For many IFAs, the next six to 12 months will represent a watershed in terms of client communication. Not for the first time in recent years, employers are faced with changes in pension legislation which cannot be ignored (unless the prospect of a fine from Opra is not an issue) and they have a specific timescale in which to comply.
From an employer's perspective, this would initially seem to present yet another call on time and resources which they would rather avoid if at all possible. So, from the start, the environment in which stakeholder communications takes place is set against a background of employers who may be either:
Looking to undertake the minimum amount of work to comply with the legislative requirements.
Seeking to rationalise existing scheme provision and bring all their arrangements under a single (lower-cost?) umbrella.
Considering the opportunity to reduce current cost and therefore reconstruct benefits by incorporating a new arrangement as part of the overall employee benefits review process or
Have no existing arrangement in place and remain to be convinced about the benefits of such action.
While these considerations are true of all employers, it is a particularly acute problem for bigger companies with 500 employees or more. Different strategies are required depending on the type of company and the employer's attitude to employee communications.
It is for this reason that stakeholder manifests itself as a superb opportunity for IFAs to demonstrate their value to corporate clients, not just in providing pension solutions but in providing benefit communication strategies which enhance employer loyalty and staff retention.
Okay, so this sounds great but what does it actually mean? Are we simply talking web-based information, paper-based marketing material and staff surgeries?
Stakeholder is not about product. It is about value.
As products become less able to differentiate on features, research by Axa Sun Life reveals investment performance will be a key driver of employee decisions and delivery and service the key to employer satisfaction.
Let's look at a possible scenario in the new environment.
An existing employer with 750 staff provides quality GPP provision on a contributory basis for 500 of the staff.
The remaining 250 are in a part of the workforce where retention is more difficult and there is high mobility. The employer is happy with the existing basis of provision but does not want to increase cost so proposes to offer a non-contributory stakeholder to the 250 staff not in the GPP, which currently has a 5 per cent employer contribution rate.
The employer wants to control cost and does not want to incur additional work in establishing a stakeholder on a non-contributory basis.
Take-up is likely to be poor without any significant employer contribution and communication to 250 staff could be a labour-intensive process with little reward for the independent adviser in terms of initial income if commission is required so product sale becomes crucial to the revenue stream.
This is where an important issue arises for the IFA. If a commission-based approach is taken, this client poses a high risk in terms of potential time/ reward in the short-term.
If a fee-based approach is sought, then this is less of an issue, allowing the IFA to offer a menu of services based on the level of proactive involvement sought.
Set this against the background that this may be an important existing client whose existing business is of great value and the issue is really to provide an effective, low-cost solution that meets the employer's requirements while maximising the potential income stream from 250 potential new clients.
For this reason, it is clear that, irrespective of the IFA remuneration route, every opportunity to offer services to these “clients” in other areas needs to be considered as a means of cross-subsidising time spent on stakeholder (in this instance).
While paper-based communications are still effective for many, increasingly, bigger companies are establishing intranet sites – internal web- style pages with the ability to provide information to their employees and, importantly, links out to third-party sites. Working with the employer to provide stakeholder information via links to either the IFA's website or direct to the product provider has benefits for all.
The IFA can enable potential members to self-service with regards to quotations and key features while what-if calculators enable employees to run various scenarios online.
The employer avoids the need to be directly involved in the communication process and can direct internal queries to the intranet and the employee has access to instant information which is not reliant on the availability of a representative from the adviser's office.
Agreed levels of access to the employees could form the basis of negotiation with the employer over cost. If it could be agreed to insert links to the IFA's site from the intranet, then multiple cross-marketing opportunities open up.
It is crucially important to note that through all these web-based processes there will always be the need for personal support and contact. If the IFA is to offer a menu of services from intensive face-to-face counselling to a remote, execution-only offering with no face-to-face contact, then there will need to be the additional support from experienced staff.
Who will provide this? I think employees need access to a dedicated communication centre which can support both IFA and employer/employee at varying levels depending on the menu of services being offered. This service provides the additional support needed for those that feel uncertain about a self-service option.
What guarantees do clients have of sufficient investment to ensure such communication and support is of the level that they deserve? They can always take their business elsewhere.