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BBC’s Paul Lewis responds to Neil Liversidge letter

Dear Neil,

Thank you for your long and detailed comments on the item on Money Box about trail commission and on other matters.

You objected to the phrase ‘one of the industry’s best kept secrets’ to describe trail commission.

Let me refer you to the 15th report of the Treasury Select Committee published by Parliament on 6 July 2011. This link takes you to section 3 on commission. If you scroll down to paragraph 46 in particular you will see that the committee heard that under half of recent personal pension purchasers knew if their adviser took trail commission “only 46 per cent are aware of whether their adviser received trail commission”. GfK research for the Financial Services Consumer Panel found that “while most consumers were aware that financial advisers were paid by way of commission from providers, the majority were unaware of the existence of trail commission at all”. Under the FSA disclosure rules of course 100 per cent should be aware of it and what it is for.

As you know, the FSA is so concerned about trail commission being charged when no service is given that it is banning it altogether for new contracts from 1 January 2013. It will also insist that any IFA who receives trail commission from that date under an older contract earns it by providing a service*. The FSA would not be taking such action if there was not a problem with the service being provided by a significant number of IFAs.

My own discussions indicate that very few people who are not involved in financial services as journalists or in other ways have heard of trail commission. Indeed, when I have talked to people in the last few weeks about Massow’s venture the first reaction from almost all is ‘what is trail commission?’ followed by a certain incredulity when I explain.

Of course in the pages of documentation the percentage amounts are there. But they are easily overlooked and the figures above speak for themselves.

You make the point that you are quite open and upfront about trail commission and do a lot of work for it. I have no reason to doubt that is true. Many IFAs are like you in that respect which is why I asked Ivan Massow:

“But there are good IFAs, aren’t there, and there’s a growing number of good IFAs who offer continuing advice for this money? Why should you be trying to take their business off them?”

I challenged Massow in other ways, reminding people for example that a previous business of his had, after he had sold it, gone out of business and asked:

“What will people do if this one doesn’t work as you hope it would? Will they lose anything?”

But I must remind you this was not me debating with Ivan Massow. I was asking questions, partly based on emails and tweets I had received. That is my job. The person invited on the programme to put the other point of view was Brian Dennehy, a Director of the IFA firm Dennehy Weller.

I really do recommend that you listen again to the item on our website or read a transcript of it here. Now that I have done so I am happy that, in the six minutes we gave the item, it was a balanced presentation of Massow’s idea challenged by both me and Brian Dennehy.

I am sure you would agree that there are IFAs receiving trail commission for which little or no work is done, some on contracts that date back many years. As the Select Committee concluded “Trail commission where advice is not offered is very difficult to justify.” (para 49). I am sure you would agree with that statement.

So I do not believe that to call trail commission a ‘secret’ slanders the industry at all. It just describes the current position of the industry as a whole.

Let me deal briefly with your other points which, as far as I can see, are not related to this Saturday’s Money Box. You suggest that I and the programme try to ‘engender mistrust’ of the financial services industry. That is simply not true. Of course we encourage anyone who is seeking financial advice to approach the meeting with a healthy scepticism. I am sure you would agree with that. At Money Box and through my twitter account I get enough examples of bad financial advice to make me sure that is the right approach.

We also encourage everyone who needs financial advice to find a good independent financial adviser – that phrase appears on Money Box and Money Box Live many times in the course of the year.

How you can think I recommend people get ‘something for nothing’ entirely baffles me. I have advocated paying for advice upfront for many years. That is not something for nothing. It is something for something.

Two minor points in your email.

I do not purport to be a ‘consumer champion’. I am a consumer journalist, so I do see things from a consumer rather than an industry point of view.

You refer back to the collapse of Northern Rock. If you check the transcripts you will find Money Box took a very different line from the one you recall. On the programme on 23 February 2008 we discussed putting savings into Northern Rock for precisely the reasons you give – see And when the queues were round the block some months earlier our programme of 15 September 2007 clearly said at one point that those savers were not behaving rationally. Again the transcript is available via this page.

As for your offer of a debate we had a debate on Ivan Massow’s new business on Saturday between him and Brian Dennehy. I do not debate on the programme. That is not my job. I put tough questions to people on all sides of the argument – that is my job. A broader and perhaps more interesting idea in the run up to 1 January 2013 is a debate between opposing sides on financial advice and remuneration. If we staged that then I would be putting tough questions to both sides. There are, as you know, strong arguments for and against the end of commission.

Meanwhile, I see no reason to apologise and no record to set straight. Your single complaint about Saturday’s programme is the phrase ‘one of the industry’s best kept secrets’. For the reasons set out above I believe that description of trail commission to be true and justifiable.

If you wish to pursue a formal complaint through the BBC then you can of course do so.

Best wishes

Paul Lewis

*The FSA has clarified it position and says that if the existing adviser has a contract for trail commission which does not specify a service is carried out for that commission, then that contract will not be changed. So an existing adviser with an existing contract will be free to collect trail commission each year and not offer a service. However, if the contract is re-registered with a new adviser then the FSA will expect the new adviser to carry out a service in order to receive the trail commission.


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There are 77 comments at the moment, we would love to hear your opinion too.

  1. David Trenner - Intelligent Pensions 12th September 2011 at 5:44 pm

    I was wrong: I did not think he would reply.

    I am not convinced by what he says and I suspect Neil and others will not be either.

    I wonder why he did not have Andrew Fisher on the programme?!

