Will IFA's Always Have Your Best Interests at Heart

GSP

As flexi access income drawdown becomes more popular, I expect IFA's have become busier with maybe an increase in their numbers.

Just say if something like annuitiy rates suddenly ballooned and it was worthwhile for a lot of people to buy and move into these.
Without the knowledge, but expect once someone has bought this product that's it as far as that money is concerned, there is no longer the need for financial advice or reviews of pots.

If this scenario happened and it was beneficial for the client to move into annuities, do you see IFA's not suggesting this as it would cut off their income.

Malthusian

IFAs still charge for arranging annuities. They may not charge ongoing fees, but that is because there is no ongoing work. If their business model is sound there will be no conflict of interest.

With income drawdown it is essential to monitor returns, income, risk and suitability every year, with annuities there's little to review - given that even if they do become unsuitable, you're stuck with them anyway.

Remember that nothing happens in isolation. If annuity rates are ballooning it suggests gilt yields are ballooning, and one reason for that may be that we're in a high-growth, high-inflation, high-interest-rate environment which benefits drawdown pensions as well as annuities. Level annuities are less attractive if inflation is high, and inflation-linked annuities are extremely expensive. Or the UK may be in free fall with gilt investors piling for the exits, in which case it may not make sense to buy an annuity while pension fund values are at rock bottom. It is not as simple as "annuity rates may one day go up at which point annuities will be the new hotness again".

dunstonh

As flexi access income drawdown becomes more popular, I expect IFA's have become busier with maybe an increase in their numbers.

Drawdown has been available for over a decade and was mostly done through IFAs. Flexi Access has created more work but the outcomes are largely similar.

Just say if something like annuitiy rates suddenly ballooned and it was worthwhile for a lot of people to buy and move into these.

We charge the same for an annuity that we charge for drawdown. The fee is for retirement income advice. Not for the product. The only difference is an ongoing fee but that isnt an issue as IFAs will have transactional drawdown cases as well as ongoing and they effectively remunerate the same as an annuity. Having transactional and ongoing is fine. There is a finite number of ongoing cases that an IFA can service. I quite like getting the transactional ones nowadays as I am actually starting to end ongoing servicing with some clients to reduce the number I have.

If this scenario happened and it was beneficial for the client to move into annuities, do you see IFA's not suggesting this as it would cut off their income.

Why would it cut off the income? An IFA firm has mortgages, insurance, investments and pensions and all sorts of things it does. Much of that is transactional.

We are still doing annuities. Obviously not as much but also remember that IFAs are no longer getting the smaller value pots that had to have an annuity. They used to be relatively easy to do and that income is gone (as most fo those go to lump sum now) but it hasn't made any difference. That time has been freed up and filled with other work without any effort required.

GSP

Thanks guys.
But when someone trades in all their fund for an annuity, then assume that's it for you in respect of ongoing fees for that person as long as they don't have other products with you.

Back to my OP, my query was around how forthcoming would IFA's be to a client when it was a good time to move to an annuity (quite when that will be in our lifetime) and lose their custom going forward if they did.

dunstonh

But when someone trades in all their fund for an annuity, then assume that's it for you in respect of ongoing fees for that person as long as they don't have other products with you.

Remember, that IFAs tend to deal with wealthier clients who need ongoing servicing and the less wealthy tend to be transactional. The wealthier clients are likely to have ISAs and unwrapped etc that will carry on. The less wealthy were always likely to go annuity in the past and if they did that again then it would make no difference.

Back to my OP, my query was around how forthcoming would IFA's be to a client when it was a good time to move to an annuity (quite when that will be in our lifetime) and lose their custom going forward if they did.

Generally, I find the reason people use drawdown is not really about the amount but flexibility or death benefits (again noting that IFAs tend to deal with higher net worth clients on an ongoing basis). So, using an annuity with them would be unlikely. However, if it turns out to be the best option then you do it.

These people also tend to have ISAs, unwrapped and bonds as well. And indeed, may be doing bed & ISA and bed & Pension each year (which sort of defeats the point if they are taking money back out again with an annuity).

