shape of stakeholder pensions and, cutting through the

political rubbish, they are really personal pensions, just like Isas are

really a combination of Peps and Tessas.

Sure, there are some different rules to make them easier to understand

(just joking) but, essentially, they are the same products with a different


The good news for consumers is that Catmarked stakeholder plans are

driving down the cost of personal pensions. The bad news for IFAs is that

the cost cutting seems to be eliminating or, at best, radically reducing

the costs associated with marketing and that means lower commission levels.

Will IFAs have a role to play in the stakeholder market and what will it be?

The message to IFAs seems to be to invest in technology and write high

volume, low margin cases using the internet. That might work but I have yet

to see a well thought-out, well costed business plan that proves the

viability of such an approach.

Perhaps someone might be kind enough to submit a plan to Money Marketing

so we can see how this is supposed to work.

The reality is that very few IFAs have been about high volume, low cost

business – quite the opposite, in fact. Low volume and added value have

been the manner in which IFAs have been able to differentiate themselves

from other distribution channels. So there is a significant mismatch

between the IFA approach and the stakeholder model.

How might IFAs respond without having to make a huge capital investment?

One approach might be to concentrate on employers. In the same issue of

the national newspaper quoted above, it was reported that a growing number

of unions are calling for stakeholder to be make compulsory, by which I

gather they mean compulsory contributions. Employers will need the services

of an IFA to select and implement the right plan.

However, IFAs are going to have to convince employers that their services

are worth paying for.

It is probably not financially viable for IFAs to hold face-to-face

meetings with individual stakeholder members as most quality IFAs do for

members of group personal pensions. Here, it will be direct technology

links with the provider that makes it easy for the employee to join.

A second approach might be to ignore stakeholder altogether and focus

attention on added-value products, for example, group personal pensions for

the business owner. For some, the answer might be to focus on new

markets. The one thing we know for certain is that the IFA is a resilient

ani-mal capable of rapid and successful re-engineering to exploit new


I suspect that some product providers are less resilient than most IFAs

and might discover that the heat of competition is too great for them.

There really will only be a handful of successful stakeholder providers and

some of them will be international players which have yet to show their


The risk to product providers is that, following massive capital

expenditure on products and systems, they will produce insufficient

business to cover their costs. They will also be exposed to high-level

external competition from experienced providers and will see a drain on

their customer base from lower-cost product providers.

IFAs face a similar risk. Unless they can recoup their expenditure from

fees charged directly to employers, they may well find their short-term

cash flow is irreparably damaged.

As Unity Trust Bank chairman Sir Dennis Landau said: “Without compulsion,

stakeholder pensions will fail.” The good news is that IFAs are not

compelled to take part.


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