The issues surrounding trail commission and ongoing advice have been highlighted once again after an Aviva error left an adviser out of pocket on a pre-RDR policy.
In August last year Ian Tandy, managing director at IT Associates Financial Planning, flagged to Aviva that his firm was no longer being paid the fee on a pension policy for one of his clients.
Aviva confirmed the charge had been stopped due to a mistake on their end in January 2016 and looked to rectify it. The 2011 policy was pre-RDR but was set up under Aviva’s ‘Charge Agreed for Customer Advice’ rules which meant customers had to agree to charges being paid, rather than a standard trail commission paid by the provider.
Due to this Aviva asked the client whether the charge could be reinstated and the missed funds reimbursed from the pension policy but the client refused, saying there was no ongoing advice.
Aviva initially told Mr Tandy he would therefore not receive any funds from the policy, including the missed period from January 2016 to August 2019, but after FTAdviser asked about the situation the provider agreed to pay the missed fees up until August but not any payments going forward.
The Retail Distribution Review, which came into effect at the beginning of 2013, changed the rules to insist that any ongoing fee must be for ongoing advice. As of November last year around a quarter of retail assets are still held in pre-RDR share classes which pay trail commissions without this requirement, according to data from Fitz Partners.
The missed fees totalled around £200 for the period January 2016 to August 2019, but Aviva’s mistake could cost the adviser roughly £2,000 by the policy’s end date in 2035.
Mr Tandy said: “I’m glad Aviva has agreed to pay the missing fees and they’re compensating us for their error.
“Although I understand that we’re not servicing the client fully — other than a few phone calls checking she is still happy with the policy — the fact remains it was a mistake on Aviva’s end that caused this problem.
“It still hasn’t been explained to me how this happened and if they had not made this error then we would continue to receive that payment now.”
However, Mr Tandy thought it was reasonable he should be servicing the client to receive the fee and said the issue was a “complex” one. He also urged other advisers to check their ongoing payments from providers as it was not clear if this situation was a “one off” or a wider problem.
Martin Bamford, director of client education at Informed Choice, agreed, saying advisers should have robust systems in place to catch these missed payments. He said: “I’ve seen so many instances of ‘forgotten’ payments that are only identified because of diligent administrators, matching expectations with payments received.
“Financial advisers should have systems in place to check they are receiving all remuneration due from providers.”
Philip Milton, who runs PJ Milton and Co, an advice firm in Devon, said the case was “interesting” and that although it was clear Aviva made a “mistake” thought the trail payment should not be paid going forward unless the adviser was providing a specific service.
He added: “[Aviva] should not have contacted the client but allowed the adviser to have made a new agreement with a letter saying why the fee was justified.”
Chartered financial planner at Carlson Wealth Management, Steve Carlson, agreed advisers should only receive the ongoing fees if there was an ongoing service, adding that advice firms had experienced eight years since RDR to realign their business models to this.
Keith Richards, chief executive of the Personal Finance Society, said: “Aviva may be responsible for creating a situation which necessitated the need to contact the client for agreement to recommence payment of the trail commission, but it is the clients right to switch it on or off.
“In light of the fact that the adviser has no ongoing relationship, it would be a difficult case to argue by the adviser. If the adviser had an ongoing relationship, I suspect the client would have been happy to instruct the back payment as well as recommencing ongoing.”
Mr Richards added the situation highlighted that advisers should be aware of their obligations either to the letter and the “spirit” of the rules.
A spokesperson from Aviva apologised for the error that led to the charges being stopped in the first instance and explained that under the terms of the product involved, the firm could not make the payments itself or from the client’s policy without the client’s permission.
imogen.tew@ft.com
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