IFA Annuity Commission Fee

dgbshifnal

Just seen Dunstonh's response on a previous post that typical IFA commission rate for an annuity is 1-1.5% IFA.

I have just been looking at the fee structure for an IFA I an thinking of using; their rate is 2.2% of the amount (whatever). (They show this against a "market average" of 5.3%).

I expect rates to vary and to have to shop around.
Is this figure a fair comparison to use, or should I be looking at other factors as well?

dunstonh

I have just been looking at the fee structure for an IFA I an thinking of using; their rate is 2.2% of the amount (whatever). (They show this against a "market average" of 5.3%).

Assuming you are looking at the Menu then you need to be aware that the market average is set by the FSA and the IFA figure is the typical maxiumum and may not be the figure that applies to you. The Menu has been deemed a failure in it's current form and will not be used soon. One of the main reasons has been the lack of accuracy (as well as breaching EU rules).

I just checked my Menu and the FSA average for annuities is 1.5%. I'm not sure of a provider that goes above 2.5% let alone 5.3%. Are you sure you are looking at annuities and not another product class?

1-1.5% is what you should be looking for. The higher the purchase amount the lower you should expect the remuneration to be.

Retired_I.F.A.

The standard commission on an annuity purchase is 1% and has been for probably 100 years or so. This rate and others for different products became known as the LAUTRO scale in the 80's (life insurance and unit trust regulatory organisation) . For a while it became the maximum as the industry and insurance brokers set up a maximum commission agreement. Virtually all companies paid an override before that up to around the eqiuvelent of 140% 0f the LAUTRO scale. The office of fair trading stepped in and declared the maximum commission agreement illegal and it was abolished, putting us back to where we had always been in a free market.
LAUTRO scales were still used by all when I finished about 7 years ago and the override was typically 30-45% so for an annuity it was anywhere from 1.3% to 1.45%

Gradually following disclosure fee structures became moe commonplace and today you will find all IFA's quote their own fees and state they will work on a fee basis or a commission basis in their terms of business..

.... their rate is 2.2% of the amount (whatever). (They show this against a "market average" of 5.3%

You have misread that, as their fee for a single premium investment is 2.2% and the commission for such is an average of 5.3%

An annuity is not an investment. It requires no further advice once set in motion.

Drawdown however, the modern and in my view the far far better alternative to annuity purchase is an investment in which case that IFA's rates are pretty cheap.

dgbshifnal

about the cost of our services
Last updated 1st Jan 2008

Below is abstract fom their cost menu:

Looking at it more sensibly now, I see the 2.2% is quoted as a maximum:

At Retirement:

Annuities
Our maximum: 2 2% Market Average: 5.3% £220 (See note)

Notes:
5. Further inform ation
This shows the ma ximum costs of
our sales and advice for a lump
sum investment of £10 000,
ignoring any changes in fund value

dunstonh

That has to be a typo. Here is mine:
Maximum: 2.5% of the amount you invest
Market Average: 1.4% of the amount you invest

The product above that on the list is stakeholder and that has a 5.6% average. I wonder if they have typed in the wrong box. I wouldnt take any notice of the maximum. For example, mine says 2.5% but thats because it shows what is potentially possible. However, I havent done one for more than 1.5% for a long long time. You put the max in just in case. Fees/commission is agreed on an individual basis so you may take 2.5% on a £10,000 value but 0.5% on a £300,000 fund.

BTW, the last menu updates were 1st March so the date for update should be 1st of March or a few days before.

bigbloke45

Annuity commissions are much lower than for other types of "investment".

If the IFA really wants to take 2.2%, then to quote Martin's phrase "it's time to ditch and switch!"

It is worth taking advice on your annuity purchase because you will gain nothing by going direct and could make an expensive mistake; annuities are a one-time decision - no going back if you change your mind.

Good luck!.

moneyguru_2

It should be remembered that commission for standard annuities are normally paid by the insurance company and not from the fund. I'll be up front because I run a discount annuity brokerage, but you should find a reputable discount annuity broker. They rebate a proportion of the commission back.

bigbloke45

moneyguru wrote: »

It should be remembered that commission for standard annuities are normally paid by the insurance company and not from the fund. I'll be up front because I run a discount annuity brokerage, but you should find a reputable discount annuity broker. They rebate a proportion of the commission back.

When you say insurance companies don't pay commission from the fund, I'll think you'll find that they do. How else can you rebate it back?

Why not check with your providers on where the commission comes from?

Retired_I.F.A.

Commission comes from the premium or the charges levied on the fund. As annuities have no charges commission comes from the premium.

bigbloke45

Ret I.F.A. I think this is what I said;

When you say they have no "charges" I think you must be referring to individual annuity contracts. But, yes, commission will come from the premium (used to be called "the consideration") . Where else could it come from? shareholders or mutual policyholders won't pay it.

The point I was trying to make was that I was amazed that moneyguru should think that the insurance company pays the commission and not the annuitant. What planet is he from?

Retired_I.F.A.

No idea but he runs a "discount annuity brokerage" aka a bucket shop. 99.99999999% of his customers think they get a good deal whereas any IFA can do better. Besides which any IFA who recommends an annuity ought to have his head looked at and an IFA who recommends an escalating one ought to be shot at dawn.