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Why do you pay trailing commissions?

Think about this: if you have ever received advice and not paid directly for it, your adviser is probably relying on commission to cover the costs of that advice and make a living.

The trailing commission is supposed to cover the costs for your broker or adviser to provide you with ongoing support.  Unfortunately, that support is often not worth the trailing commission you pay.

In the case of mortgages, you usually get zero ongoing support from your mortgage broker after settlement of your loan.  There is really nothing else for them to do after settlement.  However, mortgage brokers often get more trailing commission than any other financial professional due to the fact commission is paid until the end of your loan, sometimes up to 30 years.

Insurance brokers get paid a % of your premiums, or insurance costs.  This commission was designed to pay for ongoing support, if you have questions or need adjustments.  And, if you need to claim, trailing commissions should help pay for the costs of your insurance adviser to lodge the claim.  However, few people find their original adviser is around when they need to make a claim.

Financial planners can receive trailing commission from your investments and superannuation.  This commission is contained in the ongoing management fees you pay and should cover ongoing support provided by your financial adviser.  However, few advisers provide any valuable support for this commission without adding further ongoing advice fees.  So, unless you are getting a defined level of service from your financial adviser who uses trailing commission to pay for some costs, you are probably wasting your money paying trailing commissions on managed funds and superannuation.

Insurance you arrange online can even pay trailing commissions, usually to the website.  If you go direct to a lender for your mortgage, they will simply pocket the money they would have normally paid out in trailing commission.

You can avoid trailing commission completely – contact me to find out how.