A race against the clock

Friends Provident\'s strategic review has seen the life office making some tough decisions. The reaction from the corporate advice community has been one of understanding tempered in some quarters by concerns for the future, John Greenwood reports

Taken as a whole Friends Provident’s strategic review could arguably be said to see it placing a greater focus on the corporate benefits market as it moves back to its core activities. The general view from advisers is that Friends is making the right decisions, but some question whether it is too little too late to fend off a takeover that could see the household name sold off in parts.

With the planned offloading of F&C, Lombard and top end wealth managing IFA Pantheon, as well as the axing of the wrap project Friends could be seen to be committing itself firmly to the group pensions market. Add to that the plan to launch new products into the group life sector and it becomes apparent that Friends sees great potential in the workplace.

David Marlow, marketing director at Alexander Forbes Financial Services says he sees no reason to be worried about Friends’ long-term commitment to the group pensions market. “We have sought to reassure clients that just because they have changed their approach does not mean they are not committed to pensions,” he says. “There are rivals out there who want to portray this as a company that is perhaps not there for the long haul. We don’t believe that.

“We focus on the SME market whereas they are focusing on big ticket pensions. SMEs are more likely to be commission-based but there is no reason at present for any of our clients to up sticks and move. Friends have confirmed that they will not be renegotiating terms on any of our existing schemes, although they have left the door open to say they may renegotiate with some intermediaries. Whether they do remains to be seen,” he says.

Most advisers but not all seem happy to nail their colours to Friends’ mast for the present, although some are treading more cautiously. Origen is the only national that has demoted Friends as a consequence of the restructure. “Until now Friends have been on our panels as a best idea provider but we are no longer putting them in the best idea category,” says Chris Watkins, product research manager at Origen. “This does not mean we will not use them. They came down to explain their position to us, but lacked a certain conviction. We believe the moves they have made are sensible ones and it is sensible for them to cut expenditure to the point where group pensions are cost neutral, as they have said. But it remains to be seen whether they can get Trevor Matthews in to turn it all around before someone like JC Flowers makes an offer they can’t refuse and breaks it all up. That would be a shame because the market needs good products and brands like Friends’.”

Friends faces a tricky six months – majoring on group pensions without paying the handsome commissions for which it had become known is not an easy circle to square, and the insurer readily admits it will now be targeting high end schemes. The fact that Standard Life is forcing outgoing chief executive Trevor Matthews into six months’ gardening leave shows how unfortunate his departure is for the insurer.

Simon Clamp, managing director, UK sales and marketing at Friends Provident, says: “We decided that now is the right time to move out of the initial commission market. We have a substantial book of corporate pension business now. We will be paying fund-based commission and a bit of up front, but we won’t be paying out a large amount going forward.”

Clamp accepts the merry-go-round of pension business as identified by Ned Cazalet in his Polly Put the Kettle On report has had something to do with the changes at Friends, as it has at other providers. He has spoken to most advisers personally about the changes, and says he has already made it clear that it was always going to be a case of when rather than if there will be a different approach on commission. “There will be different reactions to the changes. It is up to advisers to make their own minds up and decide what they want to do,” he says.

Friends is cutting its costs base as part of its restructure which will see it stop the development of its wrap proposition. Whether this will leave it behind competitors in years to come remains to be seen but at least it is coming to the technology party from a position of relative strength, already having automated processes for group pensions that are slicker than many competitors.

“In a funny way pulling out of the wrap market may actually be the right decision in the long run, because there is an argument to say that if you aren’t already in the wrap game as a provider with a live offering, then developing one is questionable,” says Ian McKenna, director of the Financial Technology Research Centre. “What is a provider offering wrap bringing to the party other than another mouth to feed and another slice on the AMC?”

Most advisers feel comfortable with Friends’ and are willing it to succeed. But with Matthews not even starting until August the insurer is facing a race against the clock to show it can carry on delivering.