Could a more collaborative employee benefits industry transform both the range and quality of service available for clients and their employees — and lead to better outcomes for both? CLICK TO DOWNLOAD SUPPLEMENT PDF
This was one of the questions debated at a recent Corporate Adviser round table event, which looked at the potential benefits, and drawbacks, of more effective signposting and partnerships between financial services organisations – be they advisers, providers or other stakeholders.
One key area of discussion was whether signposting members to low-cost financial advice could lead to better workplace outcomes, and how such a process might impact an advisory firm’s own business.
Those attending the debate agreed that there was now a more pressing need for employees to be able to access low-cost financial advice, whether it is at-retirement help with their pensions, to help build better financial resilience during their working lives, saving for the medium term or tackling debt.
Problem debt has been the number one advice need for a large swathe of the population for years. When it comes to retirement saving however, Cavendish Ware associate director Roy McLoughlin said that auto-enrolment has caused a quantum leap in in both clients’ and employees’ engagement with the issue.
“There is now a general understanding that people need to take more of a responsibility to build their own retirement savings — and this has been achieved through a partnership with employers via auto-enrolment.”
He added that it remains to be seen whether there will be a similar shift as a result of the Covid pandemic, with both employers and employees recognising the need for more effective health and wellbeing benefits alongside state provision.
The long term switch towards DC pensions, which require employees to make potentially life-changing decisions about how they utilise these savings at retirement, was also a driver of demand for financial advice, given the choices retirees need to make in managing their pot. But given the size of the average pension pot, many people are unable or unwilling to pay the fees typically charged by a professional financial adviser.
McLoughlin said: “One of the unintended consequences of the Retail Distribution Review (RDR) was that by banning commission it helped create an advice gap, where less wealthy individuals and smaller employers are most of the time not seen as commercially viable as advice clients.
“But there are often specialist parts of the market that know how to profit from serving different segments of the market. Signposting is a way to help make these clients more commercially viable.”
Advice chasm
WorkLife by OpenMoney director Steve Bee described this as less of an advice gap and more of an “advice chasm.”
He added: “Only a handful of people, relatively speaking, are well served by professional financial advisers.
“The model we have is currently not working. The question is how to ensure more people get proper financial advice, not just guidance, and whether advice could become a valued workplace benefit.”
WorkLife by OpenMoney relationship director Paul Chedzey added that industry practices such as segmentation have further exacerbated these trends. “Segmentation has been talked about and encouraged by the industry but this is basically getting rid of unprofitable clients.”
Financial education and wellbeing have been a key priority for employee benefit consultants for a number of years now. But Bee said that while this can cover issues like budgeting and savings, consultants are in most cases unable to help if an employee asks for specific help with their own financial circumstances.
“If someone comes up to you and says what should I do about my credit card, a consultant could find that their hands are tied when it comes to giving individual advice.”
He said this situation defines “the advice chasm”. “There seems to be the assumption that the less money people have the less they need financial advice and that generic guidance should do. But I think frankly the opposite is true, you actually need advice more. The question for the industry is how to deliver this effectively.”
Guidance deficiency
Bee said his company’s platform can deliver cost-effective advice solutions, whether the client is a chip shop with three employees or a large multi-national.
Premier Choice Healthcare managing director Claire Ginnelly pointed out that even those working for larger organisations do not always get access to a full range of employee wellbeing benefits.
“Even in larger organisations it is often only the top tier who get access to these employee benefits. Timely intervention to help people who are struggling with their finances can be very important particularly in relation to mental health.”
This, she pointed out, isn’t just a benefit for employees, but for employers too, with debt and money worries being one of the biggest single causes of mental ill-health.
McLoughlin attested to the benefit to employees. “Many employees are reluctant to talk to their employer about debt problems. We can offer confidential guidance which can help put their finances back on track. Often an employer won’t know what has been discussed but will give feedback to us that a particular employee seems a changed person as a result of our help.”
A number of consultants attending the debate argued that much of their core discussions regarding financial planning and financial wellbeing tackled these issues, and were not product led.
Demna Consulting director Vicky Quigley said: “We get in front of people in our employee wellbeing sessions. We don’t discuss specific products, but look at the core money matters people are interested in and concerned about. This might be mortgages, saving for a house purchase, considering what would happen if they got sick.
“Depending on the feedback from clients we can direct them into certain areas for more information, or refer them to a specific adviser, for example for mortgage advice.”
Workplace environment
Delegates at the event felt that the workplace was an appropriate place to deliver financial education and advice, although Quigley argued that this could be complemented by better financial education in schools, so those coming into the workplace over the next few decades have more of an understanding of basic money management and products like credit cards.
But Bee said: “Financial education in schools is a red herring. We should concentrate on getting to people in the workplace because that’s where you earn your money and it should be where you learn about your money as well.”
He suggested schemes like Nest’s ‘Sidecar’ initiative — where people can build rainy day savings alongside a pension pot — could help build a more financially resilient workforce. He would also like to see changes to pensions legislation to allow people to access their last two years of contributions in an emergency. This, he said, could make pensions more attractive and would give the majority of employees access to rainy day savings in an emergency, potentially reducing the use of expensive debt options.
Broader signposting
Many of those attending the debate said they would like to see action from both the government and regulators to help promote a wider take up of a range of employee benefits and remove some of the existing barriers, particularly relating to advice.
Ginnelly said that change needs to start first within the industry. “There are lots of different parts of this industry and we are not as good as we should be in terms of talking about signposting and the need to make advice accessible to more people.”
She pointed out that she sits on the executive committee of Association of Medical Insurers and Intermediaries (AMII) and the focus is primarily on health and risk issues. She said following this discussion she will be looking to discuss signposting at the next committee meeting.
She also called for change across the industry to see more of a regulatory drive to promote protection products.
“Income protection is one of the most important products that someone can have,” she said, adding the Covid-19 crisis has highlighted the importance of having resources to fall back on should people fall ill. “If the government could look at doing something along the lines of auto-enrolment with protection I think that could make a massive difference out there to people.”
McLoughlin agreed that issues of health and wellbeing are now becoming more of a key concern for policymakers, as well as employers and employees.
“I think there is a seize the day moment here, in the wake of the terrible events of last year. I am already sensing a more paternalistic attitude from employers towards staff.”
Sick pay message
Changes do not have to be radical to effect real change, he said. “One very simple change would be for the government to introduce regulation that compels employers to inform staff about the details of their sick pay scheme.
“Very few people know what they would get from their employer if they were off ill for a period of time. It is often not even clear to those who try to find out this information.
“There should be standard, easily accessible information telling people what they are entitled to. This would do one of two things – firstly persuade more enlightened employers to supplement this basic sick pay via a group income protection scheme.
“And even if this is not in place it should at the very least encourage individuals to take some responsibility themselves.”
Chedzey added: “When anyone joins a company they have to complete paperwork on a number of issues, from data protection to compliance issues. Most of these they are never going to use in their day-to-day working lives. But isn’t there an opportunity here for employees to do some sort of basic financial awareness tests.
“This is likely to have a far bigger impact on their lives, particularly if it identifies areas where employees would benefit from more targeted information or advice.”
More effective signposting across the industry, linking specialist services as well as companies that market their products at different segments of the market, could help establish a more robust network of employee benefits, that cater for a wider range of businesses and employees on different budgets.
Chedzey said: “It is about going back to basics. Making sure people have sufficient savings, getting to grips with pensions, making sure proper protection is in place.
“It seems to make sense and be more cost effective for this to be delivered via the workplace. But for this to be effective we need to encourage advisers and consultants to make better use of signposting, make better use of technology and to help make benefits more relevant and more engaging.”