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Providers move direct to counter impact of RDR

by Michelle Abrego on Nov 12, 2012 at 11:15

Providers move direct to counter impact of RDR

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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17 comments so far. Why not have your say?

John D

Nov 12, 2012 at 11:33

Quote: ‘It’s not competition and it’s nothing to worry about".

Oh, well that's all right then.

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Scott Gallacher

Nov 12, 2012 at 11:36

"It’s not competition" - Nice unbiased comment by Threesixty (owned by Standard Life).

How is Providers increasing direct sales forces and attempting to acquire IFA's clients anything other than competition.

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Nov 12, 2012 at 11:51

It's a bit general as it will be competition to someone.

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hugo via mobile

Nov 12, 2012 at 11:52

Do people really give their business to companies that give them training days? I had very nice day thanks to aviva. Does this mean. I'm ever likely to give them any more business? No but If its right for the client then they will, regardless of how much or how little training etc they give me. I can't believe I'm on the only one?

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Jonathan Kirby

Nov 12, 2012 at 11:52

What worries me is the assumption by some providers that clients have become orphans when this is blatantly not the case.

Poaching clients is unethical in the extreme and we take a very dim view of any provider who does so.

You have been warned!

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Stevie P

Nov 12, 2012 at 12:09

Shock of the century re this story. Wonder why we never saw providers kicking back against RDR & Auto Enrolment. They all have been rubbing their hands for years.

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W K Clark

Nov 12, 2012 at 12:18

@Jonathan Kirby, I totally agree, it beggars belief to me that just because of RDR I will be giving my clients away. It ain't happening so forget it!

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Nov 12, 2012 at 12:33

So this is what all the client segmentation advice was all about. A not so subtle scheme, from product providers, to grab clients for their own nefarious gain. So when they approach a client directly to sell some lower grade product by churning a perfectly good one (probably not even originally supplied by themselves, as long as the client had one of the company's plans) they can defend themselves by saying....... Well the original adviser dumped you, so our advice is better than no advice! This is pants.

Treating customers fairly should mean that any properly identified orphans should be distrubuted to the nearest IFA who wants them. I propose the suppliers, from thier own pockets, fund the set up of a clearing house so IFAs can apply to take over orphan clients. The clearing house then writes to the client for approval, if approved, the IFA takes over. All at no initial cost to the client or IFA.

The insurance company nor product provider does not 'own' the client, nor does the IFA really, but why should an insurance company be allowed to directly market its own products post RDR unless advice payment rules are the same for both with no cross subsidies.

Back this up by ensuring product providers are not allowed to give advice full stop. Their own directly sold (or sold through now defunct bankassurance) orphans will be re-distributed and client outcomes should be better.

Competition between companies would then mean products would then be designed to benefit investors, not insurance companies, investment houses and advisers. That's a radical shakeup!

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Julian Stevens

Nov 12, 2012 at 12:43

I saw this coming ten years ago and stopped using trad life offices for anything but protection and annuities. They're totally untrustworthy.

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Charles Rickards

Nov 12, 2012 at 12:45

So does the consumer actually benefit from any of this?

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Philip Wise

Nov 12, 2012 at 12:50

I've got an idea.

Providers could offer attractive products that people will want to buy off them.

Providers could even compete with each other, based on value for money, trying to give clients what they want (just to explain, Mr Provider, when I say, "they", I mean "clients", not "providers").

I know it's ridiculous and revolutionary, but it could just work.

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Philip Melville

Nov 12, 2012 at 13:01

I know a home where they have a place for you Phil. Seems to have come early to you but there will be others you can share your dreams with.

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Nov 13, 2012 at 07:23

Traditional Life Office Sales have been reducing at a dramatic rate for the past few years, mainly because it was obvious that Life Offices would become the IFA's biggest competitor. They have access to all IFA's clients and much like the Bank's so Called "Advisers" who were never supposed to know what was in a banking clients pesonal accounts, which of course always seemed did and then proceede to force them into the bank for an appointment with the so called "Adviser". The life offices will run rampant over all of your clients, wether they consider them to be orphaned clients or not.

I mean come on how will they know a clinet may not have done any businees with a particular life office for years, but may have thousands of pounds invested in non traditional life office investments.

My advice, watch your back, dont trust the Life Offices, only put business their way when there are no other sensible solutions for the client.

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John Smyth 3

Nov 13, 2012 at 10:49

Those of us old enough to have been around pre-polarisation know what life offices, banks and building societies used to get up to in the days prior to polarisation and see it starting to happen all over again.

The bank managers with their personal agencies, the man from the Pru, Royal Liver, Liverpool Vic, London & Manchester, Abbey Life, Allied Dunbar etc, etc. Employed thousands of direct salesmen many of whom were unscrupuous and greedy to flogg their poor value products and fleece the general public. The man from the Pru used to be described as the most expensive visitor to your home. I was once told a story of a Pru agent in Derbyshire who used to charge his clients a £1 for a new payment collection book.

St James place are the current embodiment of Abbey Life and Allied Dunbar who are an insuranc/assurance company's direct salesforce masquerading as a wealth manager. Worryingly Olde Mutual/Skandia and Sanlam are trying to copy them.

The new breed of direct salesmen will all be given huge targets, operate on simplified advice or no advice, not have to provide 20 page suitability reports and will impoverish even further the poorer members of the general public as their predecessors did.

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Julian Stevens

Nov 13, 2012 at 11:05

Only 20 pages for your suitability reports? I wish I could keep mine down to a mere 20 pages (without having our network's business assessment people pointing out all the things I've apparently overlooked and must now cover by way of a follow-up letter). The world's gone bloody mad.

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Michael Shea

Nov 17, 2012 at 14:14

An earlier post is right - no-one 'owns' a client, who may currently be paying for products sold by an IFA, a direct salesman, a general business broker and a bank. I have heard numerous examples of IFAs 'sacking' their clients because they are not rich enough to pay the IFA fees, so how much do those IFAs care about those lesswealthy clients? If they aren't going to give them any service, why should not their product providers fill the gap?

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Jimbo Jambo

Nov 27, 2012 at 18:13

I see the light and its not bright if your an IFA.

FSA and the providers collaborate to remove a layer of costs and advice.

Distribution through thier mates at the bank and via driven sales forces where targets equal profit and advice and care is minimal.

Lots of little bits add up to lots of profits.

The IFA needs to build models that can service the little guy, that is open and fair.

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