How employers use benefits consultants and corporate advisers
As many as 59% of our respondents use benefits consultants/advisers for some aspect of managing benefits or pensions. Of these, three-quarters use multiple advisers or consultants.
As you would expect, larger employers use more advisers/consultants: 27% of those with more than 5,000 staff have more than five advisers/consultants, while 38% of those with fewer than 500 staff use just one adviser/consultant.
The good news for both employers and advisers is that most respondents are either satisfied (70% agree) or extremely satisfied (23% agree) with the services they are buying.
More than half of respondents review their consultants/advisers every year or two, with just 16% leaving it longer than three years. This should keep advisers on their toes, not least because 27% of respondents have changed advisers in the past 12 months and the key reasons for changing advisers were to achieve better value or because of poor service levels.
Recent years have seen the dramatic rise of corporate advisers (qualified financial advisers specialising in advising employers), many of whom have stolen a march on more traditional, feebased employee benefits consultants, especially in the contract-based pensions and flexible benefits marketplaces.
The distinction between corporate advisers and consultants is less clear than it was 10 years ago. Many consultants are happy to take commission over fees, while some advisers are fee-based. Equally, adviser firms sometimes employ consultants to bring a broader, strategic angle to their service, while consultancies usually have qualified financial advisers in their employ.
So, to say corporate advisers are product-based sellers while consultants are strategists might still have a ring of truth in some cases, but it is by no means the full story for many.
Asking respondents what they use consultants for, compared with what they use advisers for and what they do themselves inhouse demonstrates some of the traditional task splits, but also shows the huge overlaps between the various parties. The bottom line on which route is chosen comes down to what employers can afford and with whom they feel comfortable.
Although there is a very small tendency for larger employers to use consultants and for smaller ones to use corporate advisers, this survey shows that the differentials between the two are actually too small to analyse legitimately.
Some employers have a good grasp of how advisers/consultants are remunerated, but the results show it is likely many do not fully understand how advisers source their income. There is little understanding of provider-paid commission (few pension providers still pay advisers commission, but it is common in the insurance market).
The survey shows what employers think they pay, but many appear not to have included the commission paid by providers. This commission is key because the provider claws costs back from employees.
Also, if an adviser earns commission on the back of a sale that runs into tens or hundreds of thousands of pounds, then employers can demand a service that matches that level of remuneration.
The Retail Distribution Review (RDR) has caused much debate among advisers, but has largely passed employers by. However, it is a crucial change that will impact on employers, despite this survey showing that more than 50% either think it will have no impact on how they use advisers or they do not know if it will affect them.
In 2013, RDR will prohibit the payment of ‘factored commission’ and introduce ‘consultancy charging’ on corporate pensions. Factored commission is paid by a provider to an adviser, then recouped from charges levied on employees’ policies over time. Consultancy charging is a fee agreed between an adviser and employer which is deducted by the provider from the employees’ policies and paid to the adviser on a pound-for-pound basis.
Some think RDR will remove ‘commission bias’, which can influence advisers’ recommendations, but others say it will curtail services such as financial education for staff.
Employers and advisers will be very busy in the coming year. This is driven partly by changing pensions tax legislation related to those earning more than £150,000 a year, as well as upcoming pensions changes affecting all UK workers from 2012 (which will introduce auto-enrolment and compulsory contributions, although this is under review).
Employers are also grappling with how to derisk pensions and generally cut costs, so many are taking the chance to conduct a total review of their pension offerings.
More than one-third of respondents will be concentrating on employee health and wellbeing. Given that employee wellbeing matters are often handled in-house, it is interesting that so many respondents plan to use consultants or advisers in the foreseeable future.
Employers are bullish in their use of advisers/consultants: there is a much bigger emphasis on quality of advice than simply using them to reduce benefits spend (although this is important).
However, given how many employers do not always realise just how much commission advisers can be paid by providers, one wonders exactly how adviser ‘success’ is measured and whether it is ever measured against the total amount of money paid by all parties for services rendered.
Given that improved staff attraction and retention, along with employee motivation, is often cited as a key reason for offering benefits, it is interesting to note how low these come on the list of key measures of success.