standard life

ReportInvestor

Whatever the intricate ins and outs of this commission argument, 7% upfront commission is simply out of order and can't last.

Over time the UK will get rid of it, as Standard Life's Trevor Matthews indicates. Australia led the way so he knows what he is talking about.

See here for comment about the process in Oz from a first hand witness

dunstonh

Reporter wrote:

Whatever the intricate ins and outs of this commission argument, 7% upfront commission is simply out of order and can't last.

Over time the UK will get rid of it, as Standard Life's Trevor Matthews indicates. Australia led the way so he knows what he is talking about.

See here for comment about the process in Oz from a first hand witness

Standard Life are hardly a good example to quote from. They removed commissions on stakeholder/personal pensions last year and their market share has dropped. They want commission to drop as they cannot compete with the PLCs at this time. I mean, do i sell a standard life stakeholder, earn nothing and the client remains on 1% amc or do i sell a legal and general stakeholder and the client gets 0.9% amc and i get 4.5%.

Australia has some good points but also some bad. Just look at the mess AMP made over here. Stakeholder pensions were copied from the Australian model and just look how successful they have been....not.

I'm playing devil's advocate here really to keep the discussion up as I would be quite happy to see a move to reduce initial commision and replace it with forced initial plus trail instead of that being an option currently. It would put many of my competitors out of business and my business model is based on trail income rather than initial. Too many are based on needing full initial to survive.

Compensationitis

Hi 'Reporter', what do you do for a living now and what did you do before?

What is your beef with headline commission rates that bear no resemblance to the average rate taken by an IFA?

ReportInvestor

1) Unfairness - some investors pay them out of ignorance.

2) Some IFAs are apparently forced to charge it. Could dh give us an example of a company where this applies?

7% is the going rate for full initial commission on bonds. Personally, I don't take that but many IFAs do. Particulary those employed IFAs or those attached to firms who take upto 70% of the commmission, leaving the IFA with little.

3) Product designers automatically build it into products - so that they can be marketed through intermediaries, which can lead to both misselling and misbuying of products.

4) There can sometimes be a temptation (never followed by good IFAs) to recommend products with high up front commission over more straightforward investments. Many savvy investors are preferring the fee route, which the government has just made a compulsory option. I accept that the majority of investors prefer to pay commission because they can think it's not hitting their pocket.

Am I right in thinking that there was a ceiling on commission before ?1981? but that was removed, apparently in the interests of market forces?

5) I don't like the compensation effects of past misselling, often down to commission, on existing investors or the unfairness that goes with it - genuine cases not getting anything and some other cases being perhaps less deserving e.g. did you hear of the 4K compensation that one adviser gained from an endowment he sold to himself :eek: ?

EdInvestor

dunstonh wrote:

Standard Life are hardly a good example to quote from. They removed commissions on stakeholder/personal pensions last year and their market share has dropped. They want commission to drop as they cannot compete with the PLCs at this time.

Yes, it was the idea that their market share dropped.In the runup to demutualisation Standard is quite properly focussing on profitability not market share.Thus it has stopped paying loads of commission to IFAs to sell products that make no money. This is undoubtedly a Good Thing. It is of course still paying commission to IFAs to sell products that do make money.

Too many are based on needing full initial to survive.

Given that the ABI also supports an end to upfront commissions ( what they call "no load funds" in the US,where the idea is well established) I suspect these IFAs will not survive much longer.The business model just doesn't work in the low interest rate/ low inflation environment,especially when regulations are getting stricter and consumers more savvy.

The FSA will prefer to see most of these advisers/ salesmen back working for companies like banks where they are easier to control and the cowboys can be eliminated, with a rump of execution-only companies left for the more independent-minded and well informed investors.

You can already see many IFAs have "gone over to the other side" either as complaints handlers or in compliance.

dunstonh

2) Some IFAs are apparently forced to charge it. Could dh give us an example of a company where this applies?

One of the larger IFA firms in my region takes 70% of the commission for itself, leaving only 30% for the IFA. Put yourself in the shoes of that IFA (personally, I would leave but ignoring that ), if you take full initial commission you only get 2.1% of that 7%. If they were to take the initial + trail option, they would get 1.2% of that.

That style of split is no uncommon, although you will see a variety of commission splits between the networks, companies and individual IFAs.

