# Passive vs managed funds



## ITGuy2019 (11 Jan 2019)

Hey guys,

I'm looking to setup a pension and am looking to tap the brain trust here for some opinions.

I own a company so plan to do an Executive Pension through it.  At some point in the future I may move to a self-administered pension, but for now I'll only be putting say €1000p/m in so I think the general advice is to build up a pot of ~€200k before moving to an SSAP.

I went through a financial review with a financial adviser (broker model, not paid-up-front) and found it very helpful.  They recommended the Zurich Life Prisma 5/6 managed funds (which are ~80% equity) which have a 2% initial cost and 1.25% annual cost for regular contributions, or 0%/1.4% for single contributions.  And this is where my question comes in.

I met a BOI financial adviser on another matter and the subject of pensions came up, he said "passive, passive, passive" .  His message was to go with passive funds with as low fees as possible.  I've always had a strong interest in stockmarket investing (buy and hold) and would have had a €150k portfolio before starting my business, so would be VERY keen to have as much of my pension in the stock market as possible and would hold a personal view that fund managers are unlikely to beat the markets in the long run, I'd prefer lower fees and just pick a basket of indices.

So I guess my questions are -
1. Any thoughts on whether "passive, passive, passive" is good advice, given I am happy to do some management of my portfolio?
2. Any views on the Prisma funds?  5/6 has done gross 14% growth over the last 3 years (4.5ish% per annum) which is quite close to how the S&P500 has done in 2016/2017/2018
3. Davy Select has been suggested as an alternative, some of which are passive
4. I'd expect to sell this business within 2-3 years, but I don't think there is an alternative to setting up the EPP in it?

For reference:

€170k in salaries between self & wife
€50k cash savings
€500k equity in PPR and investment property, mortgages of €500k
No other debt
Wife has public sector pension, I have none

Any thoughts appreciated!


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## Parker101 (17 Jan 2019)

Hi,

All I can say is that you need to place a premium on impartial independent advice. 
From, what you telll us, the initial adviser did a thorough assessment on your current needs and circumstances. 
The second BOI “adviser” by all accounts took a piecemeal approach to his advice. 
I’ll let you figure this one out for yourself when I mention that the BOI adviser is in fact a tied agent for New Ireland and can only advice on New Ireland products. And guess what funds New Ireland like to promote? You guessed it! Passive Funds!!!

Don’t get me wrong, I’ve nothing against passive funds, New Ireland etc. I believe they form an integral part of a clients portfolio if that is what they are comfortable with. 

However, it infuriates me that the value of sound financial advice is muddied with some general sound bites that other so called advisers use.  Good quality financial advice is worth its weight in gold...pardon the pun.

Often we look,for cheapest option and that sometimes isn’t the best way forward.

Hope this helps.


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## ITGuy2019 (17 Jan 2019)

Thanks for the reply Parker101!

Just to be clear, the adviser was more than helpful (a pleasure to work with in-fact), I have and will recommend them to others and actually took out a separate policy with them.  So this is not an anti-adviser post by any means, I'd highly recommend it.

It is however mentioned repeatedly on AAM that one should pay for financial advice (over the broker model) if possible.  And while you're 100% right about the BOI guy's throwaway comment, it happens to align with my personal view of investing, so just re-enforced this long held view.

So my reason for posting was really just a double-check of my thought processes on it.


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## Sunny (17 Jan 2019)

Parker101 said:


> Hi,
> 
> All I can say is that you need to place a premium on impartial independent advice.
> From, what you telll us, the initial adviser did a thorough assessment on your current needs and circumstances.
> ...



What passive funds do New Ireland like to promote. I would think it is very unlikely that they like to promote any passive funds. To be honest, going passive with as low fees as possible is admirable advice to get from a Bank Of Ireland advisor even if you don't agree with it.


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## elacsaplau (17 Jan 2019)

ITGuy2019 said:


> It is however mentioned repeatedly on AAM that one should pay for financial advice (over the broker model) if possible.



Hi ITGuy,

You might well think that but that, funnily enough, has not been my experience.

What "fee" advisers seem to do is charge you a % of your assets as an Asset Under Management (AUM) fee. It really is the same as the "broker" taking a trail commission, but "fee" advisers think that by calling it an AUM FEE, all is good. A "broker" saying that he gets paid a commission seems more genuine to me.

My idea of a fee is that you pay someone for an explicit amount for his advice/services. Where the payment comes from is a secondary matter. In the link below, I was looking for someone to set up a pension for a  fee. It proved a fruitless and frustrating search.

