The RDR means higher qualifications are becoming the norm for pension advisers. But will salaries go up too? John Lappin investigates
The RDR will certainly lead to a restructuring of business models for many firms. Most corporate adviser executives say in public that they are well-placed to ride the changes, though they may use it as opportunity to re-engineer or at least refine their services and how they deploy advisers.
But they have yet to see costs rise. Simon Gregory, business development director at Enrich Employee Benefits, says: “There are two sides to the staff costs question. We don’t expect the RDR to significantly drive up salaries. There is a market norm for good IFAs and we haven’t seen any sign of this shifting up to reflect a diminishing resource pool.
“But it is worth noting that there has always been a premium for the most qualified and experienced advisers and we may see some levelling up on salaries over the next couple of years as the overall standards continue to rise. The other side of this coin is the recruitment consultant, there is a very mature and competitive recruitment market in the UK which, along with increasing professionalism in that industry, we believe acts to keep search fees in check.”
People are looking to differentiate themselves, and demonstrate a willingness to go chartered. It will not be the be-all and endall
But what is the qualification situation like as the deadline approaches? Looking at the IFA market generally, the Chartered Insurance Institute says that as of the end of July around 52 per cent of advisers were qualified to QCF level four already, a further 32 per cent are well on the way, 8 per cent have at least paid for materials, while 8 per cent are doing very little. The latter figure has remained mostly constant for about a year now.
Steve Jenkins, director of financial services at the CII, believes that the numbers may be better still among corporate advisers and says there has been “an acceleration in activity” across all sectors.
He says that simply by looking at job sites you can see firms now demanding that advisers are qualified to diploma level, or at least very close to it. He also thinks that advisers are also more determined to go chartered.
He says: “People are looking to differentiate themselves, and demonstrate a willingness to go chartered. It will not be the be-all and end-all.
Technical expertise is only one ingredient, but people are investing in themselves, they are looking to stand out from the crowd and the advisory firms or the employers of tomorrow will look to what the adviser has done to invest in themselves. There is tangible evidence to show this.”
Gregory tends to agree. “IFAs are by their very nature an inherently entrepreneurial group and the good ones have already taken the initiative to up-skill to meet the requirements of the post-RDR landscape,” he says.
But Jenkins makes another point that may concentrate minds in the sector. He says that, as with wealth managers, employee benefits consultants may find employers increasingly expecting them to show a high level of qualifications among their staff.
We are going to end up with a smaller, more professional pool of advisers. There are a lot of people currently working as financial advisers who aren’t really up to the standardthat is going to be required post-RDR
“As IFAs and EBCs pitch against each other to get mandates from employers, you could well see procurement processes and beauty parades asking them how do you invest in your staff? If we are having people come into the workplace to advise us, how do we know they know what they are talking about.”
The Pensions Management Institute has applied to become an accreditation body. Having surveyed its membership, it found that around 10 per cent give regulated advice and it expects that number to grow. Prompted by expected demand from the large global consultancies it is also planning a corporate advice module. But not content with helping the advisory industry, it is also creating a Diploma in Employee Benefit Savings for employers more generally.
Unsurprisingly, the PMI is also very welcoming of the RDR and believes it will cut down on misselling risk, though it also accepts it will also cut adviser numbers.
PMI technical consultant Tim Middleton says: “It is going to involve more time and more cost, not just in buying more examination materials, but in terms of lost productivity while they are off studying, I would argue it is a price worth paying. We are going to end up with a smaller, more professional pool of advisers. There are a lot of people currently working as financial advisers who aren’t really up to the standard that is going to be required post-RDR. Whilst it is not pleasant to see people managed out of the industry, the objectives of the RDR are sound and if it is going to result in the UK having a more professional pool of financial advisers then that is an objective worth going for.”
Corporate adviser business leaders echo many of these sentiments and believe the onus is on them to develop their advisers.
There are still lots of IFAs where half their business is still commissionled. How can they bring in new blood ifthey don’t know how to do business the new way themselves?
Jelf managing director Glenn Thomas says: “The requirement for a higher benchmark qualification is to be encouraged. I have always encouraged our employees to take the relevant qualifications.”
But he does believe it could lead to adjustments in the way corporate advisers advise.
“Our objective will be to use the qualified advisers in areas that are more highly valued by clients. If there is a shortage of the more expensive fully qualified advisers, perhaps we will start to direct those advisers to the areas where people do need advice the high value funds, those approaching retirement so using the skills where they are needed rather than the more general approach. There is only so much money to go around. If firms see their income under threat they are going to have to find ways to deliver things more efficiently than always using highly paid advisers,” he says.
Syndaxi Chartered Financial Planning managing director Robert Reid also sees sense in this sort of reorganisation:
“If you have a large scheme, you need people to look after the higher earners and a GP adviser is not going to be capable. If you are setting up a scheme, it is better to have an administrator than an adviser. It drives you to the point of segmentation of task though it is more difficult for the smaller company.”
Aviva director of workplace savings Paul Goodwin says corporate advisers are doing “more and more of that value-added work such as providing detailed investment advice around default funds and more one-to-one advice. In the context of qualifications, it is a case of sort the business model, and then understand the qualifications in terms of the business model.”
He feels that the adviser who might in the past have set up a GPP because he played golf with the finance director of a local business, may now fall out of the market. However, even if firms close, advisers will simply switch firms and take their existing corporate clients with them, so the impact of a fall in numbers could be overstated.
He believes that advisers who take the sector seriously face both huge challenges and opportunities.
He says: “The statistics show that if you take employers with between 50 and 2,000 employees, 25,000 don’t have a pension scheme. How are we going to deal with them in a fee environment, if they don’t want to go to Nest? Say 80 per cent will go to Nest. The remainder is a still a huge market. How is the advisory community going to step up to satisfy that environment, given that the option of commission will no longer be available so the employer will be charged a fee or consultancy charge?”
Richard Jacobs Pension and Trustee Services managing director Richard Jacobs thinks a lot of these businesses will not change and there will be a pregnant pause after the RDR deadline.
He says: “There are still lots of IFAs where half their business is still commission-led. How can they bring in new blood if they don’t know how to do business the new way themselves? But long term, I do believe it is going to be great for the industry. I wouldn’t have brought my daughter into the industry if I didn’t think it was going to be good.”
Jacobs thinks that as the auto-enrolment deadlines approach, most competition will come from accountancy firms.
“We are going to be very active. I don’t see competition from IFAs, but from accountancy firms. The businesses are quite happy to pay a fee to the accountants, with regards to Nest, but not pay IFAs, which comes back to fact that they see us as commission-driven salesmen.”
Reid sees the end of that commission system and the fact that advisers are better qualified may mean that corporate advisory firms are compensated for the fact they may have to pay advisers more, because the firm will have better risk management and less potential liability.
That liability issue is another reason why he suspects that firms will not take over other businesses to access their pool of advisers. “They may look for companies that are not trading actively. You may try and take the best people. Why would you buy their liabilities? I think there will be a lot more headhunting,” he adds.
Which is why on the whole consultancies think they can take the change in their stride.
Thomas adds: “If there is more of a shortage of the more expensive fully qualified advisers, perhaps we will start to direct those to the areas where people do need advice, the high value funds, those approaching retirement actually use the skills where they are needed rather than the more general approach. There is only so much money to go around. If firms see their income under threat they are going to have to find ways to deliver things more efficiently than always using highly paid advisers. We need to point them in the right direction. There is a bright future for qualified advisers.”
Gregory adds: “The measure of value that an employer receives from its staff is more than just financial; it is measured in the strength of the relationships it has with its clients and suppliers. We believe that better qualified and more professional advisers will have an affect on those relationships in a very positive manner.”