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Friends and Aviva in commission clash

Friends Provident chief executive Trevor Matthews has sparked a row with Aviva after suggesting that commission-paying firms should use the retail distribution review as an excuse to exit the “suicidal” commission market for group pensions.

The RDR will ban commission on new business but providers can continue paying commission on contributions for new entrants and increments to existing schemes.

In an interview with Money Marketing, Matthews says: “The companies still paying commission think it is good from a marketing point of view. It will be interesting to see whether, come 2012, those firms continue to pay commission on existing business or not.

“Whatever they say, I am sure they do not like paying commission. They know the numbers as well as we do and the numbers do not make sense. It is just suicide as far as I can see.”

Aviva has confirmed it has no plans to stop paying commission after the RDR and has slammed Friends for attacking the commission-based market after being an active member of the sector before the firm’s strategic review in 2008.

Head of pensions Paul Goodwin says: “It is strange Friends Provident, which up until quite recently was one of the highest-paying commission players in the market, is now all of a sudden saying yesterday it was good but today it is bad.

“We fully intend to continue to pay commission for schemes written prior to the RDR. Why would we not? It is a market we are comfortable with and we think it is profitable.”

Scottish Widows says it has no plans to remove commission on existing schemes from 2012 while Aegon has only committed to paying commission until the RDR is implemented.

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. Love it!

    FP run out of capital and then try and slate the model which they were running which helped to cause it. Good on Aviva for calling them on it

  2. No provider should need an excuse to stop paying commission. They should have got with (flexible) CAR five years ago.

  3. Thats the one reason the RDR was bought in – to bail out the insurance companies, who with all their highly paid actuarial experience stated that Stakeholder/GPP at an AMC of 1% was viable (even with initial commission).

    It would have been far easier for all if they had just stood up and admitted they were wrong but no, lets cloak it all, invent the RDR and blame the greedy IFA.

    Ironical now that on a lot of ‘factory gate’ pricing the AMC’s are still around 1% (….or is that an Administerative AMC with a Fund AMC on top…)

    Never mind, by 2012 it will all be under the Resolution banner… a far greater threat..

  4. Incompetent Regulators Awards Team 15th April 2010 at 1:24 pm

    Why doesn’t Freinds Prov just call itself ‘The FSA punch bag’. What a pathetic company which was one of the best many years ago to one of the worst in my opnion. Now that they have been propped up by intermediaries after all these years once again they turn their back on the people who supported them, just like they did when they jumped into bed with Abbey National to sell their below par endowments.

  5. Lets not forget TCF and what is deemed to be fair value for money.
    With the implementation of RDR employers will be much more aware of the potential commissions available and may well question what they are getting for this and the adviser will need to justify and quantify the amount of money paid versus fees.
    The harsh reality of this is that advisers will need to provide an ongoing quantifiable service as this will be key to maintaining the business, the days of earning easy money are over.
    Let the gloves come off and may the games begin, complacency is no longer an option!

  6. As always the IFA is at the beck and call of the insurer. I have many small company group schemes where commission is fully disclosed and accepted by both employer and employee. Neither would want fees so where will they be left if commission is stopped. We all know fees are the right way forward but for exsisting schemes that will be very difficult.

  7. I fully support Paul Goodwin and it annoys me that Trevor Matthews has clearly forgotten that IFA’s have placed business with Friends Provident in good faith that we were entering into a long term contract on behalf of our clients with a Company that would remunerate us for our work instead of us charging the client. Trevor seems happy to change the terms of this “contract” by using RDR as an excuse to transfer the cost to the client.

  8. At the end of the day it must be service and value to the client.

    In my experience Friends Provident service standards are vastly inferior to AVIVA and rarely do they get it right at the first or even at the second attempt. If Friends Provident is thinking its loss of market share is due to commission they should think again, their service standards are inferior and who invites problems. Those in ivory towers should visit the ground floor occationally to see what the real world is about.

