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A trail of two cities

It was the best of times, it was the worst of times… Well, sorry Dickens, but it is definitely the worst of times following Towry Law boss Andrew Fisher’s recent comments to Money Marketing regarding trail commissions.

I’m no fan of commissions, in fact I wish the FSA had ditched the whole wretched system years ago in favour of total transparency. But I do however accept that, although sometimes abused, a modest initial commission with ongoing trail allows IFAs to make an honest living from advising clients who refuse to write out a cheque for financial advice and want face to face service. The existence of trail commission should give advisers a financial incentive to continue looking after clients and it empowers clients by allowing them to take their custom (and trail commission) elsewhere if they feel their adviser is not providing satisfactory service.

This scenario, to me, appears to be treating both customers and advisers fairly. The adviser gets compensated for work done and the client receives ongoing service with the power to switch to another adviser (without necessarily having to write a cheque) if unhappy.

So Mr Fisher’s comment that “If anyone is saying that they are taking this trail commission and using it to pay for servicing clients then they would be in a serious position” doesn’t make much sense to me.

I would argue that advisers should be in a serious position if they are taking trail commission and doing diddly-squat to earn it – the ‘hit and run’ sales approach that has blighted the financial advice industry all too many times over the years.

As for persistency, in my experience advisers rarely sweet talk clients into keeping a product that’s unsuitable so they can pocket trail commission. If anything, they’re more likely to be guilty of encouraging a switch when there’s no need in the hope of pocketing some initial commission.

Anyway, for what it’s worth, I’ve got a few ideas that could help prevent this type of mess from happening in the future.

1. Compel advisers to get a written (or online) authority from their client every two years confirming they’re happy for the adviser to continue receiving trail commission. If not received, the ongoing commission would then be diverted into a ring-fenced FSCS ‘pot’ until such a time that the client appoints another adviser as agent. This would remove the trail without service problems and the ‘pot’ could then help reduce the extent that decent advisers have to subsidise the actions of irresponsible ones via their FSCS levies.

2. Where an adviser buys the assets of a troubled firm while burdening the FSCS with liabilities, the adviser must get authority as above within a year of acquiring the assets.

3. Ban initial commission on product sales that involve moving from another product sold within the five previous years (with a few obvious exceptions such as a pension being used to buy an annuity).

For as long as the public don’t all want to pay an hourly rate for financial advice, then trail commission (or ‘fees’ taken as a percentage of assets under management) has a role to play in funding ongoing service and advice.

The key to treating customers fairly is to ensure they actually receive that service and advice.

Justin Modray is founder of consumer website CandidMoney.com

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Comments

There are 28 comments at the moment, we would love to hear your opinion too.

  1. Justin, I agree with your general thrust in this article. To be fair however, it would need to be for new business, what has happened before has happened. Ironically however as a firm we’d be happy for it to apply for old business too, I can just see it being easier to reach agreement with those nearing retirement if it is for new busienss from a date only.

  2. I was at a conference last week when Andrew Fisher openly admitted that Towry Law receives £6m a year of trail commission on client policies sold by companies they have bought. It’s just that they have not got round to transferring these clients to a fee basis yet.

    Then on the other hand, he defends taking a trail ‘fees’ (note not commission) as a share of investment management fees charged by the fund managers his advisers have recommneded.

    While I know that a share of fund management fees is a ‘fee’ and trail commission is a ‘commission’, it strikes me that both are a proportion of the value of assets under advice, but amazingly the very dirty commission has to be disclosed whereas a share of fees does not.

    Mr Fisher appears to be holier than though but I think there is little difference between the way his revenue is structured and that of many IFAs.

    I am not defending either position, but I think there are double-standards here and Towry Law are clearly trying to be something they might not necessarily be.

  3. In general I’d have no problem with your suggestion. However, IFA’s are already, if Mr Fisher is to be believed, a less than savoury lot. I can see this being avoided in favour of bigger fees up front and no ongoing service at all. Surely, if the remuneration is agreed with the client, and the service mapped out, that should be the end of it? Afterall, if the client is not happy, they won’t come back.

  4. I agree with Justin’s comments. However, I totally disagree with Andrew Fishers’ comments and he appears to have totally missed the point of trail commission. I wonder what his hidden agenda might be with the ‘holier than thou’ comments made. Or is he trying to deflect attention away from Towry Law who paint themselves to be whiter than white?!

    We certainly do not need fellow IFA’s making comments like this and need a united attitude to the issue of commission so that this can be sorted properly and to the better for all concerned – clients as well as IFA’s!

