Some firms have asked us what they should be doing about auto-enrolment. If the first staging date was nearly 18 months ago why are advisers only thinking about it now?
Well, the vast majority of small IFAs are not employee benefits advisers working with the largest firms with the earliest staging dates.
However, the average IFA is considerably more likely to work with firms with 50 employees or fewer, the business owners, or their accountants.
Research indicated that most firms seeking guidance on their auto-enrolment obligations would consult their accountants. But we know that only 400 accountancy firms are authorised to give financial advice, which means that the vast majority of accountants will therefore need to turn to their professional connections for support. Accountants are also required to undertake due diligence on firms offering restricted advice, which provides even more of an opportunity for IFAs familiar with working with accountancy firms and their clients.
But the rules are complex. Employers will require significant help to ensure compliance with all the rules, and while auto-enrolment represents a significant opportunity, I am not at all convinced that it is right for all firms to be involved.
Some IFAs see this as a relatively easy way to open conversations with investors who would never otherwise have invested in pensions or sought financial advice. This approach takes the long view and assumes that employees will be drawn into longer-term and more profitable advice relationships as funds build and their circumstances change over time.
However, for many advisers this approach flows in completely the opposite direction to their pre-RDR direction of travel. Many (most?) firms developed their proposition to deliver higher value services to higher net worth clients, not lower touch services to low net worth clients. The typical percentage-based fee structure works for clients with portfolios of invested assets and doesn’t work for clients with only their brand new auto-enrolment pension account to their name.
But any of your existing employed clients could be auto-enrolled into a new scheme, in which case you must know enough to be able to advise your clients on staying in or opting out, which funds would be most suitable, and the impact on their existing arrangements.
My own feeling is that unless you are very knowledgeable on the subject, maintain your own firm’s focus and leave advising businesses on scheme implementation to those firms with the systems, processes and fee structures to advise the firms and scheme members cost-effectively.