Prudential signs investment bond deal with Santander

Thats seems about right. The uncompetitive and expensive Pru bond being (over) sold by one of the worst distribution channels.

Those of us in the business know why Santander and Prudential have done a deal. It's clear that Santander intends to mis-sell second rate investment bonds to an (amazingly) susceptible public, making money for both Pru and Santander at the expense of Santander's clients.

Whilst investment bonds have become a little bit more attractive since the last budget, I wonder how many Santander customers will have used up their ISA allowances and expect to use their CGT allowance in the future.

But I suppose the other banks are doing it, and the FSA turns a blind eye, so why would Santander want to bother treating customers fairly when it can take the money off them a lot more quickly by mis-selling.

Oh dear! Oh dear!

The desperate act of a dying (in the UK) Company?

And the agreed commission rate?

When will they learn?

Never mind though, more dissatisfied and ripped off clients to come knocking on my door in the future.

2 trusted brands will be selling guaranteed products to your clients.......

Targetted salesmen - how many policies do Santander have to sell to get the overide. Staff will be directed by sales managers to sell this product just like staff at N&P were and Park Row etc etc - there is no independence here. Please FSA make this clear - wealth warning to all non-IFA customers.

Just like those glossy Zurich retirement plan adverts now on the TV - looks like we can all have a wonderful retirement with all our dreams fulfilled by using the Zurich pension plan, its magic. I feel an ABBA advert coming on - I had a dream, Money Money Money ...............

Pru is doing a deal to sell its bonds through tied advisers. This is quite reasonable and perhaps a consequnce of a lack of IFA support. Could this be because independent adviser who have a choice don't sell these bonds? We will be seeing a lot more of this in the years to come as a direct result of the retraction in IFA numbers which will force consumers into the hands of the banks and poor quality tied products. Interesting then that the new head of AIFA had a Prudential background.

PS: Is this not a natural consequence of a pro RDR fee based stance as promoted by Citywire?

Great, the worst company selling the worst products, the complaints dept will be busy!

if most ifas were selling products on a fee basis or products that show the effect of any commission being taken clear to the client, used only those providers that used true TER quotes and did not chase commission rdr would not be needed.

Steve is right the diference between IFAs and tied advisers has always been as clear as mud to clients but with the number of clients the banks advisers have how many actually care.

Have a look at all the life companies/providers, they are all looking to the date that the biggest scource of income/inflow will be lost with the loss of many advisers who will not be around how will platforms survive to ensure they can continue to support sales from a much smaller adviser and client base will the cost of providing their services be split among the remaining clients.

Have to agree with David D & Philip. The L&G Bond sold through B&B and A&L was over & mis-sold to a high percentage of clients. Looks like the same again with a similar Pru product, probably a similar commission rate, and the same (poor) result for Santander clients.

I would imagine the bulk of the business sold will go into Prudential's PruFund fund range and if that's the case I can't see clients being disappointed with the end result. Regardless of what you think of Pru as a company their with-profit products have delivered for the majority of clients and will continue to do so, especially in the current climate.

I agree with Anon 4, the problem is not the Bond itself, and lets be honest the Pru W/P has a decent record. Its the fact that Pru will be paying 7%+ commission to Santander. If all Bonds were restricted to the 'usual' 3% + 0.5% trail, surely there'd be no problem.

Mr Naive...

we would all hope that a customer would use their ISA allowance up first, but then the main choice is between a collective or a bond. In a bank channel the customer is usually unwilling to take out a collective where they may have to cope with extra paperwork and change the funds it's a step too far.

Whilst a collective is in most cases a more suitable tax wrapper, a bond is easier to administer, more convenient and better packaged for this customer group.

The cost will depend on what Santander have managed to cut with Pru, but does not necessarily follow it would be the 8% commission or so that you see in the IFA's channel. Over the long term the 0.25 to 0.5% pa renewal commission on a collective builds up so they are not necessarily more commission than a bond, all depends on what IFA's and the bank give back to their customers.

Agree with Simon Mansell. This is a good deal for the Pru and a good deal for Santander. The question of whether good advice will be purveyed is a separate issue. I can guess that the Pru needed to look at their distribution channels to maintain outlets in the market. A lot of IFA's do not use Prudential and instead rely on bespoke supermarkets and platforms. Can't blame the Pru for making a living.

The Pru range is pretty good as stated above - however, my own experience with them would suggest that when it comes to IFA service, they just don't quite do it.

Just like to contradict David, have to say get really excellent service from my Account Manager and his team, Do not get better. Mostly same day, mostly within 5 or 10 minutes of asking. Existing Business team pretty good as well.

We are seeing a lot of distribution deals being signed in readiness for the new RDR era. Could be good time to buy into financials?

The consumer is set to pay big time and the FOS is gearing up for millions more complaints.

Look at Prus market share and then suggest Pru are a dying organisation! If you actually look at the contract they have signed up the deal for then you will see all the fund options and additional benefits a client can opt for. Please also note that at least Pru quote on TER and dont have additonal unknown costs like many of the large life companies out there who are falling by the wayside. If your dont quote TER then really you should be shot as you could have additional unknown costs levied on the client at a later point in time which leaves you wide open to the FSA as far as undisclosed costs to the client go. Pru really are much more than with profits. If many advisers were not as greedy as they are then RDR would not be required.

