How corporate wraps can open doors for IFAs

Robert Kingsbury looks at opportunities in the developing corporate wrap industry.

Proof of the pudding is in the eating and if you are building a corporate wrap what better way to ensure it delivers what it should than to run it as your own employee benefits system?

That is the strategy wrap provider Ascentric is adopting in the development of its corporate wrap. “We are going to use it for our employees as a trial, to understand exactly what is needed and the types of questions people might ask once it is operating. In this way we can refine the proposition before we launch it into the open market,” says Hugo Thorman, chief executive of the platform.

Whether you term them corporate wraps, corporate platforms or the more evocative, employee wealth platforms, their principle is to provide employees with easy access through the workplace to a range of savings and investment vehicles.

In this, they complement rather than compete with employee benefit schemes which, while often including pension plans, tend to have benefits such as life, travel and health insurance alongside discounted gym membership. Both will be offered by employers as packages to help retain and recruit employees.

Add to the concept a workforce becoming more fully engaged as individuals with their finances and their future wealth goals, and corporate platforms should be good news for saving in the UK.

But this is a market in very early development and what is crucial, as highlighted by Thorman, is that platforms coming to market are both fully functional and “clearly seen to deliver value to the employer and the employee”.

“Employers have to have confidence and be comfortable with what is being offered to their employees,” Duncan Howorth, president of the Society of Pension Consultants, observes.

“Those that buy into a platform will do so to add value to being an employee of their company, to retain and attract the best staff.

If the employees are not happy with platform, whether that is because of failures or bugs in the system, that will reflect badly on the company.”

The same applies to the products on the platform. Studies have shown that employees will place trust in the products and services provided by their employer. “Employers are generally diligent in selecting advisers and with them the providers of products. As such, there is an element of endorsement by the employer,” Howorth points out.

“What is key,” he adds, “is that the platforms are not seen as simply a means for providers to distribute products and the employees are engaged with and see the value in the benefit package.”

The drivers

There is only one operational corporate platform at present – the flexible savings platform Wealth at Work – but independent research company the Platforum reports that at least seven life offices and two IFA wrap platforms are looking to enter the market in one form or another in 2010.

So what is driving the sudden influx into this space?

Cynics have suggested that for the life offices it is part of their attempt to create relevance for their propositions in the 21st century. But more compelling arguments exist.

Technology is the crucial driver. Advances in the systems underlying wraps for individual clients, in particular with regards to integration, mean it is now possible to structure and develop corporate platforms.

“Realistically, until now it has not been possible to have a group investment account (GIA), a pension plan and an ISA all tied up with payroll all available to an employee at their place of work,” says Ascentric’s Thorman. “But if you can do a group SIPP, then you can do a group ISA and a group GIA. This combination of technology, plus the current environment, has created the market for employee wealth platforms.”

That current environment includes the ongoing demise of defined benefit (DB) pensions and the RDR.

Employers are looking for ways to ease the move from DB pensions to defined contribution schemes. Being able to offer an alternative scheme that is fresh and different, with more choice and flexibility, can make the transition more appealing to existing staff. It also works as an attractive recruitment package.

“It enables them to look like they’re jumping from vinyl to the iPod without having to go through CDs in between,” as Jonathan Phillips, director of Bluefin Corporate Consulting puts it. 
At the same time, proposed qualifications rules under the RDR are expected to see IFA numbers decline, resulting in the reduction in advised purchase of financial services products.

Yet this will be happening at a time when potentially more people will be requiring advice.
One of the challenges after RDR, therefore, will be how mainstream UK investors gain access to quality financial products and advice in a trusted environment.

For corporate platform providers, this provides a large space into which to step.  But what is the role of the IFA?

Role of the adviser

The potential is there for advisers to become very involved, helping employers to select the corporate wrap, and to decide the range of products they want to make available to staff.

Advisers will also be able to work closely with employers’ internal communications teams to promote the benefits of the platform to staff and develop educational and guidance services, as well as deliver face-to-face advice. Just how involved IFAs may become will depend on establishing strong relationships with employers, which plays well to those already serving corporates but is where some commentators see a problem and limited scope for IFAs to enter the market.

Dominic Fryer, UK corporate strategy and risk manager for Friends Provident, which is set to launch its proposition later this year, believes IFAs will have a well-defined role providing advice to employees and employers.

“The proposition we are designing is with the intermediary in mind, because we believe the range of products on even the most basic of platforms will see a need for advisers to work with employers in the product selection and with employees in giving guidance or advice.”

Fryer sees companies segmenting employees into groups with each receiving a different service model – senior management face-to-face advice while junior employees are offered a restricted or simplified advice model.

“Corporate wraps will give advisers the infrastructure and the tools to provide advice in the workplace and it will open up the mass market to advice through cost effective models,” he says.

Ascentric’s Thorman believes there will be opportunities for advisers but, like Fryer, sees segmentation of advice taking place, and automation playing a large part in the process for “the majority of the employees”.

“We believe there will be three investment options, a default fund, a model portfolio and a more bespoke service giving access to all the investments found on an individual wrap.” But advice will be primarily for the bespoke service. “For the most part the IFA will simply be highlighting the rules and what savers and investors should consider before they make their decision.”

Likewise, the opportunity will exist for IFAs to advise employers on the selection of products for inclusion on the platform, and on the selection of the right corporate platform for their business model. But while the latter may be seen as a natural extension of wrap selection at an individual level, the due diligence and advice parameters will be very different, Thorman points out.

“Advising on platform selection IFAs will have to take into consideration elements such as the suitability across the whole scheme based on the range of salaries offered by the company, the turnover of staff, the strategic objectives of the company, and the employer’s willingness to subsidise service and advice.”

The IFA view

From the IFA perspective, David Thurlow, director at Atkinson Bolton Consultancy, sees corporate wraps as a substantial opportunity for advisers, including advising employers on the right platform for their business.

The firm operates at an individual and corporate level as an IFA and has an employment benefit arm, so is able to see the universal benefits.

Thurlow says the efficiencies that corporate platforms will bring to areas such as product selection and payment processing, mean it will now be possible to effectively manage employee assets, “previously an area difficult to operate in profitably”.

“Currently, it would not be worthwhile putting most employees of corporate clients onto an individual wrap but if it can be structured under the corporate umbrella and, in doing so, better terms derived from providers, the savings from which can be passed on to clients, it will become viable to roll out to the rest of the employees. In this way it will not be a significant additional cost for the employer but it can bring them significant additional benefit.”

However, while opportunities for advisers exist, the low margins of platform business and the ability of platform providers to deliver to non-advised sales, threaten to restrict the scope of advisers, Bluefin’s Phillips believes. “I can see the adviser being cut out of the frame,” he says. “What providers will need to decide is whether that will damage their existing relationships. It will be a commercial decision.”

Phillips believes advisers already in the field can grasp the opportunities but he does not see the launch of corporate platforms as a catalyst for more IFAs to enter the corporate market.
“Corporate wrap is a far more complicated than delivering a group personal pension – which is online and very simple to communicate – and where many IFAs in this market sit at the moment.

“The range of advice they would have to deliver under corporate wrap and the number of questions it raises, makes the proposition far more complex, even as it makes the administration more efficient.

“People need advice but will they be prepared to pay for it and will employers be prepared to pay for it? I don’t think corporate wrap changes that dynamic and I don’t see IFAs wanting to move into the space without that changing.”