Can smaller IFAs – even protection specialists – compete in the employee benefits market or is it one for the big firms and consultants?
Distribution within the market has often been dictated by matters of scale including the size of the client workforce and of the IFA and resources available to it. Consultants have inevitably taken the lion's share of the bigger workforces but the potential is there for smaller firms to advise small to medium-sized companies.
Certain providers recognise this and can prove a useful resource for IFAs in this market. There are now more options to allow the smaller IFA to compete successfully.
The route to persuading an employer that it needs to provide employee benefits to its staff lies in outlining the value of such a package to the employer. Creating a link between staff absence and sickness (not necessarily in themselves linked) and the provision of benefits is key to a successful sale.
Workplace absence cost employers £11.6bn last year and is rising, according to the latest survey from the CBI. The cost to employers stems from paying the salaries of absent employees and the cost of overtime and temporary cover needed. While much absence is acknowledged to be for genuine reasons, over 75 per cent of companies suspect staff are calling in sick when they are not. According to the CBI, these unwarranted absences cost employers an additional £1.75bn last year.
Creating a working environment that employees do not want to abuse is one way of tackling the issue of staff taking the day off just because they feel like it. Employee benefits packages on many levels are there to boost staff morale and make them feel valued in the workplace.
But rehabilitation programmes as part of an employee benefits package are also a key part of getting genuinely ill staff back to work while also hopefully ensuring second thoughts when staff want to go off for no reason. They enable the employer to establish the reason for absence when illness is not the real cause and give them the opportunity to tackle those issues.
Axa head of corporate healthcare development Dudley Lusted says: “Employee absence issues are not exclusive to bigger companies. However, smaller companies do not recognise sickness absence as being such an issue. Absences tend to be lower in smaller companies than in bigger ones and that is down to the fact that everyone is known to each other and they can see how it would put upon their mates if they are off work.
“But that is at the short-term absence level where everyone tends to focus. Our interest is on long-term absence and that is no better or worse for a bigger or smaller company because it is down to the individual having something they cannot do anything about if they do not have insurance or are in a waiting list on the NHS.”
But many IFAs have not yet woken up to this opportunity and are still following the more traditional routes of selling pure income-protection and critical-illness schemes. Lusted feels that IFAs are missing a trick here.
He says: “A lot of benefits are there to attract people but not many help manage the business. But something that helps people get back to work will benefit the employee and employer.”
Lusted says the advantage of something like Axa's Back to Health tool – which pays commission although not as much as, say, a private medical insurance plan, lies in the fact that it is a rehabilitation-type scheme that applies to the whole workforce and could therefore net the IFA a similar income because commission is paid over a higher head count.
The bottom line for advisers, warns Lusted, is that the market is moving forward and IFAs who do not take these opportunities will find their business under threat.
The Government has opened the door to financial advice in the workplace with the Treasury announcement of a £150 allowance for independent financial advice in the workplace as a tax-free P11D benefit. The main reason behind the initiative is probably as much to do with boosting pension provision after the failure of stakeholder take-up. But if a door is open, the IFA can carry anything through it so the opportunities are there for as wide an advice programme as employees need or require.
According to Momentum Financial Services, 62 per cent of companies offer no financial advice to employees and only 27 per cent offer it to all employees. But it also reveals that while 13 per cent of employers already offer flexible benefit schemes, 64 per cent are actively thinking about implementing such a programme.
It is this growth in employer recognition of the importance of enabling employees to look to their financial protection that is also going to drive the market in the IFA's favour. Youatwork head of marketing Wendy Fleet says there is a market for smaller organisations which financially would not contemplate the budgets of a big plc but have a good idea of the kind of benefits they want to offer their employees.
She says: “If these employers have a good relationship with an IFA or are in the market for someone who can give them good sound advice around financial products for their employees, there is an opportunity to provide financial advice to employees through employer endorsement. Financial advice in the workplace is a very big area employers are starting to look at.”
Relationships is the key word when it comes to placing the IFA in the employee benefits arena. Fleet sees a market where even big organisations that had big budgets in the past and were prepared to spend money are now looking at more cost-effective alternatives to get to the same end.
The tools that providers are developing are largely geared to the idea of communicating benefits. Providers see IFAs as the ideal distribution channel to promote the benefits message and help employers communicate the benefits on offer to staff effectively and proactively.
Aegon Benefit Solutions managing director Andrew Morris says: “The days of the employee benefits consultants having the luxury of being able to play in that particular world have gone now, with developments such as software solutions which make things simpler and more straightforward for SME clients to have an employee benefits package. It has taken some of the science out of it.”
Morris sees the market most available as that for schemes of between 200 and 2,000 lives. “That is a big chunk of the marketplace and that is where employee benefits consultants are most vulnerable. Some do have clients in that size range but they are quite difficult for them to service and make money. IFAs are successful because of their specialising in relationships and now they have the tools at their disposal to compete quite significantly.”
PMI broker E-xcellent Health director Colin Boxall has reaped the benefits from a change in service offering from the bigger employee benefits consultants. He says: “Whereas traditionally the employee benefits consultants looked after the 200 to 500-man schemes, now, for whatever reason, many do not seem to be actively retaining them any more. Clients are not getting the service and advice they need, so when someone like myself pops up with a little bit of knowledge and can point out that their schemes are not being broked properly to get the best possible cost, it is easy to point out the mistakes and take over the client.”
As Boxall points out, any IFA offering such a service could get the rest of the employer and employees' financial business on the back of it. He says it is a simple matter of looking after the client and retaining them, which is something the bigger consultants tend to forget.
But there are also ways in which employee benefits consultants and IFAs can work together. An example of the trend to introductory relationships being executed in the intermediary market is being seen by Thomson's Benefit Consultants. Account manager Gary King explains: “It is still difficult for the smaller IFA to do employee benefits to a large degree and some are happy to look for someone who will not impinge on their own individual business but will complement it. We have this relationship with a number of IFAs. They let us go and talk to the clients on a certain level and we are careful to not to overstep that mark.”
As far as King is concerned, relationships take precedence in that it is important for his firm to respect and maintain the relationship with the IFA.
IFAs are at last being seen on all levels as integral to the employee benefits market and no longer the poor relation not able to compete. With employers keen to provide protection benefits and information for staff, providers eager to provide IFAs with the tools to communicate with employers and employee benefits consultants acknowledging the doors that IFAs can open for them, it seems remiss of the IFA to ignore those openings.