Trail commission - money for nothing?

br1anst0rm

I'm reviewing some of our savings and investments (.... and yes, I know, I should do so more regularly and systematically, but still....) and I have been looking into one investment in particular.  This has thrown up an interesting question about value-for-money.

The basic facts are that about 25 years ago we invested a substantial (for us at the time) amount of money in a Prudential Bond, a "With-Profits Investment".  To be precise, it is described as a Prudence Initial Charge Bond, and is made up of 20 separate "bonds" or policies - presumably to facilitate the partial cashing-in of the bond(s) if or when we wished to do so.

The investment was made on the advice of a financial intermediary, Towry Law International, who no doubt collected commission for arranging this, as was and is fairly normal practice.  Since then the investment has grown;  we have not added to it or drawn from it.  Each year we have had a statement from the Pru giving the updated value of the Bond.  Pru deducts a management charge.  But the bond value has grown steadily.

We have recently had the latest annual statement.  We have pension income and don't need immediately to access the cash.  But with advancing years (I'm 74, my wife 72) we're having to think about how to use or reorganise our savings and are looking at later-life needs, annuities and all that.

The Pru statement very sensibly says that if we need more detailed advice, we should talk to our financial adviser..... who, their letter says, is "Evelyn Partners Financial Planning Ltd".

I've never heard from, or had any dealings, with Evelyn Partners.  So I thought I'd ring and ask if they were willing to offer advice!  They had never heard of me and have no record, which I found intriguing.

Long story short, I have ended up following a trail which is all about trail commission.  Towry Law was bought by AMP.... subsequently became part of the HHG Group.... and their business was then taken over by John Scott & Partners .... and later acquired by Tilney who merged with BestInvest .... which is now part of Evelyn Partners.  Through all this, these successive firms have been collecting the trail commission payable originally to Towry Law in respect of my Pru Bond.  Probably a tiny percentage per year (I don't know the figure) but over 25 years or more, adds up to a reasonable amount.

So it doesn't seem too unreasonable now to ask for some advice from Evelyn Partners in return for the commission they have taken from my savings over all these years.

But Evelyn Partners claim to know nothing about me.  Their contact centre passed me to their subsidiary department that deals with BestInvest.  They have no record of me as a client either.  But clearly the Pru has been paying out commission on my bond each year to someone....

Hence the title of this post:  in the words of the Dire Straits classic track - is trail commission "Money For Nothing"?  Can I now actually seek, and get, financial advice in return for whatever commission has been paid, and if so, how do I go about it?

Linton

I believe Trail commission has been banned for all new purchases since since about 2012. Replace the fund. The same named fund bought now will have a different class and will not incur trail commission.

masonic

The FCA would tend to agree with your sentiments, and that is part of the reason why they banned it on new products over a decade ago. Here is what they have to say on the subject: https://www.fca.org.uk/consumers/trail-commission

DullGreyGuy

You agreed to an original product term that would have acknowledged a commission to the seller. Had you extracted the funds after a short period then the seller would have been out of pocket (subject to any clawback terms). Had you stayed on for 50 years they'd have made more profit. The average customer duration is considered when setting commissions etc and for those that aren't IFAs, what they decide to sell. 

When the various companies were sold in the subsequent mergers the tail commissions will have been considered in the monies paid for the business and ultimately the shareholders who took the financial risk when investing in the company to start with. 

Would you be happier had the original company gotten 3% commission up front rather than 0.3% per year which you'd have to repay if you had left earlier?

Many businesses, particularly resellers, make a loss on new business sales (or just about break even) and only make their money on retained customers. Its a strategy decision if customers are best retained though active engagement or allowing them to quietly keep on going. 

br1anst0rm

Thanks for those two comments.  Interesting to know that trail commission is now banned on new products. But in my situation I'm not in a rush to sell/buy/replace/change the Pru Bond we've held for decades:  it has grown OK, and presumably will continue.

I see from the FCA guidance that if I am unhappy with trail commission being deducted I could (a) sell the product, (b) shift to another intermediary willing to give better service, or (c) try to get the trail commission repaid (fat chance!).