You will need to validate my hypotheses so have a squint at this link to judge for yourself.

https://www.askaboutmoney.com/threads/when-should-i-think-about-retirement.210617/page-2

If you can find someone who can set up a pension for a fee, please let the AAM community know!!


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## Steven Barrett (18 Jan 2019)

elacsaplau said:


> Hi ITGuy,
> 
> You might well think that but that, funnily enough, has not been my experience.
> 
> ...



I set up pensions for a fee but you said I was too expensive!! 


Steven
www.bluewaterfp.ie


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## elacsaplau (18 Jan 2019)

SBarrett said:


> I set up pensions for a fee but you said I was too expensive!!



Actually, Steven - I believe you set up pensions for a commission payment as per your site.

[broken link removed]

Let's agree to differ on what we call a fee. To me, this is unquestionably a commission. YMMV.

It is true that I found the €140k shortfall in the final fund value somewhat on the expensive side.


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## Steven Barrett (18 Jan 2019)

elacsaplau said:


> Actually, Steven - I believe you set up pensions for a commission payment as per your site.
> 
> [broken link removed]
> 
> Let's agree to differ on what we call a fee. To me, this is unquestionably a commission. YMMV.



Why? Because it's expressed as a %? I have no issue with people writing a cheque. In fact, over 50% of my income is from people writing me a cheque. 


I have no idea what YMMV means 


Steven
www.bluewaterfp.ie


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## elacsaplau (18 Jan 2019)

Steven,

The reasons why I believe the fee levels are silly are all set out in the other thread.

In the example shown, there was over a €140k shortfall in the fund based on of the fee levels quoted on your site. I believe this is too much.

My belief is that adviser gets away with this because it comes from the fund - not billed directly to the client.

Anyway, if you are genuinely happy to be paid a fee by cheque:

1. How much would you charge to set up a reasonably standard pension?
2. How much would you charge to set up a pension on an execution only basis?

You will note that it wasn't just me who thinks the fees are crazy - in the link referred to earlier, Colm Fagan said the same thing.


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## Steven Barrett (18 Jan 2019)

elacsaplau said:


> Anyway, if you are genuinely happy to be paid a fee by cheque:
> 
> 1. How much would you charge to set up a reasonably standard pension?
> 2. How much would you charge to set up a pension on an execution only basis?



As per the fee section on my site which you have already referenced:



> Monthly premium payments – The initial set up charge if 10% of the first year’s contribution.
> Fees are subject to a minimum set up fee of €500.




There are plenty of discount brokers who will set up execution only pensions. I am not trying to compete with them. And in most cases, people who approach an advisor for execution only business, end up asking for advice on the best provider to use.  

There are lots of people from this site who I work with who have written a cheque for implementing a pension. 


Steven
www.bluewaterfp.ie


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## elacsaplau (18 Jan 2019)

Ok ITGuy,

I think the point that I was trying to make has been made! It saves you the drudgery of going through the multiple pages in the other thread!

I think I need a Friday evening beer


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## ITGuy2019 (20 Jan 2019)

Thanks for the discussion, read that other thread as well, very interesting.

I guess my question actually comes down to this - 

My personal view is that fund managers are unlikely to beat the market, even if some do, choosing those will not be easy.  If I was investing my money outside a pension I would prefer to buy index ETFs than actively managed funds.  My preference would be to do the same inside a pension.  Realistically though the market is unlikely to beat the fund manager by more than a couple of percent, so if the fee structure in a pension (where you can choose passive investments) is toppy, you could spend a lot of time trying to choose ETFs and re-balance your portfolio etc for little or no gain over just lashing it into the likes of Zurich's Prisma 5/6.  So are those on AAM with passive-investment style pensions happy with their pension provider and the fees they are paying?  Can we share a list of some of these providers (not sure if this is allowed on AAM)?



Thanks!


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## WhiteCoat (20 Jan 2019)

ITGuy2019 said:


> My personal view is that fund managers are unlikely to beat the market, even if some do, choosing those will not be easy.



This is my understanding too. When you add in the reduced costs, passive investment is definitely is the smart play for most people.  
In terms of fees, my understanding of what Elacsaplau is saying (particularly in the other thread) is that you wouldn't want to undo the long-term compounding good that reduced investment costs provide by handing over these fee savings to an intermediary in the form of an on-going commission. This makes sense to me.


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## elacsaplau (20 Jan 2019)

WhiteCoat said:


> ….passive investment is definitely is the smart play for most people.



Hey WhiteCoat...….do you mind if I call you WC?!

