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Will it be a soft landing for stakeholder?

Around 40 pension providers will be on the starting line in the stakeholder race following acceptance of their entries by Opra.

The amended stakeholder regulations came from the Government at the very last moment but held little to delay preparations for the launch.

There is little margin for error in the regime imposed on providers and intermediaries, who know they need to achieve efficiency and economies of scale to survive.

The stakes are high and, in the competitive market that stakeholder will bring, there are bound to be casualties.

It is a widely held view that stakeholder will herald a further wave of consolidation in the industry.

The most drastic scenario would see providers being whittled down to little more than a handful.

In the words of Axa Sun Life marketing manager Steve Muir: “Stakeholder may act as a catalyst for further rationalisation in the industry.”

Unsurprisingly, no providers are prepared to admit to any problems in their stakeholder preparations. However, IFAs are less than convinced about the readiness of providers, including some of the main players.

Berkeley Independent head of marketing Sally Reeves says while many providers have a product that is fundamentally sound and conceptually innovative, she doubts whether they are ready to run.

Although the providers have been courting her network, she says the presentations and demonstrations showed there was considerable work left to be done. She believes the crucial issue is back-office admin systems.

DBS spokeswoman Sue Lewis says: “Some providers are as ready as they can be, others are conspicuous by their silence.”

For stakeholder to be an immediate success from launch, two issues are identified as critical – admin and marketing. The emphasis between the two varies according to each provider&#39s confidence in its admin and technological readiness.

The template set down by the Government is so prescriptive that there is little difference in the stakeholder products being offered, according to Scottish Life head of communications Alasdair Buchanan. It is in the admin that crucial differences between providers will become apparent.

CIS communications manager Russ Brady says stakeholder, with its tight charging cap, has put the whole admin process under the microscope.

For many providers, the technology used will be new.

But Friends Provident head of company pensions Julian Webb says: “The launch of stakeholder is not the big bang for us, it is more of a natural evolution of the new systems we put in place a few years ago.”

Given the “pile &#39em high, sell &#39em cheap” mentality ushered in by stakeholder, it is not surprising to see providers stressing marketing as another key issue alongside operational efficiency and user-friendliness.

Muir and Webb believe awareness is key to stakeholder sales. Like the rest of the industry, they await the results of the Government advertising campaign.

Marketing is one of the areas to come under the constraints of stakeholder&#39s tight charging regime. Providers have been coming up with innovative solutions to overcome some of the constraints. For example, Axa will market stakeholder to employees of IFAs&#39 corporate clients. In effect, IFAs will be paying Axa to market its own product. This is to stop falling foul of the rules but IFAs will be compensated with commission.

In terms of technology, Financial Technology Research Centre director Ian McKenna says providers should be able to offer automated systems for processing new business which can import information from emplo-yer payrolls and be able to cope with one-off payments. There should also be a system to monitor expected payments. In addition, IFAs and employers should be provided with access to all relevant parts of the provider&#39s system.

McKenna says: “I would be very surprised if everyone has got all they need in place. Most resources will be directed towards new business. Some problems could become apparent quite quic-kly while others will take longer to surface.”

Some providers may only have a semblance of back-office preparation at launch. McKenna thinks there has been a lot of use of “smoke and mirrors” to give the impression of readiness.

Buchanan says: “Only after April 6 will IFAs be able to see which providers&#39 systems actually work. Some might look good, with a user-friendly and flexible front end, but it is the back office and mainframe that will count.”

There comes a point when administrative readiness and marketing converge, particularly for those providers for which IFAs are the primary distribution channel.

Webb says: “Providers need to be well placed in the eyes of IFAs and this means being fully automated and efficient.”

He believes the corporate stakeholder market will be dominated by IFAs and that that is where the value is.

Scottish Equitable has piloted its stakeholder technology and has worked closely with IFAs to avoid teething problems.

Yet, however well prepared providers are, there is still one area that IFAs will find difficult.

According to Reeves, providers have all taken differing approaches to remuneration, leaving IFAs in the position of having to fill out very different paperwork.

She says: “This makes it difficult for IFAs to turn work around effectively and profitably. There is a cascading of complexity coming down from the providers.”

With-profits will be the one area of differentiation between providers in terms of product design.

So far, three companies have announced a with-profits stakeholder – CIS, Standard Life and Norwich Union. Other providers will be holding a watching brief.

Some companies say they are confused about how it is possible to reconcile with-profits and stakeholder within the rules, for example, on asset separation. ScotEq says it is in discussion with the FSA and DSS about the requirements before it considers launching a with-profits offering of its own.

Providers will be watching the first few weeks of stakeholder avidly and with trepidation. No one wants to be left with egg on their face after high-profile problems.


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