Commission payments in financial services

The Supreme Court’s decision is significant for all commission-based industries, shifting the focus from fiduciary duties to the concept of unfairness in commercial relationships. The judgment makes it clear that, whilst intermediaries such as brokers, agents, or advisers are not generally subject to an automatic fiduciary duty, the risk of a relationship being found “unfair” remains central.

In particular, where large or undisclosed commissions, a lack of transparency, or misleading information about commercial ties could disadvantage customers, there is a real risk that the relationship may be deemed unfair.

The Supreme Court concluded that civil liability for bribery can only arise when the recipient of the payment owes a fiduciary duty of loyalty to the claimant. This significantly narrows the scope of potential claims from what was expected after the Court of Appeal judgment.

On disclosure, the Supreme Court found that partial disclosure of commission was insufficient and could give rise to unfairness.

The Supreme Court confirmed that fiduciary duties will not generally be implied in standard commercial relationships where each party is pursuing its own interests. The court found that "in a commercial context it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party".

Fiduciary duties may still arise in certain cases, however, such as where an intermediary expressly undertakes to act exclusively for a client, or where the nature of the service requires it.

Consent must be fully informed, with the burden on the payer of commission or its recipient to prove full disclosure of all material facts. It is not enough to expect a borrower to ask.

Industries outside motor finance that could be impacted by the judgment include:

• Mortgage and investment intermediaries providing advice
• Insurance brokers making product recommendations
• Estate agents with exclusive arrangements
• Financial advisers with panel restrictions.

Organisations will want to review:

• The size of commissions paid, relative to product costs
• The transparency of disclosure practices
• Commercial ties that might affect impartiality
• Whether customer relationships are on a sales only or advisory basis.

Insurance

Insurance brokers face elevated fiduciary duty risks when making recommendations, especially if they present themselves as independent whilst maintaining undisclosed preferences for particular insurers.

The Supreme Court’s commentary on the false impressions created when documentation suggests access to a selected panel (but conceals undisclosed commercial ties) applies directly to broker arrangements.

Managing general agents should examine their commission frameworks and ensure full transparency regarding any exclusivity agreements with brokers.

Mortgages

Fiduciary duty risks increase when mortgage brokers undertake to act on behalf of customers or provide independent advice from lender panels.

Mortgage intermediaries should review promotional materials to prevent creating a false impression of fiduciary loyalty, whilst maintaining clear commission disclosure. Particular attention should be paid to any language suggesting the broker will act on a customer’s behalf or provide independent recommendations when commercial ties with preferred lenders exist.

Investment services

Investment advisers face the highest fiduciary duty risks when providing advice or holding themselves out as independent.

The Supreme Court's requirement for disclosure of the existence and the specific nature of any commission arrangement not only aligns with requirements under MiFID II but may also necessitate enhanced disclosure practices. The distinction between execution-only and advisory services is crucial.

Estate agents

Traditional vendor relationships are lower risk, but dual agency arrangements and mortgage referral services create higher exposure.

The Supreme Court's focus on commercial ties suggests independence is particularly relevant to commission arrangements with mortgage lenders and insurance companies.

Potentially affected businesses should perform a legal review to:

• Assess whether fiduciary relationships exist
• Review commission disclosure practices
• Evaluate commercial ties and the extent to which these are clear to customers.

Documentation should be assessed to ensure that there is:

• Prominent disclosure of commissions
• Clarity on the nature of services provided
• Distinction between advice and sales activities.

In terms of training and compliance:

• Staff training on disclosure requirements should be updated
• Complaint handling procedures should be reviewed
• Regulatory compliance across all relevant rules should be assessed.

The judgment emphasises the importance of transparency. Whilst fiduciary duties may not arise in typical arm's length transactions, businesses should:

• Be clear about their role and commercial ties
• Provide prominent disclosure of financial arrangements
• Avoid creating false impressions about impartiality
• Consider the cumulative effect of multiple factors on relationship fairness.

The Supreme Court's decision emphasises that transparency and fair dealing remain essential in all commission-based industries. Organisations should focus on compliance, clear communication, and fair treatment to manage legal and reputational risk.