Rob Reid: legacy commission debate will end in tears

Being of average IFA age, I recall those individuals in the late Sixties who were grouped by the term “asset strippers”.

In short, they bought several businesses, then proceeded to strip out the assets and sell them to the highest bidder and then let the rest simply rot away.

They made a lot of money but were decried by the media. Perhaps it is the intangibility of life insurance that allows this same process to re-emerge in our own sector as we watch once proud providers close and their back book given service on no more than a cursory basis.

Does treating customers fairly not apply to them too or did they get a quiet exemption that we are yet to uncover or have revealed to us?

IFAs will have many clients who have policies with these providers where, in my experience lately, we have needed a copy policy to argue the existence of guarantees and the like.

Now I realise we should not have to do this but we have to recognise that the databases of the life insurance providers are not extensive. I recall at the start of the pension review looking at data dumps to speed things along but we could not as most records were on microfiche (for the younger readers, these were also the most jumbled records imaginable).

What has concerned me is that we are yet to see a consultation paper on the consolidation of firms generally and a real discussion of what is and is not acceptable. There are so many assumptions being made and of such a wide range that tears before bedtime for many are inevitable.

If the Financial Conduct Authority is unwilling, then we need to get the Money Advice Service involved. After all, it will bear the brunt of the enraged calls from the policyholders of the companies under the consolidators. It might even be that it realises that the tag “free advice” is an albatross around the neck for all who use it.

I recall receiving a terms of business agreement revision from a leading life office which I rejected after reading. The provider was stumped and eventually gave way as its letter tried to change the terms for existing and new business.

The latter, I argued, needed my consent and the provider conceded it probably did but no other firms had challenged it. We got a revised version but if the provider stops trading, how confident should I be that this will be honoured?

When contracts are made, one essential element is the consensus of the two parties. Surely this must be considered when it is varied. So before these guys all rush to merge old books, we should be given a set of service standards ratified by the FCA as TCF-acceptable.

If not, we will find out that services to clients with legacy products are more expensive than they should be. Recent comments about sunset clauses for legacy are nothing to do with helping the IFA and more to do with providers waking up to major IT costs and a total lack of time.

We IFAs need to record in detail the service we receive from these firms now that they are moribund and if it is wanting, let’s make some noise. After all, if we tried this move, would we get away with it? I think not.

Robert Reid is managing director of Syndaxi Chartered Financial Planners