Trail commission fees

Aged

Isn't it illegal to apply these charges re financial products issued in the last few years?

TH1878

Aged wrote: »

Isn't it illegal to apply these charges re financial products issued in the last few years?

Is it definitely a trail commission or an ongoing adviser charge? Since 01 January 2013, no new investment business should have trail commission on.

Aged

TH1878 wrote: »

Is it definitely a trail commission or an ongoing adviser charge? Since 01 January 2013, no new investment business should have trail commission on.

Are they not just the same thing at the end of the day?

magpiecottage

In one word, no.

As TH1878 says, no commission can be paid on new INVESTMENT business. This would include savings plans and pensions.

However existing business would be subject to the terms originally applied but any increases would not.

Other forms of insurance, essentially those which only pay out if the insured peril occurs, can still have commission paid on them.

mania112

The OP needs to be certain about what they're asking, because, no, it's perfectly normal for ongoing fee's to be taken from your investments/pensions.

Since 2013 you needed to have agreed to those charges being taken. Fundamentally, that's the only difference to you.

dunstonh

Also, if you DIY and go non-advised, then commission has not been banned in that market.

Pre 2013, trail commission could be paid and didnt have to be used against any future service. Post 2013, ongoing fees have to be used against an ongoing service or provision of service (which could be access to adviser when you need one without being charged again and an investment portal showing your investments etc through to annual, biennial or triennial reviews etc)

So, yes, Trail commission for NEW business has been banned. However, fees for ongoing service are not banned

SallyG

"Also, if you DIY and go non-advised, then commission has not been banned in that market."
Who would be paid the commission in DIY/non-advised sales?

dunstonh

SallyG wrote: »

"Also, if you DIY and go non-advised, then commission has not been banned in that market."
Who would be paid the commission in DIY/non-advised sales?

The distributor would be paid (i.e. who you buy it through). This can be third party websites or it can be the provider's own sales channel/distribution.

This is being looked at by the FCA as it has led to examples where DIY is marketed as effectively cutting out the middle man but resulted in higher charges/worse terms than using the "middle man" because the commission is higher than the fee.

Aged

dunstonh wrote: »

The distributor would be paid (i.e. who you buy it through). This can be third party websites or it can be the provider's own sales channel/distribution.

This is being looked at by the FCA as it has led to examples where DIY is marketed as effectively cutting out the middle man but resulted in higher charges/worse terms than using the "middle man" because the commission is higher than the fee.

But the commission that you refer to here isn't charged directly to the client on an ongoing basis, is it? Not sure I'm understanding you correctly Dunston.

dunstonh

Aged wrote: »

But the commission that you refer to here isn't charged directly to the client on an ongoing basis, is it? Not sure I'm understanding you correctly Dunston.

Many years ago, trail was not explicitly charged on a number of products. It was an alternative way of being paid. So, an adviser could take 5% initial with no trail or 3% plus 0.5% but in either case the charges for the client remained the same. From round 2005 onwards, trail become more explicitly charged on many products. So, the trail figure was more directly in relation to the product charge.

Consumers were always paying for trail commission. It was built into the product charges. You just didn't have the breakdown and sometimes the breakdown was not obvious.

If you look at annuities (which do not have trail), the DIY option has commission factored in unlike the advice version which does not. Effectively the fee amount or the commission amount is factored into the annuity rate by reducing the value of the fund. e.g. If you have a £100k pension fund and the fee is £1000 for adviser but £3000 for commission the the pot is reduced to £99k for the adviser and annuity rate applied to that vs £97k for non-advised and the annuity rate applied to that. The fee paperwork will show that as happening but the commission version will not but it will have the same outcome but less transparent. Transparency is one of areas that has improved with fee basis.

Aged

dunstonh wrote: »

Transparency is one of areas that has improved with fee basis.

So now we're seeing what we're paying, as opposed to it being hidden. The issue is whether or not we are receiving the 'advice' that we're being charged for