Once upon a time (well, in the 1970s), before we were right royally regulated, unit-linked insurance companies were party to widespread depleting of skip-loads of investors’ monthly premiums via high margins, in turn funding coercively acquired commissions for often ignoble introducers.
Many of these ‘businesses’ were actually roving “unaffiliated” sales teams – guns for hire – who could be persuaded to channel their team’s business to a particular provider in exchange for volume related payments to the businesses’ management. There was no distinction regarding independence.
Of course, these scattered salesmen had little real distribution power. But it became clear that if these chaps (for chaps they were, almost exclusively) could be gathered into one team, then the collective bargaining power might tip the balance to the distributor. The appearance of Networks in the late 1970s and early 1980s reflected this; regulation merely speeded up that process, as those networks purported to take on the responsibilities of running a salesman’s business and compliance responsibilities in exchange for a cut of the commission.
The new distributor was now a large group of salesmen being directed by a “service company” who would amongst other things create a recommended products list, implying due diligence had been performed. Providers have regularly provided Nationals and Networks with “training and marketing” support.
However, don’t imagine providers as Soviet style paymasters funding the equivalent of a rogue state. I know of many occasions where providers have been threatened by such organisations who made it very clear that the provider’s products would not be even considered for panelling unless their palms were greased.
We’re not talking about sandwich money here – millions of pounds have exchanged oily hands to the extent that their business models were unsustainable without the payments.
You may be used to the idea of guest speakers being paid by event organisers…well the rule in this industry has often been that the provider pays the distributor tens of thousands of pounds simply to speak for 20 minutes at a conference.
Thankfully the FCA aims to put a stop to this. I have no argument with the idea that altruistic providers who care deeply about their customers and the health of the intermediated market, should want to sponsor service organisations’ efforts in that direction. And frankly I couldn’t care less if supportive providers were simply cynical marketing juggernauts hoping to score minor and temporary points over competitors by sponsoring a soon to be forgotten CPDable seminar on junior Isas.
I do not, however, believe that any recipient organisation should profit by way of those payments. I don’t believe that deep-pocketed providers should gain some marketing exposure and potential advantage simply because they stumped up more cash than their rivals.
There should be no suggestion that any support service firm is likely to be in a provider’s pocket. I think Phil Young’s stand on this, and his challenge to other businesses who receive these payments to make those revenues transparent, is entirely laudable. I am reminded of the pre-RDR clamour for platforms to reveal their rebates, in the name of transparency. So far no one has followed Threesixty’s lead. I trust they’re just checking the numbers…
Graham Bentley is managing director at gbi2