I fully agree with your post. I find it strange how so many people seem so relaxed or unaware about the corrosive impact of fees. Posters here go on about the price of a single of chips but don't seem bothered about the impact of fees on their pension fund. I think I'll need to put a chart/table together but am, of course, hoping that DubNerd or someone does it for me (x invested, y yrs, at various growth rates......….like a gross rate of, for example, 6% and also this gross rate less 0.5%, 1% and 1.5% p.a.)

At a point of detail, there's two characters too much or too little in the quoted text?


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## MrEarl (20 Jan 2019)

Hello,

While I have absolutely no problem with people being paid for their work, and wanting to make a profit at their business, I do agree with 


It would be interesting to see some comparisons posted, between how managed versus passive funds have performed over long term periods ...

I have a feeling that we would see that few managed funds have beaten the average market return over the long term, although I may be proven wrong.


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## ITGuy2019 (21 Jan 2019)

So I wonder if we could move on from the discussion of the fairness of pension fees, as I think that was fairly well covered in the other thread and while I'd love to avoid them altogether, we are where we are with the pension market for now.  If I, or some other AAM member in future coming across this thread wants to go down the passive-fund route, what are our lowest-fee pension provider options do you all think?  Lets exclude the more esoteric options likes SSAPs and separating out the various parts of the pension for now - so just Joe Bloggs who wants to setup an EPP/PRSA but wants access to a low fee execution-only passive fund pension.

I'll start  - 

*Davy Select*
- Annual charge (called a Dealing Charge to get you access to the online portal and allow (unlimited) trades) - 0.75%/0.90% of your account balance for PRSA/EPP.  Investments in certain Davy operated funds are not subject to this charge, though I'm sure there's a charge within the fund to offset.
- Stamp duty of 1% on buy/sell of shares
- Other fees due for purchasing shares/ETFs outside UK/Ireland
- Fees within the funds themselves if applicable


Are there other options?


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## WhiteCoat (21 Jan 2019)

ITGuy,

I think you are right to try bring the discussion back to basics. I'm in a DB pension so I'm sorry that I can't help regarding your specific query. To be blunt, I'm not sure if you will get a decent answer as those with the relevant market data seem to want to charge handsomely for it. As Mr. Earl said, everyone deserves to be paid but excessive charges for simple advice is not justified.


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## elacsaplau (22 Jan 2019)

MrEarl - Well said and interesting questions.

ITGuy - I'm fully get where you are coming from. I looking for pretty much the same market info.

WC - Fully agree.....what ITGuy is looking for is completely reasonable and the costs for getting this in the traditional way are just crazy. I'll upload a file, probably tomorrow, showing this. I'll probably do this in a new thread - because I don't want to hijack ITGuy's thread. That said, I get the point about the likelihood of ITGuy getting meaningful, straightforward answers to his questions....


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## SuibhneGeilt (2 Mar 2019)

Hey ITGuy, I’m in a very similar situation and own a Ltd company through which I want to setup an EPP.

I’m leaning towards managing my own index based ETFs through Davy because I think the stock market has an equal chance of returns, as paying commissions on anything else.

Did you ever decide on anything concrete yourself?


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## ITGuy2019 (4 Mar 2019)

I have not decided on anything yet unfortunately, bit of analysis paralysis at this stage I think .

Ultimately I didn't come across any other passive options other than a Davy account, which gives you access to some.

What's mainly been on my mind is that while past performance is of course not an indication of future performance, the likes of the Prisma5 fund has similar enough performance to investing in an S&P500 index - is it worth the time and effort trying to get yourself a balanced portfolio of indices or let these guys do it for you inside the Prisma fund?  If the Davy account had fees of say 0.25/0.5% then I'd say yes, but in reality they're closer to what you'd pay a broker to manage a Prisma based pension.  As you said yourself, if it's a case that "the stock market has an equal chance of returns" then I'd probably prefer to save my time for something else.

There's very little info out there that I've come across, and while I come across quite a bit of "there are cheaper fees out there than X.XX%", when you actually go looking for them they don't seem to exist.



Would love to hear from more people on AAM that have looked into this?


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## Jim2007 (4 Mar 2019)

ITGuy2019 said:


> What's mainly been on my mind is that while past performance is of course not an indication of future performance, the likes of the Prisma5 fund has similar enough performance to investing in an S&P500 index - is it worth the time and effort trying to get yourself a balanced portfolio of indices or let these guys do it for you inside the Prisma fund?



Looking at the Prisma5 fund, which I am not at all familiar with, I would immediately have two issues - there is not benchmark given and secondly the statement: 
"The fund performance shown is before the full AMC is applied on your policy." So in reality you have no way of knowing how well this fund is actually performing....

