View more on these topics

FOS ruling on HSBC could open ‘can of worms’ on trail commission

Experts are warning the decision by the Financial Ombudsman Service to order HSBC to repay trail commission to a client who did not receive ongoing advice could open a “huge can of worms” for advisers.

The bank was ordered to repay the 0.5 per cent trail commission and £350 for stress and inconvenience in a FOS final decision notice issued in August but published only earlier this week.

Mr J had transferred his pension to HSBC in August 2006 in unsecured drawdown. He took his tax-free cash between 2006 and 2008 and left the rest invested.

In 2009, Mr J contacted the bank to ask for advice about withdrawals but complained of poor service and an inability to get a review.

In April 2013, HSBC acknowledged it had not met expectations. In December it offered to refund all trail commission from 2009 – when the tax-free payments stopped – plus a gesture for stress and inconvenience. Mr J rejected the offer as derisory and demanded a full refund of trail.

The FOS has instructed HSBC to repay all trail but it can retain its initial adviser commission for setting up the transfer.

Ombudsman David Ashley says HSBC did not provide an “appropriate” level of service.

Pilot Financial Planning director Ian Thomas says: “This could open a huge can of warms. 

“It goes well beyond the idea of a sunset clause; this is actually rewriting history and saying you should have been providing ongoing advice even if it wasn’t explicit before. That could be huge for IFAs as well as banks. If I was a financial services lawyer, I would be rubbing my hands right now.”

Syndaxi Chartered Fimnancial Planners managing director Robert Reid says: “A lot of firms bought books and I’m not convinced they are really managing them, which is an issue. Some say they are not getting enough money but they should just tell people they are not managing it. In the HSBC case, they implied they were looking after the pension when they were not.

“The amount they are getting from trail isn’t enough to cover the cost of the review so they need either to charge a bit more or send the money back.”

A HSBC spokesman says: “The circumstances surrounding this case are very specific, but as always with Fos decisions, we will review our portfolio to identify if there are any other customers in the same situation.”

Adviser view

Pete Matthew, managing director, Jacksons Wealth Management


It’s a slightly worrying precedent because the industry has gone through a revolution. I have heard lots of people say they took less upfront commission but put the rest in trail. The problem is, clients don’t see it that way and it is quite a weak argument. 


News and expert analysis straight to your inbox

Sign up


There are 9 comments at the moment, we would love to hear your opinion too.

  1. It’s only a problem for those firms that take money but fail to look after their clients. I’m afraid the FOS was right on this one; only take money for a service you’re prepared to deliver and you won’t have an issue.

    I can’t help but enjoy a little schadenfreude at HSBC’s expense

  2. Good! I am pleased it has come to this.
    Since becoming an IFA in 1998, I have offered a fully documented review service, to everyone for who we receive ongoing payments above a £120 per annum de minimis. For those below, we kept the file up to date with correspondence. It should come as no surprise that the number of complaints upheld or otherwise in that time have been zero.
    Clients have either bought a ‘transactional’ or ‘ongoing service’. Where the trail is too little, they have made up the balance by paying a retainer. Further, those who bought an ongoing service are those who are referred to as clients. Others bought a product. That is a very clear difference. Today, my firm has 122 ‘clients’ with an average fee income of £1,050 per client. I wonder at those individual practitioners who say that have 500+ clients. How do they do it?
    1998 was not the start of my career which commenced in 1985. Things were very different then. You have to move with the times.

  3. Reading through the Ombudsman’s decision there appears to be limited scope for this to be applied more widely. HSBC admitted “…that it did not provide an appropriate level of service and that the
    0.5% annual commission was generally payable to enable it to service the contract and
    provide on-going advice.” Where that’s not the case and the advice doesn’t ‘necessitate’ on-going advice (as distinct from being a good idea) the further application of the principle isn’t obvious.

    What is interesting is how the FOS refers to trail when laying out the redress to be paid:

    “Refund the adviser remuneration charges (trail commission)…”

    That seems more like a way of thinking that may end up being applied more widely as time goes by.

  4. This should be no surprise! The FSA made clear in 2012 that trail was for ongoing service. This was reinforced by the FCA last year. (I accept that it was not popular and largely unfair to advisers who exchanged initial for trail). Nonetheless the message was clear, I wrote several articles last year on this suggesting exactly this sort of outcome. Advisers need to be very clear about their service proposition.

  5. A bit of scaremongering surely? Looking at the FOS decision on their web site, the client was under the impression from their paperwork that HSBC would provide reviews, and also he specifically contacted them asking them for a review, but didn’t get it.

    So as HSBC didn’t provide the service, it’s not surprising that FOS required them to refund the trail commission.

    There’s no rewriting of history or a can of worms being opened here. If the original advice states that regular reviews will be required, then the IFA has to provide that, unless they make it absolutely clear they won’t be reviewing it – which is what HSBC failed to do.

  6. The only reason this issue blew up was because, in this case, the client explicitly requested a review which, in familiar bank tradition, HSBC weren’t remotely geared up to provide. So, instead of trying to find someone who might actually be able to deliver the service the client expected and for which they’d been happily taking the trail in return for providing bugger all, they just tried to fob the client off as some fractious old codger who, they hoped, would eventually give up and go away. They obviously misjudged him and are now getting their just desserts. Good for Mr J, whoever he is.

  7. Re did similar to Robert Ashley, but not until 2007.

    Grey area makes a good point so I will add that FOS decision to my reading list. Do you have the case no?

  8. @Adam Bell and Julian – Yep I agree with that too.

  9. Case number DRN7413808

Leave a comment