Who goes fishing for minnows? I liken the prospect of marketing individual stakeholder schemes with angling.
With angling, extensive preparation, reading and planning are carried out. A great deal of expense is laid out on specialised equipment. A huge investment is made in time and patience. The right bait has to be selected and then cast into the murky unknown depths in a quest for “the big one”.
Individual stakeholder schemes are much the same, involving preparation, research, planning, expense in time and regulation, and patience in an uncertain environment. But only a single, cheap baited product is available and the murky pool of individuals is constantly stirred up by the undercurrent of media, regulators and the Government with its overpaternalistic “knows best” attitude.
But the stakeholder pool has no big fish – only minnows. What angler deliberately fishes for minnows? They are just thrown back into the pool. Of course, if a large net could be used and many minnows caught at once, this may have some interest. A group stakeholder is a probable opportunity.
However, I see no cost/benefit justification in the work expended to earn 0.25 per cent a year of the fund for a £50-a-month individual plan. This equates to £1.50 in the first year and £25 in year 10. Not enough money to cover the despatch and filing of an annual statement.
In another pool, a £500-a-month individual would be deemed a big fish but not in the stakeholder pool. Here, he is worth as much as £15 in year one and £250 in year 10. But is this profitable when best advice has been provided?
As a stand-alone product at the lower end of the target market, the margins are insufficient for profit on their own. Furthermore, stakeholder does not justify being a loss-leader for other product sales as the target individuals hardly have enough money to live, let alone buy a series of financial products.
The ill-conceived stakeholder plan will be launched with a fanfare and regulation will insist that IFAs factor it into account. I contend, however, that unless the fish jumps out of the water and seeks help, IFAs should not bother trying to lure them. IFAs are not charities but businesses where profit is essential for survival. Overregulation has already stamped out much profit through the double cost of registration and time. Government calls for fees to be charged are simply not viable in most cases. How many people earning less than £18,000 a year would be willing or able to make such a payment?
Of course, Government ministers on good salaries, supporting directorships, after-dinner speaking engagements, support staff provision, two-thirds pension plans and expense/travel accounts think IFAs are overpaid and do not deliver a good service to the public. They are deliberately trying to reduce IFAs' earnings. Do not be disillusioned. If stakeholder is a success, many other products ranges will follow suit, such as protection, bonds and savings plans.
IFAs who have signed up as pro bono helpline assistants should be sectioned, not applauded. It is foolhardy to work for nothing when the only outcome is the gradual introduction of more stringent products and tighter margins.
Aim for the high-net-worth individual and a fee-based future. Only dabble with individual stakeholder when it is an essential part of an holistic plan with other profit centres in the mix of advice, services and products. Most definitely, do not deliberately market yourselves as individual stakeholder advisers to the Government's target market.
Throw the minnows back in the pond and spend the time saved on a more meaningful activity – archery, perhaps, where the target is gold?
John Turton is head of life & pensions at Best Investment Brokers