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The judgement of Caris

The ABI’s latest crackpot scheme is an admission of members’ shortcomings.

The best case I have seen for the abolition of trade bodies is the latest draft paper by the Association of British Insurers. When I read its basic proposals, I did look back at the heading to see if it really did say draft or daft.

I have been saying for three or four years now that the life insurance industry is hell-bent on its own destruction. This paper, clearly put together by a committee of monkeys, really does take the banana.

The ABI’s own members are so desperate for business that they have been playing commission leapfrog for the last 10 years. Now they realise that none of them can make a profit out of the commission structures, so some bright spark (or incompetent twerp) has decided that the way forward is to abolish commission.

I suspect there is only one thing worse than a trade body and that is the trade body committee that thought up this weird and wonderful idea. I have always known that the entire manufacturing end of our industry resent every penny in commission they pay us but I did not think they would be daft enough to put their distribution out of business.

Don’t you think that a commission structure which would enable distribution channels to build sensible businesses with quality earnings should have been the way they were thinking?

This initiative is nothing more than an admittance that their members cannot exist by paying sensible commission. They think it is an answer to their members’ own pathetic shortcomings.

Do they not realise that our entire industry is totally and utterly incapable of charging fees? With a possible few exceptions, no one knows how to do it.

In fact, most professions, such as architects, chartered surveyors, accountants and solicitors, do not know how to charge fees. They all charge commission. Isn’t the percentage of the value of the building that the architect charges you a commission? Isn’t the percentage an estate agent charges you on the sale of your house a commission? Aren’t audit fees based on a percentage of profit or conveyancing fees based on a percentage of the house value a commission?

Wait a minute, I read on a little bit further. What the ABI is proposing is that the broker decides how much he wants to be paid over the life of a contract and divulges it to his client (perhaps). What the life company does is add it on to the contract and pay it back to him as indemnity commission.

Perhaps the ABI is not so daft after all. What it is trying to do is invent some artificial, crackpot scheme to try to hoodwink the Government to allow it to carry on behaving just as it did in the past and playing indemnity commission leapfrog.

However, there is a little sting in the tail. The ABI wants clients to be able to cancel renewal commission to their broker. In other words, the bit the client does not pay which comes out of annual charges that providers pay to the broker that providers really do not like. It is a really sad situation because that is the bit that really could make this industry a great one.

If every investment carried with it a service charge which was paid on to whoever was servicing the investment, it would stop churning and it would help the life insurance industry’s main distribution channel create really good long-term sustainable businesses. It is, however, the usual case that when something is going wrong, the industry does not listen to the successful about what should be done.

No, it listens to the unsuccessful and then puts together a committee of incompetents who are always guaranteed to make the wrong decision.

Anyway, I am sure they enjoyed sitting in that committee meeting for 473 hours. They have even given it an acronym – Caris – standing for customer-agreed remuneration for intermediary services.

Well, there is a £100 prize from me for who can think of the best alternative meaning of Caris.

Peter Hargreaves is managing director of Hargreaves Lansdown.


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