Annuity dilemma

g002ahe

What I do not appreciate is the haggling over a redistribution of the commission to partly come to me rather than go to the broker/IFA.

Basically there was about £6-10k of commission on this simple transaction which had minimal fuss and compliance.

In the end, i got perhaps £3-5K of that given back to me (as higher annuity+cashback).
To get that, I had to negotiate over a week or so with a few emails to say "i have been quoted at x which beats your quote y - can you beat that"  to both the IFA and broker who were fighting for the business. Most people probably would not have done that I guess. It seems very costly, inefficient and unfair in general.

dunstonh

What I do not appreciate is the haggling over a redistribution of the commission to partly come to me rather than go to the broker/IFA.

IFAs cannot take commission.     With an IFA, you get the pure nil commission terms.    For everyone else, they are just agreeing to adjust their profit margin.

However, what you describe happens on many retail products in many areas.

Basically there was about £6-10k of commission on this simple transaction which had minimal fuss and compliance.

Bloody Hell.  You should have gone to an IFA.   I have just set one up on a £1500 fixed fee and the client got the nil commission rate.   

For decades, the regulars posting on this site, including those who DIY and wouldn't use an IFA for anything in any other area, have agreed that this is one of those areas where an IFA makes sense.

Most people probably would not have done that I guess. It seems very costly, inefficient and unfair in general.

Most are bought via IFAs.  So, you are probably right that most won't have done that.   You used a more expensive method and then tried to haggle but still ended up with a worse outcome.

g002ahe

Interesting - thanks @dunstonh
Can you do that (simple fee of £1.5k and no commission) for a brand new client, one that you don't already charge a fee for other things and have a good insight into their financial position? i.e. i guess - is this an "advised" route?

Would you have to go through processes to understand and give the right advice? or can this be transactional? The IFA I contacted did not give me this option.

dunstonh

Can you do that (simple fee of £1.5k and no commission) for a brand new client, one that you don't already charge a fee for other things and have a good insight into their financial position? i.e. i guess - is this an "advised" route?

Yes.
IFAs cannot take commission full stop.  So, terms on all products will be commission free.
You will get greedy IFAs and good value IFAs.   
IFAs are required to provide the client the choice of transactional advice (i.e. adhoc or one off) or servicing.  They cannot insist on servicing.
An annuity purchase is often a one and done transaction anyway.  There is no ongoing. 

Would you have to go through processes to understand and give the right advice? or can this be transactional? The IFA I contacted did not give me this option.

As said, transactional is fine.   There would be the information gathering to verify need and suitability, discussion on options (e.g. timescale guarantees or value protect, level, RPI, fixed indexation etc), some modelling of the options to check suitability for life and help you understand things like the breakeven point etc.     You agree which option to go with, reports issued and the applications are processed.   You never have to see the IFA again.

The commission route is far less work as the adviser is not allowed to give any advice.  Even a wink or nod to an option.  They don't have to factfind or do reports, etc.    They just follow instructions.  It's money for old rope compared to advice.

g002ahe

Wow @dunstonh that is very interesting. I could have gone through the IFA on advised basis and got a better deal than non advised.

This adds to my feelings that this product is a bit "old school" in terms of how it is sold, commissions and fees etc. compared to a low cost SIPP platform with a low cost tracker for example.

I wish that I could just buy an annuity just like i can buy a fund/stock/etf. with different products selectable and costs shown clearly. 

dunstonh

I wish that I could just buy an annuity just like i can buy a fund/stock/etf. with different products selectable and costs shown clearly. 

Had it not been for nearly 15 years of rubbish annuity rates and a market in decline, there may have been more product development.   The fact is that providers didn't really see the point of spending tens to hundreds of millions in development on a product that people were not buying any more.    

 With the recent increase in annuity purchases, that may change.

Pat38493

dunstonh said:

IFAs are required to provide the client the choice of transactional advice (i.e. adhoc or one off) or servicing.  They cannot insist on servicing.

In theory - but in practice can't any business refuse to do business with you if they don't want to e.g. they could just say your pot is too small or whatever?  In the end though I wouldn't want to do business with an so called IFA if they were clearly only interested in a long term contract (even if I wanted one) as this would tell me something about their motivations.

dunstonh

In theory - but in practice can't any business refuse to do business with you if they don't want to e.g. they could just say your pot is too small or whatever?

Yes.   Businesses are allowed to refuse to offer services with a non-discriminatory reason.     Of which, not viable for the client is likely to be amongst the most common or too busy at the moment.

 In the end though I wouldn't want to do business with an so called IFA if they were clearly only interested in a long term contract (even if I wanted one) as this would tell me something about their motivations.

It works both ways.   If they have refused to offer a service to you and you refuse to use them then both sides are happy with that outcome.

waveyjane

Out of interest, how is an annuity break-even point calculated?  I assume this is the point at which you receive your original investment back through income? 

dunstonh

waveyjane said:

Out of interest, how is an annuity break-even point calculated?  I assume this is the point at which you receive your original investment back through income? 

You have several points to model.
The point that indexed gets to match the level payment
The point that indexed meets the cumulative amount paid out by level.
The point that you get back what the initial annuity purchase was.