The debate is obviously far more nuanced than many give it credit for. Legacy pensions flogged only because of the commission they paid can hardly be put in the same ballpark as vital protection products that simply would not be commercially viable to advise on without at least some form of commission. Arguably, some form of trail commission also helps cover the cost of ongoing servicing for historic clients by advisers.
Either way, the exact form commission takes – and how it influences the advice process – still matters.
Recent statistics show that around a quarter of adviser revenue is still a direct result of commission.
We are now two years on from the sunset clause, banning legacy trail payments between fund managers and platforms, and many argue that those reforms are set to contribute to a continuing decline in that number.
That might sound like a good thing, but the issue of clients left orphaned, without their adviser, is an unintended consequence best avoided.
While many focused on the sunset clause’s impact on the relationship between providers and platforms, what drew less attention was that the trail commission tap for advised platform clients was also turned off.
If someone was sold a pension back in the day by an adviser, but has little other need for planning, that trail may be the only thing keeping them tied to the adviser.
Commercially, it would look like it makes sense to drop many lower value, less complex clients because of the fact they are unengaged and not in need of the service moving to an advice fee would warrant.
Direct to consumer options might sound palatable for some of these, but they certainly won’t be suitable for a lot of them.
And how much of trail is really coming from this kind of inactive business?
As our cover story this week suggests, it does not appear that huge swathes of orphaned clients have arisen as a result of the sunset clause.
There is another key reason for why that is: if a client invested in a fund before the RDR, advisers can still receive trail commission from it.
The FCA consulted on whether it could also turn this stream off as part of its recent asset management market study.
Fortunately, it has decided to continue reviewing the situation, with “no immediate plans” to change its policy.
If such a move did end up going ahead, you might see that orphaned client issue really rear its ugly head.