Also trying to compare it to the S&P 500 is pointless, since it is not trying to replicate that performance profile.  You would need to compare it to some type of composite benchmark to even begin to get a feel for how well it is done...

I understand your desire not to spend much time on this, but honestly handing over your money to someone in a situation where you have very little supervisor indicators is not a great move.


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## ITGuy2019 (5 Mar 2019)

Thanks for replying Jim!



Jim2007 said:


> "The fund performance shown is before the full AMC is applied on your policy." So in reality you have no way of knowing how well this fund is actually performing....


Not quite sure I understand what you mean here sorry.  My understanding is the AMC they are referring to there is the one applied by your broker to manage your pension, so say 1% execution-only with the likes of LABrokers, or 1.25% with other managed pension providers.  So if you're paying ~1% AMC to a broker for a pension invested in the Prisma funds, or ~1% AMC for access to a Davy Select where you buy ETFs, then you can make a crude comparison between the returns from Prisma vs the ETFs.




Jim2007 said:


> Also trying to compare it to the S&P 500 is pointless, since it is not trying to replicate that performance profile.  You would need to compare it to some type of composite benchmark to even begin to get a feel for how well it is done...


Yes sorry, I was just using S&P500 as an example of an index there.  You'd want to be looking much broader than that in your Davy Select.




Jim2007 said:


> I understand your desire not to spend much time on this, but honestly handing over your money to someone in a situation where you have very little supervisor indicators is not a great move.


I actually don't mind spending time on it, as I mentioned back in my original post, I've always been very interesting in stock-market investing and until recently spent a huge amount of time researching and investing in shares, ETFs etc.  What I would hate to do though is spend a lot of time balancing my portfolio etc. and paying similar fees to letting a professional do it inside one of these managed funds, and end up with a similar return.  To be clear though, the advice to put my pension into the Prisma funds came from a respectable and well known financial advisory firm after spending significant time looking at my finances, answering my 1000 questions  - so I am by no means handing my money over blindly.


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## Jimmy Dee (5 Mar 2019)

Hi,
invest it yourself and don't pay anyone apart from the platform and the inland revenue. Figure out what is the most effective ETF's (and funds) that suit you and that provide maximum diversification. Then decide your allocation according to your risk profile. Keep it simple s. Get a pension in order to avail of employer contributions and tax breaks if that is possible.
J


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## ITGuy2019 (5 Mar 2019)

Jimmy Dee said:


> invest it yourself and don't pay anyone apart from the platform and the inland revenue. Figure out what is the most effective ETF's (and funds) that suit you and that provide maximum diversification. Then decide your allocation according to your risk profile.



Yeah well as I say that's certainly my preference, and really this thread started with asking where I can go about doing just this.  From what I've come across, there is really only one 'platform' out there I could use to do it, and the fees are more or less the same as going via a broker and taking whatever funds they give access to, at which point it's no longer clear whether I can beat the returns on the managed funds - and this is the advice I got from the financial adviser.




Jimmy Dee said:


> Keep it simple s


Playing the devil's advocate here for a moment - "Keep it simple" and "Figure out what is the most effective ETF's (and funds) that suit you and that provide maximum diversification. Then decide your allocation according to your risk profile" are not really compatible statements.  "Keep it simple", the advice the financial adviser also gave, to me would imply choosing your risk profile, then let the professionals (Zurich in this case) match that to appropriate indices, shares, geographies to find appropriate diversification, risk management etc.


But I think we're digressing a small bit here into the stock market vs managed funds in general, and as I've said I'm a 'the stock market knows best' kinda guy, if you're just doing straight up investing.  What I'm hoping to get from this discussion though, is what is most appropriate within the constraints of pension vehicles available in this country, which is a little more nuanced.


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## Jimmy Dee (5 Mar 2019)

KISS = 
Global aggregate bond fund e.g. AGGH
Global equity fund e.g. IWDA
Emerging markets fund e.g. EIMI
Global small cap fund e.g. WSML
That's it or whatever better version someone can advise here, (mind you don't hold your breath). Forget shares, invest in UCITS, pay your taxes and go to the beach or work or whatever else you need to do. Get a pension if you can take advantage of employer contributions and in my opinion there is zero point in giving any of the people you mention your money. 
J


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## ITGuy2019 (5 Mar 2019)

Jimmy Dee said:


> Get a pension if you can take advantage of employer contributions and in my opinion there is zero point in giving any of the people you mention your money.


This is the crux of this thread though; I'm not looking for general investment advice (though if I were, I'd 100% agree with your KISS strategy above).  It's in the Pension sub-forum because as a company owner, an EPP is a very tax efficient way of withdrawing funds from the company.  So then it's a matter of what pension vehicles are out there and how they stack up against each other, specifically as pension investments, not compared to investing post-tax income where things like AMCs aren't applied to everything.

