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Providers ditch network ownership as lack of control hits home

by Jun Merrett on Jun 25, 2013 at 16:01

Providers ditch network ownership as lack of control hits home

Providers are beginning to pull out of owning national IFAs and networks as they acknowledge the money spent has failed to buy them control over distribution.

Since the retail distribution review (RDR) came into force at the start of this year, two of the largest providers have pulled away from their long-established ownership of advisory businesses: Friends Life put network Sesame up for sale and Aegon sold national IFA Positive Solution to Intrinsic.

Neither of these events were shocks in themselves, especially the sale of PosSol, which had been unofficially on the market for the past few years. However, Friends chief executive Andy Briggs (pictured) gave an insight into the provider’s thinking behind its sale of Sesame that suggests life company ownership of large adviser firms could soon be a thing of the past.

At the time of the sale, Briggs said: ‘I don’t think big parent-owned life company networks are the future. I think IFA businesses are most likely to realise their full…potential with a different ownership structure.’

Parents’ underlying motives

There are a number of reasons why providers would want to cut ownership ties with networks, including the Financial Services Authority’s (FSA) ‘Dear CEO’ letter, which warned them not to try to circumvent the commission ban through distribution agreements. Networks have also become expensive with the majority posting large losses and being hit by an increasing number of complaints.

The main motive behind the sell-off, however, seems to be an acknowledgment by providers that owning a network does not result in control over distribution.

Rob Waller (pictured above), Aegon’s executive chairman of distribution, said the provider, which still owns Origen as well as stakes in Tenet and Lighthouse, had bought into advice firms with the aim of controlling which products were sold.

‘The anxiety of the industry from a manufacturing perspective is how to get to market. Strategically, insurance companies would be locked out of access to the market unless they owned distribution,’ he said.

Geoffrey Clarkson, independent consultant and former compliance director at Tenet, which is largely owned by Aegon, Standard Life, Aviva and Friends Life, said provider ownership had its roots in pushing products. ‘If you go back 10 or 15 years, there was always a view that ownership of advisory businesses could lead to business advantage,’ he said.

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13 comments so far. Why not have your say?

JM Keynes

Jun 25, 2013 at 16:38

No insurance company, big or small, can afford to ignore the size of the fines being handed out by the FCA, on top of the cost of compensation/insurance excesses.

Believe me - the days of the network are numbered.

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Jun 25, 2013 at 16:40

Never ceases to amaze me how large firms beleive that buying such organisations gives distribution control.

Similar thing in the eighties when estate agents were bought out by large entities - only to be driven out of business by the very same small firms resurrecting themselves.

About as much chance of controlling distribution as herding cats.

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Graeme Ferguson

Jun 25, 2013 at 17:11

Sadly when RDR was proposed, I believe the Life/Pension firms thought it was going to be a great day for them...no need to front end commission etc and also that clients would just come directly to them.... SADLY for them they were wrong, and they also missed the impact of Platforms on assets. I think that some also missed the PR point of dealing with the IFA channel and really talking about contacting IFAs clients was an incredibly silly thing to do....

The net result no clear distribution channel, no clear business plan and a lack of trust and loyalty.... the grab at networks was knee jerk at best and just made some key people rich...and they must have laughed all the way to the bank!!

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Jun 25, 2013 at 17:12

@JM Keynes

KevHere - not all Networks are broken - have we not learnt there is no one single answer in our market

As for the providers - maybe now they may consider it would be a good idea to improve how they look after an adviser rather than spending lots of money on buttering up a Network etc

The guys on the ground will always make there own choices

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Jun 25, 2013 at 17:28

"Neither of these events were shocks in themselves, especially the sale of PosSol, which had been unofficially on the market for the past few years."

That's what the PosSol partners have been saying in spite of repeated denials by the Aegon and PosSol Directors

So, it seems the PosSol partners were right all along, whilst the directors are ...............

(Answers on the back of a post.........

...........age stamp)

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Ian Lees

Jun 25, 2013 at 18:51

whilst I can see why providers need to control which products are sold - rather than offer a good suite of products - it is this control freak mentality - rather than the provision of products or services - which destroys the competence in product providers. When Scottish widows and aegon Trustees -fiddled and juggled between themselves to my financial disadvantage - and to protect the interest of insolvent Scottish widows retirement benefit scheme - I called MIke DRoss ( CEO ) heid o' this edinburgh mutual Scottish widows office - a " stalanist freak control merchant ", I had not realised how it applied on other insurers. We are aware companies who went o the wall like Royal Sun Alliance GA - purchased estate agents . . . .now the Governemtn Cameron and Clegg - want to use these insolvent insurance companies - to run compulsory pensions ( often called " Auto " enrolment - and the sales gimmicks of little dragons ) . . . It is easy to see why actuaries - kept the with profits funds going - to use in their insolvency cover up - pay their big fat bonuses - and treats for those who succumed - to their sly, Wily or thieving ways. A case of the "Blood suckers" leading their " suckers ! "

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Jun 25, 2013 at 19:34

Stupid people

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Chartered Mark

Jun 25, 2013 at 23:41

There is a lot of stuff that will be coming out on the Pos Sol situation.

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Ian Lees

Jun 26, 2013 at 08:44

Product providers - who are unable to " provide suitable products", or provide a reasonable or sensible framework - to ensure the correct products are " sold " to the correct people - are to blame for their lack of professionalism - their lack of integrity - and the loss of Trust by consumers. Attempts to deflect their arrogance and incompetence - and " blame advisers ", demonstrates the lack of Controls - from the Chartered Insurance Institute, The Worshipfull Company of Insurers ", - and the product providers ( working to their Code of Conduct - and that of the CII - and the FCA . Put simply the CEO's and Chairmen - of these reckless companies - are the cause for the destruction of the insurance industry - and the demise of insurance - as a policy for protection. Apparently even the general insurance companies ( Aviva etc., ) want the Government - to sponsor house insurance in " flood areas" , - to cross subsidise their costs - our premiums - and the insurance company profits, directors bonuses - from our tax ? With regard to the refusal of insurance companies to control their agents - allowed the missselling of endowments - reckless racketeering by insurance company employees " fiddling the growth rates ", with the permissions of Directors - and no Compliance - against their own clients - who rightly so - discovered other and better ways to invest their money - with more scrupulous companies. Consumers have decided to dump the rogue traders - of insurance companies - with every good reason ! The main one being the destruction of their savings. Now the Government is taking bizarre action - on " Compulsory Pension Savings ", auto enrolment - through these unscrupulous insurance companies - as an added Tax Burden - with no controls over them by FCA or the Conservative Government ?

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JM Keynes

Jun 26, 2013 at 08:59

Coming back to the issue of Insurers ditching networks - the simple fact is that RDR has been and will in the future be disastrous to everyone involved - intermediaries, insurers/platforms and the client.

The answer for most clients now apparently is to use a flowchart on the Money Advice Service website

Overall, most involved are seeing a reduction in new business and many major players have already chosen to give up.

The RDR medicine is killing the patient - the FSA/FCA should (apart from presiding over a massive banking crisis) have been looking at products coming to market and the providers such as Arch Cru & Keydata.

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David Cathcart

Jun 26, 2013 at 10:00

On a slightly different tack, I still cannot figure out why Standard Life purchased the compliance service provider, Threesixty.

What did they hope to acheive, a product panel from an independent compliance company with only Standard Life products and funds !!

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Ian Lees

Jun 26, 2013 at 10:01

Unfortunately, the regulator has no idea of how to interpret a product - especially one designed by dodgy product providers - looking for an edge ( usually up to six months before the copycat providers latch on . . bring out their own version etc., ) Put simply it is all about " Marketing . . . and Sales . . to pay for the necessary Research and Development costs. With the Government making so many changes - without thinking through the cause and the effect . . .the consequences of stupidity by those who have no commitment . . .to their party or the voting public - the voters pay the price. Perhaps the HMRC should introduce a new Law - to ensure like pensions . . .they have to obtain a certificate of approval . . .so that the consequences are thought through . . and consumers can have confidence that they are not being used for the product providers . . . high charges - poor quality . . . and their losses. As it stands currently providers dish out their product - to hell with the consequences . . .working on the basis that if they sell enough products - it will pay for those who complain e.g Endowments . . Pensions . . PPI . . . . This is the cost of poor Government . . and low quality MP's

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Ian Lees

Jun 26, 2013 at 14:56

Some people and some companies have an " extraordinary and very elevated view " of their competence. Such a move is a result of RDR - the retail distribution review - where the Government - and their agents ( The FSA , now the FCA ) want to destroy Independent Advice - in return for shoehorning advice into the MAS or the selected few insurance companies . . .left standing . . . after decades of impotence and failures of " with profits", and the result of transparency . . .where people are now beginning to realise the actual costs ( over and above the marketing charge . . .commissions . . . to the stalanist control freaks . . . . and the lack of competition . . .because insurance companies have abused their positions . . to control their " market share ", directors bonuses . . to the cost of policyholders ). Insurance companies like Scottish widows " offered " higher than normal commissions - to bu business they could not obtain through normal channels. Some greedy IFA's ( national Regioanl and Local ) accepted these terms . . .selling their soul . . . at the expense of their client. Churning clients between

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