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Another open letter to the BBC’s Paul Lewis (hopefully the last)

Dear Paul,

Many thanks for getting stuck into the debate on our website earlier this week by responding to Neil Liversidge’s passionate open letter in a public forum. Taking the time to put together such a detailed response was much appreciated.

You appear a little shocked by the anger that greeted your comment that trail commission was “one of the industry’s best kept secrets”, especially as it came as part of a balanced and thorough piece on Ivan Massow’s new proposition.

Perhaps if I give a little more context you may better understand and appreciate why the comment caused such a strong reaction.

Trail commission, a legitimate method of payment used to some extent by the majority of our readers and accepted by the regulator, has come under a sustained attack in recent months from ill-informed “experts” whose opinions or shoddy research have been regurgitated by many in the mainstream press without question.

The biggest example recently was a report by Government-backed Consumer Focus which attacked IFAs and the trail commission they receive for causing pension churning into high charging funds. Reading through the report, the authors start from the blinkered position that trail commission is always harmful with little to back up their findings. But much worse is the fact the research behind these headline claims came from just 31 client files emanating from two IFA networks over a ten year period.

As you can see from documents obtained by Money Marketing as part of a Freedom of Information request, the FSA expressed its misgivings about drawing such strong conclusions in response to a draft of the report but this did not stop Consumer Focus ploughing ahead with it. Cue the scaremongering headlines across the mainstream press based on a pretty meaningless report.

You may have seen the Daily Express front page earlier this week declaring that “millions may be victims of rip-off financial advisers”  with “Pension pots slashed by 75 per cent”. The news article is based on a new report from the think tank Civitas, called You’re on your own, which, although acting as an interesting history lesson about the relationship between state and private pension provision over the years, offers no rip-off revelations. The report touches on pension misselling in the 1990s and the FSA’s concerns about Sipp transfers in 2008 but nothing to warrant the such scandalous headlines.

Last year, the BBC Panorama programme ran an “expose” on pension charges which was, at the very least, pretty mischievous in its presentation of the facts around the impact of charges. For example, the press coverage promoting the programme, and the programme itself, focused on a statistic that pension charges could eat into up to 80 per cent of contributions, with no reference to the size of the subsequent pot. The day after the edition aired contributors spoke out in the media against the slant taken.

I mention these three examples just to illustrate the constant stream of  misinformation around the issue of charges which is so often passed off as fact by sections of the media, and why the IFA community is pretty sensitive to hyperbolic statements in this area.

As many readers have pointed out the biggest losers of such sensationalist coverage are consumers who are turned off the concept of saving or protection due to unwarranted bad press.

With commission being banned from 2013 and the FSA, quite rightly, keeping a close eye on the ensuring there is no “closing down sale” in the run-up to this date, and with new propositions such as Ivan’s coming to the market, the issue of trail commission has returned to the public glare.

When discussing trail commission it is important to remember the different agreements and expectations around the payments that have been developed over the years. For some trail commission was a contractual entitlement agreed as an alternative to a higher initial charge with no expectation of ongoing service, while some contracts promise an ongoing level of service to justify the payments.

In the correspondence we have seen between the FSA and Consumer Focus this is a point the regulator tries very hard to get across and it can be assumed the presence of these contractual agreements is the main reason the FSA has not been more heavy handed in its handling of pre-2013 trail.

You would be right to suggest a continued lack of clarity from the regulators over the years has allowed an unhealthy confusion to develop over trail commission and most advisers would agree and support the FSA’s move to ensure that in future all ongoing charges must be accompanied by an ongoing service.

But does this all amount to secrecy on the part of the IFA?  Has there been a deliberate agenda to keep costs hidden to the extent that it can be described as “one of the industry’s best kept secrets”?

As many on the website have pointed out, adviser payments must be clearly disclosed in client documentation. There is certainly an issue over whether clients pay enough attention to the charges they can expect to pay (and remember how much they are being charged when asked in a market research survey). But I do not think such a sweeping statement on secrecy is warranted given the way the majority of IFAs conduct themselves.

