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Nic Cicutti: Would a return to direct salesforces be so bad?

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Many years ago, when my partner and I were making regular trips over to Northern Ireland to visit her family, one of the first people I met there was Uncle Archie.

Archie was a lovely, kind man, someone who would always top up your glass when you were down to the last finger of Bushmills.

He was also, it must be said, was not the world’s greatest businessman. Over the years, a small litany of unsuccessful commercial ventures began to sap Uncle Archie’s mojo and made him a target for the sharp tongue of his long-suffering wife, Hazel.

At which point, having exhausted all other options, he became an L&G salesman. By then, Archie was already in his 50s, theoretically counting down to a difficult retirement under the baleful eye of Auntie Hazel.

Suddenly, he was reborn. After a rocky few months while he slowly established and built his own client base, Uncle Archie began to meet – and then beat – his sales targets.

Soon he was earning a very comfortable living doing a job he loved: talking the hind leg off a donkey over a cuppa and a chocolate Bourbon. Archie, now happy as a pig in clover, would often say he wished he’d fallen into this line of work many years before.

His bonhomie, genuine friendliness and extensive list of contacts helped, of course, as did the fact that, by and large, the life, pension and investment products Archie sold were, most definitely, not among the worst in their class

Every time we met I would gently rib him about being a “mere” L&G salesman and compare his work to the sunny uplands of genuinely independent financial advice.

“Don’t knock it,” he would reply, as he re-filled my glass, “What my clients get is a decent product. As for your independents, they’re slippy-tits: they sell like me, they’re just better at pretending they don’t.”

A slippy-tit, for the uninitiated, is Northern Irish for a sneak trying to wheedle something out of you. As Archie saw it, unlike many IFAs he never made himself out to be something he was not.

Uncle Archie is no longer with us, sadly. But I still think of him with fondness, most recently after reading an article in Money Marketing by Techology & Technical managing director Kim North about the iniquities of the FCA’s latest paper on inducements.

In it, Kim lambasts the FCA for failing to admit “inducements rules at RDR implementation day should have been tighter”.

Where the FCA failed, presumably, was in not fully understanding that unless you draft more rules than Terry Pratchett’s fearsomely complex Cripple Mr Onion game and tie the industry in endless knots, providers and advisers will always seek new ways to behave in a sneaky manner towards their clients.

Kim’s other point was that, from where she sat, apart from non-regulated protection premiums being hiked to pay their salespeople more commission, she had “not heard of any money, gifts, seminars, MI, marketing, even trips abroad that make me raise an eyebrow.”

All of which strikes me as rather strange. Just how does Kim feel about the practice, identified by the FCA, of firms obtaining “substantial” payments from life insurers for “support services” such as promoting products and arranging training events?

These insurers, and only these insurers, were chosen for the advice firm’s product panel, according to an MM report in September.

In another case taken from the FCA’s report, MM reported an insurer which “significantly increased” its spending on support services offered by an advice firm, “with little justification of the business benefit or the amount paid.” The insurer’s expectations in return for such an increased spend need no explanation.

Personally, I would have assumed advisers were grown-ups and it was unnecessary for the regulator to have required explicit rules to stop such a blatantly obvious subversion of the RDR’s aims.

Instead, what seems to be happening in the area of inducements and, in recent weeks, that of trail commission, is the industry’s finest minds are seeking to undermine the RDR’s best intentions. So the FCA belatedly acts to stop them.

At which point, Kim turns not on those guilty of demanding, offering or accepting what are little more than sales bribes, but the FCA for not hogtying the industry earlier.

But it is in her final few paragraphs of her column where she raises the spectre of direct salesforces rising like phoenixes from the ashes of a spent IFA distribution channel, that Kim’s greatest fears are laid bare.

Kim writes: “This will means thousands of highly sales trained salespeople with a narrow range of expensive products. They will naturally compete to sell more than their colleagues.”

Yes, some of them might go down that route. But unlike the 1980s and 1990s, where largely untrained former double-glazing salespeople chased after frighteningly naïve consumers, things have changed since then.

Qualification requirements are more onerous, products are generally more competitive and both the media and regulators are marginally more observant.

Who knows, maybe a well-trained and tightly-regulated direct salesforce, offering a limited suite of good-value products, might be better able to assist consumers than a sanctimonious bunch of supposedly independent advisers who are, in Uncle Archie’s immortal words, just a bunch of slippy-tits.

We can but hope.

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

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Comments

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

  1. Surely there can be no doubt about the connection between the fall off in pension and life sales, and the fall off in the numbers of financial advisers.

    Whilst whole of market advice is the gold standard there are insufficient advisers due to the ministrations of successive regulators and the inability for any business to plan ahead with confidence.

    A direct salesman may not offer the best product or the cheapest life assurance but when the client retires or the widow receives a nice cheque that distinction disappears.

