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Phil Billingham: The (un)hidden agendas of product providers

Do not lose sight of the fact their true purpose is to achieve corporate profit and distribution goals

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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 

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. A sobering analysis hard to argue with.

    Just one brighter spot to add I think though to “[a] They are for paying dividends to shareholders. [b] They are for keeping the company open and keeping people in employment. There is nothing that says [c] they have to look after either us or our clients beyond what the letter of the law happens to be at any one time.”

    I think there IS something that says they have to do [c], which is the increasing risk of being found out (as being worse than competitors). Which they need to pay attention to to achieve [a] and [b].

    The problem of [a] is a reminder of the advantage of savings and insurance being based in its original model of friendlies and mutuals. Pity commercial forces have made that model harder to run effectively. The question is whether the rise in visibility to both advisers and consumers of provider “good (or bad) behaviour ” can push back to getting best of both worlds.

  2. We are back to the thorny old question ‘who owns the client?’ As a single product provider, can one firm seek to directly sell without specific client agreement? If the client was provided with a policy by an intermediary, any advice is not based on a thorough understanding of the clients circumstances. As the company, by its very nature, will provide extremely restricted advice, it cannot make a judgement on other holdings and attempts to seek a transfer to one of their own products which may be worse value.
    But the question can be, how is their services being paid for? If a directly employed sales force can just get remuneration from initial charges and increased service costs, if they can,how much do they need to disclose? Would it be possible for a sales man to tell the client ‘because I work for XXX insurance company, our fee is paid from the charges detailed in our fund factsheet by XXX company’.’ So much cheaper than an IFA, wouldn’t you agree Mr Customer?’

  3. I cant argue with your logic Phil.

    Treating Customers Fairly might slow them down

    Removing every client you can from any transgressor is a better bet.

    Maybe the trade association might keep a file of transgressions to embarrass them – Oh wait a minute – APFA is owned by networks and networks are owned by providers

    Tish another idea hits the dust

  4. @Pro V #1
    The client owns the client and the day you or anyone else thinks otherwise is the day you deserve to lose them. Direct sales forces, including the well known SJP, are bound by the same RDR rules and customer agreed remuneration as everyone else. The charges they disclose are likely to be more expensive.

    As for th article I think it is illogically biased. For example, the assumption that providers are there to generate corporate profit and increase distribution. Er, yep, tha’s called business and applies equally to any business, provider, IFA, or chocolate seller. It’s not a bad thing. How they achieve it might be but it’s not bad on its own.

    The last point about what drives the players is a load of tosh. A provider or fund manager is fundamentally no different to an IFA when it comes to clients. You look after them and they come back. You don’t and you go out of business. This is a cheap shot article emotionally appealing to the unthinking converted, presumably designed to discredit providers and play up IFAs. Shame about the logic and reality.

  5. “Some providers do work hard to voluntarily operate to a higher level, valuing their long-term relationships with us.” Phil, the ‘higher level’ isn’t about the relationship with an adviser. That relationship is simply to ensure the adviser doesn’t change provider through a fit of pique (ie independently of whether the product is best for the customer). The ‘standard level’ is to care about the customer, irrespective of intermediation. Advisers have no more ‘right’ to a client than does the fund manager or the distributor. The client takes advice or doesn’t. Advice is not contingent on product remember?

  6. Phil Billingham 24th March 2015 at 9:59 pm

    @grey area

    Providers and fund managers being commercial entities, and making profits is a good thing. To be encouraged. At no point do I say different.

    What they are not are Santa Clause. Which is what some Advisers think they are.

    The better we understand what drives their behaviour, the better we can compensate for that behaviour in our own business. In which we are trying to make a profit

    Happy to work with providers. Just don’t trust most of them anywhere near our clients

  7. Phil Billingham 25th March 2015 at 6:13 am

    @grey area

    Providers and fund managers being commercial entities, and making profits is a good thing. To be encouraged. At no point do I say different.

    What they are not are Santa Clause. Which is what some Advisers think they are.

    The better we understand what drives their behaviour, the better we can compensate for that behaviour in our own business. In which we are trying to make a profit

    Happy to work with providers. Just don’t trust most of them anywhere near our clients

  8. Interesting debate. @Graham – re changing provider due to a fit of pique, I get what you mean, but there is a blurred line between changing for a fit of pique and changing because the providers admin is getting worse and you are getting to the stage where you will have to charge the client more for the providers poor admin.
    As an example, we used to use AEGON a lot because they seemed to have got their Group pensions working well in the early 00’s compared to other providers, but have lost the plot now with a lot of things and hence RDR means business is no longer “sticky” with providers and advisers and we will move from platfrom to platform when appropriate now, ironically more often then when commission was paid as we can’t be accused of doing it for commission reasons we are doing it for savings (time cost and mental health)

  9. @Phil Billingham
    Perhaps you should read your article again. The intent to demonise providers is obvious when you look at the language used in respect of providers:
    “…their true purpose…”
    “…dominated distribution…”
    “The big beasts…”
    “…we were all on the hamster wheel…”
    “…the stick of clawback rather than the carrot of trail…”
    “…increased levels of less savoury activity…”
    “…positively morally outraged…”
    “Others can see into the abyss and are focussed on delaying the Day of Judgment…”

    I generally agree with your articles and I’m no great fan of providers either but this article just struck me as very unbalanced and verging on personal vendetta.

  10. If I can offer one implement (tool if you will) to this debate it would be the abacus !

    In the old days as Phil puts it, the beads moved freely back and forth, each provider basking in there own little segment of the pool ! (how small or large that segment was down to the market share of each company)

    Today the beads, do not move so freely (rightly or wrongly is open for discussion) we now live in a world of open architecture, restrictions at every corner, so providers have to protect (venomously in most cases) or buy in business (weather through IT fads, innovation, customer/IFA care, or incentives etc etc etc) this in turn creates a yo-yo effect the once good now bad scenario ?

    Never has the term “survival of the fittest” been more relevant in this industry, than at present, and the Maltese Falcon that is the client; is the prize everyone wants to get their hands on or indeed keep ?

  11. @Phil Castle, I entirely understand and agree. All large organisations have operational issues from time to time but they shouldn’t be systemic. My point was that many providers’ (eg platforms) relationships with advisers are narrow, and often expressed through BDMs who may no longer be the valuable technical wizards that cohort once comprised. Alternatively it’s between senior management of the adviser and the platform, where an administrative favour might be available but where those managers are powerless to change the course of the business. The provider knows many of their adviser relationships are transient, and therefore shallow. They really do believe that some advisers’ new business can redirect to a new shiny provider as a ‘punishment’ – and frankly I’ve seen that myself.

    I believe providers should absolutely focus all their attention on customer service and have it at the heart of the business and not simply as a paragraph in a marketing department’s mission statement. There are some businesses who are trying hard to do that – I know, because I have them as clients.

    Great customer service can only encourage advisers to expose their clients to it.

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