The GfK Financial Services Consumer Panel research you quote was based on a tiny sample from a qualitative survey in 2008 (the numbers are not quoted in the report and the FSCP don’t know how many people were questioned!) while the “46 per cent” statistic also appears a bit dubious if you dig a little deeper.

The statistic comes from some Consumer Focus research (yep, them again). They have so far failed to respond to our requests for more information about the statistic but it appears to have been generated from Question 9 of this report (page 39).  I’ve copied the question below:

Q 9. Pension advisers often get paid trail or renewal commission, which is an ongoing payment the adviser receives from the pension company paid either as a percentage of the total value of the pension fund or as a percentage of contributions you make into the fund. Have you heard of this?

Yes- I have heard of this and I believe my adviser is paid on this basis

Yes- I have heard of this but I am not aware if my adviser receives this or not

No- I have not heard of trail or renewal commissions being paid to pension advisers.

Now, look again at the extract from the MPs’ report that you quoted: “Consumer Focus warned that “The existing charging structure for advice is poorly understood. Most (56 per cent) personal pension holders who took their last personal pension with an adviser have heard of trail commission. Of these, only 46 per cent are aware of whether their adviser received trail commission.”

In this context the 46 per cent is pretty meaningless as there is nothing to say what proportion of the 46 per cent had advisers who received trail commission for the respective products and how many did not.

This is not to say everything is perfect in terms of disclosure. Recent British Population Survey research found that 28 per cent of IFA clients either did not know the charge or thought there was no charge on the product they were advised on.

I think all our readers would agree that this is too high but I would suggest this was due to a range of reasons; the disclosure forms required by the regulator, the need for better education about the cost and value of advice, a bit of poor memory and, in some cases, poor advice But I do not think “secrecy” is the overriding driver.

Anyway, my rambling letter has already taken up far too much of your time but  I  hope it offers a bit more of an insight into the raw nerve your comment touched.

I’m sure our readers are in agreement with you about the need to offer a top quality service to clients in order to justify any costs incurred by the consumer. IFAs are the agent of the client and will only succeed if they are on the consumer’s side. They also suffer from poor behaviour in the sector through increased Financial Services Compensation Scheme costs.

Hopefully you’ll pop back onto our website from time to time and get involved in some other discussions.

All the best,


Paul McMillan is editor of Money Marketing- follow him on twitter here


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

  1. andrew golding - TDG Financial 16th September 2011 at 9:41 am

    I think that just about sums it up! I think you’ve eloquently solved other parties misunderstandings Paul.

  2. Excellent response!

  3. Here at Create Wealth Management, we have been accused by some of our clients of ‘banging on’ about our fees too often and how we receive them. We’re pretty happy with that!

    A great letter Paul. I really think we are all on the same hymn sheet about this but I agree the press needs to be far more careful about their reporting as anything that drives clients away from saving will be a disaster for all of us.

    If the press wants to ‘advise’ the public they should be be happy to contribute in the form of an FSCS Levy?

  4. I’ve read with interest all the recent letters and this is exactly the kind of open debate the industry needs……..well done all parties

  5. This is a very well thought out letter does a good job at debunking several myths that have entered the public arena purpoting to be fact. Very well done Paul (McMillan that is).

    It would have been nice to see the other Paul (Lewis) concede that his line ‘the industry’s best kept secret’ was inflammatory, but instead he doggedly stuck to his line.

  6. stop patting each other on the backs!
    We are all culpable on matters such as this.
    If we really had the courage of our convictions we would stop it before it starts.
    Rember when you were being paid to work,remember your motivation,remember that you turned a blind eye over the years.
    Dont be surprised to see retrospective retribution.
    This is the way the FSA and the media works-I told you so are the words coming to mind.
    I detest this holier than thou approach.

  7. Am I missing something? Since April 2001 most pension contracts have not had trail built into them unless this is expressly asked for? This can therefore surely only have ever been done since 2001 with the express knowledge and consent of the client? As far as pension contracts go this is a complete non story to me.

  8. David Trenner - Intelligent Pensions 16th September 2011 at 10:38 am

    Excellent letter, Paul. It is good to see that not all journalists want to jump on an anti IFA bandwagon!

