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RDR analysis: Annuity market still dominated by commission

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The majority of advised annuity business completed post-RDR has been written on a commission basis, analysis from two major insurers suggests.

Although the RDR banned providers from paying commission to advisers from 31 December, analysis of annuity cases written in the first quarter of 2013 suggests the market is still dominated by pipeline business written towards the end of 2012.

This is because FSA rules allowed providers to process advised cases which were agreed on a commission basis prior to 31 December after the RDR deadline.

Legal & General and Just Retirement have provided Money Marketing with a breakdown of post-RDR advised annuity charging figures.


According to L&G, some 80 per cent of the advised annuity business completed by the provider in the first quarter of 2013 was written on a commission basis. Just Retirement has reported a figure of 56 per cent.

Some 11 per cent of L&G’s post-RDR annuity business was completed on an adviser charging basis with fees taken from the product, with the remaining 9 per cent comprising customers who have paid an upfront fee and those who have dealt with the provider directly.

Of the cases when the adviser charge was taken from the product, L&G found 70 per cent charged a percentage of the client’s fund, with the remaining 30 per cent charging a flat fee.

Just Retirement reports 38 per cent of cases have been processed using an adviser charge taken from the product, with just 6 per cent paying an upfront fee.

Just Retirement’s analysis shows in 91 per cent of cases where the charge was taken from the product a percentage charge was levied, with just 9 per cent of advised customers paying a flat fee.

Of those cases where the client was charged a percentage of the fund, both L&G and Just Retirement say fees were generally between 1 per cent and 3 per cent.

Overall, the average fee charged by advisers using L&G post-RDR was £800. Just Retirement’s average charge for the first three months of 2013 was £730.

L&G head of strategy for individual annuities Tim Gosden says: “Anecdotal evidence from advisers is that where they have an existing customer relationship the adviser charge does not appear to present problems but it does in cases when it is a brand new customer.

“It is too early to say anything definitive about trends in the market. There was always going to be this transition to adviser charging, although we are seeing a significant swing towards non-advised business.”

Just Retirement group external affairs and customer insight director Steve Lowe says he expects adviser charging trends to shift as advisers look to segment their client base.

He says: “At the moment most advisers are effectively replicating what they did pre-RDR in terms of the way they structure charges. So if they were taking 1.5 per cent pre-RDR, they are still taking 1.5 per cent now but they are just converting it into an adviser charge.

“We think as advisers start to properly segment their client base these numbers will start to shift.”

Aegon, Aviva, Prudential and Standard Life say they are conducting analysis of early RDR adviser charging trends but are not yet ready to publish their figures.

Rowley Turton director Scott Gallacher says: “There was always going to be a period of transition to adviser charging. Financial advisers are not historically used to charging fees and so are not used to calculating the cost of the advice and communicating its value to the client. It is a significant challenge.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “I am not surprised the annuity market is still commission heavy. The challenge for a lot of advisers is working out exactly what their time is worth and then translating that into a charge.”



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

  1. If they move to a charge basis this means that those with smaller pension pots will be put off from taking advice and will end up with smaller pensions.

  2. Is this the most misleading and silly headline of thr post RDR period to date ????

  3. @ Paul Woolley 2:22pm

    I think it possibly is.

  4. @ Paul Wolley: Paul you got it in one. What a stupid article. If this is all about 2012 advised stuff why did some moron ask the question and more to the point why did these providers respond? It is a nonsense. MM – Yoiu should not have bothered giving this any column inches. It is a non event

  5. And the point is? What a nonsense article ,this was always going to be the case in Q1 ,come back and talk about this at the end of Q2! Of course most pension pots are quite small and charging a fee to cover time will be unpopular with many so the next story will be why are people not using their OMO…oh sorry another unforseen consequence of RDR dear regulator!

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