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Year of the cut

Cuts have been a theme bedevilling the industry this year, with life company salesforces and with-profits bonuses both falling under the scythe.

Last week saw 1,900 job losses at Pearl, to add to 1,500 announced in June across the UK businesses of beleaguered Australian company AMP.

Around 670 jobs will be lost across the Royal London group. The Royal London direct salesforce is being reduced from 350 to 150, with the more cuts coming in the support function of Royal London and its Scottish Life subsidiary.

Financial services union Amicus estimates that around 8,000 jobs have been lost in the life industry this year. Spokesman Richard O&#39Brien says: “Boards of directors in the UK lack imagination. It is easy for them to make job losses in this country compared with other countries, so they just reach for the low fruit.”

Money Marketing research shows that 1,200 job losses have been announced at Royal & Sun Alliance, 2,000 at Zurich (although the company will not say how many of these are in the UK), 2,000 at Britannic, 200 at Canada Life and up to 700 at Scottish Equitable as it matches every IFA bought with a job loss within its head office.

Norwich Union has 170 jobs under review following the closure of its Romford pension administration branch.

At Prudential, strike action was narrowly averted following 850 job losses from closing its Reading call centre.

Former head of the Prudential salesforce Tony Kempster says life companies are caught in a pincer movement as the 1 per cent price cap and move away from front-end-loaded products squeeze profit margins on new and existing business.

Kempster also points out that there has been a rapid decline in asset values, which hurts life companies particularly hard as they have traditionally made most money from taking a percentage cut of assets under management.

The implications of the 1 per cent charge cap are widely blamed for the industry&#39s problems. Announcing job cuts at Royal London, group chief executive Mike Yardley said: “In a fiercely competitive market, with the 1 per cent world placing pressure on profit margins, it is necessary for us to review regularly our approach and our structure.”

AMP also referred to the low-margin UK environment as part of the reason for refocusing its energies on its home market.

Amicus says it wants the price cap reviewed and is lobbying MPs.

Financial Technology Research Centre director Ian McKenna says: “You cannot have jobs at the levels there have been and have a 1 per cent world. Gordon Brown is completely responsible. Senior management will be kept here but support functions will increasingly have to move abroad.”

McKenna points out that it is not only life offices which will be looking to move admin overseas but also other financial services companies. For example, Misys is moving part of its back office to New Delhi.

Opinion is divided on how these cuts will affect the quality of service for IFAs, which is already an issue frustrating many advisers. Kempster warns that poor service levels could lead to lower business levels, which would cause more cuts.

But McKenna believes that increased automation and relocation of admin overseas – with two or three people employed in India for half the price of one in the UK, for example – could lead to IFAs getting more efficient service.

Almost hidden in the announcement of the drastic cuts at Pearl and Royal London, there was also the positive news that they intend to set up smaller, niche direct salesforces, although nothing like the size of the armies of reps that they have just axed.

Royal London head of corporate communications Stephen Humphreys says its new salesforce will be an expansion of the lighter-touch salesforce it has already been testing out with non-regulated products. But he accepts that salespeople transferring from the direct salesforce will see a cut in salary and their role become less important.

Humphreys hopes the new salesforce will be able to sell the proposed Sandler suite of stakeholder products. “We would not manufacture the products at 1 per cent but we are open to the idea of the salesforce not just selling Royal London products,” he adds.

AMP is to set up a new potentially multi-tied direct salesforce of 50 to 100 that will utilise the Towry Law back office and focus on retirement planning.

But Kempster is sceptical about these new direct salesforces. He asks: “What impact will a salesforce of just 100 have? Could someone please explain to me how, if you cannot make a salesforce of 2,000 work, you can make it work with only 200?”

Rather than a new kind of salesforce, Kempster wonders if it is now time for a new kind of life company to be launched – one that is not saddled with the legacy issues crippling so many of the industry&#39s biggest names and one that can operate efficiently.

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