# What real return are you getting through Irish investment funds?



## ryaner (14 Apr 2021)

Most people know the Irish tax system and deemed disposal already impact returns, I'm not, at least directly, asking about the impact on that. I am really curious about what returns anyone using an Irish based investment unit fund is actually getting net of fees and expenses?

With unit funds, the AMC is only part of the fees. There are transaction costs, other on going costs and in some cases entry costs even if the product doesn't have them listed. Take a look at some of the KID documents for funds and see impact of return per year values of 3-5% after a 7 year holding period, much higher values before that.

As a more concreate example, I recently got to see some figures from a 15 year old Quinn fund which ended at a little over 3% EAR, and this is before the second deemed disposal event. Seeing similarly low returns from my own pension, although those are admittedly much harder to calculate.


----------



## GSheehy (15 Apr 2021)

KID's are generic. They represent the worst possible charging structure from the provider. You'd be very unfortunate these days to buy one of those.

The fund calculators on provider websites should give you an accurate % on the return as they should include all charges (reflected in the unit price) except the AMC or, in some cases, part of the AMC.

Companies deduct the AMC by unit cancellation and/or included it in the unit price.


Gerard

www.bond.ie


----------



## Smoneen (15 Apr 2021)

My regular premium unit linked Savings Plan with Zurich is currently achieving 7.03% annualised. Thats after accounting for exit tax, levy and charges. Its running since July 2018.

Before accounting for exit tax thats 11.916% annualised. Fingers crossed they reduce the rate before July 2026!


----------



## jpd (15 Apr 2021)

The S & P 500 is up from 2900 to 4140 since July 2018 - that's an annualised rise of around 12%


----------



## Dave Vanian (15 Apr 2021)

Smoneen said:


> My regular premium unit linked Savings Plan with Zurich is currently achieving 7.03% annualised. Thats after accounting for exit tax, levy and charges. Its running since July 2018.
> 
> Before accounting for exit tax thats 11.916% annualised. Fingers crossed they reduce the rate before July 2026!



Which Zurich Life fund(s) are you investing in?


----------



## ryaner (15 Apr 2021)

GSheehy said:


> KID's are generic. They represent the worst possible charging structure from the provider. You'd be very unfortunate these days to buy one of those.


Sure, and I know they have to list on the higher end, however it did start showing the extra built in fees that were dragging on returns. People may have originally assumed the AMC covered the fees while there are also additional transaction fees that the fund has internally that drag on the returns. So it has been a very useful document overall, even without concrete figures.


----------



## RedOnion (15 Apr 2021)

ryaner said:


> As a more concreate example, I recently got to see some figures from a 15 year old Quinn fund which ended at a little over 3% EAR


I don't know if this means much as an example, without saying which fund it was. Is the poor return down to high fees, poor returns on underlying investment, or both.

From memory one of the funds was an Irish top 20 - they would have been very heavy weight in Irish banks which haven't faired too well over the last 15 years.


----------



## ryaner (15 Apr 2021)

RedOnion said:


> I don't know if this means much as an example, without saying which fund it was. Is the poor return down to high fees, poor returns on underlying investment, or both.
> 
> From memory one of the funds was an Irish top 20 - they would have been very heavy weight in Irish banks which haven't faired too well over the last 15 years.


Yeh of course. Was simply a stand alone example which made me go back and review my own pension from the years. It had years of advertising 10%+ gains while not returning anything close to that.

I'm just really curious about what net returns people have been seeing in relation to the advertised rates. It wasn't intended on being anything close to a discussion around the funds themselves.

As an aside, I do particularly like how Zurich advertise their returns on their calculator, using conservative return figures. Hopefully a case of under promise and over deliver.


----------



## Smoneen (15 Apr 2021)

Dave Vanian said:


> Which Zurich Life fund(s) are you investing in?


Current split is approx:
50% Intl Equity
25% 5*5 Global
25% Performance


----------



## Dave Vanian (15 Apr 2021)

jpd said:


> The S & P 500 is up from 2900 to 4140 since July 2018 - that's an annualised rise of around 12%



That's not comparing like with like.  @Smoneen has said that their figure is after accounting for the Government Levy (1% per contribution), Exit Tax (41% of growth) and charges (probably >1% per year).  And the fund split is across three global funds, one of which is multi-asset and includes bonds and cash.  An all-American index of shares taking no account of taxes or charges is a very different proposition.

That said, I'd like to see Exit Tax reduced to 33% like CGT and the levy abolished to level the playing field on investing of different types and encourage more people to get off negative-interest deposits.


----------



## GSheehy (16 Apr 2021)

Dave Vanian said:


> That said, I'd like to see Exit Tax reduced to 33% like CGT and the levy abolished to level the playing field on investing of different types and encourage more people to get off negative-interest deposits.



Should be lower IMHO, as it's not self-assessed and therefore there's less risk of tax evasion.

I think if folk perceived exit tax as 'fair', Government would benefit down the road with more investors in the products and more gains to tax.

In 2007 Life Assurance Single Premiums were  €5.4bn - tax was 23%

In 2018 that figure was €1.35bn - tax 41%

Gerard

www.bond.ie


----------



## Dave Vanian (16 Apr 2021)

GSheehy said:


> Should be lower IMHO, as it's not self-assessed and therefore there's less risk of tax evasion.
> 
> I think if folk perceived exit tax as 'fair', Government would benefit down the road with more investors in the products and more gains to tax.
> 
> ...



Good points.  Government are getting negligible DIRT tax these days as there's no interest to tax.  So to replace it, ditch the 1% levy, reduce Exit Tax and get more people investing.  Maybe squeeze the providers to lower their charges a bit and simplify/cap the charges like Standard PRSAs.


----------



## GSheehy (16 Apr 2021)

I suppose we have to remember that 2007 would have been the heyday of the ol' Tracker Bonds, so that would distort the figure.

In 2005 the figure was €2.8bn.

I'd say that providers (that are covering the cost of the Levy with 101% allocations) could reduce their AMCs by circa 0.1%/0.15% pa and still retain same margin on the product.

Gerard

www.bond.ie


----------



## Steven Barrett (16 Apr 2021)

The Revenue are currently updating their Tax Manuals in relation to investments in Irish funds, offshore funds and life policies with a view to streamlining them, particularly in respect of EFTs. They expect this review to be completed shortly.

Don't @ me. I don't know anything else about this 

Steven
www.bluewaterfp.ie


----------



## Steven Barrett (16 Apr 2021)

ryaner said:


> Yeh of course. Was simply a stand alone example which made me go back and review my own pension from the years. It had years of advertising 10%+ gains while not returning anything close to that.
> 
> I'm just really curious about what net returns people have been seeing in relation to the advertised rates. It wasn't intended on being anything close to a discussion around the funds themselves.
> 
> As an aside, I do particularly like how Zurich advertise their returns on their calculator, using conservative return figures. Hopefully a case of under promise and over deliver.


The returns advertised are all gross of fees. It's the norm in the investment industry. There are so many different contracts and charging structures available. For instance, with one insurer, you can have a contract from as cheap as 0.35% up to as expensive as 2% (and if you invest in some of their more exotic funds, you could pay up a total of 2.5%). The charging structure can literally go up in variations of .01%. The KID documents that they issue show the most expensive option. they also include the impact of early exit penalties, which is not relevant to most people as they don't cash in their policy during those years. 


Steven
www.bluewaterfp.ie


----------



## Sarenco (16 Apr 2021)

Steven Barrett said:


> The returns advertised are all gross of fees. It's the norm in the investment industry.


That’s not really true Steven.

Mutual funds always disclose past performance net of costs.  In fact, they are legally obliged to do so.

Ireland is an outlier in that personal pension savers are effectively forced to invest through life companies or use expensive intermediaries.

In the UK, a self-invested personal pension account can be opened with a fund platform for as little as £90pa.


----------



## Dave Vanian (17 Apr 2021)

Sarenco said:


> That’s not really true Steven.
> 
> Mutual funds always disclose past performance net of costs.  In fact, they are legally obliged to do so.



Are you talking about funds available to Irish investors?  This is an Irish website aimed primarily at offering advice and information to people in Ireland.


