View more on these topics

Claws sharpened as the cash blunders become just too much to bear

Life offices stand accused of dragging their heels on the issue of

clawbacks made in error.

Money Marketing revealed last week that IFA network DBS has figures

showing that nearly half of life office commission clawbacks are a result

of administration bungles.

The problem is not a new one. It was first discussed in 1989 when Origo,

the body that sets standards in the industry, placed commission and

clawback at the top of its “to do” list.

Network M&E chairman Barry Kayes says: “Origo earmarked commission as an

issue that the electronic distribution of information could address.

Dealing with it is very labour-intensive and expensive, and they thought

that electronic systems could take the pain out.”

A decade on and the problem won&#39t go away. Who or what is to blame for the

clawback bungles and why has nothing been done?

DBS says around 45 per cent of clawbacks are errors, arising from life

office admin blunders. The Huddersfield-based network discovered the scale

of the problem after going online with a service which enabled IFAs to keep

tabs on their commission daily.

DBS says no life office can be singled out and clawback is a “generic problem”.

Countrywide managing director Tony Wood says his network and its Misys

stablemates Kestrel and Financial Options have had similar experiences with

life offices trying to claw back more commission than they should. M&E

network also says it has had problems with clawbacks.

Wood says: “The number of errors is beyond the limits of what is

acceptable and tolerable but it is manageable.”

M&E has a nine-person team handling what it calls “commission reconciliation”.

DBS receives around 300,000 commission messages each month from life

companies and investment houses. Some are debit entries, reclaiming


Life offices claw back commission already paid when regular-premium

policies such as whole of life and endowments are discontinued. Policies

are discontinued when they are surrendered, paid up or the policyholder


DBS chief executive Tony Kempster says: “In the main, the reason for

reclaiming commission has to do with clawing back unearned indemnity

commission except when the product providers screw up, which they do in

around 50 per cent of cases. There are lots of reasons for that. One of

the most common is that they simply pay the commission to the wrong IFA

and then have to reclaim it.”

Industry analyst Ned Cazalet of Cazalet Financial Consulting says that

over three to four years between 15 and 20 per cent of policies go off a

provider&#39s books, equivalent to about 5 per cent a year. Assuming a 5 per

cent rate, DBS&#39s findings mean that another 5 per cent of commission is

reclaimed in error.

What is going wrong? M&E&#39s Kayes points the finger firmly at the life

offices. He says: “We have the backoffice systems to cope with electronic

trading. The problem is at the provider end.”

Life offices put the mistakes down to two factors – human error and

outdated “legacy” computer systems.

Wood says: “Almost to a man, life offices are quick to rectify mistakes once they are pointed out.”

But advisers are also not blameless. Towry Law product manager Charles

Levett-Scrivener says: “It may be a life office sin but it is sometimes an

adviser&#39s sin as well.”

However, there is still the question of why so little has been done to

clear up the problem at source, especially given the length of time its

existence has been known.

Kayes says the life offices have been suffering “indigestion”. He

explains: “The resources are not going into commission systems because for

most of last year they were preoccupied with year 2000 and stakeholder.

Hopefully, now 2000 is out of the way, they can give clawback more

attention. They need to develop systems that can sensibly interface with us

to supply commission information. That way, manual intervention will be

less and less.”

Progress has been made in some quarters. National IFA Towry Law Fraser

Smith has indulged in a spot of self-help. It has set up a model office

with a new system which will enable it to moni-tor problems.

CGU is trying to overcome the problem by installing a fully automated system.

Then there is DBS&#39s solution. Each of the network&#39s members has a

commission account which credits the amount earned. Ordinarily, most DBS

members would not find out about clawbacks until they receive their

statement from the network once a month. At that stage, they are out of

pocket until they can get hold of the life office and get the problem


But now DBS can take copies of the accounts and transmit them to its

software arm AssureSoft each evening where members can access them over the

internet via AssureWeb.

Kempster says: “The beauty of the internet-based commission system is that

they can see on their account today a clawback that has just arrived and

get on with sorting it out immediately.”

The service has proved so popular with IFAs that it now has 1,000 daily

users compared with just 25 a year ago. It is obviously fulfilling a need

and it is high time the life offices got their act together.


Doctor&#39s orders

I was re-reading Charles Mackay&#39s Extraordinary Popular Delusions and theMadness of Crowds to stop myself investing in an exciting new dotcom issue.In the chapter on fortune telling, he writes: “It is happy for man that hedoes not know what the morrow is to bring forth; but unaware of this greatblessing, he has, in all ages […]

Scale of endowment shortfalls revealed

Standard Life figures indicate nearly half its 1.2m endowment mortgage policies are off target and on its current projection rates 530,000 of its customers will not fully repay their mortgages. 120,000 mortgage holders at Royal Insurance and Sun Alliance, 200,000 at Scottish Life, 100,000 at Prudential; 140,000 at AXA Sun Life, 110,000 at Allied Dunbar, […]

Reinventing the will

What holds people back from buying financial services products?Often it is fear of buying the wrong thing or it can be simply not knowingthat a product is available.IFAs have for many years filled the market need for someone to say “thisis right for you”, giving them the confidence to buy, safe in knowledgethat it is […]

Visa hits out at Cruickshank

Credit card network Visa International has criticised Don Cruickshank&#39s report into banking competition released last month which called for a new regulator for payment systems like Visa. Visa&#39s European Union region president Johannes van der Velde said in a letter to the Financial Times that Cruickshank had repeated inaccuracies and misconceptions about Visa&#39s operations. He […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm