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In denial

Two current industry issues prove the adage that you get what you pay for.

Forgive me if, being a little punch drunk from the 500,000-plus blow that Chancellor Gordon Brown clocked me with a few weeks ago (because he stopped wanting me to do what he had told me to). I find myself diverting this column away from its normal grave focus on the iniquities of non-advised selling of protection products to have a little fun with two current sillinesses. Both hinge around the denial that in life you mostly get what you pay for.

The first is the general disappointment at the low number of life policies that are written in trust. It seems obvious to me that if you make free to the buyer something that is very time-consuming, legally quite risky and technically quite complex to the seller, few of them are going to bother raising the issue. After all, if their vocation was charitable, they would not have gone into business.

Of course, in a regulated world, you can make more rules but a much brighter idea would be to pay advisers to put policies in trust. It is a logical one, too, as the lapse rates on such policies are significantly lower than others and their profitability to the provider thus far higher. So, providers, how about an extra 150 commission, say, for any policy in trust? Or if you must, then convert that to Lautro percentage points – although that very term makes clear the sclerosis that afflicts your world.

Mention of that scapegoat “commission” brings me to the second silly denial of the truth that one gets what one pays for. The current campaign to rid our world of initial commission was wonderfully debunked by Nic Cicutti recently in Money Marketing. Spot on, Nic, and it is about time.

It is frankly hilarious that those benefiting from one arbitrary way of profiting (trail fees) should lambast those who make their humble turn another way.

Come on, Peter, at what point is initial commission inherently more evil than a trail fee? Both are wrong if the earner has not earned them. So is an explicit fee. Ask any lawyer.

The only issue is whether they have been clearly disclosed to a client so that they know they have been ripped off if the charge does not match the labour. Do you, Peter, explicitly tell your clients the pounds earned under the trail fee each year? I know I tell them exactly what I earn in initial commission.

Furthermore as even the estimable Andrew X got to agreeing with me the other night, in pure protection, where the rate and benefit are explicit and there is no investment element to be eroded, initial commission fits the bill precisely.

All the work is done up front, fees would encourage churning and if you think that you can get the mass market to pay fees to an intermediary when a provider can sell them a commission and fee-free policy, you have been at the sherry trifle early this year.

Of course, providers would love the end of commission because it would mean that only those who control premium income could market to the mass market.

So, let us address the real issues in our market, not encourage our regulator to perfect advice, when the more he does so the more he promotes non-advice. The ultimate financial services rip-off. If you do not know why that is, then read this column through 2007.

Tom Baigrie is managing director of Lifesearch. tombaigrie@lifesearch.co.uk

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