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Nic Cicutti: ABI cannot pass the buck over ‘sore of legacy commission’

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Many years ago, some time after the launch of Headlinemoney, the financial press and PR hub, I was contacted by its then legendary editor and publisher Roger Anderson.

Roger informed me I had been nominated for an award and wondered whether I could provide a few words – based on a question and answer format – for Headlinemoney’s brochure, handed out to those attending the annual prize-giving dinner.

One of the questions stood out: what basic, simple message would I like to give the industry’s great and good, gathered to celebrate the achievements of journalists and PRs that year?

Bear in mind this was the period shortly after the end of an almost decade-long personal pensions review process, when more than one million people received compensation for being transferred out of their occupational schemes.

Millions more were just then in the process of having their mortgage endowments assessed, to see whether they had been missold unsuitable products.

Stories were rife of other, relatively more minor misselling scandals, not to mention grotesque charging structures, incredible product opacity and appalling persistency rates – no change there, then.

So my simple message to the life insurance industry that year was: apologise to the many millions of people you have done harm to. To no-one’s surprise, least of all my own, no mea culpa has ever been issued from the lips of the industry’s finest, then or since.

That said, fast forward a dozen years or so and I found myself choking on my muesli and banana breakfast the other week, as I read in Money Marketing of a speech by Association of British Insurers chair and Axa UK group chief executive Paul Evans.

Evans told a gathering at the recent ABI retirement conference how upset he was by the fact the insurance industry is less trusted than banks and estate agents: “That our sector has lower consumer trust than the banks with all their troubles, is embarrassing. That we are trusted less than estate agents is frankly humiliating.” 

In fairness to his audience, which almost certainly included many financial scribes, Evans politely glossed over the fact that virtually all the UK surveys about unpopular professions always place journalists towards the bottom, ranking them just above politicians.

Still, his underlying message was clear: the insurance industry is not trusted and must do something to dig itself out of this abyss.

So far, so good. My problem, however, is not with Evans’ understanding of the relative position of his profession in the occupational popularity stakes, but his analysis of what caused it and the remedies he things should be bought to bear to rectify the issue.

Evans told delegates: “We will be pushed aside if we do not rapidly re-earn the trust lost over past decades. Decades during which the business model was different because of adviser commission, the legacy of which is an open sore that continues to undermine trust in what is now a completely different proposition.”

My concern lies with Evans’ use of the word “commission” in the way he does, almost as if it were a disembodied object that somehow miraculously appeared one morning when no-one was watching and took over the industry.

In “Evanspeak”, commission appears to have no connection with human agency, least of all people working in insurance companies, including his own, who create products and then work out the most effective ways of selling them profitably.

Commissions, as well as weird charging structures which penalise the vast majority of consumers forced to surrender early or make their plans paid-up, are not an accident. They are the result of conscious decisions by colleagues Evans has spent the last 15 years or so working alongside after leaving PwC, including at Axa. 

A similar feeling comes over me when I read Evans’ offering with regard to customers trapped in high-charging legacy pensions products left over from the 1980s and 1990s. 

A few weeks ago, Money Marketing wrote about a blog by ABI head of savings, retirement and social care Yvonne Braun. She blamed the Department for Work and Pensions for failing to give providers the power to bulk transfer occupational scheme members to new and better plans.

This, she said, was essential because otherwise individual consent was necessary and obtaining a response from individual members would be nigh on impossible.

No evidence was provided of any attempt by providers to promote such a switch, of industry-wide moves to at least move members onto “a modern operating platform that can be operated at a much lower cost than a legacy platform,” or to lower or waive its own charges. 

Evans’ speech continues with the same argument: it is not the ABI’s fault we still have a continuing scandal of high charges and penalties for switching out of expensive plans, it is all to do with the Government.

This convenient cop-out over charges contains the same echoes as Evans’ reference to commissions: an intangible, ethereal entity is making life difficult for the life companies and their customers. Sadly, insurers have no power to do anything about it, he tells us.

Back in the early “Noughties”, I asked the insurance industry to apologise to consumers for its actions. Thanks to Paul Evans I now realise I was mistaken: it is never his members’ responsibility if something goes wrong: just blame everyone else.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 16 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 6th March 2015 at 9:06 am

    A good article, Nic. The facility for policyholders to switch without penalty into modern contracts facilitating customer-agreed adviser charging would be a huge and positive step forward. And, by that, I don’t mean the unilateral and wholesale stakeholdering of existing contracts that took place back in 2001, thereby at a stroke making them totally profitless for the intermediary who sold them in the first place. All our old PP’s with the likes of Standard Life, Friends Provident, Sun Life Life, Aviva and Clerical Medical were rendered overnight just dead wads of paper to us.

    What still angers me and what I’ll NEVER forgive those life offices for is that they did it without even prior notification, let alone asking for our consent. It was a complete betrayal of any sort of trust that might hitherto have existed between us and them. Policyholders who’ve never paid fees before aren’t suddenly going to be prepared to start doing so now because the provider has taken it upon themselves to change the contract to pay tuppence ha’penny commission to their adviser.

