IFAs believe Prudential has nailed its stakeholder colours firmly to the mast with the news that its Prudential Retail division, including its tied salesforce, is merging with Prudential Group Pensions.
The move has sparked speculation that it could spell the end of the Pru's traditional tied salesforce as it becomes increasingly driven by its direct and IFA divisions.
IFAs believe the Pru's stakeholder strategy will be to concentrate on the corporate pension market and turn its back on its traditional areas of business.
Industry sources back this claim by saying the Pru is quietly folding its shrinking tied salesforce, including 1,500 RIs, into its group pension division.
The decline in tied business, at the same time as IFA sales have increased, has put pressure on the Pru to restructure, say sources. IFAs and the internet offer more cost-effective distribution than tied sales and cost-effectiveness will be imperative in the stakeholder environment.
The Pru says the merger is the latest cost-cutting exercise allowing it to operate within the tight margins of stakeholder. It had previously slashed its tied sales staff to 1,500 from around 14,000.
IFAs say the Pru is looking to snap up a large share of the corporate stakeholder market, which could mean it is competing head to head with IFAs for the same slice of the market.
Prudential Retail and Prudential Group Pensions will rebrand as Prudential Financial Services. Pru says the new organisation will operate as a “single customer-centric brand and is designed to operate in a low management charge environment by eliminating any duplication of activity and reducing overheads”.
This includes cutting costs in the departments and offering one internet site for consumers to access.
Prudential chief executive of UK operations John Elbourne says: “It will cut down on costs to have a smaller tied salesforce. It is an expensive distribution channel and we have to cut down on costs and increase productivity. We could have kept on more tied sales staff and run them on a commission-only basis but there is a lot of political anxiety about that sort of selling.”
Bringing the retail and group pension divisions together means the Pru can run only one marketing and management team.
The merger also means the Pru has lost former Prudential Retail managing director Roger Flynn amid industry speculation that there will be more job losses to come.
Elbourne says: “It is a cost-saving exercise to have just one management and one marketing team. Merging divisions means we have fewer people.”
Life offices claim this latest reorganisation is a continuation of the rapid restructuring which the Pru has adopted and reveals where the life office wants to be in the stakeholder market.
Clerical Medical public relations executive Tony Muir says: “This restructure underlines the Pru's commitment to the stakeholder group pension market. If it is looking to target the stakeholder market – and a company of that stature cannot afford to ignore it – then it does not surprise me it is restructuring in this way.”
IFAs suggest Pru is realising ahead of some of its competitors that it has to cut costs to meet stakeholder demands. They say it is further evidence that there will be only a few players able to compete in the stakeholder market.
Informed Choice managing director Nick Bamford says: “This could well be a good strategy for the Pru but what does this mean for smaller companies if the mighty Pru is realising it must cut costs as it will take a long time to recoup the expense of stakeholder?”
But other IFAs believe the Pru is running scared of the low margins of stakeholder. In doing so, it may be heading in the wrong direction. With so may companies looking to muscle in on the stakeholder market, it could be that any amount of restructuring and job losses is in vain.
C&J Independent Financial Advisers partner Barrie Jeffery says: “Every time the Pru does something it is always done for the benefit of the Pru, not for consumers. But the stakeholder market will not go anywhere unless stakeholder is made compulsory. It does not matter what restructuring the Pru does.”
But IFAs may do well to look at Pru's plans and restructure their own businesses to address the stake-holder market. IFAs offer an effective distribution channel and it may be that this latest move by the Pru shows it recognises that fact. This is not something IFAs should ignore.
Scottish Life head of communications Alasdair Buchanan says: “IFAs need to adopt a similar strategy review to the Pru. They could make life difficult for Prudential Financial Services by going into the same stakeholder market and competing head on with it.”