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The 1 per cent solution

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&#39 back-office

costs. Again, automation is the key to working together.

Providing data from the provider&#39s 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&#39s 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&#39 baggage and

a significant e-commerce capability are already emerging.

The prize for the long-term savings and protection industry is huge if we

can provide:

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&#39

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.

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