Did you know that over in the US income is often referred to as compensation. Compensation for the time spent away from family, studying for exams and going to the local pub. Interesting thought? Anyway, I digress, but I thought you might like to know. More importantly, just how many financial advisers out there are mis-pricing their value to clients when considering what advice to give them on annuities. That’s more relevant; just think about the quantity of data required to make the decision on whether or not a client should or should not purchase an annuity, let alone whether they should consider alternatives.
The fees for this sort of advice should really match the value added. Consider the decision of buying an annuity now or not. How well should the financial adviser be informed? Shouldn’t they be fully informed about quantitative easing (QE), it’s possible effect on the best annuity rates and best annuity quotes, and whether QE will work and even overwork? You see, QE will have an enormous impact on the UK economy and the stockmarket and in turn the overall pension fund with which the client uses to buy a pension annuity. QE will have battered the yields on gilts (the measure for pension annuity rates) but will that remain when inflation at some stage returns?
Will interest rates rise over time to slow down the economy thereby upwardly affecting pension annuity rates? Will the Bank of England sell back the gilts it has purchased recently to lower debt from its amazingly high levels? If it does, gilt values will fall thereby pushing yields through the roof, so to speak, and annuity rates with it. They were 15% back in the early 1990s. This is an area seen by many financial advisers as rate driven, but actually it is highly complicated and requires a lot of thought, and the fees charged should match the complicated nature of the advice process.
