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Phillip Bray: How to cure the ills of the non-advised annuity market


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.

Missing out

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.

Regulatory protection

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



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

  1. Very interesting article and I pretty much fully agree with every point (funnily enough I covered much of this in a post yesterday).

    My only comment would be that on a non-advised basis straying into guidance on avoiding moving GARs to other plans or married people buying single annuities will grey the area of advice and non-advice. Of course, clients should be aware of this but if a transaction is being done on a non-advised basis, the onus is on the individual not the provider …. and therein lies the significant problem.

    As outlined above, most consumers don’t read the detail and therefore flagging it may well be missed. As such, IMHO non-advised sales involve the individual taking full responsibility even if they make a selection which is wholly inappropriate given that placing obligations on the provider/3rd party is muddying the advised/non-advised waters.

    I realise this is perhaps nit picking but I firmly feel that many consumers think they are getting advice when, in fact, they aren’t… and the more ‘non-advised guidance’ they receive, the more they may think that they are infact being advised.

  2. This is where I feel like a real mercenary. My view is that if they do not want to see an adviser and get full advice (and pay for it) then they deserve what happens to them if they happen to pick the wrong annuity. I really have no sympathy for these people.
    I do not agree with Phillip’s comment that non advised broker should have a minimum duty to check benefits from ceding scheme. You are then getting into the relms of grey area with that. I think non advised either has to be allowed as it stands or commission is banned and they must make a transparent implementation fee. (same as AC). The brokers can charge whatever they like and it is up to the client to decide to run with that or shop around elsewhere. Definately agree with the standard of disclosing how they researched the “market” they operate in and which providers they researched and who they are unable to use. It should be in bold and on the front page of any document that relates to the quote. If it is from whole of market, fine and dandy – if from a panel they should have a disclaimer showing in bold words that the customer could get a better rate by someone else who dos not have a restriction on them from a provider choice.

  3. Whilst I am NOT disagreeing with Marty, my broken record point remains that the trivial pension limit should be 3% of the lifetime allowance or £40k whichever is the higher. That way pots under £40k are treated in the same way as flexible drawdown cases. No-one gets stitched up as happens with small cases and the taxman gets his pound of flesh.
    If someone under £40k has a guaranteed rate it is simple then for the provider to highlight it and if the idiot still wants to take it all in one, that is why English Law includes caveat emptor.
    The issue of funds in excess of £40k then becomes if someone chkkkses to act without advice, it is NOT because they can’t afford it, it is a coinsciius decision to be stupid and as with a Lasting Lower of Attorney, even those with limited mental capacity ARE allowed to do I something stupid and their attorney is supposed to assist them. Gambling is NOT illegal and if they want to put it all on Black, mores the fools them.
    A many state can go too far, BUT when ikt’s rules are the cause of the xoinsjmer detriment, then CHANGE the rules, I.e.the Trivial Pension limit, not the Non advice and advice debate which is a distraction and last ditch attempt for many insurers and failed salesman to keep getting overpaid.

  4. ‘potentially missing out on alternatives’

    ‘quotes for fixed term and investment-linked annuities’

    So which is it then?

    And be careful what you wish for…….. I am sure a review of advised sales would not present a rosy picture!

  5. I have quite a bit of sympathy with Marty’s argument. At what point does the balance of care tip from provider to member of public? Clearly giving advice puts the burden of responsibility smack in the advisers court but the execution only route leaves it entirely in Joe Public’s hands. Provided that all information is made readily available such as cost of using the service and warning statements are printed clearly and not hidden in the small print such as restricted panel etc then should the public choose to use that kind of service and not select the correct product/option then they have no one to blame but themselves.

    Obviously should someone choose to take advice they remove the burden of responsibility from themselves to the adviser. Thats why the powers that be should be promoting the benefits of regulated financial advice.

    As usual just my humble opinion.

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