Wrap to the future

Can the best of wrap be married to the best of flexible benefits to create the perfect corporate adviser\'s wrap and benefits platform?

The theory runs that such a tool or package would offer a compelling proposition for employees while allowing corporate advisers to offer their services more cost effectively.

This type of a platform, says wrap consultant Clive Waller, senior partner with CWC Research, would include banking services for paying back debt and saving for a mortgage deposit, share schemes, Isas and pensions with extensive fund choice. The offering would also include health and insurance benefits too.

A corporate wrap would also help with the decumulation phase too, whether through the employer or indeed in a modified form where the adviser retains the clients who have retired or moved into part- time working.

Holly Mackay, managing director of Platforum, a group that promotes discussion between wrap providers, technology providers and advisers believes that existing wrap technology providers have been neglecting huge swathes of the market by almost exclusively vying for individual IFA and high net worth business at the expense of workplace functionality.

Mackay says: “The IFA-facing propositions are a series of building blocks, and the end result is the IFA-facing wrap. There is a huge opportunity if you strip it back to the bare bones and go back to the processing engine. I have been saying for years that everyone is so focused on the IFAs and the high end customers but there is a whole other segment, B to C, mass affluent, DC pensions, employee benefits. As people look at pensions in a broader sense, some platforms will drive this. It will include an element of guided architecture and some range of third party fund providers.”

She says: “For some wrap providers, the employee benefits arena is almost a more intuitive customer base than the IFA space, so it does slightly confuse me that so many are all charging around chasing the same segment of the market. Maybe people are now beginning to think about these options.”

Opinion is divided as to whether an “all singing all dancing” package will be created soon or advisers will simply put together their own offerings on a more informal basis.

Phil Young, a partner at adviser support services group Threesixty says that there is some way to go before the fund choice of wrap as seen in the wealth management space is smoothly integrated with flex benefits.

He says: “I think there is a danger that if wrap platforms try to do something more than tactical solutions they might end up embarrassed by the functionality that the employee benefits platforms can offer.”

“However the employee benefit platforms are only really offering their services to EB consultants and not to IFAs at the moment. Providers seem to keep the two things quite separate from one another. There might be some tactical solutions from some of the wrap platforms but they will definitely struggle to compete for bigger corporate business with the dedicated EB platforms that are available.”

“Most product providers see them as physically separate sales channels. In an ideal world you would have them both together. We will see a tactical integration where you can see some data say from a GPP scheme. But flex platforms don’t just give you a view on the data, they give you the ability to mix and match and I can’t see wrap platforms getting there for a while to come.”

Young says that his member firms who offer both advice to retail clients through a wrap and corporate advice and flex-benefits to smaller corporate clients will be using at least two systems at the moment.

Yet most providers believe the individual and corporate spaces are coming closer together. Axa Distribution Services director of marketing & distribution Martin Jennings says: “Corporate wrap platforms are not that far from being a reality. The current market offerings have the majority of functionality required to deliver huge benefits for both employers and employees. Within a short period of time and a modest amount of development, I believe you will see an array of new corporate platforms.”

Friends Provident believes the two concepts of wrap and corporate platforms remain separate. Head of corporate pensions marketing Martin Palmer believes that wrap remains something that will appeal to well off retail investors and that corporate platforms will appeal to a whole workforce. For Palmer they will not merge. He does not believe for example that employees will want to put any details of their individual financial information and products on to an employer-based system. “We see it very much as a corporate benefit proposition, geared around any CSAs, Sipps and other corporate pensions schemes,” he says.

Legal & General managing director of workplace savings Tony Filbin believes that employer demand will drive integration eventually, mainly because of the big changes to employer pension provision.

He says: “Employers want to give their employees information, education, guidance and advice both online and offline, especially as the nature of the pensions promise has changed over the years. It has gone from final salary to perhaps a trust basis, to contract based schemes with perhaps a default fund. A lot of employers, when they are changing the nature of the retirement arrangement, want to support their employees as much as possible. That is why they are expecting providers to provide things such as risk tools and future benefit calculators through to advice helplines and face to face advice for employees moving benefits to existing employers from previous ones.”

L&G’s position is to “plug and play”, bringing its investment capabilities through Cofunds into the mix while connecting with those who offer full flex services. It has connections to other providers who offer flex such as Aegon and recently linked up with corporate adviser Thomsons Online Benefits. L&G says it sees its roles as providing all manner of fund services, which is essential to satisfy adviser demand. For a corporate adviser this might include helping create a bespoke default fund for a particular employer.

