MM Leader: Providers’ direct tactics are misjudged

As we move closer to RDR implementation, the FSA is expecting product providers to have a structure in place to deal with orphan clients created by advisers leaving the industry.

However, the aggressive clientmailing strategies used by certain firms begs the question of whether regulatory obedience is being used as an excuse to lower trail commission bills and take a greater share of direct business from IFAs.

Last week, Money Marketing reported on a mail out from Standard Life offering clients the chance to win an iPad 2 by filling out a form confirming their details plus a tickbox if they no longer deal with their adviser. A tick will lead to any trail commission being cut, although not rebated back to the client.

Advisers also raised concerns about client letters sent out by Friends Life earlier this year.

With tough economic conditions likely to continue, trying to turn off a large percentage of trail commission paid to IFAs and increasing your direct proposition may sound like a sensible plan of action. But such moves risk the loss of a considerable amount of goodwill from a sector that provides these firms with a large share of their profits.

The trail commission may have been paid purely as an alternative to a higher up-front charge with no expectation of ongoing service.

The best defence against such tactics is regular contact with clients and ensuring they are happy with the service provided. The FSA’s new RDR remuneration rules mean trail commission will disappear soon after January 2013 for active investment clients anyway, with any new advice paid for through adviser-charging.

If providers want to remain relevant and successful in the distribution area, they should be working with advisers to ensure first-class long-term client outcomes rather than attempting a land grab to achieve some short term gain.

Why this pursuit?

Aifa is right to demand answers over the way the Financial Services Compensation Scheme is conducting its pursuit of Keydata advisers, particularly smaller firms, where such actions are unlikely to be cost-effective. Also, these firms will not have the resources to defend themselves in court. The blanket pursuit also takes no account of individual circumstances or the advice given. The FSCS must explain itself.