Without a doubt, stakeholder presents IFAs with a major challenge but also a great opportunity. Not the most earth-shattering of pronouncements, I grant you, but IFAs are going to have to take a step back and assess how much of a business opportunity they are willing to turn stakeholder into.
One of the first questions we as a profession should be asking ourselves is how valuable we think our time is. Whatever your attitude towards the Government's latest foray into financial product design, it is going to have an impact on IFA businesses one way or another.
IFA firms need to have a very clear view of what their market is, what their services are and how they are going to charge for them. It is essential to ensure that, whatever your approach to stakeholder, whether you go down the individual or corporate route, you are adequately remunerated for the work done. In some cases, that may mean having to offer stakeholder to some clients on an execution-only basis or even deciding not to offer stakeholder to certain clients full stop.
Offering individual stakeholder plans will mean competing head-on with the banks. This will need to include areas of business such as transfers and dealing with paid-up pensions.
Individual transfers to stakeholder will prove to be time-consuming and costly for the IFA but without offering much by way of benefits for the client in a lot of cases. Nevertheless, there will be a market demand for services in this area. If you are not prepared to pare down the advice and service you provide, then the individual stakeholder game is not one you should even contemplate playing.
The product providers are facing the very same dilemma. Standard Life had to take a hit up front in order to protect its existing pension book, realising it was in a “damned if you do and damned if you don't” situation. If it had not re-evaluated its product structures, it ran the risk of its existing customers walking out the door and straight into the arms of a provider that would. Or at the very least opting for a cheaper stakeholder-style charging structure on a product from the same provider.
Ultimately, it comes down to a value judgement. IFAs need to assess whether or not to offer transfers to existing clients at a loss or risk their clients being poached by rival advisers. These schemes may have to be run as a loss-leader in order to ensure future business streams and to build on the client relationship.
But it is not all doom and gloom. The corporate market is home turf for IFAs and it is here that the real opportunities lie, both for new schemes and for arranging transfers into stakeholder.
If an employer is already offering an occupational scheme or a GPP where they are contributing at least 3 per cent, then it may not be worth the hassle of revisiting for either the IFA or the employer, given that the employer may well already be exempt from stakeholder.
But employers will probably be keen to explore the opportunity stakeholder provides for them on their existing defined-benefit schemes. Anything that could potentially relieve the cost and administration burden of DB schemes will be welcomed with open arms.
I fully expect to see a lot of final salary schemes winding up, which will create a market for independent financial advice. This is not a time to shy away from thorny issues.