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A critical time for IFA unity

All will be familiar with Prudential&#39s decision to go slow on new business processing and then not stand by its quotations but to effectively leave its entire pipeline – some 48,000 people they told us – high and dry.

From that point on, our approach at LifeSearch has been that Prudential should compensate us for our wasted time and our clients for the problems incurred by what was obviously an emergency measure on Prudential&#39s part, caused by inadequate new business underwriting controls.

Actuarially, of course, there must be some people in that pipeline whose medical history has changed significantly over the last three months and who will never get the cover they would have if they had applied elsewhere originally. As identifying those is not practical (unless they tell us so), we have simply suggested a uniform offer to all our clients. We feel that £75 is the right level for them but set £50 as a minimum and, to help Prudential, further limited it to those clients for whom we feel responsible, that is, those who are still placing their business through us.

Prudential, it appears, cannot be seen to be admitting fault, so the mechanism would have to be a payment to LifeSearch from which we can then compensate clients.

However, Prudential says it agreed early on with several major networks, that a compensation fee to an IFA of £75 per case only would be fair. In our case, it increased this marginally by adding an extra 30 days&#39 free cover for our clients. It noted that this extra period of cover was an extremely expensive thing to offer and was very worthwhile. Our response was that most clients would not need it and a cash alternative should be allowed.

We emphasise this because we very much see our duty as to act as our clients&#39 agents and not as the agents of any provider. As independent advisers we must represent our clients&#39 interests as best we can. The idea of being fobbed off with £75 per case and leaving our clients uncompensated (or compensating them from that, as Prudential suggested) is simply not one that we felt able to accept.

It disappoints me that bigger IFA networks did quite happily accept this. Perhaps that is because people who run networks have IFAs as their customers, and not consumers.

Prudential has failed to change it offer. We have been lectured, berated and listened to but there has been no movement on its part although several times it has felt that our compromise suggestions were worth thinking about, albeit to no avail. Throughout, the reason for its intransigence has been given as: “FSA rules mean that our offer must be the same to all affected advisers.”

The FSA has since denied (to Money Marketing and LifeSearch) the existence of any such rule, noting that critical-illness term insurance is not yet a regulated business and the FSA has no input.

Simply put, we are in a situation where our only option is to proceed to law. Realistically, no one IFA can afford the legal fees needed to assess the legality of the Prudential&#39s position. So we are now setting about in earnest to gather together those who are able to consider contributing to a jointly mounted investigation. Until the validity of this course is proven, we can only publicise the dubious manner in which Prudential defends its settlement as well as the obvious unfairness of ignoring any method by which clients can be compensated.

What Prudential did sets an appalling precedent. The life industry has taken many hammer blows and there are probably more to come but, for one of its biggest participants to blacken all our names by reneging on its obligations is something that the IFA sector must never let happen again.

May I ask Aifa, the LIA, Sofa and other similar organisations what steps they think they should take to ensure that insurance companies behaving in this way are held to account by the large enough proportion of their market necessary to get them to think twice?

All interested in helping our case are welcome to get in touch via email to tombaigrie@ lifesearch.co.uk

There is a grave dysfunction in our industry when its major players cannot be held to account by those who they depend on for their sales. As Prudential so eloquently put it: “Once we have agreed terms with one or two of the biggest IFA groups, then those are the terms that will apply to the whole market, we do not make any exceptions.”

It is time that IFAs of all sizes approached such negotiations in a rather more professional and united way.

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