Barclays accused of 'obscene' commissions

Rachel Stevenson
Thursday 30 October 2003 01:00 GMT
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Barclays was accused yesterday of taking "obscene" levels of commission to sell Legal & General's products in its branches by a leading independent financial adviser.

Bestinvest, a London-based IFA, found that Barclays receives 8.5 per cent commission from L&G to sell the insurer's with-profits bonds. This is far higher than the industry norm, which is usually between 5 and 6 per cent. A deposit account would attract almost no commission and a unit trust would have around 3 per cent.

In a mystery shopping exercise with Barclays, Bestinvest found that for a £27,000 investment in an L&G with-profits bond, £2,315 was immediately earmarked from the policy to "cover the cost of providing advice". If the investor cashed in after one year, they would only get back £26,600 because of the effect of the high charges.

"High commissions have been at the root of every major mis-selling scandal. Sales of with-profits have collapsed in response to the imposition of high exit penalties. Rather than improving the product, providers are resorting to obscene bribes to their distributors to try to achieve sales targets," John Turton, director of life and pensions at Bestinvest said.

Barclays denied yesterday that its staff were incentivised to sell with-profit bonds above other products. "Our advisers receive the same commission whichever product they sell. We conduct a detailed fact find for each customer to establish their needs and use this to advise them on the most appropriate product," a spokeswoman for Barclays said.

The commission levels do, however, raise questions over what price L&G is paying to secure its relationship with Barclays, and what customers are losing out on in charges. L&G has to recoup the cost of its commission over time, and many insurers do so by charging high exit penalties in the first few years of the policy.

"This is an extraordinarily high level of commission," Ned Cazalet, an insurance analyst, said yesterday. "You have to ask how profitable this business must be. L&G have to make this business stick or they make no margin on it at all."

L&G signed what was considered a groundbreaking deal with Barclays in 2001 to provide life and pensions products. It has replicated this arrangement with other banks, such as Alliance & Leicester, and it has helped L&G pull in sales while customer demand has lulled. At the half year, 35 per cent of L&G's sales came through bank tie-ups. The Governmentis planning to open such arrangements to others and L&G may lose its exclusive agreements.

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