Sheriar Bradbury, owner of London-based Bradbury Hamilton, says questions remain about Ivan Massow's new business venture, but feels the one-time flatmate of Michael Gove may be on to something...
The subject of trail commission has once again been brought to the fore in the guise of paymemy.com, a new website aimed at policyholders who apparently don't receive service from the IFA who picks up the trail commission on their policies.
The man behind the venture is Ivan Massow. His business, according to reports I have heard, aims to collect all the trail commission and rebate 80% back to the client, irrespective of its size.
Is this a clever business model giving the client 'something for nothing', or are there flaws to this idea?
The problem that first struck me was - what is HMRC going to think about money from pension funds being rebated back to clients? Would this be treated as an unauthorised payment?
Well, according to Massow, he has confirmation from HMRC that this is not the case as no new commission has been generated and the rebate is purely a "commercial arrangement".
Having looked at this section in the HMRC guidance notes, there is a requirement for service to be provided and if this service is deemed only to be the collection of the money then maybe it would work.
I think HMRC would be loath to let this one through as the policyholders would receive cash back possibly well before a normal earliest retirement date of 55, having first received tax relief.
The second issue that I think may cause problems for this venture is the RDR requirement that a service should be provided if legacy income is to be received. If administering the payments to the clients is considered a suitable service then this, too, may be ok.
At Bradbury Hamilton, we provide a defined service for all clients who earn us over £360 per annum in renewal and trail and a menu of additional services for clients generating over £1,200 per annum.
We are currently matching 93% of our commissions which I understand is extremely high.
My conclusion on Massow's venture is that, if it does get through the hurdles of HMRC and RDR unscathed (and that is a challenge!), how is it going to match as it claims all the money down to the last penny (when a number of product providers still have manual commission statements) and still make it pay?
If this works it will chip away at passive incomes of IFAs for years to come, but I can't see how enthusiastic many of the insurance and investment companies would be to play ball. Wouldn't it be easier for them to simply switch off the tap?
If there are problems with HMRC relating to rebates I wonder if Ivan Massow will guarantee any losses for clients? Somehow I don't think so!!
What made financial headlines over the weekend?
Pensions neglect to be criminal offence
All-day event on 24 April
Consequences could be more severe than in stress tests
AFH has six segregated mandate funds