Life offices who have not adapted their systems for the post-Retail Distribution Review world are going to make up for losing money by switching off traditional commission and poaching advisers’ clients, an IFA has warned.
In an interview with FTAdviser published today, Sheriar Bradbury, managing director of London-based Bradbury Hamilton said that he has seen life offices switching off commission for smaller IFAs that are not “actively servicing clients”.
Mr Bradbury said this will provide an income boost to life offices that potentially stand to lose from the industry shifts under RDR. The regulator has previously confirmed that pre-RDR commission not paid to advisers can be kept by providers and does not have to be rebated to clients.
He added that life offices would also seek to approach directly those clients that are not being actively serviced to avoid losing them.
Mr Bradbury warned that it will be smaller IFA firm that are likely to be hit hardest by commission removal in the coming months, as “for the smaller IFA practice, legacy commission is often their lifeblood and is what keeps them going”.
He said: “What they [life offices] are doing at the moment is switching off commission for the smaller agencies who haven’t been actively servicing their clients. Their argument is ‘what is the point in paying this money if the clients aren’t getting services’.”
Earlier this year and particularly in 2012, FTAdviser heard many stories of life offices poaching clients. One adviser accused Standard Life of “automatically” removing him as a client’s listed IFA after the individual since confirmed that they did not request a change of adviser.
An IFA also previously accused Friends Life of “blatantly encouraging” consumers to remove their adviser from their policy in a letter that was sent out to policyholders informing them of business structure changes.
Mr Bradbury said he was “split” on the issue of poaching, saying that advisers should be providing ongoing service but lamenting the potential loss of intermediaries if commission income is curtailed..
He said: “I do think advisers should provide an ongoing service but I have the feeling that a lot of advisers, particularly the smaller practice... are keeping their businesses afloat on the back of the trail renewal commissions that have historically been coming through.
“Without that passive income, are they going to be able to pass a piece of advice to somebody that is not actually generating very much for them or will they be purely focused on the ones that are generating the most?
“I think what we are going to see is, if that happens and life offices switch off those commissions, less IFAs around and a lot of clients with no one to talk to.”
Read the full interview with Mr Bradbury here.