PURCHASED LIFE ANNUITIES - *WHY* MUST I PAY FAT FEES IN 'ADVICE' TO BE PERMITTED TO BUY SUCH ?

LHW99

I suspect (but don't know) that PLA's are sold by a small number of life assurance companies, due to them being a niche product.

Those companies therefore prefer to concentrate on their normal business, including standard annuities. They can take a small profit per annuity sale and have enough to pay for their back office, which is trained to the sort of standard questions they need answered to get the underwriters to give them a number.

PLA's fall into a similar category as Immediate Care Needs Annuities, which are also only available from a small number of companies and are also only available via IFA's.

I suspect with both, the additional work on medical records the IFA will put in benefits the purchaser, by getting the best rate possible. Presumably if you are driven to needing to purchase an annuity from savings / taxed pots you do want the best deal possible to obtain.

(I am not and never likely to be an IFA, it's my take on things)

HappyHarry

flyingchap said:

HappyHarry said:

30 minutes of high grade legal advice for £100? That is very inexpensive.

30 minutes of IFA work for £2000 to £6000? That would be incredibly expensive.

Maybe the work takes longer than 30 minutes?

Anyway, if the PLA provider needs an adviser to sign off the product, they can make those rules. There is no legal requirement to do so though.

Very few PLAs are purchased, and so the providers are unlikely to want the cost of training their staff to deal with them directly - it just wouldn't be cost effective. Far better for providers to pass the buck and the work to brokers - i.e. IFAs.

As a note, whilst a retail client can purchase annuities directly from a provider, they would usually get a far better annuity rate going via an IFA as the fees/commission tend to be less through an IFA than they are through the provider's own sales team.

   Hello Harry and thanks for your input.  

 Just on those two price examples:

a.  The 30 minutes of legal advice for £100 ?  that's a firm in Basingstoke who did some property work for me,  during lockdown they moved to all remote and kicked off a new scheme of "half hour" slots - they in fact charged only £90 originally for the half hour.   I can introduce you to them if you like.    In business I've usually paid between £200 & £350 per hour for mid-range small company work, up to and including corporate finance.   My usual solicitor on that sort of work bills meetings in hours plus one decimal place (ie in increments of 6 minutes).    

b.  The £2000 - £6000  examples are figures quoted this week by UK IFAs from Unbiased who I have been speaking to.  They disagree with you and plainly DON'T think that's expensive.   I AGREE WITH YOU and think it is. 

Thanks very much.   All polite inputs are welcomed. 
  

I think the issue is that what you think is 30 minutes work will in reality take a lot longer.

If an adviser needs to sign something saying that they have given advice then they must give advice. This means understanding the clients current financial position, understanding the client's objectives, if a PLA is appropriate then sourcing the best rate available from the providers that offer them, writing up the recommendations, making the application and seeing it through to implementation.

I understand that this will sound like a ridiculous amount of work that needs to be done for an educated client who understands the market and is clear on what they require. However, adviser hands are tied by the regulator (the FCA) who, quite rightly, insist on the this level of work whenever advice is given. 

It would be far better to direct your frustration at the companies offering PLAs who are insisting on a client taking formal advice.  

HappyHarry

flyingchap said:

HappyHarry said:

Very few PLAs are purchased, and so the providers are unlikely to want the cost of training their staff to deal with them directly - it just wouldn't be cost effective. Far better for providers to pass the buck and the work to brokers - i.e. IFAs.

As a note, whilst a retail client can purchase annuities directly from a provider, they would usually get a far better annuity rate going via an IFA as the fees/commission tend to be less through an IFA than they are through the provider's own sales team.

   Hi Again Harry.   
This quote of yours above is interesting -- I'm interested to hear that very few are purchased.  Is that consistent down the years ?    I am surprised - and hence wonder why - given that it would seem,  many people NEED PLAs:  surely, everyone who would like an annuity,  but have only tax-paid cash / savings and no pension pot,  is in that situation:  and that much include lots of people who had not built up a DC or DB pot -- that surely (for example) includes many women who gave up work to have children,  depending on their husband's income.   Anyone in that situation who for example loses their husband  before retirement - may (CMClaygate41!
even if an insurance provided them with capital) be in exactly that situation.   I would have assumed it was therefore a biggish seller.     Can you say why it's not ?  Thanks.     

I can count the number of PLAs I have arranged on the fingers of one hand, and that is over 25+ years. The main issue is that not many people are willing to put tax-free savings into a product that is completely inflexible and will charge them some form of income tax on their payments out of the product. The majority of people that might be considered for these products already have guaranteed incomes from pension annuities, DB pensions and state pensions, and like to have flexibility of income/withdrawals on their other savings and investments. ISAs, investment bonds and even unwrapped investments such as gilt ladders can all provide a more flexible and tax-efficient approach to producing a long-term income, though this does of course come with some risk as to the longevity of said income.

