While most in the individual advice market are still trying to get to grips with what digital advice means for them, it appears many corporate firms have made a clear decision to embrace it. Automatic enrolment extending to small and micro businesses represents an excellent opportunity for all firms to incubate their digital advice propositions.
The Pensions Regulator recently identified there are 1.8 million small and micro employers reaching their staging dates between now and 2018: half a million more than previously estimated. With, at most, 30,000 individual advisers, this means there should be 60 potential clients for each and every one.
Employees who are being auto-enrolled represent an ideal target for new services. Equally, if a firm is going to build low-cost digital advice solutions, it is preferable to initially target these at new customers while they are getting used to working in a certain way.
The technology to support this is a natural development for adviser software suppliers. Intelliflo recently announced plans to deliver such a service early next year and it is reasonable to expect others to follow soon.
To take advantage of this opportunity it is clearly important advisers understand the key issues around auto-enrolment. As the number of staging employers explodes, pension providers are becoming increasingly selective about the cases they will accept.
TPR is regularly reiterating its position on how “professional advisers” should advise employers on scheme selection. This means it is not really practical for advisers to just select a single pension provider and send all auto-enrolment cases to that provider.
There is a widespread belief in certain quarters that because advice to employers on schemes is not FCA regulated, an adviser can just choose a single pension provider and recommend it to all their auto-enrolment clients. This is an oversimplification.
It fails to recognise a small but crucial requirement that, unless an adviser has conducted some form of research process (that is, recommends a single solution) they are required to tell the employer they have “recommended the specific provider but there may be another pension provider in the marketplace who may be more suited to their employees’ needs”.
If advisers have spent years emphasising to their clients the benefits of being able to help them choose the best products and providers for their needs, they are unlikely to want to say there may be better ones available they have not explored. Once you say that to a client, how soon will it be until they start questioning whether the same is true in other areas?
If, however, advisers go through a process comparing auto-enrolment providers, they do not have to make such a statement. Technology can play a powerful role here too.
There is also an opportunity for advisers to market their services to individual employees in smaller organisations. In the case of more senior staff, this may extend to traditional advice but most are going to need a low-cost solution to help them. This is an ideal opportunity for firms to put digital advice into practice.
Advisers looking to build such propositions must take advantage of being able to target the services at new customers and grow their business, rather than disrupting existing client relationships. The huge need for auto-enrolment advice gives advisers a chance to secure customers for digital advice business.
Ian McKenna is director of Finance & Technology Research Centre