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‘Build in factory gate pricing’

Commission Round Table report by Sam Shaw

Big distribution groups are recommending that factory gate pricing should be built into the remuneration models that they negotiate with providers, saying it will reduce distribution costs.

Speaking at the Money Marketing round table on commission last week, both Tenet and Bankhall said that switching their strategy from negotiating better commission rates with providers to buying products cheaper will allow them to distribute at a lower cost.

Tenet chief executive Simon Hudson believes the group can offer products cheaper than insurance companies selling direct.

He said with bulk power, Tenet can buy at a cheaper rate and should then be able to pass those savings on to the end-consumer.

Hudson said many small advisers lack the scale to do this and are getting paid a lot less than an adviser at a provider.

He said: ” I believe we can deliver products, including training and marketing, to the consumer cheaper than Standard Life can do it. Therefore, we should be able to say to providers, your costs should be down because a group like ours can reduce those costs and we can pass them on to the consumer.

“We might have the exact opposite to how it is now. At the moment, we have the small adviser that is not buying any services from anyone. If the consumer were to compare costs, they would find that he was cheaper than a provider’s adviser so therefore must be better. We can actually reverse that trend because we can effectively reduce the cost of a product.”

Bankhall chief executive Peter Mann said: “The way that we choose to operate is the wrong way round. What we say is that we are big, therefore pay us more commission. What we should say is, we are big so we can distribute your products more cheaply.”

Standard Life chief executive Trevor Matthews said: “Perhaps introducing factory gate pricing might make a bit of sense.”

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