Ayear ago, I was writing a piece about Aegon’s 5 for Life halfway-house retirement income product.
Ringing up Michelle Cracknell, Origen’s soonto-be-departing director of employee benefits, for a quote on what she thought of the product, I remember thinking, will she duck the question? But, true to form, Michelle gave a succinct critique of the plan, damning it for its complexity and pointing out that an IFA could get you the same investment for less money.
This was not a great message for the life office. Regarding the reputation of Origen, in my eyes this spoke volumes, spelling out that the firm’s independence remained despite being owned by a product provider.
When providers first started taking stakes in IFAs such as Inter-Alliance, Millfield and others, there was much suspicion that undue influence would be brought to bear on product selection, even though insurers were only taking 10 per cent of a firm at a time. Why else invest in such an enterprise, if not to get some distribution out of it? So far, fears of loss of independence have proved unfounded.
The acquisition of PIFC Consulting by Thinc, itself owned by Axa, is the latest stage in a steady stream of IFA businesses being bought by providers. Aegon led the way with its 100 per cent ownership of Origen, itself several IFAs swallowed up into a single business. With Friends Provident’s purchase of Sesame and Pantheon, and Axa’s takeover of Thinc, perhaps around 25 per cent of IFAs now are owned by providers.
We can clearly expect more of the same, particularly as the FSA wants to drive up capital adequacy among advisers. The mantra coming out of Axa’s Paris headquarters is that it is the insurer’s aim to be in equal parts a product manufacturer and distributor in all the markets in which it operates. To achieve that in the UK is going to take a lot of intermediary acquisitions but other providers are going to want to get more too.
The PIFC purchase is the first acquisition of a consultancy that specialises in operating through the workplace. One of the bigger ramifications of the RDR for IFAs of this sort is the way it opens up opportunities for life offices to increase their slice of the value chain and it will be interesting to see how any corporate IFA that is bought by a provider deals with its owner.
Thinc says it has no intention that any of its businesses will not remain 100 per cent independent and there is no reason to believe this will not remain the case going forward.
However, in the corporate space there are areas where life insurers see profits to be made by doing tomorrow what IFAs and even actuaries do today. One insurer I spoke to recently mentioned client servicing on group pensions as being particularly ripe for provider involvement, especially if and when the RDR comes into effect.
The way he described it was as follows. When an IFA sets up a group scheme, it sends its consultants, perhaps on £100,000 a year, into the employer to talk to staff about pensions. When an employee benefit consultant sets up a scheme, it may even send in an actuary on considerably more. Life offices will be able to send in guys on £30,000 a year plus a bonus, offering perhaps primary advice while trying to build the amount of funds going on to platforms.
In the group space, many IFAs will find it difficult to provide ongoing service to schemes if the way they receive remuneration is restricted. The smart firms will build up primary advice teams, a potential training ground and stepping stone on the way to professional financial planner status. But my prediction is that life offices will do this more efficiently. They have done it before with direct salesforces and they have skills in managing large numbers of lower paid individuals.
This brings us to a creeping involvement of providers in the advisory process, which is bound to increase concerns over independence of advice. How will we know whether undue influence is applied? Perhaps the first thing journalists should do when a life office buys an IFA is ring that firm’s media contact and ask for comment on the worst product that its parent offers.
John Greenwood is editor of Corporate Adviser/B>