Brokers Commission Question

dunstonh

I have had a few quotes a couple of weeks ago from HL and Money Helper, Money Helper quotes were highest.

Money helper is not a retailer and it uses price snapshots and not real time pricing.   As rates are currently falling, the snapshot is probably a bit behind.

To facilitate execution, I have approached a known broker and strangely their quotes even for enhanced annuity were lower than even the standard annuity from MH.

As above, falling rates can lead to that.

Once the forms have been filled in, (I have not signed yet),I have discovered from L&G annuity information that the broker commission works out at 2.45% of the accumulated pot in excess of 270k, just £300 shy of 7k, is this a normal commission for a broker? it seems pretty excessive for me and probably this is why the quotes from the broker are lower than MH.

Probably better with an IFA on that fund value.   You agree a fee and the annuity rate is on nil commission basis as IFAs cannot accept commission unless it is done on execution only basis. 

I am worried that if I don't take out an annuity soon, the rate may change based on the bank lowering interest rates.

Interest rates do not influence annuity rates.  Gilt yields do.   Which is why annuity rates rose whilst interest rates were falling.  Historically, interest rates had more of an influence but that is back in the days when markets felt the UK was in safe hands.

Jerben said:

‘I don't mind paying 1%, especially if it's for advice, but 2.45% for none advised annuity from a broker is why too high, this equates to nearly a full year's pension contribution.’

But you don’t pay 2.45%.
That is an ‘arrangement’ between the broker and the annuity provider.
The only thing that matters is the value of the annuity to you.

The annuity rate is lowered to factor in the commission.   So, you do pay for it.   
However, the bottom line is the most important as some firms may have negotiated improved commission terms.

Why should advice from an IFA cost less than a non advice from a broker for an annuity set up?

There could be some greedy IFAs that would want to charge more.  However, an IFA sets their fee and the client agrees the fee.    Many IFAs taper their fee or have a cap and collar to ensure decency.      However, commission is an open percentage that usually has no cap unless the retailer decides one (on another recent thread, someone bought two annuities from an online commission broker and paid £4995 each.  i.e. £9990 total.  They could have got it for a quarter of that price from an IFA with a bit of shopping around).

n58

Money helper is not a retailer and it uses price snapshots and not real time pricing.   As rates are currently falling, the snapshot is probably a bit behind.

If prices are falling will I have time to find an IFA and discuss the details and terms, I may find that by the time this has been resolved the annuity quotes would be lower anyways, I may before the quote expires from the broker in December just possibly bit the bullet and accept it?

There could be some greedy IFAs that would want to charge more.  However, an IFA sets their fee and the client agrees the fee.    Many IFAs taper their fee or have a cap and collar to ensure decency.      However, commission is an open percentage that usually has no cap unless the retailer decides one (on another recent thread, someone bought two annuities from an online commission broker and paid £4995 each.  i.e. £9990 total.  They could have got it for a quarter of that price from an IFA with a bit of shopping around).

Wow a quarter is a big chunk, would this have meant that they would have gotten better quotes from the IFA?

Jerben

OP - 2 weeks is a very long time in annuity land!

dunstonh said, ‘The annuity rate is lowered to factor in the commission.   So, you do pay for it.’
But you don’t ‘directly’ pay for it like the OP assumed.

Brokers will claim that they get better rates because of their bulk buying power.

Every individual case is different. 

You have to weigh it up for yourself, (as I’m finding out in my annuity search!)
It’s such a niche area, with a lack of easy and comparable information for your average man in the street, (even avid MSE readers).

dunstonh

n58 said:

Money helper is not a retailer and it uses price snapshots and not real time pricing.   As rates are currently falling, the snapshot is probably a bit behind.

If prices are falling will I have time to find an IFA and discuss the details and terms, I may find that by the time this has been resolved the annuity quotes would be lower anyways, I may before the quote expires from the broker in December just possibly bit the bullet and accept it?

There could be some greedy IFAs that would want to charge more.  However, an IFA sets their fee and the client agrees the fee.    Many IFAs taper their fee or have a cap and collar to ensure decency.      However, commission is an open percentage that usually has no cap unless the retailer decides one (on another recent thread, someone bought two annuities from an online commission broker and paid £4995 each.  i.e. £9990 total.  They could have got it for a quarter of that price from an IFA with a bit of shopping around).

Wow a quarter is a big chunk, would this have meant that they would have gotten better quotes from the IFA?

Yes.    
An IFA cannot accept commission.  So, the annuity rate will be on the nil commission annuity rate, but the fee will be deducted from the 75% chunk of the pension before purchase of the annuity (or paid separately).
A commission-based one will use the annuity rate adjusted for that commission.

Broadly speaking, if the fee and the commission are the same, then the annuity paid will be the same, assuming all other things are equal.       Think of it as 4x5 vs 5x4.

So, if an IFA would do it for a £2500 fee and the broker is doing it for £9990 commission, then the IFA would get the better outcome.      However, if it was a smaller fund value and the IFA fee was £2500 but the commission was £1500 then the commission version would have the higher outcome.

One thing annuity providers have often said is that health questionnaires are frequently completed more detailed by IFAs than by consumers, which can lead to better outcomes if enhanced rates apply.    Many commission-based brokers just process what you tell them on the form (since it's mostly an automated process with them), whereas an IFA would probe for more detail where it is lacking.     e.g. fail to name the prescription but refer to it generically or fail to mention the dosage, readings, or test result values, etc., and it doesn't get included and reduced or no uplift.      I recently had someone I had to go back to three times to get better information, as they were reluctant to give it, and the income went from just under £10k a year to over £12k a year because of that continued push for info.  If it were just accepted on what they filled in initially, they would have been £2k a year worse off.    

