View more on these topics

Strike up the brand

An organisation that represents a large number of businesses or individuals decides to offer a pension scheme. The concept seems wonderful to the broker or life company involved. Unfortunately, the reality can be disappointing because few people understand what they are taking on.

The first thing to consider is why people join the organisation in the first place. In many cases, members gain a recognised status within their industry and sometimes a widely-known trademark.

They might join in order to unite with others or perhaps to campaign effectively. But joining to be able to buy a product is rare. This means brokers often overestimate the influence of associations in selling products and are subsequently surprised at how few members want to buy the association&#39s pension scheme.

The second problem is that most associations consist of a wide variety of members. Inevitably, if a broker offers one deal that fits all members, as most associations prefer, the better quality clients end up

cross-subsidising the others in order that everyone can benefit from the deal.

This allows other brokers to attract the better clients away so that, in most cases, the broker or life company ends up offering unprofitable terms to the smaller clients.

Affinity pension schemes can work if you are prepared to ring-fence the better quality clients and promise they will not be cross-subsidising the smaller policies. We have done this very successfully with pension schemes for the information technology and telecom industries. If you do not offer this assurance, you can expect the better clients to go elsewhere.

You also have to consider the association&#39s own interests. Obviously, they will want the products sold under their name to be better than those normally available on the market. Some associations offer better cost-cutting opportunities than others – the best will have members who can keep communications costs down by using the internet, salaries (and therefore premiums) will be high and there will be a large proportion of younger employees. These associations deserve the best terms.

However, many brokers and life companies – they know who they are – do not give enough thought to this and embarrass themselves by offering mediocre terms. Some prey on associations&#39 naiveties by offering them deals which are worse than those available on the open market. This only goes to show how naive these brokers are themselves in abusing associations&#39 trust, as they are certain to be fired when members point out the poor terms.

In order to price this type of contract, you must decide whether you are going to offer individual meetings with members, which may be impossible for smaller brokers, or deal by post. In the latter case, you need to bring the price well below the standard stakeholder costs of 1 per cent. I suggest the annual management charge should be 0.85 per cent at most.

My advice to any broker considering entering this market is to think very carefully. It involves a lot of work and investment but the margins have to be extremely thin. We invested over £100,000 last year in order to provide the service that affinity clients expect, including guarantees and freephone numbers. As yet, we have seen little return.

Relying on the association&#39s brand name alone is insufficient. A market-leading product with low charges is essential. Consider the individual&#39s point of view – they see the association&#39s brand but they also examine the deal you offer and the quality of your marketing.

For example, Tesco once sold pensions. Despite its established brand, the amount of money its managed fund received in two-and-a-half years appears to be roughly equal to the amount we process on one good day.

Similarly, if you cannot offer association members a better deal than they could find elsewhere, you cannot expect to make a success of affinity pension schemes.

Recommended

PIA to issue TEP guidance

The PIA has finally agreed to issue guidance to life offices requesting they inform endowment customers looking to surrender their policy of the alternative options.Following months of pressure from market makers and MPs, the PIA said this week it will request life offices inform endowment holders of the possibility of selling their policy on the […]

Protect and survive

In a recent survey commissioned by L&G and conducted by SME Continental Research, 99 per cent of companies put people at the top of their list as the most important factor in running a successful company. This is welcome news and provides focus on why businesses, particularly small and medium sized enterprises (SMEs), should take […]

Nationwide snubs multi-ties to stick with its own plans

Nationwide chief executive Brian Davis says the building society will never go multi-tied and sell other company&#39s pro-ducts through its branch network because there is no need to do so. In a clear snub to rival providers, Davis says that as Nationwide&#39s products are “trusted and up to standard”, there is no point having multi-ties […]

Stop smoking to save on mortgage

Borrowers who stop smoking and put the cash saved into their mortgage could pay off the loan more than 13 years earlier, according to Yorkshire Bank. With No Smoking Day set for March 14, Yorkshire has calculated that a 20-a-day smoker could pay off an extra £30 a week into a flexible mortgage if they […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com