How to avoid paying trail commission

'Trail commission' - a regular payment made to your adviser by a fund manager - encourages that adviser to hold onto any fund you buy through them. Many see it a fair charge. We disagree. Here's how to avoid paying it.

Trail commission is a hidden nasty. Averaging about 0.5% a year, it is a regular payment made to your adviser by a fund manager. It gives that adviser an incentive to encourage you to hold onto any fund you buy through them. Many in the industry see it as a fair and straightforward way to charge clients. But we disagree.

"It can be a fair way to remunerate advisers, provided they provide advice in return," says Justin Modray of Candidmoney.com. "But a lot of them take it and don't bother actually offering advice and looking after their clients." That can make it expensive. Take a £250 monthly saving into a unit trust over 20 years with 6% annual growth, and a 1.5% annual charge with 0.5% trail commission. The value after 20 years, with no trail commission rebate, is £96,393. But with trail commissions re-invested, that figure rises to £101,864 (a calculator is available here).

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Jody Clarke

Jody studied at the University of Limerick and was a senior writer for MoneyWeek. Jody is experienced in interviewing, for example digging into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.