If you read nothing else, read this…
• To select the right adviser, an employer must thoroughly understand its own needs.
• Consultants offer a range of pensions services, from communication to investment advice and complex funding options.
• Independent financial advisers also offer advice to staff with less complex needs.
• The retail distribution review (RDR) will ban advisers from recommending products that automatically pay commission.
Pensions advisers come in various guises, and employers must know their own needs before choosing one, says Sarah Coles
If only there was a matchmaking website for employers and pensions advisers. An employer would simply type in its vital statistics, say what it was looking for in a partner and wait for the perfect match to pop up. Sadly, benefits professionals are set adrift in a complex marketplace and have to pick their perfect partner out of the crowd. But before they head for the market, they must know exactly what they are looking for.
Advisers come in all shapes and sizes. At the most sophisticated and expensive end are the pension consultants – fee-charging experts that tend to deal with large, complex schemes, often with some legacy issues or at least one defined benefit (DB) pension plan.
Such consultants will offer a wide range of services. For example, they will have employee communications specialists who can devise a message that resonates with staff. Consultants will also employ investment experts, ensuring that the investment strategies of trust-based schemes are suitable, and that the investment options in contract based schemes are right for the workforce. They will also offer more complex funding and investment advice, including de-risking, alternative financing, corporate covenant assessment, and the impact of legislation.
Consultants will also be able to place pensions within a broader reward context. Will Aitken, a senior consultant at Towers Watson, says: “You may have an employer that is investing considerably in the pension.
But if it has a young graduate workforce struggling with debts, the adviser can highlight other savings options that can be made available, and other solutions to appeal to this segment of the working population.”
Many consultants also offer added-value options, such as online benefits systems or modellers, but this should be a secondary consideration, says Aitken. “Look at what is available from pension providers at no cost. If [employers] can get these added-value services for free, is there any point in paying a pensions adviser to replicate them?”
It is also important to get to grips with the level of expertise an adviser brings, says Aitken. “An adviser needs to understand what the pension means to the employer and employees. Is it a big part of the reward package, or is it a hygiene factor? Where does the employer sit in terms of what its competitors offer? [An adviser] can also look to the future. If it has an understanding of where the market is heading, the adviser can help the employer stay competitive.”
Antony Barker, managing director of JLT Pension Capital Strategies, says: “A comprehensive added-value advisory service offering both strategic and tactical solutions requires the adviser to play a number of roles: adviser, financial engineer, assembler and trusted fiduciary. Employers should be looking for someone that can provide ideas, educate, support and lead when each is required.”
Independent financial advisers
As well as consultants, there are independent financial advisers (IFAs), which may work on a fee basis, be funded by commission from the pension provider, or offer a combination of both. Many can handle complex pensions,
but they tend to specialise in contract-based defined contribution schemes. Financial advisers will largely appeal to employers with straightforward arrangements looking to keep costs down.
While financial advisers offer a range of services, what differentiates them is their ability to focus on the individual. Sean McSweeney, principal consultant, online and flex for AWD Chase De Vere, says: “If [employers] want someone to offer individual advice and encourage employee understanding and appreciation of benefits, then an [IFA] brings that expertise.”
This sort of specialist often charges less, and will sometimes be paid, at least in part, through commission.
However, in 2013 the retail distribution review (RDR) will prevent advisers being paid by commission from pension firms. As JLT’s Barker says: “RDR will polarise the market between project providers and partnership providers.”
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