IFAs do not charge enough trail commission, according to Adviser Breakthrough Solution, an adviser services organisation.
Research from the organisation shows 93% of IFAs receive under 1% per annum trail commission and 27% do not even receive half a percent.
A total of 66% charge 0.5% to 0.99%, 5% charge 1% to 1.49% and just 2% charge 1.5% and over.
The results will support the case of the thousands of advisers taking commission who have come under fire in recent months. A fierce debate is raging on the subject of adviser remuneration on the back of the Retail Distribution Review (RDR) with opponents of commission arguing it leads to advisers giving biased advice. There has also been discussion of whether an adviser can be 'independent' if they charge commission.
Paul Cadde, senior partner of Adviser Breakthrough Solution and an IFA at Cadde, says many advisers feel they cannot justify higher commission rates with their current capabilities.
Cadde, who began his career as a salesman at Abbey Life, says: “I was taught how to set a pension scheme up but not how you do the investment work. No one teaches IFAs how to properly invest the money. Most money is plonked in with profits funds, which aren’t doing very well. If they get anything at all it’s just trail commission.
“In my experience the money is just put in the client’s pension scheme and no one knows how to do it much better. The majority were just not taught. They don’t take trail commission because they don’t think they’re entitled to it or because that is the way the product has been designed.”
He also says advisers felt they could not justify paying more than 0.25% before wraps made client reports faster and of a higher quality. He says many IFAs still have that mentality despite the improvements to the reporting services they can now offer clients.
He adds most consumers he has spoken to expect to pay more than IFAs charge: “Advisers don't believe clients will pay the rate for the job but they would rather pay the proper rate for the job and get it done properly.”
June's Retail Distribution Review (RDR) outlined proposals for customer agreed remuneration (CAR) to separate intermediary services costs from product costs.
The RDR recommends two types of trail: commission where the cost of the fee is spread over several years with no ‘switch-off’ option for the consumer; and commission for future services where the consumer does have the power to opt out of the trail.
To comment on this story contact:
Tel: 020 7034 2679
E-mail: [email protected]
Have your say:
"Paul Cadde sounds like a typical direct salesman who, as he admits, was never taught anything about investment and still doesn't know anything about investment.
"Take as much commission as you can upfront, "plonk" your clients in a with profit fund that "isn't doing very well" or whatever and no wonder he can't justify trail.
"'In my experience the money is just put in the client’s pension scheme and no one knows how to do it much better.' What I think he means is in his inexperience, he doesn't know any better.
"Perhaps he should consider prefacing his advice with a serious wealth warning."
Alan Harris is principal of Harris Investment Management.
"I think Alan Harris has misinterpreted what I am saying. The point I was making is that although I have embraced new methods and new technology to deal with pension investments, in my experience lots of other advisers have not."
Paul Cadde is an IFA at Cadde.IFAonline
Claim from SocGen's global markets division
Third annual Hampton-Alexander review
European Commission yields to pressure
Numbers in Adviserland
Retirement sector trends