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Direct response

The death knell of the direct salesperson has been sounded but many of them are going to come back, Lazarus-like, as IFAs.

The direct salesforces of the life insurance industry have been slashed. Prudential, Sun Life Financial of Canada and Britannic have all closed down their direct salesforces in recent weeks, leaving 5,000 RIs considering their future.

Berkeley Independent is holding workshops to help axed salespeople considering becoming an IFA and joining the network. Berkeley says around 70 per cent of its IFA members originate from a tied background.

Money Marketing attended a recent workshop in Coventry. The session was divided into two halves, opening with a general discussion of direction and health of the IFA channel. The second half consisted of direct salespeople asking predominantly practical questions and being given the benefit of the advice and experiences of Berkeley Independent members who had become IFAs. The network also canvassed opinion on what it should be offering the new members.

There were 12 IFAs at the workshop, all but one of whom had worked previously in a life company, key personnel from the network and two managers from Sun Life Financial of Canada which will be employing 10 salespeople to set up an IFA practice within the network.

One of the managers said he found the session very helpful. He appreciated the way Berkeley dealt with the challenges facing the industry and those looking to set up on their own as an IFA.

Berkeley Independent chairman Cliff Lockyer opened the session with a warning about the difficulties facing the industry. He pointed out that direct salesforces have fallen dramatically from the levels of 10 years ago while IFA levels have been relatively constant. He said the figures mask the fact that many IFAs have left the sector and been replaced from the tied sector.

Lockyer said: “The life companies have forgotten how to sell business but they have some very well-trained guys who have been shackled into just supplying a limited range of products.”

A shared sentiment was that advice without action was of limited value. Many felt a sense of social duty.

Financial Focus principal Robin Melley said: “If I go into Currys, I don&#39t only want just advice about which is the best television to buy, I also want to be able to purchase it.”

The IFAs also emphasised the feeling of freedom and self-worth they felt once freed from the constrictions of the tied environment. One compared the experience of becoming an IFA after being a direct salesman as going from shopping at a cornershop to going to a hypermarket.

The Sun Life manager said new technology, in this instance from Berkeley Independentrelated company Synaptic Systems – the web-based database of financial products – would make dealing with the bewildering variety of products less daunting.

It was evident that the salesmen from the life companies were tied in more ways than one to their job. They spoke of their emotional commitment to the clients they had built up over the years, some of whom had become friends.

IFAs who had made the transition from being tied had stern advice. They recounted carefully negotiated agreements to take 100 clients with them when they left the life companies. But it was pointed out they have been laid off because the old way of doing business had failed and should not be replicated. One of the IFAs said: “I was happy to take clients with me but now I wish that I had simply started afresh.”

Melley said: “There is no need to take clients along. You need to set your stall out for higher-income clients.”

This advice applied not only to the tied salesmen but to established IFAs. Given the current climate, they all agreed they were having to take difficult decisions not to see clients they had advised for years as it was no longer economically viable to do so.

The consensus was that the industry was undergoing radical transformation and, to survive, IFAs would either have to reorientate their business to either the high-net-worth or corporate market.

Berkeley Independent IFA of the Year Richard Schwartz said how he had aimed his practice exclusively at the corporate market.

Those considering making the jump to IFA status were concerned with the practicalities of setting up a small business. One of the suggestions was that a checklist could be provided with all the things that needed to be arranged as the salespeople would have had little reason before to consider how they were doing to deal with infrastructure problems. Interestingly, the discussion of recruitment was widened beyond the migration from the tied sector. Members of the group were keen to hear of Schwartz&#39s recruitment of graduate paraplanners.

One of the ironies of the session was the reluctance of the IFAs to pay for legal advice. They asked instead if they could get, for instance, employment contracts that were simply downloadable.

The session concluded on a positive note. Collyer told the workshop he believed distributors will have a stranglehold on the industry. He predicted that providers will get weaker compared with their European counterparts, which are operating within a charging structure that allows them 4-5 per cent.

The ailing life companies will fall prey to overseas takeovers, he said, adding that power will then be transferred to the distributors, citing a German IFA which owns a life insurance provider.

While the future might be hard, Collyer said it would also present IFAs with important opportunities. The death of the direct salesforce might lead to an IFA monopoly in large sectors of the market, as the providers would become increasingly reliant on them as a distribution channel.

Multi-ties will also not present insurmountable problems. He predicted the shake-out in the industry would lead to better products from fewer providers.

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