However, if you can fully detail your health or you have no health issues, then that is not a problem.    

n58

Thank you for the detailed explanation dunstonh, my worry is by the time I'll find an suitable IFA in my area, the time it will take for them to evaluate and provide quotes the annuity rate may drop.

I have read a few posts on here that not many IFA's are prepared to execute an annuity only and would want to run a full report which may waste more time with the associated cost of course.

If all the enhanced annuity details are provided by an IFA or a broker were the same and assume there was no fee or commission would the outcome from both be the same, IE: have they both got access to the same providers and annuity rates?

DRS1

n58 said:

Thank you for the detailed explanation dunstonh, my worry is by the time I'll find an suitable IFA in my area, the time it will take for them to evaluate and provide quotes the annuity rate may drop.

I have read a few posts on here that not many IFA's are prepared to execute an annuity only and would want to run a full report which may waste more time with the associated cost of course.

If all the enhanced annuity details are provided by an IFA or a broker were the same and assume there was no fee or commission would the outcome from both be the same, IE: have they both got access to the same providers and annuity rates?

Is that purely an academic question or are you thinking of asking your broker if they can get a commission free annuity rate?  And if they can what fee would they charge you?

That is a question better directed at your broker but I suspect the answer to the first question is NO.  So that is not going to be a time saving route to go.

If I were you I'd be more concerned as to whether a standard annuity rate (NOW not two weeks ago) would be more than my enhanced annuity rate (NOW).  Because if it is then something seems to be broken.  Having said that when I got a quote this year for an annuity with a GAR and compared it to an enhanced rate (confident that the GAR would be the better rate) it turned out I was wrong and the enhanced rate was better.  The person giving me the quote said he had only seen that one other time in the last 20 years.  Needless to say I went with the higher quote (and that is what you should do without fussing too much about what someone receives for helping you get there)

n58

DRS1 said:

n58 said:

Thank you for the detailed explanation dunstonh, my worry is by the time I'll find an suitable IFA in my area, the time it will take for them to evaluate and provide quotes the annuity rate may drop.

I have read a few posts on here that not many IFA's are prepared to execute an annuity only and would want to run a full report which may waste more time with the associated cost of course.

If all the enhanced annuity details are provided by an IFA or a broker were the same and assume there was no fee or commission would the outcome from both be the same, IE: have they both got access to the same providers and annuity rates?

Is that purely an academic question or are you thinking of asking your broker if they can get a commission free annuity rate?  And if they can what fee would they charge you?

That is a question better directed at your broker but I suspect the answer to the first question is NO.  So that is not going to be a time saving route to go.

If I were you I'd be more concerned as to whether a standard annuity rate (NOW not two weeks ago) would be more than my enhanced annuity rate (NOW).  Because if it is then something seems to be broken.  Having said that when I got a quote this year for an annuity with a GAR and compared it to an enhanced rate (confident that the GAR would be the better rate) it turned out I was wrong and the enhanced rate was better.  The person giving me the quote said he had only seen that one other time in the last 20 years.  Needless to say I went with the higher quote (and that is what you should do without fussing too much about what someone receives for helping you get there)

I am only trying to work out whether an IFA would be able to get a better rate or not, especially if the IFA and the broker have got access to the same providers.

I am not sure whether I have read it on here or elsewhere that IFA's were not able to provide better annuity rates as they are not interested in providing annuities on execution basis only.

I think you are right, I am over complicating things somewhat for myself and should be looking at the quotes provided ignoring the brokers commission.

Does anyone know, when taking the option for guaranteed value, this negate the the need to opt for the 5, 10 or 20 years guarantees?

I have just re-run the MH quote with the same chosen options as the broker and had a higher quote by an increase of only £110 per year, so I should imagine the broker's quote is in a similar ball park.

So 274k yielding £14,620 yearly (RPI) vs £14,510 (RPI) from broker. 

dunstonh

I am only trying to work out whether an IFA would be able to get a better rate or not, especially if the IFA and the broker have got access to the same providers.

The brokers are typically websites of IFA firms (or started out that way).   The same providers and same products are used.

I am not sure whether I have read it on here or elsewhere that IFA's were not able to provide better annuity rates as they are not interested in providing annuities on execution basis only.

There are around 20,000 advisers out there.   Some won't do execution only.  Some will.  

Does anyone know, when taking the option for guaranteed value, this negate the the need to opt for the 5, 10 or 20 years guarantees?

Typically, it equates to around a 13-year guarantee period.

n58

dunstonh said:

I am only trying to work out whether an IFA would be able to get a better rate or not, especially if the IFA and the broker have got access to the same providers.

The brokers are typically websites of IFA firms (or started out that way).   The same providers and same products are used.

Can IFA's act from afare without seeing their clients, if the client know what he needs from a pension to achieve? 

RogerPensionGuy

n58 said:

dunstonh said:

I am only trying to work out whether an IFA would be able to get a better rate or not, especially if the IFA and the broker have got access to the same providers.

The brokers are typically websites of IFA firms (or started out that way).   The same providers and same products are used.

Can IFA's act from afare without seeing their clients, if the client know what he needs from a pension to achieve? 

I'm on the verge of buying an annuity and am keen to eek out maximum gross income to me from the £s removed from my SIPP period. 

I've seen two IFAs and two online remote outfits, in fairness they all followed the compliance rules(IMHO) and initially were very reluctant to just do me a simple annuity due my personal circumstances probably suit a flexible drawdown 90/95%(IMHO)

But I want an annuity. 

I can certainly see why IFAs, FAs and organisations prefer easy long ongoing relationships getting income year after year no matter how my investments are doing. 

I mostly found quotes(no enhancements) gross to me were 99.9% the same as Moneyhelper, but one offering was 2% more, maybe this outfit has a deal with an insurance company.