# Pension linked to an index with low charges



## Carolina (16 Aug 2007)

Hi there
I want to take out a pension. I am a shareholding company director/employee. I asked my bank who suggested I take out a pension with them whereby I pay 5% of my contributions as a charge plus a 1% annual fund management charge. This sounds amazingly high to me. Is it? 

Also, I don't believe that fund management works. (I don't believe that fund managers perform better than random share picking) so I don't want to pay for fund mangement- I just want a fund that is linked to a stock market index, or a group of indexes. Is this easy to obtain and if so, is it cheaper than a managed fund?

To what degree is a pension fund protected from the managing company going bust? If I invest in a pension for 30 years, I don't want the pension company to do an enron and sink with my savings.

Thanks,

Carolina


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## South (16 Aug 2007)

Hi Carolina

Why don't you consider an execution-only style PRSA if you are happy to choose your own investment manager and funds.

You can set-up such funds for a fixed set-up fee, they would carry a 1% investment manager charge and no other charges.

If you own your own company, would a small-self administered scheme be of interest to you, thereby you can control your own investments right down to investing in the property or business across the road!

5% of your contributions may or may not be expensive - all depends on the size of your contributions.


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## LDFerguson (16 Aug 2007)

As South says, a lot depends on the size of your proposed contribution.  You could set up an Occupational Pension Scheme for a once-off fee - the only ongoing charges would be a flat €4.25 per month policy fee and 0.75% of the fund per annum.  

Or South's suggestion of a fund with no charge per contribution and 1% of the fund per year may work out cheaper depending on the anticipated size of your fund, contributions and length of time to retirement.  

In most scenarios, either of the above options will work out cheaper than 5% per contribution and 1% of the fund per annum.  

Assuming you invest with a company that's regulated by the Irish Financial Regulator here, such companies have to pass fairly strict solvency tests on a regular basis to maintain their Financial Regulator authorisation.  

Liam D. Ferguson
www.ferga.com


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## Carolina (16 Aug 2007)

South said:


> Why don't you consider an execution-only style PRSA if you are happy to choose your own investment manager and funds.
> 
> You can set-up such funds for a fixed set-up fee, they would carry a 1% investment manager charge and no other charges.


Would I do this through my bank?



> If you own your own company, would a small-self administered scheme be of interest to you, thereby you can control your own investments right down to investing in the property or business across the road!


I would prefer not to manage my own fund. I just want to buy an index. The FTSE-100 or whatever.



> 5% of your contributions may or may not be expensive - all depends on the size of your contributions.


To me it sounds crazily expensive. The bank doesn't charge me 5% for deposits. I don't get it. I could understand a fixed fee but not a %.



LDFerguson said:


> As South says, a lot depends on the size of your proposed contribution. You could set up an Occupational Pension Scheme for a once-off fee - the only ongoing charges would be a flat €4.25 per month policy fee and 0.75% of the fund per annum.


Liam, what is the difference between a PRSA, an 'executive pension' and an 'occupational scheme'? Say my contributions are 20K PA, inflating for 25 years. Why would I pick one rather than the other?


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## South (16 Aug 2007)

Carolina said:


> Would I do this through my bank?
> 
> To me it sounds crazily expensive. The bank doesn't charge me 5% for deposits. I don't get it. I could understand a fixed fee but not a %.
> 
> Liam, what is the difference between a PRSA, an 'executive pension' and an 'occupational scheme'? Say my contributions are 20K PA, inflating for 25 years. Why would I pick one rather than the other?


 
No you could not do an execution only deal through your bank.

A pension scheme is a more complicated vehicle than a bank deposit account, 5% of an annual contribution of €1,000 is only €50 while 5% of €50,000 is €2,500...as I said, whether or not 5% is expensive depends on size of contribution.

An Executive Pension and Occupational are the same thing, a PRSA is an individual account with lower maximum contribution limits than an Occupational Pension.

For a given level of contribution and the same fund choice, the expected fund would be the same between them...main difference is higher max contribution under the Occupational Pension.


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## LDFerguson (16 Aug 2007)

> Say my contributions are 20K PA, inflating for 25 years. Why would I pick one rather than the other?


 
For this level of contribution and term, the estimated fund whether you go for a PRSA with 100% of each contribution invested and 1% per annum charge or an Occupational Pension Scheme (OPS) with €4.25 monthly policy fee and 0.75% annual charge is pretty much the same, all other things being equal.  The Occupational Pension Scheme charges work out marginally lower over after 25 years.  

There are several differences - an OPS is set up under Trust and relates only to your employment in your current company.  A PRSA is your personal property and can be carried with you through different employments. This may or may not be an issue for you.

Your company can contribute a greater percentage of your salary to an OPS than to a PRSA.  Again, this may or may not be an issue for you.  

​


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## boaber (17 Aug 2007)

Carolina said:


> I would prefer not to manage my own fund. I just want to buy an index. The FTSE-100 or whatever.



I think most investment managers have Consensus Funds, which attept to track the performace of certain idicies.

They may also have specific Indexed Funds.

