Self-obsessed and obsessed with how it is going to be paid – ask Lorica chief executive David Battle what he thinks of the workplace benefits community and he paints a picture of an industry that constantly puts its own needs ahead of those of its customers. From the design of auto-enrolment technology to the advice that is the bedrock of consultancy, providers and advisers are putting themselves at the centre of the process, he argues.
“You have clients who want to talk about recruitment, retention, absenteeism, engagement, and then you have an industry that seems to want to talk about products, remuneration structures and charges. How can we be seen to be servicing our clients if rather than talking about things in client-specific language, we talk about the fact that we have an RDR-compliant solution. Take that back to the employee who is thinking should I stay with this employer or should I move on, or a candidate reading a job offer. Are they really thinking about whether that is an RDR-compliant pension scheme?
“Getting the right insurance product, getting it from a good provider, and getting it at a good price, people used to use these factors as a USP. They are not USPs – they are hygiene factors. The real issue is what are you trying to do with your benefits,” he says.
Providers could also learn a few lessons about putting the customers needs before their own, he adds, such as in the area of corporate platform development.
“If you wanted to be cynical you could say the corporate wrap is a vehicle for flogging more product into a readily accessible database. A more rounded view is more and more employers, particularly in a world where defined benefit pension schemes are the past, are genuinely interested in helping their employees in making decisions for their future about savings and investments.
“But where it does fall down for me is, I remember the first time I logged into a demo of a corporate wrap and I am not a specialist but I am of this industry, and yet even I did not understand some of the terminology they used. They have hit a really sweet spot in the market, which is that employers do want to provide better gateways for them to provide for their future, but to do it they have created something that is terribly unfriendly and does not actually work with any other parts of the benefits programme that are already going.
“In classic provider fashion, they tend to only design things that work with their products. I understand why they do that, because the process in the provider boardroom is that this is a big investment. But flip that back to the client who may be sitting there with a whole load of legacy schemes, for example on pensions, it is no longer one scheme from one provider that is the answer for all my needs. I may need three different schemes but you have providers developing software that are not particularly bothered about how it might work with anybody else’s.
“Most employers don’t have an employer with two employees having access to different benefits from different providers. But they don’t understand why when they access those benefits the journey should be completely different,” he says.
But he does identify good practice. “An example of this is the way providers have approached AE software and have developed something just for them. Then you have Aviva who have been prepared to sell off the shelf something that will bolt onto other peoples’ solutions. Some provider will wonder why Aviva has done that. I think it actually puts Aviva in a great position when you talk to an employer and say Aviva’s solution will work with your legacy system from Aegon and your legacy system from Widows.”
But money does make the world go round, so what does the RDR mean for Lorica?
“Corporates will still want to provide benefits for their employees and they understand that they and possibly their employees have a need for advice. One particular option has been taken off the table but it doesn’t change demand. I am still massively optimistic about this industry. I don’t think I have woken up in January with a load of redundant advisers because employers think they aren’t going to get advice on their pensions any more,” he says.
Lorica is using consultancy charging right now and has effectively been doing so for some time.
“The only difference between now and then is that consultancy charging used to be by means of a fee note, but is now subject to certain constraints built into the product. It is a smoothing and a budgeting and a cashflow-convenient way for a client to pay you for something you might have paid a fee for in the past,” he says.
But, not surprisingly, with the regulators and government suddenly all over consultancy charging, he sees risks.
“There is more thought needed in the industry as to what services it is fair to put into a consultancy charge. We are in danger of having an industry that runs in a direction that says it is ok to wrap up any charge being provided to you as a corporate client into a consultancy charge that your members pay. It is perhaps a little disappointing it has taken people on the statutory and regulatory side of the industry time to say ‘hold on this may not be fair’.
“For me the acid test has got to be whether there is a tangible benefit to the individual who is funding this charge. If this is about the member engagement piece or the member advisory piece, that is clearly a service for the member. So if the corporate says they want you to provide an engagement or educational piece to staff then it is hard to see how anyone can say this is of direct benefit to the employees. If it is about corporate governance issues, I think it is less clear.
“Elements of governance around performance and monitoring of funds are potentially up for inclusion, but if it is around advice back to the corporate that is of no benefit to the member, such as management information reports, its very hard to see why a member should pay for that,” he says.
Some providers, notably Now: Pensions and Aegon, have made attempts to structure remuneration in a way that money passes from the provider to the intermediary. Battle thinks anything that could be perceived as trying to get round the Retail Distribution Review’s principles is asking for trouble.
“We are going to see in six or nine months’ time advisers and possibly providers being at the very least reprimanded for having tried to adopt commission by some other name. No matter what your views are on whether the pulling of commission was right or wrong, anyone who tries to take commission by another name, or who seeks to incentivise their distribution by commission by another name deserves everything that is coming to them. Wake up and smell the coffee guys.
“Let’s jump in our time machine and go 12 months down the line and look at people who have got in trouble for it. You used to receive commission that was a pay away from the management charges that the pension provider was making, and that was banned. So what you have now had is a payment from a pension provider that has come out of the marketing budget they have set up for the scheme. And you really thought the regulator or even anyone with a moral conscience wouldn’t think that was the same thing,” he warns.
So does he think consultancy charging will be banned altogether by the DWP?
“It will happen if people are really stupid about the way they put together consultancy charging. It probably won’t happen immediately. I think it is a message saying ‘abuse this and this is a portent of what will come’.
When it comes to the task of helping employees climb the mountain towards a well-funded retirement in the DC world, Battle could be described as fatalistic or refreshingly honest, depending on your point of view.
“In the world of DB, everyone knew the rate at which they were accruing. Now we know people aren’t going to have enough, and you factor in the perfect storm, which is an increasing population in your workforce who can’t afford to retire that you can’t force to retire. In its worst case scenario the workplace becomes a place full of people who are disaffected and don’t want to be at work, and they are probably going to blame you as an employer for that situation,” he says.
“We probably can’t as an industry do anything to solve the issue of insufficient pots, but we can make sure it is not a surprise to them. It is not necessarily a bad thing to reach your retirement age and realise you have not got enough to live on. It is a really bad thing to get there and for that to be a massive surprise for them,” he says.
Battle is a keen supporter of the idea of tax breaks to address the massive costs the government will face in future dealing with the healthcare needs of an ageing workforce.
“If you stand back and take a macro view you come to the conclusion it is not possible for the state to provide in all the areas the public would like them to provide in. Therefore it is enormously sensible for the government to try to shift some of the cost burden onto employers. Given that is a sensible approach you have to ask why wouldn’t you try to incentivise that through tax breaks. But in reality you put onerous additional taxes on instead. I would describe what we have at the moment as a great entry in a wrong answer competition. There is an inevitable logic around tax breaks. The only things that stop us are political dogma and availability of funds.”