Consultant-provider collaborations create AE quandary

Concerns of a provider capacity crunch ahead of this year’s auto-enrolment peak – in which around 28,000 medium-sized employers are expected to stage – led some pension providers to seek ways to streamline their offerings to cater to smaller employers.

Effective collaborations may result in improved terms for members without the cost to the employer of a full market review

Lee Hollingworth

Some consultants have joined forces with providers to develop ready-made solutions. These include consultancy Aon Hewitt’s tie-in with provider Zurich, with both companies pointing to the benefits of collaboration.

But the nature of tied consultant deals “precludes independence”, said Laith Khalaf, head of corporate research at Hargreaves Lansdown. “Employers need to look through the consultant to the provider as, in selecting a consultant, they are effectively selecting a provider too,” he said.

Khalaf added that employers need to be clear on exactly what services they are getting through a tied deal and understand what costs they may incur if they want additional services from the consultant beyond the off-the-shelf product.

Lee Hollingworth, head of defined contribution consulting at Hymans Robertson, agreed that such deals could be perceived as limiting choice, but said provider capacity issues would have resulted in limited choice anyway.

Through tie-in deals, smaller employers may be able to access lower member charges and a “more optimal service delivery model” than would have otherwise been the case, he said.

“These employers may be less willing to pay for a full review of the market. Therefore effective collaborations may result in improved terms for members without the cost to the employer of a full market review,” he added.

Aon Hewitt’s DC proposition leader Debbie Falvey said it was important for consultants and providers to work with their mutual clients beyond simply the implementation of the scheme.

“This does not compromise the independence of the consultant,” she said. “With new propositions, we always take a whole-of-market approach and then collaborate with providers if and when it seems appropriate.”

She added: “We can still find a bespoke solution if that is what an employer wants or needs.”

Stephen Lefley, director of corporate distribution at pension provider Zurich, said auto-enrolment has provided the opportunity for a “neat fusion” of consultant and provider best practices.

“It’s going to be an interesting next few years because there’s some consultants with some excellent ideas, and for those to actually work they need to integrate those ideas with best-of-breed DC propositions, with providers,” he said. “So there probably will be a growth in partnerships.”

Damian Stancombe, head of employee benefits at Barnett Waddingham, which has collaborated on such a product with pension provider Standard Life, said the approach was borne out of a change of behavior among providers, who were “cherry-picking” clients. 

It chose Standard Life after holding a beauty parade, but he added: “At the very highest level we remain totally and utterly committed to the independent market… We will carry on doing due diligence that they are the right provider the whole way through.” 

So far, the consultancy has signed up around a dozen employers and is receiving around one to two new leads each day.