Whilst worldwide commission disclosure for life companies based in the Isle of Man such as Old Mutual International, Friends Provident International, and RL360 are two years away, life companies are beginning to brace themselves for a major slump in sales once the changes come into effect in January 2019. Some have argued the regulatory changes may sound the final death knell for life companies, which sought to delay commission disclosure that were intended to come into force in January 2018.
“I’m surprised there are so many people so optimistic about the future of life companies,” said Bill Vasilieff, speaking on the International Platform Roundtable at International Adviser’s flagship event that brings together international life companies.
“As far as I am concerned, it’s pretty well finished,” he said, citing what has happened to the UK life sector. “Prudential is really the only life company left in the UK. The rest have changed, they’ve adopted platforms or gone into fund management or got protection. This mis-mash where everything is mixed up inside a life bond is finished.”
“A life bond is just a set of tax rules, that’s all that differentiates it, except for the fact you get paid high commission and that is disappearing. I do think there are still circumstances where you should sell a life bond but it’s going to be much more restricted than what’s happening at present. The whole thing is going to change,” he said.
Following the ban on commission based advice in the UK, with the Retail Distribution Review, which came into effect on 1 January 2013, sales of life bonds or ‘personal portfolio bonds’ fell 20% and have continued to decline year on year.
Meanwhile, David Kneeshaw, chief executive of RL360, told International Adviser’s Fund Links Forum earlier this month, that it was possible some advisers would move their business away from Isle of Man companies to those located in less well-regulated jurisdictions.
With life companies themselves anticipating a slump in sales following the worldwide commission disclosure, it does raise the question whether life company products such as personal portfolio bonds, or long-term regular savings plans are sold for the client’s benefit, or more so for the ‘adviser’ or broker’s benefit with the undisclosed high level of commission such products pay upfront.
As previously discussed on this blog, there is a crucial difference between a ‘fee based’ or ‘commission based’ adviser and a ‘fee only’ adviser, with only the latter void of any commission bias and able to provide you un-conflicted advice in your best interest.
Are you using a ‘fee only’ adviser? To learn more about the benefits of using a ‘fee only’ adviser, and 5 things your adviser may not be telling you, click here.