For Gillingham, the key is playing in the right areas with the right proposition, with a cost base that matches your expected revenues. So while some of the larger players may have to shed staff to adapt to the economics of the new world, smaller firms with clear fee propositions can grow, he says.
This year’s winner of the Corporate Adviser Small Firm of the Year, Mazars Employee Benefits is a discrete business but its parent is the ninth largest accounting firm in the UK.
The firm made a strategic decision to get into employee benefits, and has purchased Redbourne, a flex platform provider, and then both Citrus4Benefits and Surf & Consult, unregulated and regulated businesses set up by Gillingham..
“The strategy is to triple the income in three years by supporting the existing client base. Mazars is a large audit firm, with about 3,500 employers, so the idea is to give auto-enrolment services to these clients, which in the short term will be auto-enrolment project management. After auto-enrolment we will target DB pensions. We won’t do scheme actuarial, but we will offer advisory services to employer sponsors, rather than the trustees,” says Gillingham.
“We see a growing market where employers are paying more attention to the DB market and they need some help and representation, with funding negotiations and derisking initiatives.
The firm has an AE proposition built into its proprietary flex engine, or for non-platform clients it will do AE project management for between £10,000 and £15,000.Tim Gillingham, Mazars
Gillingham agrees that some of the deals that larger intermediaries are setting up with providers will see those EBCs signing their clients away forever. But he adds the ‘going direct’ issue is a factor for firms of all sizes.
“If we think a client is of the type that we won’t want to be dealing with on an ongoing basis then they will go to providers such as the Pensions Trust or L&G, but if we see an ongoing relationship there we will point them towards someone like Scottish Life or Scottish Widows, which is more protective of the intermediary, and who have said they don’t deal direct,” he says. “If the client doesn’t want any more work from us then there is less of an issue with placing them with someone who will work direct.”
Gillingham feels the maturity of Mazars’ employer client base means around 80 per cent will want to continue the relationship. He sees the key opportunity being offering ongoing governance of the auto-enrolment set-up.
“For those clients who have staged already there is the opportunity to do a health check or audit, to make sure they are assessing their data correctly and using the right comms,” he says. But he does not see the firm going down the route of offering its own master trust.
For a smaller player like MEB, the current changing market presents challenges. “We used to have no dual pricing but we are now seeing that – where providers are offering better terms to some intermediaries. But the issue for the providers is they strike a deal, but three months later the market has changed. For example, we have seen terms offered by Standard Life change radically over the last six months, because they are not really quite sure what the price should be. The OFT report caused quite a lot of confusion. But if anything prices are going up. That said, someone like Standard offers a lot of support and resource to make it all happen,” he says.
And so does he expect providers to formally exit the market?
“We have seen HSBC potentially exit, but others will rethink their distribution. So if Standard is saying they are looking for 35 partners, we can’t afford to be in a position where we are not one of those 35,” he says.
A more selective approach from providers makes life challenging for the smaller intermediary, he warns. “If you are not on the radar of the providers you won’t get the support and you won’t get the terms going forward. And they will probably deal direct with the clients. For some advisers that might be OK because they may not want to deal with that part of the market,” he says.
But will there be conflict in some cases?
“There is one very big provider – L&G – where people will get the same terms if they go direct as if they go through our agency. I have had discussions with them saying why would I place business with you if you are offering the same terms to the client direct but you know that if it comes through us it will be a better quality lead and we are going to add some value? Why would you not recognise that? They will probably say something like ‘we will reduce the 0.5 per cent to 0.48 per cent’, which is pretty insignificant.
“All the providers are offering blanket terms, with different criteria. That means we don’t have to charge the client for the market review, and they get better terms. Or they can go through the review, but will the client want to pay for that,” he says.
But he does not think bigger clients will rebroke post-AE.
“We see them rethinking their middleware, where they have just cobbled something together to make it work for their staging date. But I think moving pension providers involves a lot of upheaval, and I am not convinced that market is going to be there in the same way that it has been,” he says.
He does predict fallout from those firms where commission has been taken up front in large amounts. “We are no different from other advisers – where there is legacy commission we use that to offset fees. So there will come a time where there will be no commission so the client will pay or we will do less work. But we didn’t pay big one-off commissions. So the shape is different to some advisers who took large amounts up front. Those earn-outs were two or three years. So they aren’t going to have to pay that back.
“But at the moment we are seeing a lot of the bigger firms restructure and getting rid of people. There are lots of people on the market looking for the work,” he says.
But he does not think job losses will be as high as the 50 per cent in some cases predicted by Aviva.
“I think the providers have been pretty malicious at getting rid of people. In the advisory market, the big boys who recruited too many people and took too much up front commission, yes they will lose people, but not 50 per cent,” he says.
But he predicts a need for retraining and reskilling as people move around the market. “There are the people who are self-employed, and they will need to move to being employed, which is a more efficient way to operate and which you have to do if you are going to charge fees,” he says.
“Then there are the EBCs who have changed the classification of their client from being a retail client to a professional client. Which means they are dealt with in a different way and have less protection. But from the advisory firm there is less protection. So that is going to be an issue for those people coming out of the big EBCs, who were regulated, became unregulated, and are now going to have to become regulated again,” he says.
But he does predict hard times for small firms operating in the corporate space.
“I think there will be a move away from corporate at the small end. It is easier to charge a high net worth investor a couple of thousand pounds for a specific amount of work, where we are talking about say £4,000 for auto-enrolment, which is a significant amount of work,” says Gillingham.
But bigger firms will not be immune to the changes either.
“A year ago all the providers were wondering about how to get into the direct market. Friends Life have gone and developed their AE service to the extent that clients are happy to deal with them direct. Now almost by default the direct market is there on their doorstep. So strategically they need to make the most of that,” he says.
And does that mean the end of the intermediary?
“No, because providers are not there to give advice. But providers won’t do the intermediary job as well as the intermediary will, and so it will come unstuck and the intermediary will come in and support it,” he says.
Gillingham does, perhaps not surprisingly, believe small firms can punch above their weight and dislodge bigger ones – provided they have the right people. “The key fact for us is people – we recruit people very carefully – people who are entrepreneurial. So we have less people, but they are better. If we were bigger we would have a pensions team, a risk team, a PMI team and a flex team. We try to make sure all our people have the knowledge to talk about those benefits, while behind the scenes we have specialists.
“As we have one person interfacing with the company, we can offer more value. And being smaller, we can make decisions really quickly,” he says.
Flexibility has been a watchword for Gillingham through his life, as has work/life balance, so much so that he built a business around it – his former consultancy was called Surf & Consult.
So how did putting the word ‘surf’ in his consultancy name go down with clients?
“It was good – a lot of people knew me and my passion for surfing and the idea was that you could try to combine your interest with work. I want to go surfing, but I need to do some consulting to make it work.
“I later dropped the Surf and became S&C, a bit more corporate. Then when you talk to employers and they want you to look after the benefits, you realise you need to be regulated. So that is when I set up Citrus4Benefits, with an old Towry Law colleague when Towry closed its corporate team,” he says.
Now at Mazars, Gillingham is well positioned to ride the auto-enrolment wave for the next few years.
All about Tim Gillingham
1985 – London & Manchester, now part of Friends Life.
1990s –NPI, rose to national group sales manager
1990s – Liberty Pensions
2000 – John Scott & Partners. A director and shareholder, he ran their corporate team. Moved on when it took over Towry Law.
2005 – Set up Surf & Consult, and later, Citrus4Benefits. “Moved back to the West Country to be nearer the surf”
2012 – S&C and C4B acquired by Mazars
Lives – Devon
Enjoys – Surfing