Irish Life have a few, but I'm not sure if they are available for Pension porducts?  Click on the link and scroll down to the Indexed Funds Section, there are links from here to the various fund fact sheets.  Other IMs may have something similar?

[broken link removed]


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## South (17 Aug 2007)

Hi Boaber

Consensus Funds usually take the asset allocation mix of the typical Irish Pension Managed Fund - something like 75% equity, 15% fixed interest, 5% cash, 5% property...I think the OP is looking for a vanilla equity index tracker.


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## LDFerguson (17 Aug 2007)

> Irish Life have a few, but I'm not sure if they are available for Pension porducts? Click on the link and scroll down to the Indexed Funds Section, there are links from here to the various fund fact sheets.


 
Irish Life have a choice of nine index-tracking funds available for pension investors, apart from the Consensus Fund, which itself is a mixture of index-tracking funds.


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## South (17 Aug 2007)

The Consensus Fund is based around an Active Investment Manager's Asset Allocation strategy in a Pension Managed Fund, it is most certainly not an equity index tracker.


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## LDFerguson (17 Aug 2007)

South said:


> The Consensus Fund is based around an Active Investment Manager's Asset Allocation strategy in a Pension Managed Fund, it is most certainly not an equity index tracker.


 
Correct. As I said in my earlier post, it is a mix of index-tracking funds.  The Consensus Fund is a mixed fund (invested in equities, bonds, property and cash); the assets of which are invested on a consensus basis, replicating the average asset allocation of the Irish fund management industry. Having implemented the average asset allocation, the fund then pursues index tracking stock selection.


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## South (17 Aug 2007)

So it is certainly nothing similar to the OP's comment of something like the FTSE 100 index.


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## LDFerguson (17 Aug 2007)

Correct again.  I'd say one (or a combination) of the other available index-trackers would suit Carolna's stated requirement more closely.


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## South (17 Aug 2007)

A full investment strategy, perhaps with a core and satellite should be put together for a €20K annual contribution.

The plan should be set-up nil commission to make sure that 100% of each and every contribution is invested.

If Carolina is a 5% director than an Exec Pension would suit fine because she could ARF the money at retirement.

If she is not a 5% director then the PRSA may be more suitable because she can ARF the money at retirement.

I get the feeling that she is a 5% director, so I would be inclined to recommend a nil commission Executive Pension.


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## LDFerguson (17 Aug 2007)

I'd agree in general terms but Carolina may not, as she stated above "I just want to buy an index."


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## South (17 Aug 2007)

There is absolutely nothing in my post above that suggests using anything other than an index strategy.


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## capall (17 Aug 2007)

I agree 5% charge on contributions is a joke,

Have a look at Quinn Lifes website. you can set up a company pension scheme with them ,no brokers charges,invest what you like when you like and you have a choice of tracker funds to invest in

If in  10 years time for example you wanted to take more direct control of your pension investment you could always then transfer into one of the self administered schemes where you make all the investment decisions.

Also  alot of company directors ,self employed don't know whether they will always be self employed or whether they might end up back as a PAYE worker. It is vital then that your pension investment is flexible and low /no charges on entry or exit


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## LDFerguson (17 Aug 2007)

South said:


> There is absolutely nothing in my post above that suggests using anything other than an index strategy.


 
A core and satellite approach is not consistent with buying an index.  By definition it means investing in more than one.


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## South (17 Aug 2007)

Yes of course it is consistent with an index strategy - for example the core could be an index to track European Equities (let's say 70%).

The satellite could be a combination of a commodity and a property index (for this example 30%).


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## LDFerguson (17 Aug 2007)

> I just want to buy an index.


 
Singular.


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## South (17 Aug 2007)

I presume, judging from the post, that a final decision has not been made about anything in relation to the type of pension, level of contribution (never mind the appropriate index (one or multiple) used!) yet.


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## Carolina (17 Aug 2007)

Thanks to everyone for your replies.

Where do I buy an 'Execution only PRSA'? 

You mentioned that an OPS/Exec pension can have a once off fee 4.25/month policy fee and a .75% pa mgmt fee. How do I buy this product at these rates?- 

You say that an OPS has a higher max contribution. How much higher?

I have a 35% holding in the company. What is ARFing at retirement? Is that where you can take out a lump sum tax free?

You recommend nil-commission. How do I get a pension set up nil-commission?

If I have an OPS, what happens if I wind up my company and become a PAYE worker? Can I keep paying into the fund?

What is core and satellite? Do you mean some of the pension is invested in x and the rest in y?

OK, I did say 'I just want to buy an index' but I also (inconsistently) said 'I just want a fund that is linked to a stock market index, or a group of indexes'.

Can I clarify by saying that I don't want an actively managed fund, just something linked to transparent indexes that I can follow in the paper? Several indexes is good because that gives diversity. I understand that a pension fund should move away from equities into bonds as retirement age approaches. Fair enough. 

Also I don't see that I should pay much for buying an index or a collection of indexes, compared to paying for fund managers , research units and market commentators.

I am told that I can get some life cover linked to a pension. Is this an efficient way to arrange life cover compared to stand alone?

