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Nic Cicutti: Remember who is watching you

Years ago, when I was a full-time member of staff on a national newspaper, one of my weekly highlights – and that of almost all my colleagues – was the arrival of Money Marketing in the post.

Not just MM, in fairness, but other trade journals and magazines covering their financial sectors. Hardly surprising, really: many of us came from a trade press background. Our friends worked there and we recognised the quality journalism in those papers. They provided us with an excellent panoramic background into many issues that affected the industry.

Indeed, the trade press was a regular source of excellent national stories, or ideas for further research – for which I always tried to give credit to the individual journalists concerned or their publications, sharing bylines with them and ensuring they received a fee for their initial work.

I have no way of knowing how many of my former colleagues still read MM and the rest of the trade press regularly. Anecdotally, my guess is most of them do: once every month or so an email pings its way into my inbox from a fellow scribe, commenting on an article I have written.

Not only journalists, by the way. Years ago, after I wrote something in this paper I was asked to visit a member of the Treasury select committee to discuss the matter further. His researchers, and those of other MPs I have met, regularly scan trade papers to see if there is anything their bosses should know about.

Which brings me neatly to my column last week, in which I described old-style personal pension charges dating back to the 1990s as “the industry’s dirty little secret.”To make my point, I quoted chapter and verse on the types of charges that were in force then and are still being applied today to millions of contracts that have been left paid up.

Although I did not say so in my article, the specific examples given came from research originally published by Money Marketing back in the mid-1990s, therefore an impeccable source.

Moreover, this is an issue baing discussed with increasing interest by politicians on both sides of the divide, by national newspaper journalists and, with extreme reluctance, by the industry.

Given the above, you might have thought the majority of advisers would have lined up to condemn the practices of pension providers back then, who deliberately structured their charges in such a way as to falsify the real impact of RIYs on the majority of consumers taking out their products.

The equation ought to be easy to understand and apply: IFAs are consumer champions, in theory at least. High hidden charges do not benefit their clients and should therefore be scrapped. Therefore, the starting point in any debate is to support those who say so, even with reservations. “Simples”, as my old mate Aleksandr Orlov often tells me.

Except there was nothing “simple” in the response of many IFAs to my column, certainly in the online version of MM. Or maybe there was, but in another sense – the complete loss of any genuine understanding of the matter under discussion, leading to what one can only charitably describe as an “industry-credulous” position.

So, for instance, one commentator began by saying: “That’s right Nic, you keep stoking the fires of negative sentiment. Let’s make sure no-one is investing or saving for retirement by referring to the bad old days”, before grudgingly conceding – but only after she’d had a pop at me – that these contracts were “disgraceful”.

Another respondent wrote: “Typical Cicutti. Negativity, negativity, negativity!”, before admitting that “yes the contracts were wrong and did have high charges.” A third writer, who without any hint of self-irony dubbed himself Justin Credible, added: “Did you have to get out the history books to look for something to be negative about this week? …What are you treating us to next week? Slavery, kids up chimneys, failings of the medical profession in dealing with the bubonic plague or lack of eye protection in 1066?”

I was also branded a “troll” – a term for someone who posts inflammatory and off-topic messages with the primary intent of otherwise disrupting normal on-topic discussion, none of which applies to me.

Elsewhere in the paper, my old sparring partner Alan Lakey wrote an article opposing the creation of more “McProducts”, simplified financial products like stakeholder pensions which no-one wants to sell, presumably because they don’t pay enough commission. It somehow managed to escape Alan that, for all their faults, stakeholder pensions delivered salvation against the charges so prevalent in the industry before their arrival.

At one level, I don’t mind any of this. If, instead of defending the interests of your clients and proving that you are on their side some of you choose instead to attack those who raise matters of genuine concern, that’s fine by me.

But one or two of you should be aware that there are no hermetically-sealed walls to stop people reading what you write, anywhere on the internet – and the world is watching.

Nic Cicutti can be contacted at


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Me, Mrs Lorenson and and all the little Lorensons were on our hols last week so missed the opportunity to comment.

    However, anyone who remembers Scottish Equitables version 7 Personal Pension charging structure will know that Nic was 100% right about the dirty little secret of 1990’s pension charges.

    This was a wicked little product that gave high allocations and a fair AMC. It also had a Variable Charge which SE could set at whatever it liked. Basically is remained as quoted providing teh client paid the same premium for the lifetime of the plan. However, if he reduced his premium or stopped paying, the variable charge was upped considerably.

    Add in a hefty loyalty bonus that I cannot imagine was ever paid due to the criteria required and you had an expensive product with a RIY that was often less than 1%.

    IFA’s sold bucketloads of the things.

    The sad thing was the the SE product was competitive and not out of line with the market. Everyone was doing it and no-one seemed to understand the implications to the client.

