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Friends Life cancels trail commission on bonds

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Friends Life will cease to pay trail commission to advisers on 800 investment bonds following a change in administrator and has confirmed that the money will not be rebated back to policyholders. 

The provider says it will no longer pay trail on the Premium Select Bond and Melbourne Life Company Bond, both of which are closed to new business, from October.

A Friends Life spokesman says this is because it would not be “commercially viable” to build a new commission payment function with HCL, the newly appointed administrator.

He says: “The money will be re-invested into the business and will contribute towards the on-going programme that ensures good customer experience across all areas of the business.”

“The administration changes are complex and the successful migration of administration services, to provide continued high levels of service to customers, is our priority. 

“We are focused on maintaining and continuing to grow a sustainable business and building a new commission payment function with HCL is not commercially viable as these bonds are closed to new business and only around 800 remain in force.”

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Comments

There are 47 comments at the moment, we would love to hear your opinion too.

  1. This is just the tip of the iceberg. If it’s not on an Adviser Charging basis, don’t count on continuing to receive the revenue. I hope the FCA quickly looks at the issue of charges not being reduced accordingly for investors.

  2. erm…isn’t that theft????
    Another dishonest Life Company ticked off the list.

  3. Let’s see how long it takes for those 800 bond holders to be advised to en-cash and reinvest else where! Oh and with an further Initial Advice Fee of 3% and a 0.5% on going service fee applied.

  4. Why not just reduce the recurring charges to the policyholder. Reinvesting back into the business could be just spin for delivering increased dividends to shareholders/business owners?

  5. Experienced adviser 4th September 2013 at 5:03 pm

    Friends should offer to but back the trail commissions. They are in breach of contracts. A good case for legal action here against the company!

  6. Duncan Disorderly 4th September 2013 at 5:04 pm

    Reinvest into the business my @rse!

  7. Don’t you just love vulture funds. Bugger the clients, bugger the advisers who introduce the business. Just ramp the profits so that the likes of dear Mr Tyner can up their already humungous salaries.

  8. FP should capitalise the value of the trail and make a one off payment to the current advisers.

    That would be the right thing to do however FP have taken the choice to steal from advisers and policyholders.

    Advisers have long memories………

  9. This seems to concur with the views I’ve heard that ‘trail commission’ is a provider expense and, as such, they see it as justifiable to retain it.

    The argument is that had the advisers taken all commission ‘up front’ instead of taking trail, the cost to the client would have been the same (e.g. 3% initial + 0.5% trail or 7% initial both result in the same AMC).

    It would appear that those advisers who decided to take trail in order to meet the on-going cost of the advice they provide will potentially have some very unhappy clients through no fault of their own!

  10. In an industry where long term trust is important its sometimes not a great idea to bite the hand that feeds. Unless of course you don’t care.

    So I now say to the client, you were paying me (as agreed) from the contract, however Friends are going to pocket that money to enhance your experience, they cannot provide advice so you will have to pay me separately.

    RDR in the real world and the FCA are happy with this. The client is screwed, the IFA is screwed and the one who profits is the company providing less service than it used to.

    What made me laugh is the next email which asked me to attend Friends Protect’s seminar so that I could use their products. You can imagine in 5 years, sorry we are changing our administrator so we are not going to pay any claims this year!!!!

  11. 800 policies? This should take about 3-4 hours per month and someone with a Spreadsheet, it’ not a difficult job. On the basis HCL Technologies seem to be based in India (website doesn’t seem to work – not encouraging) this looks like a cost of less than £50 per month. Nothing about this suggests clients will be well looked after by HCL (or Friends Life) which should be a concern to someone.

  12. As the other MB says this needs the regulator to step in. It will become the norm if the providers have their own way.
    Shame the clients suffer again.

  13. So Life Companies have a right to change the terms of a contract to their benefit and retain the commission. Pretty sure that must be illegal or, if not, in the future will we be able to no longer service our clients but retain the ongoing adviser fee?
    In many cases these ongoing commissions are paying for ongoing service that has been provided for many years and if we switch the clients to fees they will have tax implications/higher costs that could be avoided.
    If the FCA had any idea of what they were doing they would act now to stop this happening.
    Is TCF now a thing of the past?

  14. Surely, a contract was established on the basis of payments to the adviser in these cases. As stated by a previous commenter, the adviser could have taken a higher up front level, but elected to take a lower initial and to have an ongoing figure to contribute (one hopes) towards the costs of the reviews.

    If they now feel that it is not viable to continue with these payments, does this suggest that they are no longer meeting the FCA’s Threshold Conditions and John Kirby’s Enforcement Team should be withdrawing their permissions?