 Carolina


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## South (17 Aug 2007)

Carolina said:


> Where do I buy an 'Execution only PRSA'?


 
Lots of places - do a search on AAM and you will see they are freely available.



Carolina said:


> You mentioned that an OPS/Exec pension can have a once off fee 4.25/month policy fee and a .75% pa mgmt fee. How do I buy this product at these rates?


 
A lot of execution only brokers will set up an Exec Pension for a 0.75% annual management fee and no other fee - other than the initial set-up cost.


Carolina said:


> You say that an OPS has a higher max contribution. How much higher?


 
This is an actuarial calculation - depends on current age and normal retirement age, current salary and current fund...as well as expected annuity rates at retirement.



Carolina said:


> I have a 35% holding in the company. What is ARFing at retirement? Is that where you can take out a lump sum tax free?


 
It means transferring it to another retirement savings vehicle rather than being obliged to go down the take 150% of salary tax-free and use balance to buy a pension route...it's good news for you.



Carolina said:


> You recommend nil-commission. How do I get a pension set up nil-commission?


 
Use a transparent broker that will set you up nil commission.



Carolina said:


> If I have an OPS, what happens if I wind up my company and become a PAYE worker? Can I keep paying into the fund?


 
You could transfer your fund to your new employment and start contributing to that fund.



Carolina said:


> What is core and satellite? Do you mean some of the pension is invested in x and the rest in y?


 
Yes.



Carolina said:


> Can I clarify by saying that I don't want an actively managed fund, just something linked to transparent indexes that I can follow in the paper? Several indexes is good because that gives diversity. I understand that a pension fund should move away from equities into bonds as retirement age approaches. Fair enough.


 
True.



Carolina said:


> I am told that I can get some life cover linked to a pension. Is this an efficient way to arrange life cover compared to stand alone?


 
I would tend to split it out, unless there is a tax advantage by attaching life cover to the pension.


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## Dave Vanian (17 Aug 2007)

Any of the charging structures outlined above assume that the pension is being set up on "nil commission" terms, i.e. you will pay the broker a fee.  If you have a pension broker who comes recommended to you by someone you trust, go to them and ask them will they set up a pension on nil commission terms for you, for a fee.  If you don't know such a person have a browse around Askaboutmoney.com as there are several brokers who post here.  

You also need professional advice on the most suitable type of pension arrangement for you.  If you're contemplating investing hundreds of thousands into your pension fund over time, you need to pay for good advice first.  With all due respect to the posters on Askaboutmoney.com, I wouldn't make a substantial financial decision based solely on what I read here.


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## South (17 Aug 2007)

Dave Vanian said:


> With all due respect to the posters on Askaboutmoney.com, I wouldn't make a substantial financial decision based solely on what I read here.


 
I would be inclined to agree with this, there are an awful lot of strong opinions on the site so it would make sense to get independent fee-based advice from an authorised advisor.


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## F. Kruger (18 Aug 2007)

Hi Carolina,

If you are comfortable making the investment decisons and choosing a provider then there is a list of 'Execution Only' Services/Products from discount brokers in the Best Buys Forum. This might suit you as you are specific in what you are looking for.

I don't think that you need an Authorised Advisor for this transaction, and even if you did, a good Multi Agency Intermediary is better than a bad Authorised Advisor anyday.

All you have to decide is whether it's a Company or Individual arrangement that you want and then look for one that has Index Tracking Funds available at around the 1% AMC mark.

The life cover I would keep seperate from the pension. I would suggest a term insurance with a guaranteed premium. You can buy Executive Term Insurance (Company director) on a stand alone basis.


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## South (18 Aug 2007)

F. Kruger said:


> Hi Carolina,
> 
> I don't think that you need an Authorised Advisor for this transaction, and even if you did, a good Multi Agency Intermediary is better than a bad Authorised Advisor anyday.


 
And similarly, a good Authorised Advisor is better than a good Multi Agency Intermediary every day...no point settling for less.


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## Dave Vanian (19 Aug 2007)

A good Authorised Advisor will include Quinn Life in their recommendations to this lady.  A bad Authorised Advisor will find excuses to justify not recommending Quinn Life, when the real reason is that Quinn Life won't pay commission or over-ride commission.  

Any of the Authorised Advisors who post here on Askaboutmoney care to comment as to why Quinn Life doesn't get named in this thread, except by capall who I understand is not a broker?


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## South (20 Aug 2007)

Bear in mind that the OP does not know what an ARF is - so the level of service she requires (especially if putting in 20K a year) is a lot higher than what the QL arrangement would offer.

The OP is also a proprietary director - so would need to consider maximum contributions that her company can make on her behalf, again this is not a service that she can expect from QL.

Even on costs I would not put forward QL here because if the OP is putting in 20K a year the 25 basis points lower fund management charge available through ILIM, Eagle Star, Friends First etc on a contribution of 20K a year would be €50 in year 1, about €100 in year 2, about €150 in year 3 and so on...and that is if she only uses the very limited QL funds at 1% fund management charge.A contributor at this level (20k per annum) would do well to worry a lot about the size of the fund management charge.


