As both RDR and auto-enrolment steadily approach, transformation across the employee benefits market will not be limited to regulatory shifts. As the market begins to adapt and adjust to these changes, the roles of advisers and providers will continue to evolve.
Already significant shifts can be seen across the market, with acquisitions, mergers and advisory business models transforming. Some advisers are beginning to look more like providers, and some providers beginning to look more like advisers. In light of these changes it is becoming essential that all parties demonstrate the value they add – and make no mistake there is a significant amount of value to be added.
To misquote Kipling, in this brave new world it is imperative that no man is paid for merely existing but both creates and makes clear his value. Whether consultancy charges, fees or a mixture are the preferred method of paying for advice, this is just an initial foray into the world of employee benefits. Total reward, flex, corporate wrap, bespoke and dedicated operating models are just a few potential services which sit outside of a basic pensions offering. If there is genuine demand in the market, however, providers must establish the price point at which they are able and willing to supply.
Secondly, this innovation, which starts at the top, will ultimately flow downwards through the market. There are various examples of this across other industries. Taking the automotive industry as an example, innovations such as seatbelts and electric windows started life as luxuries, and yet are now standard features. Looking back to the employee benefits market; this innovation will drive the need for all parties to deliver this evolving proposition in a way that the customer can clearly understand the value of.
How best to do this then? Increasingly, there appears to be demand for these extra services to be absorbed into the annual management charge (AMC). The fundamental issue with this is that the group pensions market is not a high margin game. If the AMC is required to cover more services with additional inherent costs, ultimately this will lead to higher charges.
This does however appear to be the approach taken by many providers. When confronted with an additional service, there magically appears to be room in the AMC to facilitate this. Either these providers have much thicker margins than the norm, or they are being particularly heroic on their financial assumptions. While this does not impact the customer initially, long term the question comes down to sustainability.
This leads to my preferred solution – unbundled, bespoke, or menu-based, depending on whatever your preferred terminology is. What it boils down to is an ability for customers, be it the employer or employee, to layer on additional services with clarity as to the incremental cost of them. This then makes the conversation that may then be required to fully communicate that value that much easier.
What this really means is choice. Not in the sense of an endless series of options, but the ability to take simple individual decisions on individual components of your offering. Do I get value for money for this additional functionality or is it a bit of a luxury item? In a market where the overall employee benefits package is increasingly becoming more important than the basic salary, some of these luxuries may actually represent good value as in the short term they act as differentiators, and in the long term will become hygiene.
Where does this leave us? As well as working for a provider, I am an end customer for a lot of these tools and services, and the pioneering market we are going to be thrust into post-2012 excites me. All I ask is that they are conveyed to me simply and clearly to allow me to tailor my offering to best meet my needs.