Advisers have led calls for the FCA to ban commission on non-advised annuity sales after a damning report from the Financial Services Consumer Panel.
The report, published this week, shone a spotlight on the non-advised sector after its research showed a “massive shift” to non-advised sales since the RDR came into force at the end of last year. In a series of stinging conclusions, it says the market is “failing” consumers who are left to deal with opaque commission arrangements.
The report found payments of up to 6 per cent commission for enhanced annuities and up to 3 per cent for standard annuities.
In an investigation of 15 non-advised firms, the panel found there was almost a £1,000 gap in commission payments between providers for the same person on a £49,950 enhanced quote.
One firm shared a business model with the FSCP that suggested non-advised business was nearly twice as profitable as advised business for the broker on pots of £100,000, due to commission payments and the lighter regulations (see graph).
The panel warns higher non-advised profit margins are squeezing out annuity advice on pots worth up to £100,000 even though advice is economically viable above £25,000.
Consumers are also left unaware of the lack of regulatory protections, such as the fact they may not be able to complain to the Financial Ombdusman Service, according to the FSCP.
Annuity Direct non-executive chairman Alan Higham says: “There should be a single charge regime and it was a huge mistake by the FSA to allow commission to continue for non-advised sales.
“There are basic principles that non-advised brokers should follow and the FCA should set those out. We cannot keep letting people use services not fit for purpose as there is a risk they will sleepwalk into being ripped off. High-pressure sales tactics are driving growth in the industry.”
Apfa director-general Chris Hannant says: “Non-advised commission is bad for consumers and it creates an unlevel playing field. Whether there is bias or not, the lack of transparency is leaving consumers in the dark.”
Investment Sense marketing and relationship manager Phillip Bray says: “The FCA should get rid of commission and move to a simple fee structure for non-advised brokers.
“We also need the regulator to introduce minimum standards so at the very least brokers are required to check the ceding scheme for things like guaranteed annuity rates and enhanced tax-free cash. I would also like to see some level of basic financial qualification for non-advised salespeople.”
Labour shadow pensions minister Gregg McClymont says: “Disgracefully, the Government refused to adopt Labour’s amendment to the Pensions Bill which would have required a regulator to set best practice standards for those offering annuities and for pension schemes to take responsibility for directing savers to brokers who met those standards.
“Best practice for non-advised services would include a ban on commission, assistance in pursuing the right kind of annuity for the buyer, access to all providers of relevant annuities, and, the provision of clarity as to the costs and differences between an advised and non-advised route.”
The panel stopped short of backing a commission ban, claiming it is an FCA decision to make. Panel member Teresa Fritz says: “We would not disagree if the regulator banned non-advised commission. We want more clarity over transparency and costs – people think non-advised is free, when it is not.”
- The RDR has prompted a “massive shift” towards non-advised annuity salesl There is nearly £1,000 difference in commission payments at non-advised annuity brokers for a £49,950 enhanced quote
- The FCA should introduce a code of conduct for non-advised annuity sales focusing on disclosure
- The Government should introduce a workplace annuity service for all
- A rigorous market study should examine possible exploitative annuity pricing
- The open market option should be strengthened
- The Money Advice Service should establish an annuity adviser website