Some things are not as they seem:
A firefly is not a fly, it is a beetle
A peanut is not a nut, it is a legume
A shooting star is not a star, it is a meteorite
A banana tree is not a tree, it is a herb
An English horn is not English and it is not a horn, it is a French alto oboe
In a similar vein, the advent of auto-enrolment has heralded much hype surrounding the assumed opportunity for financial advisers in the corporate pensions arena. With the implementation of rules forcing employers to auto-enrol employees into occupational pension schemes, the vision is of thousands of firms being called to duty over the next five years, many needing assistance with the practicalities and peculiarities of the new legal requirements. Opportunities for advisers, we are told, should be vast. But all is not as it seems.
There is a whole host of issues the regulator has thrown up that on paper represents a real opportunity for advisers to help employers steer a safe – and legal – path through auto-enrolment. Questions concerning eligibility, staging dates and contribution rules cause uncertainty. Furthermore, stringent guidelines spanning objectives, affordability, risk management and, in particular, default fund suitability, create a perfect storm that only true advice can quell.
Yet the flood of calls to advisers has not materialised and there remains a high degree of employer resistance to full engagement.
So what is holding employers back? Mostly it’s cost. We can all agree that, given the economic maelstrom, auto-enrolment could not come at a worse time for employers. Compelled to act, most are worried only about doing the minimum to be compliant, which represents a challenge for advisers where the time-to-charges ratio will not add up. It follows that auto-enrolment will not necessarily offer the business opportunities many were anticipating.
Margins are tight. The fiscal levers previously available, such as freezing salaries, have already been fully extended. Were we operating in an environment where employers are giving pay rises, there would be some room for manoeuvre – 1-2 per cent instead of 3 per cent. But we are not, and there isn’t. Contributions will come directly from employers’ pockets, which is all the more alarming when we consider Nest is effectively the same in cost terms as a 3 per cent hike in employer’s national insurance charge. The pots just are not there. For advisers, demand for cashflow modelling to help employers get through it may represent the most realistic opportunity.
Phil Wickenden is the founder of So Here’s The Plan
All quotes have been taken from interviews with QCF 4 qualified financial advisers from fee charging businesses