Another large accountancy firm in this region that "advertises" that it's IFAs are salaried has a slightly different approach. They pay 30k a year, providing the IFA brings in 100k of commission earnings. If they dont bring in 100k, the salary drops or they could lose their job. So, again, are they going to want to take initial plus trail or the most they can get up front.

I do not believe that the initial commission

The FSA will prefer to see most of these advisers/ salesmen back working for companies like banks where they are easier to control and the cowboys can be eliminated

Lets hope not. Banks generally offer poor products and generally have low experienced staff and impose high sales targets on those staff. Banks are great at getting people trained and qualified but I know that I am personally far more compliant as an IFA than I was a bank advisor. I'm not so sure that it has anything to do with being IFA or tied but more to the fact that I am now financially responsible for the advice whereas at the bank, I wasnt.

5) I don't like the compensation effects of past misselling, often down to commission, on existing investors or the unfairness that goes with it - genuine cases not getting anything and some other cases being perhaps less deserving

I don't think misselling in the past has much to do with up front commissions. It has more to do with an era when there was less knowledgeable advisors, poor quality training and no or virtually no regulation. The evironment then was more sales than advice and the pressure to get those sales. When the pressure is on people, they will often do things that perhaps they shouldn't. That is perhaps where the focus should be.

Yes, it was the idea that their market share dropped.In the runup to demutualisation Standard is quite properly focussing on profitability not market share.Thus it has stopped paying loads of commission to IFAs to sell products that make no money. This is undoubtedly a Good Thing. It is of course still paying commission to IFAs to sell products that do make money.

Would it surprise you to learn that Standard Life are currently developing a return to providing a commission paying pension product once demutualization is complete?

Standard Life needed to take the action they did as they lead up to demutualization. The minute they become a PLC, watch them fall in line with the other PLCs.

EdInvestor

Would it surprise you to learn that Standard Life are currently developing a return to providing a commission paying pension product once demutualization is complete?

Not at all. But haven't you forgotten the Sipp? Commission paying pension product available now, and wildly successful, it is said

Standard Life needed to take the action they did as they lead up to demutualization. The minute they become a PLC, watch them fall in line with the other PLCs.

I'm hoping our company is going to be well ahead of the competition. By which I don't mean that they will be ripping off policyholders more than anyone else - but rather they will be selling innovative good value products that people actually want to buy.

From what I've heard IFAs say about Standard and its competitors, Standard ought to be able to pay lower commission because its administration for IFAs is so good.

After all who would go for an extra 0.5% or 1% from another provider if it takes their creaky system twice as long to pay over the money and there are constant errors and arguments about the bill?

dunstonh

From what I've heard IFAs say about Standard and its competitors, Standard ought to be able to pay lower commission because its administration for IFAs is so good.

Yep, service was very good. Its on the decline though as they have cut costs. I would no longer rate them as high but they are certainly a long way from the Norwich Union administration nightmare.

After all who would go for an extra 0.5% or 1% from another provider if it takes their creaky system twice as long to pay over the money and there are constant errors and arguments about the bill?

I would. If the product is better and the administration can be done electronically, bypassing the poor admin then there is no reason to discount it. Especially if that extra 1% is used to enhance product terms. Some of the best products come with the worst admin and vice versa. Often its having people on the inside that matters. A very good rep at the insurance company helps.

Not at all. But haven't you forgotten the Sipp? Commission paying pension product available now, and wildly successful, it is said

The IFA sets the charges to be taken from the SIPP so its not really commission based but fee based.

Remember the Standard Life PPP and SHP are still available to be sold. However, the 1% amc still exists. They havent reduced the amc but decided to keep all the charges for themselves. Thats a bit greedy.

EdInvestor

dunstonh wrote:

The IFA sets the charges to be taken from the SIPP so its not really commission based but fee based.

If they are switching over from commision to fees with the Sipp, that's great.After all, the big problem is that the IFAs aren't paid by the client, but by the lifeco. That's a big cause of the misselling problem :rolleyes:

Compensationitis

"The cause of the mis-selling problem"

That is a very broad brush and an insult to those who look after their clients, the life offices are the problem because they rob Peter to pay Paul in a crazy scramble for market share. Now Peter is bankrupt and Paul has walked away with the best deal.

Please don't put decent IFAs in the same tub of tar as the networks and the banks.