  5. Good old common sense solution but alas like most good ideas for advisers & clients, it wont happen unfortunately.

    Towry Law should be ashamed of themselves!

  6. Why bother having the debate with someone (Mr Fisher) who is obviously a complete idiot, it is a lot of hot air from someone who clearly believes his own sad propoganda

  7. Interesting, but many people seem to forget, that if there was a choice on say a lump sum investment, then you could take up to the maximum up-front, or take less up-front and up to 0.5% trail. For those firms, who did this, they ideally discussed this with the client, discussed the plan for long term advice, in recent years, discussed how fee based advice, may impact costs to the client, and how trail could mitigate this cost, especially if the client ever switched advisers, therefore shoing transparency, a link to future fund value and reward to adviser and client and an exit strategy for client if they want to leave, that lessens future costs to them. On basis the commission structure, assuming no rebate, had same costs to client, whether full initial or reduced and trail, an informed client would want trail and respect the adviser for offering this. Therefore taking it away, is punishing an adviser for treating customer fairly. I accept the taking of trail, for no reviews and all my clients sign a review form, which has the question on it about remaining as a client. Surely things from past, should be judged on the past rules, and future on what is set in place now, as I do not see Dr’s or surgeon punished for how they advised/operated on patients in past, in light of medical advances?!!

  8. Neil F Liversidge 17th November 2009 at 2:30 pm

    On another website Andy Fisher says “those who take trail should be reported to the FSA” Okay Andy, not a problem, I’ll report myself and they can come and look at how we operate. Clearly Andy is as mad as a fish. I wonder how long it will be before his own board turns him into sushi?

  9. Our industry does not need hypocrites. If this is such a big matter of principle Towry Law could have refused the trail commission on the business they had taken over until new agreements were in place with their clients. £6m goes a long way to undermining principles.

  10. It appears to me that Andrew Fisher is really acting as an “Agent Provocateur” and is trying to “muddy the waters”.

    In my view any Adviser worthy of the name, will soon, if he/she has not already done so, have re-stated their service proposition to their clients and agreed an on-going remuneration package to include all on-going advice and service.

    By using Wrap Services and an on-going fee agreeement, the old arguments for switching from one Provider to another will, in future, become largely redundant and highly suspect, unless backed up by inconrovertible logic and both TCF and principals of RDR become by-and-large merely an expression of good practice, as has the greater part of all Financial Service Regulation in the past 20 years.

  11. Oh Andrew Fisher where art thy death?

  12. Andrew Fisher of Towry Law says the majority of the “trail fees” they receive have come as a result of purchasing other companies and that they have not been able to contact those clients. I would argue that they would have got round to “revisiting” those client of any worth whilst dismissing out of hand many of the low trail fee policies. I would suspect that there are many legacy mortgage endowment plans in there that they have been happy to milk the same renewal premiums. I would argue that those Endowment holders who have not had a visit should report Towry Law to the FSA for TCF negligence as they should have been reviewed.

    I entered the industry in 2001 and made the concious business decision at the time that all investment business would be transacted on reduced initial plus trail that would fund the regular annual visits against the wham bam thankyou mr 6-7% initial.
    I will point out that i am your average IFA who services the mass market have completed the diploma and working towards chartered. Towry Law are using there whiter than white apporoach to slur the vast majority of us who utilise the commission approach as a way of giving advice to the mass market who if forced to pay a fee would just refuse and then moan when policies do not produce the returns expected as they had not been rebalanced etc and more importantly be forced to seek “advice” from a banks sales adviser.

    Rant Over – back to work

  13. This nonsense can but continue until advisers in general and the FSA in particular understand and accept that how an adviser is paid has nothing to do with anyone other than the adviser/salesman and the client.

    By all means make it transparent but stop all this nonsense about commission is bad and fees are wonderful.

    Anyone who thinks that all will be well when commission has been banned either has a vested interest of Towering proportions or is a fool or possibly both.

    How I decide to be paid is my business. How TL decide to be paid is theirs. I appreciate that the FSA have to power to force me to operate their way but that does not make it right.

    A plague on all your houses comes to mind.

  14. At last a balanced article on the subject.

    Excellent idea re trail/ renewal commission i.e. being used to fund FSCS where there is no evidenced servicing broker. This also stops life companies from pocketing these commissions.
    This should apply to all old business and brokers should be prepared to either contact clients to prove they still entitled to trail / renewal commission or be prepared to lose it.
    The stumbling block might be with Life companies however, some of whom still view renewals as part of initial commission and refuse to transfer this.

