Financial advisers have traditionally received their income from upfront and ongoing trail commissions paid on insurance policies and investment products they have sold. These commissions, while paid by the product provider to the adviser, are funded from the profits made within the products. In effect, the owners of those products therefore pay, albeit indirectly.
If you are not paying a fee for advice, then it is probable that your adviser is receiving a commission. Upfront commission is paid when the product is purchased, and this can be a significant amount. This is usually followed by an ongoing trail commission, paid at regular intervals to your adviser. If you choose to cancel your insurance policy or cash in your investment, there is usually a ‘claw back’ of the upfront commission. Sometimes this is paid by the adviser (which is why they may be very reluctant for you to cancel or withdraw) and sometimes this is paid by the client (for example, as an exit fee if an investment is cashed in). The point of trail commission is to provide financial reward to your adviser for ongoing advice given to you. Find out how much commission you are paying by contacting either your adviser or the supplier of the product. Given that this is being paid by you (indirectly), you need to be sure you are getting the service you are paying for. Advisers often sell their clients to other advisers, and it may be that the person receiving commission from you is someone other than the person who sold you the product; someone who may be a complete stranger to you. If you are not satisfied you are receiving adequate advice, ask your adviser to rebate the commission to you, or alternatively find an adviser who truly earns the income received.