  2. The letter got about what it deserved – a decent rebuttal. Paul Lewis, a light amongst very few balanced journalists, on balance does more good than harm. It is the commentators in the redtops that are the harmful lot, often reporting without research and light on facts. If you take trail, justify it to the most important people every day – your clients – then what is the problem ? And then no need to rise to whatever bait you think might be on offer from journos.

  3. As a consumer (and licence payer) of the BBC I would be interested to know what Mr Lewis is paid for each programme. Just as our clients can judge whether our work is worthwhile we could then do the same as regards his efforts.

  4. Moneybox listener 12th September 2011 at 5:54 pm

    I’m on your side, Paul, but I’ve got to ask — how is “trail commission being charged when no service is given” any different to the BBC collecting in the licence fee year after year whether or not we consume its output?

  5. Excellent rational response. Anyone else prepared to think before they respond?

  6. I dont disagree with Paul here, but he really ought to fire his bullets at certain large national IFA’s who have tons of legacy trail which equate to more annual income (in the millions) than most smaller IFA’s turn over in a year; and of course the banks who really have no business promoting financial advice and selling tied products, but they do.

    Paul. I would ask, where were the majority of the complaints from in the recent FSO report? That is where the epidemic is.

  7. Calling trail commission a secret IS slandering the financial services industry. Every illustration of every product sold from the mid 90s that pays trail commission declares the amount of commission that is paid.

  8. As a consumer rather than industry insider Paul Lewis makes much more sense to me than the self-serving rot I often see in this comments section – usually from people who don’t have the ‘courage’ to display their names. Alan Newman

  9. Apparently half the population knowing something constitutes a secret in BBC land. Fascinating.

  10. I would ask Mr Lewis to confirm where in the FSA rules it states that “It (FSA) will also insist that any IFA who receives trail commission from that date under an older contract earns it by providing a service” as I believe him to be in error on that point…

  11. Lets stop the whinging guys – the public do think of us as commission hungry and this just underlines it.
    If you do a good job and would be happy to be scrutenised then just get on with it.
    It is silly to pretend that we do not have a very real problem over the way we have been traditionally paid and the complete removal of providers from adviser remuneration cannot come a moment too soon.

  12. As someone who has experienced organisations taking trail commissions who know longer knows where I live let alone provides me with any service I fully understand Paul Lewis’s point.Commission arrangements were never made clear,espially on this issue. We are talking serious money eg a 0.5 commission on a £1million pension pot is £5000 per year.
    Does not the problem lay with the Incurers who will not credit the Policyholder with the money if he tells them that he is no longer connected to that Intermediary but requires him to appoint another one or else they keep the money.
    It is great that they are going but there is still a big run off. The FSA should require all insurers to write to every customer where trail commissions apply and advise them of who they are paying how much to so that the customer can take action.

  13. How interesting that 46% of clients are unaware that IFAs receive ‘trail’ commission, but in order to treat our customers fairly, perhaps it would be a good idea to tell them the WHOLE story?.

    What I mean by this is that the FSA seem hell-bent on taking away legitimate trail earnings for work earned in the past (and continuing to be earned – some at 17 pence a year…), yet see fit to charge IFAs TENS OF THOUSANDS OF POUNDS for the collapse of firms that they had nothing whatsoever to do with!!.

    I bet that far less than 46% of clients are aware of this!.

    Balance it up, tell them our income AND outgoings.

    Trouble is, it’s not interesting enough is it?

  14. David Cowell, Myddleton Croft 12th September 2011 at 6:25 pm

    What I want to know is which journo hacked which phone to get this ‘secret’ information?

  15. Paul Lewis makes some interesting points. I agree that if only 50% of people say they know about trail commission, then this is far too low. However this also means that 50% of people DO know about it, and to call something that 50% of people know about a “secret” is (to quote Sir Humphry Appleby) to lay upon the logical and semantic resources of the English language a heavier burden than they can reasonably be expected to bear!

  16. If you tell a client something and, over time, they then forget and then it’s also written on the paperwork they’re given and they stick it in a drawer somewhere and forget what’s on it, then this doesn’t make it “the industry’s best kept secret”.
    We can disclose it and clients can forget if asked directly but this doesn’t stop them calling in as soon as they have a question (which of course I’m more than happy for them to do) but what then covers the cost of this? I’m sure if you asked the same 54% of people most of them would say “well don’t you get some money every year from my policy?” and yet these same people wouldn’t know what “trail commission” is if put in that way. Paul Lewis has taken something innocent and made it malicious because that’s what BBC journalists do. Talk everything down as much as possible because nothing affects them as they get their money from the licence fee. Disgraceful.

  17. I would encourage Neil Liversidge to complain and I’d be happy to put my name to it as I’m getting totally fed up of the one-way reporting of the BBC. I have in the past complain to the BBC about several of their financial stories only to get a very bland e-mail back stating that my complaint is not upheld.

    The inflammatory language used in this report is only one example of how journalists are sensationalising stories. Although Paul did try to show the other side of the industry to his credit the original headline had already set the mindset.

    When you take into consideration the overall message is coming from the BBC on this subject it starts to look like that they have an axe to grind.

    All I ask is that the BBC recognises that there are as many good IFA practicing out there and stop trying to label all IFA in the same way with inflammatory language.

    I’ve always been in favour of a system that allows clients to switch off trail commission after a set number of years (say 5 years) if ongoing services not been provided and maybe this should be part of the ongoing debate on remuneration packages.

    Consultants have been declaring initial commission and trail commission for a number of years and this article did not in any way state this or even highlighted. It’s not our fault, if clients after a number of years forget about what has been disclosed and do not read Key Fact Document, Illustrations, Suitability Letters, and even Initial Disclosure Documentation, that has been repeated at different stages. For those that are not following these guidelines and are not providing clients with these documentations then they deserve to be chucked out the industry. I personally believe that this is not a widespread problem in the IFA community and probably is the reasons why the IFA community only makes up 4% of all FSO complaints according to the FSA’s own figures.

    Peter Herd
    01473 276141 if you want to call Neil

  18. My concern with this sort of reporting, is that it goes into a subject which I have an intimate knowledge, and that gives me the insight to know that the story is being sexed up for effect.

    The story is poorly researched and the questions the clients are asked will tend to be weighted to get the “shock horror” response.

    The worrying thing is that if they can be so wrong with this, how wrong are they on everything else that they present?

  19. Similarly, a great response.
    Do the FSA realise there are tied FAs at banks? (sic!) They of course do up front commissions and I would have thought they do not do trail. (I do not know.) My point is, did the FSA ask clients (sic!) of banks or of IFAs?

    I bet bank customers do honestly believe they are getting something for nothing.

    Shame on your colleagues for not knowing what the (general) costs of their financial advice are. Of course, many are in BBC pension and don’t care. (I know mnay are freelancers – they ought to know, don’t you think?)

    The bulk of IFAs are still commission hungry – primarily indemnity comm. Bring on RDR!

  20. Where in this debate has it been made clear that trail commission involves a sacrifice of initial commission?

    I have always believed in trail as a fair way of funding an ongoing service, but as with other advisers could in every instance have taken full commission up front.

    As a result, its withdrawal during a contractual period would be a serious legal issue. A portion will also have been sourced at a time when current disclosure rules did not apply.

  21. As ever, Paul Lewis takes a supercilious position.

    However hard, and honestly, many of us work we are tarred with the brush of perception. People such as Mr Lewis endeavour to maintain the perception that the majority of us are unhand and give poor advice since this is what helps to keep them in a job.

    In his BBC ivory tower, on his £70,000 BBC salary, with his wonderful BBC pension (all this may be wrong) he is far removed from the reality of Joe Bloggs the £15,000 salaried worker.

    Joe does not wake up thinking ‘I need a pension today, I’ll go and spend £300 and get some advice, and then go and spend another £300 getting a second opinion to make sure that advice is right, because I don’t want to be solely reliant on the state’.

    Joe, however, may be fortuante to see an adviser that doesn’t charge him an upfront fee, becasue Joe simply couldn’t afford it. He may receive some very good advice and agree that the adviser can take a small amount of renumeration, by means of commission.

    Mr Lewis, and his well-paid cronies, should start to look at the bigger picture. Not just express the concerns of the A1 demographic, or BBC Radio 4 listeners. Paul states he sees things from the ‘consumers point of view’. But which consumers, those living in towers blocks in Stockport?

    There are a very large number of people with no pensions, who don’t earn very much money, who ARE entitled to good advice. However, they also cannot afford to pay the up-front fees you encourage all your listeners to do. So should these people not receive any independent advice? Should independent advice become the reserve of the wealthy?

    The question that you should be asking yourself Mr Lewis is – who does the FSA want us to advise? How should we be paid to advise Joe Bloggs?

    Commission and trail commission cannot be ignored, or wiped away.

    If you, Mr Lewis want to take this battle forward, for the ‘consumers’, then stop beating up the IFA’s.

    The FSA’s approach over recent years has fundamentally disadvantaged the vast majority of consumers by effectively putting good quality, independent advice beyond thier means. THIS IS WRONG.

    Mr Lewis you have a powerful voice but you are aiming it in the wrong direction, and you are asking the wrong questions.

  22. Both Neil and Paul make good valid points.

    Trail commission needs to be got rid of, it stinks from a consumer point of view.

    I strongly suspect the vast majority of IFAs do nothing or very little for their trail.

    Those that do earn it fairly have been badly let down by the rest.

    Price yourselves sensibly, cover costs and earn a fair hourly rate. You are not going to get people earning £10 – £25 ph to pay you £150 – £500 ph it’s not going to happen and I believe you will be out of business if you try and charge inflated rates.

    There are not enough HNW clients out there for all you IFAs.

    Price sensibly and you will do well as people from all walks of life are going to need IFAs like never before over the coming decades.

    Good riddance to trail commission it’s been a good earner for IFAs but has also damaged their reputations collectively.

  23. The press – the “Biggest unauthorised financial advisers in the country” and what fees do they pay to the FSA????????????

  24. I always thought that trail commission was part of the total sum an adviser was going to receive for the work done, but that it was paid on the drip if the policy holder keeps paying the premium.

    Thus the work is already done, and unless we should work for the money twice, the drip commission is owed to us.

    If my reasoning is correct, and Paul’s way of thinking applied to him, he should get, say 90% of his monthly wage paid now and then the rest on the drip, and then he should be asked to work for this 10% again before it was paid…while his employer, the license payers etc should moan about why he is getting this 10%.

  25. Paul: I thought that your comments on the show were very balanced, other than your inference that trail commission was somehow surreptitious.

    On this point, you acknowledge that almost half of recent personal pensions purchasers knew that their adviser would be receiving trail commission. That hardly makes it a secret, does it? The other half clearly hadn’t bothered to read the commission disclosure.

    You go on to cite GfK research but neglect to mention that half of the people surveyed had not taken financial advice. That was a report on general consumer attitudes to financial advice, not a survey of people who had arranged personal pensions through an IFA. This nullifies your final point in that paragraph that 100 per cent of people should be aware of trail commission.

