Mergers and acquisitions are the latest buzz words again. No longer the reserve of industry giants, this time it is the specialist advisers who are on the move.
The whole is greater than the sum of its parts, it is often said, so should we be paying more attention to what looks like a new trend? When pension administrators and advisers Michael Kirk & Partners of Croydon recently bought Guildford-based corporate protection specialists Company Benefits, it signified a new departure for the corporate advice market, a marriage between a group healthcare specialist and a pensions IFA.
So is this a modern and forward-thinking match? Certainly, stakeholder has brought pensions into the corporate limelight, and healthcare is increasingly an issue of employer responsibility. This means the two specialisms are now running in parallel, so teaming up makes sense for anyone wanting to win the race.
Society of Financial Advisers (Sofa) director Robert Reid feels all IFAs need to keep a watching brief. “It’s all about wealth management now, rather than marketing a particular product,” says Reid.
“We’ve seen this on the personal side of financial services and the same thing is starting to come into the corporate market. It’s easier to charge fees if you are doing an overall package. Healthcare is a good example because it can be quite expensive to service, so bundling the risk products together can often result in a service which is easier to manage overall.”
According to Life Insurance Association (LIA) public affairs director John Ellis, IFAs are tending to look around to find new areas to branch into. He says: “Much of the traditional market for IFAs has been reduced with troubles about endowments, things that have made people suspicious, so IFAs are planning to move a lot more into new fields. I think we will see many more mergers over the next year or two.”
The margins are being squeezed on pensions business in particular, according to Swiss Life employee benefits marketing consultant Nicola Smith. She says: “Pensions specialists are looking for new sales opportunities. Income protection (IP) and critical illness cover are natural progressions.”
Add to this the move away from defined benefit to defined contribution pension schemes, which means less opportunity to use the pension fund to cover ill health retirement, and suddenly pensions IFAs have to start thinking IP.
But it isn’t just the pensions market which is changing. There are moves afoot within the healthcare camp which make this acquisition relevant. Corporate protection IFAs will need to be very pensions aware now that stakeholder is to be part of the employee benefits agenda.
“Trends in employee benefits are moving towards flexible packages with employers looking for one-stop shops,” says Smith. “As human resources managers become increasingly busy themselves they are looking to find many specialisms in one place.”
The two firms in question, Corporate Benefits and Michael Kirk & Partners, both stand to gain from the recent acquisition.
“I just feel it’s going to bring together such a blend of skills,” says Ingrid Skoglund, managing director of Company Benefits, the corporate healthcare business which she set up four years ago. “A practice has to be composed of individuals who each have a specialism, but in this day and age it is getting very difficult to be an expert on everything.”
Regulation also has a part to play in this emerging pattern. As legislation changes and increases it becomes more difficult for any adviser to focus on more than one area.
But this need to specialise creates its own gulf between specialists. Although Skoglund is qualified to advise on pensions, linking with experts in this field means she is left free to focus on her primary strength which is healthcare.
“Michael Kirk & Partners and myself saw the beauty of allowing me to specialise in group protection products, such as PMI and IP, but be able to offer my clients their pension expertise, particularly where stakeholder is concerned,” says Skoglund. “It’s given us the ability to look at a package of employee benefits in its entirety, dovetailing the products, which is advantageous for the client.”
The closer IFAs work together the tighter the advice pattern becomes.
This acquisition may actually be the tip of a new iceberg. Earlier this year IFA Towry Law bought Advizas, the financial planning arm of Hogg Robinson, giving it access to healthcare expertise in the small to medium corporate market. Although there are few such mergers among healthcare advisers at the moment, “there are a lot of people sniffing around” according to Reid. He agrees this could be indicative of a trend. With the advice market poised to move in a new direction, something it must do to stay ahead of the game, this may be the answer.
“It is too difficult,” says Reid, “especially for small firms, because you can’t be expert in everything. With the smaller firms I can see it moving towards a chambers approach, similar to barristers, where you have a synergy between two different disciplines.”
For the smaller specialist, agreeing to swap clients gives a collective strength without having to pass money case by case. Larger advice firms may need to merge to get economies of scale but even the big nationals will need to look at co-operation within a plc to make the most of the changing market.
“You can argue there are three scenarios,” says Reid, “the small ones working together, the medium sized ones getting together and the bigger ones actually using their internal strengths.”
If this particular acquisition makes business sense then will other group healthcare and protection firms, without a pension link, be left out in the cold? Ellis says these two areas are drawing closer, particularly now that pensions are fast becoming a welfare issue.
“There is a gradual move by successive governments to switch a lot of welfare provision over to the private sector,” says Ellis.
“There is a tremendous need for protection, and now we have the stakeholder pension which is a trigger for a whole lot of other things to be looked at. It’s a bit disappointing that the government hasn’t made the stakeholder pension more explicitly a vehicle you could hang some other things on to.”
Company Benefits also brings with it 260 corporate clients, good bait for pensions administrators and advisers Michael Kirk & Partners. But the link works both ways. With stakeholder making pensions compulsory for many previously untapped employers, potential new customers emerge for healthcare advice. So bonding together two specialist IFAs can mean that both gain.
Michael Kirk & Partners marketing manager Patrick Wynne-Jones says the benefits are also for the client. “The person in a company dealing with benefits tends to be the same one anyway,” he says, “and there are quite often financial advantages to be gained by rolling these things together. It makes a complete package.’
But the two sides of such an advice partnership need to continue to function independently in order to remain as strong and cost effective as they had been separately. Small IFA firms have to stay fast on their feet – and scale can be dangerous if it lulls everyone into a false sense of security. For this reason Company Benefits will remain very much its own master and its financial performance will be judged independently.
It is the stakeholder pension which has brought this debate to a head but it is the healthcare market which stands to gain in the longer term. Pension business has been highly developed for decades, allowing many IFA specialists to rely solely on their pension sales. The successful firms of the future will be those who sit down and make a game plan, a game plan which might easily include links to healthcare.
“Exactly,” agrees Reid. “If they have a strategy there’ll be every chance of success, if they’ve got no strategy then they won’t be here in five years.”
For anyone specialising in pensions there can be no growth without new thinking. Stakeholder may be a concept for the individual but it is essentially a corporate product.
“It’s a group product,” agrees Ellis. “You’ve got to be looking for the corporate client. A lot of IFAs need to start to think in those terms. Too many people can’t get out of the box of thinking stakeholder in terms of personal pensions. That’s all old hat now. We are talking so much more of corporate business. Stakeholder is not a viable product sold to the individual.”
The LIA is looking to put training in place to start advisers thinking along these new areas of corporate opportunity. It’s just a big learning curve but it seems the fast workers, like Michael Kirk & Partners, are at the top of that curve.