Consultants need to harness the power of technology to support their clients as they enter the auto-enrolment crunch, writes Henry Tapper
Reading Charlotte Moore’s excellent article Investment consultants: are they worth the fees?, I was struck by the postscript “a number of consultants were contacted to respond this article but all declined”. I found myself asking “why’s that?
Maybe the answer’s in Ian Burton’s observation that “investment consultants are very vocal about ensuring investment managers are open and transparent, yet they are not willing to apply the same principles to their own recommendations”.
One of the key themes of the DWP’s “further measures for savers” is transparency - both in terms of fees and in terms of services offered. In this article I call on investment consultants to stand up and be counted!
If investment consultants are to be relevant to the new world of workplace pensions, then they need to find a new way to publish the research that they produce.
There are still over 1.2m employers awaiting staging of auto-enrolment.
Traditional advisers barely rank above payroll and Google as sources of expert information
Recent research commissioned for NOW: Pensions suggest that the majority of expectant employers have yet to decide on the workplace pension they will use. Those that have given the matter some thought are mostly unsure as to where to go to get advice. A large number expect help from accountants, traditional advisers barely rank above payroll and Google as sources of expert information.
Clearly there is a need for investment consulting but to suppose it will be delivered in traditional ways is to ignore commercial reality. Expert research on funds, fund managers and platform providers is ripe for democratisation. Fund and platform analysts must be prepared to be accountable for their views in the public domain.
Welcome to pensions 2.0
This may provide a culture shock to many investment consultants but “heh! - welcome to pensions 2.0!”
If investment consultants are to be worth their fees, they are going to have to become relevant to a wider market, adopt new technology to distribute information and accept that information is now free. The value of their work will be in its application to the problems faced by clients.
If anyone is in doubt that this should happen, they should look no further than the “Choose a Pension” Service within Pension Playpen. The service publishes investment rankings on the default funds of all the major workplace providers.
Delivering quality consulting, transparently, needn’t be prohibitively expensive
These include the bespoke defaults of NEST and NOW, the target date funds within Blue-Sky and Smarter Pensions, the various diversified growth funds within the defaults of L&G, Standard Life and Aviva and the more traditional lifestyle products of other insurers and trusts.
The cost of offering this service online and on a self-service basis is around 10% of a traditional selection approach. Delivering quality consulting, transparently, needn’t be prohibitively expensive. Sold by the gross, such a service can even be profitable!
There is an ”advice vacuum” for employers wishing to select an investment product
As the spikes in those staging ratchet up, so the number of consultants offering pensions advice diminishes. Those IFAs who have continued since the Retail Distribution Review are now concentrating on wealth management or on providing operational middleware. There is an ”advice vacuum” for employers wishing to select an investment product for their staff’s savings.
The Pensions Regulator is concerned about this.
The minimum standards for qualifying workplace pension schemes and the governance requirements for Independent Governance Committees and occupational trustees make advising on “what makes for good”, a whole lot easier. The time is ripe for investment consultants to stand up and be counted.
Let’s hope more of them do!
Henry Tapper is a director of First Actuarial, an actuarial consultancy