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Micro employers can be big business for small IFAs

Automatic enrolment gives advisers both small and large the chance to enter the corporate world almost by default. As a small one-man firm, I see it as a massive potential business opportunity. However, it also carries a huge potential risk. Gareth Reynolds of MGS Financial reveals how he felt the fear and did it anyway.

Taking the risk

With well-publicised fines for non-compliance, it is essential that each and every process is thorough to avoid any lapses that could cost the client firm and the reputation of the adviser.

I have asked myself if advising in the auto-enrolment arena is worth this risk, but such is the opportunity for smaller firms to enter the corporate arena normally dominated by larger or employee benefits firms that I have concluded it is worth it.

However, I will limit my exposure to the sector to ensure I can manage clients’ expectations and cope with the likely demand next year’s staging dates will present.

In reality, the size of my firm may limit my exposure. Larger enterprises will no doubt seek out firms of larger stature, but smaller firms with fewer employees may find it more difficult to find advisers willing to help them. I am looking to help these smaller firms.

Taking the risk

With well-publicised fines for non-compliance, it is essential that each and every process is thorough to avoid any lapses that could cost the client firm and the reputation of the adviser.

I have asked myself if advising in the auto-enrolment arena is worth this risk, but such is the opportunity for smaller firms to enter the corporate arena normally dominated by larger or employee benefits firms that I have concluded it is worth it.

However, I will limit my exposure to the sector to ensure I can manage clients’ expectations and cope with the likely demand next year’s staging dates will present.

In reality, the size of my firm may limit my exposure. Larger enterprises will no doubt seek out firms of larger stature, but smaller firms with fewer employees may find it more difficult to find advisers willing to help them. I am looking to help these smaller firms.

Outsourcing

I have thought about whether or not I should outsource auto-enrolment services, but it would not sit well with me to tell an established client that another IFA firm would be helping them with auto-enrolment.

Therefore, I decided to enlist help and have found that there is a raft of options available from providers and advisers in terms of middleware and assistance in shaping a proposition for target businesses.

Indeed, a group of IFAs is putting together a proposition to help implement advice services, assisting with fee structures, middleware and ongoing governance, which will make it easier for advisers looking to move into corporate advice.

Middleware

The question of which middleware system to use is a tough one. There is a wide range available from in-house provider software systems to Steve Bee’s Jargonfree Benefits.

However, with my target firm being on the smaller side, I can effectively manage initial and ongoing needs using a pension provider’s middleware system at no cost. This will ensure I can keep the costs manageable for the employer and the business profitable for me.

For example, Scottish Life offers an auto-enrolment service that enables me to review existing schemes, assess a company workforce and produce a comprehensive comparison to model different design services and demonstrate the impact on the employer’s business and workforce to find the right auto-enrolment solution for them.

However, not all micro firms will fit with a product provider and they may require a more low-cost option, such as the National Employment Savings Trust or NOW: Pensions, which do not provide middleware.

This goes back to managing expectations and the risk of advisers overexposing their firms because the lack of middleware would increase their workload and may require a different fee structure.

Compliance and governance

In reality, the selected pension provider, while important, is not as important as adhering to the compliance requirements.

As has been said in nearly every blog I have read about the subject, auto-enrolment is not about pensions: it is about compliance and ongoing governance.

This will be beyond most smaller firms as they concentrate on running their own businesses while ensuring they can meet the new regulations and the demand for employer pension contributions they have not offered previously.

The smaller firms need advisers’ help more than most because they will not have access to large advice practices or human resources departments. These firms are the most vulnerable to compliance issues when implementing auto-enrolment.

As I have discovered, when contacting companies with 20 to 50 employees, there is still so much inertia in acting that these employers may soon find themselves panic buying advice at the last minute.

MGS Financial's auto-enrolment proposition

What are your charges:

Recommendations: Between £1,000 and £2,500, depending on scheme size and complexity.

Implementation: £20 per employee, subject to a minimum of £600.

Ongoing: £100 per member, subject to £1,200 per annum minimum.

Do your charges increase closer to the staging date?

Depends on the scheme size and whether employers have done any groundwork themselves. If starting from scratch, then yes.

Do you take any charges from employee contributions?

No

Do you charge for services, such as employee seminars or one-to-one advice?

Not if the employer engages me on an ongoing basis, otherwise an ad hoc fee would be charged.

Do you offer any non-pension products as part of an employee benefits package?

Yes, group protection services are also offered to employers.

Do you offer advice to individual employees?

Yes, if the employer engages on an ongoing basis, I am open to discuss an employee’s individual needs as part of the employee clinics/review. Any ongoing work would be based on an individual basis with the employee, separate from the employer agreement. If no ongoing agreement is in place with an employer, any interaction with employees is based on an ad hoc charge to be agreed.

How many auto-enrolment employer clients do you have?

Two so far.

What is the average membership of the schemes you advise on?

25

Gareth Reynolds is principal of MGS Financial.

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