  26. What hope is there that a complaint will be taken seriously, when you can’t even get a forum response published on the BBC Money Web Site coverng this article. Yet again more censorship on behalf of the BBC only showing the point of view that they wish to promote.

    Would totally agree with Brian comment above that the media is becoming the biggest unauthorised advice provider with no contribution to the regulators like we IFA’s have to pay.

    Maybe you would like to disclose your income Paul from all source that is !!! incuding sponsorship and vested interests so that I can tell whether or not your point of view is totally unbiased.

  27. I’ve used an IFA in the past. I had to it was to do with an old pension. But when I want information from someone who is not shifting product, you are head and shoulders above anyone else. since Mi hael Crick went the Beebs only got two proper journalists you and Paul Mason. Don’t let the bastards grind you down

  28. While 46% are aware, for sure another 25% have forgotten. How often do clients forget most things you tell them after the first meeting? Quite often is the answer.

    This is perhaps a little over zealous reportage, however the timing strikes me as vindictive. The industry is going through an enormous change and upheaval. In the long run, it is for the better all round but there are going to be a lot of casualties, as with any change. Putting the boot in now is perhaps not untypical of the feral UK press and quite frankly uncalled for.

    Perhaps Mr. Lewis would like to run another programme post 1 Jan 2013 to show a before and after scenario? Show the positives? I doubt it.

  29. If trail commission details are given to all clients (whether or not they read and understand the term) how can trail commisssion be any type of ‘secret;.

    Incidentally the expression ‘you refer back …’ is tautology. One cannot refer forward.

  30. I would like to see Paul Lewis respond to Mike Jordan | 12 Sep 2011 6:33 pm

    . I do think an apology is required for the reasons stated by Mike. I could enjoy listen to Paul Lweis from time to time and his heart usually seems to be in the right place. I do however sometimes cringe at the things he gets wrong and this is one of them. To then not accept that his statement was inflamatory and that a small appology might have gone a longway and ended this sagga is annoying, Under the circumstances, i would like the fraction of my licence fee which goes to his programme to be refunded by him personally in future as I do not want to pay have no choice but to pay him to be slandered….
    Appologise or pay me back that part of teh licence fee please.

  31. The phrase “one of the industry’s best kept secrets” implies far more than just forgetfulness or lack of understanding on the part of consumers. It implies concerted and deliberate efforts by the industry to conceal [trail commission] from consumers.

    While Paul Lewis’s response is eloquent, it still does not back up the original use of this phrase. If he does not have evidence of widespread deliberate concealment (and breach of FSA disclosure requirements), then it seems to me that an apology is in order.

  32. I thought Paul’s response was balanced and fair – and I have to say that’s been my general experience of MoneyBox. It doesn’t purport to be a promoter of the financial services industry – it’s a lively magazine programme that looks at topical issues and generally seems to be supportive of the smaller IFA sector.

    I suggest Paul is more friend than foe and to start a battle with him is misguided. If you’re in the mood for a fight there are plenty of more obvious opponents over whom a victory would be more than pyrrhic.

  33. The Key Phrase that Paul Lewis in this letter stands out like a beacon to me – 1st sentence of paragraph 5.

    “Of course in the pages of documentation the percentage amounts are there.”

    There you have it. Not a secret. Not undisclosed. Paul, I am afraid you have every reason to apologise on this one. You are normally an entertaining, well balance journalist, but I am afraid this letter paints you as a hypocrite.

  34. I am utterly agast when I read all the comments for and against what the Mr Lewis’s broadcast in his Moneybox programme and all that hajibhaji followed from what our clients should regard us as- Professionals!! WE all know that some of us has had it too good and it is now time to share that with customers who have had poor, shoddy, misleading, costly advice. There is a simple answer to all this. Why not put a limit to all the trail commossion by putting a limit of say £ 300 to £ 500 pa maximum and this should cover all that admin, letters, statements, change of address notification, call to customers once a year. As on of the commentor said earlier that a trail of £ 5,000 pa on a £ 1m bond on yearly basis will equate to £ 50,000 over 10 years, surely that is a lot of money for relative service that should follw! Com’on Guys and Dolls, own up and be fair! Share and you will be rewarded!!

  35. The BBC attack on IFAs is typical of most if not all of the money sections of the press. Matthew Vincent of the FT for example rarely fails to have a swipe at IFAs. In one recent attack he addressed IFAs “Scammers”.
    Reading through the comments on this debate it seems to me that the root of the problem is the failure to understand what commission is in relation to financial products. It is incorrectly labelled “cost of advice” in illustrations. Only part of it is “cost of advice”. The other part is remuneration from product providers for marketing, distributing and maintaining financial products on behalf of the product providers. This part will always be a cost to providers whether there are IFAs in the loop or not. All that seems to be happening now is that IFAs are being removed from the loop as direct sales forces were removed a few years ago.

  36. Good to see that Paul responded to Neil’s comments and set the record straight. Trail commission IS taken by some IFA’s when they do absolutely NOTHING for it. Having had their slice of commission on the initial deal, some then offer no ongoing advice to the customer. They might include something about ongoing advice in their original paperwork that the client signs but sadly it does not materialise. All those who were quick to criticise the programme should realise how sleazy the financial services industry is, but as they no doubt work in it, taking a biased blinkered view is their only real option !

  37. As a number of other posters have pointed out, this is all very easily sorted out. Ask providers to flag the trail amount to the client once a year, and, if necessary, request a confirmation that this amount should continue to be paid. But where the client indicates that they do not wish the trail to be paid, the provider should be able to offer a reduced charge to reflect that fact, not a cash rebate. Why do all things in FS world have to be so complicated?

