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Why compliance holds the key to auto-enrolment success

Auto-enrolment could present financial services with another pensions mis-selling scandal unless the advice opportunity is approached in the right way, says Mark Rogers of Clay Rogers and Partners. Click here to read how Clay Rogers has approached corporate advice.

Sing off the same hymn sheet

Auto-enrolment could present financial services with another pensions mis-selling scandal unless the advice opportunity is approached in the right way. Advisers need to get key areas such as compliance, pricing and employer education right first time if they are to succeed.

Auto-enrolment has brought Clay Rogers full circle because when we set up in 1995 our core business was occupational pension schemes. Our business idea was that we would grow and diversify the business by providing professional financial planning advice to the directors of our corporate clients. This proved very successful over the years and the individual financial planning side has now taken over as the main focus of our business.

However, our auto-enrolment proposition has been a natural progression of our ongoing corporate work.

Sing off the same hymn sheet

Auto-enrolment could present financial services with another pensions mis-selling scandal unless the advice opportunity is approached in the right way. Advisers need to get key areas such as compliance, pricing and employer education right first time if they are to succeed.

Auto-enrolment has brought Clay Rogers full circle because when we set up in 1995 our core business was occupational pension schemes. Our business idea was that we would grow and diversify the business by providing professional financial planning advice to the directors of our corporate clients. This proved very successful over the years and the individual financial planning side has now taken over as the main focus of our business.

However, our auto-enrolment proposition has been a natural progression of our ongoing corporate work.

Streamlining auto-enrolment

We have approached auto-enrolment in much the same way as we addressed the retail distribution review (RDR). We have worked on the basis that not all business is good business, solutions have to be streamlined and repeatable, and we have to deliver value.

We believe the value lies in relieving the client company of the burden of wading through its auto-enrolment decisions, and effectively becoming its pension manager.

The target market is owner-managed businesses and therefore most of our clients will have fewer than 250 employees, so will be staging from April 2014. We serve a few large employers, which are currently undergoing staging, and a few employers that have brought their staging dates forward.

We are currently staging a 600-employee solicitors practice, handling the whole process, including communications and pension scheme selection.

Compliance is vital

We have drawn clients’ attention to the Pensions Regulator’s (TPR) plan to fine employers of fewer than 250 employees up to £2,500 per day if they do not comply with their new duties on time.

TPR may also penalise third parties, such as advisers, if it believes they have contributed to the situation. We therefore need to send out a clear message about exactly what is required. Any problems need to be identified straight away.

Given that compliance is the jewel in the crown, we signed up to JargonFree Benefits at the outset. Its pensions programme is comprehensive, well presented and ticks all the right boxes. It enables us to offer clients a choice of compliance solution: via their own payroll system; via a product provider solution; or via a standalone solution through JargonFree.

If clients go it alone and think their payroll systems can do everything for them, they will do so against our advice. There are significant misconceptions in the corporate arena that payroll systems automatically provide a total solution. They may provide employer assessment, but not the full communications package.

Using a single input system to give the full communication package is imperative. This could be through a properly researched product provider system, but the JargonFree system is proven and leaves no stone unturned.

Workable charging model

It is imperative for advisers providing an auto-enrolment service to have a clearly defined remuneration model from the outset and communicate it to clients effectively.

Some providers do not accept existing schemes on the same commercial basis as the old ones and are increasing their charges. With the ongoing debates about charges in general and a pension charges cap, it is important to get that decision right. We believe the generally accepted rate of a reasonable charge is around 0.5%.

Comprehensive support

We have established four stages of the initial advice process, all of which are charged on a fixed fee basis, depending on complexity and numbers. They are:

  • an initial report describing the ‘roadmap to auto-enrolment compliance’; a full market analysis and recommendation report; a pre-auto-enrolment communication exercise, which may include presentations;
  • presentation preparation and the delivery of group and individual counselling.
  • We then offer an ongoing service covering corporate governance and a review of the original recommendations, charged for on an annual fixed fee or a monthly fixed fee per member.
  • We have set minimum fixed fees of £5,000 initial and £1,500 ongoing, although to date most of the fees have been considerably higher.

The results have ranged from making sure existing schemes are suitable as qualifying workplace schemes to tweaking eligibility dates to make it all work. We are also embracing the use of product providers from outside the usual life company stable and are fully embracing the National Employment Savings Trust.

Employers in the dark

The big challenge has been the lack of employer understanding about the auto-enrolment issues. The communication from the government and the industry as a whole has not been as targeted, clear and concise as it should have been. There are still many misunderstandings and a general complacency that everything will be all right.

There is a distinct possibility that many employers will leave everything to the last minute and it is important to address this situation early. If employers and clients will not engage at least six months before the staging date, we cannot act for them.

As with the RDR, if all the challenges of auto-enrolment are addressed with foresight and professionalism, it could be a big business opportunity. If proper solutions are not thought through, however, the price is not realistic and it could prove to be a big headache.

The advice profession needs to get auto-enrolment right. If approached in the wrong way, we may have another pension mis-selling scandal on our hands. If approached in the right way, it will contribute positively to the savings gap problem.

Clay Rogers & Partners’ auto-enrolment proposition

What are your charges?

Recommendations: £2,500

Implementation: £2,500

Ongoing: £1,500

Do your charges increase nearer to the charging date?

No. We will not take on clients within six months of their staging date.

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

Yes, as specifically negotiated with the client. Day rates for employee seminars start at about £1,000 per day, and for one-to-one advice up to £150 per session.

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

Whole package of employee benefits as required by the client.

How many auto-enrolment clients do you have?

About 130

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

75 employees

Mark Rogers is managing director of Clay Rogers & Partners

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