As the FSA enters its death throes, the organisation has the potential to be even more dangerous to society than ever before.
The corporate benefits market is far from immune from this effect. At best a schizophrenic regulator, capable in some cases of delivering well instructed logical regulation such as its work on platforms, whilst at the same time delivering in the RDR a solution to the future of distribution that clearly directly conflicts with its statutory obligations and will lead to huge consumer detriment for all but the millionaire elite.
Few of the absurdities that have emerged from Canary Wharf make less sense than their position on consultancy charging. Ever the champion of the law of unintended consequences, or perhaps more accurately, never an organisation that probably thinks anything through, the regulator has ordained that new commission-based group pension arrangements must end by 2013, adding that it will take a dim view of any firm that aggressively markets new schemes in the run-up to these changes.
Only the FSA could fail to recognise the impact such changes will have on employers, struggling to avoid the real prospect of a double dip recession.
In mandating such changes the FSA is, in practice, re-engineering the nature of distribution for corporate products. As providers become increasingly focused around their own individual workplace propositions, ever larger numbers of benefits consultants are building their own equivalent services, clearly seeing their historic partners more as competitors in the future. As I have examined previously on these pages increasing numbers of consultants will doubtless follow what is already happening in the individual market and extend their operation further into the investment management part of the business process as ways of capturing a greater percentage of the value chain.
Interestingly for the largest corporate players, they may have the resources themselves to offer much of the operational infrastructure, i.e. product wrappers that are impractical, even for the largest networks in the individual market.
This presents a very real prospect that the largest benefit consultants might actually reinvent themselves as manufacturers. There is likely to be no shortage of outsourcers willing to offer them the necessary technology.
Few of the absurdities that have emerged from Canary Wharf make less sense than their position on consultancy charging
Inevitably there will be only a very limited number of firms that can afford the typically seven figure outlay that is necessary to build their own technology proposition from scratch. The next few tiers downwards may embrace the likes of Staffcare who can effectively deliver such solutions out of the box for a fraction of the normal outlay.
Whilst the largest distributors may historically have been the main focus for life and pension providers, events outlined above may lead to a situation where their best interests are served by delivering low-cost technology, highly functional, workplace propositions to smaller firms who in turn focus on the SME sector. Whilst competition may be intense for the largest schemes, thousands of SMEs will need significant help getting to grips with the challenges of auto enrolment. There is a strong case for advisers putting in place better than Nest options now while the opportunity to do so without incurring the costs of consultancy charging, either now or in the future still remains. For all the FSA may huff and puff about pre-2013 commission-based sales, have they forgotten it is the adviser’s responsibility to act in the interests of the client?
There are many adviser firms the length and breadth of the country who provide valuable services to small businesses and their staff, frequently using the commission generated from the group pension arrangement to cross subsidise valuable advice in areas like debt management, mortgages and personal investment planning. Such arrangements provide good value to employers and employees alike and it is sad that the FSA cannot recognise this. Delivering a workplace portal to the employer is an excellent way to supplement such activity.
If this is a great marketing opportunity, and I am certain it is, then right now, for all the noise coming out of other providers, there appears to be really only one game in town from the technology perspective. Scottish Widows’ My Money Works service has now been opened up to the overall adviser market and many smaller IFAs wishing to capitalise on this segment will find time spent looking at it a worthwhile investment. In the meantime where are all the equivalent propositions other life offices keep promising?