My point is that as a pre-2012 product, trail commission WAS and IS being paid from my savings/investment bond.  I don't really want to mess about with the existing Pru product.  I would just like to get some advice now in return for the money that has already been taken over the past 20-plus years.  

From whom should I be seeking that advice?  And can I insist (are they obliged) to give that advice without further charges?

masonic

br1anst0rm said:

My point is that as a pre-2012 product, trail commission WAS and IS being paid from my savings/investment bond.  I don't really want to mess about with the existing Pru product.  I would just like to get some advice now in return for the money that has already been taken over the past 20-plus years.  

From whom should I be seeking that advice?  And can I insist (are they obliged) to give that advice without further charges?

The trail commission was paid by the product provider to the intermediary with the intention that it was used to provide an ongoing service, but the intermediary was not under any obligation to provide any specific services in exchange for the money. The money taken was for services to be provided at that time, but if there is no contract detailing what those services should have been, then you are not going to be able to successfully challenge the intermediate for not performing the services. You do not accrue a credit balance you can use in the future. What was paid in previous years is gone. All you can do is enter into an agreement for a better service from this point onward. If they don't want to give the service level you expect of them, then you are free to take your business elsewhere, as mentioned in the FCA page.

I seem to recall Pru itself used to work in partnership with advisers who helped to sell their products and provide some level of ongoing support, but I think that died with the ban on trail commission on new products.

br1anst0rm

masonic said:

....The trail commission was paid by the product provider to the intermediary with the intention that it was used to provide an ongoing service, but the intermediary was not under any obligation to provide any specific services in exchange for the money. The money taken was for services to be provided at that time, but if there is no contract detailing what those services should have been, then you are not going to be able to successfully challenge the intermediate for not performing the services.....

I seem to recall Pru itself used to work in partnership with advisers who helped to sell their products and provide some level of ongoing support, but I think that died with the ban on trail commission on new products.

Thanks @masonic.  In effect you have confirmed my initial rather facetious "money for nothing" assessment.  The intermediary takes the trail-commission on the basis that ongoing advice will be provided, but (although the original bond-purchase contract included consent to commission-payment, as @DullGreyGuy points out) it seems that the intermediary is not bound to provide that ongoing advice.  Funny kind of contract, that....

It is very probably the case that the Pru were partnered up with Towry Law, and to be fair the latter did remain in contact as "my financial adviser" for a year or two.  But then the adviser, and the firm, effectively disappeared, having been taken over.  And it looks very much as if the trail commission was "handed on" through the succession of other firms, but without any associated service or advice commitment.  It's a funny kind of pass-the-parcel deal which gives the successor firms an income stream in return for doing nothing.  Nice work if you can get it:  I wish I could have had a job which paid me a regular income for doing nothing!

I'm not going to sweat over this.  But I would quite like to nail down who has been, and is, getting my trail commission money, if only so I can ask directly how they justify collecting it.  I don't think @DullGreyGuy's attempt to drum up sympathy for financial advisers quite suffices.

dunstonh

The investment was made on the advice of a financial intermediary, Towry Law International, who no doubt collected commission for arranging this, as was and is fairly normal practice. 

As was. Not is.   Commission was banned from 1st Jan 2013.

So it doesn't seem too unreasonable now to ask for some advice from Evelyn Partners in return for the commission they have taken from my savings over all these years.

No. When the plan was set up, the adviser firm had a choice of being paid up front or reducing the up front and taking an annual amount instead. Either way, you paid exactly the same, as it was the provider who made the trail payment, not you.

Hence the title of this post:  in the words of the Dire Straits classic track - is trail commission "Money For Nothing"? 

No.  It was a sacrifice at the start in exchange for drip.  If plans lasted longer than around 7 years, the selling agent got more. If they lasted less than 7 years, they got less.   It costs you no difference, no matter which method was selected.

Can I now actually seek, and get, financial advice in return for whatever commission has been paid, and if so, how do I go about it?

You don't.  That trail is with respect to the original sale.   

I see from the FCA guidance that if I am unhappy with trail commission being deducted I could (a) sell the product, (b) shift to another intermediary willing to give better service, or (c) try to get the trail commission repaid (fat chance!).