    The banning of initial comm on

  15. If it walks like a duck and quacks like a duck it’s a duck.

    Any money paid to any professional adviser whereby the client does not have direct control over the payment is a form of commission (money earned by a person who sells things) and a success payment. If comes directly form the client bank account by what ever means then it is a fee.

    Happens I all walks of life.

    The business models we all use are up to us and we stand or fall by them.

    No one way is completely right or wrong – what differentiates the good from the bad is their values and integrity not how they are remunerated.

    After all I am sure that no one who has access to this forum has ever seen an instance of a padded fee have they!

    And no other paper pushing profession works on a % of the size of the transaction do they?

  16. I don’t necessarily agree with everything in the article but at least it is thoughtful and logical so maybe if Andrew Fisher reads it he will understand the importance of a considered response, as opposed to what seemed to me like a wild and uncoordinated stream of consciousness (which inevitably was a load of nonsense).
    As one previous observer has said if the fund based commission has been agreed with the client and the basis of the fbc explained (ie a regular review) then there is no problem-indeed don’t the FSA insist on the necessity for regular reviews being explained to the client up front? We include the reference to a review paid by fbc in our original estimates which our client has to sign as read and agreed before we start the clock. We even set out what the review will cover (an overview of all relevant performance, legislation, market developments and HMR&C practice since inception; update of client information). Hardly rocket science.

  17. The man has clearly lost the place, contradictory and without foundation,he should resign as clearly he is not fit to join an intelligent debate on commssions and fees…..what a shame he is acually being heard.

  18. Would anyone care for a small wager that Mr Fisher is no longer with Towry Law 12 months from now???? (Say £6m)

  19. How curious this debate has become. Those that promote fees rarely charge fees but take commission offset which they say are ‘fees’ – not the same thing at all. How many would be brave enough to adopt a ‘pure fees’ business model in the manner of say an accountancy practice which simply raises a fee note for the work done and the client signs a cheque? I suspect that those who have tried are to be found lying along the road to poverty and failure. How would I know? Because we are an accountancy practice and tried the pure fee model for financial advice initially – it was a disaster and we quickly adopted the fees or commission model which has worked fine ever since. Give a client a choice and they invariably choose the fees and commission model. Also, I would be very interested to know how many of the high level commentators have ever actually worked as an IFA and understand the process of actually finding clients to do business with, never mind actually writing anything. The impression I get is many of those commentators think that we sit around waiting for clients to come walking through the door desperate to do business, wafting their cheque books. Walk a mile in my shoes guys, walk a mile in my shoes.

  20. and what about the legacy book of Towry Law business that wasn’t ‘bought’ with new acquisitions? The millions in bonds and other products with customer who TL won’t deal with now as they don;t meet the minimum investment criteria?? Have they ‘declined’ to accept this trail? I doubt it very much. Mr Fisher is keen to tell everyone how bad commission is whilst continuing to receive it at the same time and plead ‘its not my fault as we don’t know whose it is!’

    If trail commission is that bad and TL don’t want it why don’t they give it to charity? I bet there’s more than 6 million reasons why they won’t do that. Double standards at best!

  21. Hip hip hurray at last somebody in financial services talking sense totally agree with Justin’s comments as this offers the best of both worlds clients a real choice in paying fees or commission and also providing a safeguard to clients were advisers do not offer ongoing reviews. It also stops rogue IFA’s and Bank financial advisers from churning which has been a constant problem in financial services for a number of years. Just hope the FSA will take note of this excellent idea.

  22. Just had another thought that there seems to be an awful lot of advisers and companies that offer fee only services, that seemed to get on the high horse and lecture to the rest of the industry the benefit of fee only service. It’s okay when your target market is people with a assets in excess of £1 million to lecture those people that give advice to ordinary people who cannot afford expensive hourly rates and retainers. What needs to be brought in is commission that are the same throughout the industry so companies can not attract business on commission grounds. So Justin’s suggestion is an extremely good idea as I feel the people that will be hardest hit under RDR will be the average individual.

  23. I am in close contact with advisers who work for the “new model” Towry Law and would make the following observations:

    If Towry Law is such a great place to work, why do so may head office staff keep leaving, citing a desire to spend more time with their families – management speak for “you’re fired”

    If TL is doing so well, why did TL cease employer contributions to staff pension funds = previously funded at 10% per annum?

    I know of one adviser who had not submitted any expense claims for 6 months who was not allowed to claim them as too long a period of time had passed by..