  9. Can we have a statement then from Mr Matthews as to whether Friends Provident intend to pay commission on existing and new members to existing scheme business after 2012..? He’s got all the others to state what they are doing..

    I feel the need to switch.. 🙂 especially away from Resolution.. and anything that involves Mr Matthews as the pair of them carve a pathway of destruction though the insurance industry.

  10. worreid about how we are going to get paid? its about time we got rid of commission bias – every day in this site we hear of yet another IFA embezeling millions from clients. the sooner this happens the better. I’m glad tervor matthews is taking this stand. i for one am embarrised with the whole of financial services

  11. If Paul Goodwin is so confident that Aviva makes money paying initial let’s see him prove it. I remember years ago seeing a presentation from Standard Life showing in great detail their set up, maintenance and servicing costs for pension schemes. It did this for level, initial and fund based options. It was clear from the detail and certainly not rocket science that if you pay 20-30% of the APE for a scheme and then keep the scheme for the average time a scheme remains with a provider, it would be IMPOSSIBLE to make money. Come on Paul, put your money where your mouth is, prove how Aviva make money. And I’ll think you’ll find Paul that it was and still is Aviva that is one of the highest payers of IC. In all my time setting up these schemes, I think FP paid the highest once, Aviva was always up there with the likes of Axa. Something to do with the quality of the proposition and needing a reason to justify using a company…

  12. Agree that FP swiftly pulled out of IC for reasons that suited them but come on Brian Harrison, FP service worse than Aviva? The worst service consistently comes from Aviva and is noted year after year. And don’t get me started on Lifetime. Service was OK until Aviva bought them and look what happened there…

  13. To: Anonymous | 15 Apr 2010 1:21 pm

    Sorry, I thought you lads thought that RDR was to boot out the IFA’s and allow the banks free reign? 🙂

    You can’t have it both ways!

  14. Is it me or do many IFAs struggle to spell?

    Chaps, You want a GPP with a low amc to compete. You want 30% initial commission. You then move the scheme as soon as decently possible to generate further commission. How do you expect providers to magic up a profit? You guys need to sort yourselves out ad start acting professionally. Or just go and sell double glazing, you don’t need to spell much in that profession.

  15. When are you IFA’s going to wake up and smell the coffee? Most of you have been historically overpaid and are under qualified. The reputation of the financial services industry is in tatters primarily due to the influence of commission bias. Get qualified, get professional, get transparent and your clients will gladly pay you for your services. Continue whinging about commission and RDR and you will become extinct. Your choice.

  16. L.D Wigglesworth 16th April 2010 at 2:33 pm

    Avavia stated that they circulated their clients who said they REFUSED to pay fees

    The FSA has contacted the HMRC re VAT on IFA fees (Fin Adviser 8/4/10 page 18 ) now why do you suppose they did that ? !!

    another cross for IFAs to bear

    I care for my clients and do not want them to pay for something for which they get nothing
    and my clients do not want to pay any tax they
    pay enough already

    So wise Up you guys and start thinking through anything the FSA advocates just as with the Keydata etc bills most IFAs are not authorised to sell shares so what the hell are we doing paying for stockbrokers screw ups

    On monday I will be investing £ 50,000 for a
    long time client £ 10,200 ISA rest into OEIC
    taking 1.5 commission rest goes back for
    client there is nowt wrong with commission
    Banks pay salaries to their salesmen and collect commission from from the providers

    Just like Equitable Life ….creative accounting !!!
    but is there an agenda to drive IFAs out of business ???? I leave you to ponder that !!

    LDW

  17. Pot calling the kettle black alert.
    Friends Provident sold £10 notes for £5 for some time, buying in Group Pensions Business at suicide prices.Even they finally realised that this was commercial suicide.
    Paul Goodwin makes some very apposite comments as I’d expect from him; Mr. Matthews comments are slightly nauseating in their patronising tone.FP got it wrong for too long; the Board lost a fortune and guys at the coalface paid the price.

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