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## Dave Vanian (20 Aug 2007)

(1) If an Authorised Advisor recommends Quinn Life to her over ILIM, Eagle Star, Friends First or whoever, why would the AA not explain about ARFs, maximum funding etc.?

(2) Notwithstanding (1) above, what verifiable basis have you for alleging that Quinn Life sales staff would not have the necessary qualifications to impart this sort of information? 

(3) Over a 25 year term at €20,000 per annum indexing, are you quite sure that QL's reduction in AMC from 1% to 0.5% (or 1.2% to 0.7% for some funds) won't bring it back below other competitors by year 25, bearing in mind that the years when the fund will be largest will be the final 10?  A good AA will be able to illustrate the effect of differing charging structures on all available products, including Quinn Life and Acorn Life.

(4) How do Acorn Life compare?


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## South (20 Aug 2007)

(1)If you go to an AA and can get in for 0% upfront and < 1% ongoing why on earth would you go for QL (only four funds at 1%, of which only two are equity at 0% and 1%)?

(2)From working in the industry, I am quite familiar with the direct sales staff in a whole host of companies - independent advice (not tied to a specific investment manager/insurer) is often worthwhile addition based on my experience.

(3)Of course I am sure that the charges would be lower using a different provider,given the choice between 0% + 0.75% with a greater fund choice compared to 0% + 1% with only two equity funds, it's clear to anybody that 0% and 0.75% will beat 0% and 1%.

(4)How do Acorn Life compare with who and under what criteria?


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## LDFerguson (20 Aug 2007)

South said:


> And similarly, a good Authorised Advisor is better than a good Multi Agency Intermediary every day...no point settling for less.


 
South - like many before you, you've fallen into the trap of believing the hype. But most have seen the error of their ways by now. When delineation between AAs and MAIs originally occurred, the Irish Brokers Association believed the above myth also and tried to make it a condition of membership that all members must be AAs. They were forced to do a U-turn on that one when they realised their mistake. 

Now even the regulatory bodies are considering scrapping the titles AA and MAI so that in the future, the only distinction between good and bad will be the quality of the advisor, which is the only workable answer.


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## South (20 Aug 2007)

LDFerguson said:


> South - like many before you, you've fallen into the trap of believing the hype. But most have seen the error of their ways by now. When delineation between AAs and MAIs originally occurred, the Irish Brokers Association believed the above myth also and tried to make it a condition of membership that all members must be AAs. They were forced to do a U-turn on that one when they realised their mistake.
> 
> Now even the regulatory bodies are considering scrapping the titles AA and MAI so that in the future, the only distinction between good and bad will be the quality of the advisor, which is the only workable answer.


 
What trap?

An AA can give advice on the complete market of products, an MAI can't...the MAI can only advise on the agencies he/she holds.

It seems pretty clear to me which is preferable.


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## Dave Vanian (20 Aug 2007)

> (1)If you go to an AA and can get in for 0% upfront and < 1% ongoing why on earth would you go for QL (only four funds at 1%, of which only two are equity at 0% and 1%)?


 


> (3)Of course I am sure that the charges would be lower using a different provider,given the choice between 0% + 0.75% with a greater fund choice compared to 0% + 1% with only two equity funds, it's clear to anybody that 0% and 0.75% will beat 0% and 1%.


 
Your replies above suggest to me that you're unfamiliar with the Quinn Life practice of reducing their AMC by 0.5% after 15 years.  Have another read of point (3) of my earlier post.  



> (2)From working in the industry, I am quite familiar with the direct sales staff in a whole host of companies - independent advice (not tied to a specific investment manager/insurer) is often worthwhile addition based on my experience.


 
How does an actuary working for a reinsurance company get to be familiar with direct sales staff in a host of companies?  



> (4)How do Acorn Life compare with who and under what criteria?


 
With the rest of the market under product charges and fund choice?


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## South (20 Aug 2007)

(4)Not very well - no index fund which is what is being discussed here.

After 15 years of paying 0.25% too much, again you seem unfamiliar with the fact that QL have only two equity funds at a 1% fmc, all the rest are higher and your example at 1% then specifically refers to Celtic (who would want their entire pension based on the ISEQ?) and Euro freeway funds.

Most investors putting in 20K annual would require exposure to Asia Pacific and to US, at a very minimum.

I have been working for 15 years - including stints with the two largest pension consultancies in Ireland.

What's your background?


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## LDFerguson (20 Aug 2007)

South said:


> What trap?
> 
> An AA can give advice on the complete market of products, an MAI can't...the MAI can only advise on the agencies he/she holds.
> 
> It seems pretty clear to me which is preferable.


 
A fine theory but unworkable in practice.  Which is why the IBA had to do an about turn.  And why in all probability the concepts of AA and MAI will soon be scrapped.  If one was clearly preferable over the other, these things wouldn't be happening.


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## South (20 Aug 2007)

Ah there is no doubt clients prefer to have the full market choice rather than the limited product choice of a MAI, the changes are more on the compliance monitoring and regulatory side, that's fair enough but clients still appreciate the extensive market coverage of an AA (I don't really care what they are called to be honest!!) over that of an MAI.


