For several weeks, I have been wrestling with this and, having sat down to think about it, have decided to say my piece – Clerical Medical’s decision to stop paying trail commission to IFAs – and then backtrack later – stinks to high heaven.
I say that with a tinge of sadness. Some of you may well remember back to the early 1990s when Clerical Medical was one of the first companies to try and shake off the industry’s awful foot-in-the-door reputation.
They did so by hiring a completely new salesforce, mostly former teachers who were paid moderately generous salaries by the standards of the day rather than being remunerated almost solely by commission.
The theory was that they would be more trusted by their clients who, warming to this “non-salesy” approach, were thus more likely to buy shedloads of pensions and other products off them.
In fact, the whole experience turned out to be a disaster. The teachers they recruited preferred to lecture their clients rather than sell them anything, leaving Clerical Medical ruing this particular approach to product distribution.
But for soppy journalists like me, this slightly shambolic approach allowed Clerical Medical to maintain a vague aura of “niceness” over the years, even though I have never personally rated products as being exceptional in any particular way.
Well, no longer. As readers will know, Clerical Medical contacted a couple of thousand of its customers to check their personal details and ask if they still used an IF. If the client said they no longer actively dealt with an adviser, Clerical then wrote to the IF telling them they would no longer get trail commission on the product.
Now as it happens I have nothing against this getting tough on this issue. Paying trail commission to an adviser who does nothing to earn it in terms of long-term servicing of a policy is a scandal. Let me give you an example. Only the other week, I was contacted by my IF firm after more than a year’s absence, possibly two. In the past three or four years, the company has been through several mergers and takeovers, as a result of which it has emerged as a self-professed fee-based IF. Having dealt with its predecessor mainly on a commission basis, I asked to be sent its new terms of business.
And there, in the terms, is an entire section glorying in the fact that it does not charge its clients commission and how they give advice on a holistic basis. Fine by me – but why no reference whatsoever to trail or to how they intend to service the client in between annual review meetings?
In the past few years, my IF has earned at least a grand off me in trail. Yet I have not received a single letter off them in all that time. The fact that the retail distribution review is shying away from dealing with this running sore affecting hundreds of thousands of existing clients is disgraceful.
So when I read in Money Marketing a few weeks ago that Clerical Medical was proposing to do something about it, my initial thought was “about time, too”. Then it became apparent that the approach was totally random. Not every non-serviced clients of IFAs was being contacted, only some of them. In any case, Clerical Medical appeared to be using its own undefined criteria as to what “servicing” meant. Who was to say its definition was correct?
In addition, bizarrely, Clerical appeared to be saying that this was an FSA requirement. A spokesman was quoted as saying: “Several hundred customers tell us that they no longer have an IFA. Under FSA requirements, we have to act on such instructions.”
Really? If that were the case, why weren’t all its clients being contacted. And why were no other insurers doing the same?
Moreover, the company was not proposing to pass on this unearned trail back to the client but keep it. On whose authority was this happening? The client’s?
Ironically, despite all the huge flaws in Clerical’s approach, Money Marketing’s excellent story meant that IFAs were suddenly discussing the issue, which is a positive thing.
Or at least they were, until barely a week after the story broke, the company backed away and decided it would not take away IFAs’ trail after all.
Director of distribution John Van Der Wielen was quoted as saying: “Clerical Medical has not switched off any IFA commission and we apologise for any confusion caused.”
You will forgive me, I hope, if I am more than a little confused by this U-turn. One minute the company was acting on the basis of an “FSA requirement”.
The next minute, that “requirement” no longer exists and faced with an IF community up in arms – in many cases for the wrong reasons, let it be noted – Clerical Medical has caved in.
My own conclusion is that its actions over the past few months have revealed Clerical Medical to be both greedy and cowardly at the same time, with a twist of crass stupidity thrown in. Now that really is a pretty amazing combination.
Nic Cicutti can be contacted at firstname.lastname@example.org