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Consolidated life

Life office mergers are increasing the workload for IFAs as they are left to mop up the mess of name changes and old policies.

Takeovers and demutualisations have led to a drop in communication standards and an increase in client confusion, according to many IFAs. But the general feeling is that a narrowing marketplace could benefit consumers if it does not go too far.

The last decade has seen an array of life office mergers. The trend seemed to come to a halt when Standard Life fought off the carpetbaggers in June but has recently made a resurgence with both Scottish Provident being taken over and Scottish Life review-ing its future.

A main concern for IFAs is the effect that fewer providers will have on the marketplace. In some respects, it makes it easier for IFAs to know the market but it also means it could become less competitive.

Dean Magna Insurance and Financial Consultants partner Bill Ballinger is concerned that many of the life offices have been bought by banks. He says: “The major problem is they can now control our market. They can offer direct deals above the standard deals, which could be ideal for the policyholder but also means choice is going out of the window. All the big companies are buying up the little players and there is nothing we can do to stop it.”

When a bank acquires a life company, the maintenance of the company brand is not always a priority. Kingsley Financial Management principal Eamon Keelan believes when providers are independent they are fighting to establish their name and reputation. A bank may not view these qualities as being so important and areas like innovation and customer service can take a back seat.

The reduction of the number of providers is worrying especially with the onset of stakeholder. There is already concern that only a limited number of providers will design products and, with more life office mergers, this number will only get smaller.

Pensionline managing director Jon Minchin says: “I think it is only the beginning. Stakeholder will mean there are only half a dozen pension companies operating in the country. That will mean half a dozen large companies will have the whole market to themselves. Whether this is good or bad I do not know.

“Stakeholder is good from a client&#39s point of view but I am not sure whether the IFA industry can serve within the charging structure. IFAs will probably have to specialise, which will therefore mean fewer providers and fewer IFAs.”

Merger and acquisition activity frequently leads to office relocation and staff losses. This can create confusion for IFAs when servicing contracts. IFAs trying to trace old policies are pinballed around departments, especially when the provider has been the subject of more than one merger. Belfast-based IFA Graham Corry Cheevers partner Brian Corry feels there has been a dramatic decline in quality of service in admin. He says companies use it as an opportunity to rationalise and centralise offices. He says: “The quality has deteriorated. You cannot get problems sorted out locally. As far as the clients are concerned, there has been little noticeable change but we have had to spend far more time chasing up return enquiries to get proper action.

“The mergers that have taken place in recent years have led to different departments being located in different parts of the country. It is more difficult to find someone who understands howto deal with problems. Staff are trained to dealwith a certain level of enquiry but do not see the breadth of the issue.”

But there is always the upside of windfalls with demutualisations, potentially generating new business for intermediaries.

It is not all plain sailing as the recent Scot-tish Widows&#39 debacle has shown. Widows came in for hefty criticism of its handling of windfall payments and many policyholders were left facing capitalgains tax bills.

But not everyone blames the life offices. Carrington Investment Consultants head of retirement William Sallitt says: “It is very easy to cast stones. What is important is that other life offices do not overlook the complexity of the windfall process.”

Sallitt believes it is not as straightforward as some people think. “Scottish Widows could have done things better by telling people whether their payout was going to be significantly more or less than the capital gains tax threshold and then advised people if they were caughtin the grey area to seek advice. I hope other life offices, such as Scottish Provident, will take on board the lessons learnt and use them to make a better job of it.”

He adds that windfall payments are good news as they encourage intermediaries to go through existing client banks to see who is affected. Windfalls also mean that policies which clients had forgotten about such as old company pension schemes resurface and lead to unexpected payments.

But IFAs say that, windfall issues aside, it is brand name changes that are causing confusion for clients. People with older policies no longer know who will be paying out their benefits.

Cheshire-based Laurence Anthony Associates principal Laurence Smith believes it is the IFA&#39s job to clear up this confusion.

As long as the retail arm of a company is doing its job then its actual name is not relevant to the client, he says. IFAs need to be aware of changes of name but the company&#39s reputation is intact as far as the client is concerned.

He says: “The life offices can do what they want as long as the distribution channel is still there. They know we will keep the clients informed and reassured. They can carry on buying each other out knowing its someone else&#39s job to explain it away to the clients.”

Ultimately, IFAs say mergers in the sector are just reflecting trends in the business world generally. Companies are becoming financially stronger and bigger in terms of assets but staffing levels are getting smaller as firms increasingly operate from a central location. Communication problems, name changes and a shrinking choice are all par for the course in the new business world.

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