# Best (i.e. with lowest charges) self-directed Buy Out Bond?



## rr3046 (20 Oct 2012)

Hi everyone,

I'm part of pension scheme that is winding up and am planning to move the resulting monies into a self-directed buy-out-bond. The lowest rate I've found so far is no charge for inserting the money and a 0.85% annual charge. If anyone is aware of a cheaper bond or would like to recommend a particular one, I'd appreciate hearing about it.

Many thanks,

Ken


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## Marc (20 Oct 2012)

As the scheme is winding up you can also transfer into a PRSA irrespective of length of service.

If you have a transfer value of more than €50,000 contracts start at 0.25%pa plus advisory and fund management costs.


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## LDFerguson (20 Oct 2012)

If you're not looking for ongoing service or advice from us, we can arrange a Buy-Out Bond with 100% investment, 0.75% annual charge and access to the TD Waterhouse online trading platform (€15 per trade).  Government levy at 0.6% per year applies to all Buy-Out Bonds.  Minimum €20,000.

Liam D. Ferguson


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## Marc (20 Oct 2012)

Just an observation but what would an investor in the Irish Life plan who wasn't looking for ongoing service get for the extra 0.50%pa?


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## LDFerguson (20 Oct 2012)

Nothing.  If you can offer a client a Buy-Out Bond with online trading capability for 0.25% per annum with no other fees, then it's a better deal for those with >€50,000.

I wasn't aware that you were in the "no advice" space.  So if a client comes to you with a fund in an Occupational Pension Scheme of €50,000 or more and doesn't want advice, can you confirm that the online charge the client would pay would be 0.25% per annum?  (Dealing charges and Government levy ignored.)


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## Marc (21 Oct 2012)

Liam, 

Self-directed doesn't have to mean no advice. In fact, in my view, occupational pension transfers should always be required to be advised given the various risks presented. To be clear I would welcome legislation/regulation to prevent execution only occupational pension transfers (in the UK this has always been considered high risk business and required a much higher level of adviser competence and additional examinations)

This question is one currently being addressed by the retail distribution review in the UK - why should a client pay for advice that they are not receiving? I recently met a client who had been flogged a self-directed pension and the broker had pocketed €40,000 commission for arranging the contract - no ongoing service, no ongoing advice, no portfolio assistance just taking the application form to the insurance company and get this, the contact wasn't even fit for the purpose the client required and so now  the client has had to pay the early surrender penalty and arrange a new contract at his own expense.

My point is that since an adviser could offer an advisory contract for the same price as the Irish life contract (I.e 0.75%pa which includes an ongoing service fee of 0.5%pa which is agreed with and disclosed to the client) how can a broker justify selling a contract with no advice for the same price if, as you say, the client is getting "nothing" for it?

I'm not offering a no advice contract because I believe that competent advice is always worth paying for since it pays for itself, my point is that "brokers" are going to find it increasing difficult to simply arrange contracts with no advice, no service and no responsibility when things go wrong, for the same price as an advisory contract with a fee for ongoing service built in.

To the broker community get ready for RDR in Ireland it's going to come and "brokers" will need to become "advisers" in order to survive.


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## LDFerguson (22 Oct 2012)

Marc said:


> As the scheme is winding up you can also transfer into a PRSA irrespective of length of service.
> 
> If you have a transfer value of more than €50,000 contracts start at 0.25%pa plus advisory and fund management costs.


 
So, to answer the original poster's query, what's the total cost to a client of availing of this, including fees?


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## Marianne (25 Oct 2012)

LDFerguson said:


> So, to answer the original poster's query, what's the total cost to a client of availing of this, including fees?


 
I'd be interested to hear about this - what would be the total cost of a Buy-Out Bond of €50,000 including all fees?


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## Marc (25 Oct 2012)

Sorry I missed this question.

I thought I had made the point clearly above, but let me spell it out.

The base cost of the pension contract I am referring to is 0.25%pa
If an adviser charged an annual fee of 0.5%pa
This would equal 0.75%pa the same cost as the Irish Life contract which is being offered without advice - this is my whole point.

Fund management fees would be identical based on the actual choices made by the client/adviser.

So, for example, if I bought an Inflation Linked Bond fund which is a very good strategy for part of a pension fund the annual management charge I would pay would be 0.15%pa

In that case the total fee would be 0.90%pa

If I purchased the same fund through the Irish life platform, not that you can but that's another story, then the annual cost would be exactly the same. 