Marcon

flyingchap said:

HappyHarry said:

Very few PLAs are purchased, and so the providers are unlikely to want the cost of training their staff to deal with them directly - it just wouldn't be cost effective. Far better for providers to pass the buck and the work to brokers - i.e. IFAs.

As a note, whilst a retail client can purchase annuities directly from a provider, they would usually get a far better annuity rate going via an IFA as the fees/commission tend to be less through an IFA than they are through the provider's own sales team.

   Hi Again Harry.   
This quote of yours above is interesting -- I'm interested to hear that very few are purchased.  Is that consistent down the years ?    I am surprised - and hence wonder why - given that it would seem,  many people NEED PLAs:  surely, everyone who would like an annuity,  but have only tax-paid cash / savings and no pension pot,  is in that situation:  and that much include lots of people who had not built up a DC or DB pot -- that surely (for example) includes many women who gave up work to have children,  depending on their husband's income.   Anyone in that situation who for example loses their husband  before retirement - may (even if an insurance provided them with capital) be in exactly that situation.   I would have assumed it was therefore a biggish seller.     Can you say why it's not ?  Thanks.     

You say 'many people NEED PLAs', but on what basis are you making that assertion? Not everyone would 'like an annuity' - you might, but a sample of one isn't representative!

Many moons ago (1980s), PLAs were very common. People would take maximum tax free cash from their defined benefit scheme and then buy a PLA with the tax free cash, taking advantage of annuity rates which were often as good as their DB scheme; the flexibility to buy an annuity which suited their needs (eg single life only rather than with spouse's benefit attached); and the advantageous tax treatment of a PLA.

 You've only got to look at the enthusiasm for so-called 'pension freedoms' (transferring from defined benefit schemes to defined contribution schemes), and the number of people opting for drawdown over annuities, to recognise that the days of choosing certainty over flexibility are well and truly over, at least for now. Being widowed doesn't change that; plenty of modern women are as capable of making financial decisions as their dearly departed husbands.

The world has moved on. Whether PLAs start to become more common to cater for things like care home fees ... time will tell.

flyingchap

Marcon said:

flyingchap said:

All wisdom appreciated.   

 

'

Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!   '

Mr Marcon  -   I'd missed your  "footnote footnote" recommending that I 'Google'  for an answer to this (because for some reason it's omitted from the quote unless you add it manually back in).      Do you seriously,  think I have not been doing that ???     It's a silly comment on your part,  if you will pardon me.   Let me say why: 

I am not a child - I am a professional person well used to researching issues I'm working on.  I'd already SAID in my post,  that I've BEEN TALKING TO IFAs and BROKERS in the industry for weeks on this  -- hence the exasperation - I've read everything online I can find on this up to and inclulding the 2014 and 2020 FCA Reviews of the annuity sales process and their rule-changes (and two prosecutions of annuity providers for north of £20M each for mis-selling)  - and NONE of that has yet,  found me the answer to this still-extant conundrum:   

IF I am able to buy one type of annuity WITHOUT advice freely,   but only a very similar product  WITH ADVICE before I am allowed to,    when the differences are not complex  (the products are deeply simple in themselves)
then WHY is that advice SO expensive ?    I have not been able to get a quote for this advice below £2000: most IFA firms tell me their MINIMUM is either £2000 or  £2500  even when the advice is constrained to a single product quote.  Arguably the only "better value" I've had quoted was one IFA who has offered to advise on THREE such products (two other members of my family also need PLAs)  -  and their current offer for that is £4500.    (If you don't believe me I am happy to post redacted screencaps of that quote). 

I cam to a forum seeking BETTER advice than "try googling", thanks.   I thought the people in here would be earnest customers-with-past-experiences which could be helpful  --  all I seem to have found is a group of easily offended IFAs who can't take honest critique.    

Dazed_and_C0nfused

Have you tried Canada Life?

For PLA's their website says you "should" take advice, not "must" take advice.

https://www.canadalife.co.uk/retirement/purchased-life-annuity/

NB.  I'm not recommending Canada Life, it's just an observation.

flyingchap

LHW99 said:

I suspect (but don't know) that PLA's are sold by a small number of life assurance companies, due to them being a niche product.

Those companies therefore prefer to concentrate on their normal business, including standard annuities. They can take a small profit per annuity sale and have enough to pay for their back office, which is trained to the sort of standard questions they need answered to get the underwriters to give them a number.

PLA's fall into a similar category as Immediate Care Needs Annuities, which are also only available from a small number of companies and are also only available via IFA's.