----------



## Sarenco (17 Apr 2021)

Dave Vanian said:


> Are you talking about funds available to Irish investors?


Yes.


----------



## Marc (17 Apr 2021)

I actually like this line of reasoning.

Its virtually impossible to establish the ex-ante real cost of investing in Ireland for most investors because the charges are generally opaque and in many cases misleading.

However ex post results are capable of being benchmarked against a reference index or fund.

So if a real investor makes an actual investment of €10,000 in say a Vanguard Global Stock index fund offered by an Irish provider at the end of any period it is possible to establish their return vs the realised return on a more transparent version of the same investment and thereby establish the real cost of investing.

I did a similar exercise a few years ago measuring the published returns of various Irish unit linked funds vs their UCITs counterparts and established that the charges for an Irish investor were much higher than the published AMC in the past. In some cases investors had been paying over 3%pa and in the worst case we found was over 5%pa.

[broken link removed]

Obviously not everyone wants to pay an adviser in order to get the best investment outcome but I’m confident that our non-EU ETF offering is about the best option on the market for taxable accounts.

Similarly with pensions we are seeing an increase recently in inquiries from dyed in the wool DIYers who frequently say “I didn’t know that “ and the penny drops that penny pinching for something as important as your retirement fund is probably not a good idea.



Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie


----------



## garbanzo (17 Apr 2021)

Very interested in this too. Say I have €10k to invest for retirement in 7 years time. I already have a decent amount in my pension scheme and am already making AVCs.  

Option 1: Put in pension. With higher rate tax relief that is actually €16,666. Add a rate of investment return of 5% pa that becomes €23,600. However, if I take 25% tax free I get €5,900 in tax free cash and the balance drawn down as an ARF at say 4% pa.

Option 2: Put in a Zurich Life Prisma Fund, Prisma 3, 4 or 5 or Irish Life MAPS for the same seven years. Say you get 5% return after taxes and charges. Net return is €14,180 less tax !

Which is better? Just to be clear I’m very much pro-pensions but I find this scenario interesting. Not trying to hijack the thread but I would welcome peoples’ thoughts.


----------



## Marc (17 Apr 2021)

All things being equal the pension will give you more in the future due to genuine gross roll up. 
so the longer you leave it the more valuable this is -compound interest 
The main time to be wary of “overfunding” a pension is if you risk pushing through the standard fund threshold of €2m and paying 71% tax on the other side but even then there are strategies that can be deployed


----------



## ryaner (18 Apr 2021)

Marc said:


> I actually like this line of reasoning.
> 
> Its virtually impossible to establish the ex-ante real cost of investing in Ireland for most investors because the charges are generally opaque and in many cases misleading.
> 
> ...


Thanks for the info. Your demonstrating our value presentation from your website has quite a bit of useful information about net returns too. Very interesting to see different net return scenarios laid out on different investment targets and risk profiles like that.

It would be incredibly nice if Irish unit funds even listed their target benchmarks and additional costs. Even with some Indexed products, the differences between the listed Ongoing Charges and the underlying ETFs Ongoing Charges are substantial. 

Was the worst case really 5%pa and if so over how long of a period? I still remember my first investment fund which only after I signed up did I find it needed >10% pa just to break even in the first couple of years. That was back in the days of 5% entry and exit fees though.



Marc said:


> Obviously not everyone wants to pay an adviser in order to get the best investment outcome but I’m confident that our non-EU ETF offering is about the best option on the market for taxable accounts.



Any chance you could share more details on this? I'm assuming this gives CGT treatment too?


----------



## Marc (18 Apr 2021)

Thanks for the kind words

The worst fund i found in the FE database was an Aviva Ireland fund now closed to new business which over a 6 year period had an implied cost of 5.8%pa







I say implied since we derived the cost from the underperformance relative to the identical Luxembourg based UCITs fund and added in the disclosed charges of the UCITs to give a total cost of investing.

Another example we looked at over a 10 year period was the Fidelity Special Situations fund from Irish life vs the identical Luxembourg based UCITS.

Our calculations here were as follows





Now, we did this is January 2016 and we’ve had the PRIIPs regulations since then so you can’t imply anything like these kinds of charges now.

