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FCA to ban commission for secondary annuity market

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The FCA says brokers working in the secondary annuity market will not be allowed to charge commission.

In a consultation setting out rules to govern the secondary annuity market, published today, the FCA says people selling on their annuities will be required to take “appropriate advice” above a threshold.

However the regulator has not defined what kind of advice will have to be taken or what the threshold will be.

The regulator has confirmed customers can sell on their annuity even if the advice is not to do so.

In addition firms, who will need to be authorised, will be required to show their quotes alongside the current cost of buying the same value annuity.

As expected providers will have to signpost customers to Pension Wise and advice at the first point of contact, even if the annuity is below the threshold.

The original annuity provider will be allowed to charge a fee when the annuity is sold on.

The FCA says: “We want to avoid conflicts of interest, which we believe could arise if brokers’ remuneration is set by a buyer.

“Therefore, we are proposing rules which would both prevent brokers’ from receiving commissions set by buyers and prevent buyers from offering commissions in this market.

“Broker firms will not be able to receive commissions offered by buyers, even if they intend to rebate these payments to the seller.”

The regulator also confirmed annuity sales will be covered by the FOS and the FSCS.

FCA director of strategy and competition Christopher Woolard says: “Opening up this market extends the government’s pensions reforms to those who have already bought annuities, however, there are potential risks involved for consumers and we recognise that some consumers may be particularly vulnerable.

“We have set out proposed rules and guidance today that will help ensure that consumers have an appropriate degree of protection should they decide to sell their annuity income.”

AJ Bell pensions technical director Mike Morrison says: “This looks like the beginning of the end for commission in the non-advised market. How can the FCA justify banning commission when people are selling an annuity through a broker, but allowing it when they buy one?”

The FCA consultation is open until 17 June.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Apart from the terminally ill, who in their right mind (when in possession of the figures) would even contemplate this daft idea? This must be the daftest plan to come out of No.11 – and there has been plenty of competition for this accolade!

  2. @Mike Morrison, errrr maybe the non-adviser can charge a fee

    No better still I could say the FCA have not gone far enough (in this case) by stipulating annuities (secondary or not) can only be sold on a advised basis and by a “REGULATED” adviser!

    I sorry I don,t buy or get this non advised, insistent, execution only whatever you want to call it, bull squirt.

  3. The annuity provider can charge a fee, who pays the broker?.

  4. I would suggest that the issue of commission or otherwise is the least of their problems in this area. Still it’s always an easy shot at a responsive target and shows what is foremost in their minds.. You greedy advisers you…!

  5. Good – with the only option being to pay a fee to the broker, even fewer clients will want this nonsensical product. Taken all around, a good result for consumers and IFAs alike.

  6. Stuart Rathbone 22nd April 2016 at 11:21 am

    No problem in fact in my opinion this will help shine more light into the opacity of the dark art of finance/financial advice.

    The cost of advice will be set by market forces as it should be, but methinks that neither the state, its lap dog or the punters will be satisfied the outcome.

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