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”
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.
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.