A few weeks ago, I wrote a piece in Money Marketing looking at the role of the adviser and some of the opportunities and challenges ahead of us. With that in mind, it seems only sensible to look at the world of providers and how things are changing for them.
Let’s start back in the “old days”. Note, I did not say the “good old days”. In those days, providers pretty much dominated distribution and the world was vertically integrated before we knew to call it as such.
The big beasts, the insurance companies, either owned their own salesforces or (sometimes and) worked with brokers to sell their products.
Both “channels”, as we now call them, were heavily incentivised to sell new products and the remuneration system was carefully crafted to ensure we were all on the hamster wheel. Very little, if any of our remuneration was for client retention – the stick of clawback rather than the carrot of trail, if you like. Successful salesmen were rewarded with money, trips and titles. This model still exists in many parts of the world.
Gradually, one effect of regulation in the UK was to break down the old salesforces as uneconomic, while shifting power away from the big firms down to the broker or a dviser that actually controlled the client relationships. This much we know.
But the insurance companies have not gone quietly into that dark night. For the last 20 years we have seen attempt after attempt to bypass the intermediary and contract direct with the consumer.
But the remorseless rise in the power of the consumer has led to an increased power to those who act for the consumer – advisers and comparison websites rather than “direct” websites, for example.
But increasingly desperate times call for increasingly desperate measures and we have seen increased levels of less savoury activity. Switching off contracted income. Poaching clients. “Accidently” writing to clients. Writing to clients publicising their offering, forgetting to mention the adviser. Trying to persuade the regulator they should be allowed to charge clients more, with less consumer protection than advisers.
I think we are clear these activities are due to increase, rather than decrease.
However much we may get frustrated by all of this (let alone positively morally outraged at times) we need ask ourselves: what are providers for?
The answer is simple. They are for retaining value. They are for paying dividends to shareholders. They are for keeping the company open and keeping people in employment. There is nothing that says they have to look after either us or our clients beyond what the letter of the law happens to be at any one time.
Of course, some providers do work hard to voluntarily operate to a higher level, valuing their long-term relationships with us. Others can see into the abyss and are focussed on delaying the Day of Judgment as long as they can.
Only last week I had one company based in Guernsey explain it was not going to treat an elderly couple properly, as “TCF is not the law here in Guernsey”. Okay, at least we know now, thank you. We will work to get our client assets as far away from you as we can, as soon as we can. All of which is legitimate and legal. Well, most of it anyway.
What is important out of all of this is that we need to understand what drives the various players.
- Post-RDR, advisers are directly rewarded for retaining clients.
- Fund managers are generally rewarded for beating their peers. That may or may not coincide with making our clients some money.
- Product providersare rewarded for achieving corporate profit and distribution goals.
Given we all do what we are rewarded to do, then no wonder we find ourselves conflicted. We need to factor this into our day to day plans and activity.
Phil Billingham is director of the Phil Billingham Partnership