Is an employer-sponsored financial adviser right for your members?

However, the number of advisers has not grown in line with demand, especially in specialised areas.

Corporates and trustees want the right outcomes for their members, but leaving members to fend for themselves puts their retirement at catastrophic risk

There are millions of active and deferred DB members in the UK, but according to the Personal Finance Society in 2017, there are only 8,347 qualified pension transfer specialists with the Statement of Professional Standing required to provide advice in this area.

While I have used DB pension examples throughout this article, it is important to highlight that the need for advice does not just relate to pensions. Wider financial areas such as protection, investments and savings are also vital for the wellbeing of members.

Schemes fear being seen to endorse advice

Corporates and pension trustees want the right outcomes for their members, but leaving members to fend for themselves puts their retirement at catastrophic risk.

These risks have been magnified recently, and while this highlights the need for an employer or trustee-sponsored adviser, many corporates and trustees do not want to be associated for fear of being seen to endorse the adviser or the advice.

The Financial Conduct Authority recently expressed concern over the consistency of DB pension transfer advice and this, coupled with fears over cost and pension scamming, means it is more important than ever for corporates and trustees to support members in receiving the right advice.  

While this article is addressed from the point of view of a corporate, similar issues equally apply to trustees.

The corporate should engage with experts that have a good understanding of the industry. This will enable the company to formulate selection criteria, which in turn will allow it to select appropriate financial advisers to support members.

As part of these selection criteria, the corporate will be assessing factors such as the resources of the advisory firm, their house views, compliance function and the technological infrastructure of the company.

While transferring safeguarded benefits will not be suitable for the majority of members, it will be the suitable option for some, and this must be taken into consideration.

Different approaches to guidance and advice

Corporates have four main options when it comes to supporting their members. The first is to do nothing and let members seek their own advice. The issue with this is that the corporate has no control over which members understand their options or who the member chooses as their trusted adviser.

The second is for the corporate to provide some guidance and education about their options. It could perhaps provide transfer values as a matter of course with retirement quotes, but leave the member to seek advice themselves.

The advantage of this is that the company knows members have access to relevant tools that can enable them to boost their understanding, which should lead to better outcomes.

Third, corporates have the option of appointing an adviser, with the member paying for the advice.

There are many advantages to this, but two main advantages would be that the corporate can ensure the advisory firm appointed has appropriate house views, while providing the advisory firm with certain information in bulk. This ensures full knowledge of the scheme and its benefits while driving down the cost to members, speeding up the advice process, and reducing the administration burden.

Finally, the corporate could cover the cost of the adviser in part or in full and this would resolve the concern of members not being able to afford advice.

Vito Faircloth is a financial planner and senior associate at Mercer