    For a while after we used to receive occasional contact from various broker consultants sniffing around for business, in response to which I would tell them that unless they were prepared to reverse those changes, there wouldn’t be the slightest chance of us considering placing any further business with them. And that would be the last we’d hear from them. And if you mention this to your AXA Elevate consultant, the response is Nothing to do with me, we’re a separate company. So who’s our AXA/Friend Life consultant now? Err, dunno (and don’t care). How convenient.

    They still want our business but seem to think we’ll be happy to overlook what they’ve done to us on all the stuff we’ve placed with them prior to April 2001. Well, I for one am not so, as far as I’m concerned, they can rot in hell.

  2. I have a lot of sympathy with Nic’s view… but any adviser has had the ability to review and move arrangements to something far better for many years, so one would hope that where sensible, suitable and appropriate that this has been done already.

    The key problem was a commission model that was anything other than single-premium based, reliant upon a contract being maintained, which as Nic points out, clearly hasn’t been achieved by many thousands or millions of policyholders. In practice however, there is some mutual responsibility – the collective delusion about free advice. Insurers designed policies to make a profit for all involved and some don’t break-even for many years (remember stakeholder?). This was not solely the responsibility of providers, but all involved – advisers, journalists, investors, regulators and Governments…. there is no such thing as free financial advice.

    As a word of caution…. getting what you wish for (wholesale exit from old life & pension products) may just deal them (providers) a mortal blow (good you may think to yourself) but the knock-on impact from failed or insolvent providers does have some serious consequences.

  3. Laurens van Buren 6th March 2015 at 12:52 pm

    @jstevens as per usual it’s the perennial broker diatribe and double standards when it comes to a relationship with their broker consultant. You are only welcome if you do something about an old charging structure, if not rot in hell. But who is my consultant anyway by the way, because I’d actually quite like a visit as it makes me feel important. You’re only likely to get a visit where there is some common ground on which to do business, if not, forget it and slowly sink into oblivion as you are the cause of where we are now in this business, which is what Cicutti is saying. – free rugby tickets anyone?

  4. Not disagreeing with your article at all…..but a bit ripe a journalist pulling people up for not apologising isn’t it.

    What about all the phone tapping by journalists over the year for stories. Only after vigorous denials and dragged kicking and screaming to court where further denials (proven to be untrue) attempts to settle out of court etc are made by the mirror group etc is a begrudging apology made.

    I think we are still waiting for the Piers Morgan apology for the mocked up pictures that were reported as real for abuse of Iraqi’s (apologies if it was another conflict but the sentiments are the same) that resulted in further deaths of UK soldiers.

    Also the poor chap who was wrongly reported as having murdered a neighbour in Bristol (?) just because he looked ‘unsual’..and had his life ruined. Again an apology that took up a lot less newspaper space than the pages of lies that had been originally dedicated to the ‘story’.

    These make me choke on my breakfast!

    pot kettle black anybody

  5. Julian Stevens 6th March 2015 at 2:42 pm

    Okay, here’s a parallel example. Say you buy a new car with a 5 years parts and labour warranty but then, after 3 years, the manufacturer writes to you informing you that they’ve decided unilaterally to cut that warranty to just 3 years. How would you feel?

  6. jonathan gamlin 6th March 2015 at 2:52 pm

    Initial units , capital units etc all stem from the dark ages of insurers costing their plans over the lifetime of the contract . This is something they won’t easily let go of and guaranteed annuity rates plus old retirement annuity contracts may have their place . However death benefits such as return of premiums are totally unacceptable in today’s world . I appreciate this was a different time and place but come on insurance companies do the right thing and allow penalty free transfer at any time , most of these contracts are decades old and you’ve had your fair share . As an employee of NPI in the 80 s I remember all the changes linked to the new PPP and the ongoing miss selling . Advisers need flexibility from these life providers if we are ever to use them again , which in the main I don’t do directly ( co funds/ l&g case in point ! )
    By the way St James Place seem still to apply penalties on early transfer , high net worth clients beware !!

  7. Call a spade... 6th March 2015 at 3:09 pm

    Say you buy a new car…. do you get told how much commission the salesman is getting? Say you buy a newspaper, are you told how much commission the advertising salesmen are getting? Many industries work on commission and few people complain about it. Commission itself wasn’t the problem. How many journalists back in the day recommended Equitable Life because it ‘didn’t pay commission’?

    As for personal pensions ‘mis-selling’, there was never any apology from the government for the adverts they ran, offering people “free money” from the state to “break out of the chains” of their company pension scheme. Just as I don’t expect there will be any apology from Osborne to people who take all the money out of their pension funds after April, get taxed hugely and later find themselves on the breadline – because the Pension Wise service offered ‘guidance’ that they took to be advice. No doubt the industry will be blamed for that ‘scandal’ in years to come……

  8. @ Laurens Van Buren I I think I had one of those in my conservatory once)

    It’s been a while since I’ve read such a spouting of vitriol and it makes me wonder whether you should seek counselling.

