Advisers are constantly being told working with small to medium-sized enterprises is where the action is, particularly with auto-enrolment just around the corner. But where is the money in it? And is it more hassle than it is worth?
It is one thing advising a high-net-worth client, but quite another advising his or her workforce. Surely the way to deal with it is through the National Employment Savings Trust (Nest): it is not a job for a qualified adviser and not a good use of their precious time.
Maybe that is true: it is certainly a widely held view, but it is likely the reality of what it will be like to run an advice business in the post-retail distribution review (RDR) world has not started to sink in yet.
The RDR is just the first rock to be thrown into the previously calm pond adviser businesses grew up in. This pond is not going to return to normal even if the RDR waves gradually diminish over time.
Adviser charging opt-out
On the pension front, two more rocks have already been thrown into the pond. The first is the idea that employees will be able to opt out of the so-called adviser charging, which is significant.
The right to opt out leaves adviser charging dead in the water: it seems improbable in the extreme that personal finance writers and other consumer lobbyists will not make the right to opt out of paying an employer’s charges a widely known fact among those about to be auto-enrolled. And it is right for them to do so.
Even more significant is the announcement that the government has finally decided the pot-follows-member route is the way to go now that auto-enrolment is with us.
This is brought about by the idea that small pots left behind in pension schemes as people get auto-enrolled and change jobs is an inefficient way of saving. Anyone with a small pension pot, under £10,000, will have it follow them from job to job as they move on with their career.
This reminds me of the original idea for personal pensions touted in the mid-1980s. To start with, they were called personal portable pensions. The idea was that employees would carry them around from job to job as they progressed in their careers: we have now come full circle.
Sea change in company pension assets
But consider this: if employees with pots under £10,000 carry those pots with them as they change jobs, most of those auto-enrolled will end up doing so. It will take many years at the low early auto-enrolment levels of contributions to make up a fund of £10,000 or more, so it will become the norm for people to carry their portable pension pots with them.
Having carried such pots around while they grow, why would anyone in their right mind be happy to simply leave the lot with their latest employer and start building up another pot?
By that stage, individuals will have become attached to their pension pots: they will want to be more hands-on with the investment decisions and other issues affecting them.
What’s about to happen is nothing less than a sea change in attitude where we will see company pension assets permanently under the control of individual employees.
It is even possible that workplace pension schemes in the near future will become nothing more than feeder accounts for an individual’s portable personal pension pot. I do not expect many people wanting to invest their accrued pensions in their employers’ schemes unless there is a clear and demonstrable advantage in doing so. Thus, we will see a place created where accrued workplace pensions can be parked outside of an employer’s scheme.
If I am right, then it is going to be a different world to the one we have come from: a future where individual advice on accrued workplace pensions may become necessary every time someone changes jobs.
Helping employers manage schemes
But where does that leave employers? The realities of running auto-enrolment and the necessity of demonstrating compliance with the regulations will not go away. They will be saddled with the day-to-day tasks of managing pension schemes and the onerous processes that go with them.
It will not be about which pension scheme to choose or what type of funds that scheme should be invested in anymore: it will be about work and process.
This is where savvy post-RDR adviser firms can flourish: they need to step in to help employers manage these processes and quite simply become part of the furniture in the workplace.
An advice firm seen to be part of the everyday reality of the workplace will benefit from this likely shift from corporate to individual ownership of company pension funds.
Steve Bee is chief executive of Jargonfree Benefits