  9. An excellent letter that sums up the position of the IFA community, I do not suspect for one moment that the BBC and the press will change their standpoint.

    It would have been nice for Paul to apologise for the misleading headline of this particular article, even though I recognise that he did try to give a balanced view of trail commission. The fact is that the headline of this particular story was designed to misinform and therefore Paul and the BBC need to apologise profoundly on Moneybox and BBC breakfast News.

  10. a great letter in all but one point – you dont ask him to appologise!

    my concern is that he will be quietly informed (which runs the danger of becoming a best kept secret)

  11. To reflect the changes we have been through as a business and to plan for the RDR changes I have let people who I have dealt with over the last 2 decades decide whether they want an ongoing “Client Service” where they pay a modest retainer which when added to eitehr a charge for funds under management or “fund based commission on historical commission based plans, goes is offset against our services to those clients including advice and administration. Those who do not wish to have ongoing advice do not pay a retainer are “Customers”and will be charged accordingley for each piece of advice. They have “segmented” themselves. Customers are free to change the ageny to another firm including Mr Massow’s, but as the client and the F-pack have reserved infinite rights to review suitability of advice by removing the longstop in 2001, we will have to hold the commission on tese plans infinitaly unless the client chooses to change the agency and appoint anotehr adviser, in which case, as the new “adviser/agent” would be responsible for advice going forward, we could argue to the FOS that whetehr the FOS recognise a longstop or NOT, changing agent means that our liability should only be measured to a maximum of 15 years from when a new agent is appointed and in most cases as the customer is either appoitning a new adviser (who should pick up any mistakes and if they don’t are then professionally negligent themselves) OR the customer is choosing to take responsibility themsleves by choosing NOT to appoint an adviser and simply change agent. I believe the principle is called “force majure”, i.e. if we cease to be agent, neitehr party shall be responsible for any loss or damage outside their control whihc if we cease to be agent, it is and the loss AFTER change of agent could have been prevented by seeking advice and the client’s decision to use another adviser should change the professional responsinility and a decision NOT to should start a clock ticking with regard quantum of loss.
    Oh yes and I’ve had no complaints go to the FOS and only one ever, which was dropped by the solicitor concerned once we’d pointed out the client’s statements were at odds with the witnessed statements at interview (i.e., whilst I would not go as far as to say they were “lying” their memory of the conversation, which had been documunted against a timeline, was somewhat sketchy)

  12. Well done. The sad thing is that if the truth be known, these consumer groups, the press and larger financial institutions are doing a great job in (unwittingly in some cases) believing these incredibly unbalanced reports/ stats and it is going to be the clients / Mr and Mrs Average who are going to be deprived of the very advisers, the advise and the relationship of an independent financial advisers, who are actually on their side.
    There maybe some bad apples but honestly what is the alternatives?

    My goodness these papers, lobbyists and interest groups do some great work BUT when they get it wrong, THEY REALLY DO GET IT WRONG.

  13. I think I am right in saying that in the world of journalism there is a ranking system of sorts. War correspondents are at the top of the tree (as far as respect and worthiness) whilst fashion and cooking are somewhere near the bottom. Right at the bottom, the journalistic losers, are financial columnists. They know sod all, and they simply stir up ‘shit’ to try to sell newspapers. They do untold damage to the Financial Services industry (and, therefore, the economy), cause ordinary people unnecessary anxiety, foster distrust, and disparage honest hard-working people who (largely) do a good job for their clients. And yet they are not subject to any regulations. It’s about time these maggots were held to account for their slander, libel and lies – is the FSA listening ?!!!

  14. I can see where pretty much every one is coming from on this issue, including Paul Lewis.

    To my mind the only error Paul Lewis made was to use an emotive phrase implying that the financial services industry deliberately kept clients in the dark regarding trail commission, but, I see no real reason why he should apologise.

    it seems to be pretty clear to me that the distrust of advisers and trail commission has foundations which have been constructed by advisers I’m sorry to say.

    When I see advisers rattling on about trail commission being a form of payment due for the initial advice I despair.

