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Providers move direct to counter impact of RDR
by Michelle Abrego on Nov 12, 2012 at 11:15
The impending commission ban and the regulator’s clampdown on providers’ payments to nationals and networks have forced life companies and platforms to develop new strategies to control distribution.
Historically, product providers have sought to influence distribution by owning adviser networks, but this model has come under both regulatory and commercial pressure over the past few years.
On the regulatory side, the retail distribution review’s (RDR) commission ban is the biggest blow to providers’ grip on distribution, but the Financial Services Authority’s (FSA) recent letter to 24 life company and network bosses warning them over distribution deals signalled further restrictions on provider payments. Marketing allowances and paid-for training days are firmly on the FSA’s radar.
Some of the biggest nationals and networks are partially owned by providers, including Positive Solutions, owned by Aegon; Sesame Bankhall Group, owned by Friends Life; Openwork, owned by Zurich; and Tenet, whose shareholders include Aegon, Aviva, Friends Life and Standard Life.
However, from a commercial perspective, stakes in networks have begun to look more risky than profitable as rising professional indemnity insurance costs and claims liabilities outweigh declining profits and in some cases heavy losses.
Relationships at a crossroads
Matt Timmins (pictured), managing director of support services provider SimplyBiz, in which Standard Life has a 10% stake, said providers were at crossroads in terms of their relationships with advice firms.
‘Because of adviser charging, we are looking at the biggest separation between advice and providers that we have ever seen. [The question is] how are [providers] going to get their products out to the market?’ he said. ‘It’s a tough balance for product providers because history has shown that where they bought distribution in the past, it hasn’t always worked out well for them.’
What can providers do to ensure they maintain a degree of control?
David Shelton, an independent consultant at Stoke Bishop Associates, predicted there would be a trend for providers striking deals with advisers to look after their lower net-worth clients and possibly orphaned clients, to whom they could then sell products.
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