  38. Re Michael Eve
    How many people have a pension pot of £1Million?
    Some of the trail I earn will not cover the cost of a second class stamp, even although I do write out to such clients. If they want to turn off the trail and recoup their £3.84pa, or suchlike, that is fine by me.
    Not sure where they will go in future at similar costs.The banks will do it for free, I believe.

  39. Sorry Paul but the use of the comment ‘best kept secret’ is sensationalist. Yes it is appropriate to the large national IFA’s but smaller IFA’s – not in the practices I have seen or the clients I have spoke too.

  40. Paul, firstly let me say what a fan I am and I believe you are a champion of consumers and IFAs. It was also very good of you to respond to Neil Liversidge. However, the observation that only 46% of consumers knew their IFA received trail commission leading to the comment that trail commission is the industry’s “best kept secret” is absurd. I would guess in over 90% of cases the trail commission was both disclosed and explained. It’s not the advisers fault if customers forget these things, they have more important things on their minds like their family and jobs. I bought a new car a year ago and I have forgotten a lot of things were explained to me at the time, and I use the car every day. The product providers will obviously welcome the abolition of trail as it will help boost profits but abolishing it because some IFAs don’t earn it potentially harms the majority who do and use it to subsidise the services they provide to avoid billing clients all the time. “If it ain’t broke don’t fix it”. The contract between the supplier and the distributor included these payments, why should they now be abolished? I think the FSA are over stepping the mark here by entering in to existing commercial agreements between the parties.

  41. I have to confess that I didn’t listen to the programme, however I disagree with Paul that saying trail is a well kept secret is fair. It isn’t, it implies that it is being kept secret by those in the industry with a reason to do so, when it is disclosed on illustrations and policy documents issued by both advisers and providers – hardly secretive behaviour.

    It’s true that lay people don’t read the small-print (and clearly don’t read normal print either), but that is not confined to financial services.

    I am also not happy that he thinks people having ‘a healthy scepticism’ is a positive thing, it gets in the way of giving advice – if you don’t trust your adviser don’t ask him or her to advise you.

    The problem is traditionally successful advisers have been successful sales people (in the main) and if you really believe something is right for the client you are going to promote it to them.

    I promote ongoing advice to my clients and so they can see the benefit of having something built in to the contract to pay for it and incentivise performance by being a percentage. It will take years for the public as a whole (or even a majority) to perceive us as advice giving trustworthy professionals, rather than insurance salesmen, but if we explain what, why, how and how much every time it will happen quicker I believe.

  42. Hector Sants was recently quoted as saying that Initial Disclosure Documents were not successful as most clients did not read the items. This is very true of many clients/customers who tend to trust the adviser/bank from whom they purchase financial products. I am not surprised at all about clients not being aware of trail, but then they tend not to be aware of many things even though they have been supplied with; illustrations, key features documents and reason why letters. The whole point of trail is to provide a steady income to the business so that it does not have to charge for every item of work that it does for the clients.
    Now what other business does that?

  43. I and my aquaintences have many policies going back years some in the region of twenty years. I presume someone somewhere is getting commision which is charged to me. Yet, I have never ever heard from anyone or received anything more than annual statements.Why should you guys in the industry get this money. If you are so keen on fairness and transparency and those of you who say you actually service these clients. why not simply charge a very reasonable fee each time you do so? The reason why most clients are refusing to pay your fee`s is simply because they are over inflated,just like your opinions of your own self importance.You are not the Lawyers or Accountants you keep trying to compare yourselves to. They have to do years and years of training at colleges and uni`s to get their qualifications. How many of you did?

  44. re gerry roberts
    You presume? says it all.
    A reasonable fee as you put it, will in most cases, be far more than any trail commission especially if the policies go back some years. Sending out your annual statement iprobably costs more than the trail received.
    Go ahead and turn it off.Let us know how much you save by paying “a very reasonable fee” instead.

  45. Ketan Yadav - Avenue & Co Private Finance 13th September 2011 at 11:09 am

    I think trail commission for many is money for old rope. Alot of IFA’s are building their model on trail commission post RDR. As an IFA myself, all I ever used to hear was IFA’s talking about building pots of millions so they can retire on trail commissions of hundreds of thousands of pounds a year and it made me ill. Its about time this came to light and yes, alot of people dont know about it so I agree with Paul Lewis to some extent. Just getting valuations for clients should not mean earning thousands in trail commission and lets face it, alot of IFA’s made a bucketload from pension transfers, investments and bonds and are still earning from them – whilst clients have lost money. Massow is offering what the consumer wants – but his model is flawed – how can the FSA allow him to earn millions in trail commission via rebates when he does not know ANYTHING about a client. It has taken me over 15 yrs to really know my clients and understand their risk profile etc and many IFAs really do care for their clients well being over the long term. Theres a simple solution – MATCH MASSOW or LOSE ALTOGETHER. I know what I would do.

  46. Healthy discussion is good. Please, please stop the tirade against IFAs, the issue is how many clients of IFA’s were asked and how many who took advice from “bank advisers”. I strongly suspect the “secret” is from bank advisers client’s creating the myth all advice is free, i know and practice what i preach…i need paid for ongoing advice and i state i take trail or FBR to fund some or all of it – no secrets there.

