Hand power over to the people

The role of the adviser when advising SMEs on retirement planning is very clear - it is their responsibility to empower employees of these companies to build and protect lifetime wealth through the provision of properadvice.

While their options in executing this responsibility have expanded and evolved over the past decade to enable them to do so, the fundamentals of providing proper advice remain consistent.

Regular reviews

For instance, regular reviews of the funding arrangements of SMEs are a prerequisite for providing good advice due to the evolution of product sets and charging structures that more closely align with the needs of diverse sets of employers.

As an illustration, the rapid shift from freestanding funds to umbrella funds provide SMEs with a practical and cost efficient option to enable employees to fund for their retirement while leveraging the collective expertise of a trusted fund sponsor.

Even where SMEs have been in umbrella arrangements, there is significant scope for the adviser to add tangible value by reviewing competing offerings as the pricing of older umbrella funds are typically quite high in relation to modern product sets. The product structures themselves have matured across various dimensions to make retirement provision easier for the various stakeholders engaged in the retirement funding process.

Umbrella developments

As an example, recent developments in the umbrella space now enable smaller employers in the spectrum of SMEs to access even more streamlined governance models that are practically manageable for all employers.

Advisers can therefore assess the needs of the SME at a structural level in order to advise them on the type of fund that best suits their operational constraints in order to maximise the likelihood of achieving good outcomes for their employees.

Employers can therefore focus on their core business activities while funding appropriately for their employees’ retirement.

Furthermore, advisers can play a key role in this space as the typical needs of a group of employees within the SME are quite diverse given that the entrepreneur and their executive team face different sets of requirements to the bulk of their workforce.

In such a context, retirement annuities (RA) have typically been perceived to be gold standard due to the flexibility offered by this vehicle. Unfortunately, there are many structural and product deficiencies associated with RAs when compared to modern umbrella funds.

Such funds now offer advisers the capability to implement default structures that act as a suitable match to the needs of the bulk of the workforce while also providing the executive groups within SMEs access to the same flexibility afforded by RAs at lower costs due to the institutional pricing provided with none of the deficiencies inherent in the RA model.

Consider alternatives

Advisers consulting to SMEs therefore carry the responsibility to consider such alternatives for their clients in order to ensure that they are able to provide their best advice.

These modern umbrella structures provide the adviser with the opportunity to add value to the blue collar staff on a bulk basis and to the more affluent employees in an individual manner that integrates with their holistic financial plan.

Building on the concept of providing individual advice with the context of an institutional structure, technological advances now empower advisers to draw insights on the funds values and projected replacement ratios per employee in real time to be able to provide informed advice at the workplace.

These high quality insights are provided off of electronic platforms to equip advisers to have high quality conversations with individuals to advise them on their contribution rates, investment strategies and levels of risk cover.

These are but a few of the developments that emphasise the critical role that quality advice plays in optimising retirement outcomes for the diverse individuals within SMEs in the context of the operational constraints faced by such employers - a role that will ultimately enable these individuals to create and build lifetime wealth.