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Nic Cicutti: The long march away from trail commission


A  few weeks ago, I read a book about China called The Long March. Written by two British authors, Ed Jocelyn and Andrew McEwan, it details the year-long military retreat of 1934-35 by Communist forces as they sought to escape encirclement by a militarily superior Kuomintang army.

Of some 86,000 soldiers who started the march, barely 8,000 made it to safety. Those who survived the gruelling 4,000-mile journey were able to regroup and recuperate in northern China, gaining new converts and eventually mounting a successful campaign to overthrow the Kuomintang in 1949.

The Long March helped cement the reputation of Chinese Communist Party leader Mao Tse-tung despite convincing evidence cited in the book that the story of the march itself was substantially mythologised by Mao and his supporters.

I found myself thinking about the Long March last week after stumbling across an article about trail commission aimed at consumers on the Financial Conduct Authority’s website.

For those who have not visited the FCA’s consumer section, I urge you to take a look. It covers five core areas: banking, mortgages, investments, insurance and pensions. On the invest­ment side, it discusses topics including finding an adviser, questions to expect or ask, how you pay for that advice and – significantly – an article about trail commission.

What the FCA tells consumers is quite simple: “As part of our changes to the way you get financial advice, your adviser cannot receive commission – including trail commission – when you buy a new investment product after 31 December 2012. As a result, we expect products that did not include trail commission before our changes came in … to be recommended by advisers more often.

“However, a financial adviser or inter­mediary can continue to receive trail com­mission for advice on investments that you bought before 31 December 2012.”

Under the headline, Tackling trail commission, the FCA recom­mends three options: selling the invest­ment and buying it back, this time without trail charges; negotiating a better service from the adviser or switching to a new adviser in return for rebated trail commission.

he FCA’s advice is interesting in a number of respects, not least because it assumes an adviser will happily accede to a client’s request to sell any investment held inside an Isa wrapper and then buy it all back as a trail commission-free product. It also goes much further than the Money Advice Service website by telling consumers how to avoid trail-related charges.

The MAS advice says that post-31Decem­ber 2012, advisers can only charge trail if they are really giving you an ongoing service. But for portfolios predating that, it simply says: “They will generally be allowed to keep earning it on products they have sold before the end of 2012.”

The FCA’s page also shows how serious the regulator is about what it clearly deems to be unearned trail. In an earlier column, I mentioned how the FCA is try­ing to nudge advisers into forming a new relationship with clients by offering a better service to genuinely earn their trail.

The latest advice on the website makes the point more clearly. It seems that, notwithstand­ing some advisers arguing that their original contractual arrangements with clients did not include servicing of products in return for trail, the FCA wants it to happen – voluntarily where possible, compulsorily where not.

This brings me back to The Long March, which was born from a series of tactical mistakes by Chinese Communists, not least initial attempts to mount armed offensives against the Kuomintang, which was militarily far superior at the time. Even prior to the long march, political repression in Communist-held areas had weakened support for the party and, according to the authors, helped debilitate the Red Army itself.

What I suspect we are seeing with regard to trail commission is advisers being forced on a long march, where they too will engage in initial resistance to the notion that they should accept new pre- 31 December 2012 trail arrangements with their clients. A minority will refuse to buckle; they will resist attempts to force them to place the old trail arrangements into the same financial pot as new ones. If so, what will almost certainly happen is that, just as the Long March decimated the Red Army, only a few advisers will remain.

The alternative lies with those who have a sensible proposition which accepts that, in future, they will have to deliver ongoing service to earn their trail commission. And that applies just as much to pre-RDR trail as to any new income streams.

Back in 1934, the decision to begin an arduous military retreat arose from a desperate realisation that staying to fight would lead only to immediate obliteration. The march itself was almost as suicidal but it offered a way out for a few survivors.

This time, neither fighting the FCA nor running away from what it wants to see happen are credible options.

Nic Cicutti can be contacted at


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. So, does this cast Martin Wheatley as Sun Yat Sen?

    Answers on the barrel of a rifle.

  2. The regulator has stirred up a quiet rebellion in this particular arena – not from clients wanting existing trail agreements ripped up as unfair, but from IFAs not prepared to play patsy in a an unfair fight.

