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Has Friends Life lit the trail commission match?


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




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There are 22 comments at the moment, we would love to hear your opinion too.

  1. I appreciate there could easily be the usual “small print” to cover changes of terms. Surely however, when the original adviser set these bonds up they did so for a reduced initial payment and an ongoing trail (perhaps to be comparable to Unit Trusts and OEICs) so as to show no product bias and build a sustainable business not reliant upon initial commissions?

  2. Old tired life offices such as Friends may stop paying trail – but this will merely accelerate their demise as advisers move assets to modern and usually cheaper platforms. The major life offices will surely recognize this and not want to lose their more profitable back book too quickly…

  3. Somebody with deep pockets and a premier league advocate is going to have to get legal.

    As with many things regulatory the only way will be to get legal I am afraid.

    I am of the opinion that much of what eminates from Canary Wharf with the apparent blessing of the Treasury should be tested in a court of law the problem of course is that it is very easy to go to Court with OPM and no price to pay for failure as the Regulator can do with gay abandon.

    Is there an appitite

  4. Life offices such as FL etc etc etc surely must be seeing vastly reduced money coming in over the past 9 months.
    This is just an attempt to secure what they have knowing full well some will walk and some will stay.

    But as Simon has pointed out this will be a very short term fix, there must be some very worried CEO’s
    There are going to be some very major crashes from big companies

    Holding on to trail is not a profitable solution Ivan Massow anyone ?

  5. I am sure many advisers will tell Friends life to get stuffed if they are looking for any future business. Why would you trust your client’s money to a company capable of acting in such an immoral manner. I can’t imagine the staff that deal with advisers are very pleased either.

  6. Most closed life companies have been doing this for years. E.g Windsor Life ( life Assurance Holdings) with about 20 consolidated life companies. Resolution, all the old tied sales forces.
    These old legacy products also have commission payments factored in for indexation which is also kept by the providers!
    So what is happening in the active IFA sector is just the tip of the iceberg

  7. As others have said, very possibly this is an illegal move from FL, and at some point a case will be heard in court, especially if others try the same trick.

    But commercially, this must be very short-termist? IFAs will be cross, but so too will clients who will be told they must now pay twice for ongoing advice. The result will in many cases the IFA and client deciding to move the investments to a more modern contract elsewhere.

    For every case FL make money, they are likely to lose 2 cases completely. And anger the IFA market into the bargain. Crazy.

  8. Putting aside the moral point of ceasing payments to advisers for one moment, if you assume that the average value of these 800 bonds is £50,000 and the trail commission is 0.5%, then Friends are effectively charging/pocketing an ADDITIONAL
    £250 per annum to service EACH policy.The regulator must surely take a look at the value to policyholders for this outsourcing to HCL.

    Even if the average Bond value is £25,000 that’s a further £100,000 per annum of income for Friends Life. What EXACTLY are the policyholders receiving in exchange for this?

    For me, this raises a huge question over the ability of Friends to administer their existing business.

  9. At least this can’t happen going forward under RDR.

  10. @ Matthew
    Yeah, right!
    Talk about naïve.

  11. Have the police been informed?

  12. @ Ken
    No but the regulator has and they say it’s fine.
    Apparently providers do not have to adhere to TCF as rigidly as advisers.

  13. Appears to be straightforward theft

  14. Trail commission payments are NOT consistent with RDR requirements – the sooner they are abandoned by all life offices the better. In addition, the sooner all IFA fees are quoted on £ basis as opposed to % of fund basis, the better. Transparency is the name of the game – adapt or die !

  15. Mr Briggs; can you confirm the position please?

  16. Isn’t one of the top people at Friends (or Enemies) a former top exec at the FSA?

    Trail is contractual. The advisers with the 800 bonds should get together and sue Friends for breach of contract.

    We stopped dealing with them when service went to the dogs after de-mutualisation and the takeover by Realization. I had the “Realization” that they were going to be crap and the subsequent bonus notices proved me correct.

  17. @Norm: Correct, non-exec director John Tiner was chief executive of the FSA between 2003 and 2007.

    Trebles all round!

  18. Norm d’Plume – please get real. Trail is not contractual. Most providers could turn it off tomorrow if they wanted to.

  19. Sam Caunt

    Bit of a sweeping and probably inaccurate statement that old boy !

  20. Read provider’s TOB. Most will turn it off if policy stops or is adjusted (obviously), the intermediary goes bust, the firm loses its permissions, the FSA instructs the provider to turn it off OR the provider decides so. (Without reason I suppose)
    Anyone relying on trail should have conducted some due diligence to ensure that it will remain payable……

  21. If the client now has to pay a fee for advice and there are no other complications with the product advised on then the client (or their advisor) can ask Friends Life to reimburse them for this fee.

    If Friends Life refuse to reimburse then the client can complain to the ombudsman (the FoS), This might not get the client any money but at least it will not cost them anything and will be trouble and expense for Friends Life. In that regard it might make the client feel better.

  22. Sam Caunt

    Like I said – sweeping statement.

    Specifics need to be tested in a Court of Law

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