Friends Provident makes no apology for intending to be one of a small
number of leading stakeholder providers.
Having aggressively re-engineered our business to establish a platform for
stake-holder, we intend to capitalise on this advantage. However, this
market is challenging and brings with it the need for providers to approach
it with a completely fresh mindset.
The conventions of an established mainframe-supported, labour-intensive,
paper-pushing set of processes to maintain occupational pensions have to go
in the face of a Government-led vehicle driven by price.
All this is overshadowed by a nervous market where no one wants to see any
hint of misselling.
The solution has to be automation. We need to speed up processing
dramatically without human intervention. Just as critically, product
providers need to work with IFAs to help reduce advisers' back-office
costs. Again, automation is the key to working together.
Providing data from the provider's database for the IFA to download into
his back-office systems can save time and costs. Making pre-populated
application forms available can save the IFA time and ensure greater
accuracy of information. Access through the internet will ensure the IFA
saves time and can get quotes whenever he wants. One-stop processing with
no queues or hand-offs is vital to control the IFA's back-office costs and
enable him to work more efficiently.
The solutions developed by Friends Provident for stakeholder pensions
provide the platform to extend this automation into other product lines.
Traditional insurance providers must embrace change or lose market share
because new competitors with strong brands, no legacy systems' baggage and
a significant e-commerce capability are already emerging.
The prize for the long-term savings and protection industry is huge if we
Excellent value plans.
Simple, fair and transparent charging structures.
A highly flexible and technology-enabled service.
The restoration of public confidence is vital to this success. Is there
potential for misselling with stakeholder? The cynic might say: “No. There
will be no selling because there is no payment for advice.”
However, the reality is that much of the IFA and direct market is going to
participate in the stakeholder market.
Margins have already been cut as a result of regulatory update 64, which
states that problems will be avoided if IFAs recommend contracts which can
be converted to stakeholder without “material disadvantage”.
The net effect of RU64 is that any defined-contribution pension
arrangement with capital or initial units, or with early termination
charges, will not satisfy the guidance.
However, employers paying at least 3 per cent into group personal pensions
are exempt from stakeholder and this point may enable more distributors to
remain in or enter the GPP market.
The greater risk is prob-ably for misbuying as opposed to misselling. Our
ind- ustry is all too well aware of the complexities of selling and all
parties are trying to give root to valid and meaningful decision trees.
The impact of working in a 1 per cent environment, inclusive of
distribution costs, is real and significant. It is this point which is
forcing distributors to rethink how they go to market with stakeholder.
Conventional delivery of packaged pension plans simply cannot be afforded
at1 per cent.
What is clear is that 1 per cent will not stop with stakeholder. This
pricing model is already having an impact on other pension products and is
moving towards endowments and beyond.
The advent of stakeholder will inevitably exert a downward pressure over
time on commission earnings on both sides of the industry. Stakeholder is
changing the entire face of the profit profile, with margins being reduced
and revenues deferred for long periods.
Many IFAs will need help to make the transition to this new earnings'
environment. The good health of IFAs is critical to product providers and
the market as a whole.
The ability to succeed in the stakeholder environment will clearly depend
on strong cash flow and capital to support and grow the business. The
critical importance of retaining business over long periods will bring
customer-retention strategies to the fore.
But a number of good opportunities do exist for those wanting to take up
the stakeholder challenge. Business written through employers and affinity
groups shows it is clearly through these situations the greatest economies
can be achieved in the sales process.
New technologies will open new routes to the market for IFAs as much as
providers. This will benefit those who are fleet of foot and willing to
capitalise on e-commerce opportunities.