Friends Life insists it was within its rights to cancel trail commission on 800 onshore bonds despite advisers labelling the move as “indefensible”.
Earlier this week, Friends Life confirmed 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 following a change in administrator.
The provider will not rebate the trail back to policyholders and instead plans to “reinvest” the money in its own business. It says it was within its rights to hold on to advisers’ trail commission.
A spokesman says: “Stopping the payment of ongoing commission is permitted under the Friends Life terms of business. It is not a decision we take lightly and we have carefully considered all of the options before reaching this decision.
“The Friends Life terms of business for intermediaries clearly sets out the Friends Life position relating to commission for pre-RDR business.
“This change to commission payments has been made under very specific circumstances due to a change in administration partners.
“We constantly monitor the market and the shape of our book of business to ensure we are operating in a sustainable way, but can confirm we have not made any changes to the way in which we pay commission in other areas of the business.”
The decision has provoked anger from advisers. Informed Choice managing director Martin Bamford says: “This is indefensible and reflects very badly on Friends Life.
“It flies in the face of everything the regulator has said about treating customers fairly and to say it is too expensive is a very poor excuse.
“As a provider it is Friends Life’s job to administer policies and payments, so the fact they cannot do it properly is a major concern. I would not be surprised if this is the tip of the iceberg and Friends now looks to switch off trail across a wider range of policies.”
Fact & Figures Financial Planners managing director Simon Webster says: “From a business point of view it might not make sense for Friends Life to continue paying trail to advisers on these policies, but to pocket the money themselves shows a real lack of integrity.
“The honourable thing for Friends to do would be to pay the affected advisers a one-off fee to compensate the fact they have taken the trail.”
Webster says Friends could suffer as a result of the damage done to its reputation among advisers.
He says: “The reality is those life offices who treat their suppliers, such as IFAs, with integrity will benefit in the long-term, and those who don’t will reap the whirlwind from advisers.”
A Friends Life spokesman says the money will ”contribute towards the ongoing programme that ensures good customer experience across all areas of the business”.
He adds: “The administration changes are complex and the successful migration of administration services, to provide continued high levels of service to customers, is our priority.”