Friends Life insists it was within its rights to cancel trail commission on 800 onshore bonds despite advisers labelling the move as “indefensible.”
Last 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 the 700 Premium Select Bond investors and instead plans to “reinvest” the money in its own business.
However, the 100 people with money invested in the MLC Bond will see their yearly management charged reduced to reflect the removal of trail commission, in line with how the product was set up.
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.
“For the large part, as a result of commission no longer being paid on these bonds, the money will be re-invested into the business and will contribute towards the ongoing programme that ensures improved customer experience – for example making improvements to customer communication material and speeding up resolution of customer queries.
“However, on the smaller number of 100 MLC Bonds, the policies are set up in a way that the yearly management charge changes to reflect the fact that the trail commission is no longer being paid.
“Customers that have an MLC Bond will therefore see their annual managemnt charge reduce in line with the amount of trail commission currently being paid. The Premium Select Bonds are structured differently and changes to systems required to alter the AMC are not commercially viable for 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 product 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.
“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.”
The Friends Life spokesman says: “The administration changes are complex and the successful migration of administration services, to provide continued high levels of service to customers, is our priority.”