"Taking a Slice" Article Sunday times.

[KOW]

Irish life has revealed that 1.39% of the annual return of its multi asset portfolios is eaten up by fees and charges over 7 year period. This drag on performance known as the reduction in yeild (RIY) increases to 2.56% in its commercial property fund.

New Ireland 1.99% on its flagship Evergreen fund.

Aviva quotes
an RIY of 2.63 for its multi asset fund.

Zurich Life says RIYs range from 2.59 to 5.47 on its Lifesave Investment bonds.

Article goes on to say that with a future guidance of 5% is what Society of Actuaries is advising.
If a fund earned 5% and a RIY of 3% was in place a client would get a return of 2% and then have 41% exit tax.

ETF industry has attracted more than 2.8 trillion in new inflows since 2008. Projections are assets will double from current 4.5 trillion by 2022.
Blackrock a major player in this area reduced its core fees in this area a year ago.Its revenue all ready has offset by volume growth.

A matter of time in Ireland?

 

[Duke of Marmalade]

The latest (October 2017) Society of Actuaries guidance on illustrations states that the maximum gross return that can be illustrated on property funds is 5% p.a.

After deducting charges of 3.37% p.a. that would mean that under the previous regime the most that Friends First could illustrate for their Irish Commercial Property Fund would be 1.64% p.a.

Under PRIIPs we get three illustrations, an "unfavourable"* scenario at 9.43% p.a. (5.75 times the SoA maximum), a moderate scenario at 11.89% p.a. (7.25 times the max) and a favourable scenario of 14.3% p.a. (8.7 times the max).

I understand the focus on charges but this nonsense on the illustrated rates of return is completely indefensible. (Not FF's fault, Brussels' fault)

* Unfavourable = worst 10%, Moderate = median, Favourable = best 10%

 

[Sarenco]

The projected RIY figure is calculated on the basis of the moderate return projection shown in the KID (which, in turn, is based on 5 years' historic performance).

If a different projected return was used, the projected RIY would be different.

 

[Sarenco]

Interesting article in the FT on how the PRIIPs methodology is giving rise to mis-selling fears:-

https://www.ft.com/content/4bc7cdca-f809-11e7-88f7-5465a6ce1a00

 

[Duke of Marmalade]

Interesting article in the FT on how the PRIIPs methodology is giving rise to mis-selling fears:-

https://www.ft.com/content/4bc7cdca-f809-11e7-88f7-5465a6ce1a00

Paywall protection, are they making the same sort of points as me?

 

[Sarenco]

Paywall protection, are they making the same sort of points as me?

Not really Duke - the article is focused on leveraged ETNs.

 

[Steven Barrett]

Zurich Life are changing their assumptions as their assumed charges are much higher than the other insurance companies, so their charges will come down when that is done.


Steven
www.bluewaterfp.ie

 

[cremeegg]

so their charges will come down when that is done.

Their charges will come down ? really ?

Or they will just report the same charges in a different way to make them seem lower.

 

[Sarenco]

More complaints from asset managers about PRIIPs -
https://www.professionaladviser.com...investor-detriment-as-priips-comes-into-force

 

[Duke of Marmalade]

More complaints from asset managers about PRIIPs -
https://www.professionaladviser.com...investor-detriment-as-priips-comes-into-force

Glad to see others are querying these performance scenarios.

 

[Sarenco]

Those concerns have been around for some time Duke.

The "stress scenario" was only added after the European Parliament rejected the initial Commission proposal on the performance metrics.

To be honest, the whole idea of projecting future returns seems daft to me.

 

[Duke of Marmalade]

Those concerns have been around for some time Duke.

The "stress scenario" was only added after the European Parliament rejected the initial Commission proposal on the performance metrics.

To be honest, the whole idea of projecting future returns seems daft to me.

I can't believe this has seen the light of day. Was it not road tested? The whole of Europe let this through? It would be obvious to first year trainee actuary that using the last 5 years actual to illustrate the future is bound to produce silliness. Currently it shows totally unjustifiably favourable forecasts. 5 years ago it would have been predicting equally silly negative growth as the best estimate for the future.

How did this nonsense happen? Is it because it actually flatters the products at this current vantage that the industry turned a blind eye?

I looked at the detailed regulations. Really fancy formulas involving VAR equivalent volatility (VEV), skewness, excess kurtosis, you name it; and the final concoction total rubbish. Makes bitcoin look sensible.

 

[Sarenco]

Is it because it actually flatters the products at this current vantage that the industry turned a blind eye?

Nope. The asset management industry lobbied hard against the PRIIPs KID proposals on the basis that they would mislead nvestors.

Devising the performance methodology was delegated to the Commission under the Directive. The European Parliament actually rejected their initial proposals and this delayed the implementation of the Directive. The compromise was the inclusion of the "stress scenario" in the KID.

The mad thing is that US managers are not allowed to make projections at all on future performance of their funds (which seems eminently sensible to me) and there are strict rules around the presentation of historic returns and charges.