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SLI move signals beginning of the end as trail runs dry

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Advisers still reliant on trail commission should prepare for the tap to be finally turned off by fund groups, say investment experts.

It is thought the “writing is on the wall” for around £30bn of off-platform trail paying assets and advisers are being warned to adapt their business models accordingly.

Last week Money Marketing revealed Standard Life Investments is to scrap trail commission on its entire UK mutual funds range to coincide with the sunset clause on platform rebates in April.

SLI paid trail of either 25 or 50 basis points, but is only reducing annual management charges by around 20bps.

Advisers say the fund group is profiteering from the move, hiding behind a smokescreen of the RDR.

“Spirit of the RDR”

As part of its RDR platform rules, the FCA banned payments between fund managers and platforms and banned cash rebates. The rules were introduced on all new business from April 2014, with a two-year sunset clause on legacy payments between fund managers and platforms.

In 2012 the FSA separately set out rules on when trail can be paid post-RDR, which included paying trail on pre-RDR investment amounts where top-ups are paid into a product, and advice that leads to no change to the product.

But in a letter sent to advisers, seen by Money Marketing, SLI says trail on its mutual funds will stop to “align the way we treat legacy and new business, reflecting the spirit of the RDR”. Standard Life says “the overall financial impact on the Standard Life Group is negative.”

Old Mutual Global Investors says it only has a “very small book of business” which pays trail on off-platform assets. A spokesman says: “We have no plans at this time to take similar measures, although we regularly review charges on all investment funds to ensure they remain suitable.”

Aviva and Aegon also say there have no plans to cut trail commission, while Legal & General Investment Management declined to comment.

A Royal London spokeswoman says: “We will continue to pay existing trail commission to an adviser for as long as we are allowed to under legislation.”

Advice firm Almary Green has trail income of around £2m a year.

Managing director Carl Lamb says: “When I set the firm up 15 years ago it was on a fee basis, or a low initial fee and trail. Our whole business was based on trail, which at the time was forward thinking because a lot of people were still only taking upfront commission.

“So we’ve been penalised for being frugal – we could have taken commission upfront and filled our boots.

“If everyone turned trail off tomorrow, you’d say goodbye to the IFA industry. It is heavily reliant on that commission – probably around 80 to 90 per cent is reliant, including the large networks.”

But research consultancy Finalytiq founder and director Abraham Okusanya says the “writing has been on the wall for a long time”.

He estimates off-platform assets still paying trail are worth around £30bn.

He says: “This has been circling around for so long now, since the sunset clause was announced and the ban on platform rebates.”

Okusanya says the cost to asset managers of administering trail and the strain their systems are under means it is “perfectly understandable” others will follow SLI’s lead.

But he adds: “Typically advisers will have 10 per cent of assets placed directly with asset managers. It will affect a few of them, but advisers are the most resilient part of the retail investment value chain – they will adapt quickly and move on.”

Not so fast

Threesixty managing director Phil Young agrees asset managers are likely to seize the opportunity to cut trail on smaller books of business as the sunset clause deadline looms this April.

He says: “Most providers would like to cut trail and pocket the money if they could. The obstacles are where people have cut it so far it’s been smaller amounts.

“If you cut trail commission where a lot of advisers will be affected there’s a tacit assumption people will get annoyed and move money elsewhere.

He adds: “It’s a trial and error way of testing. It could be the start of something but the strategy among providers is not to do anything dramatic for bigger books of business. If trail’s being paid it’s an incentive for advisers not to switch the fund.”

There have been concerns that Mifid II, which was due to be implemented in January 2017 but is likely to be delayed, would stop all trail on retail investment business.

The FCA says it has no plans to change its current rules on trail commission.

Zurich head of regulatory developments Matthew Connell says: “We don’t see that Mifid II necessarily affects trail for pre-RDR products because of the way it applies  – it’s not necessarily retrospective.

“The expectation is there will come a point that if you have an arrangement still paying trail despite the ban being in place for years, you’d have to start asking is this really a situation that is in the consumer’s interest or is it being kept alive for the industry’s interests?”


Currently SLI pays trail commission of 25bps on bond funds and 50bps on equity funds. It is cutting annual management charges typically by around 20bps on its mutual funds, lowering fees for around 90,000 customers.

But advisers have branded the fact not all the savings have been passed onto clients as “obscene”.

Young says whether or not the remaining margin is passed on is a “grey area”.

He says: “Where it’s a big amount of money no-one’s quite sure from a treating customers fairly perspective whether you’re allowed to keep it or pass it on to clients.”

But investment consultancy Gbi2 managing director Graham Bentley says advisers complaining about SLI profiteering “should note their own fees have risen since RDR, from 50bps trail to 75bps adviser charging, for effectively doing the same job”.

Bentley says: “It makes sense in a non-commission environment to get rid of this anomaly. SLI off-platform clients, direct or otherwise, will now have a share class priced the same. No doubt SLI will provide better web-based engagement with customers in exchange.

