We have entered a period of major change, in which the workplace is now increasingly offering a very different range of opportunities to firms, and of benefits to employees and employers
Digital services have the ability to transform the delivery of advice and provide the potential to create consistency between algorithm driven advice, hybrid advice and traditional face to face advice
In the course of the next decade the workplace will become the most important channel for accessing advice and for the distribution of financial services products
This new White Paper examines the new opportunities in the workplace and how US ideas can be adapted for the UK so that the workplace can become a major distribution channel for advice and financial services products.
Read the foreword from the White Paper below, and download the full document from our Download Centre.
Financial services firms have maintained a significant presence in the country’s workplaces, and in particular its larger workplaces, for many years. Over most of that time, the main part of their business has been the provision of group schemes – first and foremost pensions, initially Defined Benefit and increasingly defined Contribution, and also group benefits – protection and medical insurance which more recently have been components of flexible benefits plans.
Recently, though, we have entered a period of major change, in which the workplace is now increasingly offering a very different range of opportunities to firms, and of benefits to employees and employers. In keeping with the over-arching trend in financial services as a whole these days, these new opportunities are essentially to do with enabling individual employees to take personal responsibility for their own financial security. In a world in which neither financial services firms, nor employers (outside the State sector) nor the State itself have any intention of taking on any more risk than absolutely necessary, the challenge is to help individuals manage the risks and provide for themselves.
Ironically, the single biggest change, which has done most to trigger the new wave of workplace financial services, seems, at least superficially, to fly in the face of this mega-trend. Auto-enrolled pensions use principles drawn from behavioural economics to help people achieve some level of retirement savings without the need for any involvement or positive action on the part of individuals. But the reality is that, for most, the default level of contributions, even when it reaches it’s full extent of 8% per annum in 2019, will be horribly inadequate to meet financial expectations in retirement. Some of the more important new developments, discussed in this White Paper, are to do with helping individuals figure out how to build on the foundations of auto-enrolment to achieve the retirement income they want.
It is, of course, extraordinarily timely that at exactly the moment that people most need the help necessary for them to be able to understand and manage their own financial situation, we are now able to provide the digital and data-driven tools which make it easy and cost-effective for them to do so. This remarkable coincidence is the subject of this White Paper.
It focuses centrally, but by no means exclusively, on the provision of advice. In this sense, I see it as the companion piece to EValue’s White Paper on robo advice “Robo Advice: the catalyst for transformational change” which we published in October 2016, and which discusses similar issues outside the workplace. Why? Because digital services have the ability to transform the delivery of advice by “industrialising” the process, and provide the potential to create consistency between algorithm driven advice, hybrid advice (an online process with sign-off by a human adviser) and traditional face to face advice. Nowhere is the capability for industrialising advice to deliver a massive scaling in supply together with more choice, more obviously applicable than in the workplace. Indeed, in the US, the only robos that have been truly successful have been in the workplace.
The Financial Advice Market Review report produced by the Treasury and FCA recognised the importance of both the workplace and robo advice as a means of closing the “advice gap”. As further encouragement, the Government has introduced valuable tax breaks which will make advice considerably cheaper to access via the workplace. What’s more, any advice that helps employees choose to supplement their retirement funding is likely to be promoted by employers who recognise a business need to help their employees exit gracefully from the workplace when their productivity starts to wane.
Pension freedoms, taken together with the demise of pensions as the primary means of retirement funding (at the very least for higher earners), mean that planning for income replacement in retirement has become much more complicated both before and after retirement. Employees and retirees need help with, arguably, the
most important financial decision in their lives and where else better to get that help than in the workplace. But the new workplace services are by no means just focused on pensions, or indeed on investing for retirement. Looking across the Atlantic, as so often is the case, we can see what the future may hold for us.
Over half of all mid-sized and large US companies offer financial wellbeing programmes to help employees much more broadly with the management of their finances.
In our previous robo White Paper, I said that it would take a brave and/or foolish person to peer through today’s clouds of uncertainty and make predictions. Nevertheless, I dared to make predictions about the winners and losers in the “robo revolution” and how advice may be integrated and layered to provide more
choice for consumers.
The clouds of uncertainty around the workplace are even denser. In particular, I don’t think it is at all clear whether people will think of the services they buy via an employer as portable, so that having taken them on in one workplace they then continue with them over the rest of their careers; or whether they will think of them as attached to each employment, so that they switch to new services every time they change job. Clearly, the answer to this question will have important implications for the size and shape of the market over years to come.
Undaunted, though, I close this introduction with a further prediction. In the course of the next decade the workplace will become the most important channel for accessing advice and for the distribution of financial services products. It would be dangerous in the extreme to underestimate it.