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How Does Commission Work?

"I looked at the UK investment market and thought it could do with a shake-up."

Tom Russell InvestSmart

Most investments purchased before January 2013 will have an element of commission built into them. This is paid to your advisor if you were recommended a plan, but you usually still pay commission if you purchased the plan directly yourself. Its just kept by the product provider! 

Trail commission was banned on investments bought through financial advisors after January 2013. However, in many cases it has been replaced by an advisor servicing charge which is deducted from the plan in much the same way.

Policies bought on-line or without advice after January 2013 may still include trail commission. 

Stocks and Shares ISAs and Unit Trusts

Stocks and shares ISAs and unit trusts are the most common form of investment wrapper. Well known fund managers include Fidelity, Legal and General, Standard Life, Invesco Perpetual and M&G. Stocks and shares ISAs typically include a 5% initial charge (of which 3% is commission) and 1.5% annual charge (of which 0.5%  is usually paid as trail commission). Whilst we cannot reclaim any initial commission you have already paid we can rebate a share of the ongoing trail payment. 

Investment Bonds

Bonds are also a popular investment wrapper, particularly with clients wanting a regular income. They are marketed by life assurance companies like Prudential, Aviva and Aegon. Most bonds have been sold by advisors rather than being purchased directly from product providers. The commission structure generally depends on what was selected by the advisor. In some cases all the commission (often up to 7% of the investment amount) is taken upfront. In other cases around 3% is taken upfront with a further 0.5% or even 1% being taken each year as a trail commission. InvestSmart will investigate which applies to you. It is not possible to reclaim the commission if it was all paid upfront but in nearly all cases we can rebate trail commission.


Pensions include stakeholder pensions, personal pensions, executive pension plans and self invested personal pension plans. The commission structure of pensions varies enormously. With older pensions the majority of commission is paid at the beginning of the plan, typically being the equivalent of the first two years premiums. A smaller annual trail commission is paid after the two year period. Typically this can be 0.5% of the fund value. We can investigate and inform you of the position for your policies

Life Assurance and Protection Policies

Generally life assurance policies pay the majority of commission up front, and this cannot be reclaimed. A typical commission payment will equate to the first two year’s premiums. Most policies pay a smaller trail payment from the end of the second year of the policy until the end of the term

Andy and Jenny Oram

“The yearly fund review allows us to see how all our investments are performing. In the past we were kept in the dark by our adviser”

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