View more on these topics

Billy Burrows: Annuity broker market is far from a ‘cartel’


Nothing much surprises me in the world of annuities nowadays but I was surprised to read that the Labour MP and former welfare minister, Frank Field, has written to the Office of Fair Trading calling for an investigation into the non-advised annuity brokerage market alleging that it is “operating as a cartel”.

He goes on to criticise annuity brokers for charging more for enhanced annuity services, suggesting “the most vulnerable in society are being given the worst deals”. He also describes the commission payments received by non-advised annuity brokers as “outrageous”.

I did meet Mr Field once while I was at Prudential. I told him to think of me as the customer champion at retirement and quick as a flash he replied, “that doesn’t sit well with the pension misselling does it?”.  It seems that his concern about scandals has not diminished.

For the last twenty years I have advised individual clients in all aspects of annuities and have argued that most people need to consider all the relevant options before they make one of the most important decisions of their life.

I often quote Jane Austen and the words of wisdom she wrote in 1811 in her book Sense and Sensibility: “An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.”

If annuities were a serious business 200 years ago, today they are critically important as those at retirement face the dilemma of how to balance the need for peace of mind and security over their pension income with the need to have flexibility to deal with changing circumstances including the prospects of higher interests and inflation in the future. 

Turning specifically to Mr Field’s allegations, far from being a cartel, the annuity market has never been more competitive in terms of both annuity providers and, especially, annuity brokers. True, there seems to be less competition in the conventional annuity market but this has been more than compensated for in the enhanced market. 

It is true that annuity brokers are paid commission where no advice is given and this is higher for enhanced annuities. The allegation the most vulnerable in society are being given the worst deals is completely wrong.

If anything those being offered the worst deals relatively speaking are the so-called ‘Middle Britain’ clients as postcode pricing tips the balance in favour of those living in less affluent areas. 

Commission payments on annuities may not be such a bad thing because most clients prefer this system to paying fees. I have been at the sharp end of explaining to clients the fee paying options under RDR and trust me, far from making things better for many clients it has turned many people away from advice.

This is especially true for those who have above average size pension funds and in the past received advice through commission paid advisers but today think advice is too expensive and too complex.

I do think that Mr Field has a point but has not articulated it very clearly. The issue is not that people are being ripped off because they are not.

The issue is that people are not being encouraged enough to consider all the relevant options at retirement. If something is not done soon too many people will be shopping for annuities on price only rather than quality.

What is needed is something akin to a code of best practice. Such a code would ensure that before investing in an annuity, investors would be made aware of the key issues and the relevant options.

Put it another way, people should be encouraged to take a long term view of their annuity because it is a long term investment. Buying an annuity is a serious enough matter to put aside short term considerations and consider which type of annuity might suit each individual best to provide their income for the next 20 years or more.

Finally, there is an argument that the service many people need and should have cannot be provided under the current regulatory regime. Many people would benefit from an annuity broking service that sits somewhere between a non-advised guided sale and advice in its current form.

Perhaps this is something the politicians should get their minds around?

Billy Burrows is head of business development at Annuity Line


News and expert analysis straight to your inbox

Sign up


There are 12 comments at the moment, we would love to hear your opinion too.

  1. Well said William. Lets face it RDR has left a broad swathe of people unadvised as they can’t or won’t pay fees and with some 800,000 people retiring every year increasing income is a serious issue, is it not Mr Micawber?

  2. dAphne,jenkinssmythe 27th August 2013 at 1:59 pm

    Billiam burrows the voice of the unwashed masses

  3. 3.5% charge for computer driven, Internet based, enhanced annuity, no advice – totally outrageous, a complete and utter rip-off. Well done Frank Field MP for bringing this info to OFT

  4. I totally agree Phil, I recently purchased an annuity from a broker and they charged me 1.8% commission (not directly, but they got this from LV) for arranging my annuity which was about £8,500 pot. So they charged me £153.00 and it took them 6 weeks to get complete everything. On a good point, at least I managed to increase my quote by 50% or over what Phoenix had offered me.