    The monthly sales targets for TL advisers in terms of new business income, introducer contacts, funds under management, fee income (on top of fund charges)etc etc are absolutely HUGE, and reminiscent of the old direct sales models operated by e.g Coutts (where did Mr Fisher come from ??)
    TL:is no new model firm – its’ sole objective is to suck in funds under management, thereby making Mr Fisher a very large fortune
    He is hiding behind the fees good, commission bad cloak like many others.

    Mr Fisher is a ruthless but highly astute businessman pretending to be the client’s friend, who will no doubt die a very rich man.

  24. Someone wants to have a serious look at Skandia/Royal Skandia – they continue to pay trail to the firm who wrote the business even if a client, a protector, a trustee, a solicitor or an accountant want the trail transferred to the IFA actually doing the business. What part of TCF is this? Although this man at TL has failed the ID TEN T test he may well have started an avalanche of investigations by the FSA into firms that are taking payment for no work – in TL’s case they receive payment for clients who are on their books – what the FSA should look at are those firms taking trail where the client is not on the books anymore but the provider will not transfer trail to the client’s IFA. As an IFA who is Whole of Market part of my research must be into the product provider – and therefore I can’t place any business with Skandia as it can lead to a problem in the future should a client wish to leave or indeed we take over a client who wants us to service their plans without payment.

  25. Anon said “Walk a mile in my shoes guys, walk a mile in my shoes”. Billy Connolly said “Walk a mile in a mans shoes and you’ll be a mile away from him and you’ll have his shoes!” Get walking Andy.

  26. Re Skandia – I think you’ll find if the existing adviser agrees to the transfer, then Skandia will transfer the agency as we got all my old clients transferred to my current firm without an argument after the former firm agreed to it (WITHOUT a deed of novation), so it is not in fact an issue for Skandia, it is an issue for the former adviser to be able to justify whether the commission should continue as part of an original agreement with the client to take reduced initial OR if it was for ongoing service, then the adviser could be on a hiding to nothing as far as TCF is concerned. In some ways, the issue then becomes, does the new adviser advise encashement/transfer of benefits in order for the client to not to have to pay for ongoing advice twice and suffer any tax problems cause or what. Rally this is quite a serious TCF issue, but one which could be handled tactfully between the ex adviser and the new adviser and documented accordingley so that each ensures they are being TCF, but I will not hold my breath as my one complaint in 11 years is a case where another adviser has taken over and received the fund based renewal commssion, not adjusted asset allocation or funds held and then I am being blamed for the loss which occurred under HIS watch with their tame in house solicitor helping the client contract a case which is a complete joke!
    To some extent, I suppose this is where when a client ceases to be a client and the longstop is a big issue as adviser contracts vary so much over what constitutes ongoing service and what service was or was not being provided for any ongoing payment and at what time and where responsibility lies this is why it is so dissapointing that the F-pack did such a white wash in their consumer rights and responsibilities discussion (lack of) paper and said it was “out of scope” and then when we tried to discuss the issue of adviser client agreements mentioning the legal restriction of a right to complain to 15 years (and the FOS requirement for “exceptional circumstances) from when advice was last provided they thought it more appropriate to threaten us with a visit, despite the fact we’ve already had a celan TCF bill of health! It should have nothing to do with whether trail is or is not paid as the contractural reason for the trail can differ from adviser to adviser and between clients and that is why some certainty over client agreements which after all is a contract is needed and unfair contract terms work two ways and at the moment the F-pack is forcing unfair terms on advisers to the derimant of clients who wish to HAVE an adviser long term who cannot be plaugued by stale claims which in any other job would stop after 15 years from last advice!.

  27. Two commission options at outset:

    1. High initial, no trail.

    2. Lower initial with trail.

    The law of contract offer: an expression of willingness to contract on a specific set of terms, made by the offeror with the intention that, if the offer is accepted, he or she will be bound by a contract. I know the FSA wants to apply FSA law to those they regulate but I’d rather be governed under the rule of law.

    I thought the regulators wanted remuneration linked with ongoing service and therefore the trail and the second option is better.

    The trouble with Fisher is that he is an opportunistic “mouth on a stick”, who says one thing for advantage and does another. This time Fisher has been caught!

  28. To Anonymous | 17 Nov 2009 2:47 pm

    Sorry don’t know your name. By the way why do people write as Anonymous.

    >The stumbling block might be

    The stumbling block apart from ethical considerations might be the law of contract. Surely not even the FSA would be daft enough to want to apply this FSCS nonsense to existing contracts ?

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