PS. I do get you're trying to be helpful and I appreciate the time and effort you've put into replying, but there are lots of other threads on AAM where good discussions are had on general investment advice.  Discussions on less-managed pension funds are like hen's teeth though, other than the odd post here and there.


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## Jimmy Dee (5 Mar 2019)

sure, 
As you obviously already know EPPs involve a range of charges which you can check for each provider. I had a look at Davy and they are steep and there are a lot of them.

The charges for Standard PRSAs are capped. They cannot be increased above the upper limits throughout the lifetime of your PRSA contract.
The maximum charges are:

5% charge on each contribution you pay, and
1% annual fund management charge, based on your PRSA fund value
Yee gods. 
J
PS. Perhaps ask here what the lowest cost pension is, maybe someone will help? It's a minefield and the standard reaction here seems to be suck it up.


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## Steven Barrett (5 Mar 2019)

Every life company has a large suite of funds with different asset classes. With passive funds becoming more popular, all providers have a selection of passive equity funds. You can limited access to Vanguard, State Street and Blackrock (the big 3). Seeing as they all track the same MSCI World Index and do it pretty well, it is not wholly relevant which one of these 3 you use, the returns should be the same. 

Whether you go passive or active is up to you or if you don't have an opinion on it, it depends on the advisor you talk to and their approach. Lots of advisors have no opinion at all and just sell the funds that the risk profiling tool tells them is the right fund (they are more sales than advice). 

Then we get to the charging structure, which is an absolute minefield. Each company has a range of different charging structures. What to look out for is the allocation rate and the amc. They are linked. The allocation rate is how much of your €1,000 is actually invested each month. The more commission the advisor is being paid, the lower the allocation. The commission paid to the advisor is then recouped by a higher amc, in other words, you pay for it (and more) over time. You can of course, pay a fee instead. 

But there is no avoiding the amc. There is a cost of managing your money and that has to be paid for. If you contribute €1,000 a month and have an amc of 0.5%, the life company makes €60 in year one. It will take them a number of years to make profit on your policy. And with people moving policies around all the time, they make less. It's a numbers game for them. 


Steven
www.bluewaterfp.ie


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## ITGuy2019 (2 Apr 2019)

I just wanted to update this thread for those coming looking for similar information in future.

Another member PM'd me pointing out that you can actually deal with Zurich directly for pensions, at a significantly lower AMC than going through a broker.  Obviously you don't have the benefit of being able to ask the broker questions over the years, but if you'd prefer to pay for this advice on a per-incident basis, or for whatever reason you feel you know enough to proceed without it, this seems like a good option.

So an Executive Pension with Zurich Insurance -

Allocation rate: 100%

AMC: 0.75% (0.4% is deducted in the price declared (declared unit price is the bid price after this 0.4% deduction) and 0.35% is deducted by way of cancellation of units)
€3.50 per month policy fee

Zurich will act as the trustee free of charge

Early encashment penalties up to year five

Four free fund switches per year

You can take or leave their life-styling (moving from the shares to bonds/cash as you approach retirement)

You can choose from Zurich's 30-40 funds.  They're all managed by the looks of it, and you cannot buy individual shares or ETFs like you could in say Davy Select, but plenty of choice in index funds if that's what you want.

I decided to set one of these up to begin building a pension fund, always have the option to move it to a Davy Select type trading platform or self-administered pension at some point in the future anyway.

Hope that's useful info and thanks to the member who PM'd me!


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## Steven Barrett (2 Apr 2019)

ITGuy2019 said:


> *Another member PM'd me pointing out that you can actually deal with Zurich directly for pensions*, at a significantly lower AMC than going through a broker.  Obviously you don't have the benefit of being able to ask the broker questions over the years, but if you'd prefer to pay for this advice on a per-incident basis, or for whatever reason you feel you know enough to proceed without it, this seems like a good option.
> 
> So an Executive Pension with Zurich Insurance -
> 
> ...



You can't deal directly with Zurich. You deal with their direct sales team. Just like you can't go to Nike and buy their runners direct, you have to go to Niketown or Lifestyle Sports. Insurance companies rely on the advisor market for their business, they do no undercut them, it's not in their own interest. 

The charges you laid out are the exact same that are available through the advisor market. There are other cheaper options also available in the market as well. A difference is the direct sales team has to charge a commission to get paid, an advisor can charge you a fee. 



Steven
www.bluewaterfp.ie


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