Is non-advised annuity advice more expensive for consumers than full financial advice after RDR? Fiona Murphy looks at the issues
The Retail Distribution Review (RDR) has created an interesting anomaly when it comes to annuity advice. In some cases, according to IFAs, consumers are being charged more on execution-only services, than they would be if they purchased an annuity through a financial adviser.
Non-advised annuity models are nothing new. However, a few new entrants have surfaced over recent months. An annuity comparison service will be launched on the Tesco Compare site subject to regulatory approval.
Added to that, new comparison site Payingtoomuch.com launched its whole-of –market annuity service in April. The site also offers customers telephone support and access to a free 30 minute session with a financial adviser.
Head of annuities Ali Richards explains their charging structure: “Providers pay us 2 and 2.5% [on average in commission] and we always give up, at least 10% and put that back in the pot to be invested in the annuity.”
She explains they are upfront with customers, with commission detailed in key features illustrations submitted to clients.
Since RDR reared its head, the question over costs and charges for consumers on execution-only models will be debated more.
This was apparent in the criticism Hargreaves Lansdown received for their newly launched annuity search engine’s charging structure. They will earn a maximum of 3.5% commission on enhanced annuities sold through the search engine. However, they say typical rates will be around 1.7% on conventional annuities.
One critic, former Saga director-general Ros Altmann told the Financial Times: “Commission of 3.5% could cut the spending power of an average-sized £30,000 pot by just over £1,000. This is a high sum.
“Surely after a lifetime of hard saving you would want the best outcome for yourself, especially if you have a smaller fund. To get the best enhanced rate, you can’t do that in four minutes.”
Whether these charges are high or not, it’s clear that some non-advised models can potentially end up charging more than IFAs. Why is this happening?
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation