Norwich Union and Prudential have both started cancelling the agencies of advisers they have identified as having what they consider unacceptably low persistency rates on investment bond business.
The two firms independently identified adviser firms with significantly lower than average persistency rates and visited them to discuss this in an effort to change their behaviour.
Both companies reported broadly similar reactions from the firms they visited, with most saying low persistency was due to an asset allocation shift away from with-profits, a move to a trail-based business model or they were simply unaware there was a problem.
But both found a small minority admitting they will take the full up-front commission and switch providers when the clawback period is over. If advisers rebate some commission to a client they cannot be accused of churning but both insurers say they do not want this business as it is very unprofitable.
NU visited 200 firms. Distribution director David Barral says: “Some are naive or blatantly do not care as long as they and their clients make money but this is a three-way relationship between provider, adviser and client.”
Pru, which started visiting 140 firms last September, says its strong stance is working, with only two having been axed, and 74 per cent of firms approached have now improved their retention rates.
Director of distribution Dave Harris says: “There are two accounts that have worsened and we have said we do not want their business. We wanted to take action that would not be perceived as heavy-handed policing. It was borne out of a genuine desire to make changes in our business for our benefit and the benefit of the advisers.”
Worldwide Financial Planning director Nick McBreen says: “I can understand they are taking a business decision not to deal with firms that will not support them in the longer term but by paying high up-front commission to attract new funds, life companies are encouraging the carousel of recycled money going around.”