Minding the gap

Maintaining a position as the biggest group pension provider in the UK without paying initial commission means Standard Life chief executive David Nish must be doing something right.

Fifteen months after taking over from Sandy Crombie, Nish’s tenure of the chief executive’s seat has already seen a flurry of new initiatives in the workplace, notably a tie up with Mercer on a panel of preferred platform providers, together with Friends Provident and Zurich, and last month’s launch of Lifelens, its long-awaited employee benefits portal.

Standard describes Lifelens as the first fully integrated employee centric portal to provide employee pension and non-pension benefit solutions via the workplace, offering a range of savings options, flexible benefits, online payslips, total reward statements, planning and modelling tools, product collateral and educational material.

But Nish is adamant that Lifelens should not be described as a corporate wrap. “We are not selling a corporate wrap. We call it a full benefits proposition. Within that you may end up having a whole range of different services including pensions, individual savings and a full range of benefits which include things like health cover, but could also include bikes to work. It is a much broader range than corporate wrap, which is a relatively narrow investment proposition,” says Nish.

A proposition like Lifelens is a natural step towards creating a more developed market for financial services in the workplace, and looks like binding the employer and product provider closer than ever before. So against such a backdrop, and in light of those ’direct to market’ comments by Nish reported in the press a year ago, how does Nish see Standard’s relationship with intermediaries develop as we move into the post-Retail Distribution Review world?

“There will always be an adviser involved in some shape or form. If you look at the responsibilities of the trustees and of the employer in setting up an arrangement, whether it is pension or a corporate Isa or flexible benefits, the role of the adviser in the future has to get stronger. Will we be selling more through advisers in future? Yes,” says Nish. “Standard Life’s model is all about how to get the best products out through the adviser channel.”

But that is not to say Nish does not see new potential markets beyond those serviced by intermediaries.

“I would hope the whole industry considers Nest a positive step towards addressing the savings gap. The Government is looking to establish a strong state pension while on the other hand looking at how to encourage people to get into the savings habit, which Nest provides”

“We recognise that there is a large proportion of the UK population that are not served by the advisers that we work with. So we have an opportunity if we wish to work with them more directly. But in terms of the corporate space I do not see a day where there isn’t an adviser role,” he says, adding that all the schemes it has are intermediated, from the very small, to the large ones such as BT, which is advised by PricewaterhouseCoopers.

Nish points out that 70 per cent of customers do not have an IFA, and he sees the workplace as a key place to access these people in future.

“The employment arena has a fundamental role to play in closing the long term savings gap. Because looking at how an individual might relate to an individual adviser, there are lots of challenges for people to go and get advice – understanding it, and the cost of it, for example,” says Nish. “So we think the workplace can deliver a type of advice that can get individuals started, and then when there is greater understanding there is a stronger capability for them potentially either to go direct or maybe they will be feel aware enough to go through an adviser.”

Lifelens is being rolled out to at least 10 blue chip Standard Life clients this year, and the proposition is being made available to smaller intermediaries from now.

So if an employee who goes through the educational journey offered by Lifelens finds himself actually investing £5,000 in an Isa, will that be a direct sale? It might, or it might not, says Nish.

“It could be a direct sale or it could be an advised sale,” he says, adding that much will depend on the extent to which the decision resulted from guiding architecture that steers the individual through whole of market funds. This is not, however, a virtual adviser says Nish.

The Lifelens proposition can be charged in a range of ways, whether as an AMC or a software licence fee.

It goes without saying that Standard and other providers need their intermediary partners, and vice versa, but there is also competition between provider and intermediary as to who owns what part of the value chain and the client relationship.

So how, for example, does the deal with Mercer work in terms of ownership of the client?

“It ends up being in many ways a joint ownership because who gets the vast majority of the telephone calls? It is the provider. The adviser is there at set-up, through monitoring and reviews, but the day to day delivery tends to be through the provider,” says Nish.

“The adviser will have a view, but it is the provider that is effectively building the websites and developing the content. We are the administration platform, we are the service provider, we also give technical input in lots of areas and we managed the detail of the management of the money.”

So how does what Standard offer through Lifelens compare to online total reward statements, which are available at a lower price?

“The first thing I would say is the number of people in the UK who have total reward is low. Then it comes down to choices. This is where you can visualise Lifelens in much more of a dynamic environment – with an individual who starts from school or university at 18 or 23, and how they then progress with their employment and the choices they make through their life. There are a lot of different phases there and that is where the real benefits of a total reward approach and choice comes into play. Even if you break it down into different decades, a 30-year-old will look at their quantum of savings quite differently to a 20-year-old.

Their capacity for saving will be quite different,” says Nish.

Platforms such as Lifelens, and corporate wrap offerings see a future where employees are steered to information tailored for their particular life stage, with a view, ultimately, to persuading them to put their money into savings products. So is this nudge or education?

“It is both. If you put everyone into a pension scheme through auto enrolment but do not have learning to go along with it, how will you get the quantum of savings changing? It will be through the learning aspect, and not necessarily through the nudge, which basically gets people in there in the first place.”

When it comes to consultancy charging and the RDR, Standard has been offering a 2013-friendly structure for some time. It already offers group pensions that deduct 25 per cent of first year’s contributions to pay advisers’ fees. The only difference between now and RDR is that Standard currently facilitates the payments through factoring.

So how does Nish see consultancy charging working?

“The key is full transparency, and it should all end up being a free discussion. We are very strongly supportive of arrangements where there is a structure that is related to the retention of either assets or the client so you’re focusing on how you establish the long term relationship between the adviser and the client rather than what we have in a lot of situations at present, which is a short-term relationship, which is why we moved away from it.”

“The whole savings environment in the UK is going to be a very dynamic space for the next several years because you are starting with a fundamental issue in the shape of the savings gap”

“It is really for the intermediary with the client to choose. We can see a world with software charges and we can see a set of charges round about consultancy where there is a new scheme, so we are creating an environment that has the flexibility to cater for different options, whereas if you think about the old environment, providers were generally forcing you down a particular remuneration route,” says Nish.

So does Nish see a contraction in the group space? Will there be less advisers post-2012?

“I think the whole savings environment in the UK is going to be a very dynamic space for the next several years because you are starting with a fundamental issue in the shape of the savings gap. You are also starting with a lot of individuals having to look at where their savings and wealth are residing at the moment. Is it in the appropriate vehicle? From that point of view a big part of the business we are in is the consolidation of money and getting into the right pots and then enabling individuals to manage it. From that point of view I actually think there is a great opportunity both for advisers and providers,” says Nish.

And does he see Nest as a challenge or a help to this new era of opportunity for financial services?

“I would hope the whole industry considers Nest as a positive step towards addressing the savings gap. The government is looking to establish a strong state pension while on the other hand looking at how to encourage people to get into the savings habit, which Nest provides,” he says.

If Nish’s predictions come true, all well and good for the sector. So what more can we expect from Standard Life in the coming years?

“If you look back at some of the things that I said in March last year at our preliminary results, at the centre of what we are doing is firstly a strong understanding of what it is that customers, individuals and intermediaries need. Rather than a ’build it and they will come’ mentality, you have to build what is needed. We have developed a strong recognition of how technology plays in our business. So if you look at where we have invested very strongly over the last 12 to 18 months it has been around building propositions such as Lifelens, but it’s also about buying companies such as Focus Solutions, the software provider.”

Nish describes his vision for Standard’s future as “using customer insight with technology to develop propositions that are market leading in all sectors we operate in.”

While a virtual IFA may be a long way off, if technology can replicate much of what advisers do for the mass workplace market, providers that get it right may be able to help turn round our lamentable savings ratio.