There is no legal or regulatory reason for the trail to be repaid.   So, that won't happen.    There is an option d) ask Pru to turn the trail off.  However, they won't give it to you. They keep it for themselves.

My point is that as a pre-2012 product, trail commission WAS and IS being paid from my savings/investment bond.

No, it wasn't. It is not an explicit charge. Pru is paying the trail, not you. If the adviser had taken upfront only, then you would still have the same ongoing charge.

From whom should I be seeking that advice?  And can I insist (are they obliged) to give that advice without further charges?

You could appoint a new adviser who would receive it in the future. They may use it to offset their fee. Depending on the size of the investment, some may be interested, and some won't be. Also, a quirk of Pru is that they do not pay trail as a percentage of the full value—just the original investment plus annual bonuses to date. There is no trail on the final bonus accruing.     

It is very probably the case that the Pru were partnered up with Towry Law,

No, that was not the case.

And it looks very much as if the trail commission was "handed on" through the succession of other firms, but without any associated service or advice commitment.  It's a funny kind of pass-the-parcel deal which gives the successor firms an income stream in return for doing nothing.  Nice work if you can get it:  I wish I could have had a job which paid me a regular income for doing nothing!

Except it doesn't work that way as a) you would be giving up money at the outset in exchange for a smaller amount annually that may or may not recover what you could have had paid at the outset.

Let's say your employer tells you that you can have £30,000 this year or £3,000 annually until I decide otherwise. Your employer could die next year, and you would only get £3,000. Or they could shut down, and you would not receive any more money. Or they could go on for 20 years, and you would end up with £60,000.

But I would quite like to nail down who has been, and is, getting my trail commission money, if only so I can ask directly how they justify collecting it. 

The only justification needed was at the point of sale by the original adviser who made the decision.

DullGreyGuy

br1anst0rm said:
 It's a funny kind of pass-the-parcel deal which gives the successor firms an income stream in return for doing nothing.  Nice work if you can get it:  I wish I could have had a job which paid me a regular income for doing nothing!

I've a website, it generates £500 per year in advertising revenue with out me doing anything to do it other than renew the domain for £17. How much are you going to pay me for it?

I might tell you that if you worked it a little you could triple it to £1,500. Maybe £7,500 then? 5 years revenue is fair no?


Its not particularly nice work as its a gamble and like any gamble some you win and some you lose. A common one a few years ago was buying the revenue streams of ground rent on leasehold properties, you have to make assumptions on indexation, where appropriate. What the default rate is. Will the government ban ground rents? Then make an offer the freeholder will accept. 


Plenty of opportunities to exchange future cashflows for a lump sum now if you've got the capital to invest and think you can model the revenues. 

br1anst0rm

Thanks especially to @dunstonh for that detailed and very knowledgeable response on all the points in my earlier posts.  Gave a very clear insight into how the charging arrangements did - and do - work.  Still doesn't quite assuage my instinctive sense that trail commission is, if not money for nothing, a bit of smoke and mirrors.  The fact that it was banned in 2012 tells me something.  

And while it may be technically accurate that the commission is paid by the product provider (the Pru) and not me directly, where does that money come from?  The management charge,  or a deduction from whatever growth my investment generates.  Either way, as I see it the money ultimately comes from me. 

But hey, as I said before, I'm not going to sweat over this, and certainly not launch an overhaul or reconfiguration of my current savings and investment.  Nor am I tempted to go down the latest rabbit-hole suggested by @DullGreyGuy.

I just query - and resent - the idea set out in the Pru documents that Evelyn Partners are my financial advisers and that I should look to them..  They weren't and they aren't, and they have certainly never given me advice on anything.

boingy

I'd absolutely cash it in and re-invest in something I was happier with.
Invest in something you understand and where you are happy with the fees.

I look back with regret at our first mortgage and my first personal pension. Both of those "advisors" fleeced us because we didn't know any better. In the first three years of the endowment 90% of the endowment part of the payments went in commission! The pension advisor's commission was also heavily loaded in the early years, those years being so important in such a long term investment.

So I say dump those outdated investment vehicles and move on.