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## Dave Vanian (20 Aug 2007)

> After 15 years of paying 0.25% too much, again you seem unfamiliar with the fact that QL have only two equity funds at a 1% fmc, all the rest are higher and your example at 1% then specifically refers to Celtic (who would want their entire pension based on the ISEQ?) and Euro freeway funds.


 
No all 12 QL funds reduce their AMC by 0.5% after 15 years.  Some start at 1%, some at 1.2% and some at 1.5%.  My example used the lower eight - 1% and 1.2% to start with and 0.5% and 0.7% after 15 years.  A mix of these eight funds would produce a lower charging structure after 25 years than a fixed 0.75% per year.  This is why a good AA must at least include Quinn Life in the list of recommendations.  The client can then decide if the additional charges available in another product are justified by the additional fund choice.  

You voluntarily chose to reveal your background in another thread, in which I was only a spectator.  I choose not to.  

My background is not pertinent to this thread as nowhere have I used the arguments that my background or experience is relevant.  I prefer to make arguments based on facts.  

For clarity, I will, however, confirm that I have no connection with Quinn Life.


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## LDFerguson (20 Aug 2007)

South said:


> Ah there is no doubt clients prefer to have the full market choice rather than the limited product choice of a MAI, the changes are more on the compliance monitoring and regulatory side, that's fair enough but clients still appreciate the extensive market coverage of an AA (I don't really care what they are called to be honest!!) over that of an MAI.


 
If that was true, then market forces would dictate that MAI's would have gone out of business and would have been replaced by AAs.  In fact, more AAs have become MAIs over the years than vice versa.


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## South (20 Aug 2007)

Dave Vanian said:


> No all 12 QL funds reduce their AMC by 0.5% after 15 years. Some start at 1%, some at 1.2% and some at 1.5%. My example used the lower eight - 1% and 1.2% to start with and 0.5% and 0.7% after 15 years. A mix of these eight funds would produce a lower charging structure after 25 years than a fixed 0.75% per year. This is why a good AA must at least include Quinn Life in the list of recommendations. The client can then decide if the additional charges available in another product are justified by the additional fund choice.
> 
> 
> My background is not pertinent to this thread as nowhere have I used the arguments that my background or experience is relevant. I prefer to make arguments based on facts.
> ...


 
I never disputed that they reduce the FMC by 0.5% - I pointed out that only two (one is the ISEQ!) equity funds start out at 1.0%, obviously I am correct in this assertion, all other equity funds by QL start at > 1%.

I never mentioned my background either - you brought my background up (not for the first time)


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## South (20 Aug 2007)

LDFerguson said:


> If that was true, then market forces would dictate that MAI's would have gone out of business and would have been replaced by AAs. In fact, more AAs have become MAIs over the years than vice versa.


 
I could not agree with that, just because somebody provides an inferior product to somebody else does not mean the inferior product will be less profitable, especially if the inferior product is marketed well.

AAs switched to MAI (according to most observers) because they did not have the skill-set to continue as AAs.


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## Dave Vanian (20 Aug 2007)

> I never mentioned my background either - you brought my background up (not for the first time)


 
Because if you want to use your experience as a way of backing up your point below, it is relevant.  



> (2)From working in the industry, I am quite familiar with the direct sales staff in a whole host of companies - independent advice (not tied to a specific investment manager/insurer) is often worthwhile addition based on my experience.


 
So, in your experience of dealing with QL are you saying that you have found their staff don't have the qualifications to explain what an ARF is or calculate maximum funding for a director?  This is what you suggest here.



> Bear in mind that the OP does not know what an ARF is - so the level of service she requires (especially if putting in 20K a year) is a lot higher than what the QL arrangement would offer.
> 
> The OP is also a proprietary director - so would need to consider maximum contributions that her company can make on her behalf, again this is not a service that she can expect from QL.


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## Dave Vanian (20 Aug 2007)

> I never disputed that they reduce the FMC by 0.5% - I pointed out that only two (one is the ISEQ!) equity funds start out at 1.0%, obviously I am correct in this assertion, all other equity funds by QL start at > 1%.


 
So do you also agree that in the example we have been using, QL offers the lower overall charges after 25 years, if a mix of their eight funds (four at 1% reducing to 0.5% and four at 1.2% reducing to 0.7%)?

And if so, Quinn Life should at least be included in an AA's pick list?  If the client is unhappy with the range of funds offered, she can choose another provider.  But she should still be made aware of the lowest-charging option.


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## LDFerguson (20 Aug 2007)

South said:


> Ah there is no doubt clients prefer to have the full market choice rather than the limited product choice of a MAI, the changes are more on the compliance monitoring and regulatory side, that's fair enough but clients still appreciate the extensive market coverage of an AA (I don't really care what they are called to be honest!!) over that of an MAI.


 
But you just said that clients prefer...and clients appreciate...

If clients prefer, then no amount of marketing by MAIs will convince them to choose the "inferior product".


