2016 and the huge increase in numbers of small firms staging for auto enrolment is now not far away. Will the market remain profitable enough for advisers to continue participating?
There was encouraging news in a recent survey of advisers carried out by Defaqto on behalf of NOW: Pensions. Over 80% of the 248 respondents said they will continue advising clients on auto enrolment in 2016. It seems that they have found an efficient way of supporting small businesses through the auto enrolment maze.
Keep it simple
Of those survey respondents who will not be advising after 2015, only 8% thought there would not be enough demand for advice. The main concern was that there was too much admin (42%) and it will take up too much time (35%).
Of course those advisers may have legitimately considered that the short and long term marginal return for their businesses is better spent in other areas. However, it would be a shame if they have ruled themselves out through not streamlining their existing group pension model to accommodate the auto enrolment needs of small businesses.
The vast majority of SMEs and micro employers will not want to pay “normal” corporate advice fees. I suspect most of the advisers making a success of auto enrolment from now on will be charging very modest, but profitable, fees and looking for advice and income opportunities over a longer time horizon.
The adviser admin costs and time spent setting up small businesses and their employees with appropriate auto enrolment solutions need not be prohibitive. The keys to delivering good outcomes to the masses are:
- Pension providers with guaranteed acceptance – advisers will not have the time to research the market.
- Scheme application process that takes minutes.
- A pension that works seamlessly with payroll, performs all communications and holds records – at very low/nil charge to the employer.
- Simple, relatively low risk default investment fund solutions that will encourage unsophisticated investors to save – advisers will not have the time to discuss multiple investment funds with employees or employers.
The reality is that there are few pension providers delivering all the elements outlined above which means that advisers can work with, maybe, one or two of them and get to know their propositions and systems inside out. It also means advisers can operate efficiently, guiding their small business clients through auto enrolment set up and into business as usual. At least to start with, the relationship with new auto enrolment clients will probably be transactional in nature. That may be counter intuitive post RDR, but it works.
Advisers currently writing lots of auto enrolment business are generally building their models around these criteria. They are also finding that accountants are becoming a rich vein of new business.
Don’t give up on auto enrolment. It provides your business with a unique opportunity to gather new clients – not least high net worth small business owners.
Next time I will outline some ideas for switching on auto enrolment business, particularly from accountants.
Martin Olive, Strategic Partnership Manager, NOW: Pensions
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