  2. As a former direct salesman selling Protection policies for a firm which was later forced out of action by the FSA, I can say that firms like the one I represented, and many more like it, offered simple, well-costed products that were easy to understand and paid out when a client needed it to. No lengthy deferred periods, no hidden catches, just straight-forward, honest policies.

    Now there are few to none of these firms selling such plans, not only have 1000’s of people lost a decent living, but the public goes unprotected. Many people benefit from such plans (the self-employed/blue collar workers in particular) but the big life companies offer no-such alternative. The Friendlies try to pick up the slack but even their policies are way-off what many ‘ordinary’ people require.

    Direct salesforces could certainly help bridge at least part of the advice/savings/protection gap and should be reintroduced as soon as someone can make them viable again!

  3. ‘The Man from the Pru’ is a tired cliche, but when you talk to people of a certain generation you start to realise just what an integral part of the social fabric they were.

    There is a massive, untapped, business stream of small monthly savings (‘funeral’) plans going begging.

  4. Most IFAs I know and I put myself amongst them would say that a single tie adviser certainly had and could have a gain a place in the the advisory community. The problem is that unlike your Uncle Archie many do attempt to obfuscate when asked about the breadth of their product offering. They rightly should be a high margin narrow offering because to put not to fine a point on it they need to deal with potential clients that most IFas simply cannot afford to deal with if they wish to remain compliant and profitable.

    I for one would welcome the return of such salesmen. Imagine if there was an entire generation of individuals with the discipline of regular saving and that some of those graduate to deploying that capital more effectively in the future with an IFA.

  5. I had been a Financial Adviser with United Friendly, then Prudential for many years, until redundancy robbed me of this rewarding career.
    I was and I’m happy to say a Salesman, a dirty word, in the IFA community.
    I looked after my treasured clients and they looked after me, we had years of being friends, family & I was their trusted adviser in any financial matter.
    I then after redundancy started my own IFA practice and I’m sad to say, that the in fighting & back stabbing that goes in this sector of the market is sad, I still serve my same clients but time, heavy handed compliance & regulation has hampered the rewarding career I have had for 32 years.
    I hope if they ever do bring back a direct sales force, that the advisers that work in that environment cherish it!

  6. @Sam – As an ex bank adviser, that was what the bank model of the 90’s was aiming to do. The banks pulling out at the moment is quite sensible as the new FCA and government start to build the argument for simplified advice and construct a model for the banks to come back in to the market again. annoying really as it could have been done in one go and was why I was saying delay RDR (as was the TSC), think through these issues, discuss them, identify the unintended consequences and then implement the RDIP. Unfortunately the RDR remained the RDR, remember it was called the Retail Distribution REVIEW, there was supposed to then be a RDIP i.e. a PLAN. RDR has been a bit like the 2nd Gulf War, fighting the battle with no clear idea or plan of what should happen when peace breaks out and hence squabbles continue 10 years later….
    mind you ass has been said before, when there is blood on the streets, there is money to be made and that is what has happened for some people, unfortunately RDR is not proving a win win, which ti could have been. It’s working fine for me, but I still think it was a win loose and was hijacked for certain sectors benefit. The banks will still come out top in the end and they’ll be using level 3 salespeople to deliver “simple products” soon at best in due course, not the level 4’s.

  7. @Philip Castle

    I think you are right. The FCA will fiddle with the system and create ‘simplified advice’. Life companies and banks will keep the products that fall into this category for their direct sales forces which will make a return. They will be provided, as has been mentioned, by people who are not qualified to level 4. The result will be that the big players will re-enter the market saving a fortune on training, pay their new sales forces lower wages because of lower qualifications and IFA’s who hung on through out will feel they have been stuffed by the FCA once again. All this in the next 2 years if you ask me.

    All the above is my humble opinion of course.

  8. My experience of direct sales was a ruthless, cut-thought business where any and every opportunity to rip a customer off to make a sale and hit targets was taken and made. Practices such as telling the customer to cancel it after they had signed to hit figures and blatant lying about how the product worked and what it could do was rife. All fuelled by the endless stream of young eager, naïve recruit promised a life of riches and endless possibilities. I would never, ever want to see that again – for every customer that gets a valuable product sold to them, another is stitched up.

  9. As long as the products sold by direct salespeople are competitive then yes it makes so much sense because the middle to low end o the marketplace is going to be ignored otherwise. Direct websites are fine but many people just put off financial decisions with obviouse consequences – they need cajoling (gently).

    As for IFA’s, as long as they deliver a good service to their clients they will have nothing to fear.

  10. @Matthew – The pressure was there when working for a bank as an adviser, but those of us on bank contracts who’d come from a branch background in the 1980’s tried to resist it as much as possible, which didn’t always make us popular with management as best advice and the client came first.in 1992 something like 60% of advisers were below their targets for business written, i.e. many were at about £60k commission earnings and not the £100k target, but some were as low as £30k by year end with a basic salary of £17,500K in 1992 plus company car and final salary pension, so there was a balance needed between earnings and target.
    I know what you mean about young keen and naïve though, been there had the t-shirt, learnt the lessons and now very cynical as a result, BUT clients want someone they can trust to be around for them for the next 10 or more years. I’ve got another 20 in me work wise and will gradually hand over clients as I near retirement age, doesn’t mean I’ll ever stop though (like Harry Katz)

  11. “….than a sanctimonious bunch of supposedly independent advisers who are, in Uncle Archie’s immortal words, just a bunch of slippy-tits.”

