Many independent advisory firms refer their clients to guidance only (non-advised) annuity firms as it is often in their clients’ best interests to do so.  For example the pension fund available to purchase the annuity may be too small for the advisory firm to ethically charge their minimum fee as, relatively speaking, it would be excessive.  Another reason is that the annuity firm is likely to have negotiated enhanced rates based on volume with the providers that again could benefit the client.

We have been in direct communication with the FCA regarding this type of referral and asked the question as to whether an independent adviser would compromise their independence if they referred to an annuity firm offering only a restricted panel of providers.

The FCA explained that “an independent adviser could potentially refer a client to a restricted annuity panel without undermining their independence status if the referral was not part of a personal recommendation”.

Of course, the referral would have to be in the client’s best interests.

They were however concerned that the independent adviser may receive an introductory commission for referring a client in this way (i.e. to any type of guidance only annuity service). The FCA said: “Such an arrangement is not in the spirit of the RDR and has the potential to lead to poor consumer outcomes”.

Remember; “An ‘independent’ adviser must ensure that they really do act as such and are genuinely free from influence or restriction on what they can and do recommend.” Independent advice should be fair, unbiased, unrestricted and comprehensive.