Technology is shaping a new financial services market with the workplace at its centre. Staffcare CEO Phil Hollingdale tells John Greenwood why auto-enrolment feels like dot.com all over again.
Flex and corporate wrap providers have for years been talking about how they are going to change the world. But while this message has been somewhat drowned out by the noise from auto-enrolment in recent months, Staffcare chief executive Phil Hollingdale believes such a world is, this time around, now closer than ever to becoming reality.
In just a few years time every employer of any size will have auto-enrolment software which in most cases will be able to offer richer benefits functionality. Personal banking information, delivered to employers’ benefits portals, will follow soon after, offering employees all they need to arrange their finances. And whoever owns that relationship will be well-placed to make a lot of money says Hollingdale.
“At the moment we have a land grab for business. Penetration wasn’t high for benefit platforms previously for a number of reasons. The first reason was that corporate advisers did not embrace them because it wasn’t core to their business. And secondly they were getting rich off the commission from the pension schemes. And so platforms were seen as nice to have.
“That has all changed now. Businesses today have to implement software so smart HR people are using the auto-enrolment budget to get the platform they have always wanted.
“And because of RDR rich commissions have gone away. IFAs have focused their business,” says Hollingdale, whose Staffcare flex benefits software, adapted to include auto-enrolment compliance and implementation functionality, is appearing in an increasing number of parts of the market.
“Yesterday it was about flex. Today its about AE. That will lead to AE plus flex/ or more specifically broader benefits. And tomorrow its about integration, which is taking the benefits portal and plugging it into external applications, such as valuations.
Thereafter its about aggregation, which is where users stay where they are in one portal and we bring all the information into one place and that is an even better experience,” says Hollingdale.
It is a story that banks and insurers were telling just a few years ago when auto-enrolment was first being mooted and corporate wrap functionality was first being developed. So what is different this time around?
“It will happen. The employer hasn’t wanted to put the workplace savings platform into the workplace before because what is in it for them? It has thought ‘this is just the provider trying to flog more products to my staff’.
“But if you provide a richer solution to the provider, such as better benefit admin tools and communications, you are helping them, which opens the door to get your platform in the workplace, and the technology will enable you to go and get the data from the banks,” he says.
HSBC Workplace Retirement Services, before it was closed down, saw its ability to offer those employees who were also bank customers the ability to see pension valuations at their ATM or in their online banking portal, albeit having been taken to the HSBC website. Hollingdale sees modern platforms turning the tables on the banks and making the workplace the centre for employees’ financial services experience, and argues there is nothing they can do to stop it.
“The banks wont be able to stop this happening, in the same way they are being made to make it easier to switch account.
“So the key is who really owns the relationship with that employer? Who is going to get in there first with the auto-enrolment land grab and get their platform in poll position to take their client on that journey?
“Its a bit like dot.com. Back in 1997 we had that e-commerce frenzy and that was a land grab. Think of some of the big companies that positioned themselves early on, like Amazon and Asos and Lastminute.com. I think auto-enrolment is a bit like that. You need a few people to be brave and go big and get that footprint and then they are going to be in a good position,” he says.
“HSBC backed out – I was surprised by that. But you have others like Barclays coming into it. And I think there will be other players starting to come in – some of the big consumer brands. You have already got Google dabbling in mortgages and financial aggregation.”
Hollingdale adds that this is not science fiction but is already happening. He points to Lorica, which uses his company’s software, which in August launched a financial management proposition that offers employees access to current and deposit account information as well as credit card data, through their workplace benefits platform, giving staff a single view of their entire finances.
Before that comes along, he predicts, we will see a fleshing out of existing benefits through platforms put in place to cope with auto-enrolment.
“Platforms will be embedded in all these businesses. They will be sticky because of the regulations that say you have got to keep records for six years. And then the opportunity then is to extend capability to those employers through that platform.
Whether that is to extend broader benefits through the workforce through that platform or use it to start enrolling the workplace into all the other benefits they provide. There will be an easy upsell opportunity to broaden out functionality,” he says.
He also predicts that much of what has been put in place to deal with auto-enrolment will end up being rebroked.
“The second user market will emerge quickly. Many clients who have already staged have rushed it through. They have done it with their payroll provider or a big consultancy and got their internal IT to build something. A lot of them will be sorely disappointed with what they have and come back to the market to get something better,” says Hollingdale.Staffcare has been laying the foundations of a broad distribution network. It how has around 30 core intermediary partners, varying from giants such as Mercer, through arrangements like Steve Bee’s Paradigm organisation, and with firms such as Close Brothers, Jelf Employee Benefits and Creative Benefits, to make the most of the coming surge of auto-enrolment business.
“There is no doubt there will be a capacity crunch. But it will be a challenge for our partners more than us. Come next May there will clearly be a capacity crunch,” he says.
To target smaller companies with simpler needs Staffcare is building the next version of its auto-enrolment software, which will become available in early 2014.
At the moment advisers can handle auto-enrolment implementation with their client. “But we are building a self-build model so the employer can do the bulk of the configuration themselves, if not all of it. They will be able to go online, read all aboutit, configure it, upload the data, and they are live,” he says, although he stresses that the model will always be intermediated.
“Steve Bee’s partners are typical – they have all got lots of SMEs but got one or two big firms. So Steve is starting to load some of his bigger schemes. He and others are cleverly forward selling into SMEs to get them in the hopper and get them in the schedule and be prepared to have their proposition ready for them.
“Our capacity crunch will be how many partners can we take on. Because that is time-consuming as for many of them they are doing software for the very first time. There is quite a knowledge transfer here. But the simpler we make the software, that reduces the number of support calls,” he says.
“We do deal direct if employers only want technology. But our model is to focus on delivering through partners. They have relationships and can offer other services around the technology, be it advice or comms or admin services.
“But we are also looking at a new distribution channel, outside the corporate adviser space – and that is accountants and payroll. We have just agreed a deal with a payroll provider who tried to do it themselves and then gave up. They deliver payroll for 30,000 employees. They are already using it, but I’d rather not say who they are,” he says.
He adds that Staffcare is also in discussions with a pension provider about licensing its software to them to help with the capacity crunch by enabling employers to do more themselves.
Hollingdale predicts wide coverage of the UK working population when the dust settles.
“Even if we only got 5 per cent of the market we would be in a strong position. Anything north of 10 per cent will be happy days,” he says.
Hollingdale sees corporate advisers losing their commission stream as well-placed to reinvent themselves as software distributors, white-labelling products such as his own and adding a slice on top.
“Historically our software has been regarded by some as nice to have, but not mission critical. So the uptake hasn’t been in recent years at the rate we had anticipated. But auto-enrolment has changed that. And that alongside the RDR has been a game-changer.
“Auto-enrolment is a salesman’s dream. Every employer is affected. And with the RDR taking away commission all of a sudden advisers are taking technology platforms more seriously as a means of revenue generation. It is a great new revenue stream for them and pretty high margin as well.”