Group pension commission numbers do not add up

19 April 2010 8:20 am

I have a feeling the debate surrounding the current commission market for group pensions business in the UK will rumble on for some time yet. Such an emotive issue will always prompt lively discussion and I fully believe that this debate is good and healthy for our industry - for too long we have simply adopted a head down and carry on approach. Change is always viewed with suspicion and should be rightly challenged but I think we can improve the reputation of our industry if we do things differently.
 
The provider camp is clearly divided on this issue with the opposing sides arguing why their way is best. And those providers continuing to pay commission must clearly have a strategy in place that works for them. But for me the numbers just simply don’t add up. I cannot see how this will work longer term but perhaps they can see something I can’t?
 
For Friends Provident and others in the ‘no’ corner the argument is commission does not serve the customers’ or the advisers’ best long term interests. We believe providers have to move from a position of competing on commission levels to competing on the quality of our propositions and our service levels.  I would add to this that the commission model also makes it difficult for advisers to generate long-term value in their businesses. Doubtless it can generate short-term cash, but it leads to a business model that depends on generating new sales every month rather than striving for ongoing revenue from existing clients.
 
Perhaps the problem here is not commission itself; maybe it is the competing levels which could be avoided if we could fix an industry standard commission rate. This would eliminate some of the potential for commission bias – but it still, to my mind, doesn’t fix the financial dynamics and of course, competition law would never allow us to do this. With consultancy charging on the table, perhaps we can approach a comprehensive solution.
 
To me there is absolutely no reason why consultancy charging cannot work. Arguably some will say the employer and member won’t like charges on premiums – but the member is already paying for the adviser’s charges, just in a completely non-transparent way. Like I say, change is never easy. But I think making the charges more explicit will have a fundamental and positive effect on our industry. t means we can build a proper competitive market based on quality and price.
 
Clearly playing by new rules requires a period of adjustment and there will undoubtedly be some short-term pain for advisers, providers and clients alike in getting from our current commission model to a new, more sustainable one. But I cannot help thinking the pain will be worth it if we then have an industry working together to serve the best interests of our customers, rather than chasing the illusory target of commission fuelled “new” business, which is really just going around in circles. Surely that is one thing we can all agree on.

James Ward is head of corporate at Friends Provident

If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing