Do you need an IFA to purchase an annuity?

dunstonh

Adding intermediaries to reduce costs seems strange and smalls of an arcane system of vested interests, but that's just me being cynical. 

Most people buy things from shops and not from the manufacturer in many different areas of retail.

Intermediaries (shops) can often do things cheaper because of economies of scale.   

 It may well satisfy regulatory requirements and provide some safe guards, but the costs are borne by the customer.

And manufacturers with retail outlets usually charge the same or more than shops.   Retail financial services is not really much different to other retail areas.

Linton

Bostonerimus1 said:

dunstonh said:

Of course the least expensive approach would eliminate all the middle-people and the annuity buyer would buy directly from the insurance company, but I can imagine lots of scope for mis-selling.

That isn't the least expensive.  Indeed, for the handful that do it, it is often the most expensive.

Annuity providers hold manufacturing permissions with the FCA.   If they want to do distribution, then they need to hold distribution permission and have all the regulatory requirements for that.    So, that often means an in-house team doing it which has to be profitable in its own right.   So, that usually means a commission rate higher than the intermediaries (advised fee or non-advised commission)

FYI in the US it is possible to buy an annuity directly from an insurance company and the fees are rolled into the actuarial calculations and the rate offered.

That is what happens in the UK with non-advised annuities.     i.e. the cost of distribution results in a lower annuity rate.

Adding intermediaries to reduce costs seems strange and smalls of an arcane system of vested interests, but that's just me being cynical. It may well satisfy regulatory requirements and provide some safe guards, but the costs are borne by the customer. Annuities are complicated and, as with other insurance products, they offer an excellent way to charge fees and I have no way to understand if the fees are value for money...and I think that would go for most customers. So you just have to compare payout rates making sure that all the parameters are the same. It would be interesting to compare the payout rates for identical annuities in various countries adjusting for life expectancy. By the way my 9.8% quote is about 2% above the US market rate as it includes a loyalty bonus and is part of a government retirement scheme.

If a pension company sells direct they still have to meet the FCA requirements and therefore employ well-trained staff and pay for layers of management, office accommodation, pensions, sick pay  and other overheads.  Plus there is the risk of claims of mis-selling. The cutomers have to pay for this in some way.

A pension company may prefer to focus on their core business of managing pensions and pass all the hassle of dealing with the general public to IFAs.  The public gain as an IFA's overheads may well be lower and because they can get unbiased information appropriate to their needs rather than a pension company's desire to sell particular products.. 

In many ways it is no different to most other industries - car manufacturers sell via dealers, food producers sell via supermarkets etc.  You dont get your purchases cheaper if you try to cut out the intermediary and buy direct.

zagfles

Linton said:

Bostonerimus1 said:

dunstonh said:

Of course the least expensive approach would eliminate all the middle-people and the annuity buyer would buy directly from the insurance company, but I can imagine lots of scope for mis-selling.

That isn't the least expensive.  Indeed, for the handful that do it, it is often the most expensive.

Annuity providers hold manufacturing permissions with the FCA.   If they want to do distribution, then they need to hold distribution permission and have all the regulatory requirements for that.    So, that often means an in-house team doing it which has to be profitable in its own right.   So, that usually means a commission rate higher than the intermediaries (advised fee or non-advised commission)

FYI in the US it is possible to buy an annuity directly from an insurance company and the fees are rolled into the actuarial calculations and the rate offered.

That is what happens in the UK with non-advised annuities.     i.e. the cost of distribution results in a lower annuity rate.

Adding intermediaries to reduce costs seems strange and smalls of an arcane system of vested interests, but that's just me being cynical. It may well satisfy regulatory requirements and provide some safe guards, but the costs are borne by the customer. Annuities are complicated and, as with other insurance products, they offer an excellent way to charge fees and I have no way to understand if the fees are value for money...and I think that would go for most customers. So you just have to compare payout rates making sure that all the parameters are the same. It would be interesting to compare the payout rates for identical annuities in various countries adjusting for life expectancy. By the way my 9.8% quote is about 2% above the US market rate as it includes a loyalty bonus and is part of a government retirement scheme.

If a pension company sells direct they still have to meet the FCA requirements and therefore employ well-trained staff and pay for layers of management, office accommodation, pensions, sick pay  and other overheads.  Plus there is the risk of claims of mis-selling. The cutomers have to pay for this in some way.

A pension company may prefer to focus on their core business of managing pensions and pass all the hassle of dealing with the general public to IFAs.  The public gain as an IFA's overheads may well be lower and because they can get unbiased information appropriate to their needs rather than a pension company's desire to sell particular products.. 

