Financial Advice Firms Ordered to Repay Commission

Firms ordered by FOS to repay commission over lack of ongoing advice

Many, if not most, of the UK’s financial advice firms have received regular trail commission, dating back several years. But firms might like to note two recent judgements from the Financial Ombudsman Service (FOS), where the Ombudsman has ordered firms to repay trail commission due to a lack of service being provided in return.

Firstly, HSBC was ordered to refund trail commission regarding a pension transfer. The client switched his pension to HSBC in 2006. In 2009, he attempted, unsuccessfully, to get a review meeting.

HSBC partially upheld the complaint and agreed to refund the trail commission paid between 2009 and 2013. But the FOS went further and instructed the bank to refund all trail commission paid since the start of the client relationship, plus £350 for stress and inconvenience, although HSBC can retain the initial commission received for setting up the plan.

Ombudsman David Ashley’s ruling read as follows:

“Having moved his not inconsiderable pension funds to HSBC to ensure an adequate income in retirement, he was effectively left to fend for himself. Attempts to gain a review at a time when it was most needed proved unsuccessful. So although I accept that the first two payments of tax free cash were paid, I agree with the adjudicator that largely, no further service was provided after the contract had been arranged.”

Subsequently, IFA network Positive Solutions fell foul of the FOS over this issue. A pension client asked for ongoing advice from the network, but she was told this would only be possible if she made a further payment for this. Given that total commission payable would have been around £5,300, when the initial commission was only £750, the client complained.

Positive Solutions rejected the complaint, saying that the trail commission provided for an “informal agreement” for ongoing advice over a period of four years, but that this was conditional on the client maintaining her contributions. However, the FOS believed that the size of the trail commission meant that “six or seven years” ongoing service would be more appropriate. Positive Solutions was ordered to repay the full trail commission plus £200 for stress and inconvenience.

Ombudsman Roy Milne said:

“[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][The client] has clearly been inconvenienced because she has not had access to advice and has paid for a service she has not received.”

Some firms are now worried about the precedent these judgements might set. In many cases, trail commission was taken simply as a way of reducing the initial commission, and an explicit agreement to provide ongoing advice in return was not always in place. However, in 2012, the regulator at the time, the Financial Services Authority, made it clear to firms that it believed that trail commission should only be received in return for advice given.

Firms are now banned from receiving commission for investment and pension advice. But the same principle applies to any ongoing advice fees taken, i.e. that an agreed level of ongoing service must be provided in return.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.