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Providers are withholding trail

I have recently read two articles on trail-based commission (Money Marketing, November 11) and, while I largely agree with the comments made, I would like to draw attention to the following.

Neither of the articles made any mention of the need for providers to also change their stance. If the industry is now going full circle and recognising that trail/renewal commission are actually paid by clients via the provider for ongoing servicing and advice, then they must also accept that such payments should go to the servicing agent whether or not he/she is the original adviser.

At the end of the day, even for bonds where some initial commission is given up in return for trail-based payments, historical research will show that the higher initial payments allowed for renewals based on the typical lifespan of an investment bond to be paid in advance. Therefore, initial commission is not waived but renewals are paid up-front and this payment is incorporated in the original contract charging structure model.

Again, providers need to look at their codes of conduct, especially where there is a change of intermediary from tied/multi-tied to independent.

How can the likes of Henderson, HSBC and Scottish Widows maintain that renewal or even new initial commission is not payable on existing Isas, unit trusts and so on, simply because the original adviser/salesman was a staff member of either the parent or subsidiary company?Under current regulation, each tax year results in a new contract so that subsequent contributions to the April 6 following the change of adviser should at least generate commission on the new contributions but the providers state: “No.”

I have today been informed by Scottish Widows that to be eligible for trail commission paid in arrears on an Isa, the contract must be in force on its “calculation date”. So taking an Isa that was cancelled on September 30, 2004, a few days before its calculation date, no renewal is due for the period April 5, 2004 to September 30, 2004, even though its sales department confirmed on the telephone today that a proportional payment will be paid. This action is unfair to IFAs and I wonder how many are actually aware of this stance and the total renewal commission that the provider is saving as a result?At present, it would appear that most providers are only willing to pay lip service to the need to encourage IFAs to service clients and reward them in accordance with the allowances already built into their own product charging structures.

I have mentioned only three companies above but most IFAs will be servicing clients with policies from many other providers which are refusing to pay renewal/trail commission because the original adviser was tied. For example, I have Legal & General, Abbey Life, Allied Dunbar, Skandia and so on.

In many instances, the tied adviser no longer works for the provider and the provider therefore pays no one the trail-based payment it deducts from its clients for forwarding to the servicing adviser.

What happens to the withheld payments. Are they added to the bottom line?Perhaps you should request some of the named providers to justify their stance in an article so as to offer a balanced representation of what will be an increasing care of concern for all concerned, be they regulator, provider or adviser?Owen Hoye OPH Financial Consultants,Codsall, Staffordshire


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