The switch of responsibility for retirement from the employer to the individual is arguably the biggest opportunity in financial services. Leaving that opportunity to the big boys is simply not an option says Punter Southall Aspire chief executive Steve Butler.
Put together a proposition that combines master trust, Isa, general investment account, payroll lending, voluntary cashback deals, a Nutmeg-style discounted wealth manager and a dashboard aggregation service, and you are looking at a service that ticks off most of the needs of the millennial worker. Build it on your own bespoke platform, which can offer below-market rates on investment administration, and you are looking at a proposition that should make employers sit up and take notice.
Most if not all of these elements will come to market later this quarter in Punter Southall’s new workplace offering, called My Aspire, the brainchild of Punter Southall Aspire managing director Steve Butler.
Butler sees the launch as a direct challenge to the big EBCs and life offices, but argues his firm is the only mid-tier organisation serious about competing in this potentially lucrative market.
Butler says: “We have the switch from DB to DC and the switch of the responsibility from the employer to the individual. It needs a significant change in the way that the industry engages. Who can address the problem? The life offices are generally slow to change and have all these legacy problems which make it hard for them to change, though we see Standard Life and Legal & General with a very clear strategy of owning the entire chain. But someone else needs to step in and deliver the solution.
“I can see the global consultants, Mercer, Willis Towers Watson and Aon, stepping up to the challenge. It is obvious that they should. But in the mid tier I can see most of my contemporaries saying ‘ we are independent and we are here to advise on an independent basis on what is available in the market’. I am one of the few mid-tier consultants who is saying ‘I am not going to let this whole transformation of the market end up in the hands of the big global consultants. I am going to invest and build something to compete with those guys’.”
Butler has persuaded Punter Southall to back his vision for the project, even though it will be a long time in delivering revenue.
“Most businesses are very one-to-three year focused in their planning. What is required here is a much more strategic view, a business that is brave enough to say we are not going to chase the margin over the next 1 to 3 years but we are going to attempt to solve the issues that we have in the industry. It means putting our profitability on hold for a number of years.”
Butler believes his own experience in both technology and investment consulting gives him a unique perspective for building a proposition for the emerging DC investor. His last job in a provider was with Scottish Widows 15 years ago. “I then set up my own technology business and have also built an investment research business called Camradata, which sits inside Punter Southall Group.”
The core of the proposition will be a pension master trust, but it is the behavioural tools wrapped around it that will make the difference. That means not just creating a great user experience but also tying in propositions that will give individuals enough spare cash to be able to put some away.
“If you are a 22-year-old starting work and your employer says you have been also in rolled into a pension and you are contributing 2 per cent of your salary but you should be paying in more, the first thing that 22-year-old will say is ‘I’ve got no more money to save’. So you have got to solve that problem first. There are two things we can do there. Firstly a mechanism to get debt cheaper. So I am working with partners to do payroll lending so they will get an interest rate of 5 per cent, not 12 per cent,” says Butler.
The second element is partnering with voluntary benefit companies where staff can be given cashback cards for shopping and other spending that generates cash that goes directly back onto the platform.
“You do your shopping, get £50 back onto the platform and you can now choose to pay that into your bank account or into your pension. So when the millennial says I don’t have any more money you give them mechanisms to create that money,” says Butler.
Financial education and engagement with the platform will be essential. This is where Butler believes Punter Southall’s purchase of Future Kings, a digital communications business, will come into play.
“We have kept Future Kings separate from the rest of the business, so they are all in Bristol in their Hawaiian shirts and beards,” he jokes, while praising the specific knowledge held within the business.
“There is a lot of science to getting people to come back, and creating habits and driving them to do things. I am not saying we are going to crack this on day one, but you need that sort of thinking in your development process,” he says. He cites an EY survey that predicts that by 2020, 80 per cent of the information consumed on the internet will be video.
“The traditional pension consultant way of doing a six page letter and a 32 page brochure is not going to work. So it has to be 90-second videos on lots of different things,” he adds.
Butler says the proposition will have a simple range of investment options, rather than the thousands of funds offered by some platforms.
“We have seen businesses like Nutmeg, which you might describe as discounted wealth management. That thinking needs to be applied into this space and that is exactly what we are doing. We will see a culmination of all of these things in a technology platform that is all available on an app and that has a roadmap for technology development that continues in the future,” says Butler.
The final piece of the jigsaw is the aggregation of the individual’s data into a single portal with a single sign-on. “All of us have little pots of money all over the place. So a dashboard that gives a personal view of your finest finances is integral. Even the value of your house needs to be pulled into this dashboard so that you can see what you’ve got,” he says.
So why are current aggregation services available on the market not achieving better cut through with and consumers? Butler is complimentary about the opposition, but says propositions need to go further.
“What I see is some good pockets of innovation, but it all needs to be stitched together into one proposition,” says Butler. “Aon’s Bigblue is built on (aggregation technology provider) Sammedia. Any consultant can buy Sammedia and replicate Bigblue in six months. I think it is great, but I think it is a part of the whole story. I have a technology team and we are taking elements of what they have got and building it into our technology, sitting on our servers rather than out of the box sitting on their servers. To the outside world it probably makes no difference. But to me it makes a big difference because I am in control of the development roadmap of my product.”
If high levels of engagement are achieved, products like My Aspire will become influential brokers.
“If we look far ahead and I’ve got a large group of members logging into the system on a regular basis, I am now in a position to become very influential in terms of what they do and what they buy. So I see the broadening of the platform over time to become beyond pensions, Isas and general investment account into the territory occupied by Moneysupermarket.
“And a lot of people employers may not want to move the pension, because it is a lot of work, but they may just want to buy into the technology platform. So it could sit on top of a life office GPP,” he adds.
Five years ago Punter Southall invested in a start-up business that has built a new platform system from scratch. Butler believes the time and money has been well spent.
“Platforms were invented a long time ago, but they are now falling over because the technology has moved on and hasn’t been upgraded and there’s lots of consolidation going on. Market incumbents are all still operating at 35 basis points. We know the market can be less than that. We are starting to see pricing below 20 basis points,” he says.
Version one of My Aspire will launch by the summer, with further enhancements to be added over the next three years. With DC assets set to increase hyperbolically over the next decade, Butler is hoping the new proposition will prove to be an investment worth making.