Does this IFA's service seem good enough to you?

Gudrun

Hello, I'd be interested in your thoughts about this.

I contacted an IFA in June to try to arrange an annuity from my pension.  We agreed terms on the basis that I'd take 25% drawdown, the annuity would be for the remaining sum.   I was clear I wanted RPI cover, which he told me usually did not go up to more than 7%.  

After several weeks he got back to me with quotes from one provider.   When I asked if he had other quotes - I'd expected to be told about at least three - he said what he had sent me were from the best quotes available on the market - no details about other provider quotes, and no provider names given.   I asked if his quotes were, as originally agreed, based on my fund minus the 25% drawdown.   He said they were based on the full fund amount.   When I asked what the ceiling would be on the RPI quoted, he said no maximum "as far as he was aware", whatever the RPI was would be matched.   (So presumably he hadn't asked).

To me this seems like unacceptably careless service.   What do you think?

 

HappyHarry

I wouldn't be particularly impressed.

Your IFA should know the RPI details and would normally quote the annuity on 75% of your pension pot unless discussed otherwise. I would assume this IFA does not do much annuity work - which is fairly common given annuity rates over the past few years.

Have you and the IFA discussed spouses pension - if you are married, and guarantee periods in addition to index linking? If not, then you should have had those discussions too.

Annuity quotes now come with a warning from the provider if they are not the best rate on the market, and show what that best rate is. If you have seen the annuity quote then it will tell you whether or not you are getting the best rate for the details entered. 

dunstonh

After several weeks he got back to me with quotes from one provider.   When I asked if he had other quotes - I'd expected to be told about at least three - he said what he had sent me were from the best quotes available on the market - no details about other provider quotes, and no provider names given.

That is quite normal.   You employ the IFA to give you best advice.  Not to provide a menu to pick from.    If you want to see the rest, it will be on file and available to show you.    As long as they show you on request and dont hide it then its not a problem.  

That said, it is normal to be shown a comparison of options so you can be made aware of the differences in the annuity amounts for different options.

 I asked if his quotes were, as originally agreed, based on my fund minus the 25% drawdown.   He said they were based on the full fund amount.

That is not good.  After agreeing objectives and needs and settling on a product type, the recommendation should match that.  Generically, you would never buy an annuity using the 25% unless there is a rare justification for doing so.   For example, a high guaranteed annuity rate that cannot be matched on the open market.    Something like 98% of annuities would be purchased after the 25% is paid out.

When I asked what the ceiling would be on the RPI quoted, he said no maximum "as far as he was aware", whatever the RPI was would be matched.   (So presumably he hadn't asked).

Again, not good.   There are some differences in RPI across providers, buts it's mostly on the downside.  i.e. if in a deflationary period, some annuity providers set the floor as zero whilst others would apply the negative rate.

Annuity quotes now come with a warning from the provider if they are not the best rate on the market, and show what that best rate is. If you have seen the annuity quote then it will tell you whether or not you are getting the best rate for the details entered. 

Personally, I have never been impressed with that.   I have seen quotes where the provider has said theirs is best when it wasn't and vice versa.    Whatever they use to decide what they say seems to lack consistency.  I suspect they use the simple quote method and not the detailed quote method and you will know how the provider order will change once the detailed method is used (and if you throw in the few remaining providers that will still haggle a price).

Gudrun

Thank you both very much for taking the time to set out your thoughts, and for all the useful information you've given me.   

HappyHarry:   spouse's pension and guarantee period were discussed, but for various reasons I wanted something very simple - a single person annuity without guarantee period, but with RPI linking.   What I wanted in fact seemed so straightforward that I am bewildered at how poorly it is being handled.

dunstonh:  I did ask about other quotes but just got the reply I mentioned above.   I will ask to see what is on file.

By the way, is it normal not to say who the quote provider is?  

dunstonh

By the way, is it normal not to say who the quote provider is?  