But we certainly achieved what we set out to do which was to show that the quoted AMC for an Irish pension or investment fund isn’t the cost of investing.

We have been working on the “perfect portfolio for an Irish investor for some 12 years now









						In Search of the Perfect Investment Portfolio - Everlake
					

Many investors find it difficult to achieve returns offered by the markets due to a misunderstanding of investment risk, costs and taxes.




					globalwealth.ie
				




And highlighted some of the less attractive funds for investors in the recent past









						Is your investment fund a dog? - Everlake
					

We are frequently asked to comment on a client's existing investments only to discover that they hold an absolute dogs-dinner of investment funds.The following is by no means a comprehensive study but simply a list of some of the more common offenders.Typically, highly concentrated and thematic...




					globalwealth.ie
				




We have created Irish specific portfolios of non-EU ETFs both US and Canadian to provide a very low cost tax efficient solution.

We also use U.K. Investment Trusts for very specific purposes like remittance planning for non domiciled investors or for a socially responsible tax efficient portfolio but our preference is for non-EU ETFs as they are less complex and certainly less expensive instruments.

In the pension space I have written at length on AAM about how pension investors with fund values over €75,000 should be making more use of the now well established alternative to an insurance company plan of an investment platform with separate pension trustee or QFM for an ARF.

The wholesale cost of the pension product is 0.40%pa or 0.50% for a PRSA and you can have access to thousands of clearly priced UCITS funds with low costs and no dealing charges or FX fees as would be the case with ETFs.

There is a minimum annual fee of €300pa so smaller pensions are still better value with an insurance company.


----------



## Steven Barrett (19 Apr 2021)

Sarenco said:


> That’s not really true Steven.
> 
> Mutual funds always disclose past performance net of costs.  In fact, they are legally obliged to do so.
> 
> ...






Where you can pay up to an additional 2% in charges on a contract, it is a pretty significant amount and will make a big difference to the value of the fund you get at the end. 

Steven
www.bluewaterfp.ie


----------



## ryaner (19 Apr 2021)

Call for more transparent pension fees legislation
					

A report on pensions has found that fees and charges are so high that over time they are wiping out the tax relief given to pension savers by the State.




					www.rte.ie
				



"A report on pensions has found that fees and charges are so high that over time they are wiping out the tax relief given to pension savers by the State."
"This stated that every 0.25% in pension fees leads to a 4% to 5% decrease in a person's pension pot at retirement."

RTE of course didn't link to the report so I can only quote the article. However if they are worried that the 40% tax relief from pensions is being wiped out by fees, one can only wonder the impact on taxable accounts.


----------



## Sarenco (19 Apr 2021)

ryaner said:


> RTE of course didn't link to the report so I can only quote the article


According to the Indo –

"The report author cannot be publicly identified as he works for a State agency, but the findings have been verified by this publication after it was shown to experts in the area."

https://www.independent.ie/business/personal-finance/sixin-every-ten-euro-in-a-pension-pot-being-consumed-by-charges-40328175.html

Sounds like a whistle blower trying to highlight a scandal that's been hiding in plain sight for years.

Central Bank asleep at the wheel again....


----------



## GSheehy (19 Apr 2021)

Sarenco said:


> According to the Indo –
> 
> "The report author cannot be publicly identified as he works for a State agency, but the findings have been verified by this publication after it was shown to experts in the area."



It's unfortunate that the author can't be asked where he/she is getting the 'fees are typically 3%' from - other than "If fees of over 3% are being charged in the UK, it is highly likely that they are also being charged in Ireland."

I mean, the "average fees" of 2.18% referred to in the 2012 Report comes from a "maximum commmission" RIY (RAC or EPP) and doesn't take account of Nil or Reduced commission RAC/EPP contracts. I would have thought that you'd have to include them to get an average figure.  

Gerard 

www.bond.ie


----------



## ryaner (19 Apr 2021)

GSheehy said:


> I mean, the "average fees" of 2.18% referred to in the 2012 Report comes from a "maximum commmission" RIY (RAC or EPP) and doesn't take account of Nil or Reduced commission RAC/EPP contracts. I would have thought that you'd have to include them to get an average figure.


