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Advisers demand FCA ban on non-advised annuity commission

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.”

MM 121213 Graph p1

Key findings

  • 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


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. hallelujah – about time – thats if the FCA listen to our calls. I am tired of the banging the drum about this area. The consumer is being totally disadvantaged by having to pay (commission) for something that they are not getting advice on. It is time everyone is made aware of the facts and then clients may actually choose to pay for advice to ensure that they are advised how to shape their annuity in a way that best meets their needs not just simply being left to pick themselves an option which could turn out to be a disater in later life, if they choose to.

  2. Only idiot financial services regulators could come up with the mess we have now!

    IFAs with higher costs than any other market segment plus lifelong liability and compliance requirements sometimes set in the stratosphere, cannot operate on commission as this is not deemed sufficiently transparent. While SJP, execution only and it now seems so called annuity brokers continue operate on commission. Not to mention the standard of the advice.

    Well done FSA!

    Let’s just hope that any” fix” is less of a dog’s dinner than the rediculous remuneration & reporting rules in RDR…

  3. Advisers should be attacking the very concept of an annuity! The product itself is a scandalous theft of people’s money! When a customer presents for retirement advice I ask “Was it explained to you when you started this thing that you would only be able to get back one quarter of your money and that you would have to give three quarters of your money away to a life office in return for a trickle of taxed income?” What do you think their answer is? Let’s get rid of the word “compulsory”! Let people have a choice. Do you want your money back or do you want an annuity? Give people a choice! Let’s right this terrible wrong! Let everyone have the opportunity of “flexible drawdown”. End discrimination.

  4. I have no problem with non advised charging 6% commission, (we are all in business to make money) PROVIDED the client is aware of it and happy to proceed. But I totally agree they need to change the current system in how the quotes are presented in order to do make it really clear to the client. If you take the time to look at it, the annuity provided by a £100,000 pot for a 65 yera old is not massively smaller on a nil commission basis to that of one paying commission of 6%. This percentage only seems high income compared to what we are traditionally used to seeing in the “old world”. ( those who did business on a 3 + .5 basis and then slated advisers taking 6% initial need to stop and think. The lower initial plus trail was based on a 6% initial figure on an investment being in force for 6 years, so please dont get humpy). I think a really easy way to show the client the cost of the broker “implementing” the annuity on a non advised basis is to force the provider to produce a 2nd income figure on the quote. Show the income payments under a nil commission basis and then under it show the reduced income payments if commission is paid and state “You may wish to negociate the commission level with your broker before committing to the annuity”. The client can then decide how they wish to proceed.
    There is a space for this type of business as long as the above are made clear to the client along with the number of providers the broker gets figures from, then that should be ample. At the endo fo it all, we are never going to be able to get everyone to shop around and shop around and shop around and if they go non advised, then that is their perogative. To be honest if they cant be arsed taking advice on a huge, once in a lifetime decision then on their own heads be it, I have no sympathy however they do need to see the cost of whatt hey are doing in the same way we have to be squeaky clean over or charge for advised business. As ever -just my own humble opinion.

  5. @Marty
    Agreed but the issues remain:

    – level playing field,
    – clarity and
    – transparency

    Which are all currently nigh on non existent except in the IFA channel!

  6. Sorry @Marty but your views just encapsulate all that is wrong with this industry. I wanted to say profession but it wouldn’t apply. There is no justification for 6% commission on a non advised sale. Neither is such justified when giving advice. I think our charges are based on the old annuity commission rates of less than 2% and even then depend on the size of the annuity and amount of work done. I also agree that annuities are not always the best answer but some clients prefer the apparent security. Obviously I have been out in the backwoods for too long as I thought there was no commission nowadays. What was the RDR about to end up with us having such a stupid, confused and muddled situation?

  7. Non- advised. That in itself is an absolute nonsense phrase. Presumably the web site carries no adverts, is whole of market, and has declared all remuneration? It answers no questions and provides not one scintilla of guidance. Fat chance and no chance.

    Buying Life Assurance from Tesco is also non-advised presumably. That they offer a squillion extra points if you sign up is just an incentive and is not classified as advice.

    Just ask why we even have this (non) category. Because those making the rules suddenly thought that there may be a lot of people disenfranchised. But in the event you had those who (as ever) were (and are) penny wise and pound foolish.” If I go no non-advice I’ll get it for free, but if I see an adviser I’ll have to pay”. This is in fact the basic error and failing of our Regulator and of our legislature. If you go to law you need a solicitor. If you have an audit you need an accountant. There are no execution only services here. (Nor is there do-it- yourself brain surgery).

    So why don’t they just get off the pot. Scrap all pretence at non-advised and make it compulsory that for financial products you MUST see a qualified adviser.

    Wails about ‘the public’ not getting advice? But the public don’t ask for and don’t want advice. No one is caught in the crush in the high street of people jostling to buy a pension, life assurance or an investment.

    There are those who engage and then there is the rest. Perhaps the rest need educating. Which of course is the job of the State.

  8. I agree with Marty and Simon. Minimum cost to deliver an advised annuity is probably about £600 to £1,000. That’s COST to make a profit it will be £1k to £1,500 which on a £20k pot is 7.5% Small cases are the problem, hence why I would argue the trivial pension limit should be increased to 3% x the LTA. Then if anyone was stupid enough to still arrange to crystallise pension benefits without taking advice, more the fool them! (So long as the commisison/fee is made clear and that the individual gets the option)
    As to SJP – don’t get me started, proverbial about to hit fan with one of my clients who is getting “sold” an SJP pension through his employer at double the stakeholder friendly PPP he already has with contributions paid through the same employer’s payroll! How does that work, advised to have a higher charged plan, with less fund choice, which doesn’t met his ethical and SRI preferences either! OH I forgot, it’s SJP all style over substance.

  9. 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.

    Hmmmm despite Annuity Direct offering non-advised services Mr Higham? Is your commission better than everybody else’ commission?

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