There has been extensive media coverage of the British Steel pension situation over recent months, with financial advisers portrayed as vultures and sharks – and worse – for offering to consider the transfer option with British Steel pension scheme members.
So-called ‘travelling’ advisers, the marketing of pension transfer review services and the provision of complementary food at seminars have come in for particular criticism.
Before addressing the marketing issue, let’s take a step back here.
Defined benefit (DB) pension transfers are not any kind of scam – they are a regulated activity. The Financial Conduct Authority (FCA) said recently in a letter to the work and pensions committee: “While the advice to transfer out of a DB pension scheme is generally unlikely to be in the consumer’s best interests, it will not always be unsuitable for the individual consumer’s circumstances. What is important is the advice is suitable for the individual consumer’s needs, and that is what we require.”
There is no doubt some marketing can be annoying but, without it, how would you find out about products and services? How would you be able to compare solution A with solution B? Without marketing, you would probably be forced to rely on word of mouth. Is that really satisfactory? What if great products, services and suppliers existed that your immediate network was unaware of? Ultimately, relying on word of mouth leads to reduced competition and increased pricing.
You can argue all day long about the merits of capitalism – and it certainly has its faults – but history shows all alternatives tried to date have not worked out too well. In a capitalist society, a business is not a business until it sells something. A business will not exist for long unless it makes a profit. How much profit is up for debate.
To survive, any business – no matter what sector – has to make some effort to show its target customer base it exists and what it has to offer. Opening shop and simply hoping someone walks in is not a winning strategy.
You may say some businesses do simply rely on word of mouth, and that is true – but, in many cases, it does not happen by accident. There are many subtle (some incentivized) sales and marketing tactics that drive referrals and recommendations. Businesses that rely on word of mouth alone tend to be smaller businesses satisfied with the status quo rather than interested in growth.
Let’s look at an organisation in the pension sector that many would consider trustworthy. As an example, let’s choose Aviva. It spends tens of millions of pounds each year on marketing. Depending on the product or service on offer, it uses pay per click, television advertising, websites, social media (including paid social media advertising), sponsorship, email, various events and direct mail – to name but a few.
Does anyone criticise Aviva for marketing its services? Do they criticise its competitors who also have multi-million pound marketing spends? No, they do not. So why criticise relatively small financial advisers for exactly the same activity?
Many major financial services companies run various events and seminars, run corporate hospitality and sponsor award dinners. Often whatever food and drink may be available at such events is free. Of course, financial services businesses never make any attempt to secure business or exert influence at such events …
Is there really anything wrong with a tray of chicken and chips – or was it sausage and chips – at a seminar? What are the commentators trying to say here? That hospitality is OK if it is for the suited-and-booted at some corporate event because they are intelligent enough to reject any influence – yeah, right … – but a steelworker is in serious danger of being swayed by a sausage and a few chips. Alleged issues with the firm offering the hospitality have come to light. That should be the focus – not the hospitality.
The local issue
Do potential customers avoid Aviva, whose head offices are in Norwich, if they are outside the Norfolk area? No, they do not – why would they? Do English customers avoid Scottish Widows? Of course, they do not – that would be ridiculous.
Any business – if it wants to stay in business – will target its efforts on wherever there is a need for whatever it can provide. As an example, those hiring out pumps will seek to have a presence wherever there is a major flood.
Local pump hire companies will be first on the scene but, if they run out of stock, what then? As an outsider, you may wish to criticise ‘travelling’ pump companies that turn up from other parts of the country but I doubt locals up to their waste in stinking water care. Is there any logical reason the pumps offered by the ‘travelling’ pump company should be inferior to the ones available locally – of course not. So where is the logic in criticising so called ‘travelling’ advisers?
As for the issue with targeting, of course, anyone in marketing has a responsibility to avoid targeting the vulnerable. But how do you define vulnerable? Yes, steelworkers are not financial/pension experts but I guess many of them are not experts in flat-screen television technology either. Are they then ‘vulnerable’ to flat-screen TV advertising by Samsung or whomever?
If someone needs a flat-screen television, I would imagine they will do their own research, narrow down the potential choices and then go and talk to a salesman – Boo! Hiss! – in their local store. Hopefully based on a combination of research and advice, they will make a purchase that is right for them but will everyone make the right choice? Almost certainly not.
Some will do limited research and rely entirely on advice, some will do extensive research and ask pointed questions. Most will receive good-quality impartial advice on the best television to buy. Unfortunately, some will be steered towards the television that suits the salesman rather than the customer.
Of course, pension advice is different because it is regulated. The customer should always receive the best advice based on their individual circumstances and what may – or may not – be best for the adviser should not in any way be part of the process.
In some cases, it appears, that has not happened and proper advice has not been delivered. Unfortunately, in any business sector, there will always be a small percentage of bad apples. That is not the fault of the vast majority who act properly and it is a regulator’s job to find and address those bad apples. It has nothing to do with marketing.
Phil Smith is marketing director of The Pension Review Service