Richard Kateley looks at the protection opportunities presented as a result of SMEs reaching their auto-enrolment staging dates...
Auto-enrolment has reached a vast number of employers since its humble beginnings in October 2012.
Initially applying to employers with 120,000 employees or more, this regulation has now extended to a wide range of SMEs.
As of February 2016, the cumulative amount of businesses under the regime was over 100,000.
The Pensions Regulator forecasts as many as 168,000 small and micro employers will be engaged in auto-enrolment by the end of this year .
With a growing number of SMEs seeking auto-enrolment guidance, advisers wishing to broach the subject of business protection with their clients now have the perfect conversational hook.
Our research shows that only half of businesses (excluding plc operations) currently use an adviser, but with the government now engaging a growing number of SMEs about their auto-enrolment obligations, it is likely that this number will rise significantly.
Organisations that do not have business protection in place are often unaware of the everyday risks their businesses face.
Legal & General research reveals that 40% of businesses would cease trading within a year in the event that a key person became critically ill or died, yet the majority of respondents without protection had said that it was not a risk they had previously considered.
As such, it is clear that advisers should be approaching businesses to raise awareness of these risks - and using auto-enrolment as a topic to open the conversation is a good way of encouraging clients to consider this important issue.
At the same time, approaching SMEs about auto-enrolment will also enhance advisers' credibility, and thus encourage business owners to seek further advice on issues relevant to their business.
For example, our research also highlighted that SMEs currently owe an average of £350,000 - a substantial sum with the potential to severely damage a company if it were to experience a drop in revenue, which is sadly not uncommon for SMEs if they lost just one key person.
Business loan protection policies can be invaluable in circumstances like these as they can help SMEs to make these repayments and thus avoid defaulting on these loans.
Even though they may be small, SMEs can still represent a sizeable opportunity for advisers when it comes to this kind of protection.
If we were to consider a small company with just three owners, with each owner purchasing a relevant life plan, a shareholder protection policy and a key person policy, this could ultimately net an annual premium of £10,800 (assuming the use of Legal & General's average policy size of approximately £1,200 per annum).
The opportunities do not stop there, however, as business protection also presents advisers with the chance to discuss other related packages, including group protection and potentially offering their staff an advice service. This sort of service can generate a healthy supply of new leads.
In the protection industry, it is important that advisers are aware of any potential challenges on the horizon. SMEs which have advisers see them as trusted sources of information and guidance, but the sad fact is that according to our research less than 50% have one.
When seeing new business clients, really successful advisers are able to demonstrate an understanding of their clients' key business issues and advise on them.
Auto-enrolment is not just a subject to use with potential new clients, but also something you can use to work with professional connections that advisers may want to work with.
Many companies, if they do not have a financial adviser, will approach their accountant or payroll company.
Their knowledge of the pensions market will not be at the same level as a professional adviser and will need support. By offering to help these businesses, advisers could unlock their client banks as a potential new market for their own business.
It is, therefore, crucial that advisers today harness the auto-enrolment topic to work in their favour.
By keeping up to date on the current issues that businesses are facing, advisers will be better able to relate to their clients and also participate in engaging conversation with business owners, including on-going discussions about business protection.
Richard Kateley is head of specialist protection at Legal & General
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