    Why would anyone want to provide initial advice on the basis that they may receive commission for years to come to recompense them? You might as well come clean and seek full indemnity commission rather than be dipping your hand in the client’s pot for years to come.

    How do they plan to be remunerated for onging advice? By selling something else and prololonging the commission period even more? What if it is not in the interests of the client to sell them something – are you going to charge an additional time based fee every time you commen on that which you sold them in the first place and get paid commission on whilst charging in addition?t

    How many clients do those advisers expect to remember that the commission they are receiving in 2011 was in fact because the adviser provided some advice in 1994 and at what point has the adviser been amply remunerated?

    The problem is that too may advisers are scared to charge clients for the advice they give and those advisers still hide behind the idea that somehow trail commission is an easy payment plan subsidised by the plan provider.

    Some advisers really need to “get with with the programme”.

    Paul Lewis is generally supportive of the financial services industry and whilst I agree that he overstepped a mark with his inferrences, this does no more than reflect the reality that trail commission is indeed used too often by people who can;t deal with the cost issue n a grown up manner and then have the temerity to claim they have no imperative to offer further advice for continuing to receive trail commissions.

    Ian Coley
    Medical Investment Services

  15. I note with interest that the Moneybox website is still running this article with exactly the same wording:

    Have your say: Trail Commission

    If you have bought a pension or investment in the last twenty years the chances are a small amount of your savings drips out of your pot and into you financial adviser’s bank account every year.
    It’s called trail commission and is one of the industry’s best kept secrets. Typically it is around half a percent a year but it can be three times that and over the years can reduce the value of your investment by thousands of pounds.
    And there’s no point in asking the investment or pension fund to stop – it’s in the contract.

  16. Has anyone ever come across 1.5% trail? I’ve not.

    @Ian – Whilst I agree Paul Lewis has probbaly (as I hjaven’t listened) only made two mistakes, as you correctly point out, “secret” was an inappopriate and inflamatory word to use. The second mistake was simply not appologising when in his letter, he appears to accept it was incorrect. An appology would have been very simple. If I accept someone, whether it was intentional or not, I will appologise. I have managed to upset Martin Bamford before (unintentionally) and appologised for upsetting him. It did not mean what I had said was incorrect, simply that the why it was perceived by Martin upset him, which was not how it was meant.
    I Paul Lewis case, the word “secret” has been proven toi be incorrect and he has neither appoligised for the use of the word, not the upset to those advisers who clearly explain trail and ongoing fund based commission on histrorical plans as well as adviser charging for ongoing advice when charged on FUM rather than hourly rate.

  17. Do a google search for 1.5% trail.
    Skandia show up as offering it on ther ISA’s, a number of Bond providers like Zurich still pay up to 1.3%.

    Not saying that people are taking it but the offer is there!

  18. What a load of self-promoting waffle between these two. This argument serves no purpose; each party is endeavouring not to look as foolish as they both actually look to most observers, while mutually preening each other at the same time.

    If the financial services industry were not saddled with supporting the livelihoods of such a huge legion of writers, commentators, observers, analysts, journalists, editorial leaders, opinionists, committees, representatives, stirrers, carpetbaggers, wannabe-celebreties, politicians-on-the-make, professional moaners, doomsayers and general hangers on, who queue up to give their comment but who never want to put their neck on the line and give any actual advice, then the public at large would be much better served, because the fog of waffle would disappear.

    There would then just be the law as laid down by the Regulator which, if broken, would warrant criminal proceedings.

    A plague on all these scribblers.

  19. I have very few clients from whom I take trail commission but those that I do take it from a well aware of it as it has been disclosed on an illustration and explained in my suitability report to them. I also offer an ongoing service for this without any additional retainer fees.

    It seems to me that finanical advisers are being targeted from many areas and shouldn’t charge anything for our time and efforts.

    I wonder if we put a “charity” sign above our doors and worked for nothing the press / FSA would get off our cases?

    Does the car salesman or the electrical retailer or the journalist have to tell us how much they get paid?

    I think that’s an emphatic “NO”!

