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Phillip Bray: My concerns about non-advised annuities

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Annuities have dominated the headlines over the past few months, with the debate fuelled by veteran Labour MP Frank Field’s call for an Office of Fair Trading investigation into the non-advised annuity market.

Then last week it emerged that Which? is entering the at-retirement market with both advised and non-advised propositions.

I have no problem with a new advised at-retirement service but I have huge concerns about the non-advised annuity market and whether it is providing the best outcomes for retirees.

Firstly, a non-advised annuity broker is simply tasked with finding the best annuity rate, either via a telephone service or online. But as all advisers know, this puts the cart before the horse. The most important question at retirement has to be: is an annuity actually the right option for the retiree? Indeed, would deferral be better?

As an industry, this is another message we need to communicate more clearly: shopping around for the best annuity is not enough; all retirement income options need to be considered.

By definition, a non-advised annuity broker cannot advise retirees on other options. The decision is already made to buy an annuity. Also, while deferral is often a very effective strategy, is a non-advised broker ever going to suggest that as an option?

Finally, our advisers have dealt with many clients who have already spoken to a non-advised broker and would have received a far worse result if we had not stepped in. We have seen non-advised brokers arranging an annuity when the existing scheme has guaranteed rates; who have missed the possibility of an enhanced annuity; and who charge excessive levels of commission or offered commission kick-backs to mask inferior rates and service.

I passionately believe the advised market serves retirees far better. After all, will a non-advised service:

  • Discuss and recommend the benefits of deferral?

  • Recommend more appropriate retirement income options?

  • Investigate the existing pension scheme to discover whether guaranteed annuity rates apply?

  • Get annuity quotes from the ceding scheme?

  • Advise a retiree on the benefits of moving to a cash fund?

  • Give the retiree access to a highly qualified, experienced and knowledgeable adviser?

Of course, if an annuity is ultimately the best option, the rate and level of income are hugely important. 

But so is getting the correct shape, which is where advice is so important.

Lastly there is the thorny issue of cost. Non-advised brokers get paid by commission, advisers by fees. In our experience, an adviser can generally advise a retiree, doing all the things we mentioned above and more, for a lower fee than the often, in my opinion, excessive commission paid to a non-advised broker.

As an industry, we need to champion the benefits of advice at retirement while emphasising it need not be more expensive. In fact, with some non-advised brokers charging up to 3.5 per cent commission, advice might be much cheaper.

The message that retirees need to consider all the options is slowly getting through, but we should not rest until all retirees realise the benefits of advice.

Phillip Bray is marketing manager at Investment Sense

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Phillip makes some good points – I think that as the very competitive market for annuity broking /advice develops and as the unintended consequences become more apparent, the debate will move on. Instead of seeing it as non-advice against advice, I envisage the focus being on what service clients really need and what service broking firms / advisers can deliver.

    To be more specific there are there are a number of key questions that clients need to consider including:
    – when is the right time to invest in an annuity
    – what policy – guaranteed /investment linked / fixed term
    -which options and which providers

    I have seen many non advised firms and many advisory firms not asking these questions and I have seen some non advised firms and advisers ask these questions

    Therefore the battle is not between non advice and advice but between those who provide the right service and those who do not.

    I am sure that this debate will continue

  2. Billy is spot on. Of the 60% that do shop around, up until recently only a very small % bought impaired / enhanced annuities and, the vast majority will have been advised sales ( the non advised market still only represents a small percentage of all annuity sales ). This can only tell us one thing, a great many advisers have not considered enhanced annuities for their clients. Ask the average mortgage broker, who may occasionally do the odd annuity about gar’s, protected pcls, Pre and post 88 GMP’s and they will struggle. Ask many of the same to explain how invested and with-profit annuities work or how the effects of inflation may effect a fixed term annuity. Or how sometimes it may not be clients best interest to take a GAR, because sometimes it is not if, for example the client is very ill and is married and he 8% GAR can only be taken on a single life basis. Just because someone has a GAR does not always mean it is best advice to take it.

    If every IFA was G60 qualified I would support Philip 100% but unfortunately a great deal of Advice over the years has been questionable at best. That said, there are clearly some direct offer brokerages out there ( and we know who they are ) who have come into annuity world to make a quick buck as quickly as possible!

  3. An excellent article by Phil, there really does need to be an analysis done of what is acceptable in the Non-advised market. Some including the biggest players suggest that they can ‘guide’ customers with regard to enhanced annuities and guarantees whilst directing them elsewhere to their own in-house offering for investment backed annuities. Where this guiding an nudging becomes advice seems to be a judgement call at the moment, it needs to be clear and consistent.

    In reality this guidance is really advice from unqualified staff. As FCA have pointed out if the client thinks they are being advised they almost certainly are.

    The biggest scandal is that these are allowed to be sold at a premium with commission disclosure at the eleventh hour, with eye watering rates of commission, whilst the Gold standard advised route is burdened with explicit fees disclosed from the outset.

    And still we wait for PICA to launch their broker list, any news Tom McPhail??

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