  47. Cow’s tail here, for what it’s worth.

    I think in all fairness, Neil Leveridge has stood up for the good IFA community, quite rightly. The phrase ‘one of the industry’s best kept secrets’ and taking the context “If you’ve bought a pension or investment in the last 20 years probably, the chances are a small amount of your savings drips out of your pot and into your financial adviser’s bank account every year. It’s called “trail” commission and is one of the industry’s best kept secrets” to describe trail commission does imply that the industry as a whole keeps this a secret and adviser’s bank accounts are receiving cash on the back of I guess non disclosure, although in Paul Lewis defence had pointed out there are good IFA’s.

    Dictionary description of “Secret”: Kept hidden from knowledge or view; concealed.

  48. Neil F Liversidge 13th September 2011 at 1:14 pm

    Extracts from our client agreement, copy supplied to Paul Lewis, seen by the FSA last year as our ‘Treating Customers Fairly’ assessment which we passed with flying colours:
    (Start) The Premier Investor Service is available to clients with £100,000 or more to invest. Our fees are 3% of the investment up to £250,000, so for example if you invest £100,000 you would pay £3,000. The charge reduces to 2% on the balance up to £500,000 and 1% on balances over £500,000. Our ongoing advice and service fee is ½%pa of the value of your portfolio. [Trail as Paul calls it]

    Our ‘No Churn’ Guarantee
    Once you have invested in the service if any of the funds need changing at any time in the future, we will not charge a further initial fee/commission, but will instead rebate the commission to you in full to reduce the reinvestment cost. (End)

    The typeface is 10-point Verdana same as most of the rest of the document. Nothing is ‘buried in the small print’ or a ‘secret’ of any kind. On the contrary, like it says on the sign outside our office,’Honest Advice in Plain English.’ Like every other IFA I also contribute my money to the funding of the Money Advice Service. I suggest that the consumerists on this blog take themselves to the MAS and see how much good it does them. At least those who do will be more likely to appreciate good IFA service afterwards!

  49. The devil in the detail is the regulator
    Authorised br G Brown ignores Select Committee
    makes its own rules
    IFAs have to requalify no one else
    has to re qualify in any profession
    Fined for Keydata etc which they are not guilty of …nor authorised to trade in
    FSA consists of bankers mainly note Northern Rock debacle see advert AccountancySAge 2007
    require 3000 x banking staff or insurence staff
    for FSA

    where we are now Treasury select committee is ignored by the FSA

    Suggest mr Lewis gets ALL his FACTS RIGHT

    and DO NOT Cherry pick

  50. Best Kept Secret? The FSA costs the consumer around £450 million Per year.We should disclose that!

  51. This whole argument is in my opinion an example of the frustration in the IFA world, building up over the last 2 years, IFA’s have been hurting from the pain inflicted on them by incresed fees, yet more exams,(with the older advisors having to give up and close) and the persuit of the regulator to fine them for in some cases small errors, while the Banks seemingly get away with it, (even being bailed out of financial difficulty) so when a publication or broadcast is made that appears to IFA’s as yet another nail in the coffin it is no surprise to see the responce. In my humble opinion I beleive that the sale and advice on financial services products will slowly swing towards the banks who will have new disclosure documents that will not clearly show that they are not independent, but will clearly show that their advice is free.

  52. It appears to me that while Mr Lewis makes a decent rebuttal of the letter there is a lack of understanding in what trail commission contractually is. It contractually is a payment by the provider or the fund manager as a result of a sale of that “product” and in effect is a payment not to change the product. The provider could not care less if you provide an on-going service to the client, THEY are paying you because you picked their product. Therefore it is not contractually a payment by the client for a service but then no commission actually is. It is correct that the product charges support the providers ability to deliver the commission and therefore of course does eventually come from the clients pool of wealth. It is this fudge between what is contractually paid and what is expected from the adviser (and often not delivered) that has brought the FSA to the conclusion that commission must go.

    As an IFA I do provide my clients with a regular face to face review and in-between times I do look at and take action on their affairs. For this reason I feel that the commission does go to supporting my service on their behalf. There are some clients where it is a close run thing whether I can offer this service and still make a living and there are some clients where it is not viable. Perhaps one by-product of the end of trail commission is the end of cross-subsidy between the clients with large portfolios and those with modest means. Whether this is a good thing or not I am not qualified to judge.

    These reviews are a part of our duty of care but it is not a contractual result of the sale of the “product”. It is for this reason that I welcome the end of remuneration in the form of a provider delivered commission and the start of a client’s pro-active decision. It will be a painful transition for many advisers and I think that it may prove mortal for many parties including banks and certain large wealth managers, but it is the only way towards a professional standing. One day this industry will not be the soft target for Journalists, Politicians and some obnoxious dinner guests I’ve had. Perhaps we might even get a true assessment of our worth against the other “professionals”. How often do you get a straight (fully documented) answer from an accountant or solicitor to the question “What action do you recommend?”

    Finally, I am surprised that only 46% (not technically a secret then) in the survey understand that a trail commission is paid. I can only assume that they did not read the Client Agreement that they sign (to say they have read it), nor the Suitability letter that they sign (to say they have read and understand it) nor the Key Features Illustration (which increasingly they are now asked to sign). Perhaps they are just too busy to read the advice they were given, or (having worked in Marketing as well I know this to be possible) the survey question were written in just the right way for the conclusions that were wanted.

  53. Neil – If I invest £250,000 with you, are you really going to charge me over SEVEN THOUSAND POUNDS? Plus another £1250 a year? Regardless of fund performance?

    That’s absolutely extortionate. No wonder you’ve reacted so badly and defensively to Paul Lewis’s criticism.