  20. Apologies from the BBC are their best kept secret.
    They’d rather be crucified on a catherine wheel than say that one little word, ‘sorry’.

  21. Investment companies and life offices continue to profit from lump sums invested with them and regular premiums received by them. IFAs share in that revenue stream because of the work they did in getting products to consumers and the work they continue to do for the product providers. IFAs are the self-employed workforce of product providers. They are paid by product providers and they should continue to be paid by product providers.

  22. An excellent, well-balanced letter. Congratulations!

  23. Ian Colley. Am I right in assuming you have never had to look after clients?it seems you are not in the real world.
    How much time is spent in answering a deluge of enquires every time the client wants to check thjat the article they read is right or wrong,that some itnerant journalist seeking to gain an award for disastaer reporting,and many other tasks that the client will call their adviser about.
    Who pays for this,who pays for the increasing effect of regulation on all advice given since the client was acquired?
    How much time have you spent looking after clients who havent spent muchm, and under the new regime you would not service,or could not, as they didnt generate enough income for you!!

  24. Here’s the news chaps. Virtually no-one outside of the industry knows about Trail Commission and its hard to justify taking money for year after year for virtually no service by a great number of advisers (not all I am sure). I would say that makes it not only a hidden secret but a dirty little secret too.

  25. IFA who's had enough of big mouth sensationalist j 16th September 2011 at 3:21 pm

    “As many on the website have pointed out, adviser payments must be clearly disclosed in client documentation. There is certainly an issue over whether clients pay enough attention to the charges they can expect to pay (and remember how much they are being charged when asked in a market research survey). But I do not think such a sweeping statement on secrecy is warranted given the way the majority of IFAs conduct themselves.”

    BANG ON! The vast majority of clients will have been made aware of all charges at the outset (there will always be some dishonesty in all professions) and provided relevant docs. I don’t believe for a second Lewis doesn’t think/agree with this. He is just another sensationalist, b*ullsh*tting journalist.

  26. The problem is with this debate is that there needs to be an education campaign on behalf of the IFA community to educate clients on charges. For too long the industry has relied on product charges which although I believe are fair and contractually sound can be perceived by some as in Mister Fully informed as wrong.

    The main point of charges is to come up with a system which compensates the advisor for his work, unfortunately many of the UK population do not have the resources to fully fund advice charges upfront as not everybody in the UK are either millionaires or earning over £75,000 per annum and therefore contractual charges have become a necessity.

    The alternative to this would be to have initial charges funded by some form of finance agreement which I am sure would put off the majority of the public from receiving advice. As mentioned by others in no other industry are we expected to work for nothing? A good example given earlier was would you expect a plumber to re plumb your house for no pay or a journalist to write an article, the answer is no. So why is it that IFA’s are expected to pay high regulatory fees, staffing costs and not receive any remuneration?

  27. Ian Marsh

    No – in fact you’re incorrect.

    I spend all my time looking after clients.

    We charge fees for initial advice and we take fund based for providing the management/ review/ ongoing service with new fees for new projects we are asked to advise upon.

    Simple really.

    I have to confess to working in an environment where we do not have many demanding low earning clients, but then we simply give a little pro bono guidance to those who can’t afford us and occasionally some of these return once they have enough money to justify seeking our advice.

    One thing I never do is confuse the charges for the initial advice and an endless stream of trail commission which is intended to reward advisers for providing a service.

    Now I reckon I live in the real World and have done for years. The problem is that in another 15 months time a whole load of advisers are going to wake up ne day and realise that their business model is completely knackered at which point those who want a future will prbably find themselves taking a position not that far removed from I am.

    Ian Coley
    Medical Investment Services

  28. Thank you Money Marketing for responding and engaging in this. A far more informed consumer champion than self appointed BBC in this area.

    What isn’t a secret is that savings and investments has a poor lobby group. Also what isn’t a secret is that the banking industry has the most powerful one.

    The result is a stagnated savings fund with its demographic changed to mainly the funds of the wealthy and not average Joe.

    Average Joe instead has been gifted the disguarded junk credit and debt from the banks.

    There are too many bodies that may also receive subscriptions or business that remain collectively quiet.

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