Costing unforeseen consequences

Financial planning tools on corporate benefits platforms may be one of the few ways advisers can reach middle to low earners once the RDR is implemented, says Ian McKenna , director of the Financial Technology Research Centre

The law of unintended consequences all too often plagues regulatory change. I am sure the Office of Fair Trading never expected their insistence on the abolition of the maximum commission agreement to increase commission rates by over 50 per cent in the decade that followed, but that is what it did. Equally, it is doubtful that the FSA, in drafting the Retail Distribution Review, intends to make financial advice unaffordable for anyone earning less than twice national average earnings.

Against this background, providing some form of automated advice might be the only way that many advice firms can continue to service customers who do not have significant income levels. Realistically, how much is someone going to need to earn before they are prepared to write a cheque to cover the true cost of an adviser’s time, or before the level of perfect matching deductions can be made to a contract that would be sufficient to cover these costs? Even if the spectre of adviser charging is not removed from the corporate market, work place marketing has much to offer as a low cost channel.

Regular readers of this column will know that I am passionate about the benefits that new media channels, such as mobile phones, offer as an opportunity to achieve customer engagement. I also believe the wealth of knowledge that has been accumulated in the science of behavioural finance can help us assist consumers to reach more informed decisions.

One of the first providers looking to bring their new workplace savings proposition to market is Friend Provident with its ‘My Money and Me’ service, announced in early November. At the time of the launch Friends painted a picture of a proposition that will deliver group Sipp capabilities to offer wider investment choice and flexibility, access to stocks and shares, a general investment account, a range of financial planning tools and a consolidated view of investments. In addition, the service will offer a range of financial education tools extending beyond just pensions, from debt management to investment decisions.

Services like this offer the opportunity to re-engage with consumers and restore the position of trust of our industry by offering valuable insight in terms consumers can understand.

I now firmly believe that the traditional two-thirds final salary objective is considerably below what many people will need to enjoy retirement

Friends has recently made some worthwhile changes to the member planning tools that are part of its existing online group pension services. Its e//forecaster retirement budget calculator now invites the member to consider in more detail the level of income they will be seeking in retirement, rather than simply positioning this as a percentage of salary. Questions ask how much scheme members will want or need to spend on holidays, social activities and bills, so the user can really think about their standard of living in retirement. This is then translated into gross income requirement in today’s terms. I believe this is a much more practical approach. Many people reaching retirement today are living vastly different lifestyles to their parents who 20 or 30 years ago might have been happy to live quietly in retirement. By comparison, modern retirees frequently want to travel the world on a regular basis so they need to plan for the necessary level of income to support such plans.

ased on detailed research my organisation carried out last year with specialists in later life advice, I now firmly believe that the traditional two-thirds final salary objective is considerably below what many people will need to enjoy retirement.

Alterations have also been made to Friends Provident’s attitude to risk questionnaire on its e//funds risk profiling tool, which the provider says brings the system in line with today’s expectations. The planning tools themselves have now also been positioned as part of the main member site, although to be fair not doing this previously was probably an oversight.

Over the next few months I plan to look at several of the new workplace marketing propositions that are being brought to market, both those from provider firms but also the increasing number of innovative solutions emerging from IFAs and EBCs, who are rising to the challenge of delivering solutions that will provide a far better level of consumer engagement than personal accounts can ever offer and are designed to meet the needs of employers who really care about their staff. Such services could represent the best opportunity for many adviser firms to stay engaged with customers who otherwise might find their services unaffordable in a post-RDR world, and as such offer a valuable way of advisers’ continuing to grow their businesses in the future.