“And of course, affected advisers should be using customer-agreed remuneration anyway. Their problem will be now having to directly ask the client for a fee rather than having it, less obviously, facilitated via a platform. So I expect most of these assets, if indeed there actually still is a relationship with the customer, will end up on a platform as a result.”

Expert view: Mike Barrett

The announcement by Standard Life Investments of its intention to stop commission payments on its mutual funds was never going to be popular. Advisers are rightly concerned about the impact on their clients and the loss of revenue, but this news should be viewed as a warning shot across the bows. It is likely a number of fund groups will follow SLI’s lead and end trail. A lot of advisers will now be looking at their back book of commission-paying products and thinking that 2016 should be the year to move them to a fee model, before the rug is pulled from beneath them.

For some clients this will not a problem. Their adviser can move them to a clean share class, with adviser fees replacing the commission, and the total cost to the client is likely to remain broadly the same. However, for many clients it will not be that simple. Providers need to ensure they are treating their customers fairly, and there are a number of potential outcomes where the customer might end up feeling this was not the case. It is unreasonable to expect a customer’s total cost of ownership to increase as a direct consequence of this process, and providers initiating similar moves need to ensure this is not the case, especially once adviser fees have been included.

Of course, all of this assumes the client is going to pay for ongoing advice, but an unfortunate consequence for many will be that they find themselves orphaned, with advice fees either uneconomical or unaffordable.

With Mifid II introducing increased suitability requirements many fund groups could find themselves with a large book of non-advised clients, with little or no direct servicing capability. In this scenario providers might be better served supporting advisers, as opposed to disrupting their client relationships.

Mike Barrett is consulting director at The Lang Cat

Adviser views

Scott Gallacher


Rowley Turton

This is another example of Standard Life stealing commission from advisers. They are now effectively ripping up the contract with advisers, and not even rebating all that money to clients. It’s scandalous.

Dennis Hall

Managing director

Yellowtail Financial Planning

Turning off trail has been on the horizon for a long time. Anyone with a bit of forward thinking should be designing their proposition around fees. Standard Life Investments has just broken ranks early.


Standard Life new logo

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There are 14 comments at the moment, we would love to hear your opinion too.

  1. ” But investment consultancy Gbi2 managing director Graham Bentley says advisers complaining about SLI profiteering “should note their own fees have risen since RDR, from 50bps trail to 75bps adviser charging, for effectively doing the same job”. ”
    Well Graham have you not noticed that FCA charges, FSCS charges and the cost of insurance have all risen ” for effectively doing the same job” so costs have to be covered or does everyone at Gbi2 take a pay cut every year?

  2. 3 years on from RDR anyone relying on trail commission, knowing that it would end one day, has been self delusional. There has been plenty of time to move clients to a proper wrap and use clean share classes.

    • However Paul as your likely aware, in more than a few cases, that actually means raising the cost to the client, so in reality, its slightly more complicated…

  3. Bit of unwarranted scaremongering to be fair then? Thanks MM, for sowing the seeds though!!!

  4. Graham Bentley is seemingly saying “two wrongs make a right ” !

  5. The headline should actually read:

    SLI rips off clients – again. (But would your advertising budget suffer?)

    Graham Bentley is a true Guru, but on this occasion is talking out of his hat. Some firms (usually the larger ones) might charge 75 bps. Before I sold out in February my highest funds under management charge was 0.5%, reducing to 0.25% on the larger portfolios. Was I unique? I think not.

  6. Many readers will be aware, we have been concerned for some while about the impact that the removal of trail will have on businesses. The impact is varied, the threat real, in fact more real than even we realised.

    In December 2014, we worked on an impact study via a Panacea survey with Garry Heath who was working on the second edition of “The Heath Report”.

    The Heath Report Two (THR2) has been created to examine the consumer detriment caused by the regulator’s actions in introducing the Retail Distribution Review.

    As Garry says “It does not seek to be a learned academic document but to assemble in one place a clear description of what RDR has created and suggest lessons that might learnt”.

    The report also wishes to explain the social value of IFA sector and present the arguments for making changes in regulatory accountability to ensure that RDR represents the last time the regulator can abuse its power.

    THR2 has been created for the consumption of the financial services industry, its regulator and in particular the politicians who created an Act which has created a regulator over which they have no control – which in a democratic country is totally unacceptable.

    This journey started with a Panacea Adviser Conference in January 2014 at which the effects of RDR were discussed and in particular the way the loss of Trail commission might compromise a significant sector of the IFA community.

    Panacea Adviser completed a comprehensive survey in late 2013, 92% of respondents thought the removal of trail would be “catastrophic to the future of their businesses”. This survey has been repeated at the end of 2014 & the new catastrophic figure is 94%.

    In April 2014; the Panacea Team, Lee Travis from NMBA and Garry Heath met the FCA which dismissed the survey of 1,752 advisers, representing over 50% of the direct authorised IFA firms, as “unimportant

    At this April meeting, the FCA informed us that it would issue an internal review early in the autumn which we expected to be in praise of RDR.

    In the end, the FCA employed European Consulting and Towers Watson to produce and issue 2 lacklustre reports which were smuggled out in the week before Christmas to a distracted media – hardly the action of a confident regulator.

    These reports suggested that there was “no evidence of consumer benefit” leaving the FCA to opine that RDR’s “longer journey will benefit consumers”.

    This is reminiscent of Mr Micawber’s hope “that something will turn up”.

    The Interim THR Report was issued in September 2014 and gave ammunition to politicians on the Treasury Select Committee, to ask some uncomfortable questions of Martin Wheatley. It also found considerable traction in Europe and Canada; both of whom face regulators keen to follow this latest dangerous regulatory fashion. Interestingly, the RDR infection which started in Australia is now waning there.

    There will be a point at which RDR fallout in the UK becomes untenable. And in turn many firm’s viability.

    I think we are nearly at those waypoints, download the full copy of the THR2 now

    and read the findings for yourself. I think you will be very surprised, and especially those firms that thought they had no problems!

    As the Hendrix song goes: “There must be some kind of way out of here, said the joker to the thief”.

    But where?

    • Derek

      As you will no doubt have seen elsewhere on this site, there are many who don’t have a great deal of faith in Gary’s reports and statistics.

      Indeed there are those that assume that Gary drives a DeLorean.

  7. I am of the opinion that the vast majority of (off platform) trail comes from Insurance/redemption bonds. There are lots of very good reasons for not “moving” this money to a new, fee-based investment. Potential tax for the client and consequences of surrendering bonds that are written under trust can be drastic. These are only 2 reasons why it moving this money elsewhere should not happen. Continuing to keep the trail on the existing investment can very definitely be in the client’s best interests and it would be a huge scandal if it was cut off, regardless of whether or not the entire .5% or .75% was passed on to the client.

    ……”Graham Bentley says advisers complaining about SLI profiteering “should note their own fees have risen since RDR, from 50bps trail to 75bps adviser charging, for effectively doing the same job”….. You bet your sweet *ss the fee has gone up post RDR, and why would it not (even forgetting the rising costs we have all endured over recent years), we are more qualified now, we are more professional and for this, we rightly charge more. We are in business to make a decent living and I have no problem in raising my fee. I would argue that we do more now than pre RDR and so effectively are not just doing the same job as before.

    I would be very interested to hear from Graham as to what his firm now charges and if it is less than before, how does he cope with the reduction of income in increasing cost world of Financial Services

  8. As a new entrant to the profession in 1988 I was advised “trail/renewal is your pension my boy”, which I considered a niaive belief when looking at the consumer/provider respective profiles. A repeat of this mantra was laid on me again in 1995 when I became an ‘independent’ with a firm of IFAs, again I was not persuaded, insisting instead on my own version of “C.A.R” before it ever made it in to regulation. It amazes me that a wider recognition of a lack of logical durability is/was missing, thereby only leading to the formation of a phrase including the words Ostrich & sand!

  9. David, you are of course correct. Harry, I’m blushing and consequently I’ve removed the hat from my mouth. My point was that (according to the recent Schroder survey), CAR for ongoing service had risen to 75bps ie beyond the trail/renewal otherwise being paid. That trail did not necessarily correspond to service, since it was not conditional. CAR does correspond to service, by definition. As David rightly says, the cost of service provision has risen dramatically. Ergo, the cost of ownership rises. I don’t feel it’s incumbent on SLI to subsidise that on a one for one basis – indeed I’m not certain trail payments (versus renewal) were ever contractual. The trail was always their money, that they just deemed to pay to advisers. Since they no longer wish to pay it, it doesn’t strike me as profiteering to give 20bps to the client; certainly not over generous but hardly ‘obscene’. I don’t see there being any TCF issue since between the price relationship between the fund group and the customer has improved by 20 bps. Again, trail not being paid is irrelevant since it was always part of the headline AMC – not an additional charge.

    Surely advisers would be better off charging all their customers the going rate, ie 75bps, rather than 50? Wouldn’t the money be better managed on a platform, with the concomitant lower share class anyway?

  10. Having run data on our own (Best Practice) member firms – around 220 advisers – SLI’s announcement means a total of £200 per month exposure, with less than 15 clients affected. Bear in mind only clients on SL’s old Sigma platform, and not Fundzone / Wrap are affected. But it’s a statement of intent and where SL lead, others are sure to follow.

    Dennis’s comments are spot on, continually thinking forward from a business planning perspective and taking a “plan for the worst” stance has protected us (so far).

    However, echoing Marty Y, if “legacy” bonds come under the scalpel – as I guess they will – then there are likely to be both tax and cost implications for clients to move and I don’t know many firms who would be unaffected in some way.

    Lobbying is admirable, but I wouldn’t bet my business on the outcome…

  11. No one mentions the recourse to the law courts. If any of the providers I have used try this trick, I’ll sue them for breach of contract. Simple.

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