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MM leader: With Friends like these…


Friends Life’s decision to cancel the trail commission on certain bonds has understandably angered advisers.

From October the provider will no longer pay trail on the Premium Select Bond and Melbourne Life Company Bond, both closed to new business, affecting around 800 policies.

Friends Life blames a change of administrator and insists its terms of business with advisers allow for it to take such action.

That may be the case but it is of serous concern that the provider will not be rebating the money saved back to the policyholders in the majority of cases.

For the 100 clients in the MLC bond, annual charges will be lowered to reflect the removal of commission, but most will see no reduction.

Friends Life says the money it saves will be reinvested in the business to help ensure a “good customer experience”. But if this money is no longer going to the adviser it should be paid to the policyholder, not used to help fund Friends’ usual business expenses.

It is a moot point as to whether such ongoing trail should have been linked to an ongoing service, or whether it was simply an alternative to paying a higher initial charge.

But in cases where the trail was used to fund an ongoing advice service, affected clients now face the prospect of a double charge if they want to retain the services of their adviser.

Rivals will be monitoring the success (or otherwise) of this move and it is likely that others could follow in Friends’ footsteps.

For some providers struggling in the aftermath of the RDR, the backlash from advisers may be a price worth paying. For advisers, it may be worth checking the terms of business with the providers you work with.

We would caution others from rushing to join Friends in keeping money which should either be going to the adviser or the client.

Besides the reputational hit to be suffered among advisers there is also the inevitable damage to financial services as a whole as consumers see firms hiding behind the small print in contracts to claw back money and saddle savers with extra charges.

The FCA, not usually one to be quiet on such matters, has so far failed to provide detailed comment. Regulatory guidance on what is and is not acceptable is sorely needed.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Good article. Sums it up from most sides and certainly is an impartial viewpoint which the FCA should take note of (although I am sure that they have already and will be formulating a view).

    I would still maintain that a class action from advisers would be a positive move, in order to draw up the lines in terms of what providers can and cannot do, where existing policy arrangements have been put in place.

    As one commentator said, it is not just about the terms of business that exist between us (over which we have no real influence) but what was stated in the providers documentation at the time of the product recommendation and sale. If the consumer contracts to a policy, based upon stated payment terms for the adviser, then these should remain legally binding unless the ‘consumer’ chooses to change these terms (which may ultimately have to mean the policy being discontinued with all of its ramifications).

    To change the stated terms of an existing ‘contract’ is clearly a very grey area and should perhaps be clarified in law if need be. Then we all know where we stand.

  2. the provider should buy out the on going commission from the adviser factoring back to if they had paid full initial commission in the first place.
    it would then be between the adviser and CLIENT whether that commits the adviser to an ongoing service for the sum remaining in the bond or not.
    With our firm it would, provided they were playing our minimum retainer.

    The provider cannot then influence anything as it should be and the advice is an issue for the adviser and CLIENT.

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