Another point to make is that this overall annual cost which is actually extremely competitive should be put into the context of the recently published report on pension charges in Ireland given that it also includes provision for ongoing advice, which as I have pointed out already, is extemely valuable when it comes to pension planning.


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## thumbelina (25 Oct 2012)

Hi Marc,

Am I right in thinking that GoldCore still would charge an implementation fee though for such a scheme. 

In a previous thread (/showthread.php?t=156584) the charges were discussed and an example as follows was given:

*Initial Setup Cost - 3.00%*

*Annual Costs - GoldCore Advisory - 0.50%* - is that correct, seems like it used to be 0.74%, has it decreased or is it a client specific rate, cannot see from your website

*Annual Costs - 0.25% - Pension Contract* - administration fees to penion administrators

*Annual Costs - 0.15%* - *Inflation Linked Bond TER*

So is it fair to say that the initial implementation fee would eat 3% of the €50,000, leaving €48,500 for actual investment.

If so then the Irish Life option would appear to be better value (assuming there is no setup charge Liam?)


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## LDFerguson (26 Oct 2012)

Hi Marc, 

If someone comes to me and doesn't need or want advice, then I won't insist that they have advice.  In that scenario, then the Irish Life product and the one you're referring to, with a provider that you haven't named, appear to be the same on annual charges.  

Thumbelina - there's no set-up fee with the Irish Life product - Irish Life pay commission from within the charges quoted.  There's no additional charge.  

Marc - is there an set-up fee on the product you're referring to, in addition to the 0.25% base cost and 0.5% advisor fee?


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## Marc (28 Oct 2012)

We have found that there is a growing aversion to commission-based advice.

People are seeking answers to bigger questions than “where can I buy the cheapest investment?”.

We believe a commission based remuneration structure fundamentally compromises the planner-client relationship.

We only offer a fee-based service so that we are able to offer truly impartial advice and counsel.

Our independence from financial institutions means that we are always free to make recommendations which genuinely put our clients first.


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## LDFerguson (29 Oct 2012)

Marc said:


> We have found that there is a growing aversion to commission-based advice.
> 
> People are seeking answers to bigger questions than “where can I buy the cheapest investment?”.
> 
> ...


 
So is there an set-up fee on the product you're referring to, in addition to the 0.25% base cost and 0.5% advisor fee? How much would that be?


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## Marc (29 Oct 2012)

Naturally the fee agreed with any prospective client fully reflects the specific circumstances of the client, and the value added from the advice. Each fee is agreed with each prospective client in writing.

Whereas under commission the amount does not reflect the circumstances of the client, or the service provided or the value added from advice and is subject to the incentive effects of both providers and products with hidden incentives such as overrides.


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## LDFerguson (29 Oct 2012)

Marc said:


> People are seeking answers to bigger questions than “where can I buy the cheapest investment?”.


 
Some people are.  They should pay for advice.  

Other's aren't.  They should not be forced to pay for advice that they neither need nor want. 

The original poster asked a very specific question - s/he is looking for details of a self-directed Buy-Out Bond with lower annual charges than 0.85% per year.  If I'm reading all your replies correctly, on the solution you're referring to, there would be an up-front fee for advice *as well as* ongoing fees totalling 0.75% per year, which includes the cost of ongoing advice.


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## Marc (29 Oct 2012)

Liam sorry you are incorrect in your assessment. 

If I operated on the same basis as you ie not providing advice or ongoing service, the annual cost of the contract would  be 0.25%pa with no establishment charge.


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## LDFerguson (29 Oct 2012)

Marc said:


> Liam sorry you are incorrect in your assessment.
> 
> _If I operated on the same basis as you_ ie not providing advice or ongoing service, the annual cost of the contract would be 0.25%pa with no establishment charge.


 
I'm reminded of a great old expression - "If my auntie had <censored> she'd be my uncle."  

How can it possibly be relevant to the original query what you _could_ do _if _you chose to, when in fact you don't?  If I decided to pay the 0.75% AMC for all Buy-Out Bond clients out of my own pocket, I could offer them 0.00% annual charges.  But I don't so I'm not going to mention it here.  You say you could offer this Buy-Out Bond product at 0.25% AMC _*if* _you operated on the same basis as me.  But you don't, so it's equally a notional occurrence that could happen but doesn't.  From earlier posts in this thread, in practice you charge an up-front advice/implementation fee as well as ongoing fees totalling 0.75% per year.