    It only stopped when Standard Life introduced a charging structure with no paid up penalties.

  2. Well said Nic. Couldn’t agree more. Wasn’t it Denis Thatcher who said something about ‘Better to keep your mouth shut and be thought a fool than to open it and remove all doubt.’

    Please guys, at least read the flippin’ article before exposing your ignorance to the world.

  3. Back on topic now I think this article is a somewhat disingenuous.

    I often agree with what you write Mr Cicutti, but recognise that you frame it in a way to annoy and get the maximum reaction from your readers (which I fully understand is your job).

    No doubt both you and MM are disappointed when your pieces have 2 or 3 comments below but are delighted when there are 30 or 40. It pleases the advertisers too.

    So to moan at people for taking the bait…

  4. Nic is certainly right about one thing here, everybody, FSA, FOS and others trawl the blogs looking for matters that concern the,m.

    This was proved recently when comments I made about MOJ inadequacies, in dealing with claims management parasites, led the MOJ to request a meeting to allow them to gain precise coal-face knowledge.

    Incidentally, my point about stakeholder remains perfectly valid. Consumers do not buy products en masse and history proves that the more advisers who sell products then the more products are sold.

    Designing low cost products without a worthwhile marketing allowance was commercial suicide because advisers stopped marketing and consumers never did start buying them.

    Commercial logic Nic.

  5. Completely agree with you Nic. I stopped selling offshore life products the moment I could get my hands on trading platforms- very low cost and charge the client a fee, with no loadings, excellent.
    I found it very hard to justify to myself selling the life products but it was all that was available.Life companies have done the industry a terrible service, good advisers were crowded out by scam artists who are still selling the most awful products from life companies. Its not the shoddy salesman we should blame but life office directors who approve these contracts.

  6. Wasn’t the worst example of these contracts the Oak Life specials, sold by tied agents and, from memory, offering no return if discontinued in first five years(endowments) and no retained fund also if discontinued in first five years (pensions)? The tied agents were on 250% Lautro I believe, hence not much left for the client on early discontinuance.

    Don’t think there is much leeway for argument over the design of these old contracts

  7. Nic, as well as looking back it would also be of benefit to consumers to highlight some of the current “dirty little secrets”.

    Scottish Lifes Financial Adviser’s Fee would be a good starting point!

  8. Thanks kindly Uncle Nic for telling us Big Brother is watching us, I think most of us knew that.
    History is great, but hey Nic, you had hair then.

  9. Nic,

    Did your research include looking at RIY over the full plan term compared to say stakeholder or NEST?

    The problem with ‘old’ contracts (although NEST seems to be mirroring them) was the impact of charges in the early years. If they ran their full term the charges worked out okay.

    The problem is the cost of setting up and running pensions in early years – who should bear this cost the life office or the client? If it is the life office this means that those who contribute for the full term in effect subsidise those who dont.

  10. Nic – From an IFA’s perspective the issue of switching (or not) has to be based on facts and not emotion. Obviously I would like clients to bring existing pension accounts for me to manage on their behalf as it would bring additional income to my business. But I cannot do this without fully justifying any switch or transfer not only to my clients but also to the Regulator if any issues arise with the suitability of the advice (the recent Pension Switching Review by the FSA). I continue to have a number of clients with old style plans that have not been moved as it is not in their best interests to do so.
    I have to demonstrate clearly to my clients what might happen if they continue with existing plans or why they would benefit from moving. It is only when I can do this that I can justify stopping one contract and starting another.
    I am sure that most IFA’s are fully aware that the charges applied to old style pensions are difficult to understand and make a number of assumptions that in reality may never materialise. However, I cannot say to a client I know your existing plan appears to be heavily charged as it deducts this, this and this and the new one I am suggesting you take out doesn’t because if the projections are better (with the old plan) your advice can fall down regardless of how well any new plan performs because we are judged on the facts at the point of giving the advice.
    We all know that these figures assume a lot of things and are “skewed” by providers but whilst they are with us I and every other IFA have to consider them when giving advice.

  11. Also, to add to Euryn’s cooments, a plan that was heavily front-loaded from outset may now be a very low cost plan having got over the initial low/non-allocation period.

    Possibly not the case for capital units though.

  12. Dear Anonymous if you wish to fling mud I suggest you use your own name. What precisely do you object to with the Scottish Life’s FAF? It was designed to separate the product and advice charges so these are clear to the client. Our product charges are amongst the lowest in the market and we do not seek to influence advisers in any way as to how much commission (FAF) is taken. This decision is made by the adviser does – in theory based on the amount of work done. We also monitor the amounts taken and can report that most advisers seem to appreciate the purpose of FAF and do not in fact take the maximum available amount. That maximum amount is there so that advisers can be remunerated in complicated cases – as pension ofetn are. It is not intended to be, and is not taken to be, a recommended amount.

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