How Business Was Done
Choosing the Name.
I could have named my new company as Noble Warren Insurance Brokers, but this would have indicated some coverage of General Insurance products such as motor insurance or household insurance. I saw our growth area in the new unit-linked market, where the new “savings plans” and Single Premium Investment Bonds could offer real returns over inflation.
One of the first things I did was to register NWI as a member of the IBRC – Insurance Brokers Registration Council – set up to regulate Brokers via the new Insurance Brokers Regulation Act 1977 . It was important to me that the company was respected in the Industry, and offered a professional service to its customers.
The next thing was to open Agency agreements with the leading providers of UK Insurance products, so that NWI could offer customers a full range of products that were suited to their particular needs – this was also known as Financial Planning. These products included but were not limited to Term Assurance, Health Insurance, Endowment Policies, Savings Plans, Single Premium Investment Bonds, Unit Trusts and Pension schemes. We would also offer assistance with mortgages through connections with Building Societies, particularly those applications that were not straightforward owing to the personal circumstances of the customer – e.g. the self-employed.
Not every Insurance Company had their own sales forces (direct sales): many ot the more established companies – for example Scottish Widows and Standard Life – relied upon selling their products through direct advertising, or business from independent Insurance Brokers. Each Insurance Company had a team of highly trained and professional in-house representatives, who would be responsible for new business connections and new Agencies in their area.
In the first year of trading, I set up multiple agencies with most of the leading and established Insurance Companies of the era – covering the complete range of Life Insurance products. As a guide, Term Assurance (pure life cover) and Private Health Insurance was a matter of “cheapest rates”, but With Profits Endowment Policies could be rated historically as the companies paying out the largest returns to policyholders over the chosen qualifying period – from 10 years to 25 years.
The unit-linked Insurance Industry – with Members such as Merchant Investors – was a new addition to, and a new concept in, the UK Insurance Market, and returns over a period would very much depend upon the underlying choice of fund (or Unit Trust). So the available range of funds would be critical, and this gave rise to another opportunity – the need for some Fund Management advice to be available should customers so choose.
Some of the Insurance Companies and Unit Trust Groups that NWI had agencies with included:
- Abbey Life
- Albany Life, Nigel Barnard, Jacqueline Goor
- Commercial Union
- Eagle Star
- Hambro Life
- Henderson Unit Trusts
- Hill Samuel
- Legal & General
- Liberty Life
- M&G Unit Trusts
- National Employers Life (NEL)
- National Provident NPI
- NEL Brittannia
- Phoenix Life
- Save & Prosper Unit Trusts
- Scottish Mutual
- Scottish Widows, Paul Cook
- Skandia Life, Paul Bradshaw Dec’d
- Standard Life
- Sun Alliance
- Sun Life
- Trident Life, Keith Lewis
- Vanbrugh Life
- Zurich Life
Where I have remembered the main character or principal contact at these various companies, I have included their names above. As can be seen by the links provided, many of these companies have since been acquired or merged with larger financial institutions.
Many of the above companies offered unit-linked products (plans linked to an underlying Unit Trust portfolio). A good example was NEL Brittannia, which was a joint venture company between the more conventional Insurer – National Employers Life – and the Unit Trust Group, Brittannia Arrow. Merchant Banks like Hambros and Hill Samuel were also involved in the new Unit-Linked industry.
Commission and Cashflow Considerations
Indemnity At Merchant Investors, and as a “direct salesman”, I had been used to the payment of Indemnity Commission – commission paid in advance on any successful sale. At NWI, this was not something I could (or wished to) offer to members of my team for all insurance products. Where the Insurance Company concerned offered indemnity terms, I accepted them, but it was not the most important criteria for us as an independent insurance broker. If the company was a unit-linked company, the number of funds available and the ability for our customers to switch between the funds was a more important requirement. Where premiums were paid annually, or for Single Premium products, commission was in any case paid within a few weeks.
Sales Team Commission Members of NWI received 80% of any “initial” commssions payable for any product: for monthly premiums, and where indemnity was not available, this was normally paid to NWI over the first 2 years of the life of the policy. Renewal commissions – which typically were 2 to 2.5% of the premium paid over the life of any policy – were kept by NWI and were later redirected to Warren Noble Investments Ltd, a company formed for this specific purpose.
Client Account NWI had a client account, as do solicitors, for example. For Single Premium Insurance Bonds and, later, Unit Trust Investments, where there was an initial charge levied by the provider of between 3.5 and 5%, (normally known as the “spread”) the Client Account enabled us to pass on the net amount to the Provider concerned, allowing us to pay our consultant immediately.
