Trail commission has come under the spotlight again following a BBC Money Box programme which reignited the debate over whether advisers are justified in receiving ongoing commission for pre-RDR business without offering an ongoing service.
The Radio 4 broadcast at the weekend featured a listener called Michael, who had around £90,000 in investments dating back 20 years. Michael explained he had “never really been clear” if his adviser had received trail commission in respect of his policies.
Presenter Paul Lewis questioned whether clients who had taken out products before the RDR was introduced had to be informed about the trail their advisers received.
West Riding Personal Financial Solutions managing director Neil Liversidge told the programme: “If somebody took out an investment 20 years ago then I am not aware of any rule which requires the adviser to go to them now and say we are getting 0.5 per cent a year under this investment.
“In theory, the adviser could do nothing for that 0.5 per cent and keep receiving it. But most financial advisers are ethical, and will tell clients what they are getting. I know you are laughing Paul because you like to present an alternative view that is at odds with the truth. But I find it impossible to believe Michael has kept these investments going all this time and has not had any interaction with his financial adviser. If that is the case, I would question why he has stayed with his original adviser.”
Lewis then asked IFA Centre managing director Gill Cardy whether there was an incentive for advisers receiving trail to do nothing, in order to continue being paid. He said: “We spoke to one adviser this week who told us trail commission for many is money for old rope. IFAs are building their model off trail commission, building pots of millions so they can retire on trail commission of hundreds and thousands.”
Cardy explained trail can still be paid on fund switches within an insurance product, saying: “Switching can still happen. This is not a licence to do absolutely nothing and let something languish for 20 years.”
Financial website Candid Money owner Justin Modray said: “It is a perverse situation that if the adviser does rock the boat and try and look after you, having done nothing for some time, the adviser could lose out because they have to slap you with a fee. If you do not want to pay that fee, they could lose you as a client and lose the commission they would have got if they kept quiet.”
Money Box first covered the issue of trail commission in September 2011, referring to it as “one of the industry’s best kept secrets”. The programme was met with anger by many advisers, including Liversidge, who wrote an open letter to Paul Lewis on the subject and sparked an industry-wide debate.