  54. I knew I was paying trail on my pension so I moved it into mys company’s scheme. But until I checked today I had no idea I was paying trail on a fund I bought through Allenbridge fund supermarket. That really was a secret as far as I’m concerned.

    The 46% figure refers to pensions which I would suggest is the most likely financial product for customers to know the details of the charges.

  55. I have to say I like the programme and listen but I do feel that there are times when the whole story is not put across.

    I always feel like ringing up and saying you have not mentioned x or y in particular when pensions are being discussed.

    Not once have I heard the Government (any) mentioned when pensions are being given a going over and in particular the raid by Gordon Brown. Pensions performance and the charges are aired as if the industry are ripping the peolpe off who fund for retirement.

    I understand how people who do give a good advice and service would get upset as I do on these occasions.

    In defence of the programme, it is not easy in the time given to put evrything in there but fair play would in my opinion not be too much to ask for.

  56. This argument all seems to hang on the fact that Trail Commissions should be earned by offering an ongoing service. In an ideal world yes but we all seemed to have a point. Product Providers have been pushing Trail as a preferred payment for years and we all take a reduced upfront payment because of that. Should we just go back and ask for full payment upfront? Also, trail has a beneficial effect for business it allows a degree of stability on future earnings so that a firm can continue to trade and offer ongoing advice to it’s clients. Yes a business could also structure itself differently to do this but the providers have been touting this payment method as the best way of providing future stability.

    It’s never so black and white is it?

  57. @Mike Gannon – A couple of months ago Moneybox had a really good analysis of Gordon Brown’s so called ‘raid’ and how it might have impacted on the decline in pension values. Upshot was that the Institiute of Actuaries and fund managers were far more culpable than the Chancellor who they could only apportion about 5% of the blame to.

  58. When I wished to set up a company pension scheme for my one man band Ltd Co some years ago I discovered for myself the completely disproportionate amount of commision which would be charged to my pension fund, including trail commission.

    I spoke to a number of IFAs and asked them to arrange a scheme based on a fee paying service rather than on commission. Most were not prepared to consider it. The two of them who were said they would charge around £250 per hour, which was about 8 times the hourly rate I charged for computer systems design and programming.

    This episode taught me a lot about how IFAs did business, having previously believed that they were my best friend, wanted to send me birthday cards, and thought my children were the best looking they had ever seen.

  59. @Mark
    You seem to be forgetting that IFAs usually rebate commissions, so the chances are your rebates would far exceed the fees. Post RDR all this changes. There will be no commissions to rebate and financial reporters will list IFA fees on a weekly basis until all IFAs have disappeared. The last one to go will charge 0.0005% for initial advice and 0.00000000000000005% pa…

  60. Mark | 13 Sep 2011 1:55 pm

    Firstly you should ignore anything Ken Durkin says. His IQ is not yet into double figures and does the industry no good.

    But Mark, you are a prime example of the new generation. These new kids who focus on cost first and value nothing. You think that £7,000 is too much of a charge for:

    1. finding out everything about you
    2. identifying your need (you this is easy?)
    3. researching what is out there
    4. constructing a suitable portfolio

    You must be kidding right? You think all of the above takes a few hours? Well, I’m afraid people like you are the ones who will suffer in the long run. Ok, not many adivsers will be value for money, but those chaps will be long gone come 2013.

    Kids need to realise what value the initial cost will provide.

    One of my top clients earned £770,000 to April 2011. He charges £4,000 for a 11 minute cataract operation. That’s over £21,000 per hour. Who are you to say that he is not worthy?

    Those who come on cost will leave on cost.

    That is why whoever walks through our door and talks too much about cost, we politely lead them towards the door.

  61. It is a shame Paul Lewis didn’t apologise for tarring all IFA’s for the bad practices of some which that comment did. It is the same as insulting all doctors because of the actions of the likes of Harold Shipman.

    Years ago perhaps when Mr Lewis was practicing it was all easy. I size fits all and never mind about a fact find. Advice today is sophisticated and tailored and so what is a good arrangement for one client may not be the case for another.

    I understand Mr Lewis is lobbying Parliament to ban enhanced transfer values because he “suspects” there is something untoward about them that he admits he doesn’t understand. For some situations it is a good thing.but his onesize must fit all approach means he wants to ban it all rather than focus on where the problems do arise.

    The result is some pension members being worse off but because the issues are complex the members will never know.

    I wish commentators like Paul Lewis could be a bit more sophisticated and focus on where the problems are rather than painting a black and white picture on complex issues.

  62. Also the 46% surely indicates its not a secret.

    Bear in mind that the lastest opinion poll has Labour ahead on 41%.

    Thats 41% of the population that can’t remember or can’t understand the damage they up until just May 2010!

  63. If 46% didn’t know, then 54% did, which is hardly a secret. I suspect similar percentages of the public couldn’t/could name the Prime Minister right now – that doesn’t mean to say he’s a secret either – just the normal demonstration of ignorance and apathy. The use of the word ‘secret’ is simple sensationalism and to be deplored. I hope many in the FS industry will complain.

  64. So many ‘consumers’ in one trade article, very odd.

    And a BBC ‘consumer’ journalist who, despite his obvious expertise and dare I say age, had never heard of the trail commission that 46% of the great unwashed admitted they were aware of, very strange.

    And then we have a gay IFA who has had more failed firms than most.

    All very very odd, I am terribly vexed.

    Must be the table wine..

  65. @Ken Durkin – regardless of rebates (a different debate entirely, and a red herring in this context) do you think that £7500 commission for a £250000 investment is fair?

    If that was a pension contribution, £7500 could conceivably be the first year’s annuity!