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## South (20 Aug 2007)

Dave Vanian said:


> So do you also agree that in the example we have been using, QL offers the lower overall charges after 25 years, if a mix of their eight funds (four at 1% reducing to 0.5% and four at 1.2% reducing to 0.7%)?
> 
> And if so, Quinn Life should at least be included in an AA's pick list? If the client is unhappy with the range of funds offered, she can choose another provider. But she should still be made aware of the lowest-charging option.


 
It depends how long the client maintains their pension - if less than 20 years, she would be best to avoid QL.

Yes, I have heard from a number of sources that the answers to technical pension questions have been hard to come by from QL, I can't comment on my experience because I would not use them.

Of course QL would be an option, but there are plenty of other options too - I did not realise you were expecting an AA to provide a full invesment review service on a chat forum!


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## South (20 Aug 2007)

LDFerguson said:


> But you just said that clients prefer...and clients appreciate...
> 
> If clients prefer, then no amount of marketing by MAIs will convince them to choose the "inferior product".


 
Well they would not be clients unless they preferred an AA...


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## LDFerguson (20 Aug 2007)

Sorry, I misunderstood...you meant clients of *yours* prefer an AA.  Of course they do.  Just as clients of mine prefer a MAI.  I thought you meant that the general public considered AAs superior to MAIs.


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## South (20 Aug 2007)

I was hardly speaking about clients of somebody else!!
The general public would not have a clue what a MAI or an AA is.

Most financial commentators recommend AAs though - I would imagine you would prefer MAIs.


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## LDFerguson (20 Aug 2007)

South said:


> The general public would not have a clue what a MAI or an AA is.


 
I agree. 



South said:


> Most financial commentators recommend AAs though - I would imagine you would prefer MAIs.


 
What financial commentators do this then? In recent years? 

I don't have a preference for MAIs over AAs. We chose to be MAIs from the outset as I felt it was the most suitable category for our business, and I was proven correct in that judgement. 

I have a preference for superior advice over inferior. The categorisation of AA or MAI does nothing to distinguish between superior and inferior advice.


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## South (20 Aug 2007)

Well AA means a full product offering versus MAI meaning a restricted product offering.

That is great that the MAI has worked out for you.


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## Dave Vanian (20 Aug 2007)

South said:


> It depends how long the client maintains their pension - if less than 20 years, she would be best to avoid QL.
> 
> Yes, I have heard from a number of sources that the answers to technical pension questions have been hard to come by from QL, I can't comment on my experience because I would not use them.
> 
> Of course QL would be an option, but there are plenty of other options too - I did not realise you were expecting an AA to provide a full invesment review service on a chat forum!


 
So by extension, if she maintains her pension for over 20 years, she would be best to consider QL.  

I won't comment on the hearsay about QL service as it cannot be substantiated. 

I don't expect a full investment review service on a chat forum but I'm curious as to why Quinn Life wasn't mentioned in the original replies to Carolina, except by capall, who I understand is not an industry professional.


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## LDFerguson (20 Aug 2007)

> Well AA means a full product offering versus MAI meaning a restricted product offering.


 
That's correct.  The distinction is between the scope of the advice offered.  Neither one is superior to the other in terms of the quality of advice.  



> That is great that the MAI has worked out for you.


 
Thanks.


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## South (20 Aug 2007)

Absolutely - the full range versus a limited agency, I never suggested otherwise, as you know the AA covers the full range in the market.

You're welcome.


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## South (20 Aug 2007)

Dave Vanian said:


> So by extension, if she maintains her pension for over 20 years, she would be best to consider QL.


 
You are quite incorrect here - there is more to selecting a suitable pension than selecting the cheapest, would the best car in a garage be the cheapest one?



Dave Vanian said:


> I don't expect a full investment review service on a chat forum but I'm curious as to why Quinn Life wasn't mentioned in the original replies to Carolina, except by capall, who I understand is not an industry professional.


 

Maybe because of widespread experience of the service offered by QL?
I have no idea why but that is one possibility.


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## LDFerguson (20 Aug 2007)

> ...the full range versus a limited agency...


 
Personally I prefer "the full market versus the products of all companies with whom the MAI holds an appointment" but I'll let you away with it.   

Discovered only recently that Quinn Life have granted agencies to MAIs on a nil-commission basis in the past.


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## Dave Vanian (20 Aug 2007)

> You are quite incorrect here - there is more to selecting a suitable pension than selecting the cheapest, would the best car in a garage be the cheapest one?


 
Invalid comparison - A huge consideration in buying a car is the budget of the buyer.  That's not an issue here as the amounts to be invested will be the same regardless of the provider.  

I'm not saying that cheapest is best - I'm saying that people should be made aware of the cheapest so that they can make an informed decision.  She should consider QL.  



> Maybe because of widespread experience of the service offered by QL?  I have no idea why but that is one possibility.


 
Again - I'll ignore because it's unsubstantiated.


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## South (20 Aug 2007)

Of course she should consider QL - there is no provider that should not be looked at and considered.

The main issue when choosing a product is the quality and value of the product.


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## Dave Vanian (20 Aug 2007)

Now we're getting somewhere.


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## South (20 Aug 2007)

I am glad you think so, more importantly I hope that the OP will find the discussion of interest and relevant to her query.


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## Dave Vanian (20 Aug 2007)

If using index funds I would advise a diversified approach with no one fund forming too large a percentage, rather than a core satellite approach with one fund being the core. But that's a difference of opinion - neither one of us can say which one will achieve better results in the future.


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## South (20 Aug 2007)

Well the core might be 80% equity, with the satellite being 10% property and 10% commodity - within the core a full diversification should (of course) be achieved.


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## Dave Vanian (20 Aug 2007)

We differ on whether 80% equity within a portfolio could be deemed diversification, but as I said earlier, that's a difference of opinion - neither one of us can say how to achieve better results in the future.


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## South (20 Aug 2007)

Well it was just an example, that % could be anywhere from 0 to 100 and it's a moving target.

It is not possible to crystal ball future returns, it is possible to devise an optimal portfolio based on a client's personal situation and risk attitude.


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## Dave Vanian (20 Aug 2007)

> It is not possible to crystal ball future returns, it is possible to devise an optimal portfolio based on a client's personal situation and risk attitude.


 
It's only possible to *try* to devise the optimal portfolio to the best of your ability and opinion.  Any number of advisors can have any number of opinions as to what the optimal portfolio is.


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## South (20 Aug 2007)

The portfolio that lies on the efficient frontier for a given client's circumstances is the optimal portfolio - there will be an optimal portfolio.


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## Dave Vanian (20 Aug 2007)

Who is to decide what's the optimum?  

You could say 80% equity; I could say 60% equity and so on.  The optimum from the client's perspective is one that achieves the highest return while remaining within her selection criteria.  That can't be known in advance so all we can do is try.


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## South (20 Aug 2007)

It would be determined by the efficent portfolio based on return on a vertical axis and standard deviation on the horizontal axis.

I think everybody in the world knows that nobody can predict stock market returns in advance.

If I could then I would not be sitting here I would be on a golf course in Bermuda!!!


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## Dave Vanian (20 Aug 2007)

> I think everybody in the world know that nobody can predict stock market returns in advance...


 
Therefore nobody can construct the singular optimal portfolio for a client in advance; there will be countless permutations that suit a given client's requirements.  

If there was a simple mathematical formula for constructing the optimal portfolio, I'd write a computer program to do it and would join you in Bermuda.


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## South (20 Aug 2007)

There is a model for devising the variety of optimal portfolios for a client - it is based around optimal Mean-Variance Portfolios and would lie on the efficient frontier.

I'd probably head off to Marbella so & I really do not think that this discussion is furthering this thread or helping the OP at all!


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## Dave Vanian (20 Aug 2007)

I'm glad to see you've amended your description to "variety of optimal portfolios."


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## South (20 Aug 2007)

As I have said, it is an efficient frontier, only one portfolio will be selected...glad to see you're finally getting the message.

As you would say yourself, now we're getting places.


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## Dave Vanian (20 Aug 2007)

There's a world of difference between



> ...it is possible to devise an optimal portfolio based on a client's personal situation and risk attitude.


 
which is not correct and



> ...it is an efficient frontier, only one portfolio will be selected...


 
which is correct.  But as you modified your original statement when queried, we are indeed getting places.


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## South (20 Aug 2007)

There is only one portfolio for one level of return.

Once the return is agreed the unique optimal portfolio is selected.

Looks like we're not getting places yet, I thought the penny had dropped.


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## Dave Vanian (20 Aug 2007)

Here we go again - hopefully you'll get it this time.  

You cannot choose "the optimal portfolio" in advance.  You can only pick one from a choice of suitable possibilities.


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## South (20 Aug 2007)

How could you agree that there is an efficient frontier and disagree that there is an optimal portfolio for each and every level of risk, I thought we were getting places!!!

Let's agree to disagree on this one...


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## Dave Vanian (20 Aug 2007)

Of course there's an optimal portfolio.  You simply cannot choose it in advance.  That would be back to the golf course arguments above.  

As I've said more than once, you can pick a portfolio from a range of suitable alternatives.  You cannot know the optimal portfolio in advance.  

Which is why your original statement



> ...it is possible to devise an optimal portfolio based on a client's personal situation and risk attitude.


 
was wrong and your subsequent statement



> ...it is an efficient frontier, only one portfolio will be selected...


 
was correct.  

But I seem to be repeating myself, so maybe we'd better agree to disagree alright.


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## South (20 Aug 2007)

They are the same statement, but if you can't see that I reckon we won't be getting any places any time soon - good luck Dave.


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## Dave Vanian (20 Aug 2007)

Of course they're not, but as I've tried to explain the difference several times, I can only wish you well.  All the best, D.


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## South (20 Aug 2007)

The points on the frontied represent different risk.

For a given risk - agreed with client - there is only one optimal portfolio.

QED


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## Dave Vanian (21 Aug 2007)

After everything we've discussed in this thread, you seem to be still clinging to your belief that an advisor can recommend the optimal portfolio to a client without the benefit of hindsight.

The optimal portfolio is the one that gives the client the maximum return for their investment.  No amount of analysis of client information, modelling, frontiers or anything else will tell you what it is, in advance.