  9. Dominic Thomas 6th March 2015 at 4:07 pm

    @Call a spade – I’m not suggesting that commission is necessarily bad, but the differences in commisison rates for different products and different providers was the issue. There was no level-playing field.

    To take your analogy further…. (and yes it is limited/weak)…You want to get from London to Birmingham, you seek advice. The answer you are given is “a car” – you aren’t offered the train, bus, coach, bike, hot air balloon, canal barge, yacht etc… because the salesman earned more for selling cars, not solutions.

    OK, it doesn’t fully work and it easy to pick holes in my analogy, but I remember having to undo the work of many commission hungry salesmen who sold WOL polcies as savings plans. There is no escaping the reality that commission played the most influential part in every mis-selling scandal. Would endowments have really been sold if they didn’t pay commission?

    Yes Equitable Life bragged about not paying commission, but any thinking person knew that such statements were a fudge, tantamount to cobblers. They just paid their own sales staff, often rather more than a comparable commission would have been. Much like “free banking” is total cobblers and “free financial advice” is total cobblers.

  10. Richard Wright 6th March 2015 at 4:30 pm

    Nic,
    Are you sure the “legendary editor and publisher ” wasn’t actually HANS CHRISTIAN Anderson???
    These “Many Years ago” Once upon a time stories you tell week in and week out are starting to annoy – Those times are long gone and raking it up every week serves no purpose what so ever. Problem is those long ago dark times were your heyday and I’m sorry but just like your fables from forgotten times you too are well past your sell by date. Time to hang up your dirty Mac and Trilby Nic – Switch the light off on your way out.

  11. jonathan gamlin 6th March 2015 at 4:41 pm

    Initial units , capital units etc all stem from the dark ages of insurers costing their plans over the lifetime of the contract . This is something they won’t easily let go of and guaranteed annuity rates plus old retirement annuity contracts may have their place . However death benefits such as return of premiums are totally unacceptable in today’s world . I appreciate this was a different time and place but come on insurance companies do the right thing and allow penalty free transfer at any time , most of these contracts are decades old and you’ve had your fair share . As an employee of NPI in the 80 s I remember all the changes linked to the new PPP and the ongoing miss selling . Advisers need flexibility from these life providers if we are ever to use them again , which in the main I don’t do directly ( co funds/ l&g case in point ! )
    By the way St James Place seem still to apply penalties on early transfer , high net worth clients beware !!

  12. Call a spade... 6th March 2015 at 4:56 pm

    @ Dominic Thomas – my comment was that “commission itself wasn’t the problem”. I agree it could be used badly; I just think it’s lazy to talk about commission as if it’s inherently bad, just as I dislike the glib phrase “commission-hungry advisers” (who were regularly blamed by the press for all the world’s financial ills). As for Equitable, there were a lot of “thinking people” who either didn’t perceive or chose to ignore the fudge, not least a number of prominent financial journalists in the 1980s or thereabouts.

    Similarly, endowments weren’t always bad. My dad had one and was so pleased with the bonus he got at maturity that he sent 6 bottles of champagne to his broker. Those were the days…..

  13. @ Laurens Van Buren I I think I had one of those in my conservatory once)

    It’s been a while since I’ve read such a spouting of vitriol and it makes me wonder whether you should seek counselling.

  14. Laurens van Buren 6th March 2015 at 6:30 pm

    @pmiss – if you’re quick I understand there’s still some comm available selling conservatories

  15. @L vBuren
    More than a little unfair.
    Not all of us have only been in financial services. Although I have been in the industry 29 years my first impression of the life companies has not changed. Badly run, pathetically badly management and a culture that certainly has never been aligned to the customers best interests.

    Oh and BTW we haven’ t been brokers for years. In case you haven’t noticed we are financial advisers.
    Harry Katz

  16. @Laurens V Buren

    I entered this business from industry almost 30 years ago. My first impressions were that the life companies were poorly run but sub-standard managers with odd ideas concerning business plans, with an ethos that didn’t seem to put the client first. I haven’t changed my mind since.

    I well remember attending seminars at which well-known and allegedly reputable life companies were keenly advocating that advisers should transfer as many as possible from final salary schemes to personal pensions.

    The sales policy of the life offices was to ‘wind up the advisers’ so that they could shift as much of their product as possible. Commission was the honey trap. When the effluent hit the ventilator (mortgage endowments being another example) they stood back and allowed the advisers to take the rap.
    Unfortunately far too many advisers came from a life office background, had no experience outside financial services and suffered from a distinct lack of cynicism.

    In this case I think Nic has been remarkably restrained and has vastly understated the case.
    My worry is that history is about to repeat itself. The providers are at it again – extolling the virtues of the Chancellors big new idea of trashing the cash. Yet again it will be the advisers who will carry the can if things (as they undoubtedly will) go awry.

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