Sales Training and Professionalism
Personal – ACII. After only two or three years personal experience selling Merchant Investor Unit Linked products, I was well aware that there were large gaps in my own knowledge about insurance generally, and that if I was to run a successful insurance brokerage, I would need to correct that. There was an Industry organisation known as the Life Insurance Association (LIA): I did become a Fellow member (FLIA) but at the time the Association catered mainly for those involved in direct selling, and there were no recognised industry qualifications. The most professional Insurance qualification available was as an Associate of the Chartered Insurance Institute (ACII). The ACII course was comprehensive, dealing with a large number of areas, including Risk, General Insurance and Contract Law, and I found it challenging and informative. I achieved ACII status in approx 1980
Consultant Sales Training I only accepted new members into NWI if they appeared to me to be ethical, had had some years experience in the Insurance Industry, and had received basic training. I was not in a postiton to – and neither did I want to – provide training courses. My consultants had the choice of working from the offices where they had a desk and telephone available, and use of the Boardroom for client meetings – or from home. I did not expect our consultants to qualify for an ACII as I had done, but I encouraged them to become members of the LIA, and I organised in-house advanced training on insurance investment and mortgage products. The best source of this training was from the Agency Inspectors or representatives from the Insurance Companies with whom NWI had agencies, and they were more than willing, as it gave them an opportunity to meet the team, and explain why their particular insurance products should be considered.
Product Suitability Because I wanted to protect NWI’s reputation, and because I knew how important it was to maintain the trust of the customer, I would monitor the majority of new business applications – particularly if the premiums seemed higher than the ordinary. If I had any doubts, I would speak with the consultant concerned, and make sure that the reasons given for the application to proceed were valid. It was better in my opinion to arrange a lower cost insurance product for a customer, which they could comfortably afford, rather than risk an early cancellation and the loss of that customer for good – and possibly a complaint. As a result, I do not remember ever receiving a complaint from a customer in the time that NWI was trading.
How NWI Obtained New Business and New Customers. The method of street canvassing we used at Merchant Investors had been outstandingly successful, but by the time I formed NWI, it was no longer a valid method, probably because of complaints received by the “authorities”: whether this was as a result of professional jealousy, or saturation of the area canvassed in the City of London, or just plain poor technique was a matter of conjecture. However, in my case I had accumulated some 200-300 customers who were loyal and happy to regard me as their financial advisor: my other NWI consultants had also accumulated a solid customer base, and for the most part, business was done by maintaining contact with each customer, reviewing his or her changing financial planning needs on a regular basis, and asking for referrals – i.e. friends or colleagues who may have also been interested in our service. “Cold Calling” was not permitted.
NWI did also run from time to time a small advertising progamme, in some magazines and journals, but this was only for special products. One campaign I remember in particular was in 1990 when Interest Rates were at record highs, and a popular product produced by some of the more innovative companies was the One Year Guaranteed Income Bond: for example, Liberty Life produced such a product, guaranteeing a return of 19.1 per cent.
UK Regulation – IFA In 1988 the UK Government enacted legislation to distinguish between financial advisers working independently for their clients, and those who were in reality representing one Insurance Company. Rather naively as it turned out, I welcomed the new regime, as I had long thought that clients would be better served by an independent firm – or Insurance Broker – and this was one of the main reasons why I had formed NWI . The new required “status” of Independent Financial Advisor did not seem to me to be a problem because most of the requirements – such as “fact finds” for new clients – were already in place and part of the NWI culture.
NWI Personalities and Key Members
When NWI started in 1977, we had very few consultants: the team grew slowly over a number of years. However, there were three personalities who were either special to me, or were influential.
Peter Clarke Dec’d: Peter came with me from Merchant Investors: he was at the time in his ’50s, “old school” and ex-army, overweight and with a moustache, and smoked incessantly, In fact I think it was his bad influence that led to me smoking cigars in the office, even first thing in the morning. He was a “lovable rogue” and very partial to alcohol and the good life, which was unfortunate for his long suffering and faithful wife, Pam: but he was charming and always positive no matter what his financial circumstances were – and they were often dire. I helped him as much as I could, and he was a good friend.