In many ways it is no different to most other industries - car manufacturers sell via dealers, food producers sell via supermarkets etc.  You dont get your purchases cheaper if you try to cut out the intermediary and buy direct.

As illustrated above you can get the product cheaper by using an intermediary like an execution only broker who doesn't provide services you may not need (eg financial advice). £800 for a £100k annuity is the sort of price to aim for it seems.  

Bostonerimus1

zagfles said:

Linton said:

Bostonerimus1 said:

dunstonh said:

Of course the least expensive approach would eliminate all the middle-people and the annuity buyer would buy directly from the insurance company, but I can imagine lots of scope for mis-selling.

That isn't the least expensive.  Indeed, for the handful that do it, it is often the most expensive.

Annuity providers hold manufacturing permissions with the FCA.   If they want to do distribution, then they need to hold distribution permission and have all the regulatory requirements for that.    So, that often means an in-house team doing it which has to be profitable in its own right.   So, that usually means a commission rate higher than the intermediaries (advised fee or non-advised commission)

FYI in the US it is possible to buy an annuity directly from an insurance company and the fees are rolled into the actuarial calculations and the rate offered.

That is what happens in the UK with non-advised annuities.     i.e. the cost of distribution results in a lower annuity rate.

Adding intermediaries to reduce costs seems strange and smalls of an arcane system of vested interests, but that's just me being cynical. It may well satisfy regulatory requirements and provide some safe guards, but the costs are borne by the customer. Annuities are complicated and, as with other insurance products, they offer an excellent way to charge fees and I have no way to understand if the fees are value for money...and I think that would go for most customers. So you just have to compare payout rates making sure that all the parameters are the same. It would be interesting to compare the payout rates for identical annuities in various countries adjusting for life expectancy. By the way my 9.8% quote is about 2% above the US market rate as it includes a loyalty bonus and is part of a government retirement scheme.

If a pension company sells direct they still have to meet the FCA requirements and therefore employ well-trained staff and pay for layers of management, office accommodation, pensions, sick pay  and other overheads.  Plus there is the risk of claims of mis-selling. The cutomers have to pay for this in some way.

A pension company may prefer to focus on their core business of managing pensions and pass all the hassle of dealing with the general public to IFAs.  The public gain as an IFA's overheads may well be lower and because they can get unbiased information appropriate to their needs rather than a pension company's desire to sell particular products.. 

In many ways it is no different to most other industries - car manufacturers sell via dealers, food producers sell via supermarkets etc.  You dont get your purchases cheaper if you try to cut out the intermediary and buy direct.

As illustrated above you can get the product cheaper by using an intermediary like an execution only broker who doesn't provide services you may not need (eg financial advice). £800 for a £100k annuity is the sort of price to aim for it seems.  

I think it's important to shop around to get the best deal...but it's even more important to understand exactly what you are buying and that it's appropriate for your circumstances ie RPI linked or flat rate, single or dual life and guaranteed vs no guaranteed pay out. Also make sure you understand the offer and how any fees/commissions are to be paid.

zagfles

Bostonerimus1 said:

zagfles said:

Linton said:

Bostonerimus1 said:

dunstonh said:

Of course the least expensive approach would eliminate all the middle-people and the annuity buyer would buy directly from the insurance company, but I can imagine lots of scope for mis-selling.

That isn't the least expensive.  Indeed, for the handful that do it, it is often the most expensive.

Annuity providers hold manufacturing permissions with the FCA.   If they want to do distribution, then they need to hold distribution permission and have all the regulatory requirements for that.    So, that often means an in-house team doing it which has to be profitable in its own right.   So, that usually means a commission rate higher than the intermediaries (advised fee or non-advised commission)

FYI in the US it is possible to buy an annuity directly from an insurance company and the fees are rolled into the actuarial calculations and the rate offered.

That is what happens in the UK with non-advised annuities.     i.e. the cost of distribution results in a lower annuity rate.

Adding intermediaries to reduce costs seems strange and smalls of an arcane system of vested interests, but that's just me being cynical. It may well satisfy regulatory requirements and provide some safe guards, but the costs are borne by the customer. Annuities are complicated and, as with other insurance products, they offer an excellent way to charge fees and I have no way to understand if the fees are value for money...and I think that would go for most customers. So you just have to compare payout rates making sure that all the parameters are the same. It would be interesting to compare the payout rates for identical annuities in various countries adjusting for life expectancy. By the way my 9.8% quote is about 2% above the US market rate as it includes a loyalty bonus and is part of a government retirement scheme.

If a pension company sells direct they still have to meet the FCA requirements and therefore employ well-trained staff and pay for layers of management, office accommodation, pensions, sick pay  and other overheads.  Plus there is the risk of claims of mis-selling. The cutomers have to pay for this in some way.

