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FCA floats commission cap for non-advised annuities

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The FCA is considering capping or banning commission on non-advised annuity sales as part of a raft of options to tackle potential consumer detriment.

In its consultation paper on pension freedom rule changes, published today, the regulator says concerns have been raised that commission on non-advised annuities could exceed the cost of advice.

It says while it is not looking to change the rules now, it wants to talk to the industry about how to tackle the issue.

Data from the Association of British Insurers shows that around 189,000 annuities were written in 2014, of which 132,000 were sold without advice. Annuity sales have since plummeted following the pension freedoms Budget announcement.

The FCA says it will assess the need to collect more data on whether consumers are paying more in commission than they would for advice.

In the meantime, it has set out three options for dealing with the risk of bias in non-advised annuity sales, whether advice is available, and the level of commission charged.

The first option is to improve disclosure of the cost of commission and the impact that has on annuity income. But the FCA says firms already have to disclose commission, and stressing commission might take the focus away from other factors savers need to pay attention to.

The second option is to restrict non-advised commission, either through an outright ban or a cap.

The regulator has raised concerns that while this option would address concerns about the cost of non-advised annuities versus the cost of advice, there could be a ‘significant impact’ on competition.

The FCA is also concerned that a cap would mean firms pricing up to the maximum level of the cap.

The final option is to improve competition, but the FCA did not provide more details about what this would look like in practice beyond “further work into the operation of the market”.

The FCA says: “While concerns have been raised about the potential for customers to pay more in commission than they would have paid for advice, it is important for us to understand the resulting consumer outcomes in each case.

“Evidence from the pension market study indicated that there have been instances in which consumers procure annuities from the pension accumulation provider without shopping around. This may lead to the customer purchasing an annuity that is not competitive from a pricing perspective. In these circumstances, the consumer may have achieved a more competitively priced product from a non-advised broker even taking into account the cost of the commission.

“We recognise that there may be benefits in exploring these outcomes in more detail and will assess the potential need for additional data collection to analyse these issues following the review of responses to this paper.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Wow, bringing in a commission cap! Wonder if they could have implemented something similar instead of RDR to control those pesky advisers that put commission before advice? No we will bring in uncapped fees instead, that will protect the consumer no end!

  2. Whilst I disagree with the overall payments of commission still being available for non-advised business, if the FCA go down this route all that will happen is that it will become more and more complex for those who do not want advice to do their own thing. The sooner the FCA recognise that it will be impossible to protect all people from all ills, the better. People are fundamentally lazy and if they cannot be bothered to shop around, so be it. Let them do what they are happy doing. The FCA keep talking about competitively priced stuff. I remember watching an evidence session with Wheatley and TSC where annuities were discussed. Wheatley was spouting about how so many consumers could have been better off by shopping around for different annuities and only when pushed several times about examples of the differences did Mark Garnier ask him to deny the average uplifts were around £50 per year (gross). Wheatley said that figure was about right but that there were examples of much higher amounts. The FCA do not make things better for the average person. They simply complicate matters to prolong and justify their existence. Shameful

  3. Annuities have plummeted !
    FCA is going to ban commission on them

    Annuities die !!!

  4. IMHO just scrap commission on annuities – why should someone earn a commission payment the cost for which cannot be clearly identified just because they don’t advise?

    In the only case where I went ‘head to head’ with a non-advised direct annuity sales team my Initial advice charge (for full independent advice on an underwritten annuity basis where I do all the paperwork and the client has significant regulatory protection!) was significantly less than the tied sales person who worked 1 day a week, giving no advice and asking the client to complete everything was due to earn in commission …

    Oh, and despite our fee the annuity payment was higher than the annuity being offered on the commission basis…. the client detriment avoided but this was only because they contacted us as they couldn’t be bothered with the paperwork the direct team were asking them to complete!!!

  5. If the FCA are keen to tackle potential consumer detriment maybe they should consider banning individuals from having any investments. – Oh yes that would be silly, just like banning commission… I agree that there has been evidence of abuse caused by commission in the industry, but making sure commission is transparent and told to the client before they purchase a product is the way forward. I also think it is unfair that IFAs can’t have it but XOs can, but that doesn’t mean it should be stopped.
    The FCA should learn from their RDR implementation where, in my opinion, they caused actual consumer detriment (whilst trying to prevent potential consumer detriment).
    P.S. my company doesn’t offer annuities as we don’t think we can offer them in a compliant way on an XO basis at the moment..

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