Simon Brewer: I was researching the internet to see if I could track down Simon, but true to form, the only reference I could find was a report on his society wedding in 2011 to a very tall girl called Rebecca Steels. I would never describe Simon as a friend, more as a colleague, but his involvement at NWI was important as he did bring in a lot of business. A few years younger than myself and educated at Eton, he was permanently based in London’s Fulham (where else, my dear?). I was always aware that he did not consider me as a social equal, but NWI was useful to him as an acceptable way of making a living by persuading his rich friends to make investments: in this regard, he reminded me of Rai Hamilton, formerly at Merchant Investors. Having said that, I was invited to tea at Claridges on one occasion to meet his mother – a charming lady. Like Peter Clarke, Simon was a bad influence on me, and we often disappeared together to Morton’s or one of the other clubs or local winebars: in fact, it was because of these excursions from the office that I invested in one of the first commercially available mobile phones (it was a Panasonic and cost £1700 and was extremely heavy) so that I could keep a check on unit prices and Julia – my PA – could call me with any important message,
Julia: My Personal Assistant and married to Chris, one of our consultants, and to my lasting regret, I cannot remember her surname. She ran the Maddox Street office and had responsibility for most of the administration, which she carried out brilliantly. Most importantly she “had my back” – I owe her a huge debt of gratitude for her long-term professionalism and loyalty.
Hargreaves Lansdowne is a company whose progress I have monitored for many years, and with some envy.
The two entrepeneurs were based in Bristol and their business started modestly from a bedroom a few years after NWI in 1981. They followed the same rationale as I did, with the same objective of providing “information to clients on unit trusts and tax planning matters”
They avoided the problems NWI faced in 1991 and have become hugely successful, with a quotation on the London Stock Exchange in 2007. They obviously “did it right”, and almost certainly had better advice and business funding than I did. All credit to them, but it does show what was possible and what could have been achieved without the draconian intervention of the Financial Regulators.
So What Went Wrong?
The short answer is that some 30 years on, I still do not know for sure.
We were closed down following the appropriate notice and an unsuccessful Tribunal Hearing with the Securities and Investment Board (SIB), who from 1985 had taken over Regulatory duties for Financial Services in the UK.
Some weeks or months before this “bombshell” we had had what I had thought was a routine visit or inspection at the 50 Maddox Street offices, with a team of five or six individuals representing the SIB: I was totally confident that NWI would come through without a problem. After all, in my opinion and as can be seen from the previous description of how NWI operated, together with the fact that we had no customer complaints and that NWI provided an independent and professional service to our clients as required by the new “regime”, this should have been enough to have guaranteed our survival.
The inspection took two or three days and seemed to go well – although Julia (my PA and in charge of office administration) did mention that the SIB were somewhat arrogant and heavy-handed, and were not too familiar with insurance products, particularly in the unit-linked sector. Apparently the leader of the SIB “team” was employed by a Buiding Society only six months previously.
As a direct result of this visit, and much to my surprise and shock, the SIB sent correspondence indicating that NWI would not be granted continuing status as an IFA (Independent Financial Advisor)
SIB Tribunal Hearing
My only appeal process was via a Tribunal Hearing, which I duly applied for: we were the first company to appear before such a Tribunal, which was conducted as a quasi Court Hearing with members of the SIB hierarchy sitting in judgement. As I recall, there were no independent adjudicators and no further right of Appeal.
We were represented by Christopher Monckton after Simon Brewer’s specific recommendation to me. After both sides had produced whatever evidence they had, we lost the Appeal, and as far as I was concerned the “baby was thrown out with the bathwater“.
The Mistakes I Made
My first mistake was that I should not have been so confident in our passing the SIB inspection, and should have paid more attention to the paperwork and procedures that these regulatory bodies or bureaucrats are so fond of inflicting. Our loss at the Tribunal was apparently down to some failures in this area, rather than anything more serious such as misleading customers.
The second mistake that I made was in not appreciating that since our Tribunal Hearing was the first public occasion to judge the effectiveness or otherwise of the new SIB regime, they were not going to want to lose.
The third and major mistake I made was in appointing Christopher Monckton: I now know his background was in journalism, and he was a “political advisor” to the Conservative Party. He was not a lawyer and had no previous experience in similar matters. I should not have trusted Simon Bewer’s judgement and should have appointed “proper counsel”. Our defence was shambolic and pretty much non-existent – for example, we could have produced many customers as character witnesses, or produced written evidence. We could have called many of the Insurance Companies with whom we had agencies to provide confirmation of our independence and professionalism. None of this was done, but I am sure he appreciated the £10,000 up front fee.
I do often wonder if NWI had been unfairly targeted, or competitors were jealous, or perhaps I had been too vocal in the local industry Press. We were a small company doing a professional job, with financial planning for our customers: we were not a Barlow Clowes or a Norton Warburg. However, the damage was done, the business destroyed, our staff laid off, our customers were left without advisers, and I was deprived of my livelihood. So much for Regulators.
Note: The SIB became the FSA (Financial Services Authority) in 2001, until approx 2012 when closed down by the UK Government due to its total failure in preventing the 2007-2008 Financial Crisis.