A nil commission fund will still have fees such as trading costs or other ongoing management costs separate to the AMC. While the PRIIP documents do list the worst case scenario, seeing an Irish fund which solely invests in a single ETF with ongoing costs of 0.07% say its ongoing charges are up to 2.2% is bit obvious that something else is going on in there.

Labour have uploaded the full report to their site. Available at [broken link removed]


----------



## PMU (19 Apr 2021)

ryaner said:


> As a more concreate example, I recently got to see some figures from a 15 year old Quinn fund which ended at a little over 3% EAR, and this is before the second deemed disposal event. Seeing similarly low returns from my own pension, although those are admittedly much harder to calculate.


  I wouldn't disagree with your figures, but if we are talking of a 15 year old fund, i.e. started around  2005, there was a massive stock market crash in 2007 and 2008 (for example, the Iseq down by about 26% and then 66%), and there was another serious decline in 2018.  The effect of these declines most likely had your  investment in negative territory until about 2016/7 and then it performed poorly again in 2018.  And there are the charges  Apart from fund charges, QL also sliced 1.74% off amounts invested in the early days.  There is the government's 1% investment levy and 41% take on returns.  These also have a serious impact on fund performance.  So over a 15 year period an EAR of about 3% is probably typical of the available returns, considering both the losses the investment  would have made in its early years (i.e. 2007/2008) and the fund charges.


Smoneen said:


> My regular premium unit linked Savings Plan with Zurich is currently achieving 7.03% annualised. Thats after accounting for exit tax, levy and charges. Its running since July 2018.
> 
> Before accounting for exit tax thats 11.916% annualised. Fingers crossed they reduce the rate before July 2026!


 
Congratulations. If, for example, you had invested in Zurich's European Select or the Euro 5*5 in 2012, [note these are examples not recommendations to invest in] you'd have doubled your investment by 2019.  But I don't think this implies that these policies are better or worse than the policies that QL offered; it's just that they are operating in a difference investment environment. But one thing I dislike about Zurich is the cost of rebalancing.  When you look at the bid/offer prices, it's about a 5% cost to rebalance (less if you move to cash).


----------



## garbanzo (19 Apr 2021)

Marc said:


> All things being equal the pension will give you more in the future due to genuine gross roll up.
> so the longer you leave it the more valuable this is -compound interest
> The main time to be wary of “overfunding” a pension is if you risk pushing through the standard fund threshold of €2m and paying 71% tax on the other side but even then there are strategies that can be deployed


Thanks Marc. I get that mathematically you end up with a higher amount going the pension route. The tax relief plays a big part in all that. But when you look at the net cash amount in your hand at the end of the investment period in both scenarios it seems you’ll have more if you chose the second option.

BTW there’s a snowball’s chance in hell of me pushing through the €2m standard funding threshold. Oh to have that problem....

g


----------



## Marc (19 Apr 2021)

I think that’s the point most people miss.

you actually don’t want the money “in your hand” you want it in a tax wrapper where it continues to accrue tax benefits and you only pay income tax on your income rather than exit tax on notional gains


----------



## ryaner (19 Apr 2021)

garbanzo said:


> BTW there’s a snowball’s chance in hell of me pushing through the €2m standard funding threshold. Oh to have that problem....



If fees/returns match up and a bit of luck it is in the realm of possibility for people, at least assuming todays figures. Assuming you start a age 30 on a 50k salary and max out contributions to 15% + employers give 5%, you'd get to nearly 1.8M by retirement. 
That does assume 7% returns, which so far does not seem to match Irish funds.

Also while you might say the limit will increase in 35 years, remember it was previously higher and was lowered so who knows.


----------



## jpd (19 Apr 2021)

ryaner said:


> A nil commission fund will still have fees such as trading costs or other ongoing management costs separate to the AMC. While the PRIIP documents do list the worst case scenario, seeing an Irish fund which solely invests in a single ETF with ongoing costs of 0.07% say its ongoing charges are up to 2.2% is bit obvious that something else is going on in there.
> 
> Labour have uploaded the full report to their site. Available at [broken link removed]


Excellent report - quite long but very readable with a clarity of purpose that is often missing from such documents


----------

