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CAR is the driving force for the future

Friends Provident’s withdrawal from the intermediary market is no recent development – it has been happening gradually for years, starting with the unilateral stakeholder-isation of all personal pensions written by its once supporting IFAs throughout the 1990s.

Since April 2001, we have not placed a single item of pension or investment business with Friends Provident (or Norwich Union, Clerical Medical or Standard Life) and we have no inclination ever to do so again.

These companies never even gave us prior notification of their intention to stakeholderise all the business we had placed with them in good faith throughout the 1990s, let alone sought our agreement.

If such actions do not constitute proof absolute that these organisations are totally untrustworthy business partners, then I don’t know what is. How can they possibly expect us ever to trust them again?

For those IFAs with group schemes on their books, the consequences must be even worse. Standard Life (and probably other companies as well) wrote in 200 to an IFA practice, of which a former colleague of mine is a director, to inform them that from that point on it would no longer be paying any commission at all on future increments to existing schemes. Just like that, right out of the blue. Is that not moving the goalposts rather drastically after kick-off?

How does a small firm cope with changes like that? How can any firm have confidence in placing future business with a life office that casually inflicts those kinds of of financial bludgeons to a small business?

Friends has been whittling away at commission for years. Some time ago, I had to sit through a presentation from some person who worked for Friends, the basic and decidedly perverse pitch of which was that IFAs could write profitable business with Friends on derisory rates of commission if the IFA were to load all the membership and contribution data on to Friends’ systems online.

Basically, you do all the work and we will pay you peanuts for saving us the trouble of doing it. That’s about it, isn’t it? Although I managed (just) to resist a strong urge to stand up and voice my reaction to such a proposition in no uncertain terms, many other IFAs across the country evidently felt the same and, almost certainly as a result, Friends is now effectively withdrawing from the IFA market.

IFAs will simply not stand for being treated with such contempt and will vote with their feet by placing their business elsewhere.

Most of the good IFAs are still out there and are still making a reasonable living (despite the worst efforts of the FSA to that nigh on impossible). Compare that with the number of life companies which have thrown in the towel since the turn of the century and whose policy banks are administered now by the likes of Windsor Life – And what a nightmare they are to deal with.

The way of the future, if not long term then certainly the foreseeable future, is variable CAR. The handful of product providers who have realised this and redesigned their products accordingly are thriving.

Paying indemnity commission which they may or may never recover on the drip over many years is simply not an issue for those organisations.

For them, the costs of writing new business must surely pose a vastly lesser burden than it does for all the traditional life offices.

Those who have not embraced CAR as the new adviser remuneration model seem still to be clinging to old product structures with ever-shrinking levels of commission and mostly dire standards of administration, all of which serve primarily to alienate the IFA sector.

Julian Stevens
Partner
Harvest IFM, Bristol

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