Rather than taking a gloomy outlook about the impact of stakeholder pensions on the IFA
revenue map, many IFAs realise a new climate brings new needs and, hence, new opportunities for business.
The welter of changes in pension legislation offers IFAs a myriad of hooks to get in front of employers and write lucrative pension contracts. In addition to this, they can explore other opportunities for selling financial products in the corporate market.
The three Rs
Getting in front of a business is a question of stimulating interest in what you have got to offer. Many summarise this process as delivering the right message to the right audience at the right time.
Delivering the right message to the right audience requires targeting and one of the simplest methods of segmenting business audiences
is to deliver tailored messages to small, medium and large businesses.
Depending on the size of your own practice and the resources you have available for your own campaign, you may be more comfortable targeting a specific business segment.
Money, money money
Many argue that a good hook to secure pension contracts with smaller business owners and directors is a review of the here-and-now issue of drawing more money from their business rather than a dreary pension planning proposition.
IFAs can put forward a whole host of solutions that give busy business owners and directors more cash in their pocket, ranging from paying dividends instead of salaries, for example, to the prospect of setting up a new business to mitigate tax.
Schemes for business owners to retain more of their cash are underpinned by different types of pensions and the common motivation of all business owners and directors to be able to take more cash out of their company is an excellent route into the corporate pension market.
Building on these pension-based tax-mitigation opportunities are the other benefits of executive-type pension plans such as using a pension contribution to help purchase a commercial property rather than rent.
Medium-sized businesses with five employees or more may not be aware that, unless they offer employees a suitable alternative pension, they must offer relevant employees access to a stakeholder pension by October 8, 2001 or face a fine of up to £50,000. This makes it extremely worthwhile to talk to an IFA.
IFAs can really add value to these businesses by notifying employers of their new pension obligations and detailing the choices they face.
Here, the IFA can consider the recommendation of a good group personal pension scheme and, subject to certain conditions, this will exempt the employer from offering access to stakeholder and the inherent issue of compulsory payroll deduction of employee contributions if employees request this.
Where a group personal pension offers features that are unavailable within a stakeholder and can be shown to be as suitable as a stakeholder plan, its use can provide a valuable income stream for the IFA.
Such arrangements even allow employers with only a handful of staff to offer workers a valuable boost to their employee benefits through a company pension scheme.
Additional benefits offered may include group life insurance, income replacement insurance for long-term sickness and disability, as well as private medical insurance. Economies of scale mean these benefits cost the company only a fraction of the true value to the employee.
At the same time, if relevant, the IFA can discuss executive pension plans with the directors.
For bigger companies with an occupational pension scheme, the option of partial concurrency – that allows non-controlling director members earning less than £30,000 a year to hold an individual personal or stakeholder pension at the same time – could offer a more attractive top-up option than in-house AVCs.
Reasons for this include the facts that stakeholder has low administration charges and a quarter of the fund at retirement may be taken as a tax-free cash sum. Tax-free cash is not available on post-April 7, 1987 AVCs and has never been available for free-standing AVCs.
This audience can also provide a receptive market for other aspects of financial planning.
Choose the medium
Just as the number of angles IFAs could take to get an audience with corporate clients are legion, so are the ways of making contact.
There are traditional marketing methods of mailshots, telephone canvassing, seminars, advertising and PR but consider also new media, for example, the use of email. The Direct Marketing Association (www.dma.org.uk) can help you source lists.
Another way of reaching businesses is through professional introducers such as solicitors and accountants.
Again, methods of contact are wide, as are appropriate messages, but these people are increasingly receptive to ideas for new income streams as more competition for their traditional services such as will-writing, book-keeping and conveyancing has led to a decline in bread-and-butter business.
Financial services and investment business touches on most aspects of legal and accountancy-based advice.
Go for it
A great deal of research is required to establish how IFAs are approaching the market but, within my own network, there is no doubt that many IFAs see stakeholder as a chance to get more involved in a huge corporate market.
Figures from Legal & General show there are upwards of 424,000 firms in the UK, employing between five and 49 people, which do not currently offer their staff access to a pension scheme.
The opportunities are there for IFAs to discuss the implications of changes in the pension market with corporate clients or prospects. In doing so, you can ensure that not only are your clients complying with the new pension legislation but that you seize the new business opportunities that arise.
The results might surprise you as, although there is a lot of noise about stakeholder, there are plenty of opportunities to discuss other products on the back of the new prevailing pension conditions.