Could affordable financial advice be the next essential ‘added-value’ service offered as part of a comprehensive employee benefit package?
This was one of the central issues discussed as part of a wide-ranging roundtable discussion, hosted by Corporate Adviser, on the role of financial advice in improving employee wellbeing.
All participants agreed that financial resilience should be an essential part of employee wellbeing strategies, and the access to financial advice could contribute to this, particularly for those unwilling or unable to pay to see an external independent financial adviser. And there was acknowledgment that current Covid pandemic had highlighted the lack of financial resilience among the population and made the situation worse. Delegates agreed that a renewed focus on wellbeing, particularly in relation to mental health, may persuade more employers to look at more effective financial wellbeing solutions.
The coronavirus pandemic has increased indebtedness across UK workers, particularly for those on 80 per cent furlough pay, while homeworking may have limited opportunities for pay-rises and bonuses.
But access to financial advice, both through the workplace and elsewhere, remains restricted, and is only usually accessed by those on higher tax brackets with large investment or pension portfolios, despite the fact that lower earners have more of a need for it.
Delegates thought the idea had potential, but said in order for it to be delivered cost-effectively, technology would take a big role.
Anthony Morrow, chief executive of OpenMoney said the industry can learn a lot from the open banking initiative, where customers give third parties permission — typically via their mobile phone — to access their current data, to help ensure they are getting a better deal on a range of products, from utility bills to savings products.
Delegates pointed out that pension companies are lagging behind when it comes to embracing this sort of innovation, with projects like the pensions dashboard still several years away from implementation.
Michael Royce, senior policy and propositions manager at the Money and Pensions Service, said: “There is a role for both advice and guidance, but while technology can help deliver cost-effective solutions, it also needs to engage individuals,” he says. Regardless of whether people are accessing guidance or regulated-advice, he says these services can be improved in many cases by human input, for example via telephone helplines.
Delegates attending the event agreed that there was a need for more responsive and intuitive technology. However they also said there was a clear need for those in the
industry, particularly providers, to focus on better engagement policies as a means of improving financial wellbeing.
Cavendish Ware associate director Roy McLoughlin says: “Most large workplace pension providers have good websites with a range of tools looking at improving financial education and giving people more information about their finances.
“But whenever I do surgeries with new clients I always ask for a show of hands as to how many have logged into these sites and used these resources. The first thing I notice is how few hands go up. The second thing is that those who have accessed them still need help. They’ve accessed the information but have come away with more questions.
“I don’t want to be a Luddite about this: technology clearly has an important part to play, particularly in delivering advice at scale and cost effectively. But it seems clear to me that the role of the adviser is still integral too.”
Poor pensions engagement
All of those attending the event agreed that while most pension providers talk about the importance of engagement, the reality is that the products and services offered are often failing to engage employees.
Damian Stancombe, head of health and wealth at Barnett Waddingham said: “Some of the stuff that pension providers offer in terms of engagement is awful. It’s based on stochastic modelling that the average employee has no chance of understanding. Even people who work in the industry like us find it dry and difficult to engage with.”
He said the challenge for the industry is to “start designing things that are actually used and understood by people”.
There was general agreement that non-advised guidance pathways offered via providers’ websites were often un-engaging and a “dry experience”. But some of those attending this discussion thought useful lessons could be drawn from other parts of the employee benefits market.
Benefiz founder and director Tim Gillingham pointed to healthcare provider Vitality — which offers PMI and life insurance products — as a good example. “We’ve got schemes with Vitality and they always have 95 per cent registration. So the vast majority are engaged and using the site from day one.
“People need to input information frequently to make the most of a gym membership offer, their health plan or to get other rewards. But this model of frequent interaction and attractive rewards seems to be a useful overlay that we could learn from.”
Stancombe said that the goal should be for employee benefits — whether it be financial advice, a pension or a protection policy — to engage with employees in the same way that retailers engage with their customers.
“You need to create something akin to the shopping experience where people want to buy and try things. The problem for providers is that they are restricted by the FCA in what they do.”
Creating better narratives
This isn’t just about whizzy technology. Stancombe said that creating better narratives around the need to save and invest can help with engagement. “We need to think about how we talk to people. We often forget the ‘middle tomorrow’, the aspirational part of saving, and talking about what they’d like to spend money on. I think you can use Maslow’s hierarchy of needs in the context of financial savings, but the pension industry doesn’t always do this. It’s as though they are saying you are a slave to income today, and then when you retire you’re going to be a slave to your pension income too. Let’s change the discussion to address what people are really saving for, rather than it all be about the ‘one day’ when they retire.”
Royce agreed that this could help engagement. “All of our evidence suggests that you stand a better chance of engaging people at key points in their life when their financial situation changes. This can be negative such as relationship breakdown, bereavement, redundancy, but it can also be positive, for example after a pay rise, promotion, or having children.”
Stancombe said the unfortunate outcome of this lack of engagement can be those who are less financially resilient falling back onto the Money and Pensions Service, as there are few commercial organisations offering advice to this group, and ongoing concerns whether they will be able to do so profitably.
Need for advice
WorkLife by OpenMoney director Steve Bee said this amounts to quite a damning picture of the industry. “What we seem to be saying is that we are part of an industry that finds it hard to engage with people. But when we do engage with them they often don’t understand a word of it.
“This may be caricaturing the situation a little, but I would say there is definitely potential for financial advice to help with this process of engagement and giving people a better handle on their finances.”
Royce agreed and said while MAPS will always be a channel that offers guidance and information for these consumers, he thinks there is the potential for commercial providers to participate and provide financial advice via the workplace.
One of the challenges with getting employers to buy into providing financial advice to their staff is demonstrating a return on investment (ROI) for employers.
Howden Employee Benefits & Wellbeing head of benefits strategy Steve Herbert said: “ROI is always difficult to prove when it comes to any kind of employee benefit.
But I think it isn’t difficult to make the case as to why better financial resilience among employees will also benefit employers.
“This isn’t just something for ‘responsible’ employers looking to do the right thing. It potentially affects a business’s bottom line, as severe financial distress can lead to absences, and a lack of productivity.”
McLoughlin said that in his experience debt counselling works. “The employer may not be aware this is the help employees have accessed. But the feedback we receive is that they return to work with a more positive outlook and are more productive.
“These sorts of comprehensive employee benefits can help with staff retention which we know is a big cost to employers.”
Stancombe added: “If people don’t get on top of their debt then there is a risk they will simply access their pension savings 20 years early to plug the gap. This has happened in some cases in Australia. And then there is an issue for employers that they are not going to be able to retire. All of this affects the bottom line for employers.”
A more holistic approach, particularly as employers now have to provide pension plans, can help benefit employees and employers, and ensure the money invested via auto-enrolment contributions is delivering on its strategic aims.
Gillingham warned that there is a danger of adding yet more products and more support services to the already complex web of employee benefits.
“What is needed is a more holistic approach. It’s about trying to join all these solutions up. Smarter technology and better engagement can help address these issues and signpost where people can go for additional help, be it advice or guidance,” he said.
“I think that’s the challenge we face: helping employers signpost effective help and tools for their employees not just plugging another product in to fill a gap.”
Bee added that he believe there is the real potential to deliver advice through “more humanised technology”.
Morrow agreed: “It is clear that more engagement is essential, whether via face-to-face advice or technology or a combination of both.”
This he says has the potential to help people in the workplace, across all income brackets and salary levels to make better financial decisions about their future.