Whose decision is it to pull the plug on trail?

Aimee Steen

A couple of months ago, Friends Life faced a wave of criticism when it said it was pulling trail on two of its offshore investment bonds. Now — in what cynically may be seen as a PR move — Canada Life has announced that it will continue paying trail commission, “emphasising its position that an adviser’s remuneration is a matter for them and their clients”. It goes on to say that it does not know what level of service an adviser is providing to a client, therefore it would be inappropriate to remove ongoing payments without that knowledge.

Advisers have been getting pretty annoyed at providers deciding whether or not a client appears to be advised. Okay, so a client making a top-up payment into a plan without the adviser’s involvement may indicate they are no longer advised. But it may also indicate that the client has just had a windfall and decided they knew a good place to put it, or there may have been a discussion between the adviser and the client, with the client simply preferring to make the transfer.

The idea of calling an adviser or client to see whether they are receiving ongoing advice seems alien to some providers.

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Trail commission is not supposed to be a cash cow. If you are genuinely not servicing a client anymore, there is no justification for continuing to receive ongoing remuneration many years later.

Worrying, however, is some commentary that came with the Canada Life announcement from Panacea Adviser. It said that in a poll of its 18,000-strong community on its website, 90 per cent said the ramifications of the removal of trail would be catastrophic.

Catastrophic? Really? For it to have such a great impact, the majority of an adviser’s business would have to be on a trail basis. Surely some advisers out there started moving clients to an upfront-fee basis before the end of last year?

Whatever the impact, it seems strange that providers are able to make decisions on payment structures that were set up in good faith. Providers who want to cut trail - or ‘need’ to due to costs - will do so regardless of advisers’ views. But, given the backlash against Friends Life, those who continue are likely to be thought of rather positively by those still relying on commission.