My original personal reply to Neil Liversidge.
It was sent to the press by him and which was published in some places online on 12 September 2011.

Dear Neil

Thank you for your long and detailed comments on the item on Money  Box about trail commission.

You objected to the phrase ‘one of the industry’s best kept secrets’ to describe trail commission. Let me refer you to the 15^th report of the Treasury Select Committee published by Parliament on 6 July 2011. This link takes you to section 3 on commission http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/857/85706.htm. If you scroll down to paragraph 46 in particular you will see that the committee heard that under half of recent personal pension purchasers knew if their adviser took trail commission “only 46% are aware of whether their adviser received trail commission”. GfK research for the Financial Services Consumer Panel found that “while most consumers were aware that financial advisers were paid by way of commission from providers, the majority were unaware of the existence of trail commission at all.” Under the rules of course 100% should be aware of it and what it is for.

My own discussions with colleagues and others indicate that very few have heard of it. Indeed, when I have been talking to them in the last few weeks about Massow’s venture the first reaction from almost all is ‘what is trail commission?’ followed by a certain incredulity when I explain.

Of course in the small print of the documentation the amounts are there and sometimes labelled trail commission. But they are easily overlooked and the figures above speak for themselves.

You make the point that you are quite open and upfront about trail commission and do a lot of work for it. I have no reason to doubt that is true. I made the point in the interview that many and indeed a growing number of IFAs were very good and did work for their trail commission and that is why I specifically asked Ivan Massow to justify taking the commission away from them. Brian Dennehy also made that point. (Incidentally you can listen again to the item on our website http://www.bbc.co.uk/podcasts/series/moneybox or read a transcript of it which will be up in a few days’ time via http://news.bbc.co.uk/1/hi/programmes/moneybox.)

But there are many IFAs receiving trail commisison for which little or no work is done. It is also worth remembering that the rules now are stricter than the rules in the past. Many people took out and the stopped paying into a personal pension in the past (half keep them less than four years – see http://www.fsa.gov.uk/pubs/other/Persistency_2010.pdf) but the trail keeps being paid until they reach their pension age. They are clearly getting no service at all. As the Select Committee concluded “Trail commission where advice is not offered is very difficult to justify.” (para 49).

So I do not believe that to call trail commission a ‘secret’ slanders the industry at all. It just describes the current position of the industry as a whole.

You also suggest I try to ‘engender mistrust’ of the financial services industry. There are many financial advisers who deserve mistrust as the numerous mis-selling scandals attest. Anyone approaching an IFA or an adviser tied to a bank for advice should approach the meeting with a healthy scepticism.

Let me mention three cases that have recently come to my attention – all with IFAs. These are real stories with the names changed.

Mrs Abraham, a 76 year old widow with limited life expectancy, has around £80,000 in with profits investment bonds. She is advised to move them to a unit trust earning the adviser more than £3500 and trail commission of £400 a year. Two other advisers I have spoken to can see no reason for this move except to churn the investment. With her prospects a cash deposit from which she could draw would undoubtedly see her out at no risk and with no costs. That or leaving the money where it was seem the best two choices.

Mrs Barrett, a middle aged widow, able to buy a house with her own funds is advised instead to take out an offset mortgage of £50,000 with matching funds in a savings account. Again, I am advised there was no purpose in this recommendation except the generation of commission for the adviser for setting up the mortgage. She hates having the debt and has now decided to pay it off from the savings account. Her adviser did not inform her she could do that at any time.

Mrs Clitheroe, ditto, who told her adviser she had a good five figure sum from her late husband which she wanted to preserve intact but obtain some income from at no risk was advised to invest in a property based investment bond which is now worth about two thirds of its original value. The adviser earned several thousand pounds in commission and trail. Two independent advisers have told me she was misadvised. She is considering a complaint.

Of course I am not suggesting you or many other IFAs would have made such recommendations. But many would.

Let me also make it clear that I never advise anyone against taking independent financial advice – quite the opposite. I encourage them to do so and to avoid the tied agencies and the ‘advice’ on their own products given by banks. But I always advise them to find a good IFA, try two or three out, check the ‘reasons why’ letter carefully, and walk away if there is any reason to doubt the advice or the person who gives it. From what you tell me you would pass all those tests.

Nor do I encourage people to want something for nothing, as you imply I do. On the contrary I have long believed that commission is the cancer at the heart of the financial services industry and am extremely pleased it will go for new business form 1 January 2013. I advocate paying for advice upfront. And, if you can’t afford it, ask yourself first ‘do I need the advice at all?’ and if the answer is ‘yes’ then borrow the money short-term. That is not something for nothing. It is something for something and is what I have been recommending for ten years. The Retail Distribution review is a golden opportunity for your business to remove commission and its embedded conflict of interest for ever and to charge fair fees for good advice.

Let me take up two minor points in your email.

I do not purport to be a ‘consumer champion’. I am a consumer journalist and see things from a consumer rather than an industry point of view. But that is a very different thing. Perhaps you are confusing me with my namesake Martin Lewis who does use that sobriquet.

I take no responsibility for the content of Any Questions. If you check the transcripts of Money Box at the time Northern Rock was nationalised – which was in fact some months after the run on the bank – you will find we took a very different line. See the programme on 23 February 2008 where we discussed putting money into Northern Rock for precisely the reasons you give – see http://news.bbc.co.uk/1/hi/programmes/moneybox/7258552.stm. And when the queues were round the block some months earlier our programme of 15 September 2007 was very different from your recollection. At one point it was clearly said the savers queuing round the block were not behaving rationally. Again the transcript is available via this page http://news.bbc.co.uk/1/hi/programmes/moneybox/6993488.stm. I do suggest you check the facts before making such allegations. Not that I mind but it does rather weaken your overall case.

As for your offer of a debate, I can only put it to the Money Box producers and editor. One role of Money Box is to bring together opposing views – as we did on Saturday. But it is unlikely we would stage a rerun of Saturday with Ivan Massow and you as another of his critics. A debate on whether financial advice and remuneration generally might be of interest especially in the run up to 1 January 2013. I cannot track down the debate you did for us before but when I am back in the office I may be able to. Whenabouts was it?

I will discuss this with the team and let them know your interest in participating. I am sure we will be discussing IFAs and how they charge their clients over the next 15 months.

Meanwhile, I see no reason to apologise and no record to set straight. If you wish to pursue a formal complaint through the BBC then you should address that to the editor and it can of course be taken above him subsequently if you wish.

best wishes

Paul

e-mail Paul Lewis on paul@paullewis.co.uk