Paradigm Pensions believes auto-enrolment and Nest present a huge opportunity for IFAs to help employers set up new schemes or overhaul existing ones.
Managing pensions partner Steve Bee and chief executive Paul Hogarth are setting up an advisory panel of member IFAs to help the firm pin down a fixed rate that advisers should charge to help employers fulfil their duties under the changes to pension legislation.
Money Marketing revealed in November that pension guru Steve Bee was leaving Scottish Life and teaming up with Bankhall founder Paul Hogarth to develop a business under the Paradigm Pensions’ banner to help advisers deal with auto-enrolment.
Bee says: “Pension legislation for the last half century has been more or less fixed but now it is changing fundamentally.
We have a law that says almost every employer has to have a pension scheme by 2016. It also means every existing scheme has to be looked at and audited. At the moment, you will find around one million employers who do not have pension schemes.
“It is really important that IFAs are tooled up to operate in the small employer market. For the companies with between 20 and 400 employees, good IFA firms with the right kind of marketing and support, which is what I am here to provide, can provide an offering for a large number of employers. I do not think employee benefit consultants will be able to compete with the material and practices we will build.”
The firm wants to develop a ratecard which will set a cost for companies according to size. Bee and Hogarth are keen to start a debate on that pricing.
Bee says: “We are setting up an advisory panel to help us set a price for various parts of the employer duty, particularly for auto-enrolment. We want to have a ratecard, as you might get with other professions, where IFAs can go in and say, a company this size with this number of locations is this price. We think it is high time those discussions started in this business, in fact, I am amazed nobody has done it before.
“IFAs need to know what they should be charging for various services, otherwise there is a danger they will do a lot of work for nothing.
“If we get the price right for the employer, they will see it is worth paying. This is where IFAs become professionals, over the next five years largely due to these pension changes.”
Paradigm believes its proposition will compete easily with the array of corporate wraps being developed by providers.
Bee says: “Corporate wraps need to be a lot more employer-centric. Someone needs to come along and bring processes, not products. Some of the things we will bring in will surprise people and I have come to Paradigm to surprise people. What we are doing is not what other people call a corporate wrap, we are about to define what a corporate wrap is.”
Hogarth adds: “As an IFA, is it sensible to have all your eggs in one basket where effectively that is controlled by a third party and that third party is a life company? There are a few horror stories where IFAs have jumped in and supported a wrap where, all of a sudden, pricing has changed and it is the IFA that is left to explain that to the client.”
The contract for the technology provider is out to tender. A winner will be announced in the next few months. Hogarth says the new platform will sit alongside the existing Paradigm/ Nucleus wrap.
He says: “We will give our IFAs a single platform and they will control the pricing and custodianship of that. It would include a Sipp, group personal pension, trustee investment plans, section 32 buyout and income drawdown but we will also have processes where IFAs will be able to deal competently with final-salary business.
“We do not want to come out with brand new technology. We think the way to do this is to use tried and tested technology from a leading platform provider – someone who is currently out there and can deal with the volumes we will be pushing through.”
The contract for the tax wrapper provider is also out to tender and Hogarth says Paradigm is likely to strike an exclusivity deal. He says: “We have gone out to the providers and offered exclusivity and non-exclusivity packages in terms of all the tax wrappers on the platform and are waiting to see what is likely to come back. Exclusivity is more likely to be the case.
“The tax wrapper is so vanilla, it is a question of the strength of the brand and the price. You do not need three personal pensions and three Sipps, you just need one. It might be straightforward to have one provider giving all the products exclusively, so we have one standard set of service agreements.”
The technology will allow IFAs to do annual checks to ensure all their employers still have the right pension arrangements in place, which will be particularly important in the early years when contribution levels are rising. Their work will also be independently kite-marked to ensure they have done a thorough job.
Bee says: “What you need is an annual check on every firm to ensure what was put in place by our IFAs last year or the year before still suits the employer and keeps them on the right side of the law. To constantly monitor it to ensure that it is still all right, we will build that in.
“We are also going to build a kitemarking process. That will be done externally for the IFAs. I would like IFA firms that we are standing behind to be able to tackle anything when they walk in the employer’s door.”
Bee is set to pitch to 1,000 employers per month for the next four years on behalf of Paradigm adviser firms. He will begin these employer awareness sessions in the summer. He will be writing a monthly newsletter on behalf of adviser firms and has developed JargonFree Pensions.co.uk, a website for consumers.
He says: “The plan will be to get me in front of 1,000 employers a month. I aim to do that for four years non-stop, so we hope to get in front of up to 50,000 employers. We are not going to wait for the Government or the Personal Accounts Delivery Authority to do it, we are going to do it ourselves.
“If, at 2016, we have a million new pension schemes and they are all at the minimal level prescribed by the Government, we certainly would have failed but the industry will have also failed.
“A lot of employers will want the National Employment Savings Trust but, whatever happens, before the million new schemes are generated there will be a million conversations. We know all the staging dates, so we can begin selecting the employers that are most likely to be interested in building decent schemes.”
The new proposition will be exclusive to Paradigm partners. Hogarth says the firm has 300 directly authorised members but wants another 200 signed up. He says: “We are 60-odd per cent of the way on the journey. They need to buy in to what we are about, which is building up recurring revenue.”
He adds: “This is the single biggest thing I have done in the industry. This is a major milestone in my career.”