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Hot on the trail

By Dom Wilkes, published 12 October 2017.

Fresh from a first-class degree in Economics and with a natural interest in investments, people and business, training as a financial adviser seemed a good career choice. Candid Financial Advice stood out to me, as their firm philosophy of putting clients’ interests first while keeping fees low rang true with my own views. And having considered a number of potential employers, this approach is rare.

I now have six weeks under my belt and it’s safe to say that I have learnt a lot. For example, I was amazed to discover that many financial advisers still get paid a small fortune in commission – trail commission.

Although new regulations banned commission from 2013, there are loopholes. I was shocked to discover that many advisers still benefit from ongoing trail commission that is attached to policies taken out prior to 2013.

Trail commission is effectively funded out of initial or annual product fees, so the customer ends up paying for it one way or another. And while some providers will agree to turn it off, it’s rare for them to reduce charges as a result. This means many customers are stuck; either pay commission to an adviser who may no longer be looking after you or let the provider keep it and line their own pockets. It seems very unfair either way and customers are losing out.

And we are not talking about insignificant sums of money. The industry still receives some £800m of trail commission and for many advisers it represents about 20% of their income. I now consider myself something of an expert, as Justin had me ringing providers to find out their stance for a press story.

This revelation has somewhat baffled and shocked me. Most people, myself included until very recently, are kept in the dark about trail commission. Ian and Justin tell me stories about commission, but it is only when you see it for yourself that you really start to learn. Trail commission seems to me like a clever, yet extremely unfair, ploy used by providers to line their own pockets – or if not theirs then financial advisers. To be honest I am still struggling to get my head around it.

Perhaps over time the morals of these providers will align with our own and trail commission will be removed altogether on older policies, with a resulting reduction in fees. Meanwhile, I am loving my new role. It’s great being thrown in at the deep end and comforting that I work for a company that does not try and defend such poor practices.