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Emma Simon: Long-term savings are a one-way street

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Advisers are right to feel aggrieved by Friends Life’s decision to cancel the trail commission paid on two of its bonds. Customers should be up in arms too.

I am no great fan of trail commission or any other kind – but this is a most unsatisfactory way of changing the status quo. If it cannot pay its advisers what it promised, Friends Life should at least return this money to policyholders.

The company says it will reinvest these funds in the business to “improve the customer experience”, but you know what? Lowering charges usually does the trick. 

As others have pointed out, very few customers will see annual fees fall in line. But this is only due to some fortuitous small print, rather than a moral imperative to do the right thing.

I sympathise with advisers who thought they had signed up to a long-term contract, only to find key terms and conditions changed some years later. But can they do anything about it?

Not surprisingly, some advisers are suggesting a boycott of Friends Life products. This may deter it from adopting similar tactics with its other 31 bonds, which cover 399,200 policies, unlike the 800 that no longer pay trail. More importantly, it would send a signal to the rest of the industry not to try the same trick. 

Many insurers will no doubt be eyeing this move with interest. Will it work? I doubt it. Insurers may judge that the value of this commission today is worth more than the goodwill of advisers in future. 

Since 2005, around £156bn has been invested in unit-linked and with-profits bonds. This means that millions are being paid out in trail commission each year. With many of these bonds closed to new business and sales on a downward trend, some insurers may try to make a quick “land grab” now and weather the bad publicity. The more that do, the less severe the consequences – advisers cannot boycott all insurers, can they?

Advisers could start simply switching clients out of these bonds. For customers this may be no bad thing. Some advisers suggest these insurance bonds have been heavily oversold anyway and many would be better off without this wrapper, which just adds costs.

But while this would deprive insurers of a useful income stream, it smacks of cutting off your nose to spite your face as any new investment will not pay trail or upfront commission.

Legal action is a remote possibility, but class actions have rarely proved viable for consumers when challenging the small print of pension and savings contracts.

It seems advisers are now finding out what customers have long known: when it comes to long-term savings, the cards always seem to be stacked in the insurer’s favour.

Emma Simon is a freelance journalist

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