  15. @ Anon 5.33
    TCF only applies to IFAs’

  16. OK lets try this with 800 policies, if the FCA or the courts stop us then it hasn’t cost us much and we can backtrack. If however we get away with it we will do the same to the tens of thousands of other policyholders and make a packet.Or is that just me being sceptical?

  17. This is reprehensible behaviour by life companies and what is more disappointing is that the FCA seems to be condoning such unethical attitudes. RDR was all about creating fairness and transparency. Most advisers would not have an issue with trail being switched off, providing the underlying fund charges were reduced accordingly. The adviser could still advise and be paid by the client directly. the policy could stay where it is. Many clients may well be unable to move these investments to another provider or arrangement, especially if they are written in trust or they are higher rate taxpayers as the tax penalty would outweigh the savings made. FCA, you should be ashamed to allow life companies behave in this way. It is not ” a good consumer outcome” but you seem happy to condone such practices

  18. I can only agree with ALL comments made so far but would like to add that I am mostly angry with all the do gooders who pushed for RDR. Did they really not see this coming ?

    How do they feel now knowing that they have destroyed one of the building blocks of a civilized society – ” the contract”. If contracts can be torn up so easily how will anyone be able to trust anyone else in the future ?

    Yes Friends Provident are acting badly as have Standard Life before them. But who gave them the opportunity to act badly ? The FSA and the holier than thou brigade of IFAs

    Any merit or benefit that might have resulted from RDR ( and there was little in the first place) is far outweighed by this one issue alone.

  19. This is exactly as I expected and there is little doubt others will follow.

    If the money is not paid back to policy holders then the FCA need to look into this and indeed the policy term and conditions and agency agreements with IFA’s.

    I would guess that Resolution PLC and it’s associated companies may well do similar things with other closed funds and products to help boost their profits and reduce costs. We will just have to wait and see if I am right.

  20. I do hope that the next time the BBC chooses to cover the subject of trail commission they concentrate on the real dirty little secrets within financial services.

    That being the totally inadequate systems that insurance companies seem to have when it comes to distributing contractual agreed fees or commission.

    I like many would like the FCA to investigate how many millions of extra profit life companies are pocketing due to them stopping commission to the adviser and not reducing fees to clients.
    There is nothing within the RDR regulations that does not allow for an ongoing advice charge within a product as long as it is clearly disclosed to the client in the form of a fee agreement. I believe that millions of customers are effectively being disadvantage particularly clients with limited means through not been able to pay for advice through adviser charging structures on legacy policies. Life companies after all did have 4 years warning of RDR!

    In reality it is the IFA practices hold the liabilities for advice and service given and the product providers need to drastically reduce their charging structures. If the FCA wants to have a go at IFA’s for charging percentages surely they should start looking fund managers and product providers who charge percentages with little or no customer service.

    I would also like the BBC to realise that giving advice is storing up liability as in no other profession can you be held liable all of your income for a job you did 20 or 30 years ago. Trail commission is effectively not only an income source that is also a reserve of money to help meet legal challenges from claims management firms.

    So-called financial journalists who provide information online have no liability under present FCA rules maybe if they did they wouldn’t be so quick to criticise legitimate IFA charging structures after all we are not charities.

  21. I have been warning since 2006 that RDR would result in this happening…….. THEFT being allowed by the regulator,
    one can only despaire but any Client needs to write and tell Friends that they want the trail paid back into the policy (or not deducted in the first place!!! any IfA concerned MUST get that across to Clients.
    To the Directors of freinds> You should be ashamed of yourselves this is pure theft from advisors and ripping your policy holders off< what happend to TCF?

  22. The profession has lost approximately 10,000 advisers in the last two years together with a further 20,000 admin staff and now we have providers turning off much-needed income when regulatory costs are increasing. If this was any other industry then there would be an outcry in the BBC and other media outlets would be calling for a Parliamentary Royal review.

    I guess in financial services the same rules and common decency doesn’t apply, may be all financial advisers should become journalists and run websites that often have out of date information on them.

    Then we wouldn’t have to worry about the cost of the FCA oh yes that’s right they wouldn’t be in FCA because there would be no body to pay the fees as journalist do not pay.

    Wake-up FCA before there is no advice profession left!

  23. I have a feeling that if you looked closely at the fine print of these contracts you’ll find a clause staing the providers are within thier rights to do this. I cant see them getting away with it otherwise.

  24. Can any one honestly say that the whole process of RDR has even been a small success .

    Have any clients actually become better off ???

    As all the money and time spent really led to a better financial out come for any body.

