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Malcolm Murray: Why we need the return of the tied salesforce

Malcolm Murray, Head of sales and Marketing at TransAct speaks at the RDR Invitational Conference, hosted by Money Marketing. Photo by Michael Walter/Troika

It was inevitable the Government would come under increasing pressure to relent on some of the reforms introduced by the RDR.  My own view for some time has been that  life companies, particularly those domiciled in Europe, South Africa and North America, would not tolerate indefinitely having their control over distribution artificially restricted. The concern over the advice gap has added weight to their argument.

There is no doubt the RDR brought about some much needed reforms that curbed the worst excesses of the old regime. But it should, and must be possible, to retain those safeguards without jeopardising better financial security for the majority of the population.

There is no single solution – a variety of changes are required. But fundamental to reform is to encourage the re-establishment of the tied salesforce. This in turn means the commission system of remuneration.

There has to remain a legal distinction between the independent adviser and the tied agent which should be rigorously policed by the FCA. The former should still be required to charge fees paid by the client to reinforce the fact that the adviser acts only on behalf of, and in the best interests, of the client. The tied agent is just that, tied to a single company and is remunerated for selling the products of the employer.

As with any commercial operation, the company sets the levels of salary or commission including incentives. The onus on the regulator is to ensure it is the products that are policed and are appropriate to the customer’s needs and that the sales methods employed are ethical. Surely enough evidence has emerged in the past to know what is definitely wrong.

Having spent all my working life with the independent sector some may find it difficult to understand my argument. The truth is experience has taught me that providing we return to polarisation the truly independent adviser/financial planner has nothing to fear.

When Transact first started there were many who doubted the IFA could survive charging fees. That was fairly quickly proved not to be true. Today, there are thousands of advisers who declare not only their own fees, but also those of the platform and the fund manager.

The FCA should not seek to interfere with that process.  Whether those fees are on an ad valorem basis or not is a matter for agreement between the adviser and the client. The FCA do need to check periodically that the advice being given is explained clearly and is suited to the client, particularly in terms of risk.

Before the Financial Services Act 1986 it has been estimated there were more than 200,000 tied agents, including those working for the industrial life offices. The cost of collecting premiums was unsustainable and many salesforces were disbanded or severely reduced.

With modern technology some of those obstacles have been removed and it is time for the sale of savings, life assurance and pensions to be renewed on a mass scale if younger generations are to have any hope of a comfortable future.

Malcolm Murray is chief executive of MFM Management Consultants and former head of marketing at Transact

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. The advice gap started when the ‘man from the pru/pearl/cis’ stopped calling. There was more new start pensions started by these than IFA’s.

    I can see the wheel is beginning to tun back to providers,with commission now being mentioned again …..which isnt surprising considering the make up of the FMAR panel

  2. At the end of the nineties early 2000 the life companies thought they could move the liability for the advice away from them and to the adviser. They effectively sacked the advisers, waved them good bye and waited for the business to roll in. They thought this would make good practice, reduce their overheads, liabilities and still have control of the clients. They did not understand that the relationship with the adviser was the most important asset and value to the consumer. RDR gave the advisers even greater freedom, removed penalties imposed for commission in the past, allowing greater movement of investments if the service, returns are not delivered. They lost totally control of the client, which they did not see coming.

    They will have to start from scratch, training and employing a new generation of advisers. I cannot see any good quality adviser ever returning to those dark and pressured days. You will then yet again have a sales force, like mushrooms kept in the dark , fed on ……. and pressured to hit sales targets. The problem this time will be there are advisers out there not under their control who will be watching, highlight their every move and mistake.

    It will be very interesting to see how they try to achieve this return to market advice. Do you really think these life advisers will want to deal with low net worth clients. They are not profitable to IFA’s and they will not be profitable to Life Company Advisers either.

  3. There needs to be significant compensation from the regulators/government to the IFA’s who wasted their own money and time on RDR, having warned that it would fail, only to see it fail and the changes being undone. I won’t hold my breath though.

  4. Most people deserve better than a tied agent, selling (not advising) what they have to offer or being incentivised to push, rather than what is required by the client. Unfortunately the products that were sold (often including B&C, Life Cover not just pensions and endowment policies) were either overpriced, underperformed (or both) and were often not suitable, but were put in place because that ‘nice man’ from the Pru/CIS/Pearl/CICA was convincing. I understand the ‘something is better than nothing’ argument, but you can’t put that on a fag packet fact find any more. I think that it is also some of the reason a lot of people don’t want to talk to an adviser anymore – they would rather shop on the internet without advice. Once bitten – twice shy

    Many of us learned our trade with these types of Companies, but I bet not one of us would give up our independent status to go tied again. It means you can’t really look the client in the face when you are trying to point them in the right direction.

  5. Doesn’t this industry make you feel like jumping off a cliff? It’s just crazy.
    After all the opposition by so many IFAs, including, me to the RDR, all the warnings about access to advice and all the aggravation we have entailed over the last few years and the cost to many of us, we are now getting more and more mumblings that it might have all been a big mistake. What the hell are our regulators being paid these huge salaries for? My Granny could have done a better job.
    If tied sales forces do return in great numbers I am not against that but the method of disclosing commission or fees, to the client, across the whole sector has to be uniform and there has to be much greater accountability at the top of companies for sharp practice by the sales force and lower management; with the threat of prosecution (which will never happen).

  6. Stewart Tomlinson 8th January 2016 at 3:31 pm

    Malcolm

    Didn’t you used be with Albany Life, as I seem to remember you helping me out with a complex Private Pension Fund problem. I completely agree with your comments and those of Mike. The advice gap will not be filled by robo-advice, but by men and women talking to the customers. Does it really matter if these people are employed by product providers and the products generate commission?

