First off, it’s been a shockingly long time since I wrote this blog. Poor form, been busy, blah blah. How’ve you been? Yes, yes I know. Yes, it is worrying. No, I don’t think putting a Greek island in your SIPP is a good idea.

Shall we?

Some years ago, when tripartite DFM agreements were the stuff of a madman’s dreams, a fine chap called Tom Waits discovered that the cowbell could be used as an instrument of torture, and reinvented music as we know it. Not satisfied with this, he then went on to write the musical score for a theatre show called ‘The Black Rider’. What was different about this was that the orchestral pit band he put together (which he called The Devil’s Rhubato Band) improvised the whole thing. No music, no score. From that came a work that moves from absolute beauty to almost unlistenable noise (check out Oily Night if you don’t believe me).

Here comes the pivot, copywriting fans

I’ve been reminded of the cacophony of The Black Rider as the lifecos start to drip out information on what will happen with their legacy books in terms of RDR and adviser charging in particular.

To save space, if you’re not sure what all the adviser charging stuff is about, go read this and then come back.

Now, contrary to popular belief, the lifecos are stuffed with quite bright people trying to do a good job. I exclude senior management from this, obviously. And whether to upgrade legacy products to include AC, unbundled charges and whatnot is a tough call. These products are built on tough, resilient and completely inflexible systems (Unisure, anyone? Anyone? Bueller?) and generally to muck around with them costs an eye-watering amount of money. Hell, correcting a spelling mistake in the policy schedule costs an eye-watering amount of money.

So the choice is pretty stark. Spend millions on adding functionality no-one wants on products no-one likes, or let them wither and die and concentrate on the shiny, new, (usually) platform-enabled whizzy stuff. Easy, right?

Not so much. I’ve said here before that legacy insured business is 3 or more times more profitable, pound for pound, than new model biz. So the attrition of the back book is a big deal. Every time an adviser moves a legacy product onto a platform or a new model retail product, the insurer has to go find at least 3x that amount of money to replace it. Hard work, because if you want to get lots and lots in, you need to deal on price, and that 3x becomes 5x very quickly.

For the record, my honest view is that the attrition of legacy business that doesn’t have AC on it will be huge. It’ll take a good few years, but it will be devastating. And it won’t all be IFAs doing it. Here’s how it might work:

  • Client wants to do something with existing plan; speaks to adviser
  • Adviser explains RDR, sort of
  • Client doesn’t want to pay cash fee
  • Client doesn’t want to move plan purely so IFA can get paid
  • Client goes to AN Other reputable or otherwise website
  • Client gets advice from 21st century equivalent of ‘man down the pub’
  • Client transfers plan
  • Adviser loses, existing provider loses, client (potentially) loses

We’ve seen a few providers starting to show their hand, Aegon, Standard, Pru and others. Everyone’s struggling with this, though they’ll all claim not to be. But the truth is that inflexible technologies and legacy products are forcing proposition teams into one almighty roll of the dice. No music, no score, no discernable strategy or plan, just expediency.

No-one’s tested yet how much of the big lifecos, share price consists of the value of their legacy book rather than their tangible assets, goodwill or new business flow. But I think we might be about to find out.

It could be closing time for a few… (Tom Waits joke, sorry)