# Why are AVC broker charges so high ?



## LucanMan (2 Oct 2008)

Has anybody any explanation why the broker charges are so high when they hardly offer any constructive advice longer term.

To give you an example I was FORCED to make my AVCs through Marsh Ireland (Broker) as our profession and few other professions (without naming) in our category were forced to use Marsh as there is NO ALTERNATIVE broker available.

The charges are a whopping 5% of all contributions to Marsh and 0.95% to Irish Life + another WHOPPING 25% of all contributions to Marsh Ireland in the first year of the contributions.

Thereafter we pay nearly 6% for every contribution we make for the rest of our life ................for what ??

I have been contributing for over 12 years and they gave me advice to invest the pension AVC money in the secure performance fund (with low returns) as I initially said I wanted to play safe as the markets then were volatile.  They never returned to me thereafter to suggest changing my funds to a riskier one or reviewed my pensions on a yearly or two yearly basis. So what are we paying 5% to Marsh for ?? 

Let us presume they have given us good advice with our pension investment to start with (for which we gave them 30% of our contributions for the first year). Why then are we paying them or being forced to pay them 6% every year thereafter for the next 30 years ??? I am bewildered. Why does the govenment not take note of this especially if you cannot administer your own PRSA (applicable to certain professions)???

Why is the government not cutting down on this heavy commission we pay these brokers? The pension board told me unfortunately we did not have any alternative brokers in our profession and we had to go through Marsh. 

Anywya the question I ask is why are we paying such high 6% of investment and then the Irish Life monthly charges in addition WHEN the funds on average have a 10% yearly return over a 10 year period.


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## COLAKO (2 Oct 2008)

The broker only makes real income in the first year. 25% Initial commission is paid on the total first year premiums. So if you pay €500 per month that's €1500 commission. After year 1 the commission is probably 4% or €240.00 per year. This is not much conisdering the admin involved in managing the policy. You can negotiate the commission with the broker.....they can basicaly choose what commission they want to take  (up to a max normaly of 25%). Ask them what commission they take and suggest you want a lower commission taken??? see what they say. For example, they could easely only take 10% in the first year.....Everybody gets paid for what they do...brokers are no different from anybody else. You should always question what the fee is for? i.e. advise, reviews....etc......If you're not getting value for money, ask for it


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## ClubMan (2 Oct 2008)

LucanMan said:


> To give you an example I was FORCED to make my AVCs through Marsh Ireland (Broker) as our profession and few other professions (without naming) in our category were forced to use Marsh as there is NO ALTERNATIVE broker available.


Really? You had absolutely no alternative way of arranging pension (and/or _AVC_) cover? Sounds odd. Unconstitutional even.


> I have been contributing for over 12 years and they gave me advice to invest the pension AVC money in the secure performance fund (with low returns) as I initially said I wanted to play safe as the markets then were volatile.  They never returned to me thereafter to suggest changing my funds to a riskier one or reviewed my pensions on a yearly or two yearly basis. So what are we paying 5% to Marsh for ??


Regardless of the charges are you sure that they are supposed to be giving independent, professional pension investment advice on an individualised basis?


> Why does the govenment not take note of this especially if you cannot administer your own PRSA (applicable to certain professions)???
> 
> Why is the government not cutting down on this heavy commission we pay these brokers? The pension board told me unfortunately we did not have any alternative brokers in our profession and we had to go through Marsh.


Could you not have opened an individual _PRSA, _personal pension plan (_Retirement Annuity Contract_) or _SSAP_?


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## ClubMan (2 Oct 2008)

COLAKO said:


> The broker only makes real income in the first year. 25% Initial commission is paid on the total first year premiums. So if you pay €500 per month that's €1500 commission. After year 1 the commission is probably 4% or €240.00 per year. This is not much


Yes it is! 25% of year one contributions plus 4% of each subsequent year's contributions is crazy in my opinion. Especially when you can relatively easily get a _PRSA _or personal pension plan with charges like 0% on each contribution and just an annual management fee of about 1%.


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## LucanMan (2 Oct 2008)

Thanks Colako. Unfortunately we could negotiate with the fees with Marsh as it IS FIXED for the first year and thereafter and we are at their mercy as we CANNOT go through any other brokers as we have not other brokers covering our profession as per Pension board.