  5. Excellently put Billy, I really couldn’t agree more. I work as an IFA and have recently started using a referral service for my annuity clients. It’s surprised me greatly at how well they are dealing with my clients as a specialist firm. My clients have certainly not been pointed towards an automated system like the above comments mention. The annuity specialists my clients have spoken to know a great deal more about annuities than many IFAs who dont specialise in at retirement products. Their knowledge and experience has assisted my clients in achieving the best possible income. They do this over the phone or by appointment and spend a great deal of time with my clients to ensure they have explored all the options and are confident to make their own decision. Whilst they might take 2% commission on average, my clients have enjoyed better rates than I could offer on an advice basis and they really are delighted with the outcome. Keep fighting the good fight Billy. I will not be spending another minute selling annuities, I’ll leave it to the non-advised experts. Cheers Mike Marshall p.s can I remind people that annuity providers recommend IFAs charge 2-3% in fees and this does come directly from our clients funds!!

  6. @Anonymous 6.43pm

    That is outrageous. The job should never have cost as much as it did.

    The absolute minimum fee should have been £250, and a number of about £500 may well have got the job done quicker.

    If a job’s worth doing………

  7. Clearly Phil Thomas knows absolutely nothing about this industry. The impaired process is almost completely manual, can take days to gather and present the information and the end result is the customer getting possibly 50%+ more income. Of course the customer would have been soooo much better off going to his high street IFA, being sold a conventional annuity and charged £500 plus for the privilege.

    The problem with this industry is that it is riddled with people commenting on something they don’t know or understand.

  8. @steve smith

    This high street IFA treats every potential client to a high standard of rigorous assessment.

    An initial assessment will weed out those people who have total retirement funds of less than £18500. Triviality.

    Then comes the manual bit – taking over brokerage of existing schemes. In depth assessment of each scheme will reveal any guaranteed annuity rates or other inherent benefits to existing plans.

    Having undertaken an in depth assessment of the clients aims and wishes we then move on to examine their state of health, lifestyle and family history.

    An assessment is then made of the possibility of using drawdown to defer annuitisation. For married men this is often a real choice, but brings in the need for detailed investment risk profiling.

    Using the common annuity application process all the main impaired life annuity providers are asked to provide detailed quotations based on the medically underwritten client profile. Non subscribers are also polled at this stage.

    Once all quotations are received the horse trading begins, with a Dutch auction taking place to find how much each provider is prepared to pay to get the business. This is always revealing, and the spiverry is sometimes jaw dropping.

    Finally, having exhausted every research angle, the client is presented with all his choices.

    £500? You cheeky &@/!!?

  9. Steve Smith – In answer to your reply, I was an IFA for 30 years (now retired). I was quoted £14,000 fee / sorry commission based on a purchase price of £400,000. You obviously represent everything that is obscene in the industry – suggest you become an estate agent ! – how can you justify this charge ?

  10. @Phil Thomas – I don’t know anyone who’d charge you a fee anything like £14,000 for initial advice for a £400k drawdown case, let alone annuity advice which is much more straightforward than drawdown.
    We quote 1.5% for annuity work, with a minimum case fee of £620 and state quite clearly in our client terms that we will negotiate a discount on the fee for larger cases, which are negotiated individually. If a client doesn’t ask fro a reduction on larger cases, i can’t keep my mouth shut and invariably them why they aren’t asking for a large case discount!
    Shop around…… there are some who will take you for every penny and there are some of us who don’t feel comfortable with charging too much of a premium for larger cases, which DO carry more risk, but not that much more!
    I have posted anon as I don’t want to be seen to be “touting for business” as I am not. i am just pointing out that by shopping around you’ll find good and fair minded advisers.

  11. What a broker! Thank you for sharing.

  12. Phil Castle – I appreciate your comment. In my experience you are the type of professional I could do business with – fair & honest – so unrepresentative of many of your compatriots. For your info HL charge 3.5% for non advice enhanced annuity purchase

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm