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Too little too late as Pru makes up to IFAs?

Prudential appears to have realised the enormity of the strain placed

on its relationship with IFAs over its controversial critical-illness

decision three weeks ago.

After Pru raised premiums and axed guarantees on new and pipeline CI

cases, IFAs reacted with outrage and many swore never to do business

with it again.

For two weeks, the company referred vaguely to market conditions and

lack of reinsurance to justify its decision. However, last week it

began trying to make amends.

Pru has offered to extend its initial 30-day free CI cover for a

further 30 days and made promises about levels of service on

outstanding policies. Most significantly, however, it is offering

compensation to IFAs.

Strictly speaking, Pru is not compensating because offering

compensation would imply an admission of guilt, something the Pru has

not made. Instead, it is offering £75 per case to cover the

administrative costs of having to rebroke CI cases elsewhere.

Independent Financial Services director Jim Gillespie says: “I am

sure they realised it was going to be a bad reaction when they did

what they did.

“They are obviously furiously backpedalling and are trying to

sugar-coat a very bitter pill.”

The offer was first made to the three big networks, Misys, Tenet and

Bankhall, which Pru said represent the lion&#39s share of its

distribution. It has now extended the offer to all firms although it

is conditional on evidence being offered of the case being rebroked

elsewhere.

IFAs have to offer up the number allocated to the initial policy, the

full name and address of the lives covered and a copy of the

confirmation letter from the new life office.

The evidence must be provided by June 14 and dated between April 14

and June 14. Any applications which are not accounted for by June 14

will be processed automatically under the new reviewable rates.

A letter sent to IFAs from Pru reads: “You will understand that we

are under no obligation to accept applications for cover, nor do we

have contractual obligations towards you as, at this stage, no

contract has been concluded with the potential customers. Any

ex-gratia payment would be a gesture of goodwill and would be made

without any admission by us as to any liability.”

IFAs say they reject the idea that they should be grateful for this gesture.

Michael Philips proprietor Michael Both says: “For a company whose

main value is its reputation, decimating its reputation is about the

worse thing you can do. Unless [UK chief executive] Mark Wood&#39s head

is called for by large institutional shareholders, corporate

governance isn&#39t working properly in the UK.”

Even the big networks, for which this offer will make a substantial

financial difference – Misys alone estimates it stands to gain

£570,000 – are less than overly enthused about the offer.

Tenet Group managing director Simon Hudson says: “We obviously will

not turn this down because it will go some way to helping the

situation but it&#39s a shame it has had to happen at all.”

Misys head of research Dale Tranter says: “It is better than nothing

but it is no help whatsoever to the client. It is not enough to cover

IFAs&#39 costs in the matter. The Pru hasn&#39t said sorry in the matter

and, until it does, I think IFAs will be reluctant to place business

with it.”

Of the three initial recipients of the offer, only Bankhall has

reserved comment other than to say it has acted in the best interests

of its members.

Marketing director Tony Murrell says: “The position that Bankhall has

in the marketplace is a duty to its membership. If we can utilise the

strength of our relationships with certain product providers to the

benefit of our members, then we will.”

It is probably fair to conclude that IFAs are not going to rush back

to the arms of the Pru, despite its gesture. The resounding opinion

is that they wished the situation had never arisen in the first place

but, now that it has, they are going to be wary of trusting Pru in

the future.

Pensions & Investment Management principal Phil Moore says: “I am

not at all impressed by what they have done. Them tossing £75 in

IFAs&#39 direction is not going to make much difference.”

With estimates that there are some 50,000 outstanding pipeline cases

affected by the Pru&#39s decision, the worse case scenario is that it

may have to fork out £3.75m to IFAs to recoup their costs.

Who is going to pay for the costs – Pru&#39s shareholders or its already

beleaguered policyholders through the with-profits fund? Pru will not

comment other than to say the money comes from its operational

budgets.

Fund Name S&P Fund 1 yr 3 yr

Stars % %

Threadneedle European Bond 1 JJJJ 16.67 31.65

M&G European Hi Yd Bd X Inc J 16.61 -10.91

Allianz Dresdner Os Fxd Inc C 15.30 N/A

Threadneedle Euro Money Sec 1 JJJ 14.14 29.63

Five Arrows Euro Bond A Inc JJJJ 13.22 34.11

Old Mutual Global Bond Inc JJJ 11.55 24.93

Marks&Spencer High Income JJJJ 11.41 33.35

Old Mutual Intl Bd & Conv Inc JJJJJ 11.18 25.23

Threadneedle Eur High Yd Bd 1 J 10.89 5.60

AEGON European Bond A JJ 10.78 18.07

Average -22.50 -29.77

Fund Name S&P Fund 1 yr 3 yr

Stars % %

BFS Inc & Grth Ord JJJ 66.67 -84.32

BFS Inc & Grth Inc 66.67 -92.30

Close Brothers VCT 58.55 60.84

Jupiter Financial Trust -Zero 49.06 N/A

Quarterly High IncOrd JJ 40.00 -99.45

ACM Euro Enhanced Inc NS842 JJJJ 34.85 -23.27

Archimedes-Inc (2003) 30.25 57.50

Schroder Ventures Internationa JJJJ 22.07 9.84

Real Estate Opps – Zero 16.81 N/A

Derby-Inc (2003) 15.24 54.15

Average -35.24 -32.36

Fund Name S&P Fund 1 yr 3 yr

Stars % %

Skandia/Alfred B Oblig JJ 11.82 11.27

Prudential Holborn Property 2 JJJJ 11.59 25.52

Skandia Swedish Bond JJ 11.54 11.61

Skandia/Nordea Obligationsinv JJ 11.43 11.34

Skandia European Bond JJJJ 9.48 16.97

Skandia/Gartmore CS Euro Bond JJJJ 9.45 20.12

Norwich Union Bar Glob Bd 3 8.85 N/A

M&G Life Europe Hi Yd Bd Dist J 8.31 -10.31

NPI Index Gilt (P Bond) JJ 7.96 7.85

Sun Life Canada Cent Ind Link JJJ 7.93 11.38

Average -20.11 -25.49

Fund Name S&P Fund 1 yr 3 yr

Stars % %

P&D Global Bond B JJJJ 17.95 46.41

SW Newton Intl Bond 2 14.60 N/A

SW INV Perp Global Bond 2 14.60 N/A

Eagle Star Global Bond JJJJJ 14.58 36.21

Winterthur Gerrard Intl & Con JJJJJ 13.96 35.41

Skandia European Bond JJJ 13.91 25.40

Skandia/Gartmore CS Euro Bond JJJJ 13.57 28.42

M&G Pens European High Yld Bd J 12.91 -8.83

L&G IP Index Linked Gilt ^ 10.90 N/A

SW Property 2 10.78 N/A

Average -20.01 -24.06

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