The firm has also launched a corporate Isa and highlights the attendant tax sheltering advantages of linking sharesave, Isas and pensions. “Employers are saying we want to make it easier for our employees to take advantage of what tax wrappers there are, to take advantage of the benefits we have on offer.”

Philbin does not believe any provider has full corporate wrap capability at present. He adds: “Has anyone got all four, the investment platform, the flex platform, the product platform, the advice and education capability, in one place? Probably not. But those who are committed to this market are getting there, though perhaps with different emphases on different aspects.”

But Standard Life says it has plans to offer the full service, though it eschews the term corporate wrap. Its offering, which it says is quite far down the development track, will be called the employee wealth plan.

Senior business development manager Nigel Aston says: “It is especially relevant at the moment, as far as the marketplace, demographics and legislation are concerned. The whole thing is moving towards something that isn’t pensions or at least pensions only. Call it a holistic, e-enabled employer led hub.”

“We see this as doing something different, but it does aggregation, gives some choice and has a goal setting capability.”

The group believes that to provide this service it is important to be a waterfront provider so the fact Standard has a bank, a healthcare provider and a group Sipp all help with this ambition. Standard’s offering will be aimed primarily at larger employers.

Aston says the most important feature will be ease of use and he hopes the site will eventually draw comparisons with general consumer online sites such as iTunes rather than with its peers in financial services.

The service will allow some choice between products but this will incorporate a lot of aspirational goals and it will steer away from the full fund choices that IFA wraps for high net worth IFAs’ clients provide. He says: “Many of the people within a corporate pension plan are there by virtue of the fact they work for an employer. To give them sophisticated options is unrealistic. We think they want to define and track goals.”

This ambitious plan would also see employers helping younger employees service student debt or get on the housing ladder, if they felt that a contributory pension wasn’t going to help them attract graduates. Standard would also hope to retain employees as customers when they leave their employer, helping people through the decumulation phase with the system helping coordinated drawdown from share plans, Isas and pensions.

He argues that the recent budget has made this all the more pressing as it may bring a change in the public mindset surrounding pensions and Isa savings in favour of the latter.

He also believes that no other players are providing the full service, as yet, because most involve some intervention to provide person to person advice of some description.

He says: “The problem with workplace savings has been that margins aren’t high enough. The plan should be to allow people to engage without advice with a big A. People will have planning capability which means they don’t need face to face advice, like flex but on a more elaborate scale.”

Of course Standard has not yet tied itself to a launch date, although advisers would like to see something as soon as possible.

RSM Bentley Jennison Financial Management managing director John White says: “There should be a market for it. Flex doesn’t give you all the tools. It doesn’t link to some of the things like share incentive plans or the ability for young people to control debt. This makes complete sense for corporate advice and is a really efficient way to do it. If we had it, we could change our corporate advisory proposition within twelve months. I will be putting pressure on providers like Standard Life to produce something in the next two years.”

White also believes there is great potential for this sort of wrap service to allow advisers to provide advice cost effectively to the public sector, something that will be needed if changes are eventually made to their pension arrangements.

Smaller advisers currently not operating in the corporate space see the merits in such as system too. Informed Choice joint managing director Nick Bamford is been one of the those advisers who has moved from providing pensions advice to small and medium employers to concentrate on high net worth individuals as the costs of providing this advice did not stack up. He says: “This sort of wrap might make it more cost efficient. It could cause us to rethink our market position.”

White adds: “It would definitely work. It would give an IT capability to advisers like us to give advice to people who are still accumulating their wealth. To put it in the nicest way possible, we might not be able to spend a lot of quality time face to face in meetings with them. But if it would be great if it was possible for both adviser and employee to see the same screen and talk over the phone and have a sensible conversation about liabilities, and what might be a better option. We could also get some really good employers to agree to a fixed cost for this advice for their employees. It has a lot of potential.”

Finance and Technology Research Centre director Ian McKenna believes such systems will be essential for providers and advisers to differentiate themselves once personal accounts are launched.

He says: “It is essential for providers and IFAs to clearly demonstrate the benefit of what they are doing. We have to convince consumers, be they employers or employees, they are getting a Sainsbury’s/Waitrose proposition, as opposed to the Lidl they will get from personal accounts. Once a default option is there, unless you can clearly differentiate your offering, most people will think to themselves: “Oh I’ve got that sorted, I don’t have to worry about that”. I would say a corporate/EB type wrap is essential. Anyone who is not planning in putting that in place is planning to exit the industry.”