Pru health reneged on their health care contract and changed the terms.

Before this Pru pulled their Critical Illness rates without notice and did not honour plans in the pipeline. It was Prudential with-profits that used its inherited estate to pay miss selling claims but then refuses to use the same money to pay out to policyholders!

Nothing wrong with the Pru.

Now instead of chronic structured plans which give no returns and are plagued with problems some bank staff have a high quality capital protected product which has a good history of returns and provided by a strong organisation.

That is bad news.

Commission greed is a silly comment, no IFA earned as much as the bank deals, they had and still have some belting deals, typically 3% above advisers so dont kid yourselves.

I didn't mention greed, but Banks do not earn more commission than IFA's, bank distribution is the cheapest distribution channel there is for product providers (ie more profitable or at least profitable). Direct distribution is most expensive, followed by IFA's.

The individual bank staff don't get the full commission that an IFA gets as the bank retains much itself. The overall cost of marketing the product may be met by the bank, eg if it wanted it's own branded brochures. Bank distribution deals don't pay pure commission in the way an IFA would receive it, the costs and dynamics are different.

So,

Question 1. An IFA is taking say 6% or even 7% on a product, and assume the product provider must paying 3% more than this to the bank making the cost say 9% to 10%. Assume a max of 1.5% in charges can be taken per year. How long in years will it take the product provider to break even?

Question 2, using your answer to Q1. describe how happy the Finance Director will be with a deal paying 10% to the bank?

anon 8, you say the bank distribution is the cheapest for providers. However, it is not for consumers. Also, Banks tend to take full initial every time.

The product providers that are not taking no the liability for the advice are the real winners. However, that doesnt make them the bank distribution channel cheaper. Paying 7% to a tied agents employer (the bank) or 7% to an IFA costs them the same.

I have put in a number of complaints over the recent years at banks selling bonds (typically no S&S ISA and no justification for elimination of OEICs). The illustrations oh these has a reduction in yield which suggests it is equal or more expensive than the full commission IFA version.

Hi,

that's a fair comment maybe I should have said that banks are not better value for the customer and of course the IFA can rebate. Customer value will depend on the bank and product,there are a rare few where the bank will loss lead or absorb costs.

Anybody recommending investments when there is no ISA in place is committing basic neglect and ought to face a ban and a bank a biggy fine.

How do we get the banks to give consumers a fair deal?

Anon 8? What have bank staff got to do with it?

The commission given is from the product that the client purchases to the organisation that distributes it. That is the bank. IFAs dont get that commission either, if the IFA is self employed all of the overheads are taken from that and what is left is theirs!! If you are ever thinking of being a self employed IFA factor in the costs!!

The banks have higher commission deals in place. That is against the trend of the industry. With a bank not much of the after sales service is required that follows with IFAs so it is cheaper for the provider.

If you are talking about IFA staff, then IFA staff are remunerated much less per sale than any tied staff including banks, if you want to earn big wages (ie stay staff) stay in the tied industry that is where the big wages are. It is very difficult to find a starting salary of over £33k in the IFA industry without being an amazing adviser, new starters (with some experience) are generally around the £17-20k plus bonuses which are hard to achieve with that level of experience. It is relatively easy to get a start with no experience in the tied industry for £25k plus and good sales people with limited experience can earn up to £70k, no limited experience IFA will earn £70k as a wage.

Setting up as an IFA on your own, while not easy, removes the conflict that ethical people may hold when they start realising in a tied environment it is not easy doing the best for your clients, in addition on your own you can purchase the exact equipment required to do your job, contrary to the consumers beliefs, most large firms have little equipment of use when assisting clients, software for large companies carries astronomic cost. A small IFA can change all of their tools within 3 months if they had to.

anon 8 banning an adviser for no ISA is a bit simplistic and shows the limits of your tied background, on simple taxatiion issues the same could be said for a stand alone OEIC, Investment Trust, ETF, portfolio of single company shares......

It is great being an IFA when dealing with clients, it isnt so good when wild criticism is pointed your way and people you do not know, always know a mystery IFA who only selects product on commission.

I do not even know which regular premium product would produce the best commission, which provider has the best commssion for any given product and any bond I do carries the same commission as ISAs, not the bond commission is taken down the ISA commission is lifted up, with this regulation, potential liability etc I am not working for peanuts. fullstop.

If you are an IFA the worst thing you can ever do is look at the best recommendation then start comparing other commissions or potential fees it would break your heart. Some people say something has been recommended on a commission only basis, if you actually thought about justifying this in a report there is very limited movement within a reasonable recommendation.

If someone is a crook then crooks popup everywhere and by their nature do not conform to any rules, regulation will not stop criminals no matter what industry they may be in.

It is wrong to hold up any criminal as an example of an industry, section of the community, race or religion or because one or two did something once presume everyone else does the same.

Onshore with 7% initial commission and no trail? Sounds kinda familiar doesn't it?