For a contribution of €12K AVC for the year I paid €600 to Marsh €120 to Irish Life and addtional monthly charges and the yearly managment fee to Irish Life. That amounts to nearly 8-9% of commissions and this weighs in heavily against the apporimately 10% appreciation per year of the fund.
I am surprised that you are implying that 8-9% commission is not much from the brokers point of view. What have the brokers to do.........arrange bank transfer of your investment to the fund monthly.........that's all (for a 5% commission ??........one more rip off ireland)

A rough calculation shows that my fund has appreciated by ONLY 2.5% per year over the last 12 years excluding the charges !!! Rip off ? I am saving for the 46% tax benefit that's all I can say.


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## LucanMan (2 Oct 2008)

CLubman Thanks. I am talking about starting my Additional voluntary contributions way back in 1998 I think. There was no PRSA then.

When I spoke to Marsh in 2003 if I could contribute directly or through any other broker I was informed in writing that they were the only brokers for AVCs for our profession (NCHDs). That is the reason I contacted Irish Pensions board and they gave us the shocking answer (implying we had no options). 

The PRSAs have come in recently and if you look at the Irish Life PRSAs available through LA brokers it consists of only three option - a mediocre to poor consensus fund (with a <6% average 10 year return) and 2 other funds you invest 5 years to retirement. SO not all self administered PRSAs are good.


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## ClubMan (2 Oct 2008)

LucanMan said:


> CLubman Thanks. I am talking about starting my Additional voluntary contributions way back in 1998 I think. There was no PRSA then.


OK. Many pension products levied hefty charges back then. I think that was probably the tail end of the worst of these charges (e.g. 50%-200% of of the first year's contributions in charges, "initial" units, other opaque charging structures etc.)?


LucanMan said:


> Why is the government not cutting down on this heavy commission we pay these brokers?


Well haven't they since the 90s by bringing in new pension options including, for example, standard _PRSAs _which have capped charges?

What is your pension situation now? If you think that you are paying too dearly then what alternative options are open to you now? What's done is done and bar some sort of misselling case there is no point in moaning about it now.


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## LDFerguson (2 Oct 2008)

There are several other AVC PRSA providers out there so you should be able to pick a fund that suits you.  If you have a good few years (and a good few AVC contributions) to go until retirement, it may still be worth your while switching to a lower cost provider.  

One point to be considered about AVC PRSAs is that you need to be clear that you are not exceeding either the age-related contribution limits OR the Revenue's maximum funding rules, which take into account your superannuation benefits.  If you're close to maximum funding levels, it's wise to review this every few years.  By choosing to go with an execution-only broker, you get no initial or ongoing advice.  Which is absolutely fine if you are willing and able to monitor your own pension funding.  But you may need some professional help if not.


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## Protocol (3 Oct 2008)

LucanMan,

you can stop paying into your AVC now and start a PRSA AVC with 0% entry charges and a 1% AMC.

I had an RAC personal pension, and unknown to me the Hibernian sales rep from the Hibernian branch was getting 8% of each and every contribtution.

Criminal extortionary prices!!!

Knowledge is power. So I moved to a discount broker, with nil commission.


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## DerKaiser (3 Oct 2008)

A lot of people in professions (teaching, nursing, Gardai, etc) get the hard sell from the brokers of their occupational AVC schemes.  Many of these schemes were negotiated on very unfavourable terms compared to what's available now.  The best advice to LucanMan is to cease all contributions to this scheme and go directly to one of the major pension providers where competition for customers is intense.  A PRSA deal involving 100% allocation of premiums and 0.75% annual management charge should be easy enough to avail of.

This situation is all too typical.  You'd at least expect some kind of review from the broker if they're taking 4% p.a. as well as the 25% up front.


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## LDFerguson (4 Oct 2008)

DerKaiser said:


> A PRSA deal involving 100% allocation of premiums and 0.75% annual management charge should be easy enough to avail of.


 
I'm not aware of any PRSA available to the general public with 100% allocation and 0.75% annual management.  Best is typically 100% and 1%.


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