    Now Nic that was really unworthy, or were you playing to the gallery?

    I’m sure you well know that there are plenty of genuinely independent advisers who do better than a half decent job. Nor do the ‘sell’ they actually do advise – shock horror.

    Yes one wouldn’t demur that there are some to wear the cloak but are naked underneath. But that is not universal.

    You also know full well that the direct sales history is littered with the most outrageous and unsuitable examples. Sure some may have done less harm. But the reason they existed was first and foremost to pile it high and make their employers rich.
    Yes things have changed today. But perhaps the main reasons direct sales have largely disappeared are:
    1. Through more stringent regulation
    2. The requirement to obtain qualifications.
    3. The disappearance of commission
    Not wishing to be unkind but it is probable that the likes of your Uncle Archie would never be able to jump the hurdles. Firms will find it well-nigh impossible to run direct sales forces at a decent profit and yet be fully compliant. The costs are just too great. That’s why the banks have retreated.
    There is a dichotomy. If you want to provide the public with decent advice – it costs money. In today’s world nothing is simple.
    There is also the myth that the ‘general public’ actually are disadvantaged. Many really don’t want to buy a £11,520 ISA. Their pensions are (for them) provided by the firm via AE. A minority may actually buy some life cover and keep it to term. Far too many are inveigled into buying what they really don’t want to afford or keep and the retention rates are really pretty poor. This is very profitable for the life companies who like to keep the myth of the public not being serviced. Large sectors of the community still believe we live in a Welfare State and that it is the State who will provide when push comes to shove. Indeed they see how some can milk the system and prosper relative to those who graft. The Government for their part (in spite of onerous regulation) want people to engage with financial services so that they can pare down that Welfare State.

    The people who engage with financial services, who save and maintain their savings, pensions and investments are not those over which so many in our industry cry crocodile tears.

    As you say – the world has moved on and you can’t stuff the genie back in the bottle. Either you dispense with the compensation culture and allow armies to flog mainly indifferent products to those who would really rather not have them and if they do take them, discard them after a few years; or you accept that not everyone will get a coconut.

  12. Once the FSA’s mission to eradicate totally the viability of providing financial advice to most of Middle England has finally been accomplished, for those who either don’t wish or are unable to sort out their affairs for themselves online without assistance, DSF’s will be all that’ll be left for them. Well done, FSA! Another unintended consequence of your relentless pursuit of perfect and perfectly documented outcomes for everything and anything, however simple and straightforward it could be if you’d only stop endlessly meddling and imposing every increasing tonnages of compliance rules and regulations.

  13. The problem with direct sales forces (I worked for Sun Life of Canada and Sun Life Unit Services between 1979 and 1985) is targets. If the FCA can ensure that sales forces do not have targets then misselling will be less likely to occur. How they (FCA) would manage that I do not know.

  14. @ Jeremy

    At the risk of sounding facetious we all have targets don’t we? Whether notional or explicit.

  15. Salesforces have only one driver – numbers. Numbers equal profit. The board develops a proposition (usually transactional with poor value products) that creates a margin, they calculate how many sales will be required to hit a pre-promised profit level then pass this to managers to push sales. Once the numbers are achieved, everyone is happy and rewarded accordingly. The customer is always a secondary consideration.

    There is no company boardroom in the land discussing how they can develop a proposition to help the public and ensure the right people receive the right service. That’s not profitable now is it.

  16. Naturally a business has targets, that is the nature of a business. Just because a firm has targets, it does not mean that the products being offered are unsuitable.

    The Protection gap in particular is famously large. There are more than enough people out there who genuinely need these kind of products for each sale to be suitable and affordable.

    When I was selling accidental injury cover and day 4 sickness plans I never had to hard sell to hit targets. We had simple, well-structured products which were quickly underwritten (if necessary) that people could understand. There were few exclusions, a simple pricing system and they paid out promptly.

    Anyone who thinks these products shouldn’t be sold is either prejudiced and making poor assumptions, biased, or just plain stupid!

  17. @Sam

    My ONLY target was to keep my clients happy (I didnt always succeed). I honestly had no other target. The outcome was a good business. Look after your clients and they look after you. Start putting in sales targets and you will put pressure on yourself and be prone to misselling, in my opinion.

  18. “Start putting in sales targets and you will put pressure on yourself and be prone to misselling, in my opinion”.

    And in mine Jeremy.

    But what you and I probably have in common is that we are solvent and don’t have to worry where our next crust is coming from. If only regulators would realise this regulation would be so much simpler.

  19. I coudn’t agree more Harry.

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