Trail commission – What is it and Why Should You Care?

Trail commission – What is it and Why Should You Care?

Trail commission is an annual fee that is paid to a financial adviser by their client. Typically, trail commission is a percentage fee, and it takes about five percent of a person’s investment each year. The problem with a trail commission is that it is often included in the annual charge, and thus invisible to the client; it is not always clear how much a person is paying nor what exactly is being paid.

If a person wants to reduce the amount of trail commission, there are several ways of doing that:

  • Selling the investment. One can always put an end to paying trail commission by deciding to sell the investment on which trail commission is being paid. An important thing to do here is check whether there are any penalties for selling the investment (advice from a tax expert would come in handy in this).
  • Asking for a better service. Sometimes, the trail commission lacks the appropriate service and the necessary information behind it; if the financial adviser is reluctant to offer legal advice, or simply does a bad job of it, the best thing is to do is to find another adviser and upgrade the quality of service. There is also the possibility of registering the trail commission to the new adviser.
  • Claiming the trail commission. In return for paying a transaction fee, annual charge, or both, one can claim the whole trail commission, or at least a part of it. The rebate can vary, depending on the financial adviser, so there is no need to make a rash decision; checking all the possibilities is the best way to go.

Although trailing commission can sometimes create problems for clients, it should not be generally perceived as a bad thing. It can be strange for a person to pay their financial advisor annually, but this is the best way of keeping them loyal to the customers. All the decisions concerning trail commission should be worked through. A good example of fine planning is a mortgage broker business plan. However, it is not just about trail commission. 2013 saw the introduction of the RDR, which we will discuss next.

RDR

Another good way of receiving financial advice is by going through RDR. Trailing commissions can create a lot of problems for any person; that is why “Retail Distribution Review” is a reliable source of financial advice for many people. The good thing is that RDR offers a set fee that is to be agreed on by the consumer; with this in mind, it would be clear how much a person is expected to pay for advice, which puts the customer in control of the whole process.

Mutual funds

Mutual funds trails, or trail commission mutual funds, represent a type of commission that is paid to the brokers who sell mutual funds. The usual procedure is that the brokers receive the commission for their customers’ mutual fund accounts.

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