  7. Here’s the problem. The old direct sales forces sold products that had high up front charges that penalised those that for whatever reason decided to abandoned the plan. This enabled the sales force to make a very decent living.

    The world has moved on and for most “average” individuals the only two investment products they are likely to need are an ISA and a Personal Pension. Both now have low charges and are very flexible allowing payments to be varied or suspended without any charge.

    So how even with a lighter regulatory regime can the direct seller make a reasonable income from selling these low cost products? A firm might try to sell an ISA that only invested 50% of the monthly contributions for the first 12 months but it would be pilloried in the personal financial media.

    Any ideas?

    • Yes and I tried suggesting them to the FSA pre RDR instead of just fighting changes under RDR. I offered potential solutions, but they thought they knew better. I may dust off what I said back in 2007 and copyright it!

  8. It was always obvious that following RDR thousands and thousands of people with modest pension and/or investment holdings would never wish to pay or be able to afford to pay for advice. The Government’s pathetic attempts to provide this via no cost advisory services have clearly failed dismally. Malcolm’s suggestion that the return of tied salesforces should be encouraged seems to make sense and appears already to be happening.

  9. Doesn’t this already exist in the form of SJP and those other ‘vertically-integrated’ firms? :-0

  10. I do not fear the return of the sales force (tied advisers), for one very simple reason it will never happen (as on of my learned peers noted above)

    Firstly, you have got rid of all your experienced and competent sales force, now you have to start from scratch to rebuild it !!

    Now, one can only imagine the cost, time, and pure logistics in resetting this up again, my head spins just thinking about it ! ( I know of one IFA who has taken on an apprentice, 2 and a bit years in now, although qualified to level 4, he estimates another 3 to obtain any real, competent IFA skillset, let alone clients, the cost for all this ?…. well when some-one you know really well sheds a tear… you can only guess )

    Go ask Santander, for the “TRUTHFUL” answer !

    The FSA/FCA steamroller has passed right over granny’s bone china teapot, now lets try and rebuild it with a tube of superglue…… yeh right, good luck !

  11. Trevor Harrington 9th January 2016 at 11:03 pm

    Whoever provides the advice is irrelevant.

    How they are motivated is even more irrelevant.

    Ensuring the quality control is equally powerful, or preferably more powerful, than the element of motivation …. is absolutely, completely and utterly ….. ESSENTIAL.

    In other words, removing the connection between the production manager and the compliance manager …. or if you prefer, making the long term adviser KING over the short term salesman.

    The arrival of 0.5% trail in 1988 (PEPS), in addition to basic renewal, was master-stroke for the long term professionalism of retail Financial Services. However, failing to make it compulsory for the “point of sale” adviser to share proportionately in those long term “renewals” was a disaster.

    We need to go back there, in order to motivate the adviser to work for the longer term benefit of his clients, rather than the “one off” hit.

    God … this is depressing …. these are precisely the same problems which FIMBRA failed to address way back in 1988 …

  12. I appreciate that some on here feel that IFA only is the way forward. However, for many customers, paying the sorts of Fees that is likely to entail is a non starter.

    There has to be a cheap alternative to provide simple advice for the mass market.

  13. There is nothing wrong with selling products to people – The vast majority of us IFA’s still do that and should be proud of it, because if it works for us, it obviously works for our client(s) and that is fantastic. Those who slate this method of payment have a business model which is obviously set up in such a manner because it works for them and that too is fantastic. So to keep it simple the best way is how it works for us and the client regardless of which method is used.
    As I see it, the problem for any provider coming back into the market is going to be doing it profitably. Even in the “good old days” of up front charges on pensions, it took the life company I started (and stayed with) some 5 years to start making a profit on a pension sale. God knows what it would be like now.

  14. DSF indeed – the absolute lowest of the low and I should know – that’s where I started my financial services career. It was a good education. Study what they do and resolve to do nothing like it if you want to be fair to your customers. It stood me well in the 30 years I was an IFA.

  15. Trevor Harrington 11th January 2016 at 8:11 pm

    You worry me Harry.

    How many years did you have to stay in the DSF before you realised it was wrong, and unfair on your “clients”?

    • 18 Months. This was my first foray into financial services and it was a learning curve and what you must remember is that this was before regulation, so we were free (if undiscovered) to place business elsewhere if we thought it was a better offer.

  16. Trevor Harrington 13th January 2016 at 12:15 am

    That is not so bad Harry.
    At least you made the decision after 18 months that there was a better way.

    Unfortunately, many were so seduced by the sales earnings that they stayed for years and years, and never learnt the lesson of “what you give out … comes back”.

    Personally, I refused to join such an organisation in the first place – I came into financial advice in 1981.

    I do not believe that fees are the answer, which I understand that you advocate. There is far too much scope in fee systems for clients to be seriously ripped off by the criminal adviser. Indeed, far too many Solicitors and Accountants deem the embellished fee invoice to be perfectly OK practice.

    However, I do adhere to the view that however the financial motivation is dressed up, it is the quality control within the adviser practice which is critically important, alongside really hard disclosure to the client, which should be on the front page of a simple illustration.

    Furthermore, I believe that our profession should be moving towards an annual statement to the client showing the entire earnings on his account during the preceding year, including fees, commissions, renewals, ongoing adviser fees and initial fees etc. Only then can the client weigh up what the adviser service has truly cost and what benefit and service they have received for it. I have been doing this for 5 years – seems to work very well – there have been no problems.

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