Hidden Financial Adviser Fees and Commissions

Published / Last Updated on 27/10/2023

Beware of hidden trail, fund based and renewal fees or commissions choking off investment returns.  As much as 1% pa can be knocked off your fund values.

Are you paying more in hidden or 'forgotten about' financial adviser fees and commissions?  Before exploring this, it is worthwhile understanding how fees and commissions have changed over the years.

Financial Services Act 1986 – “Soft Disclosure”

  • From 1988, financial services and financial advice became a regulated activity. 
  • Commissions were covered under a ‘maximum commissions agreement’, before this, there were no rules on what commissions could or could not be paid.
  • Given there was a ‘maximum commissions agreement’, there was no requirement to disclose commissions paid to the adviser from hidden charges in your policies.
  • This was known as ‘soft disclosure’ i.e., the ‘maximum commissions agreement’ was in the public domain, so you could find out if you were inclined.

Commission “Hard Disclosure” 1995

In 1991, the Office for Fair Trading argued that ‘soft disclosure’ was technically an illegal price-fixing cartel and was not competitive given it was a maximum commission agreement.

‘Hard disclosure’ had started but the practice was usually only declaring a % commission figure to the consumer e.g., “The financial adviser will get paid commissions of 5.3%”.

In 1995, full hard disclosure started when the practice became the declaration of the actual amounts of charges, expenses, surrender penalties and commissions, not just the % e.g., “The financial adviser will get paid a commission of £5,300.

Retail Distribution Review 2013 – Some Commissions Banned and Adviser Fees Start

Following the Consumer Credit Crunch Crisis and then a Mortgage Market Review, a full Retail Distribution Review came into force in January 2013.

  • Commissions for life insurances and other protection insurances were allowed to continue under ‘hard disclosure’ as well as commissions allowed on pensions and investments where NO ADVICE is given.
    • Have you ever wondered why our television screens are filled with instant, ‘telephone us’ life insurance advertisements from as little at £7pm?  Yes, it’s the commission.
  • Commissions on pensions and investments WITH ADVICE was banned in 2013 and replaced by adviser fees.  An adviser fee must be quoted and agreed with the consumer before proceeding.
  • In short, a financial adviser must disclose its fee (% of wealth/value, or a time/cost related amount) when offering pensions and investment advice.  Commissions can still be taken for certain types of products such as life insurance and ongoing commissions can continue.
  • Old policies started before 2013:  Hidden, ongoing trail commissions can continue unless the policy is changed.
  • Ongoing Trail ‘adviser fees’ can be paid but must have been agreed with the consumer.

It is a shame that many % Adviser Fee firms persist in not being that clear on their charges, whilst it will be in the paperwork, many do not openly talk about numbers and simply quote the % upfront and the % ongoing.


Financial product providers were required to start display any adviser charge amounts in the charges and expenses area of your yearly valuation/unit/policy value statements.  This may have been perhaps the 1st time many investors saw what their adviser was being paid ongoing.

Consumer Duties 2023

All financial firms are now required to ensure that the consumer comes first in all thoughts, processes, practice and even charging fees.  Adviser fees must be fair, and advisers must be able to demonstrate that they are good value.  This is perhaps the final ‘nail in the coffin’ for trail fees and trail commissions.

We are already seeing some big advisory firms revamping their charges.  That said, there are still many financial advisers that get paid ‘trail commissions’ from policies started before 2013 and ‘trail adviser fees’ for policies started from 2013 but with little value added or works delivered for their clients.

Make sure you check what hidden ‘adviser fees’ or ‘adviser commissions’ are being paid to your adviser on your policies.  If in doubt, demand it in writing.  It may just save you money and help your pension and investments grow faster.

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