View more on these topics

Rob Reid: legacy commission debate will end in tears

Being of average IFA age, I recall those individuals in the late Sixties who were grouped by the term “asset strippers”.

In short, they bought several businesses, then proceeded to strip out the assets and sell them to the highest bidder and then let the rest simply rot away.

They made a lot of money but were decried by the media. Perhaps it is the intangibility of life insurance that allows this same process to re-emerge in our own sector as we watch once proud providers close and their back book given service on no more than a cursory basis.

Does treating customers fairly not apply to them too or did they get a quiet exemption that we are yet to uncover or have revealed to us?

IFAs will have many clients who have policies with these providers where, in my experience lately, we have needed a copy policy to argue the existence of guarantees and the like.

Now I realise we should not have to do this but we have to recognise that the databases of the life insurance providers are not extensive. I recall at the start of the pension review looking at data dumps to speed things along but we could not as most records were on microfiche (for the younger readers, these were also the most jumbled records imaginable).

What has concerned me is that we are yet to see a consultation paper on the consolidation of firms generally and a real discussion of what is and is not acceptable. There are so many assumptions being made and of such a wide range that tears before bedtime for many are inevitable.

If the Financial Conduct Authority is unwilling, then we need to get the Money Advice Service involved. After all, it will bear the brunt of the enraged calls from the policyholders of the companies under the consolidators. It might even be that it realises that the tag “free advice” is an albatross around the neck for all who use it.

I recall receiving a terms of business agreement revision from a leading life office which I rejected after reading. The provider was stumped and eventually gave way as its letter tried to change the terms for existing and new business.

The latter, I argued, needed my consent and the provider conceded it probably did but no other firms had challenged it. We got a revised version but if the provider stops trading, how confident should I be that this will be honoured?

When contracts are made, one essential element is the consensus of the two parties. Surely this must be considered when it is varied. So before these guys all rush to merge old books, we should be given a set of service standards ratified by the FCA as TCF-acceptable.

If not, we will find out that services to clients with legacy products are more expensive than they should be. Recent comments about sunset clauses for legacy are nothing to do with helping the IFA and more to do with providers waking up to major IT costs and a total lack of time.

We IFAs need to record in detail the service we receive from these firms now that they are moribund and if it is wanting, let’s make some noise. After all, if we tried this move, would we get away with it? I think not.

Robert Reid is managing director of Syndaxi Chartered Financial Planners


News and expert analysis straight to your inbox

Sign up


There are 3 comments at the moment, we would love to hear your opinion too.

  1. Agreed.
    A good working title for this would have been “The Retail Distribution Review”, But that has been used for the “Advice, Remuneration and Services and Qualification Dictation”, (ARSqD) so someone will have to come up with a different name now.

  2. I find it astonishing that clients are being left holding money in these legacy situations – products and the associated lack of provider service support.
    Surely it our duty to get clients into the best possible position and not to leave their money at the mercy of providers who show little interest in providing support.
    After all products are only vessels to hold money – rarley anything more and they were usually built to suit the providers needs rather than the client.
    There are lots of places to invest client money with significantly better opportunities to provide an appropriate service proposition of your own.

  3. I am reminded of the stakeholderisation of all existing PP’s imposed unilaterally by virtually all the mainstream providers as of 6.4.2001. I was shocked and alarmed to discover that an increment on which we’d been expecting, say, £200 commission was now going to pay only £20 commission. Effectively, all the PP’s we’d written to date with these life offices had, at a stroke, been rendered profitless. Worse still, this came without warning, let alone any request for our permission so, from that date on, we never placed another item of business with any of those life offices ~ Standard Life, Aviva, Friends Provident and Clerical Medical for those interested.

    We have a client with an old Eagle Star endowment (not one that we sold) who contracted a degenerative and incurable disease of the central nervous system. We contacted Eagle Star (now Zurich) about claiming on the WoP, but they declared that the policy doesn’t have it. I checked our copy of the original application form and it had certainly been proposed so I also requested a copy of the acceptance terms, whereupon Eagle Star were forced to admit that, well, actually, yes, the policy does have WoP. Why had they lied to us?

    We recently vested a client’s S32 Buy-Out policy with Aviva, who told us that because the entire value of the policy was eclipsed by the cost of covering the GMP, they could only allow early access on the grounds of severe ill health. The client certainly meets this criteria so, after much faffing about getting the appropriate declaration completed and signed by his GP, the value of the policy was released for the purchase of an impaired life annuity. But then, three months later, we received a communication from the provider of the impaired life annuity informing us that Aviva had written to them to say that the policy value should, in fact, not have been released under any circumstances and demanding back the entire policy value. This, it should be borne in mind, was after the client had received three instalments of his pension (less PAYE tax deductions) and had invested his 25% tax free cash, the latter currently worth less than the sum invested. That one, I promise you, will be going to the FOS unless Aviva back down and carry the cost of their error.

    On another case, Legal & General was sent a transfer value for the purchase of an annuity. Not only did they do nothing with it but they even denied having received it. It turned out that the ceding insurer (Zurich again) had sent a cheque but not the application form, despite specific instructions to send both via us. Why had L&G not contacted Zurich to find out why a cheque had been sent with no supporting paperwork? The answer given to me by L&G was that their standard practice is simply not to bother and, if they hear nothing after 30 days, they just send the money back. Our complaint was rejected, so we referred it to the FOS. In its response to the FOS, L&G falsely claimed that they had in fact contacted Zurich to establish the provenance of the money, despite having told us that they hadn’t. Without making any effort to check with Zurch L&G’s version of events, the FOS rejected our complaint, even though I responded to their rejection by suggesting that further investigation would reveal that L&G had lied to them. But they weren’t interested. As far as they were concerned, the case was closed and that was that. So you can imagine my opinion of the FOS

    And these are mainstream active life offices, not just closed book consolidators. Now, nobody’s claiming that there’s nothing wrong with the IFA sector but we are already subject to a system of consumer protection and, where appropriate, redress that functions fairly well. I suggest that the FSA appears to be taking far too little interest in protecting consumers from the all too common activities on the part of providers that are manifestly not TCF. Yet again, the Code:-

    The Regulators’ Compliance Code is a central part of the Government’s better regulation agenda. Its aim is to embed a risk-based, proportionate and targeted approach to regulatory inspection and enforcement among the regulators it applies to.

    Our expectation is that as regulators integrate the Code’s standards into their regulatory culture and processes, they will become more efficient and effective in their work. They will be able to use their resources in a way that gets the most value out of the effort that they make, whilst delivering significant benefits to low risk and compliant businesses through better-focused inspection activity, increased use of advice for businesses, and lower compliance costs.

    But then, as we all know, the FSA has granted itself a unilateral opt-out from the Code, preferring to hang its hat on the sledgehammer fix of the RDR in the belief that after 2012 everything will be rosy and that “poor consumer outcomes” will be a thing of the past. It just ain’t gonna happen that way and nothing will change unless and until the FSA starts to listen to what practitioners are trying to tell it. But there’s none so blind as those who will not see. The FSA has its own agenda and anyone who disagrees can basically go jump off a cliff.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm