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What advisers are saying: Trail commission – the drama continues


The FCA’s recent confirmation of a ban for platform rebates, which included the introduction of a sunset clause banning all legacy rebates by April 2016, had sparked speculation that trail would be finally ended by the regulator.

With this hanging over the industry like an Eastenders drumroll, it is interesting that a piece of research from Skandia estimates that almost two-thirds of advisers intend to move all their clients to an adviser charging model and stop taking trail on legacy business within the next 12 months.

As I mentioned last week, that certainly sounds like a sensible way to go. (Incidentally the one that always stands out for me was when, circa ’91, Clyde Tavernier became the prime suspect in Eddie Royle’s killing after picking up the murder weapon – doomf doomf indeed. Though, for anyone with a capacity for useless information, it’s Phil Mitchell who tops the poll for the Eastenders character with most cliff-hangers to his name, apparently notching up 206). 

There has though, understandably, been a lot of kerfuffle on the matter (Trail, not Albert Square) with Lighthouse the latest to nail its colours to the mast in claiming advisers’ legacy trail should not be switched off as axing the payments rarely provides any benefit to clients.

Their line is that advisers have had to implement many changes as a result of the RDR and should be allowed to rely on historic trail to provide part of their recurring income. This may be true but I can’t help but think that working from this basis that trail will be scrapped ensures that advisers are fully protected if it does happen; and if it doesn’t then you’re in a far stronger position anyway.

It’s clear that advisers are taking control of their own destiny post-RDR and are actively taking steps to transition their clients from old commission structures to adviser charging. Findings from research across the industry certainly suggest that: adviser fees are likely to outweigh commission over the next year, customer understanding will increase and payment patterns will evolve (though Skandia’s survey also suggests that most clients still choose to pay the advice charge for on-going service through the product which is consistent with most research we’ve seen and carried out).

More change is coming and it would be foolish to ignore the signs, especially when the regulator’s intentions (if not specific plans) are so clearly spelt out. What’s certain is there’s more drama around the corner than Nick Cotton lurking into shot growling “Hello Ma.”

Phil Wickenden is managing director of So Here’s The Plan

Extracts from IFA interviews…



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 11th July 2013 at 9:50 am

    Will the cancellation of trail commission be beneficial to most clients? No.

    Will the cancellation of trail commission accelerate the demise of the adviser population? Yes.

    Will the regulator listen? Does the regulator ever listen? No.

  2. It’s fine moving the client over to an adviser charging basis and switching the trail off as long as the existing provider allows you to convert over to an adviser charging basis. However as anybody with clients who have Sterling ISA’s will tell you the provider like many others will not facilitate adviser charging. Many retired clients who are already living up to their monthly income levels do not want to have to start paying separate fees to an IFA for an ongoing service out of their pension incomes. The only way around this then is to move the client lock stock and barrel to a new provider, but of course they will then be paying further advice fees to IFA’s for this service (typically 3% of the funds moved). Is this really in the client’s best interests?

  3. The problem isn’t RDR the problem is the providers not willing to adapt systems without been forced to do so.

    If trail commission is switched off then there should be an option on the system to introduce an adviser charge thus making any charges clearer to the consumer. If the regulator is going to make this decision to switch off trail commission and it needs to also force providers to provide alternative charging systems on products. It is wrong that a provider should switch off remuneration without giving an alternative charging structure after all why should the client be disadvantaged by having to switch to an adviser charging product because they don’t have enough funds to pay the charge personally. In the area of pensions in particular it could be more tax efficient for the client to pay any adviser charge through the product rather than paying personally.

    Wait with interest to see if some legal boffin decides to sue the regulator for disadvantage in clients if the regulator does not force providers to amend systems or simply sue the provider and not providing adequate systems!

  4. Our business model over the last 10 years has been to charge a low initial fee, trail to cover all servicing costs and, we have provided a full review service for our clients. When we are now discussing a new service agreement with our clients they are happy we continue to receive the trail payment. If the client is happy, what right has the provider got to stop this? The only beneficiary to RDR is the product provider because they do not have to pay us to introduce business to them anymore. How can this be good for our clients. Many more IFAs I believe will be out of business and make the whole sorry mess even worse.

  5. Advisor charging is less tax efficient and more complex than trail commission, has the regulator got any idea how fed up our clients are with this back door tax and additional paperwork nightmare, including CGT report (which most providers cannot provide) ?

  6. It must be nice to have the most doof doofers but is Phil Mitchell still in the lead if the figures are adjusted to account for episodes appeared in?

  7. With Carol on this one – we have been doing something similar and the sad thing is that for every £1 we lose in trail on a client’s policy, the client pays £1 more for his services from us. I do not think the clienty will receive the full benefit of £1 into his policy to offset the additional fee.

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