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## Marc (29 Oct 2012)

Naturally the fee agreed with any prospective client fully reflects the specific circumstances of the client, and the value added from the advice. Each fee is agreed with each prospective client in writing.


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## Marc (29 Oct 2012)

So to sum up:

I said "Just an observation but what would an investor in the Irish Life plan who wasn't looking for ongoing service get for the extra 0.50%pa?"

You said "nothing"

I said "Self-directed doesn't have to mean no advice. In fact, in my view, occupational pension transfers should always be required to be advised given the various risks presented. To be clear I would welcome legislation/regulation to prevent execution only occupational pension transfers (in the UK this has always been considered high risk business and required a much higher level of adviser competence and additional examinations)"

You said "If someone comes to me and doesn't need or want advice, then I won't insist that they have advice."

I don't see how an occupational pension transfer could ever be considered safe to arrange on an execution only basis. 

But you will still charge 0.75%pa for a no advice contract and take commission for doing, as you say yourself, "nothing". 

Whereas, my clients all agree a clear transparent fee for advice and ongoing service which they are free to cancel at any time. Whereas under a commission based contract a client is typically locked in for 5 years or has to pay an early surrender penalty to recoup the costs of the commission that they paid up front and for which they are getting "nothing"

Finally we are required by the Central Bank to disclose a maximum fee in our terms of business despite the fact that we almost never charge this fee and all fees are agreed individually with our clients.

It's a spirited defence of getting paid commission for doing "nothing"


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## LDFerguson (30 Oct 2012)

Marc said:


> But you will still charge 0.75%pa for a no advice contract and take commission for doing, as you say yourself, "nothing".


 
Tut tut.  Read back over my comment and you'll see what I actually replied "nothing" to.  



Marc said:


> Finally we are required by the Central Bank to disclose a maximum fee in our terms of business despite the fact that we almost never charge this fee and all fees are agreed individually with our clients.


 
So your position now is that the Buy-Out Bond would cost a client 0.75% per year and maybe an additional fee, but you almost never charge this fee?  

I admire your efforts to drag this thread off into the usual "fees good / commission bad" rambles, but let me bring it back to the original title: - Best (i.e. with lowest charges) self-directed Buy Out Bond? 

I think you'll find that a Buy-Out Bond product with no charges other than 0.75% per annum has lower charges than one with 0.25% per annum, 0.5% per annum and a fee which might or might not be charged.

I don't blame you trying to defend these extra fees/charges - I'm sure your clients are all quite happy to pay extra for the service you provide.  But in the context of _this thread_, you'd have to admit such attempts are red herrings really.


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## MyAdviser (30 Oct 2012)

rr3046, you can get a Davy Select Buy Out Bond for 0.75% p.a. cost including a 0.5% p.a. contribution to advice services/fees and all you pay on top of that is fund charges between 0.15% and 1.45%. You can also deal in shares, bonds and etf's but dealing charges will apply. to get the 0.5% contribution to advice fees requires you to set it up via an independent intermediary with a Davy Select agency. If you just do it via their self-invest option Davy keep the full 0.75% p.a.

Hope this helps. Regards Michael


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## MyAdviser (30 Oct 2012)

rr3046, you can also get great deals for larger transfer amounts including up to 105% allocation before commission but the annual charges including all costs at 1% plus depending on the fund. When I say all costs I am not covering internal fund charges which are not declared. There are exit charges on such plans as well usually in the first 5 years. 

Regards Michael


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## Marc (16 Nov 2012)

http://www.sensibleinvesting.tv/Default.aspx


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## MyAdviser (19 Nov 2012)

rr3046, one point of clarification. The above Davy Select deal on Buy Out Bonds has 23% VAT added to the 0.75% wrapper cost. Thsi makes the effective annual cost 0.9225% including VAT. You add the annual fund cost of dealing costs to that. Sorry for the omission.

Regards Michael


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## SPC100 (8 Apr 2013)

Hi Michael, for a davy select PRSA, VAT appears to be included in the .75%
It seems strange that they would include the VAT in the .75% for the PRSA and not for the buy out bond?


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## MyAdviser (8 Apr 2013)

spc100, the Davy Select VAT issue may be changing soon. i will post when it is confirmed. Regards Michael


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