The FCA is ‘Eying Up’ up the £674m in Legacy Trail Commissions Which Financial Advisers are Still Claiming Over 13 Years Later!
The FCA has turned its attention to legacy trail commissions, opening up discussion on whether these payments to financial advisers should finally be scrapped. For anyone currently pursuing financial adviser claims, this review could have significant implications.
What Are Legacy Trail Commissions?
Before January 2013, financial advisers working in pensions and investments didn’t primarily charge fees, they got paid in commissions from the pension and investment provider platforms like St James’s Place, Quilter, Aviva & Scottish Widows (to name a few).
The result was that some advisers looked for ways to justify using the providers that paid the highest commissions over the providers that best suited their client needs, leading to consumer detriment and inconsistency across the industry.
The commissions were paid from the fees the platform providers collected, so naturally the higher the fees, generally the better the commission which was not good for consumers.
What the FCA did to fix it (Retail Distribution Review)
In 2012 Trail commissions were outlawed under the Retail Distribution Review back in 2012, however arrangements already in place before that date were given a free pass. Under these deals, advisers continue to receive payment simply for having originally placed a client into a product, with no obligation to provide ongoing advice or support in return.
The issue is that whilst decent advisers have services their client regularly, and moved customers away from the higher charging commission generating products of the past, other advisers have simply left those clients alone and continued to earn from them.
What is so unfair about this?
Low value customers being ignored
The fact that advisers have been able to continue earning money for the clients they do nothing for is shocking.
If advisers were to review these clients they would have to move them to a cheaper product, however they would then have to charge a fee which would probably negate the saving. The issue then becomes, do these clients really need
These clients have no redress for lack of servicing
In spite of the above, these clients actually have no cause for redress as it stands. So unlike a client who is paying an annual service fee, because their fee is commission, the adviser has no responsibility to carry out annual reviews. It’s a massive contradiction in regulation which should be addressed.
What is happening now?
In a paper published this morning alongside broader advice reform proposals, the regulator said it wants to understand the impact these commissions are having on the market. It laid out four possible routes forward: keeping things as they are, improving transparency for affected consumers, setting a firm end date, or phasing them out gradually to give advice firms time to adjust.
Despite a sharp drop since 2012, trail commission income has levelled off in recent years, still accounting for 12% of adviser revenue in 2024, totalling £674m. Smaller firms and those authorised before 2013 are the most reliant on these payments.
The FCA voiced concern that legacy commissions may be holding back modernisation and preventing consumers from getting value for money. It also acknowledged that pulling the plug would hit some firms harder than others, particularly self-employed planners nearing retirement and those looking to sell their business, where commissions factor into firm valuations.
For now, the regulator is gathering views rather than formally consulting, but the direction of travel feels clear.
Our Thoughts
If it’s not commercially viable to service a customer by charging a fee because they don’t have enough money in their pension or investment, then advisers should refer the client to a lower cost solution and stop earning money that is being deducted from people’s pensions and investments, which should be going towards their retirement. The likelihood is that in the modern day these commission yielding products would never be a justifiable selection today.
Our Experience
Sadly we see it all the time with SJP claims, where somebody has been paying excessive fees, and SJP advisers have been earning a commission for the last 20 years, yet because it’s not classed as an advice fee, they don’t have to pay redress.
It’s the same churn, the same lack of support, the same unnecessary changes resulting in some clients being tens of thousands of pounds worse off, but because the original transfer took place before a certain date, in spite of having been a client for decades in some cases, there are ’no ground for claim’, whereas in contrast somebody who moved a month later, could be entitled to thousands.
We believe a market should exist for redress on commissions where clients have failed to provide any kind of ongoing support, however provided the commissions were disclosed and were not discretionary (the adviser couldn’t increase the fees to generate higher commissions), regardless of suitability, as it stands these clients have to accept the losses.
Our Advice
Regardless of the above, it’s always worth checking if there are other grounds for claim. General Adviser Negligence can give grounds for complaints and claims. Some advisers when faced with a complaint, especially if still being paid commissions, may be prepared to offer settlement.
We can manage direct complaints on our no-win no-fee agreement, however be advised we may not be able to progress the matter the Financial Ombudsman if the adviser is not willing to make settlement.
For more information, book a free consultation with one of our financial advice experts today.