    I think the honest answer is NO

  25. Seems to me FP had a number of options:
    1. Do nothing.
    2. Stop paying FBC but reduce charge to client.
    3. Capitalise the FBC (say 5 years worth) and explain why.
    4. Close the book and give IFAs the option to move to a more modern offering paying ongoing adviser charge

    I suspect 1 & 2 would cost them too much. Why they didnt go with 3rd point only they can say. Point 4 will happen naturally now, which I suspect is what they want anyway, expect the bond will move elsewhere.

  26. I am glad I didn’t do many life co blinds on trail. Most of my clients lump sum investmensts were ISA or collectives. The bonds I have are mainly offshore with trail for providing an ongoing service and were not with the likes okf AXA of FP anyway. Glad I adopted the use of clean wraps well before RDR, BUT, this is not TCF of FL and TCF precedents exist. SLOC/Lincoln bought out trail on their life business which was a fair outcome for client, asvjser & company a d join their i2live clomtracts,’when a disturbance event occurs, whilst they do not facilitate advised charging, they do the right thing when turning off fund based commission and reduced the AMX to the client. Come on FCA get to grips NOW, down,t let FP get away with this farce.

  27. Of course another way to play this hand, is to advise Friends that any future clawback will not be repaid, as we will be re-investing the money into our businesses.
    Sounds about right to me.

  28. Is anyone really surprised by this?
    My experience of the RDR can be summed-up so far as being Life Companies preparing for the end of face-to-face advice.
    Our ranks have been decimated, the Life Companies have withdrawn support both in terms of processing support and in having dedicated Consultants. Those that have retained some presence with advisers have found that their legs have been chopped off at the knees by Head Offices staffed by skeleton crews of people in new roles. Generally these people have made the cut in terms of wriggling through redundancy, but once there, don’t really give enough of a monkeys to do their job.
    Today alone, a major Company who I have supported above all others has made two monumental mistakes that will cost me business and clients. Simple ‘Human Error’ or as we used to call it ‘incompetence’ has led to a client having to experience a 4-6 month delay in pension crystallisation – as well as me having to completely re-wind and re-write the case.
    How many of us would want their children to go into this insane mess? Would we really hate them so much?
    Add to that a regulator that neither understands nor cares about us other than to consider us as an elephant considers a gnat…….small, irritating and not needed.
    That is why the Life Companies don’t give a damn.
    My advice is too find one Company that does care, and move all your business across. We need to rely on someone, and if our existing partners are acting like arrogant donkeys, then take your toys and play elsewhere

  29. Is anyone really surprised by this?
    My experience of the RDR can be summed-up so far as being Life Companies preparing for the end of face-to-face advice.
    Our ranks have been decimated, the Life Companies have withdrawn support both in terms of processing support and in having dedicated Consultants. Those that have retained some presence with advisers have found that their legs have been chopped off at the knees by Head Offices staffed by skeleton crews of people in new roles. Generally these people have made the cut in terms of wriggling through redundancy, but once there, don’t really give enough of a monkeys to do their job.
    Today alone, a major Company who I have supported above all others has made two monumental mistakes that will cost me business and clients. Simple ‘Human Error’ or as we used to call it ‘incompetence’ has led to a client having to experience a 4-6 month delay in pension crystallisation – as well as me having to completely re-wind and re-write the case.
    How many of us would want their children to go into this insane mess? Would we really hate them so much?
    Add to that a regulator that neither understands nor cares about us other than to consider us as an elephant considers a gnat…….small, irritating and not needed.
    That is why the Life Companies don’t give a damn.
    My advice is too find one Company that does care, and move all your business across. We need to rely on someone, and if our existing partners are acting like arrogant donkeys, then take your toys and play elsewhere

  30. How can any self respecting adviser recommend a company that does not honor agreements?
    I for one cannot!
    Would any client wish to invest in a company with such questionable ethics? I think not.

  31. If there was a true COST analysis done now (including all Bank Staff IFA’S & Back office staff redundancy’s) – This vendetta has cost literally millions!

    AND FOR WHAT?

    Only high Net worth Clients being able to afford IFA Advice – everybody else has literally been left high & dry leaving them to the internet / do it yourself brigade!

    Why is Internet ‘Advice’ doing so well?

    All the MONEY – NO LIABILITY!

  32. wonder if neville richardson from the now defunct coop bank would worry about it.

    he told the finance committee in parliament he does not believe in miracles, he believes in a wonga loan because it matches his scandalous pay-off from the coop – trail cut -off not for poor neville and the idiot peter marks

  33. Well put Peter Herd

    Resolution who own Friends Provident and others such as AXA and parts of BUPA etc. has the following objectives (note how often “cash” is mentioned and for whose benefit?):

    The Company’s overall strategic aim focuses on:

    •Creating a sustainable business that meets customers’ needs while also delivering cash and returns to shareholders.
    •Cash emergence and maximising value for shareholders.
    •Continuing its disciplined management of the existing book of business to deliver cash and capital synergies
    •Writing profitable new business in its UK and International divisions.