I suspect with both, the additional work on medical records the IFA will put in benefits the purchaser, by getting the best rate possible. Presumably if you are driven to needing to purchase an annuity from savings / taxed pots you do want the best deal possible to obtain.

(I am not and never likely to be an IFA, it's my take on things)

    LHW99  Thanks very much ---  that's an interesting take on the issue.  

    I can see that logic  --  that the doubtless lengthy detailing that health records amount to for an enhanced PLA 
    (I am trying to find one of those for a very elderly relative who needs one )  --  BUT something that runs against that, is a conversation I had with RetirementLine just yesterday.   This is where the ODDNESS I mentioned shows up: 

1. They said they were perfectly able -- as NOT IFAs but commission-paid BROKERS  -- to get me a set of quotes, FOR an Enhanced Life Annuity  -- ie go through processing all that health data (ie for my elderly relative);   that was not a problem - BUT

2. When I pointed out that the elderly relative would be using cash savings,  and hence this would need to be an Enhanced PLA and not an Enhanced Standard Annuity,   immediately they said  "...OH sorry we can't quote for that if the money source is cash - only if it's in a pension" .

THIS is what led me to mention in my original post,  that the only reason I can think of which causes this "essential need for me to have expensive paid advice"   ---- is in fact government AML (anti money-laundering) concerns.   

One can see where that possible concern could come from:   a crook,  wanting to launder money,  could bribe a vulnerable elderly person,  to  apply for a PLA,  buy it from cash pushed to him,  and then be intimidated / or just bribed - to route the PLA "output" back to the money-launderer.     Perhaps the Govt does not want to sully the sector with this grimy worry /  and so just regulate the problem aside by mandating that  Providers,  refuse to sell PLAs except with  - shall we call it  --  "backside-covering"  advice given to the purchaser.     

Increasingly I think this is the issue.  No one has confirmed it yet.   Which is why I think I will ask the FCA (if I can reach them).    I will post the result of that dialogue here if I can get an answer. 

Many thanks for your input / it's appreciated.

Best regards. 
 

leosayer

OP, this forum is best when you provide personal finance problem that needs a solution. 

The main reason why financial service firms recommend you take advice and why IFAs charge so much is because of regulation implemented as a result of misselling in the past, often to clients who think they know best and often don't.

artyboy

flyingchap said:

Marcon said:

flyingchap said:

All wisdom appreciated.   

 

'

Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!   '

Mr Marcon  -   I'd missed your  "footnote footnote" recommending that I 'Google'  for an answer to this (because for some reason it's omitted from the quote unless you add it manually back in).      Do you seriously,  think I have not been doing that ???     It's a silly comment on your part,  if you will pardon me.   Let me say why: 

I am not a child - I am a professional person well used to researching issues I'm working on.  I'd already SAID in my post,  that I've BEEN TALKING TO IFAs and BROKERS in the industry for weeks on this  -- hence the exasperation - I've read everything online I can find on this up to and inclulding the 2014 and 2020 FCA Reviews of the annuity sales process and their rule-changes (and two prosecutions of annuity providers for north of £20M each for mis-selling)  - and NONE of that has yet,  found me the answer to this still-extant conundrum:   

IF I am able to buy one type of annuity WITHOUT advice freely,   but only a very similar product  WITH ADVICE before I am allowed to,    when the differences are not complex  (the products are deeply simple in themselves)
then WHY is that advice SO expensive ?    I have not been able to get a quote for this advice below £2000: most IFA firms tell me their MINIMUM is either £2000 or  £2500  even when the advice is constrained to a single product quote.  Arguably the only "better value" I've had quoted was one IFA who has offered to advise on THREE such products (two other members of my family also need PLAs)  -  and their current offer for that is £4500.    (If you don't believe me I am happy to post redacted screencaps of that quote). 

I cam to a forum seeking BETTER advice than "try googling", thanks.   I thought the people in here would be earnest customers-with-past-experiences which could be helpful  --  all I seem to have found is a group of easily offended IFAs who can't take honest critique.    

A footnote is generic to all posts made and not personal to you. However it is certainly true that some posters have a tendency to take things more personally than others.

Incidentally, we get it, you're annoyed. But perhaps you could lay off the caps lock going forward?

Albermarle

I cam to a forum seeking BETTER advice than "try googling", thanks.   I thought the people in here would be earnest customers-with-past-experiences which could be helpful  --  all I seem to have found is a group of easily offended IFAs who can't take honest critique.  

I have counted 14 forum users that have contributed to the thread, and only two are IFA's.

In fact having two contribute is actually quite unusual, most threads have no IFA input at all. Just to make you aware of how the forum normally operates.