The Financial Services Consumer Panel report on the non-advised annuity market has set the cat among the pigeons.
I have consistently warned of the dangers of buying an annuity from a non-advised broker. Here are the main problems if a consumer does so.
A non-advised broker tends to be an order taker. To put it another way, the consumer will generally get what they ask for, potentially missing out on alternatives.
While the FSCP report makes it clear that many brokers offer information on other options, it also questions whether consumers will read this.
What is more, it may be best for the consumer to stay with their current provider rather than going into the open market. A non-advised broker does not always check if guaranteed annuity rates apply, if there are any penalties for taking benefits, or the annuity rate offered by the consumer’s existing provider.
Whole of market, panel or independent?
The report highlights that some brokers are less than transparent over the range of providers they could transact business with. It is vital consumers are clear who their broker can and cannot deal with.
Making the wrong choice
Many online non-advised brokers offer a results table. But results pages can be dangerous, including quotes for fixed term and investment-linked annuities alongside lifetime annuities. This could lead to misbuying, with the consumer simply selecting the highest rate, thinking they have chosen a lifetime annuity but in reality getting something very different.
If the wrong choice is made, the consequences rest squarely with the consumer.
Clearly this is not the case if the consumer took advice, which affords them far more protection if the advice turns out to be flawed.
I believe that in many cases the non-advised annuity market is not acting in the consumer’s best interests. So what should be done?
- Ban commission on non-advised annuity sales. It is often excessive and allows some non-advised brokers to market their service as free.
- Improve standards. As a minimum, all non-advised brokers should be required to carry out basic checks on the ceding scheme to ensure that no valuable guarantees are lost and that consumers are aware of the consequences of their decisions – for example, a married man buying a single life annuity.
- Ban commission kickbacks from non-advised brokers. We have seen examples of brokers offering to share commission with annuitants. This practice of ‘buying business’ needs to be outlawed immediately.
- Everyone who sells or advises on annuities should be forced to list the providers they can and cannot use. A list prominently displayed on all landing pages would reduce the possibility of a consumer thinking the broker is working with all providers when they only have access to a panel.
A final point: there are still leading industry figures who deny there is a problem with non-advised annuity sales.
The way to find out is an industry-wide review of all annuity business transacted since the RDR. Only then will we know the extent of the problem.
Phillip Bray is marketing and relationship manager at Investment Sense