Friends Life’s decision to scrap trail commission on 800 bonds, without looking to rebate the money saved to policyholders, has been met with understandable anger.
It was entirely predictable that providers would look to “utilise” these ongoing payments if they believed they could get away with it legally and without falling foul of the regulator. This very much feels like a “testing the waters” move.
You’d expect Friends wouldn’t have made this decision without ensuring it was on safe legal ground. A variation clause or two in the small print may well have come in handy.
As is often the case, the costs of technology and amending creaking legacy systems is the excuse for such behaviour. Apparently it would not be “commercially viable” to build a new commission payment function with HCL, the newly appointed administrator of the bonds.
When our reporter asked what would be happening to the money previously paid out in commission, the Friends Life heavily spun line was that it “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”. i.e they’ll be keeping the money to pay for usual business expenses.
But this isn’t Friends Life’s money to keep. The money was agreed to be paid over a certain term to the adviser when the sale was made.
Whether these payments are aligned (or should have always been aligned) with an ongoing advice service is a moot point but where this is the case, clients will now effectively be double charged as they will have to pay again for the adviser fee.
Despite the inevitable “technical difficulties” excuse, which is often wheeled out when firms are asked to do the right thing, it should not beyond the wit of a provider to find a way of compensating policyholders, perhaps through reducing the charges or offering a bonus payment.
No doubt other providers, desperate to cut costs and increase margins, will be looking carefully at how this move pans out.
Some guidance on when providers will be allowed to inflict double charges in this manner from the regulator would be helpful. It is very hard to justify this in any situation I can think of.
The reputational damage among advisers (and the affected clients) appears to be something Friends Life is happy to take on the chin. It will be interesting to see which others providers are thinking along similar lines. We might not have too long to wait.
Paul McMillan is group editor at Money Marketing – follow him on twitter here