    Clients are being upsold on to servicing agreements costing at least 2x their long held trail agreements.

    Wrong outcome.

  3. “As a result, we expect products that did not include trail commission before our changes came in … to be recommended by advisers more often.”

    This comment from the FCA’s own website says it all. They do not trust advisers to act in the best interest of their clients. Never have and never will. The FCA’s own research (sorry the FSA, i know the FCA has nothing to do with the FSA) found that their was no evidence of wide spread commission bias, either towards those products providing higher commission or those facilitating trail commission.

    The fact that, if they wish, advisers can dress trail commission up as ongoing adviser charging and effectively continue to recieve the same “0.5%” they always have done seems to have escaped the FCA.

    I for one believe that advisers who take trail commission/ongoing adviser charges, for the most part, have every intention of continuing to provide advice to their clients. I also believe that the sacrificing of higher initial commission/charges in exchange for trail commission/ongoing adviser charges was understood, accepted and preferred by most clients.

    The wording of the FCA’s website (for this i rely on Nic’s reporting of the wording) is a slap in the face for the advice community and only serves to undermine what advisers are trying to do.

    I haven’t subscribed to the theory that the FCA is trying to wipe out the advice community but this is doing a good job of pushing me in that direction.

  4. “The march itself was almost as suicidal but it offered a way out for a few survivors”
    So how are you going to make money, slagging, sorry writing about the half dozen or so survivors, that remain?
    If the FSA/FCA defeat all their enemies, they will not need such a large army. If they decide that they do the taxpayer will need to fork out so perhaps you will turn your bile upon them and let all and sundry know whether they are worth their weight in gold.

  5. Morally, it’s hard to argue that if trail commission is paid, then an ongoing service should be provided.

    However, legally – and that’s of course what actually matters – pre 31/12/2012 business may not include such a requirement. To breach a contract, such as Friends Life may be doing, risks legal action – action that might well be successful.

    Sensible IFAs are already moving clients from trail to AC, but in many instances – such as Investment Bonds – that’s not possible, and where Trusts etc are included, that’s a problem. Many clients prefer all fees to be deducted from the Product, so they can see easily the net returns. And for Trust – who should pay the fees, if it’s not taken from the product? The Trustees? The Beneficiaries? Someone else?

    As ever, the devil is in the detail, but the law will be the final arbitrator.

  6. If only we IFAs whose aim was for long-term relationships and to look after our clients year-in-year out had just copied the rack’em and stack’em brigade (such as the banks) and then took 6-7% on bonds or 4.5% on Shs ISAs upfront and never called back and now of course often don’t exist….

    Then trail wouldn’t be such an issue…

  7. Nic, as you equate IFAs with the Red Army, presumably you are expecting them to come back and win in the long run, just like the Red Army?

    Resistance wasn’t futile then, it doesn’t have to be now.

    And instead of just assuming the FCA are right all the time because it matches your own politics and agenda, how about a bit of balance and decent journalism and questioning where they may be wrong or possibly even exceeding their powers?

  8. @ IFA
    The FCA is above Parliament , the Treasury Select Committee and the law. They can do what they like.

  9. This is a wonderful concept, Nic. Next week, how about comparing the housing market bubble to the Battle of Austerlitz, with mortgage brokers cast in the role of the Austrian Imperial Army?

  10. RegulatorSaurusRex 5th September 2013 at 3:25 pm

    I assume Mr Cicutti doesn’t have any trail to worry about.

  11. Into the valley of death rode the….. whatever number the regulator is fabricating at the moment……leaving a trail behind them.
    Some one had blunder’d:
    Theirs not to make reply,
    Theirs not to reason why,
    Theirs but to do & die

  12. Personally I feel like the welsh boys at routes drift.

    Besieged on all sides but still fighting valiantly.

  13. Re: Phil, 10.07pm

    Please don’t start singing, Phil. I don’t think any of us could bear it.

    Still, an exciting idea for Nic to base his column on whatever book he happens to be reading at the time! I understand he’s just picked up a copy of ‘Fifty Shades Of Grey’, so Lord alone knows what he’ll be comparing IFAs to next week…

  14. @Gordon Manners
    Schindler’s List?

  15. @ Gordon
    Perhaps Thomas Keneally’s famous book would be a good comparison?

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