IFA's commision for annuity arranging

cyclonebri1

Hi, went to see an IFA today for the 1st time ever.
Came away somewhat confused for various reasons that I don't need to explain here.

2 questions, his charge for arranging an annuity is 2.5% com. I was expecting less. Is this typical or on the high side?

I have a projection from the company I had my personnel pension plan with. This still seems a favourable route. Would his charge be covered by their commision to him or would I be better just to deal direct?

There are other queries that I'll go into later if needed.

Thanks in advance

dunstonh

his charge for arranging an annuity is 2.5% com. I was expecting less. Is this typical or on the high side?

That is massively at the top end. The typical commission on an annuity is 1 to 1.5%. There are only a small number of providers that will exceed that. Typically they are the ill health/smoker annuity providers.

However, is this a commission or is this a fee? If it a fee and you have a small annuity and you are representing the fee as a percentage of the fund value then it could be misleading.

I have a projection from the company I had my personnel pension plan with. This still seems a favourable route. Would his charge be covered by their commision to him or would I be better just to deal direct?

Fee or commission? If its commission, then dont get to wrapped up in that. The company paying 0.5% commission can have lower income to you than the company paying 2.5%. You dont buy a washine machine from the company with the lower profit margin. You buy from the one that sells it to you cheapest (or offers a service that justifies the extra cost).

Assuming the 2.5% is a commission and not a fee, then this would indicate you suffer ill health or are a smoker. In which case the annuity from your pension plan provider will be lower. Also, the IFA has no choice but to recommend the higher of your existing provider or the open market option. We cant just pick and choose at random.

Would his charge be covered by their commision to him

You need to clarify with the IFA if you are paying a fee or he is operating on commission. If fee, then commission can offset it. However, you should be aiming for 1 to 1.5% as fee or taken commission.

caveat_emptor

dunstonh says "Assuming the 2.5% is a commission and not a fee, then this would indicate you suffer ill health or are a smoker. In which case the annuity from your pension plan provider will be lower."
Is the annuity for ill-health/smoker not higher on account of higher risk/shorter life?

dunstonh

caveat_emptor wrote: »

dunstonh says "Assuming the 2.5% is a commission and not a fee, then this would indicate you suffer ill health or are a smoker. In which case the annuity from your pension plan provider will be lower."
Is the annuity for ill-health/smoker not higher on account of higher risk/shorter life?

Perhaps I could have worded that a little better.

The pension provider will offer standard terms. Very few providers for the in-house scheme will enhance the annuity if you are a smoker or suffer ill health.

Virtually all the standard terms providers pay a commission of 1-1.5%. So the fact 2.5% is mentioned (and I think that is the maximum from memory) indicates it is likely to be a smoker/ill health provider as they are the ones that allow more to be paid.

I am wondering now if the IFA the OP refers to is giving a typical maximum possible rather than actual commission. On the menu given out at the start, that would show typical maximum and average. At the beginning, the IFA wouldnt know what company is likely to come out best so the only figures available for remuneration are on that menu.

cyclonebri1

Hi, just been through his client agreement form and it definately states 2.5% commision for arrangement of annuities, his alternative fee is something like £175/hr.

We were talking about the offer that L&G had prepared for me. It was not impaired life and he doesn't think I will get that so his rate wouldn't be taking advantage of that.

Although I've finished work under disability, well it's highly likely, they are largely physical rather than medical problems, but I due suffer from a chronic chest condition, have done for around 40yrs and am on 2 forms of medication for this so I did wonder If I could get impaired life

dunstonh

Go with a cheaper IFA. L&G commission is 1.3% so if he is saying 2.5%, then you will have to pay another 1.2%.

2 medications is the usual minimum to qualify but it is subject to acceptance. It really depends on what the medications are. It doesnt take two minutes for the IFA to find out though. Indeed, the main provider in this area usually issues a letter confirming that you cannot get enhanced rates.

cyclonebri1

Thanks, I was/still am having doubts about the guy I saw, good credentials but.............................

Spent almost all the session coming to the conclusion that was not allowable after I pointed out to him that almost 1/2 my pot was protected rights, which he had on the table in front of him and I had queried earlier Not confidence inspiring, think I will try elsewhere, or may even go on my own.

Do L&G offer impaired life?


Edited to add at least I managed to pick up enough info on here to be aware of some of the basics, thanks again.

dunstonh

or may even go on my own.

A lot of the providers only deal with IFAs. You will be cutting yourself out of the whole of market if you do. Also, if you go direct, you dont get a better deal. They keep the commission for themselves. The biggest enhanced annuity provider deals only with IFAs.

Do L&G offer impaired life?

No.

Open market option is a bread and butter transaction for an IFA. Bucket loads of paperwork and often a bit of chasing but the its the sort of transaction an IFA can do with their eyes closed.

Dont let an expensive one put you off. Also, L&G sent out an email today saying they were lowering their annuity rate from today. So, older figures may not be applicable and their guarantee period is very short.

EdInvestor

These tables may give you an idea of what's available:

https://www.fsa.gov.uk/tables

There is also an annuity calculator at https://www.h-l.co.uk (and they will search the market for you, don't know what they charge.)

dunstonh

There is also an annuity calculator at www.h-l.co.uk (and they will search the market for you, don't know what they charge.)

The figures they give suggest maximum commission. That said, 1-1.5% is the norm. When you consider the work, the liability and costs, 1% on a £50,000 fund is just £500. There isnt really a lot of scope to discount unless you start getting into larger funds. Most IFAs will discount with larger funds. Ideally you should look for a cap when that is the case.

cyclonebri1

dunstonh wrote: »

The figures they give suggest maximum commission. That said, 1-1.5% is the norm. When you consider the work, the liability and costs, 1% on a £50,000 fund is just £500. There isnt really a lot of scope to discount unless you start getting into larger funds. Most IFAs will discount with larger funds. Ideally you should look for a cap when that is the case.

Thanks to both for that,

Pot with L&G plus avcs I have available amounts to around £150k in total plus a reasonable amount in savings so I expected a fairly low commision rate. I had asked about this before and was going with advise/info received on here. Will definately not go with this guy.

By how much are L&G annuity rates being reduced? I had a quote vaued for 18 days about a week ago,

Cheers.