I am not sure why you think an IFA would not. I have been doing this for over 20 years and seen people come and go and others that I still deal with from back at the start. It's just natural activity and every IFA will be the same. You do what is right and it really doesn't have any of the impact you think it does.

Malthusian

GSP wrote: »

Back to my OP, my query was around how forthcoming would IFA's be to a client when it was a good time to move to an annuity (quite when that will be in our lifetime) and lose their custom going forward if they did.

One accusation levelled at IFAs in the old days (pre 2012) was that they were too keen to recommend things that paid up-front commission rather than ongoing commission and therefore they were too focused on acquiring new business instead of servicing their existing clients on an ongoing basis. It's interesting that you are worried about the total opposite, that IFAs might be overly reluctant to exchange ongoing fee income for an upfront payment (for arranging the annuity).

It's a theoretical possibility but practically speaking I sincerely doubt that it will ever become a real problem, because I don't think that annuities will ever recapture their glory years. Life expectancy is only going one way. (The recent headlines about pensioner life expectancy decreasing were nonsense - what the actuaries were saying was that life expectancy will continue to increase, but less quickly than they previously guessed.) That means that there will always be continued downward pressure on annuity rates even if economic circumstances change. The pension freedoms will not be reversed, whatever Labour and the big insurers may hope. The vast majority of people who are now entering income drawdown will remain in it until they die and pass the drawdown fund to their family.

IMO the only people likely to go from drawdown to an annuity are those who didn't really know what they were doing, look at their annual statement after five years of drawing 10% per annum and realise that they'll have blown their entire pension fund if they carry on for much longer, and buy an annuity with whatever's left before it gets any worse. These won't be IFA clients so they aren't what this thread's about.

westv

dunstonh wrote: »

Remember, that IFAs tend to deal with wealthier clients who need ongoing servicing and the less wealthy tend to be transactional. The wealthier clients are likely to have ISAs and unwrapped etc that will carry on. The less wealthy were always likely to go annuity in the past and if they did that again then it would make no difference.

What do you class as wealthier? Just wondering.

dunstonh

westv wrote: »

What do you class as wealthier? Just wondering.

It's subjective. I took on a new client last year that had just over £250k investments. His previous IFA told him that he didn't have enough money for them to be his adviser anymore. £250k was fine for us but not for him.

atush

GSP wrote: »

Thanks guys.
But when someone trades in all their fund for an annuity, then assume that's it for you in respect of ongoing fees for that person as long as they don't have other products with you.

Back to my OP, my query was around how forthcoming would IFA's be to a client when it was a good time to move to an annuity (quite when that will be in our lifetime) and lose their custom going forward if they did.

Your question is one sided, based on annuities which are decreasing in popularity.

One reason to use an IFA in an annuity is that they can haggle and get you a better deal. For no more money.

Another reason to use one, is to help you with other options incl drawdown and investment strategies to do this that meet your own risk profile (which they do a research/report on). Which can change.

These can include ongoing work in future years to make sure your investments are doing what you and they thought they would, and if any adjustments need to be made.

Lastly, their business model (being mostly of the ongoing and not one off variety) mean there would be very little reason to not have your best interests at heart.

Their business relies on you being happy, as you will be more likely to use them again to invest more money), more likely to give them business thru referrals to spouse, friends, family,, colleagues etc.

They have no vested interest in a string of unhappy customers.

GSP

Thanks atush but I think you miss the gist of my post.

If someone had flexi access income drawdown and was paying an annual fee to an IFA for reviewing and looking after, if annuity rates suddenly increased so it was beneficial to the client to buy these from their fund instead, would the IFA advise them to buy an annuity knowing going forward that's the likely end of the relationship and annual charges to them.

Thrugelmir

GSP wrote: »

If this scenario happened and it was beneficial for the client to move into annuities, do you see IFA's not suggesting this as it would cut off their income.

Why is flexi drawdown currently beneficial? Other than with hindsight it's the right thing to do. Safe draw down levels do not forecast the future. Dividends for example can only be maintained if companies continue to generate cash.