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## South (21 Aug 2007)

Oh God!

*The optimal portfolio is the one that gives the highest return for a given level of risk.*

Once the level of risk is discussed and set by the client, the uniqiue optimal portfolio can be determined.

Obviously, this all depends on the model being correct, and nobody can predict the future, but it certainly helps to make as informed a decision as possible.


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## Dave Vanian (21 Aug 2007)

Good morning South, 

You seem to be having extraordinary difficulty with my point, so I'll try a different approach.  

A man walks into a broker's office with a sum of money to invest for 25 years.  The broker uses South's Risk-o-Meter (Pat. Pending) to analyse all the data that the man gives him.  The broker shows the man a range of options that would suit his stated requirements.  The man picks one, signs up and writes the cheque.  

What has the man just bought?

(a) The optimal portfolio.

(b) The most suitable portfolio from the range of options on offer, which might or might not turn out to be the optimal portfolio in 25 years time, depending on a whole host of unpredictable variables.  

The answer, of course, is (b) *because he cannot buy (a) now.*


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## South (21 Aug 2007)

The optimal portfolio based on a set of assumptions underlying the Capital Asset Pricing Model.

As I told you about 50 posts ago, nobody, not even an actuary, can predict future stock market returns with certainty...if I could I certainly would not be engaged in a discussion on a forum with people who argue with me while trying to say exactly what I am saying!!!

Anyway cheers we can agree on that so - there is an optimal portfolio...but nobody can predict the future, shock horror!


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## Dave Vanian (21 Aug 2007)

> The optimal portfolio *based on a set of assumptions underlying the Capital Asset Pricing Model.*


 
My goodness, it seems the penny has finally dropped with you.


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## South (21 Aug 2007)

Did you think I could predict the future, oh God!!!

I am sorry to disappoint you, I tend to use models to forecast returns.


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## Dave Vanian (22 Aug 2007)

> Did you think I could predict the future, oh God!!!


 
Nonsense, I'm just glad to see you've finally qualified your original incorrect statement that it's possible for an advisor to recommend the optimal portfolio.


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## South (22 Aug 2007)

I hope this thred is of some benefit Carolina, sorry about all the diversions!


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## F. Kruger (22 Aug 2007)

Yes.

It's beginning to look like a competition as to who is going to have the last post on the thread.


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## Carolina (22 Aug 2007)

Well I have learnt something from this thread. I didn't know the difference between an authorised advisor and a multi-agency intermediary. I found a brochure here : [broken link removed]

I learnt that the FMC may be more important than the contribution charge, whereas it was the contribution charge that  really stood out to me at first.

I have a list of discount brokers in the 'best buys' section.

As regards Quinn Life, I would be worried about investing a large amount of cash with them over 20 years because the company

a) has been in the insurance business for only 11 years
b) has limited financial disclosure compared to a listed company
c) is owned and run substantially by one man

Am I wrong to be worried?


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## LDFerguson (22 Aug 2007)

Hi Carolina, 

Interesting observations about Quinn Life.  Although professionally I cannot recommend Quinn Life as I don't have an agency agreement with them, personally I must admit I wouldn't have any reservations about investing money with them for the following reasons: - 

(a) they are subject to the same minimum solvency regulations as any other Irish life assurance company

(b) although Sean Quinn is the boss, I don't believe that the company is too heavily reliant on his presence to operate any more as their disclosed profitability for the past few years appears to have achieved a certain critical mass

and 

(c) despite being a relative newcomer to the market, all they offer is index-tracking funds which don't require any fund management or stock selection skills or experience.  You simply replicate the movements of the chosen index as best you can.  Not saying that the QL fund choice will suit everyone.

I've no answer for your other concern - it's undeniable that as a private company, you can't simply access their accounts to run your own rule over them. 

On the other hand, a pension fund is a substantial commitment - for most people it's second only to their home in terms of value by the time they retire.  For many, it's even greater in value than their home by the time they retire.  So with that much of a commitment, you should feel very comfortable with your chosen pension provider.


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## South (23 Aug 2007)

Carolina said:


> I learnt that the FMC may be more important than the contribution charge, whereas it was the contribution charge that really stood out to me at first.


 
I would definitely agree here...well they are both important to consider but the FMC should not be ignored, you will pay it every year on your money so whereas the 5% contribution charge hits your money once a 1% FMC will hit that same money every for as long as the investment is running, you need to watch the FMC as much as the contribution charge.



Carolina said:


> As regards Quinn Life, I would be worried about investing a large amount of cash with them over 20 years because the company
> 
> a) has been in the insurance business for only 11 years
> b) has limited financial disclosure compared to a listed company
> ...


 
In relation to QL, the length of time in business would not bother me too much...every company has to start at some point.

The limited financial disclosure should not be an issue - your pension fund is invested on your behalf, it could not be dipped into to pay QL creditors in the event of financial problems...so I do not think you need to worry about this too much.

In relation to the one man part, again I would not worry on the basis that SQ does not seem to have much to do with QL's investment business, their lack of any prominent recognised industry experts slightly puzzles me.


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