    The Group has three financial priorities:

    •Maintaining a robust, low risk balance sheet
    •Improving sustainable cash flow generation
    •Writing profitable new business to ensure future cash flow generation.

  34. So they change the administrator knowing that it will mean that they can’t pay trail commission.

    Breach of contract anyone?

    Are the FCA taking any action on this as in effect they have increased the charges on the contract.

  35. Truly appalling behaviour. Why did they agree to buy back book business that they cannot afford to manage? What is the FCA view in the new world of morality driving regulation?

  36. Many years ago I looked at a few provider Terms of Business and noted that trail could be turned off at any time, at the discretion of the provider. In other words there is no guarantee that trail will continue. So if the FCA say turn it off, the provider can. If the provider elects to they can. It has always struck me that trail was an unreliable source of income.
    However, it would be interesting to note the TCF considerations here – what were they? For our customers, the loss of trail means that unless it is fully rebated to the client, he/she will pay the equivalent in fees. The loser is the client.

  37. This is theft – pure and simple, FCA do your job and stop the theft.

  38. Jolly Green Giant 5th September 2013 at 9:25 am

    Vote with your feet, stop doing any new business with any of the Resolution Group companies, Friends Life, BUPA, AXA. Simples!

  39. Forget about us IFA’s for a second (the FCA have anyway). The issue here is that effectively the client is continuing to pay the same in charges from their fund but is not receiving the same result.

    They now have to also pay the adviser if they want to continue receiving the same level of service on top of what is coming out of their bond. I can’t imagine any client believes this is fair.

    If the FCA believes this is fine and meets a firms TCF requirements then it makes a mockery of the FCA and TCF.

    This is an issue about the protecting of clients rights. So far Friends Life have steam rolled straight over them and the FCA are standing by watching it happen.

  40. @Clive Moore
    Spot on – if HCL cannot do this for 800 policies, what confidence can there be that their administrative capabilities are adequate for anything else?

    @Richard Leeson
    The FCA may preach morality, but in practice it seems to be more about expedience and big stick-waving (substitute ‘stick’ if you wish).

  41. I don’t see why this should be blamed on RDR ?

    The source of the problem is who “owns the rights” to the trail. If payment of trail was directed by the customer, Friends or any other life company wouldn’t be able to do this. The value of post RDR transactions to IFAs should therefore be higher and more secure.

    IFAs will have an opportunity to show customers how they can switch from legacy Friends products to new propositions, potentially at no extra cost after allowing for adviser charging.

  42. I have spoken to 3 different people at Friends Life and I have finally found out that premium select bonds and melbourne life were actually Axa IOM policies and are not part of Friends Life. The number you need to ring to get a list of your clients is 01624 643345 and they will be able to email you a list

  43. I agree with Tony, these were pre RDR contracts and look how dodgy they actually are! Post RDR the client has the agreement with the adviser, out of the grasp of the provider, making things far more transparent and fair. Everything Pre RDR was shady and often greedy.

  44. @ Mark Swann
    “Everything Pre RDR was shady and often greedy”
    Perhaps in your world, it was Mark.
    Do not tar others with your own dirty brush..

  45. As I’ve said under Paul McMillan’s article on this matter, this is breach of contract and the 800 bond advisers should sue. Failure to do this will send a message to other providers.

    Time to move all business from that misnomer “Friends.” One good reason for moving business is dishonesty of the provider and that’s not churning!

  46. I wonder what would happen if those advisers affected by the switch off of commission were to issue invoices to ‘Friends’ for the time spent advising clients that would have otherwise been covered by the missing commission. ‘Friends’ might pay it, they might not. If they didn’t, advisers could issue a summons to the small claims court to reclaim the missing fees, explaining to the judge why this has been necessary; ‘Friends’ breach of contract / trust and their pledge to retain the profit from their inappropriate behaviour.

    What I’m also interested in finding out, is how those intermediaries that sit under the ‘Friends’ umbrella (Sesame and to some extent Bankhall members) intend on reacting to this.

  47. Don’t pay the trail fine, most Friends Life advisors have taken the money and fled long ago BUT pay it back to the client instead.

    This is outrageous, clients will have to pay again if they want advice from anybody.

    This is just robbery by the back door. Friends Life should be ashamed. I’m surprised the consumers champions haven’t cottoned on to this one yet. They Will !!!

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