How financial advice can cost you a bomb in trail commission
Let's face it, nothing is free, especially expert advice. And like any other specialist that you go to see, such as a solicitor or a doctor, a financial adviser is only right to expect payment. It's the terms of that payment that lead to problems.
Many good independent financial advisers give you the option of paying a one-off fixed fee up front for their services as they handhold you through the minefield of pensions, ISAs, investment products and insurance.
Alternatively you can pay them indirectly through a trail commission structure which is based on the understanding that you will receive ongoing advice from the adviser. Those who use this method of payment are more likely to be tied advisers or those from banks and building societies.
What happens is that the product provider who you ultimately settle with pays your financial adviser a commission of between 0.5% and 1% per annum of your investment in return for the business. Add this to the management fees levied by the provider of up to 1.5% and you need growth of at least 2.5% each year on your investment just to stand still.
Because trail commission, however, assume a continuing relationship between you and your adviser if that 's not happening and your investments are underperforming then you are perfectly entitled to ask for your money back.
So strong is your case, that Ashley Clark, who just picked up the Online Financial Adviser of the Year, says you can contact him through NeedAnAdviser.com and he'll arrange for 100% of any hidden commission to be stopped.
He also has letter templates you can use if you want to write off to a pensions or investment company asking for details of any ongoing commission you are paying and how to stop it being paid if that's what you want.
But as Mr Clarke points out, trail commission is not a dirty word but you should only pay it if you are receiving an ongoing service.
If you haven't heard from your adviser in the last couple of years of investment mayhem, then maybe it's a good idea to follow things up.
After all, it's your money at stake.