Key to any client’s decision whether or not to put benefits in place is what it will cost and what return they will get on their benefit. This is not a straightforward as there are many factors, some easily quantifiable, but others less so. The corporate adviser’s fee or commission is easily calculated, as is the premium paid by the employer to buy the benefits. But when it comes to absence management, staff retention and motivation, how does the employer know whether he has received value for what he has spent and therefore whether the corporate adviser has done a good job?
Stephen Donovan, group marketing director at Lorcia Consulting says when demonstrating value, cost effectiveness can be expressed in a number of ways, some more technical than others. “At a strategic, business enterprise level this might be viewed as a value chain. For example the objective is to get a knock-on multiplier effect in terms of upstream value, typically expressed as some kind of efficiency ratio. But in reality, I believe most people work on a simple savings or minimisation of increase basis. So you can have a cost or qualitative approach or a benefit qualitative approach, which is more to do with content delivered such as service. In terms of measuring tools, we have an annual appraisal form which has a number of suggested categories of task or people performance but which can be modified as desired.”
One measure of how good a job the adviser has done is of course employee engagement. But for the adviser to understand whether it is his advice that has boosted employee engagement he has to know his benchmark.
Take pensions for example. Nic Nicolaou, managing director of Hargreaves Lansdown, starts finding out how engaged the members already are and how much value the adviser is going to add to the benefit.
“If a client is paying £2m to £3m a year in employer pension contributions, how do they gauge whether they are getting any value from that?” says Nicolaou, “Do people just join the scheme and not actually understand why they are joining, how much they are paying in, what investment options there are available? Or do people make a conscious decision when they join the scheme that they need to save enough to make sure they get a decent income in retirement? If you have an element of engagement from them at the point of joining, that is one way you can gauge where the members are valuing the benefit.”
Once the scheme is in place, the suitability of the scheme to members and the level of understanding and engagement by the members can also be monitored. Nicolaou says his firm will often do pre and post implementation surveys of employees to get an understanding of what they and therefore their employers are getting out of the scheme.
The company pensions arena now offers corporate advisers a much more tangible means of proving value in the advice they can offer to staff as arguably the most important part of defined contribution pensions going forward will be the monitoring and selection of funds available.
“There is so much choice now the adviser’s job is to actually make sure there is an appropriate availability of funds and select those funds for the scheme and then communicate why those funds have been selected,” says Nicolaou.
Hargreaves Lansdown has turned the member engagement process on its head for pensions. Whereas one solution to boosting membership was auto enrolment into a default fund situation, Nicolaou’s team is offering clients a different approach.
“Rather than starting off with a default situation we are advising that clients actually end up with a default situation,” he says. “We would encourage the scheme to take on auto enrolment but have that as a last resort. So we engage people first, provide good quality literature, talk to staff, take them through the pensions modelling tools and then if they can’t make any decisions, we still sign them up to the scheme.”
A similar approach is applied to explaining investment choices once they are in the scheme. Nicolaou acknowledges that when many members are presented with a choice of sifting through a wide range of funds or plumping for the default option many take the default route.
“So we have started talking about how they can use the whole universe of funds and then break it down to our selection of generally 35 to 40 funds we think are good from various sectors. Then we talk about a multi-manager style approach. And if all of that is too much they can still make no decision and go to the default. So we have increased that active decision making and active monitoring which is the most important part.”
Nicolaou admits the results are not perfect but nevertheless a step in the right direction. Instead of getting the usual 90 per cent of people going into default his team are getting 70 per cent of people now choosing the default.
Something that must not be left out in the employer’s understanding of what the corporate adviser is offering with contract-based pension schemes is the value in being seen to be replicating much of the services that trustees were offering under older arrangements.
“Most good quality employers, if they are used to running a DB scheme, will find that quite a compelling argument. So we really should be helping them to understand what it is they are taking on in the way of a DC pension. If you get it right the value in doing this is like gold dust,” says Nicolaou.
Demonstrating value needs to be done in different ways depending on who you are talking to within an organisation.
“When you first approach a client it is often the HR people you put a proposal to. That approach will be more about people and touch on more conceptual areas,” says Donovan. “But with the finance guys the obvious measure is what money you can save them.
“It’s a question of finding out what makes people tick and what will impress them, working with them and asking them what it is they want to see. Then you say ‘this is what we agreed to do. How did we do?'”