  66. Of course 3.0% commission is “fair”. IFAs have businesses to run as Neil points out in his letter. And one very good reason why it is fair is that you know exactly how much of your money is being used to support the structures of that part of the financial services industry you are using and benefitting from. It is in fact the fairest industry we have in the UK! When you buy a retail product name anything that compares to this level of disclosure. You are not just getting advice, you are having a complicated product manufactured and delivered right to your door and serviced when necessary.

  67. I am too suprised and glad that Paul has taken the time to reply but do still feel that his comments are, at the very least, overly dramatic.
    if any advisers are not fully informing their clients of trail commission, or anything else, then they deserve to be held to task but you cant say its a secret, for the majority of us, it simply isn’t and we also earn it!
    that would be like saying on television that the speed limits are only guidelines because so many people exceed them – ridiculous

    the providing of service to justify trail commissin was an amendment to clause 4.18 which stated that where a change of adviser is authorised and trail can be diverted away from the original adviser, it should be refunded to the client as the new adviser has done nothing to earn it. this ignores the ongoing monitoring and cost of contact and statement runs and so was diluted to “earns it by providing a service”

  68. @Ken Durkin 9.27am”You are not just getting advice, you are having a complicated product manufactured and delivered right to your door and serviced when necessary.”

    Yes – and I’m paying for that ‘complicated product’ through provider administration charges and fees, ON TOP OF the £7500 I’m paying you.

    I’m also paying the fund charges for the investment choice you make for me.

    If we say you notionally charge £200 an hour for your services Ken, that means that you’re effectively allocating 37 hours to my £250,000 investment. That’s only one client a week…

    If my investment were £50,000 less, you’d earn £1500 less – does that mean you’d do £1500 less work because of my reduced premium?

  69. Nigel Barker-Smith 14th September 2011 at 11:37 am

    it IS great to see consumers joining into the blog/debate.

    Whilst IFAs have a business to run and a profit to make, it should not be at the expense of the client, but for the benefit of the client.

    It’s embarrassing to see the IFA industry argue against the consumer through this blog. This trail commission debate sums up the IFA first my clients second perception.

    Any sane business would feast off the views of the clients and produce a service they want and will pay for.

    This is from a Financial Planner as I’m embarrassed to be known as an IFA.

  70. @Mark
    It is self-evident that there will always be a cost to the consumer for getting the product from the manufacturer to the consumer. Financial products are no different from any other commodity in that respect. Getting rid of IFAs won’t get rid of that cost. At the moment IFAs are part of that loop and are paid by the product providers for doing a job for them. (Or, if we are considering the unit trust IFAs, they are protected because consumers cannot go direct to the providers to get the product without the deduction of 4.5% or whatever.) Product providers disguise this cost as a “cost of advice”. As well as representing our clients in the market, we also work for product providers doing a job that they will have to pay someone to do when the industry has got rid of IFAs. The industry has decided to get rid of IFAs as it got rid of direct sales forces a few years ago. It needs to increase profits and it will do this by getting rid of its self-employed workforce. There is a remnant of charitable IFAs who believe they can continue to do this work for product providers for no cost to the product providers. If purely fee-based advice was ever going to work it would have done so a few years ago with the Sandler Suite of products. What the industry learned there (but not the consumer and consumer champions) was that cost cutting and simplifying for increased distribution did not work. Mr Sandler and his team did OK out of it I suppose, but the experience of the Sandler Suite should clearly demonstrate that there will be a cost of distribution and maintenance which currently hides under the label “cost of advice”.

  71. Oh please. Let’s get real. If an IFA can avoid by staying legal then he will do so. IFA’s only complain when they get caught out or some money-for-nothing practice is found out. And yes, 50% of the public not knowing is completely unacceptable.

  72. anon 2.36
    I agree 50% of the public being so ignorant, they are incapable of reading a disclosure document is awful..
    What does the first line of your post mean? please excuse my ignorance but it seems not to make any sense. Surely staying legal is a good thing..

  73. I have one polite message for all those posters who think IFAs are over paid rip off merchants. Please go ahead and do it yourselves for free because I will never be short of work and feel no need whatsoever to defend my position. The UK is now a centre of global excellence in confusing cost with value. Not my problem frankly. Bye.

  74. De ja vu
    I remember the BBC championing consumer rights on a pension issue back circa 1990. Panorama followed by others and extremely effective was the simple sound bite attack on a complex issue.

    They attack was on a type of pension scheme that despite huge gains in the stock market during the 1980s gave no extra benefit to the member.

    Another attack on this type of scheme was based around a miner who worked for the coal board after leaving school for about 10 years. 35 odd working years later working for different employers he and Panorama were disgusted that that scheme didn’t give him 2/3rds of his final salary of his last employer as a pension.

    The BBC and the consumer press were sucessful, such was the backlast that these schemes became subject to onerous requirements to phase them out for good. They were called Final Salary schemes.

  75. I recently asked Hargreaves Lansdown to tell me the commission for the funds I have there. They refused, saying they didn’t have to provide the information. Paul Lewis is right that knowledge and disclosure are issues and improved awareness would be good.

    Thanks to the IFAs and firms who do disclose well, clearly including most who comment here, but it’s not universal, even among big players.

  76. Paul
    Have you ever heard of ‘renewals and double renwals,even long after the poor adviser had died!!!
    This is trail by any other name!

  77. I would like to try an investment ISA but am very confused about it. Where is the best advice to be found? I have spoken to Santander but do not really understand their advisor I would be a very cautious investor.

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