A pension company may prefer to focus on their core business of managing pensions and pass all the hassle of dealing with the general public to IFAs.  The public gain as an IFA's overheads may well be lower and because they can get unbiased information appropriate to their needs rather than a pension company's desire to sell particular products.. 

In many ways it is no different to most other industries - car manufacturers sell via dealers, food producers sell via supermarkets etc.  You dont get your purchases cheaper if you try to cut out the intermediary and buy direct.

As illustrated above you can get the product cheaper by using an intermediary like an execution only broker who doesn't provide services you may not need (eg financial advice). £800 for a £100k annuity is the sort of price to aim for it seems.  

I think it's important to shop around to get the best deal...but it's even more important to understand exactly what you are buying and that it's appropriate for your circumstances ie RPI linked or flat rate, single or dual life and guaranteed vs no guaranteed pay out. Also make sure you understand the offer and how any fees/commissions are to be paid.

It is important, but if you need advice find a competent financial adviser who won't simply compare level and RPI annuities using a simple cutover chart based on the ridiculous assumption that inflation is a constant 3% or 5% or whatever, who understands issues like sequence of inflation risk and can model various scenarios including using historical sequences, a bit like drawdown SWRs etc. 

hotncold47

Maybe I'm missing something here about commission and suchlike but isn't the bottom line the most amount per year for the same amount paid regardless of who pays the commission? I recently purchased Single Lifetime RPI Annuity using a Broker as finding a IFA who was interested was problematic, comparing quotes via Moneyhelper, HL, W Burrows and an online IFA. The best quote was the IFA but that was matched by the Broker who reduced their commission.

LHW99

finding a IFA who was interested was problematic

I have encountered that problem too.

dunstonh

Maybe I'm missing something here about commission and suchlike but isn't the bottom line the most amount per year for the same amount paid regardless of who pays the commission?

Some of the annuity providers allow the firm to choose how much commission they take. 
Some of the annuity providers give preferential commission terms for certain distribution channels.

 I recently purchased Single Lifetime RPI Annuity using a Broker as finding a IFA who was interested was problematic, comparing quotes via Moneyhelper, HL, W Burrows and an online IFA. The best quote was the IFA but that was matched by the who reduced their commission.

That sounds like the old double-glazing tactic.    i.e. try to get away with a higher amount but then knock down if they need to.

IFAs have busy and quiet times of the year.  Nationals and regionals (wealth management firms) tend to prefer assets under management, and annuities do not deliver that. Smaller independent IFAs tend to general practitioners and are more willing to do transactional stuff.     However, capacity at smaller firms tends to be tighter and variable.

Bostonerimus1

dunstonh said:

Maybe I'm missing something here about commission and suchlike but isn't the bottom line the most amount per year for the same amount paid regardless of who pays the commission?

Some of the annuity providers allow the firm to choose how much commission they take. 
Some of the annuity providers give preferential commission terms for certain distribution channels.

 I recently purchased Single Lifetime RPI Annuity using a Broker as finding a IFA who was interested was problematic, comparing quotes via Moneyhelper, HL, W Burrows and an online IFA. The best quote was the IFA but that was matched by the who reduced their commission.

That sounds like the old double-glazing tactic.    i.e. try to get away with a higher amount but then knock down if they need to.

IFAs have busy and quiet times of the year.  Nationals and regionals (wealth management firms) tend to prefer assets under management, and annuities do not deliver that. Smaller independent IFAs tend to general practitioners and are more willing to do transactional stuff.     However, capacity at smaller firms tends to be tighter and variable.

This has echos of the recent issues with car loans. Variable commissions and preferential rates just sound like an opportunity to take advantage of the consumer. I assume there are some honest people in the business, but the cynical side of me says that there is plenty of room for abuse. I go back to removing the middle people getting the commissions and to have a more transparent market where the insurance companies sell at known fees and rates directly to the consumer.

Bostonerimus1

hotncold47 said:

Maybe I'm missing something here about commission and suchlike but isn't the bottom line the most amount per year for the same amount paid regardless of who pays the commission? I recently purchased Single Lifetime RPI Annuity using a Broker as finding a IFA who was interested was problematic, comparing quotes via Moneyhelper, HL, W Burrows and an online IFA. The best quote was the IFA but that was matched by the who reduced their commission.

Yes for an identical annuity you should buy the one that gives you the largest payout amount after all fees and commissions have been paid. It might get a bit tricky to make the comparison if one has commissions taken out of the amount you are using to buy the annuity and another has fees you pay out of a separate amount.