The established corporate adviser will always look to communicate value to the client’s operation in this way, but the emphasis still has to be on constantly re-asserting the value message.
Peter Mutch, director of Health Lambert explains how his firm will regularly tailor pension and employee benefit management information into a stewardship report that goes back to the client.
“We set benchmarks on what we are trying to achieve on their behalf and what we have achieved and ensure our message is got across in that way.”
Mutch makes the point however that the real value to the client is not what they see in terms of tangible benefits set in place for staff but in the consultancy behind getting those benefits in place and working efficiently, especially in an environment where so much of pension and employee benefit engagement takes place online.
“The value of consulting is making sure people understand why they have got what they have got and the implications of doing that properly and then coming up with ideas of how we can do things differently – that is the bulk of our work these days,” says Mutch. “We have moved our business model away from the administration model and moving paper off the clients desk to adding value with proactive consultancy advice demonstrated by an audit process. Corporate advisers have got to work a whole lot smarter these days”.
Case Study – Pfizer Pharmaceuticals
Stephen Donovan, director of corporate development at Lorica Consulting
Pfizer is an existing client for whom Lorica Consulting had assessed savings could be made in the medical benefits provided to staff .
With over 6,000 employees, Lorica estimated that the Pfizer could save money for the company’s private medical insurance scheme by switching from a traditional private hospital to the use of a private wing built onto a re-furbished NHS hospital .
The strategy involved considerable research and analysis on Lorica’s part before proposing to Pfizer that it could change the way if offered its medical services to staff.
Donovan says Lorica first it went to Pfizer three years ago with its findings on alternatives routes to medical services provision. “The time just wasn’t right, but about a year ago they had an adapting to scale programme and were interested in looking at these issues again like this. So we saw them again and because the business environment had changed they were willing to do it.
“Our management paper explained the key issues and options and our recommendations,” Donovan explains. “In research we looked at where people lived and how far they would have to travel. We chose between two hospitals and effectively diverted the flow to the cheaper one. And it was an equally good product – in fact in a clinical sense it was better.”
Employees will always raise an eyebrow when changes looks like cost-cutting so a member communication process was put in place which included a letter from the Pfizer board with online and helpline support.
Staff have been surveyed on satisfaction this year under the new service as well as last year. The results show satisfaction levels were either the same or better.
“The key factors for the client were the cost benefit and that they could still maintain the level of care and service.”
The research also revealed a potential saving of £200,000 a year. Measures were initiated to set up a Preferred Provider Option, to allow member choice by means of using a co-payment if using the traditional private hospital with a default of free access to the NHS private patient unit.
Expert view – Calvert Markham, Elevation Learning
“Client engagement is about the relationship you have individually and corporately with the client”Calvert Markham, Elevation LearningEngaging your client to
Calvert Markham, managing director of Elevation Learning
While much is said about employee engagement, when it comes to getting your client to value you, it is the client who needs to be engaged. This is especially important if an adviser is approaching a client for the first time.
Calvert Markham, managing director of Elevation Learning, teaches client engagement skills. “Client engagement is about the relationship you have individually and corporately with the client,” he says. “Most people start off with information which is very self centred and not really orientated to the needs of the other person. All buyers want product knowledge from the person they are buying from. And you need to anticipate the questions clients will ask.”
So far so clear, but Markham makes the point that advisers can fall into the trap of having a product to sell as a solution to a problem.
“What is more difficult is to be actually thinking about what predicament a potential client has and to listen to them talking about their business and what their needs are without stuffing products down their throat,” says Markham. “Advisers may intellectually acknowledge that but their clients don’t necessarily get the experience the adviser thinks they are getting.”
Markham says the type of conversation the corporate adviser has with the client is critical. One also needs to consider whether the value of the advice arises from the activity of the adviser or from the project the adviser is engaged in. The answer is the latter.
“And the project rarely is uniquely the activity of the adviser,” he says. “Consultant activities are means not ends. Too often the adviser becomes besotted with the how and they are not looking at the ‘what and the why’. Consequently they are then seen as being the functionary that is just there to dot the i’s and cross the t’s. But the client wants to get value from the conversation and they measure that by how their thinking has been advanced by the intellectual conversation they have had.”