Have you agreed a fee with the adviser yet and formalised the advice or is this early days quote comparisons/shopping around? 

peterg1965

What about using an online Annuity comparison tool, like the one on the HL website then applying directly to the Annuity provider?

Provided accurate data is used, especially on the medical front, I would  expect these to be the same as the IFA quotes, or would it be expected that the IFA can access better quotes from the same panel of providers?

OP - How much is the IFA charging for this service and it would be interesting to see if the quote form the IFA is higher to offset the fee?

zagfles

Have you researched your own quotes? Easy to do, loads of sites which compare providers. If you go direct, instead of paying advice fees you pay commission to the provider/broker, but it's possible to negotiate with annuity brokers to rebate some of their commission, so you could get a better deal direct than via an IFA. As Steve Webb explains here:

https://www.thisismoney.co.uk/money/pensions/article-9749773/Im-buying-annuity-55k-pot-does-broker-gets-commission.html

Pat38493

peterg1965 said:

What about using an online Annuity comparison tool, like the one on the HL website then applying directly to the Annuity provider?

Provided accurate data is used, especially on the medical front, I would  expect these to be the same as the IFA quotes, or would it be expected that the IFA can access better quotes from the same panel of providers?

OP - How much is the IFA charging for this service and it would be interesting to see if the quote form the IFA is higher to offset the fee?

It’s been stated on here a few times that IFAs can usually get better quotes than a DIY investor for annuities.  I don’t have personal experience there but it gets regularly stated on this board.  The implication is that perhaps they have access to discounts, or providers that are not available to the “general public”.  Seems counter intuitive as you would normally think that inserting layers of advisers in the mix would increase the cost, but apparently not with annuities.

dunstonh

What about using an online Annuity comparison tool, like the one on the HL website then applying directly to the Annuity provider?

Most annuity providers do not deal with the public directly but if they do, they take a commission that is often higher than the adviser fee.  

For clean health cases (no enhancement uplift) then the figures an IFA will get vs online will be virtually the same apart from differences caused by the fee and commission amounts.    For enhanced health cases, the IFA can often get better.

OP - How much is the IFA charging for this service and it would be interesting to see if the quote form the IFA is higher to offset the fee?

Remember that IFA is not getting commission.  So, the nil commission annuity rate will be used.  The fee will be deducted from the pension pot.    So, its value minus fee multiplied by nil commission annuity rate.

On a non-advised arrangement, they will take a commission.   So, the annuity rate will be reduced to reflect the commission rate.   However, the commission is not deducted from the value.   So, its a slightly higher fund value multiplied by a lower annuity rate.

Seems counter intuitive as you would normally think that inserting layers of advisers in the mix would increase the cost, but apparently not with annuities.

The cost of distribution via IFAs is cheaper than doing it in house. If in-house, they need to set up compliance and regulatory requirements and additional authorisations to increase their levies.  They also need all the staffing that goes with the distribution.     So, their running costs will increase and need to be recovered.     Annuities haven't been viable for most people for years and this may only be a short term window.  So, they would have been suffering costs but not getting much from it.     Some may get enough by taking a high enough commission but that commission is often higher than the adviser fee.

Gudrun

dunstonh said:

By the way, is it normal not to say who the quote provider is?  

Have you agreed a fee with the adviser yet and formalised the advice or is this early days quote comparisons/shopping around? 

Yes fee of 4% agreed, advice agreed on basis I was drawing down 25% of fund.

Gudrun

peterg1965 said:

What about using an online Annuity comparison tool, like the one on the HL website then applying directly to the Annuity provider?

Provided accurate data is used, especially on the medical front, I would  expect these to be the same as the IFA quotes, or would it be expected that the IFA can access better quotes from the same panel of providers?

OP - How much is the IFA charging for this service and it would be interesting to see if the quote form the IFA is higher to offset the fee?

I did use the online tool to get a general idea of quotes.   None of the providers I approached would deal with me direct, only through an IFA.   Fee is a percentage of the fund value.